Chinese Arbitration Law & Practice by WunschArb

WunschArb.com - Chinese Arbitration Law and Practice - An Overview for Practioners

WunschArb.com CHINESE ARBITRATION LAW AND PRACTICE AN OVERVIEW FOR PRACTIONERS TABLE OF CONTENTS 1.

Ad hoc Arbitration................................................................................................................................ 10 1.1 1.2 1.3 1.4

Annulment of Awards............................................................................................................................11 2.1 2.2

2.3.

2.4

3.2 3.3 3.4

Law Applicable to the Merits...................................................................................................... 14 3.1.1 Choice of Law – Limited Party Autonomy......................................................................... 14 3.1.2 Rules of Conflict - Criteria of ‘Closest Connection’........................................................... 14 3.1.3 Areas of Law Mandatorily Subject to Chinese Law........................................................... 15 3.1.4 Possibility to Decide Ex Aequo et Bono.......................................................................... 16 Law Applicable to the Arbitration Proceedings – Lex Arbitri.................................................. 16 Law Applicable to the Arbitration Agreement.......................................................................... 17 Procedural Rules......................................................................................................................... 17

Arbitrability............................................................................................................................................ 18 4.1 4.2

Legal Framework for Annulment of Awards in China...............................................................11 Grounds for Annulment of Awards............................................................................................11 2.2.1 Grounds for Annulment of Domestic Awards......................................................................11 2.2.2 Grounds for Annulment of Foreign-Related Awards..........................................................11 Annulment Process.................................................................................................................... 12 2.3.1 Overview of the Annulment Process................................................................................... 12 2.3.2 Competent Court.............................................................................................................. 12 2.3.3 Applicable Time Limits...................................................................................................... 12 2.3.4 Prior Reporting System..................................................................................................... 12 Decision on Annulment.............................................................................................................. 13 2.4.1 Possible Outcomes of the Annulment Process................................................................. 13 2.4.2 Re-Arbitration of the Dispute............................................................................................ 13 2.4.3 Annulment of the Award.................................................................................................... 13 2.4.4 Confirmation of the Award................................................................................................ 14

Applicable Law in Arbitration.............................................................................................................. 14 3.1

Prohibition of ad hoc Arbitration in China................................................................................ 10 Practical Implications of the Prohibition of ad hoc Arbitration in China............................... 10 Enforcement of ad hoc Arbitration Agreements in China....................................................... 10 Enforcement of ad hoc Arbitration Awards in China............................................................... 10

Concept of Arbitrability under Chinese Law............................................................................ 18 The Relevance in Practice of the Concept of Arbitrability...................................................... 18

Arbitral Awards..................................................................................................................................... 18

WunschArb.com - Chinese Arbitration Law and Practice - An Overview for Practioners

5.1 5.2

5.3

5.4

5.5 6.

Arbitral Tribunal - Arbitrators.............................................................................................................. 22 6.1

6.2 6.3 6.4 7.

Definition of ‘Arbitral Award’...................................................................................................... 18 Nationality of Awards.................................................................................................................. 19 5.2.1 Relevant Criteria for Determination of the Nationality of the Award.................................. 19 5.2.2 Practical Problems Related to the Applicable Criteria...................................................... 19 5.2.3 Finding out the Nationality of your Award......................................................................... 19 Types of Awards/Decisions........................................................................................................ 20 5.3.1 Relevant Distinctions........................................................................................................ 20 2.3.2 Final, Interim, and Partial Awards and Procedural Orders................................................ 20 5.3.2.1 Final Awards........................................................................................................... 20 5.3.2.2 Partial Awards......................................................................................................... 20 5.3.2.3 Interim Awards........................................................................................................ 20 5.3.2.4 Procedural Orders.................................................................................................. 21 5.3.3 Regular, Consent and Default Awards.............................................................................. 21 5.3.3.1 Regular Awards...................................................................................................... 21 5.3.3.2 Consent Awards..................................................................................................... 21 5.3.3.3 Default Awards....................................................................................................... 21 Issuance Process........................................................................................................................ 21 5.4.1 Decision Making............................................................................................................... 21 5.4.2 Dissenting Opinions.......................................................................................................... 21 5.4.3 Time Limits for Rendering the Award................................................................................ 22 5.4.4 Scrutiny of the Award by the Arbitration Institution........................................................... 22 Correction and Interpretation of the Award.............................................................................. 22 Composition of the Arbitral Tribunal......................................................................................... 22 6.1.1 Number of Arbitrators........................................................................................................ 22 6.1.2 Selection of Arbitrators...................................................................................................... 23 6.1.2.1 Right of the Parties to choose an Arbitrator............................................................ 23 6.1.2.2 Panel of Arbitrators................................................................................................. 23 6.1.2.3 Qualification Requirements..................................................................................... 23 6.1.3 Appointment Process........................................................................................................ 24 6.1.4 Challenge and Replacement of Arbitrators....................................................................... 24 6.1.4.1 Grounds for Withdrawal, Challenge and/or Removal of an Arbitrator.................... 24 6.1.4.2 Challenge/Replacement Process........................................................................... 25 6.1.4.3 Consequences for the Proceedings of a Replacement.......................................... 25 Consequences of Irregularities in the Constitution of the Arbitral Tribunal......................... 25 Selecting your Arbitrators – Recommendations...................................................................... 25 Liability of Arbitrators................................................................................................................. 26

Arbitration Agreement.......................................................................................................................... 26 7.1 7.2

Law Applicable to the Arbitration Agreement.......................................................................... 26 Validity Requirements under Chinese Law............................................................................... 27 7.2.1 Formal Validity Requirements under Chinese law............................................................ 27 7.2.1.1 Overview of the Formal Validity Requirements....................................................... 27 7.2.1.2 Written Form............................................................................................................ 27

WunschArb.com - Chinese Arbitration Law and Practice - An Overview for Practioners

7.3

7.4

7.5 7.6 7.7 7.8 8.

Arbitration Institution........................................................................................................................... 37 8.1

7.2.1.2 Clear Intent to Arbitrate........................................................................................... 28 7.2.1.4 Specific Mention of the Matters Subject to Arbitration........................................... 28 7.2.1.5 Designation of a Specific Arbitration Institution...................................................... 28 7.2.1.6 Consequences of Non-Compliance with Formal Validity Requirements................ 28 7.2.2 Material Validity Requirements under Chinese law.......................................................... 29 7.2.2.1 Overview of the Material Validity Requirements..................................................... 29 7.2.2.2 Arbitrability of the Matters Subject to Arbitration.................................................... 29 7.2.2.3 Civil Capacity.......................................................................................................... 29 7.2.2.4 Free Will.................................................................................................................. 29 7.2.2.5 Consequences of Non-Compliance with Material Validity Requirements.............. 29 Pathological Arbitration Agreements........................................................................................ 30 7.3.1 Definition of ‘Pathological Agreement’.............................................................................. 30 7.3.2 Risk of Invalidity for Pathological Arbitration Agreements................................................. 30 7.3.3 Principles of Interpretation of Pathological Arbitration Agreements.................................. 30 7.3.3.1 The Supreme People’s Court’s Piecemeal Approach............................................ 30 7.3.3.2 Wrong Name of Arbitration Institution..................................................................... 31 7.3.3.3 Simultaneous Reference to Arbitration and Litigation............................................. 31 7.3.3.4 Lack of Designation of an Arbitration Institution..................................................... 31 7.3.3.5 Designation of Two or More Arbitration Institutions................................................ 32 7.3.4 Risk of Pathology relating to CIETAC’s Restructuring...................................................... 32 Drafting your Arbitration Agreement......................................................................................... 32 7.4.1 General Recommendations.............................................................................................. 32 7.4.2 Dos & Don’ts..................................................................................................................... 33 7.4.2.1 Dos & Don’ts Regarding the Parties....................................................................... 33 7.4.2.2 Dos & Don’ts Regarding References to State Courts............................................. 33 7.4.2.3 Dos & Don’ts Regarding the Subject Matter of Arbitration..................................... 33 7.4.2.4 Dos & Don’ts Regarding the Arbitration Institution................................................. 33 7.4.2.5 Dos & Don’ts Regarding the Place of Arbitration................................................... 34 7.4.2.6 Dos & Don’ts Regarding the Arbitration Rules....................................................... 34 7.4.2.7 Dos & Don’ts Regarding the Selection of Arbitrators............................................. 35 7.4.2.8 Dos & Don’ts Regarding the Language of the Arbitration...................................... 35 7.4.3 Model Arbitration Clauses................................................................................................. 35 Waiver of an Arbitration Agreement.......................................................................................... 36 Extension of Arbitration Agreements to Non-Signatories...................................................... 36 Severability of the Arbitration Agreement................................................................................ 37 Enforcement of the Arbitration Agreement.............................................................................. 37 Chinese Arbitration Institutions................................................................................................ 37 8.1.1 Number of ‘Arbitration Commissions’................................................................................ 37 8.1.2 Types of Chinese Arbitration Institutions........................................................................... 37 8.1.2.1 Domestic vs. Foreign-Related Commissions.......................................................... 37 8.1.2.2 Relevance of the Distinction................................................................................... 38 8.1.3 Characteristics of Chinese Arbitration Institutions............................................................ 38

WunschArb.com - Chinese Arbitration Law and Practice - An Overview for Practioners

8.2

8.3

8.1.3.1 Structure................................................................................................................. 38 8.1.3.2 Independence........................................................................................................ 38 8.1.3.3 Arbitration Rules..................................................................................................... 39 Foreign Arbitration Institutions................................................................................................. 39 8.2.1 Definition of ‘Foreign’ Arbitration Institution....................................................................... 39 8.2.2 Role of Foreign Arbitration Institutions in China................................................................ 39 8.2.2.1 Closed Market for Foreign Arbitration Institutions?................................................. 39 8.2.2.2 Conduct of Arbitration with a Place of Arbitration in China.................................... 40 8.2.2.3 Conduct of ‘Chinese Arbitration Proceedings’....................................................... 40 8.2.3 Importance of China-Related Disputes for Foreign Arbitration Institutions....................... 40 Selecting an Arbitration Institution........................................................................................... 41 8.3.1 Key Selection Criteria....................................................................................................... 41 8.3.1.1 Chinese vs. Foreign Arbitration Institutions............................................................ 41 8.3.1.2 Choice among Foreign Arbitration Institutions....................................................... 41 8.3.1.3 Choice among Chinese Arbitration Institutions...................................................... 41 8.3.2 Ranking of Chinese Arbitration Institutions....................................................................... 42

Arbitration Procedure........................................................................................................................... 43 9.1 9.2 9.3

9.4 9.5

9.6

Law Applicable to the Arbitration Proceedings....................................................................... 43 Rules Governing the Procedure................................................................................................ 43 Key Procedural Steps................................................................................................................. 43 9.3.1 Filing and Acceptance of the Request for Arbitration........................................................ 43 9.3.2 Other Written Submissions............................................................................................... 44 9.3.3 Hearings........................................................................................................................... 44 9.3.3.1 Case Management Conference.............................................................................. 44 9.3.3.2 Main Hearings......................................................................................................... 44 9.3.3.3 Place of the Hearing............................................................................................... 45 9.3.4 Post-Hearing Briefs........................................................................................................... 45 Taking of Evidence...................................................................................................................... 45 Service of Documents in Arbitration......................................................................................... 45 9.5.1 Lack of Specific Legal Provisions..................................................................................... 45 9.5.2 Admissible Means of Service............................................................................................ 45 9.5.2.1 Service by Email..................................................................................................... 46 9.5.2.2 Service by Public Notice......................................................................................... 46 9.5.3 Place of Service................................................................................................................ 47 Summary Procedure................................................................................................................... 47

10. Conciliation and Arbitration................................................................................................................. 48 10.1. Conciliation: a Key Feature of Arbitration in China................................................................. 48 10.2 Conciliation during Arbitration Proceedings........................................................................... 48 10.2.1 Conditions for Conciliation during Arbitration.................................................................. 48 10.2.2 Possible Outcomes of Conciliation Proceedings............................................................ 48 10.2.3 Popularity of Conciliation in Arbitration – Pros and Cons............................................... 48 10.3 Conciliation in Parallel to Arbitration........................................................................................ 49 10.4 Arbitration after Conciliation..................................................................................................... 49

WunschArb.com - Chinese Arbitration Law and Practice - An Overview for Practioners

11. Confidentiality....................................................................................................................................... 50 11.1 Lack of General Principle of Confidentiality............................................................................. 50 11.2 Confidentiality and Publication of Arbitration Awards............................................................ 50

11.3 Confidentiality and Service of Documents............................................................................... 50 12. Costs...................................................................................................................................................... 51 12.1 Arbitration Costs......................................................................................................................... 51 12.1.1 Definition......................................................................................................................... 51 The term arbitration costs include: ............................................................................................... 51 12.1.2 Arbitration Fees............................................................................................................... 51 12.1.2.1

Administrative Fees and Expenses of the Arbitration Commission..................... 51

12.1.2.2 Arbitrators’ Fees and Expenses............................................................................ 51 12.1.3 Lawyers’ Fees and Expenses......................................................................................... 52

12.2 Principles of Costs Allocation................................................................................................... 52

12.3 Payment of Arbitration Costs.................................................................................................... 53 12.3.1 General Practice............................................................................................................. 53 12.3.2 Advance on Arbitration Fees........................................................................................... 53 12.3.3 Return of Advance on Arbitration Fees........................................................................... 53 12.3.4 Final Costs Order............................................................................................................ 54 13. Court Intervention................................................................................................................................. 54 13.1 Possible Scenarios for Court Intervention............................................................................... 54 13.2 Review of the Validity of Arbitration Agreements.................................................................... 55 13.2.1 Power of the Court to Review Arbitration Agreements.................................................... 55 13.2.2 Competent Court............................................................................................................ 55 13.2.3 Scope of Examination..................................................................................................... 55 13.2.4 Effects of the Invalidity of an Arbitration Agreement....................................................... 56

13.3 Interim Measures in Support of Arbitration.............................................................................. 56

13.4 Review of Awards........................................................................................................................ 56 14. Domestic vs. Foreign-Related Arbitration.......................................................................................... 56 14.1 Distinction between ‘Domestic’ and ‘Foreign-Related’............................................................ 56 14.2 Criteria for Distinguishing between Domestic and Foreign-Related Arbitration.................. 56 14.3 Practical Implications................................................................................................................. 57

15. Enforcement of Arbitral Awards.......................................................................................................... 57 15.1 Legal Framework for Enforcement of Awards.......................................................................... 57 15.1.1 Overview of the Legal Framework.................................................................................. 57 15.1.2 Legal Framework for Enforcement of Chinese Awards.................................................. 58 15.1.3 Legal Framework for Enforcement of Foreign Awards................................................... 58 15.1.3.1 15.1.3.2

Starting Point......................................................................................................... 58 Relevant International Treaties on Enforcement of Awards.................................. 58

15.1.3.3 Reciprocity Principle............................................................................................. 58 15.1.4.1 Legal Framework for Enforcement of Greater China Awards...................................... 59 15.1.4.1

Hybrid Nature of Greater China Awards............................................................... 59

WunschArb.com - Chinese Arbitration Law and Practice - An Overview for Practioners

15.1.4.2

Legal Framework for Enforcement of Hong Kong Awards................................... 59

15.1.4.4

Legal Framework for Enforcement of Taiwan Awards.......................................... 59

15.1.4.3

Legal Framework for Enforcement of Macao Awards.......................................... 59

15.2 Decisions Subject to Enforcement............................................................................................ 60

15.3 Process of Enforcement............................................................................................................. 60 15.3.1 Reference to Local Procedural Law................................................................................ 60 15.3.2 Competent Court............................................................................................................ 60 15.3.3 Application Process........................................................................................................ 61 15.3.3.1

Written Request.................................................................................................... 61

15.3.8.1

Types of Enforcement Measures Available.......................................................... 64

15.3.8.3

Measures for Enforcement by Indirect Coercion.................................................. 64

15.3.3.2 Supporting Documents......................................................................................... 61 15.3.4 Acceptance Process....................................................................................................... 62 15.3.5 Examination Process...................................................................................................... 62 15.3.6 Review by Higher Courts - Prior Reporting System........................................................ 63 15.3.7 Decision on Enforcement................................................................................................ 63 15.3.8 Enforcement Proper........................................................................................................ 64 15.3.8.2

Measures for Enforcement by Direct Coercion.................................................... 64

15.4 Grounds for Non-Enforcement.................................................................................................. 65 15.4.1 List of Applicable Grounds for Non-Enforcement............................................................ 65 15.4.1.1

Different Applicable Regimes............................................................................... 65

15.4.1.3

Grounds Applicable to Chinese Domestic Awards.............................................. 66

15.4.1.2

Grounds Applicable to Chinese Foreign-Related Awards................................... 65

15.4.1.4 Grounds Applicable to Foreign Awards................................................................ 66 15.4.1.5 Grounds Applicable to Hong Kong Awards.................................................................. 67 15.4.1.6

Grounds Applicable to Macao Awards................................................................ 68

15.4.3.1

Standard for Review Regarding Grounds for Non-Enforcement.......................... 71

15.4.4.1

Lack of Express Legal Basis................................................................................ 72

15.4.4.3

Preclusion In Connection With Annulment Proceedings...................................... 73

15.4.1.7 Grounds Applicable to Taiwan Awards................................................................ 69 15.4.1.8 Overview of Commonalities and Differences among the Various Regimes................. 69 15.4.2 Practical Relevance of the Grounds for Non-Enforcement............................................. 71 15.4.3 Standard for Review by the Courts................................................................................. 71 15.4.3.2 Discretionary Power of the Courts........................................................................ 72 15.4.4 Questions of Waiver and Preclusion............................................................................... 72 15.4.4.2

Waiver In Connection With Consent Awards........................................................ 73

16. General Legal Framework.................................................................................................................... 74 16.1 Laws............................................................................................................................................. 74 16.1.1 Overview of Relevant Laws............................................................................................ 74 16.1.2 PRC Arbitration Law (1994)............................................................................................ 74 16.1.3 General Principles of Civil Law....................................................................................... 74 16.1.4 Civil Procedure Law........................................................................................................ 75 16.1.5 Contract Law................................................................................................................... 75

WunschArb.com - Chinese Arbitration Law and Practice - An Overview for Practioners

16.1.6 Laws on Conflict of Laws............................................................................................... 75 16.1.7 Relevant Laws with regard to Greater China.................................................................. 76 16.2 Regulations & Court Interpretations......................................................................................... 76 16.2.1 Overview......................................................................................................................... 76 16.2.2 Regulations..................................................................................................................... 76 16.2.3 Court Interpretations....................................................................................................... 76 16.3 Relevant International Conventions and Treaties.................................................................... 77 16.3.1 New York Convention..................................................................................................... 77 16.3.1.1 China’s Accession to the New York Convention................................................... 77 16.3.1.2 Reciprocity Reservation........................................................................................ 77 16.3.1.3 Commercial Reservation....................................................................................... 77 16.3.2 ICSID Convention........................................................................................................... 78 16.3.3 Bilateral Investment Treaties.......................................................................................... 79 16.3.3.1 Overview of Relevant BITs.................................................................................... 79 16.3.3.2 First Generation BITs............................................................................................ 79 16.3.3.3 Second Generation BITs....................................................................................... 79 16.3.4 Mutual Assistance Treaties............................................................................................. 80 16.3.5 Relevant Treaties with regard to Greater China............................................................. 80 16.4 Arbitration Rules......................................................................................................................... 80 17. Interim Measures.................................................................................................................................. 80 17.1 Limited Availability of Interim Measures................................................................................... 80 17.2 Request Process & Competent Authority................................................................................. 80 17.3 Kinds of Interim Measures......................................................................................................... 81 17.3.1 Two Main Kinds of Interim Measures.............................................................................. 81 17.3.2 Property Preservation..................................................................................................... 81 17.3.2.1 Pre-arbitration Property Preservation.................................................................... 81 17.3.2.2 Property Preservation During Arbitration Proceedings........................................ 81 17.3.3 Evidence Preservation.................................................................................................... 82 17.3.3.1 Pre-arbitration Evidence Preservation.................................................................. 82 17.3.3.2 Evidence Preservation During Arbitration Proceedings....................................... 82 17.4 Practical Implications................................................................................................................. 82 17.4.1 Lack of Power of the Arbitral Tribunal............................................................................. 82 17.4.2 Lack of Interim Measures in Support of Foreign Arbitration Proceedings....................... 82 18. Jurisdiction of the Arbitration Tribunal.............................................................................................. 83 18.1 Conditions for Jurisdiction........................................................................................................ 83 18.2 Challenges to Jurisdiction......................................................................................................... 83 18.2.1 Right to Challenge the Jurisdiction of the Arbitral Tribunal............................................. 83 18.2.2 Competent Authority to Decide on Jurisdictional Challenges – Limited Competence-Competence............................................................................................ 83 18.2.3 Challenge Process.......................................................................................................... 84 18.2.4 Grounds for Challenge.................................................................................................... 84 18.2.5 Preclusion of Jurisdictional Challenge............................................................................ 84 19. Multi-Party and Complex Arbitration.................................................................................................. 85

WunschArb.com - Chinese Arbitration Law and Practice - An Overview for Practioners

19.1 Concept of Multi-Party and Complex Arbitration..................................................................... 85 19.2 Simple and Complex Multi-Party Arbitration............................................................................ 85 19.3 Extension of Arbitration Agreements to Non-Signatories...................................................... 85 19.4 Consolidation of Proceedings................................................................................................... 86

19.5 Third Party Joinder..................................................................................................................... 86

19.6 Class Arbitrations....................................................................................................................... 86 20. Parallel Proceedings............................................................................................................................ 87 20.1 Concept of ‘Parallel Proceedings’............................................................................................. 87

20.2 Lis Pendens under Chinese Law............................................................................................... 87 20.3 Chinese Arbitration vs. Chinese Court Proceedings............................................................... 87 20.4 Foreign Arbitration vs. Chinese Court Proceedings............................................................... 87 20.5 Chinese Arbitration vs. Chinese Arbitration............................................................................. 88 20.6 Chinese Arbitration vs. Foreign Arbitration............................................................................. 88 21. Place of Arbitration............................................................................................................................... 89 21.1 Concept of the Place of Arbitration under Chinese Law......................................................... 89 21.2 Determining the Place of Arbitration......................................................................................... 89 22. Representation Issues......................................................................................................................... 90 22.1 Overview...................................................................................................................................... 90

22.2 Right to Representation in Arbitration Proceedings............................................................... 90 22.3 Foreign Lawyers as Representatives in Chinese Arbitration Proceedings........................... 90 22.4 Ethical and Professional Rules for Lawyers in Arbitration..................................................... 91 23. Taking of Evidence in Arbitration........................................................................................................ 91 23.1 Lack of Comprehensive Specific Legal Basis.......................................................................... 91 23.2 Kinds of Evidence....................................................................................................................... 91

23.3 General Principles for the Taking of Evidence......................................................................... 92 23.3.1

Relevant Legal Basis...................................................................................................... 92

23.3.3

Rules of Evidence Agreed by the Parties....................................................................... 93

23.3.2 23.3.4 23.3.5 23.3.6

Inquisitorial vs. Adversarial Taking of Evidence.............................................................. 92 Rules of Evidence Decided by the Tribunal.................................................................... 93

The IBA Rules on Evidence............................................................................................ 93 CIETAC Rules on Evidence............................................................................................ 94

23.4 Selected Issues........................................................................................................................... 94 23.4.1

23.4.2 23.4.3

Discovery - Document Production.................................................................................. 94

Witness Examination...................................................................................................... 94 Expert Evidence.............................................................................................................. 94

23.4.3.1

Main Types of Expert Evidence............................................................................ 94

23.4.3.3

Experts Appointed by the Parties......................................................................... 95

23.4.3.2

Experts Appointed by the Tribunal....................................................................... 95

23.5 Evidence Preservation Measures.............................................................................................. 95

WunschArb.com - Chinese Arbitration Law and Practice - An Overview for Practioners

AD HOC ARBITRATION

1.1 Prohibition of ad hoc Arbitration in China Although ad hoc arbitration is not expressly prohibited under Chinese law, it arises from the wording and structure of the PRC Arbitration Law (1994) that only institutional arbitration is possible in China. Article 16(2)(iii) of the PRC Arbitration Law (1994) specifically requires that an arbitration institution be designated in the arbitration agreement, and Article 18 of the PRC Arbitration Law (1994) further provides that the lack of designation of an arbitration institution will lead to the nullity of the arbitration agreement, unless the Parties reach a supplemental agreement or the flaw can be cured through interpretation in accordance with the principles developed by the Supreme People’s Court [7.3.3]. These provisions are commonly understood as obliging the parties to choose institutional arbitration, thereby prohibiting ad hoc arbitration in China. It does nevertheless happen that parties resort to ad hoc arbitration in China, especially in the maritime field. This is, however, only efficient insofar as the parties are willing to voluntarily comply with the arbitral award, since Chinese ad hoc awards may otherwise encounter enforcement problems [15.4].

1.2 Practical Implications of the Prohibition of ad hoc Arbitration in China The practical implications of the prohibition of ad hoc arbitration [1.1] are manifold: •

It limits the parties’ autonomy to choose the dispute resolution method which is most suitable for efficiently resolving their dispute;

•

It creates an inequality of treatment between on one hand the New York Convention and other foreign awards and on the other hand Chinese awards [5.2.1] with regard to enforcement [15];

•

Chinese courts are not used to dealing with ad hoc awards, and thus tend to approach issues relating to ad hoc arbitration with more caution and reluctance (see e.g., Hanjin Shipping v. Fuhong Oil (2006), Harvest Shipping v. Sinotrans Shenyang (2006), Future E.N.E. v. Shenzhen Cereals (2006), Bunge S.A. v. Shenzhen Trade (2007), Cosmos Marine v. Tianjin Kaiqiang (2007), FIC v. Mawei Shipbuilding (2008), in which the courts refused enforcement of foreign ad hoc awards);

•

It leads to a monopoly of institutional arbitration in China, which tends to make arbitration institutions excessively bureaucratic and insufficiently transparent.

Opening the door to ad hoc arbitration would create healthy competition for arbitration institutions which could in turn enhance the efficiency of institutional arbitration proceedings.&b;

1.3 Enforcement of ad hoc Arbitration Agreements in China Because of the prohibition of ad hoc arbitration [1.1] in China, ad hoc arbitration agreements with a place of arbitration [21] in China are not enforceable in China. Such arbitration agreements will be considered invalid by the Chinese courts (see e.g., Guanghe Power v. PICC Guangdong Branch (2002), South Korea Mobile v. CECT et al. (2006), COSCO Shipping v. CMEC Comtrans (2009), Cui Huishen v. Huarong Plastics (2010), where courts invalidated arbitration clauses opting for ad hoc arbitration).

1.4 Enforcement of ad hoc Arbitration Awards in China By signing The New York Convention [16.3.1], China has committed to enforce awards rendered abroad, including ad hoc arbitration awards. The same applies to awards rendered in Hong Kong [15.1.4.2].

WunschArb.com - Chinese Arbitration Law and Practice - An Overview for Practioners

In contrast, the legal framework applicable to the enforcement in China of awards rendered in Taiwan [15.1.4.4] and Macao [15.1.4.3] does not provide for enforcement of ad hoc awards. Ad hoc awards rendered in China are not enforceable, due to the prohibition of ad hoc awards [1.1] and the necessity to expressly designate an arbitration institution [7.2.1.5].

ANNULMENT OF AWARDS

2.1 Legal Framework for Annulment of Awards in China The specific legal provisions applicable to the question of annulment of Chinese awards depend on whether the award is to be qualified as domestic or foreign-related [14]. Annulment of domestic awards is subject to Articles 58 et seq. of the PRC Arbitration Law (1994), whilst annulment of foreign-related awards is subject to Article 70 of the PRC Arbitration Law (1994), which refers to Article 237 of the PRC Civil Procedure Law (2012). In addition, further principles on the annulment of Chinese awards [5.2.1] are to be found in relevant interpretations of the Supreme People’s Court, e.g. Articles 17 et seq. of the SPC Interpretations on Arbitration Law (2006).

2.2 Grounds for Annulment of Awards 2.2.1 Grounds for Annulment of Domestic Awards Article 58 of the PRC Arbitration Law (1994) provides an exhaustive list of seven grounds for annulment of domestic awards, covering both procedural as well as substantive matters: i)

The lack of a valid arbitration agreement [7.2] (for relevant cases, see e.g., PICC Dongying Branch v. Jiang Guangming (2005));

ii) The matters determined in the award exceed the scope of the arbitration agreement or are beyond the arbitral authority of the arbitration commission (in this case, only the part of the award exceeding the scope of arbitration will be annulled, unless it is inseparable from the other matters, in which case the whole award will be annulled) (for relevant cases, see e.g., Yunnan TCM v. Yunnan Technology (2004)); iii) The formation of the arbitration tribunal [6.1] or the arbitration procedure [9] was in violation of the applicable procedural rules (for relevant cases, see e.g., Kuang Wenhui et al. v. Hehui Real Estate (2004), PICC Dongying Branch v. Jiang Guangming (2005)); iv) The evidence on which the arbitral award is based was fabricated; v) The other party has withheld evidence sufficient to affect the impartiality of the arbitration; vi) While arbitrating the case, the arbitrator has committed embezzlement, accepted bribes, resorted to deception for personal gain or rendered an award that perverts the law; and vii) The award is found to be contrary to the ‘social and public interest’. These grounds encompass a wider range of situations than the grounds for annulment of foreign-related arbitral awards [2.2.2], which are limited to issues of a procedural nature. 2.2.2

Grounds for Annulment of Foreign-Related Awards

The grounds for annulment of foreign-related awards [14] are exhaustively listed in Article 274 of the PRC Civil Procedure Law (2012) (through reference of Article 70 of the PRC Arbitration Law (1994)). Unlike the grounds relating to domestic awards [14], they concern only procedural matters and are limited to the following five circumstances:

WunschArb.com - Chinese Arbitration Law and Practice - An Overview for Practioners

The lack of a valid arbitration agreement [7.2];

ii) The party requesting annulment of the award was not notified to appoint an arbitrator or to take part in the arbitration proceedings, or was unable to state its opinions due to reasons for which it was not responsible; iii) The constitution of the arbitration tribunal [6.1]or the arbitration procedures [9] were not in conformity with the applicable procedural rules, i.e. the Arbitration Law and/or the applicable arbitration rules; iv) The matters decided in the award exceed the scope of the arbitration agreement or are beyond the arbitration authority of the arbitration commission (in this case, only the part of the award exceeding the scope of arbitration will be annulled, unless it is inseparable from the other matters, in which case the whole award will be annulled); v) The enforcement of the award would be contrary to the ‘social and public interest’. Where a court intends to annul a foreign-related award, it must go through the Prior Reporting System [2.3.4] and request approval from the higher courts.

2.3. Annulment Process 2.3.1 Overview of the Annulment Process Chinese courts are only competent to decide on the annulment of Chinese awards [14], i.e. awards issued by Chinese arbitration institutions [8.1]. Annulment has to be requested before the competent court [2.3.2] and according to the applicable procedure [2.3.3]. The process is in principle the same for domestic and foreign-related awards [14], although the latter are further subject to the so-called Prior Reporting System [2.3.4]. 2.3.2

Competent Court

According to Articles 58 et seq. of the PRC Arbitration Law (1994), the court competent to hear a request for annulment of an arbitral award is the Intermediate People‘s Court at the place where the arbitration commission issuing the award is located. This court is different from the court [15.3.2] having jurisdiction to hear requests for enforcement of arbitral awards [15]. If one party requests annulment of the award, whilst the other requests enforcement of the award, Article 64 of the PRC Arbitration Law (1994) provides that the court in charge of enforcement must suspend enforcement until a decision on the annulment is reached. If the award is eventually annulled, the enforcement proceedings will be terminated. If the application to annul the award is rejected, the enforcement proceedings will be resumed. 2.3.3

Applicable Time Limits

According to Article 59 of the PRC Arbitration Law (1994), a written request for annulment of a Chinese award [5.2.1] must be submitted to the competent court [2.3.2] within six months from the date of receipt of the award by the requesting party. This time limit applies to both domestic [14] and foreign-related [14] awards. According to Article 60 of the PRC Arbitration Law (1994), the People‘s Court faced with a request for annulment of an arbitration award has to render a decision within two months of the date of accepting the application.

WunschArb.com - Chinese Arbitration Law and Practice - An Overview for Practioners

2.3.4

Prior Reporting System

Following the establishment by the Supreme People’s Court in August 1995 of the so-called Prior Reporting System [15.3.6] with regard to the enforcement of foreign-related and foreign awards, the Supreme People’s Court extended this reporting system in April 1998 to decisions concerning the annulment of foreign-related awards [14] through its SPC Notice on the Prior Reporting System (1998). Under the Prior Reporting System, if an Intermediate People’s Court intends to annul a foreign-related award [14], it must report to and request approval from the High People’s Court within 30 days from the acceptance of the case. If the High People’s Court concurs with the position of the Intermediate People’s Court, it must further report to and request approval of the Supreme People’s Court within 15 days from the date of receipt of the report. Unfortunately, lower courts often disregard the relevant deadlines and there is no deadline for the Supreme People’s Court to respond. The Prior Reporting System is an internal court process in which the parties are neither invited nor allowed to participate. In practice however, the lawyers will be informed of the process and may be given some informal opportunity to present their views.

2.4 Decision on Annulment 2.4.1

Possible Outcomes of the Annulment Process

If the court concludes that one or several grounds for annulment exist, the court has two main options: 1. It may instruct the arbitral tribunal to re-arbitrate the case [2.4.2], in accordance with Article 61 of the PRC Arbitration Law (1994). This option applies, however, only to domestic awards [14]; 2. It may render a decision on the annulment of the award, whereby the court can either (i) decide to annul the award [2.4.3] or (ii) reject the annulment request and thereby confirm the award [2.4.4]. This option is applicable to both domestic and foreign-related awards [14]. 2.4.2

Re-Arbitration of the Dispute

The possibility for a court to instruct the arbitral tribunal to re-arbitrate the dispute only exists for domestic awards [14], and is particularly encouraged where a domestic award is annulled because the evidence on which it is based is fabricated [2.2.1], or because a party has concealed substantial evidence [2.2.1] (see Article 21 of the SPC Interpretations on Arbitration Law (2006)). If the arbitral tribunal accepts the re-arbitration of the case, it will render a new award. The new award then replaces the first award. The new award can also be subject to annulment proceedings, if either party is unsatisfied with it, provided there is again a valid ground for annulment [2.2.1]. The arbitral tribunal can also refuse to re-arbitrate the case, in which case the court will continue with the annulment procedure and may eventually decide to annul the award [2.4.3]. 2.4.3

Annulment of the Award

Where the court annuls the award based on relevant grounds for annulment [2.2], such award loses any binding effect. To all intents and purposes, it ceases to exist. One peculiarity of Chinese law is that where an award is annulled, the annulment does not only apply to the award but actually extends to the arbitration agreement itself. This derives from Article 9 of the PRC Arbitration Law (1994), which requires the parties to conclude a new arbitration agreement in order to re-submit their dispute to arbitration. In other words, unless the parties conclude a new arbitration agreement, the annulment of the award makes re-arbitration of the dispute impossible, and the parties may only re-litigate their dispute before the competent state courts.

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Under Article 140 of the PRC Civil Procedure Law (2007), a court ruling to annul an award was subject to appeal before the higher court. However, under the PRC Civil Procedure Law (2012), the appeal avenue has been abolished and courts’ rulings on annulment of arbitral awards are therefore final (see Article 154 of the PRC Civil Procedure Law (2012)). 2.4.4 Confirmation of the Award Where the court finds that there is no valid ground for annulment [2.2], it will simply reject the request for annulment. The award will therefore remain valid and retain its binding effect. If the losing party refuses to comply with its obligations under the award, it will be able to initiate enforcement proceedings [15].

APPLICABLE LAW IN ARBITRATION

3.1 Law Applicable to the Merits The PRC Arbitration Law (1994) is silent regarding the law applicable to the merits and this issue is dealt with in other laws, such as Article 126 of the PRC Contract Law (1999), Article 41 of the PRC on the Laws Applicable to Foreign-related Civil Relations (2010) and Article 145 of the PRC General Principles of Civil Law (1986). Similarly to the situation in many other countries, there are mainly two ways to determine the law applicable to the merits of a case: (1)

Based on a choice of law made by the parties [3.1.1], to the extent that such choice is permitted by law [3.1.3] and not otherwise restricted [3.1.4];

(2)

Based on applicable rules of conflict of laws [3.1.2]. 3.1.1

Choice of Law – Limited Party Autonomy

Article 126 of the PRC Contract Law (1999), Article 41 of the PRC Law on the Laws Applicable to Foreign-related Civil Relations (2010) and Article 145 of the PRC General Principles of Civil Law (1986) provide that parties to a foreign-related [14] contract may choose the law applicable to their dispute, and failing such choice, the law of the country with the closest connection [3.1.2] to the dispute will apply. It will be up to the party invoking the application of a foreign law to prove its content, and if such content cannot be established, the court will apply Chinese law (see Article 10 of the PRC Law on the Laws Applicable to Foreign-related Civil Relations (2010)). The fact that these provisions only refer to parties to a foreign-related [14] contract has been commonly understood to mean that only parties to a foreign-related [14] contract may choose a foreign law to apply to their dispute. However, some areas of law are mandatorily subject to Chinese law [3.1.3] even in foreign-related cases. The choice of law must usually be exercised in favor of the law of a specific country, and does in principle not include the possibility to let the arbitrators’ decide ex aequo et bono [3.1.4]. 3.1.2 Rules of Conflict - Criteria of ‘Closest Connection’ Where the parties have not chosen a law to apply to their contract, Article 126 of the PRC Contract Law (1999), Article 41 of the PRC Law on the Laws Applicable to Foreign-related Civil Relations (2010) and Article 145 of the PRC General Principles of Civil Law (1986) provide that the applicable law is the law of the country with the ‘closest connection’.

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Regarding the concept of ‘closest connection’, Article 5 of the SPC Provisions on the Law Applicable to Foreign-Related Contractual Disputes (2007) provided a series of guidelines, according to which the court would determine the law with the ‘closest connection’ based on the particularities of the contract and the performance of the obligations, which best embody the essential characteristics of the contract. For example: •

Concerning contracts for the sale of goods, the applicable law is the law of the country of domicile of the seller at the time of the conclusion of the contract, unless special circumstances justify relying on the law of the country of domicile of the buyer;

•

Concerning contracts on pledge of movables, the applicable law is the law of the country of domicile of the pledgee;

•

Concerning insurance contracts, the applicable law is the law of the country of domicile of the insurer;

•

Concerning construction contracts, the applicable law is the law of the country of the place where the construction project is taking place; etc.

However, the SPC Provisions on the Law Applicable to Foreign-Related Contractual Disputes (2007) was abolished on 8 April 2013 for reasons that they conflicted with the PRC Law on the Laws Applicable to Foreign-related Civil Relations (2010). As concerns law applicable to a contract, Article 41 of the PRC Law on the Laws Applicable to Foreign-related Civil Relations (2010) adopts a slightly different approach then Article 5 of the SPC Provisions on the Law Applicable to Foreign-Related Contractual Disputes (2007) and provides that where the parties have not chosen a law to apply to their contract, the law to apply shall be (i) the law of the habitual residence of a party whose performance of obligation is most characteristic of the contract or (ii) the law that is most closely connected with the contract. However, neither the PRC Law on the Laws Applicable to Foreign-related Civil Relations (2010) nor the SPC Interpretations on Several Issues Concerning Application of the PRC Law on Choice of Law for Foreign-related Civil Relationships (I) (2013) provide for any specific examples of what is to be considered the ‘most characteristic’ obligation or the ‘closest connection’. As such, it is very likely that courts will continue to rely on the examples contained in the previous SPC Provisions on the Law Applicable to Foreign-Related Contractual Disputes (2007). The PRC Law on the Application of the Law on Foreign-related Civil Relations (2010) acts as a ‘lex generalis’ with regard to the question of the law applicable to foreign-related civil relationships. As such, it will generally prevail over conflicting provisions in other laws except where such provisions apply to very specific fields of law and are to be seen as a ‘lex specialis’ (e.g., the PRC Negotiable Instruments Law (2004), the PRC Maritime Law (1992), and the PRC Civil Aviation Law (1995)). 3.1.3

Areas of Law Mandatorily Subject to Chinese Law

According to Article 126 of the PRC Contract Law (1999), the parties may select a law to govern their contractual relationship, except otherwise provided by law. According to Article 8 of the SPC Provisions on the Law Applicable to Foreign-Related Contractual Disputes (2007) certain areas of law were mandatorily subject to Chinese law, even in foreign-related cases [14], and were therefore excluded from the scope of any potential choice of law clause between the parties. These areas included: -

Contracts on Chinese-foreign equity and/or contractual joint ventures, including transfer of shares in, and the operation by foreign persons or entities of, such joint ventures;

Contracts on Chinese-foreign cooperation in the exploration or exploitation of natural resources;

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Contracts on the acquisition by foreign persons or entities of share equity or assets in a non-foreign-funded Chinese enterprise;

Other contracts subject to the law of the People‘s Republic of China as prescribed by a law or administrative regulation of the People‘s Republic of China.

However, these SPC Provisions were abolished as of 1 April 2013 and no new provisions have been promulgated regarding the issue of mandatory application of Chinese law to specific areas of law. It is unclear whether this abolishment indicates a change in practice or is of a purely formal nature. In particular, various laws still contain restrictions with regard to the choice of applicable law. For example, according to Article 126 of the PRC Contract Law (1999), Sino-foreign Joint Ventures established within the territory of China remain mandatorily subject to PRC law. In addition, the PRC Law on the Laws Applicable to Foreign-related Civil Relations (2010) confirms pre-existing general restrictions (see Articles 6 and 7 of the SPC Provisions on the Law Applicable to Foreign-Related Contractual Disputes (2007)) regarding the choice of law in foreign-related cases: (1)

Where a mandatory provision of Chinese law exists with respect to a specific civil relation, that mandatory provision shall apply directly and may not be circumvented by the parties’ choice of law in favor of a foreign law (see Article 4 of the PRC on the Laws Applicable to Foreign-related Civil Relations (2010)). This concept refers to the concept of ‘lois d’application directe’ in international private law.

(2)

Further, where the application of a foreign law is prejudicial to the public interest of the PRC, Chinese law shall apply (see Article 5 of the PRC on the Laws Applicable to Foreign-related Civil Relations (2010)). Thus, Chinese courts always keep the right to apply Chinese law, where the application of foreign law could breach the Chinese ordre public.

Thus, it is somewhat unclear how the abolition of the SPC Provisions on the Law Applicable to Foreign-Related Contractual Disputes (2007) relates to the new provisions of the PRC Law on the Laws Applicable to Foreign-related Civil Relations (2010). This new silence could indicate that the restrictions as to the application of foreign law to specific areas have been lifted in favor of restrictions more in line with international standards. It is remain however to be seen to what extent the courts will adapt their practice in this regard. 3.1.4

Possibility to Decide Ex Aequo et Bono

In the context of Article 7 of the PRC Arbitration Law (1994), which provides that disputes must be resolved on the basis of facts, in compliance with law and in an equitable and reasonable manner, it is commonly admitted that arbitral tribunals in China may not ignore the law in favor of an ex aequo et bono decision and must seek an equitable solution within the law. Nevertheless, equity plays an important role and is often referred to by Chinese arbitrators when applying the law.

3.2 Law Applicable to the Arbitration Proceedings – Lex Arbitri Article 128 of the PRC Contract Law (1999) provides that parties to a foreign-related [14] contract may choose to submit their dispute to either “a Chinese arbitration institution or any other arbitration institution”. This provision is commonly understood to mean that only foreign-related [14] disputes may be resolved abroad, whereas domestic [14] disputes necessarily fall within the jurisdiction of Chinese arbitration institutions.

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Interestingly, Article 128 of the PRC Contract Law (1999) refers to the nationality (Chinese or other) of the arbitration institution, and not to the place of arbitration. This is because under the current approach of Chinese law and the courts, the relevant criteria for determining the nationality of an arbitration [5.2.1], is the seat of the relevant arbitration institution, and not the place of arbitration [3.2] (see e.g., Macor Neptun v. Shanghai Mechanical (2001), TH&T International v. Hualong Auto (2003), Weimao v. Tianli Enterprise (2004), Duferco S.A. v. Ningbo Imp. & Exp. (2009), where the courts relied on the place of the arbitration institution). Nevertheless, courts have occasionally also relied on the place of arbitration to determine the origin of the award (See e.g., LM Holdings et al. v. Jiashijie Group et al. (2009)).

3.3 Law Applicable to the Arbitration Agreement Article 18 of the PRC Law on the Law Applicable to Foreign-related Civil Relations (2010) provides that the law applicable to the question of the validity of a foreign-related arbitration [14] agreement is the law chosen by the parties. Where the parties have not agreed on the applicable law, the law applicable is the law at the place of the arbitration institution or of the arbitration place. (see e.g., Xiamen Xiangyu v. Mechel Trading (2004), Farun Glass v. Stein Heurtey et al. (2006), Donghong PM v. DMT (2006), Celebrity Industrial v. Pil Soon Han (2009)). This provision introduces a change compared to the previous practice of the Supreme People’s Court as contemplated in Article 16 of the SPC Interpretations on Arbitration Law (2006). The Supreme People’s Court relied on the following hierarchy: (i) agreement of the parties; (ii) failing an agreement between the parties, the law of the place of arbitration, (iii) failing a designation of a place of arbitration, the law of the place where the court is located (i.e. Chinese law). Thus, Article 18 of the PRC Law on the Law Applicable to Foreign-related Civil Relations (2010) has weakened the applicability of Chinese law as the default solution. The specific reference to foreign-related [14] arbitration agreements is commonly understood to mean that only parties to a foreign-related [14] dispute can choose the law applicable to the question of the validity of their arbitration agreement, and that domestic arbitrations are necessarily subject to Chinese law. The two following principles are particular noteworthy with regard to the choice of law applying to the arbitration agreement: (1)

Where Chinese law does not allow the parties to choose a foreign law to apply to their contractual relationship [3.1.3], this limitation does not apply to the arbitration clause, and parties to a foreign-related contractual relationship remain free to choose the law applicable to the arbitration clause (see e.g., Xinggang Electronic v. Brose (2006));

(2)

When choosing a law to apply to the arbitration agreement, such choice of law must be specific to the arbitration agreement, and a general choice concerning the lex arbitri or the substantive law does not automatically apply to the question of the validity of the arbitration agreement (see Article 58 of the SPC Minutes on Foreign-Related Commercial and Maritime Cases (2005)). See for the example Züblin International v. Woke Rubber (2004), ABM v. Masa Tianjin et al. (2005), Xinggang Electronic v. Brose (2006), PAIC Sichuan v. Xiangheli Shipping et al. (2009)).

3.4 Procedural Rules Under Article 19 of the UNCITRAL Arbitration Model Law (2006), the parties are free to choose the rules applicable to the procedure of the arbitration, and failing an agreement between the parties, the arbitral tribunal will freely determine the applicable rules.

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Such liberty is not always given in arbitrations before Chinese arbitration commissions [8.1], where parties and arbitrators are in principle bound by the arbitration rules of the designated arbitration commission. However, more and more arbitration rules allow the parties to deviate from the rules of the arbitration institution and provide for their own procedural rules (see e.g. Article 4(3) of the CIETAC Arbitration Rules (2012); Article 2(1) of the BAC Arbitration Rules (2008)). This is however not yet the case with all Chinese arbitration institutions. It is therefore recommended that before selecting a specific Chinese arbitration institution [8.1], one makes sure that the rules of that institution provide the parties with the possibility to deviate from the provisions of that institution’s arbitration rules. Where the law or the arbitration rules are silent on a specific issue, Chinese arbitral tribunals tend to apply the principles governing court actions by analogy, instead of consulting with the parties and finding appropriate case-by-case solutions.

ARBITRABILITY

4.1 Concept of Arbitrability under Chinese Law According to Articles 2, 3, and 77 of the PRC Arbitration Law (1994), only contractual disputes and other disputes over rights and interests in property between citizens, legal persons, and other organizations that are equal subjects may be arbitrated, excluding marital, adoption, guardianship, support and succession disputes, administrative disputes, labor disputes, and contractual disputes in the agricultural sector. This definition of arbitrability is relatively wide and encompasses all kinds of legal relationships in which the parties are on equal footing under Chinese law, including tort claims.

4.2 The Relevance in Practice of the Concept of Arbitrability Lack of arbitrability constitutes a ground for the invalidation of an arbitration agreement [7.2], as well as for the setting aside and non-enforcement of arbitral awards [15.4]. However, the practical relevance of this ground seems limited and only occasionally leads to the invalidation of arbitration agreements or the annulment and/or non-enforcement of arbitral awards (see e.g., Lianhua Hotel v. Puyang Government (2009) where the court rejected arguments that a dispute over a lease contract involving labor law issues was not arbitrable, and compare to Wu Chunying v. Zhang Guiwen (2009) where the court refused to enforce an award over a dispute involving issues of succession).

ARBITRAL AWARDS

5.1 Definition of ‘Arbitral Award’ The award constitutes the final result of the arbitration proceedings and is therefore its culmination. Notwithstanding this, there is as yet no internationally accepted definition of the term &ldquo;’award’.&rdquo; The situation is similar under Chinese law. Neither the PRC Arbitration Law (1994), nor the PRC Civil Procedure Law (2012), nor the SPC Civil Procedure Law Opinions (1992), nor the arbitration rules of Chinese arbitration institutions provide a definition of ’arbitral award’.; However, the relevant legal provisions contain sufficient elements to describe what constitutes the essence of an arbitral award under Chinese law: -

It must be issued in writing (see e.g. Article 54 of the PRC Arbitration Law (1994), which provides that the award must be signed by the arbitrators and has the seal of the arbitration institution affixed);

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5.2

It is in principle made by the arbitrators (see e.g. Articles 49, 51, 53, and 55 of the PRC Arbitration Law (1994), Article 47 of the CIETAC Arbitration Rules (2012), Artcle 41 of the BAC Arbitration Rules (2008), and Article 60 of the CMAC Arbitration Rules (2004));

It is a decision by which the arbitrators decide on all or part of the claims in dispute raised by the parties (see e.g. Article 54 of the PRC Arbitration Law (1994), which sets forth that an arbitral award must in principle contain the claims raised by the parties, the facts of the dispute, the result of the arbitral award, i.e., the decision of the arbitrators concerning the claims, as well as the reasoning of the tribunal);

It is final and binding on the parties according to the principle of the finality of the arbitral award contemplated in Article 9 of the PRC Arbitration Law (1994).

Nationality of Awards 5.2.1

Relevant Criteria for Determination of the Nationality of the Award

On the international arbitration scene, an award has traditionally been considered to be of the nationality of the lex arbitri [3.2] applicable to the arbitration, the applicable lex arbitri usually being the law of the place ‘where the award was made’&rdquo;, i.e., the place of arbitration [21], unless otherwise agreed by the parties (the so-called ‘territorial approach’&ldquo;). As such, very often, an award is considered to be from the country where the place of arbitration [21] is located. In China, Chinese courts have traditionally also relied on the ‘place where the award was made’ to determine its origin and consequently its nationality. However, the Chinese courts‘ traditional approach has been that the ‘place where the award was made’ is at the seat of the arbitration institution, and not at the place of arbitration (see e.g., Macor Neptun v. Shanghai Mechanical (2001), TH&T International v. Hualong Auto (2003), Weimao v. Tianli Enterprise (2004), Duferco S.A. v. Ningbo Imp. & Exp. (2009), where the courts relied on the place of the arbitration institution, and compare to LM Holdings et al. v. Jiashijie Group et al. (2009), where the court exceptionally relied on the place of arbitration to determine the origin of the award).. This approach has historical reasons and can be explained by the fact that China does not allow ad hoc arbitration [1.1] and therefore always links arbitration to a specific arbitration institution. 5.2.2

Practical Problems Related to the Applicable Criteria

This traditional approach [5.2.1] of relying on the seat of the arbitration institution was for a long time unproblematic since Chinese arbitration institutions [8.1] were not entitled to handle arbitration cases with a place of arbitration abroad, and Chinese law does not yet officially recognize the right of foreign arbitration institutions [8.2] to establish branches and administer arbitrations in China. Consequently, the seat of the arbitration institution and the place of arbitration were most often consistent. This has changed. Some Chinese arbitration institutions, such as CIETAC, have now the authority to conduct arbitrations with a place of arbitration abroad [8.1.2.2], and in practice, foreign arbitration institutions [8.2] have conducted arbitration cases with a place of arbitration in China (See e.g. Duferco S.A. v. Ningbo Imp. & Exp. (2009), Züblin International v. Woke Rubber (2006)). Thus, the seat of the arbitration institution no longer allows clear conclusions to be drawn as to whether the arbitration is to be considered Chinese or foreign. 5.2.3

Finding out the Nationality of your Award

Based on the traditional approach [5.2.1] followed by Chinese courts, the first question you need to ask is: Where is the seat of the arbitration institution involved? The answer will depend on the ad hoc or institutional nature of your award.

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With regard to an institutional award, it will be of the nationality of the country where the seat of the arbitration institution is located. However, in view of these practical difficulties, it would seem that the Supreme People’s Court along with lower courts is reconsidering their approach (see e.g. LM Holding s et al. v. Jiashijie Group et al. (2009)). In 2009, Justice Yang Honglei, judge at the 4th Chamber of the SPC, provide further information on the Supreme People’s Court view and suggested the following classification of awards: -

Awards made by Chinese foreign-related arbitration institutions in China: These awards would qualify as Chinese;

Awards made by Chinese foreign-related arbitration institutions abroad: These awards would qualify as foreign awards;

Awards made by foreign arbitration institutions in arbitration proceedings with a place of arbitration in China: These awards would qualify as foreign;

Awards made by foreign arbitration institutions abroad: These awards would qualify as foreign.

As of today, the Supreme People’s Court has not issued any formal Interpretations or Provisions. With regard to an award rendered in ad hoc arbitration proceedings [1] where no institution was involved, the relevant criteria will be the place of arbitration [21] and your award will be of the nationality of the country where the place of arbitration is located.

5.3 Types of Awards/Decisions 5.3.1

Relevant Distinctions

A first distinction is often made depending on whether the award puts an end to the whole dispute or only addresses certain aspects of it. In this respect, international arbitration practice distinguishes between final [5.3.2.1], interim [5.3.2.3], and partial awards [5.3.2.2], and procedural orders [5.3.2.4]. A further distinction can be drawn based on the parties‘ involvement in the rendering of the award, i.e., the decision-making process, including regular awards [5.3.3.1], consent awards [5.3.3.2] and default awards [5.3.3.3]. It should however be stressed that the law does not provide for clear definitions of each type of award, and there is no uniformity in practice. Thus, approaches differ among arbitration institutions and among arbitrators with different backgrounds. 2.3.2

Final, Interim, and Partial Awards and Procedural Orders 5.3.2.1

Final Awards

Final awards are awards put an end to the entire dispute by deciding on all the claims and legal issues at stake. 5.3.2.2

Partial Awards

Partial awards are awards made with respect to a part of the dispute, and are typically issued to decide on the existence of a contract, its validity, the applicable law, the principle of compensation and liability, some of the claims or parts thereof, etc. Thus, partial awards under Chinese law usually deal with material aspects of the dispute, whereby they are not limited to quantitative aspects (e.g. some of the damage claims) and may also deal with qualitative aspects (e.g. validity of the contract). A partial award can be issued at any time during the arbitration proceedings before the final award [5.3.2.1] (see e.g. Article 48 of the CIETAC Arbitration Rules (2012), Article 44(6) of the BAC Arbitration Rules (2008)).

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5.3.2.3

Interim Awards

Interim awards are non-final awards made with regard to “a part of a dispute, at any stage of the proceedings, so as to benefit the progression of the case and the rendering of the final award”. An interim award may typically be issued to require parties to take measures to preserve perishable goods, to allow the arbitral tribunal and/or the expert to take evidentiary measures, such as supervise equipment, debugging, production process (see e.g. Article 21(2) of the CIETAC Arbitration Rules (2012), Article 44(6) of the BAC Arbitration Rules (2008)). Thus, compared to the concept of partial award [5.3.2.2], the Chinese concept of an interim award covers more procedural or technical issues of the arbitration and actually includes decisions similar to procedural orders, interim measures, and interim awards in international arbitration practice. Chinese interim awards are therefore usually not enforceable [15.2]. 5.3.2.4

Procedural Orders

Although there is no express legal basis, it is common practice for arbitrators to also issue procedural orders concerning the conduct of the arbitration, such as the place and time of the hearing, the number of exchanges of written submissions, the admissibility of evidence, etc. (see e.g. Article 21(2) of the CIETAC Arbitration Rules (2012), Article 42 of the BAC Arbitration Rules (2008)). Procedural orders do not qualify as ‘awards’ [5.1] and are thus not enforceable [15.2]. 5.3.3

Regular, Consent and Default Awards 5.3.3.1

Regular Awards

Regular awards are awards resulting from the deliberations between the members of the arbitral tribunal based on the presentation of facts and legal arguments as presented by the parties. 5.3.3.2

Consent Awards

Consent awards are awards incorporating an amicable settlement reached between the parties with or without the involvement of the arbitral tribunal (see Conciliation & Arbitration [10]). See e.g. Article 45 of the CIETAC Arbitration Rules (2012). 5.3.3.3

Default Awards

Default awards are awards rendered by the arbitral tribunal where one of the parties fails to participate in the arbitration proceedings (see e.g. Article 42(2) of the PRC Arbitration Law (1994); Article 37 of the CIETAC Arbitration Rules (2012)). The default award is then based on the other party‘s allegations and the available evidence.

5.4 Issuance Process 5.4.1

Decision Making

According to Article 53 of the PRC Arbitration Law (1994), an arbitral award is rendered after the main hearing and on the basis of a majority decision of the arbitral tribunal. If a majority consensus cannot be reached, the vote of the presiding arbitrator prevails.

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For an award to be effective, it must be rendered within the applicable time limit [5.4.3], be signed by a majority of the arbitrators, and bear the stamp of the relevant arbitration institution (e.g. Article 54 of the PRC Arbitration Law (1994)). Where an arbitrator disagrees with the majority decision, he/she may render a dissenting opinion [5.4.2]. Before its issuance, the award will be scrutinized [5.4.4] by the relevant arbitration institution. 5.4.2

Dissenting Opinions

Article 53 of the PRC Arbitration Law (1994) contains an express mention of the ‘minority opinion’ of the arbitrators, which refers to what is more commonly known as a ‘dissenting opinion’. Most arbitration rules also provide for specific rules on dissenting opinions. According to a survey conducted by WunschArb, 75% of practitioners in Beijing and Shanghai have seen an arbitral award be accompanied by a dissenting opinion, though only 1.8% consider this practice to be common. A dissenting opinion of an arbitrator will usually be included in the record of the case, but will not form part of the award (see. e.g. Article 47(5) of the CIETAC Arbitration Rules (2012), Article 44(1) of the BAC Arbitration Rules (2008)). 5.4.3

Time Limits for Rendering the Award

According to most Chinese arbitration rules, the arbitral tribunal must render an award within six months or even less of the date the arbitral tribunal is formed (see e.g. Article 46(1) of the CIETAC Arbitration Rules (2012), Article 43 of the BAC Arbitration Rules (2008)). This time limit can be extended, although such extensions are subject to the arbitration institutions’ prior approval and generally require good reasons (see e.g. Article 46(2) of the CIETAC Arbitration Rules (2012)). In addition, in case of suspension of the arbitration proceedings (see Article 43 of the CIETAC Arbitration Rules (2012) and Article 46(3) of the CIETAC Arbitration Rules (2012)), the time limit will stop running for the duration of the suspension. In BAC arbitration in 2012, the BAC totally settled 1563 cases and the average time settling one case is about 96 days. In addition, in CIETAC arbitration, CIETAC settled about 720 cases in 2012. Unfortunately, there are no published statistics about the number of cases, which are completed within the applicable time limit. 5.4.4

Scrutiny of the Award by the Arbitration Institution

According to CIETAC practice, an arbitral tribunal must submit its draft to CIETAC for scrutiny before the issuance of such award (see Article 49 of the CIETAC Arbitration Rules (2012)). The scrutiny of the award by CIETAC is in principle limited, and consists mainly in checking the award for errors, lack of clarity or inconsistencies. The arbitration institution is in principle not entitled to review the decision or its reasoning, and an arbitral tribunal may refuse to incorporate change suggestions made by the arbitration institution. However, this may delay the issuance of the award, since the arbitration institution will only affix its stamp on the award, once it has approved it. This CIETAC provision for scrutiny does not seem to be the general practice of Chinese arbitration commissions, most of which do not provide for such scrutiny in their rules.

5.5 Correction and Interpretation of the Award As with ICC arbitration, a party may, according to Article 56 of the PRC Arbitration Law (1994) request the arbitral tribunal to correct the award, where such award contains typographical or calculation errors, or to supplement it, where relevant matters were omitted in the arbitration award. Such a request has to be made within 30 days upon receipt of the award. The arbitral tribunal may also proceed to such correction or completion on its own initiative, provided it does so within a reasonable timeframe (see e.g. Article 51 of the CIETAC Arbitration Rules (2012)).

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ARBITRAL TRIBUNAL - ARBITRATORS

6.1 Composition of the Arbitral Tribunal 6.1.1

Number of Arbitrators

According to Article 30 of the PRC Arbitration Law (1994), the parties can choose between a sole arbitrator or an arbitral tribunal composed of three arbitrators. If there are three arbitrators, one of them will assume the role of presiding arbitrator. This provision of the PRC Arbitration Law (1994) is to be considered mandatory, which means that it is not possible to have two or more than three arbitrators. In summary procedure [9.6], the case will be in principle handled by a sole arbitrator, unless the parties expressly agree otherwise. In common procedure, the practices vary from arbitration commission to arbitration commission, though the tendency is towards a three-member arbitral tribunals as default rule (see Article 23(2) of the CIETAC Arbitration Rules (2012); Article 18 of the BAC Arbitration Rules (2008)). 6.1.2 6.1.2.1

Selection of Arbitrators

Right of the Parties to choose an Arbitrator

According to Articles 31 and 32 of the PRC Arbitration Law (1994), the parties are given the right to appoint an arbitrator. Thus, at first sight, these provisions seem very similar to international practice, giving the parties certain autonomy in choosing the arbitrators. However, in practice, this choice is limited in two respects: (i) through the ‘Panel of Arbitrators’ [6.1.2.2] of the relevant arbitration commission, and (ii) the applicable qualification requirements [6.1.2.3] for arbitrators. 6.1.2.2

Panel of Arbitrators

According to Articles 11(4) and 13 of the PRC Arbitration Law (1994), each arbitration commission holds a list of persons who may be appointed as arbitrators (so-called ‘panel of arbitrators’), and the parties must in principle choose arbitrators from this panel. The panel of arbitrators is reviewed every 2 to 3 years, depending on the arbitration commission. Nowadays, some arbitration commissions such as CIETAC allow the parties to choose the party-appointed arbitrators outside their official panel subject to (i) prior agreement between the parties to do so and (ii) confirmation of the thereby selected arbitrators by the chairman of the arbitration commission (see Article 24(2) of the CIETAC Arbitration Rules (2012)). The presiding arbitrator must however be appointed from the official panel of arbitrators. Whilst this practice has not yet been adopted by many local arbitration commissions (see e.g. Article 17 of the BAC Arbitration Rules (2008), which still require an appointment from the existing panel of arbitrators) and the choice of arbitrators remains therefore quite limited depending on the arbitration commission in question, it is certainly becoming more widespread. 6.1.2.3

Qualification Requirements

Furthermore, in order to be listed as arbitrator on the panel of arbitrators of an arbitration commission, a person must fulfill certain requirements, which vary depending on the nationality of the arbitrator:

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For Chinese arbitrators, Article 13 of the PRC Arbitration Law (1994) sets forth that in order to be listed as arbitrator a person must be “righteous and upright” and fulfill one of the following conditions: (i) have worked in arbitration, or as a lawyer or judge for at least eight years, (ii) have been engaged in legal research or legal education with a senior professional title, or (iii) have acquired an equivalent level of knowledge and/or practice in the fields of law, economy and/or trade. For foreign arbitrators, including arbitrators from Hong Kong and Macao, Article 67 of the PRC Arbitration Law (1994) merely provides that such person must possess “special knowledge in the fields of law, economy and trade, science and technology, etc.“. These requirements are sometimes further refined by the arbitration commissions themselves (see e.g. the Stipulations for the Appointment of Arbitrators (2005) jointly issued by CIETAC and CMAC). From time to time, the Ministry of Justice and/or the SPC issue further provisions regulating the qualification of arbitrators (see e.g. SPC Notice on Prohibiting in-service Judges from Acting as Arbitrators (2004), Ministry of Justice Measures on Unlawful Conduct by Lawyers (2010), etc.) Regarding the nationality of arbitrators, Chinese law does not set any specific requirement. It is however widely understood that only Chinese citizens may act as arbitrators in domestic arbitration proceedings [14], although we hear that exceptions are made where one of the parties is a foreign invested entity and practice diverges among arbitration commissions. 6.1.3

Appointment Process

According to Article 31 of the PRC Arbitration Law (1994), the parties are free to choose how they want to appoint the arbitrators. If the parties fail to agree on a specific appointment process or if they fail to comply with the agreed appointment process, Article 32 of the PRC Arbitration Law (1994) provides that the arbitrators will be appointed by the chairman of the relevant arbitration institution. Thus far, these provisions largely reflect international practice. However, with regard to the appointment of the presiding arbitrator in case of three-member tribunals, most Chinese arbitration institutions [8.1], such as BAC and CIETAC, have implemented a novel default appointment mechanism: Unless the parties have provided otherwise, they are each invited to recommend several candidates (in BAC arbitration the number is three, and in CIETAC arbitration the number is five) for the presiding arbitrator. Where there is only one common candidate, such candidate will be considered jointly appointed by the parties. Where there is more than one common candidate in the lists, the chairman of the arbitration commission will choose a presiding arbitrator from among the common candidates based on the specific nature and circumstances of the case. Where there is no common candidate in the lists, the presiding arbitrator will be appointed by the chairman of the arbitration commission. Under BAC arbitration, the presiding arbitrator will be chosen from outside of the lists of recommended candidates (see Article 18(2) of the BAC Arbitration Rules (2008), whereas under CIETAC arbitration, the Chairman of CIETAC is free to appoint the presiding arbitration within or outside of the list whereby he/she will have to consider various factors such as the law applicable to the dispute, the place of arbitration, the language of arbitration, the nationalities of the parties, and any other factor(s) it considers relevant (see Articles 25(3) and 28 of the CIETAC Rules (2012)). In case of multi-party arbitration [21.2], the arbitrator appointment process will be different. In practice, it is common for the parties to entrust the co-arbitrators with the task of appointing a presiding arbitrator, in which case the default appointment mechanism described above only kicks in if the co-arbitrators are unable to reach a timely agreement on the identity of the presiding arbitrator.

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6.1.4 6.1.4.1

Challenge and Replacement of Arbitrators

Grounds for Withdrawal, Challenge and/or Removal of an Arbitrator

According to Article 34 of the PRC Arbitration Law (1994), an arbitrator must withdraw from his/her position where he/she finds himself/herself in one of the following circumstances: (i)

He/she is a party in the case or a close relative of a party or of an agent;

(ii)

He/she has a personal interest in the case;

(iii)

He/she has another relationship with a party or an agent in the case which may affect his/her impartiality; or

(iv)

He/she has privately met with a party or agent or accepted an invitation to entertainment or gift from a party or agent.

With regard to CIETAC arbitration, these circumstances are further refined and complemented in the CIETAC Ethical Rules for Arbitrators (1993) issued by CIETAC. Where an arbitrator does not withdraw despite the existence of one of the relevant circumstances, a party can request that he/she be removed and replaced. The same is true where an arbitrator is for any other reason no longer in a position to fulfill his/her duties (see Article 37 of the PRC Arbitration Law (1994); see also Article 31(1) of the CIETAC Arbitration Rules (2012), Articles 22(1), 22(2) of the BAC Arbitration Rules (2008)). 6.1.4.2

Challenge/Replacement Process

As is the case in international arbitration practice, most Chinese arbitration institutions [8.1] require the arbitrators to complete a declaration of independence and to disclose circumstances which may potentially affect their independence and/or impartiality (see e.g. Article 29 of the CIETAC Arbitration Rules (2012), Article 20 of the BAC Arbitration Rules (2008), Article 24 of the Guangzhou Arbitration Commission Arbitration Rules (2007), Article 32 of the Shanghai Arbitration Commission Arbitration Rules (2012), etc.). Where any of the circumstances listed in Article 34 of the PRC Arbitration Law (1994) appear to be present, the party intending to challenge the arbitrator must file its request for challenge together with a statement of the reasons prior to the first hearing. If the circumstances giving rise to the challenge become known only after the first hearing, the challenge must be requested before the conclusion of the final hearing of the case. Where an arbitrator has withdrawn or has been removed based on any relevant ground for challenge, withdrawal and/or removal [6.1.4], he/she must be replaced in accordance with the usual appointment process [6.1.3]. This means that the replacement arbitrator will be subject to the same appointment process as the replaced arbitrator. In CIETAC arbitration, after consulting with the parties the arbitration commission may however decide not to replace the removed arbitrator and continue the arbitration proceedings with the remaining arbitrators, although CIETAC will only do so in exceptional circumstances (Articles 31(2) and 32 of the CIETAC Arbitration Rules (2012)). 6.1.4.3

Consequences for the Proceedings of a Replacement

Where an arbitrator has been replaced, the question arises whether part or all of the proceedings should be repeated. This decision lies with the newly constituted arbitral tribunal, who will consider the parties’ positions, the overall circumstances of the case, and the advancement of the arbitration proceedings (see e.g. Article 31(4) of the CIETAC Arbitration Rules (2012); Article 22(4) of the BAC Arbitration Rules (2008)). If it decides to repeat certain procedural steps, the deadline for rendering the final award will be adjusted accordingly.

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6.2 Consequences of Irregularities in the Constitution of the Arbitral Tribunal Articles 31 and 32 of the PRC Arbitration Law (1994) and the related implementation provisions provided in the various arbitration rules of Chinese arbitration institutions [8.1] are of crucial importance, since non-compliance with these provisions and/or with the mechanism of formation provided for by the parties can be a ground for annulment [2.2] and/or non-enforcement [15.4] of the award.

6.3 Selecting your Arbitrators – Recommendations With regard to the selection of your arbitrators, we recommend the following precautionary measures: -

Careful choice of the arbitration institution: To the extent that the choice of arbitrators is in principle limited to arbitrators listed on the panel of arbitrators [6.1.2.2], choosing an arbitration commission providing for a wide range of arbitrators with different backgrounds and nationalities is strongly recommended. Click here for further recommendations regarding the selection of the arbitration institution [8.3.1].

Three-member tribunal: In order to ensure increased independence and impartiality of the tribunal, parties often prefer three-member tribunals to sole arbitrators, even though this means higher arbitration costs.

Specific appointment mechanism: Providing in the arbitration agreement for a specific mechanism of appointment of the arbitrators is recommended. In this respect, the most common solution is to provide that each party may appoint one arbitrator, and that these two arbitrators will jointly appoint a third presiding arbitrator. This will place the maximum limitation on the possibility for the arbitration institution to intervene, i.e. only in cases where the agreed mechanism fails to properly function.

Additional Requirements for the Presiding Arbitrator: With regard to foreign-related cases [14.1], it is highly recommended to provide that the presiding arbitrator (or the sole arbitrator) must be of a nationality different than those of the parties. This will help ensuring increased impartiality of the arbitral tribunal, but may lead to increased arbitration costs, since foreign arbitrators often require higher fees than Chinese arbitrators. In addition, in case of disputes of a very technical nature or requiring specialized knowledge, it is recommended to provide that the presiding arbitrator must possess a minimum knowledge of or experience in the relevant commercial and/or technical field.

6.4 Liability of Arbitrators Article 38 of the PRC Arbitration Law (1994) provides that an arbitrator will be held liable in the following circumstances:

Where he/she has met privately with any party to the arbitration or their respective attorneys, or has accepted any gift or hospitality from any of the disputing parties or their respective attorneys, in the sense of Article 34(4) of the PRC Arbitration Law (1994);

Where he/she has committed embezzlement, accepted bribes, engaged in malpractice for his/ her own personal benefit or made an award that has perverted the law, in the sense of Article 58(6) of the PRC Arbitration Law (1994).

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In such circumstances, the arbitrator will not only be removed [6.1.4.2] from the ongoing arbitration proceedings, but also from the panel of arbitrators. In addition, according to the latest revision of Article 399(I) of

the PRC Criminal Law (1997), an arbitrator who intentionally makes a decision which disregards the facts

or the law and makes a wrongful ruling may face up to three years of imprisonment, and where the circum-

stances are ‘extremely serious’ even more. The authors have found only a handful of cases in which an ar-

bitrator has been convicted under Article 399(I) of the PRC Criminal Law (1997), so that this provision does

not seem to be of practical importance with regard to arbitration proceedings.

The question whether or not an arbitrator can be held contractually liable where he has failed to comply

with his duties as arbitrator remains open. Whilst some debate has started, this issue is not yet addressed by any legal provision or by any arbitration rules.

ARBITRATION AGREEMENT

7.1 Law Applicable to the Arbitration Agreement ⇒

Automatic redirection to [3.3]

7.2 Validity Requirements under Chinese Law 7.2.1

Formal Validity Requirements under Chinese law

7.2.1.1

Overview of the Formal Validity Requirements

For an arbitration agreement to be valid under Chinese law, Article 16 of the PRC Arbitration Law (1994) requires that such agreement comply with the following four form requirements:

(i) It must be concluded in the form of an arbitration clause contained in a written contract or of a separate arbitration agreement in “another written form” [7.2.1.2];

(ii) It must contain a clear intention to arbitrate [7.2.1.3]; (iii) It must specifically mention the matters subject to arbitration [7.2.1.4]; (iv) It must designate a specific arbitration institution [7.2.1.5]. 7.2.1.2

Written Form

According to Article 16 of the PRC Arbitration Law (1994), the arbitration agreement must be concluded in written form.

Whilst the PRC Arbitration Law (1994) is silent with regard to what constitutes a ‘written form’, a definition is provided for in Article 11 of the PRC Contract Law (1999), according to which the term ‘in writing’ refers to

any form where the content is tangibly represented, such as written instruments, letters, and electrically or

electronically transmitted documents (including telegrams, telexes, facsimiles, electronic data interchange, and e-mail), etc. The Supreme People’s Court has confirmed that this principle also applies to arbitration agreements (see Article 1 of the SPC Interpretations on Arbitration Law (2006)).

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At first sight, this definition is quite broad and seems to be in line with the concept of ‘written form’ under the UNCITRAL Arbitration Model Law (2006). However, Article 32 of the PRC Contract Law (1999) further provides that “where the parties conclude their contract in the form of a written instrument, the contract is formed when the parties sign or seal the instrument”. Consequently, the signature of the document is required for the written contract to be effectively concluded, although the signature does not need to be on the same document and may result from an exchange of documents carrying the signature or the approval of one party at a time. In summary, the concept of ‘written form’ under Chinese law is closer to the concept of ‘written form’ as contemplated in Article II of The New York Convention than to the concept under the UNCITRAL Arbitration Model Law (2006). In particular, the signature requirement can cause problems (i)

in the context of sales contracts where only the sales confirmation is signed (see e.g., Zhuji Trade v. Kaiwei Trading (2001), Xinfa Alumina v. Transfield Shipping (2009));

(ii)

with regard to incorporation of arbitration agreements by reference to other documents (see e.g., Huahai Imp. & Exp. v. China Shipping (2002), Shenzhen Cereals v. Future E.N.E. (2009), PAIC Dalian v. COSCOL et al. (2007), Longda Polyester v. Yongji Shipping et al. (2008), Sinochem v. Haili (2009), Zhonggang Tiantie et al. v. COSCO Shipping (2009), PAIC Sichuan v. Xiangheli Shipping et al. (2009), Tianjin Steel et al. v. Niagara Maritime (2011)); and

(ii)

with regard to the extension of arbitration agreements to non-signatory parties [7.6] (see e.g., in the context of enforcement of arbitral awards Rücker v. Aux Group (2008), Dongxun Investment v. Yulin Hengtong and Yulin City (2009), Chengwei Investment v. Yulin Hengtong et al. (2009), Janful Limited v. Nanjing Skytech (2010)).

These validity requirements apply to arbitration agreements subject to Chinese law. Where a different law applies [3.3], the validity requirements are governed by that law. In addition, a loosening of such form requirements is expected under the United Nations Convention on the Use of Electronic Communications in International Contracts (2005), which China signed in June 2006 but has not yet ratified yet. 7.2.1.2

Clear Intent to Arbitrate

According to Article 16 of the PRC Arbitration Law (1994), the arbitration agreement must clearly reflect the parties’ binding intent to arbitrate and consequently to withdraw the dispute from the jurisdiction of the courts. This double requirement has the following implications:

An alternative choice between arbitration and litigation is in principle not admissible [7.3.3.3] under Chinese law (see Article 7 of the SPC Interpretations on Arbitration Law (2006)). The arbitration agreement may only be binding on the parties bound by the expression of intention to arbitrate. This requirement may cause certain problems with regard to the binding effect of arbitration agreements on non-signatory parties [7.6]. 7.2.1.4

Specific Mention of the Matters Subject to Arbitration

According to Article 16 of the PRC Arbitration Law (1994), the arbitration agreement must describe the matters which the parties wish to subject to arbitration. The matters described in the arbitration agreement define the scope of arbitration and thereby the scope of authority of the arbitral tribunal.

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In order to encompass the widest possible scope of disputes, parties often use wording such as “all disputes, controversies and/or claims arising out of or in connection with this agreement” which is deemed to encompass all kinds of contractual and quasi-contractual claims deriving from the contractual relationship between the parties, whereby it is still unclear to what extent claims of a tortuous nature are covered by the arbitration clause (see Article 2 of the SPC Interpretations on Arbitration Law (2006)) (see e.g., Jiangsu Textile v. Topcapital Holdings et al. (1998), Tipco Asphalt v. Jinye Group et al. (2004), Jilin Chemical v. W.P. International (2005), Mikeda Sports v. Airwalk (2006)). The matters described in the arbitration agreement must also be arbitrable [4.1]. 7.2.1.5

Designation of a Specific Arbitration Institution

According to Article 16 of the PRC Arbitration Law (1994), the arbitration agreement must expressly designate a competent arbitration commission. This requirement has two implications: (i) It is understood as prohibiting ad hoc arbitration [1.1] in China (see e.g., Hanjin Shipping v. Fuhong Oil (2006), Harvest Shipping v. Sinotrans Shenyang (2006), Future E.N.E. v. Shenzhen Cereals (2006), Bunge S.A. v. Shenzhen Trade (2007), Cosmos Marine v. Tianjin Kaiqiang (2007), FIC v. Mawei Shipbuilding (2008), in which the courts refused enforcement of foreign ad hoc awards); (ii) It is understood as referring to Chinese arbitration commissions [8.1] only, which means that arbitrations conducted in China may not be submitted to foreign arbitration institutions. For more information on the role of international arbitration institutions in China click here [8.2.2.2]. Regarding consequences of a failure to comply with this requirement, click here [7.3.3.4]. 7.2.1.6

Consequences of Non-Compliance with Formal Validity Requirements

Where one of the form requirements set forth in Article 16 of the PRC Arbitration Law (1994) is not fulfilled, the arbitration agreement will be considered ‘pathological’ [7.3]. To learn more about pathological arbitration agreements, click here [7.3]. 7.2.2

Material Validity Requirements under Chinese law

7.2.2.1

Overview of the Material Validity Requirements

For an arbitration agreement to be valid under Chinese law, Article 17 of the PRC Arbitration Law (1994) requires that such agreement comply with the following three material requirements: (i) The dispute subject to arbitration must be arbitrable [4.1]; (ii) The parties concluding the arbitration agreement must have due civil capacity [7.2.2.3]; (iii) Each party’s agreement to arbitrate must be free from coercion [7.2.2.4]. 7.2.2.2 ⇒

Arbitrability of the Matters Subject to Arbitration

Automatic redirection to [4.1]

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7.2.2.3

Civil Capacity

According to Article 17 of the PRC Arbitration Law (1994), the parties concluding the arbitration agreement must have due civil capacity. Under Chinese law, the following principles apply with regard to the parties‘ civil capacity: (i) With regard to Chinese citizens, Articles 11 et seq. of the PRC General Principles of Civil Law (1986) provides that a Chinese citizen of 18 years of age has full capacity for civil conduct and may independently engage in civil activities. The same is true for citizens who have reached the age of 16 years and whose main source of income is their own labor. Minors under 10 years old have no civil capacity and must be represented by their guardian or other appointed agent to engage in civil activities. Minors over the age of 10 and mentally ill persons have limited capacity for civil conduct and may only engage in civil activities appropriate to their age and intellect and/ or mental health; in other civil activities, they must be represented by their guardian or other appointed agent ad litem. (ii) With regard to Chinese legal persons, they acquire civil capacity as of their date of incorporation (see Article 36 of the PRC General Principles of Civil Law (1986)). 7.2.2.4

Free Will

According to Article 17 of the PRC Arbitration Law (1994), the parties’ agreement to arbitrate must be free of coercion. This principle derives from Article 54 of PRC Contract Law (1999), according to which a contract can be avoided “where a party used fraud or coercion or took advantage of the other party’s vulnerability to cause the latter to conclude a contract which was contrary to his true intention”. For relevant cases, see e.g., Fan Tao v. Jingpeng Real Estate (2008), Deheng Real Estate v. Kunming Construction (2008), Wang Jing v. Sun Liandi (2009), Qiu Donglan et al. v. Kunming Real Estate (2009), where coercion was unsuccessfully invoked by a party. 7.2.2.5

Consequences of Non-Compliance with Material Validity Requirements

Where one of the requirements set forth in Article 17 of the PRC Arbitration Law (1994) are not fulfilled, the agreement will be considered null and void (see e.g., Xinyang Auction v. Wei Suqin (2009)).

7.3 Pathological Arbitration Agreements 7.3.1 Definition of ‘Pathological Agreement’ An arbitration agreement is considered ‘pathological’ where it fails to fulfill the formal validity requirements [7.2.1] contained in Article 16 of the PRC Arbitration Law (1994). 7.3.2

Risk of Invalidity for Pathological Arbitration Agreements

Such pathological arbitration agreements are dealt with by Article 18 of the PRC Arbitration Law (1994), which provides that where an arbitration agreement contains no or unclear provisions concerning the matters for arbitration, or the arbitration commission, the parties may reach a supplementary agreement. Where no such supplementary agreement is reached, the arbitration agreement will be considered null and void. In other words, Article 18 of the PRC Arbitration Law (1994) means that if the requirements [7.2.1] of Article 16 of the PRC Arbitration Law (1994) are not satisfactorily fulfilled, the arbitration agreement will be invalid unless the parties remedy the deficiency by concluding a supplementary arbitration agreement, or unless the pathology can be bridged by interpretation of the arbitration agreement [7.3.3].

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For cases in which an arbitration agreement was invalidated for lack of compliance with the requirements of Article 16 of the PRC Arbitration Law (1994) see e.g., Sinochem Bahamas v. Hainan Petroleum (2000), Zhuhai PTL v. HK BP (2002), Wuhan Zhongheng v. Jinli Industry (2004), Xian Weizhong v. Weineng Appliance (2006), Cheng Zhangyan v. Fu Hongmin (2009)). 7.3.3

Principles of Interpretation of Pathological Arbitration Agreements 7.3.3.1

The Supreme People’s Court’s Piecemeal Approach

Whilst Article 18 of the PRC Arbitration Law (1994) provides that pathological arbitration agreements are in principle invalid unless the parties cure the pathology through the conclusion of a supplementary arbitration agreement, it does not state whether and to what extent the pathology may be cured or bridged by interpretation. The Supreme People’s Court has therefore developed various principles for interpretation of pathological arbitration agreements (See e.g. Articles 3 et seq. of the SPC Interpretations on Arbitration Law (2006)), in particular regarding: -

The reference to a wrong name of the arbitration institution [7.3.3.2]

The simultaneous reference to arbitration and litigation [7.3.3.3]

The lack of designation of an arbitration institution [7.3.3.4]

The designation of two or more arbitration institutions [7.3.3.5]

Although these principles provide some guidelines, there is a serious lack of more general principles on how to approach unclear arbitration agreements. This is a major difference with international arbitration practice, which contemplates the principle of interpretation where in case of ambiguity, uncertainties are resolved in favor of validity of the arbitration agreement (‘in favorem validitatis’) and places more emphasis on the parties’ autonomy. 7.3.3.2

Wrong Name of Arbitration Institution

According to Article 3 of the SPC Interpretations on Arbitration Law (2006), where an arbitration agreement expressly designates an arbitration commission, though referring to an inaccurate name, such arbitration commission will nevertheless be considered ‘validly designated’ provided the error in the name still enables the arbitration commission intended by the parties to be determined. For relevant cases, see e.g., Inner Mongolia Zhicheng v. South Africa Huajin (2002), Kunming Tupao v. Kunming Seven-Stars (2005), ABM v. Masa Tianjin et al. (2005), Gaoxin Sunshine v. Kunming Decoration (2006), Evershine Freight v. U&U Expo (2008), Wenxian Wasterwater v. CSCEC Seven Construction (2010), where clauses were upheld notwithstanding an incorrectly designated arbitration institution, and Zhuji Trade v. Kaiwei Trading (2001), Yanqi Illumination v. Weixin Enterprise (2004), Top Leader Textile v. Hongyang Industrial (2005), Donghong PM v. DMT (2006), Heping Economic Commission v. Goubuli JV et al. (2008), Shanghai Steel v. Advance Metals (2009), where clauses were invalidated. 7.3.3.3 Simultaneous Reference to Arbitration and Litigation According to Article 7 of the SPC Interpretations on Arbitration Law (2006), where the parties agree that they may either apply for arbitration before an arbitration institution or file a lawsuit before the state courts to resolve their disputes, the arbitration agreement will be deemed invalid, except, however, where one party applies for arbitration before the relevant arbitration institution, and the other party fails to raise any objection before the first hearing of the arbitral tribunal.

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For relevant cases, see e.g., P&O Nedlloyd et al. v. Wah Hing Seafreight (2000), Jingtong Real Estate v. Zhenli Technology (2001), Hock Weber v. A. Weber et al. (2009), Kuehne & Nagel v. Yanyuan Forwarding (2009), Fortune Shipping et al. v. IETC et al. (2009), Hock Weber v. A. Weber et al. (2009), Xinjiexing Trading et al. v. Fengruite Trading (2009), Cisa Food v. Guo Baoxian (2010), R&T Administration v. Henan CATV (2011). 7.3.3.4

Lack of Designation of an Arbitration Institution

Under Article 18 of the PRC Arbitration Law (1994), where the arbitration agreement fails to designate a specific arbitration institution, the arbitration agreement will be deemed invalid, unless the parties rectify this omission through the conclusion of a supplementary arbitration agreement. However, there are two exceptions to this principle: (i) According to Article 4 of the SPC Interpretations on Arbitration Law (2006), the arbitration agreement will be upheld where the parties have selected a specific set of arbitration rules, which allows the competent arbitration institution to be determined. For relevant cases, see e.g., Xiamen Xiangyu v. Mechel Trading (2004), Farun Glass v. Stein Heurtey et al. (2006) and compare to Donghong PM v. DMT (2006) and Amoi Electronics v. Production Belge (2009) where the choice of specific arbitration rules was not considered sufficient. (ii) According to Article 6 of the SPC Interpretations on Arbitration Law (2006), the arbitration agreement will be upheld where the parties (i) agreed on an arbitration commission of a specific place of arbitration without designating the specific name of an arbitration commission, and (ii) there is only one arbitration commission at that place. Where there are two or more arbitration commissions at that place, the parties need to reach a further agreement and designate one of the arbitration commissions. If they fail to do so, the arbitration agreement will be deemed invalid. For relevant cases, see e.g., CAS Genetics v. Jindiyuan Development (2006), Yudong Garments v. Yujian Engineering (2007), Sichuan Airlines v. Wang Qingmin et al. (2008), Oriental Construction v. Zhejiang Equipment (2009), Wenxian Wasterwater v. CSCEC Seven Construction (2010), Hechuan Construction v. D&C Group (2011) in which the arbitration clause was upheld, and compare to Canada Monarch v. Haidi Construction (2008) and PCK Pipe v. Panapond Forwarding (2009) where the courts held that the lack of clarity could not be bridged by interpretation. 7.3.3.5

Designation of Two or More Arbitration Institutions

According to Article 5 of the SPC Interpretations on Arbitration Law (2006), where more than two arbitration commissions have been agreed upon in the arbitration agreement, the parties must reach a supplementary agreement and select one of the designated arbitration commissions for arbitration. If the parties fail to reach such supplementary agreement, the arbitration agreement will be deemed invalid. For relevant cases, see e.g., HK ACE v. Dongguan Weihong et. al. (2008), Rent Corporation v. Jianhua Machinery et al. (2008) and compare to Qilu Pharmaceutical v. Aetna Trade (1996) where the clause was upheld notwithstanding the concurrent choice of two arbitration institutions.

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7.3.4 Risk of Pathology relating to CIETAC’s Restructuring CIETAC, which is one of the most prominent Chinese arbitration institutions, has several sub-commissions in China, including in Shanghai, Shenzhen, Tianjin, etc. Where parties select CIETAC as arbitration institution without specifying the headquarters or the relevant sub-commission, the question arises which entity should administer the case. According to Article 2(6) of the CIETAC Arbitration Rules (2012), if the parties just mentioned “CIETAC” as the designated arbitration institution, the case will be administrated by CIETAC headquarters in Beijing. If the parties intent to submit their dispute to a sub-commission of CIETAC, they shall mention expressly the name of the sub-commission (for example, the CIETAC South China Sub-Commission). This new rule gave rise to serious controversies among the various entities of CIETAC, which ultimately led the Shanghai and Shenzhen sub-commissions to split from CIETAC and re-incorporate themselves as independent arbitration commissions with their own rules (for more information on this split, click here). This raises serious issues with regard to the enforceability and effectiveness of arbitration clauses selecting CIETAC’s former sub-commissions. Currently, the newly established Shanghai International Arbitration Commission and the Shenzhen Court of International Arbitration accept cases based on arbitration clauses which actually designate a sub-commission of CIETAC. Thus, awards rendered on this basis have been subject to annulment proceedings and have encountered enforcement problems where the losing party contested the jurisdiction of the newly established commissions to administer the case. It remains to be seen whether these problems will amplify, or whether a solution will be found soon.

7.4 Drafting your Arbitration Agreement 7.4.1

General Recommendations

When drafting arbitration agreements with a China connection, it is always recommended that the specific formal [7.2.1] and material validity requirements [7.2.2] provided for under Chinese law are taken into account, even where Chinese law is not the law applicable to the contract and/or the arbitration agreement. The reason is that when faced with requests for annulment [2], enforcement of awards [15] and/or review of arbitration agreements [13.2], Chinese courts may under certain circumstances nevertheless turn to Chinese law for the determination of the validity of the arbitration agreement [3.3]. In addition, even when applying foreign law, Chinese courts are strongly influenced by their own perception of a valid arbitration agreement and complying with Chinese law requirements can therefore only be helpful in making the Chinese judges feel more comfortable and increase the chances of having them confirm the validity of the arbitration agreement. 7.4.2 Dos & Don’ts 7.4.2.1

Dos & Don’ts Regarding the Parties

Due to the strict requirement concerning the written form [7.2] of an arbitration agreement, it is recommended to ensure that the person signing the contract or document containing the arbitration agreement has due powers of representation (See e.g. Guanyi Pipeline v. Anhui Telecom (2009), JCD v. Gangyuan Industry (2008), Xiangjin Cereals v. Anhui Cereals (2003), Glencore International v. Chongqing Machinery (2001), Oetker v. Sinotrans Nanjing (2000)). Where the relationship involves various interconnected entities, make sure that the entity signing the arbitration agreement is the entity which will in effect perform the agreement, and if so, that it has sufficient financial capacity to do so. If collateral or other kind of security is provided by any third party, make sure to include an identical arbitration clause in the contractual document with that third party and to expressly refer in that clause to the main contract. This will allow all concerned entities to be brought into one set of arbitration proceedings (See e.g. Chengwei Investment v. Yulin Hengtong et al. (2006), Dongxun Investment v. Yulin Hengtong et al. (2006), Li Shouwei v. Concentric Renewable et al. (2008)).

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7.4.2.2

Dos & Don’ts Regarding References to State Courts

In order to comply with the requirement to provide for a clear intent to arbitrate [7.2.1.3], avoiding as far as possible all references to state courts is strongly recommended. Notwithstanding the lack of such reference, state courts will remain competent under Chinese law to hear requests for interim measures [17] and for review of arbitration agreements [13.2] and/or awards [13.5]. If the parties wish to submit certain matters to arbitration and other matters to state courts, it is important to give particular care to the drafting of such ‘carve-out’ clauses in order to avoid any overlap between matters falling under arbitral jurisdiction and matters falling under state court jurisdiction (see e.g., Lanxi Industrial v. Sanfu Property (2004)). 7.4.2.3

Dos & Don’ts Regarding the Subject Matter of Arbitration

In order to comply with the requirement to provide for the matters subject to arbitration [7.2.1.4], it is strongly recommended that broad wording such as ‘any dispute arising out of or in connection with this Agreement’ be used. In the light of the position taken by certain courts as to the questions whether tort claims are covered by contractual arbitration clauses, if the parties wish to subject tort claims arising in connection with the agreement to arbitration, it is recommended to expressly provide so (see e.g., Jilin Chemical v. W.P. International (2005) and Misuer v. Guangxia Industry et al. (2011), where the courts did not consider tort claims to fall within the scope of arbitration, and compare to Jiangsu Textile v. Topcapital Holdings et al. (1998)). 7.4.2.4

Dos & Don’ts Regarding the Arbitration Institution

In order to comply with the requirement to designate a specific arbitration institution [7.2.1.5], make sure you opt for a specific arbitration institution and refer to its full, correct and most recent name. If you translate the name of the arbitration institution, make sure the official translation is used, or otherwise add a mention of the name in the original language (see e.g., Xian Weizhong v. Weineng Appliance (2006), CRMG Guangdong v. Tongyang Shipping (2008), Canada Monarch v. Haidi Construction (2008), Celebrity Industrial v. Pil Soon Han (2009), SC Scorza v. Tianxing Railway (2009), Xinjiexing Trading et al. v. Fengruite Trading (2009), in which the courts invalidated arbitration agreements for lack of specificity with regard to the arbitration institution). For foreign-related disputes [14.1], we recommend selecting a foreign arbitration institution [8.2], such as the ICC, Swiss Chambers’ Arbitration Institution, Stockholm Chamber of Commerce, HKIAC, etc. In addition, when choosing a foreign arbitration institution, make sure that the name of the institution is mentioned together with the rules of the institution, since the reference to the rules of an arbitration institution is not always sufficient, in the eyes of Chinese courts, to establish a valid choice of arbitration institution as required by Chinese law (See e.g., Züblin International v. Woke Rubber (2004), Shanghai Stein v. Farun Glass (2006), Donghong PM v. DMT (2006) and Amoi Electronics v. Production Belge (2009), where the courts refused to uphold arbitration clauses referring to the ICC arbitration rules). For domestic disputes [14.1], make sure a Chinese arbitration commission [8.1] is designated. In both cases, avoid opting for ad hoc arbitration [1.1] in order to avoid any problems [15.4.1.3] (see e.g., Guanghe Power v. PICC Guangdong Branch (2002), Malaysia Airlines et al. v. CNCCC Dalian et al. (2004), South Korea Mobile v. CECT et al. (2006) Shanjieling Expressway v. AMCC (2007), COSCO Shipping v. CMEC Comtrans (2009), where courts invalidated arbitration agreements referring disputes to ad hoc arbitration). Regarding how to select an appropriate arbitration institution, click here [8.3]

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7.4.2.5

Dos & Don’ts Regarding the Place of Arbitration

It is strongly recommended to always provide for a place of arbitration. In this regard, however, avoid selecting a Chinese arbitration commission [8.1] and a place of arbitration abroad (why? [21]), or vice versa, a foreign arbitration institution [8.2] and a place of arbitration in China (why? [8.2.2.2]). If you select a foreign arbitration institution [8.2], make sure to opt for an arbitration-friendly place of arbitration (i.e. any of the countries which adhere to the UNCITRAL Model Law, such as Switzerland, Hong Kong, Sweden, Singapore, etc.) If you select a place of arbitration in a federal state (e.g. USA, Switzerland, Germany, etc.) make sure you select a specific city, in order to avoid doubts about which courts are competent to issue supportive measures or deal with requests for review of awards and/or arbitration agreements. 7.4.2.6

Dos & Don’ts Regarding the Arbitration Rules

Designating one arbitration institution in the arbitration agreement, and selecting the rules of another arbitration institution is not recommended. Even if some arbitration rules, such as CIETAC and SHIAC Arbitration Rules, entitle the parties to select arbitration rules of other arbitration institutions, it is best to avoid mixing up the arbitration institution and rules of another arbitration institution. This type of mixture could under certain circumstances create conflicts, which may be seen by a Chinese court as constituting a ‘procedural irregularity’ and therefore a ground for annulment [2.2] and/or non-enforcement of the award [15.4.1]. Review carefully the selected rules and provide - where necessary and admissible - for amendments of specific provisions in order to meet the specific requirements of the contractual relationship. Particular regard should be given to the selection of arbitrators and their appointment mechanism [6.1], as well as to the evidentiary proceedings. For Chinese arbitrations, we recommend referring to the IBA Rules on the Taking of Evidence in International Arbitration (1999), or to provide for specific rules regarding the taking of evidence, in order to avoid arbitrators referring to the rigid rules on evidence [23.3] issued by the Supreme People’s Court. 7.4.2.7 ⇒

Dos & Don’ts Regarding the Selection of Arbitrators

Automatic redirection to [6.1] 7.4.2.8

Dos & Don’ts Regarding the Language of the Arbitration

Do not forget to provide for the language of the arbitration. Without such express agreement, the arbitration will in principle be conducted in Chinese (see e.g., Article 64(1) BAC Arbitration Rules (2008)), which will automatically influence the choice and appointment of the arbitrators. However, under some new arbitration rules, in the absence of express agreement concerning the language, the language will not necessarily be Chinese and the arbitration institution can decide to apply another language depending on the circumstances of the case (see e.g., Article 71(1) of the CIETAC Arbitration Rules (2012), Article 60 of the SHIAC Arbitration Rules (2013)).

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Our recommendation is to avoid providing for the arbitration proceeding to be conducted in two or more than two languages. Having to conduct proceedings in two languages often means having to translate every single piece of document into all relevant languages, as well as providing for interpretation in both languages, etc. Thus, the additional work load and cost arising out of a simultaneous choice of different languages should not be underestimated. 7.4.3

Model Arbitration Clauses

For standard two-party contractual relationships we recommend the following arbitration clause: “Any dispute, controversy or claim [optional: of contractual or any other nature, including tort claims [7.4.2.3],] arising out of or in relation to the Agreement shall be submitted to arbitration under the

auspices of the [Name of the Arbitration Institution [7.4.2.4]] in accordance with [Name of the Arbi-

tration Rules of the selected Arbitration Institution [7.4.2.6]] (hereinafter the ‘Arbitration Rules’) in force on the date of filing of the Request for Arbitration.

The case shall be heard by [a sole arbitrator / a three member arbitral tribunal]. The arbitrator(s)

shall be appointed

[Option 1: “in accordance with the procedure set forth in the Arbitration Rules”]. [Option 2: Provide for an appropriate appointment mechanism [6.1] if you do not wish to adopt the default mechanism provided for in the relevant arbitration rules].

The [sole arbitrator / presiding arbitrator] shall be of a nationality different than those of the parties. [Add any particular knowledge or skills you want the arbitrators to have]

[Provide for specific rules on the taking of evidence [23.3], or otherwise refer to the IBA Rules on the Taking of Evidence in International Commercial Arbitration of 2010 [23.3.5]].

The place of arbitration shall be [Country and/or City [7.4.2.5]]. The language of arbitration shall be

[Language [7.4.2.8]].

The award shall be final and binding on the Parties.”

Particular attention should be given to the choice of the arbitration institution [8.3], which will firstly depend on the foreign-related or domestic [14.1] nature of the dispute. With regard to multi-party, multi-contract complex arbitrations [19], it is impossible to provide a standard clause. Please contact us for a tailor-made arbitration clause.

7.5 Waiver of an Arbitration Agreement According to Article 26 of the PRC Arbitration Law (1994) and Article 14 of the SPC Interpretations on Arbitration Law (2006), where, despite the existence of a valid arbitration agreement, one party brings a relevant dispute before the Chinese courts, the other party must raise an objection to the court’s jurisdiction based on the existence of a valid arbitration agreement before the first hearing of the court (so-called ‘exceptio arbitri’). Failure to raise such an objection in a timely manner is regarded as a waiver of the arbitration agreement (See e.g., Wanli Stone v. Tianyu Express (2007)). The parties may also jointly expressly agree to waive their arbitration agreement and resort to the courts (see e.g., Feng Jigui v. Han Hongbo (2007) and Guo Jun et al. v. Shenyang Architectural (2007)). They should do so in written form in order to avoid any problems.

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7.6 Extension of Arbitration Agreements to Non-Signatories Due to the strict requirement concerning written form [7.2.1.2], where a party has not signed the document containing the arbitration agreement, the arbitration agreement will be invalid because it lacks the necessary written form. This renders it difficult to extend the effect of arbitration agreements to non-signatory parties. Chinese law nevertheless knows a limited number of exceptions, where a party will be deemed bound by the arbitration agreement even though it may not have signed it: (i) Cases of representation, i.e. where the signatory validly represented the non-signatory (see e.g., Article 402 of the PRC Contract Law (1999), JCD v. Gangyuan Industry (2008), Oetker v. Sinotrans Nanjing (2000), Li Shouwei v. Concentric Renewable et al. (2008)); (ii) Cases of contract assignment, i.e. where the contract containing the arbitration clause is assigned to a third party and such third party has knowledge of the arbitration agreement included in the contract (see e.g., Article 9 of the SPC Interpretations on Arbitration Law (2006), Li Shouwei v. Concentric Renewable et al. (2008), Ruichang Market Management v. Lvpeng Planting (2007), Zhongji Property v. Meihong Group (2001)); (iii) Cases of legal succession, i.e. where rights and obligations deriving from the contract containing the arbitration clause are taken over by another entity or person, such as in case of merger of companies or inheritance, etc. (see Article 8 of the SPC Interpretations on Arbitration Law (2006)); These exceptions are limited. Contrary to international arbitration practice, the strict form requirement under Chinese law makes it impossible to extend arbitration agreements to non-signatories based on a tacit agreement to arbitrate or other legal doctrines, such as group of companies, the piercing of the corporate veil, abuse of rights, etc. This is clearly illustrated by the Chinese courts’ practice regarding enforcement of arbitral awards [15], according to which the inclusion of non-signatory parties into arbitration proceedings based on such concepts will be considered an excess of the tribunal’s scope of authority and thereby also a ground for annulment [2.2] and/or non-enforcement [15.4] of the award. For relevant cases, see e.g., PAIC Sichuan v. Xiangheli Shipping et al. (2009), Sinochem v. Haili (2009), Fortune Shipping et al. v. IETC et al. (2009) in the context of proceedings aiming at reviewing the validity of the arbitration clause, and Bao Yangbo v. Shangqiao Industry et al. (2003), GMI v. Wuhu Smelter et al. (2003), Rücker v. Aux Group (2008), FIC v. Mawei Shipbuilding (2008), Hemofarm DD et al. v. Yongning Pharmaceutical (2009), Dongxun Investment v. Yulin Hengtong and Yulin City (2009), Chengwei Investment v. Yulin Hengtong et al. (2009), Janful Limited v. Nanjing Skytech (2010) in the context of enforcement proceedings. See also Yingzhifu Training v. EF Consulting et al. (2005), where the Shanghai No. 2 IPC surprisingly admitted that a party could be bound by the arbitration agreement where such party’s conduct can be deemed to constitute an implicit acceptance.

7.7 Severability of the Arbitration Agreement By stipulating that an arbitration clause exists independently from the contract it is contained in, Article 19 of the PRC Arbitration Law (1994) expressly recognizes the principle of the severability of the arbitration clause. This principle was further confirmed in Article 10 of the SPC Interpretations on Arbitration Law (2006), in which the Supreme People’s Court clarified that this principle applied where not only the validity of the contract but also its formation was in dispute. As such, the arbitration clause is completely separable from the main contract and is not necessarily affected by the invalidity or the non-formation of the main contract (see e.g., Huahai Imp. & Exp. v. China Shipping (2002), Zhendong Group v. Yongke Thermal (2009), Wang Jing v. Sun Liandi (2009) and Xiangrun New Energy v. Yunlong Industry (2012)).

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7.8 Enforcement of the Arbitration Agreement Where despite the existence of an arbitration agreement, one of the parties refuses to submit the dispute to arbitration, it can either try to directly submit the dispute to the courts or request the court to review the validity of the arbitration agreement [13.2]. Where the dispute is submitted directly to the courts, the party insisting on arbitration must raise an objection as to the court‘s jurisdiction based on the arbitration agreement (so-called ‘exceptio arbitri’) requesting the court to ‘enforce‘ the arbitration agreement by (i) refusing jurisdiction and/or (ii) referring the parties to arbitration. In this respect, it should be noted that Chinese courts do not have the power to issue ‘anti-suit injunctions’ and are limited to refusing jurisdiction and referring the parties to arbitration. For relevant cases, see e.g. Celebrity Industrial v. Mr Han (2009), Fortune Shipping et al. v. IETC et al. (2009), COSCO Shipping v. CMEC Comtrans (2009), Mashan Group v. Sungdong Shipbuilding et al. (2008), Shenzhen Cereals v. Future E.N.E. (2005)).

ARBITRATION INSTITUTION

8.1 Chinese Arbitration Institutions 8.1.1 Number of ‘Arbitration Commissions’ In China, arbitration institutions are commonly referred to as ‘arbitration commissions’. Before 1995, there were thousands of local arbitration commissions in China. This number drastically diminished after the restructuring of the general arbitration landscape in 1995 under the PRC Arbitration Law (1994). By the end of 2012, the total number of arbitration commissions was estimated to be 219. 8.1.2

Types of Chinese Arbitration Institutions

8.1.2.1

Domestic vs. Foreign-Related Commissions

Domestic arbitration commissions are established according to the procedure set forth in Articles 10 to 15 of the PRC Arbitration Law (1994) as administrative bodies, under the supervision of the cities’ local government by the competent department and/or chambers of commerce and registered with the local department of justice. Foreign-related arbitration commissions are special bodies, not directly subordinate to the local administration and established as “social organizations concerned with foreign trade” under the China Council for the Promotion of International Trade (CCPIT) according to Articles 66, 67 of the PRC Arbitration Law (1994). Out of the existing 219 arbitration commissions, only two are so-called foreign-related commissions: CIETAC and China Maritime Arbitration Association (CMAC), all others being domestic arbitration commissions. 8.1.2.2

Relevance of the Distinction

Originally, the primary implication of the distinction was that domestic arbitration commissions could only handle domestic disputes [14.1], whilst foreign-related arbitration commissions could only handle foreign-related disputes [14.1] according to a different set of rules.

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Whilst the PRC Arbitration Law (1994) maintains the distinction between domestic and foreign-related arbitrations [14.2], it does not impose a specific scope of jurisdiction on each type of arbitration commission. In 1996, the General Office of the State Council issued the State Council Notice on the Implementation of the Arbitration Law (1996) in which it entitled domestic arbitration commissions to handle foreign-related arbitrations, if so requested by the parties. In 1998 and 2000 respectively, CIETAC and CMAC extended their scope of jurisdiction to cover disputes involving FIEs first, and then domestic arbitration cases in general. In addition, Article 271 of the Civil Procedure Law (2012) now expressly provides that parties to a foreign-related dispute may subject such dispute ‘to a foreign-related arbitration commission or another arbitration commission’. Thus, any arbitration commission can nowadays handle any kind of arbitration. Consequently, the only real distinction left between domestic arbitration commissions and foreign-related arbitration commissions relates to their establishment procedure and their internal organization, but no longer to the scope of their jurisdiction. 8.1.3

Characteristics of Chinese Arbitration Institutions 8.1.3.1

Structure

According to Articles 10 to 14 of the PRC Arbitration Law (1994), Chinese arbitration institutions [8.1] are normally composed of a management committee or administration board and a secretariat which takes charge of the day-to-day administration work. They may also set up an expert advisory board to provide consultative advice to them and to the arbitrators on complex issues (see e.g. Article 17 of the Constitution of the Beijing Arbitration Commission (2008)). The internal organization of Chinese arbitration institutions [8.1] is similar to most arbitration institutions in other countries. However, based on the way they are established, they are considered to be an administrative body attached to the local government. This of course influences the way the arbitration commission operates and it may also influence the internal organization, in particular the nomination of key staff. 8.1.3.2

Independence

Articles 8 and 14 of the PRC Arbitration Law (1994) contemplate the principle of ‘independent arbitration’ expressly stipulating that (i) arbitration is to be carried out independently according to law and without interference of administrative organs, public organizations, or individuals, and (ii) that arbitration commissions are to be independent and not subordinate to administrative organs or other arbitration commissions. However, despite the intention of the PRC Arbitration Law (1994) to create an independent arbitration system, there exist many practical and structural difficulties to achieving such aim: (i) There is a clear contradiction between the principle of independence of arbitration commissions and the fact that arbitration commissions are established under the relevant local governments through the competent department and/or chambers of commerce and registered with the competent justice department. (ii) Because of a lack of implementation rules under the PRC Arbitration Law (1994), arbitration commissions are subject to the de facto interference of administrative bodies issuing implementing administrative regulations (e.g. the State Council Scheme for Reorganizing Domestic Arbitration Commissions (1995), which provides that positions of higher cadres of domestic arbitration commissions should be filled in accordance with the recommendations of the local government; in practice, this has led to the nomination of government officials as key staff of local arbitration commissions).

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(iii) Many arbitration commissions are not economically viable because they are established based on administrative policy, and not market demand. As such, many of them depend on financial subsidies and other support from local governments. 8.1.3.3

Arbitration Rules

Each arbitration commission has its own arbitration rules. As everywhere else in the world, Chinese arbitration rules are only ‘soft law’ in the sense that they only apply where the parties have chosen to submit their dispute to such rules and insofar as they are in conformity with mandatory law. Actually, many of the rules used by domestic arbitration commissions were at first based on the State Council Model Provisional Arbitration Rules (1995) recommended by the General Office of the State Council in 1995. Since then, many of them have revised their rules on several occasions, often looking to other arbitration commissions which have been more audacious and have tried to develop their rules in accordance with international practice and the needs of the business community (such as CMAC, BAC and CIETAC).

8.2 Foreign Arbitration Institutions 8.2.1 Definition of ‘Foreign’ Arbitration Institution The concept of ‘foreign arbitration institution’ refers to any arbitration institution established outside of mainland China, some of the most famous ones being the ICC, the HKIAC, the Arbitration Institute of the Swedish Chamber of Commerce, the Swiss Chambers’ Arbitration Institution, the SIAC, the LCIA, the AAA, etc. 8.2.2

Role of Foreign Arbitration Institutions in China

8.2.2.1

Closed Market for Foreign Arbitration Institutions?

It is often said that foreign arbitration institutions are not entitled to conduct arbitrations in China. The validity of this affirmation depends on what is meant by ‘conduct arbitrations in China’: -

If one means the conduct by foreign arbitration institutions of arbitrations with a place of arbitration in China [8.2.2.2], then this affirmation is wrong.

If one means the conduct by foreign arbitration institutions of proceedings, which qualify as ‘Chinese’ [8.2.2.3] and fall under the PRC Arbitration Law (1994), then it is correct. 8.2.2.2

Conduct of Arbitration with a Place of Arbitration in China

Since the Duferco S.A. v. Ningbo Imp. & Exp. (2009), it is admitted that nothing hinders foreign arbitration institutions from conducting arbitration cases with a place of arbitration [21] in China and that Chinese courts will in principle enforce such awards (see also e.g., Macor Neptun v. Shanghai Mechanical (2001) and Züblin International v. Woke Rubber (2006)). The courts considered awards rendered by foreign arbitration institutions with a place of arbitration in mainland China to be ‘non-domestic’ awards in the meaning of Article 1(1) second paragraph of the New York Convention 1958. While this approach is positive in the sense that it allows enforcement of such awards under the New York Convention 1958, it is in contradiction with China’s reciprocity reservation under the New York Convention 1958, according to which the New York Convention 1958 only applies to awards rendered in another member state. The rationale of the courts is linked to the Chinese approach towards nationality of arbitration awards [5.2], which considers arbitrations handled by a foreign arbitration institution as ‘foreign’, i.e. non-Chinese arbitrations. These arbitrations are thus not subject to the PRC Arbitration Law (1994) and therefore raise – for now - no concerns from a ‘Chinese perspective’.

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This does however not mean that opting for foreign arbitration institutions whilst designating a place of arbitration in China is recommended (see our Dos & Don’ts [7.4.2.5]). This would in fact create a risk of negative conflict of competence with regard to interim measures and other supporting measures, or with regard to the annulment of the award: Courts of the country where the arbitration institution is located will likely reject their jurisdiction in the light of the place of arbitration being in China. At the same time, it is doubtful whether the courts in China would be prepared to intervene, since they will deem that the arbitration and the award at stake are ‘foreign’, therefore not subject to the PRC Arbitration Law (1994) and beyond their scope of jurisdiction. In addition, Chinese courts are currently reviewing their approach towards the nationality of arbitration awards [5.2], and are considering giving more weight to the place of arbitration. As such, the principle developed in the Duferco S.A. v. Ningbo Imp. & Exp. (2009) should not be considered written in stone. 8.2.2.3

Conduct of ‘Chinese Arbitration Proceedings’

According to the Chinese approach towards nationality of arbitration proceedings, an arbitration is of Chinese nationality only if it is handled by a Chinese arbitration institution. Thus, in order to be able to conduct ‘Chinese’ arbitration proceedings and render a ‘Chinese award’, a foreign arbitration institution would need to have a registered branch in China. As of today, no foreign arbitration institution has established a branch in mainland China, and it is doubtful whether this is actually possible. The Court of Arbitration for Sports, which is seated in Lausanne (Switzerland) has however opened a hearing center in Shanghai in summer 2013 in order to conduct hearings in mainland China. In order to set up such a branch, the foreign arbitration institution would need to comply with the requirements for establishment of arbitration institutions as set forth in Articles 10 et seq. and 66 et seq. of the PRC Arbitration Law (1994). It is unclear whether this is actually feasible. In addition, it would mean that the Chinese branch of the foreign arbitration institution would be subject to the limitations provided for in the PRC Arbitration Law (1994), which would not be very appealing to foreign arbitration institutions, since it would force them to have two different standards of practice: one in China, one abroad. 8.2.3

Importance of China-Related Disputes for Foreign Arbitration Institutions

It is very difficult to estimate the volume and importance of China-related disputes submitted to foreign arbitration institutions [8.2], since very few arbitration institutions publish relevant statistics. Relying on the nationality of the parties, it seems that disputes involving Chinese parties and submitted to foreign arbitration institutions [8.2] are not yet numerous. For relevant figures: -

click here for the ICC

click here for the HKIAC

click here for the SIAC

8.3 Selecting an Arbitration Institution 8.3.1 8.3.1.1

Key Selection Criteria

Chinese vs. Foreign Arbitration Institutions

When selecting an appropriate arbitration institution, the first decision is whether to choose a Chinese arbitration institution [8.1] or a foreign one.

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This choice is not fully free and depends firstly on the domestic or foreign-related [14] nature of the relationship. Whilst parties to a foreign-related [14.1] contract may choose to submit their dispute to a foreign arbitration institution, domestic [14.1] disputes necessarily fall within the jurisdiction of Chinese arbitration institutions. This is the solution contemplated by Article 128 of the PRC Contract Law (1999). 8.3.1.2

Choice among Foreign Arbitration Institutions

If the contractual relationship is foreign-related [14.1], Article 128 of the PRC Contract Law (1999) provides that the parties may select either a Chinese arbitration institution [8.1] or any other arbitration institution. In such case, we recommend selecting a foreign arbitration institution [8.2] rather than a Chinese arbitration institution [8.1], for the following main reasons: -

It will provide a better guarantee of independence regarding the arbitration proceedings and the appointment of arbitrators;

It will provide the parties with a wider choice of arbitrators [6.1.2.1];

It will provide the parties and the arbitrators with more flexibility regarding the design and shaping of the arbitration procedure.

Among the most commonly chosen foreign arbitration institutions are the ICC, the HKIAC, the SIAC, the Swedish Chamber of Commerce, the Swiss Chambers’ Arbitration Institution, the LCIA, etc. Before opting for one of them, reading their arbitration rules and their fee and cost schedules is highly recommended to avoid any unpleasant surprises. If the Chinese party refuses to accept a foreign arbitration institution and insists on a Chinese arbitration commission, follow our recommendations regarding Choice of Chinese Arbitration Institution [8.3.1.3]. 8.3.1.3

Choice among Chinese Arbitration Institutions

If the contractual relationship is domestic [14.1], the parties have no other choice than to select a Chinese arbitration institution [8.1]. The selection of an appropriate arbitration commission should be made according to the following main criteria: -

Panel of Arbitrators [6.1.2.2]: Choose an arbitration commission providing for a large panel of arbitrators [6.1.2.2] with different backgrounds and nationalities;

Arbitration Rules [3.4]: Make sure the arbitration rules of the arbitration commission provide for sufficient flexibility, in particular for the parties’ right to deviate from such rules [3.4];

Exposure to international disputes: Select an arbitration commission which has a strong record of handling international disputes, and avoid local arbitration commissions in remote places;

Reputation and Independence: Avoid selecting an arbitration commission which is known to lack impartiality and/or professionalism;

General attitude towards arbitration of the courts at the place of the arbitration commission: Avoid selecting an arbitration commission located in a city where the courts are known to be hostile to arbitration.

In the case of a Chinese arbitration institution [8.1], we recommend opting for BAC, CIETAC or Guangzhou Arbitration Commission, and for maritime disputes the CMAC. Although these arbitration commissions may not be perfect, they are by far the best available option compared to arbitration commissions in remote areas, which suffer of a lack of exposure to international commercial cases and a strong influence from local governments.

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8.3.2

Ranking of Chinese Arbitration Institutions

Based on their caseload, the top 10 arbitration commissions in China in 2011 were: 1.

Wuhan Arbitration Commission [http://www.whac.org.cn/],

Guangzhou Arbitration Commission [http://www.gzac.org/],

Cangzhou Arbitration Commission [http://www.czzcwyh.com/],

Chongqing Arbitration Commission [http://www.cqac.org.cn/],

Zhengzhou Arbitration Commission [http://www.zzac.org.cn/],

Baoji Arbitration Commission (BAC) [http://zcw.baoji.gov.cn/],

Zhumadian Arbitration Commission [http://www.zmdzc.cn/],

Jinan Arbitration Commission [http://www.jnac.org.cn/],

Qingdao Arbitration Commission [http://www.qdac.org/]

10.

Quanzhou Arbitration Commission [http://www.qzac.org.cn/]

Based on their reputation and credibility, the ranking of top 10 Chinese arbitration institutions [8.1] in our opinion is as follows: 1.

CIETAC [http://www.cietac.org/index.cms]

CMAC [http://www.cmac-sh.org/en/home.asp]),

Beijing Arbitration Commission [http://www.bjac.org.cn/en/index.asp],

Shanghai International Arbitration Center [http://www.cietac-sh.org/],

Shenzhen Court of International Arbitration [http://www.sccietac.org/main/],

Guangzhou Arbitration Commission [http://www.gzac.org/],

Shanghai Arbitration Commission [http://www.accsh.org/accsh/english/index.html],

Wuhan Arbitration Commission [http://www.whac.org.cn/],

Xian Arbitration Commission [http://www.xaac.org/],

10.

Shenzhen Arbitration Commission [http://www.szac.org/],

ARBITRATION PROCEDURE

9.1 Law Applicable to the Arbitration Proceedings ⇒

Automatic redirect to [3.2]

9.2 Rules Governing the Procedure ⇒

Automatic redirect to [3.4]

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9.3 Key Procedural Steps 9.3.1

Filing and Acceptance of the Request for Arbitration

According to Article 21 of the PRC Arbitration Law (1994), a party may apply for arbitration where the following conditions are met: (1)

There is an arbitration agreement;

(2)

There is a specific arbitration claim based on specific facts and reasons; and

(3)

The application is within the scope of the arbitration institution‘s jurisdiction.

Thus, in order to launch arbitration proceedings, according to Articles 22-24 of the PRC Arbitration Law

(1994) the requesting party must file a written request containing (i) information and supporting documents

about the identity and address of the parties, (ii) a description of the arbitration claim and the facts and rea-

sons on which it is based, and (iii) a mention of the relevant evidence relied upon and/or the evidence itself. In addition, the requesting party must attach a certified copy of the arbitration agreement to its request.

The application must be duly signed and/or stamped by the requesting party or its representative, and must

be filed together with payment of the advance on costs, to be determined according to the relevant arbitration institution’s fee schedule.

The Secretariat of the relevant arbitration institution will then examine the application. If it fulfills all requirements for acceptance, the Secretariat will accept the application and send out a Notice of Arbitration to the

other party, enclosing the Request for Arbitration and other relevant documents and information about the arbitration proceedings. If the application does not comply with the requirements, the Secretariat will reject the

case, although it will usually first give the party an opportunity to revise its application. Under some arbitration rules, the arbitration institution will fix a specific deadline for the party to complete its application. If the party

fails to complete the required formalities within the set time period, it shall be deemed not to have submitted

a request for arbitration (see Article 13(3) of the CIETAC Arbitration Rules (2012), Article 12 of the Shanghai

Arbitration Rules (2012)). Furthermore, a party may be deemed to have withdrawn its claim or counterclaim if it becomes impossible to carry out the arbitration proceedings for reasons attributable to that party (see Article 44(2) of the CIETAC Arbitration Rules (2012), Article 48 of the Shanghai Arbitration Rules (2012)). 9.3.2

Other Written Submissions

After the defendant is notified by the Secretariat of the Request for Arbitration, it will be invited to file a writ-

ten Answer to the Request within a fixed time limit (45 days for CIETAC, 15 days for the BAC).

As with the Request for Arbitration, the Answer must in principle contain (i) information about the identi-

ty and address of the defendant; (ii) arguments in defense to the Request for Arbitration and the facts on

which such arguments are based; (iii) any counterclaims the defendant raises; and (iv) reference to relevant evidence (see Articles 14, 15 of the CIETAC Arbitration Rules (2012); Articles 10, 11 of the BAC Arbitration Rules (2008)).

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Neither the PRC Arbitration Law (1994) nor the arbitration rules of Chinese arbitration commissions expressly provide for further rounds of written submissions. In practice however, it is quite common to have one further round of written submissions, although customs differ among arbitration commissions. In CIETAC arbitration, and depending on the complexity of the case, there may be several rounds of written submissions, whereas in BAC arbitration a single round of exchange of written submissions seems to be the rule. All written submissions and other arbitration documents from the parties shall be submitted to the Secretariat of the institution; all arbitration documents to be exchanged during the arbitration proceedings shall normally be exchanged among the arbitral tribunal and the parties by the Secretariat (see Article 25 of the PRC Arbitration Law (1994), Article 9 of the BAC Arbitrtion Rules (2008), Article 18(1) of the CIETAC Arbitration Rules (2012)). But in CIETAC arbitration, the submission and exchange of the arbitration submissions and documents can also organized in other ways if the parties so agree under the consent of the arbitral tribunal, or the arbitral tribunal so decides (see Article 18 of the CIETAC Arbitration Rules (2012)). 9.3.3 9.3.3.1

Hearings

Case Management Conference

In international arbitration practice, and in particular in ICC arbitration, it is common for the arbitral tribunal to hold at the very beginning of the proceedings a so-called ‘case management conference’ aiming to discuss and determine the organization of the arbitration procedure, such as the number of written submissions, the key deadlines for filing of submissions and documents, the time and place of the hearings and their organization, the rules on taking evidence, the possibility and form of document production (see Article 24 of the ICC Arbitration Rules), etc. This practice is not yet well established in China, although it has started to spread under arbitration commissions such as CIETAC and Wuhan Arbitration Commission (see e.g. Article 42 of the Wuhan Arbitration Commission Arbitration Rules (2007)). 9.3.3.2

Main Hearings

Main hearings are held at a more advanced stage of the proceedings and during which the arbitral tribunal will hear the parties on the main issues of the case and examine the relevant evidence. According to Article 39 of the PRC Arbitration Law (1994), after conclusion of the exchange of written submissions, the arbitral tribunal will in principle hold a hearing, at which it will hear the parties and examine all the relevant evidence, including potential witnesses. The hearing is in principle conducted in camera (see Article 40 of the PRC Arbitration Law (1994)). The parties are in principle bound to appear at the hearing, although they may request a postponement based on reasonable grounds. If the claimant fails to appear at the hearing, it will be deemed to have withdrawn its claim. If the respondent fails to appear, it will not prevent the arbitral tribunal from hearing case and rendering a ‘default award’ [5.3.3.3] (see Article 42 of the PRC Arbitration Law (1994)). 9.3.3.3

Place of the Hearing

In international arbitration, hearings can be held at any place convenient to the parties and the arbitrators. Thus, there is no necessary link between (i) the place of the hearing, (ii) the place of arbitration and/or (iii) the seat of the arbitration institution.

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In China, however, hearings are traditionally held at the premises of the relevant arbitration institution. As such, the place of the hearing, the seat of the arbitration institution and the place of arbitration were often one and the same place [21.1]. Because of this, Chinese parties and arbitrators are not used to hold hearing in different places and tend to assume that hearings have to be held at the place of arbitration and/or at the seat of the arbitration institution. There is however no such requirement under Chinese law. Actually, some arbitration rules now expressly allow the parties to freely choose a place of hearing (see e.g., the CIETAC Arbitration Rules (2012); the SHIAC Arbitration Rules (2013)). 9.3.4

Post-Hearing Briefs

In international arbitration practice it is common to give the parties the opportunity to file Post-Hearing Briefs, in order to comment on the evidence presented at the hearing. This is not provided for in the rules of any of the arbitration commissions in China, and it is rare that parties expressly provide for such an additional exchange of written submissions. However, under CIETAC and BAC practice, arbitral tribunals sometimes provide the parties with the opportunity to submit post-hearing briefs after the hearings, allowing them to make statements and comment on the hearings and the evidence presented. Since this practice is not yet widely established, it will also largely depend on the arbitral tribunal hearing the case; if the parties wish to provide for a post-hearing round of written submissions, they should provide so [7.4.2.6] in their arbitration agreement or select arbitrators who are familiar with this practice.

9.4 Taking of Evidence ⇒

Automatic redirect to [23]

9.5 Service of Documents in Arbitration 9.5.1 Lack of Specific Legal Provisions Chinese law, and in particular the PRC Arbitration Law (1994) does not contain any provision concerning the service of documents in arbitration proceedings. Whilst it is generally admitted that the rules on service of judicial documents do not necessarily apply in arbitration, there remains some uncertainty about the specific rules to be applied. To remedy to this uncertainty, Chinese arbitration commissions [8.1] usually provide specific rules of service in their arbitration rules [3.4]. These rules concern mainly (i) the means of service [9.5.2], as well as (ii) the place of service [9.5.3]. 9.5.2

Admissible Means of Service

According to the practice of the Chinese arbitration commissions [8.1] (see e.g. Article 8 of the CIETAC Arbitration Rules (2012); Article 63 of the BAC Arbitration Rules (2008)), ‘valid means of service’ includes:

Service in person;

Service by mail or courier;

Service by telex, facsimile; and

Service by any other means that the arbitration commission or the arbitral tribunal considers appropriate, such as service by public notice [9.5.2.2] and sometimes by email [9.5.2.1].

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It should be noted that non-receipt of documents is an objection commonly raised by defendants in annulment or enforcement proceedings and constitutes a ground for annulment [2.2] and/or non-enforcement [15.4] (see e.g., International Transport v. Guang’ao Trade (2000), Kryukovskiy Car v. Changcheng Trade (2003), Harvest Shipping v. Sinotrans Shenyang (2006), Mawan Power v. Runhe Development (2008), Addax v. Zhongji Trade (2009) and compare to Wai Lana Yoga v. Guangzhou Huanyu (2007) and Schroeder v. Huada Food (2009) in which the court rejected overly formalistic arguments regarding service of notices). The burden of proving receipt lies on the shoulders of the party relying on the served document. Thus, always opting for a means of service generating proof of receipt by the receiving party is highly recommended. 9.5.2.1

Service by Email

Although service of contractual documents by email is becoming more common, especially when expressly agreed upon by the parties in the contract, its application to arbitration proceedings remains problematic because of the difficulty of guaranteeing and/or proving receipt of emails (see e.g., Cosmos Marine v. Tianjin Kaiqiang (2007)). Many arbitration commissions, such as CIETAC and BAC, and tribunals do not consider service by email to be sufficient with regard to important documents such as the Notice of Arbitration, the Notice of the Hearing, etc. However, where the parties expressly agree on the possibility of serving arbitration documents by email, arbitration commissions and tribunals will in principle respect this choice, though it is then highly recommended to further provide for rules determining when an email is deemed to be received by the addressee. Other arbitration commissions, such as Guangzhou Arbitration Commission have expressly provided for service by email in their rules and do therefore not require an express agreement by the parties (see Article 73 of the Guangzhou Arbitration Commission Arbitration Rules (2006)). A general modernization of this practice is hoped with the future entering into force of the United Nations Convention on the Use of Electronic Communications in International Contracts (2005), which China signed in June 2006 but which has not yet been ratified. 9.5.2.2

Service by Public Notice

In Chinese court proceedings, where a party cannot be located or service by other means has failed, it is possible to serve such party by way of ‘public notice’. Originally, service by way of ‘public notice’ was recognized as a valid means of service in arbitration proceedings. Whilst some arbitration commissions, such as CIETAC and BAC have removed the provisions on service by public notice from their arbitration rules, other local arbitration commissions, such as Guangzhou Arbitration Commission (see e.g. Article 73(10) of the Guangzhou Arbitration Commission Arbitration Rules (2006)) still provide for the possibility of service by way of public notice in their rules. As there is no specific legal provision on the service of arbitration documents by public notice, the provisions on the service of judicial documents will be applied in this situation. According to Articles 88, 89 of the SPC Civil Procedural Law Opinions (1992) the public notice must be posted at the last domicile of the addressee or published in a newspaper. Regarding the notification of an arbitration request, the public notice must summarize the content of the request for arbitration and list the terms for response and the consequences of failure to respond in time. Regarding the notification of a hearing, the public notice must specify the place, the time of the hearing and the consequences of a default. Regarding the notification of an arbitral award, the public notice must specify the main content of the award and the rights and terms of recourse against it. This practice, which has been confirmed as valid by Chinese courts, does raise some issues of confidentiality [11.2].

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9.5.3

Place of Service

In principle, unless service is made by way of public notice [9.5.2.2], documents must be served to the recipient in person, or at its current place of business, place of habitual residence or other mailing address provided by the addressee or the counterparty (see e.g. Article 8 of the CIETAC Arbitration Rules (2012); Article 63 of the BAC Arbitration Rules (2008)). In practice however, once counsel have been appointed, the arbitration commission and the parties will serve documents at the address of the concerned party’s counsel. Problems in practice often arise in the context of default proceedings, where the defendant has not provided information about its identity and address, and where the claimant is not in a position to identify the defendant’s registered address. In such cases, the arbitration rules usually provide that where despite reasonable inquiries, the addressee’s address cannot be determined, service shall be deemed to have been effected if the document is delivered to the addressee’s last known place of business, place of habitual residence or other mailing address by mail, courier or by any other means of delivery with proof of attempt to deliver. Under CIETAC practice, if reasonable attempts to locate the respondent fail, CIETAC will entrust a specific law firm with receiving all judicial documents in the name of respondent and such documents will be deemed duly served for the purpose of the arbitration proceedings. However, the origin and legitimacy of this practice is not totally clear. Under BAC practice, BAC will send the documents by registered mail to the addressee’s last address and will have this certified by a public notary so as to establish that BAC made its best efforts to serve the documents. However, even then, it is not uncommon that the addressee later on raises the issue of non-receipt of relevant documents as a ground for annulment [2.2] and/or non-enforcement [15.4] of the award. Depending on the circumstances, the court may grant this objection and confirm annulment or refuse enforcement. For relevant cases, see e.g., Bunge Singapore v. Fengyuan Grain (2007), Cosmos Marine v. Tianjin Kaiqiang (2007), Shin-Estu Chemical v. Xinmao Science (2008), Shin-Estu Chemical v. Zhongtian Technology (2008), Mawan Power v. Runhe Development (2008), Mongolia Aiduoladuo v. Zhejiang Zhancheng (2009), Addax v. Zhongji Trade (2009), Boertong v. Liantaichang Commerce (2009)).

9.6 Summary Procedure Most Chinese arbitration commissions [8.1] provide for simplified procedures where the amount in dispute is below a certain threshold (which substantially varies from commission to commission, e.g. RMB 2,000,000 in CIETAC arbitration and RMB 1,000,000 in SHIAC arbitration and BAC arbitration, see Article 54 of the CIETAC Arbitration Rules (2012); Article 52 of the SHIAC Arbitration Rules (2013); Article 47 of the BAC Arbitration Rules (2008)), or where other circumstances justify resorting to a simplified procedure (so-called ‘Summary Procedure’). One particularity is that once the Summary Procedure has started, it will not be affected anymore by any amendment to the claim or by the filing of a counterclaim. Where the amount in dispute of the amended claim or that of the counterclaim exceeds the threshold, the proceedings will still be conducted under the Summary Procedure, unless the parties agree or the arbitral tribunal decides that a change to the common procedure is necessary (see e.g. Article 61 of the CIETAC Arbitration Rules (2012); Article 51(1) of the BAC Arbitration Rules (2008)). The main differences between Summary Procedure and normal procedure lie in the number of arbitrators (1 instead of 3) and in the shorter time limits applicable to the parties’ submissions, service of notices, hearing, the deadline for rendering of the award, etc.

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10.

CONCILIATION AND ARBITRATION

10.1. Conciliation: a Key Feature of Arbitration in China One of the most distinctive features of arbitration in China is the importance given to conciliation proceedings within the framework of arbitration. The interaction between conciliation and arbitration can happen in three main ways: (i) Conciliation during Arbitration Proceedings [10.2]; (ii) Conciliation in parallel with Arbitration Proceedings [10.3]; and (iii) Arbitration after Conciliation [10.4].

10.2 Conciliation during Arbitration Proceedings In Chinese arbitration, it is very common for arbitrators to conduct conciliation proceedings during the arbitration. This possibility is provided by Article 51 of the PRC Arbitration Law (1994), according to which the arbitral tribunal may conduct conciliation proceedings before rendering an arbitral award if the parties so request. Arbitration rules usually contain detailed provisions as to the conciliation procedure to be followed. The launching of conciliation proceedings will suspend the arbitration proceedings, but they may be resumed at the simple request of a party or alternatively where the arbitral tribunal considers that there are no real chances of reaching a settlement. 10.2.1

Conditions for Conciliation during Arbitration

According to Article 51 of the PRC Arbitration Law (1994), the conduct of conciliation during arbitration proceedings requires the parties’ consent. In practice, a party may suggest conciliation at any time during the arbitration proceedings. If the other party has no objection, the arbitral tribunal will attempt to resolve the dispute by means of conciliation. The initiation of conciliation is also often suggested by the tribunal itself, in particular where it believes that based on the facts and legal issues of the case an amicable settlement is possible. 10.2.2

Possible Outcomes of Conciliation Proceedings

If the conciliation proceedings are unsuccessful, the conciliation will be terminated, the arbitration proceedings resumed, and the arbitral tribunal will decide on the dispute by rendering an arbitral award (see Article 51(1) of the PRC Arbitration Law (1994)). If the conciliation is successful and the parties reach a settlement, the arbitration tribunal may, according to Article 51(2) of the PRC Arbitration Law (1994), decide whether to incorporate such settlement into a written ‘Conciliation Statement’ or an arbitral award, a so-called ‘Consent Award’ [5.3.3.2]. Whereas a ‘Consent Award’ [5.3.3.2] becomes effective immediately after being rendered, a ‘Conciliation Statement’ needs to be signed by the parties. The practice of seeking written conciliation statements derives from common practice in the context of Chinese civil litigation and is mostly used in domestic arbitration [14]. With regard to foreign-related arbitration, conciliation statements are rare, and most often, the parties and the arbitral tribunal will opt for a ‘Consent Award’ [5.3.3.2]. The reasons are linked to considerations of enforceability [15.2]. 10.2.3

Popularity of Conciliation in Arbitration – Pros and Cons

The combination of conciliation and arbitration has many advantages since it avoids separate proceedings, enhances the likelihood of finding a quick and satisfactory solution, and maintains a cooperative spirit throughout the proceedings.

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The major criticism expressed towards conciliation during arbitration proceedings is directed at the double role of the arbitrator who acts as both conciliator during the conciliation and arbitrator during the arbitration. This mechanism raises concerns as to the impartiality of the conciliator-arbitrator if the conciliation fails. Indeed, the information gathered during the conciliation procedure may influence the later decision of the arbitral tribunal, and the parties may therefore not feel comfortable disclosing all relevant information during the conciliation procedure. Another concern is that ex parte communication during such conciliation procedure, if conducted improperly, may contravene the public policy of the place of enforcement of the award (See e.g., Keeneye Holdings Case 2011). However, despite these concerns, practice seems to indicate that this combined approach is not only popular among parties but also effective. Based on reports published by some arbitration commissions, it would seem that between 20 and 50% of arbitration cases are settled by conciliation before issuance of an award. In addition, the concerns expressed towards the double role of the mediator-arbitrator have been taken into account by certain arbitration institutions, such as CIETAC. According to the CIETAC Arbitration Rules (2012), where the parties wish to conciliate their dispute but do not wish to have conciliation conducted by the arbitral tribunal, CIETAC may, with the consent of both parties, assist the parties to conciliate the dispute in a manner and procedure it considers appropriate (see Article 45(8) of the CIETAC Arbitration Rules (2012)). In other words, the conciliation procedure will be separated from the arbitration proceedings and involve a conciliator which is not one of the arbitrators.

10.3 Conciliation in Parallel to Arbitration The parties are free to conduct conciliation proceedings outside (i.e., in parallel with) an ongoing arbitration. If they do so and they are able to reach a settlement, they can request the arbitral tribunal to incorporate their settlement agreement into a ‘Conciliation Statement’ [10.2.2] or ‘Consent Award’ [5.3.3.2], notwithstanding the non-involvement of the arbitral tribunal in the relevant conciliation talks.

10.4 Arbitration after Conciliation Where the parties have settled their dispute through conciliation only and have reached a settlement agreement, they can include an arbitration clause in their settlement agreement. Based on such a clause, certain arbitration commissions, such as CIETAC (see Article 45(10) of the CIETAC Arbitration Rules (2012)) or Wuhan Arbitration Commission (see Article 55(1)(b) of the Wuhan Arbitration Commission Arbitration Rules (2007)) provide the parties with the possibility to file for arbitration proceedings in order to have the arbitral tribunal render an award contemplating and confirming the terms of the settlement agreement. The same applies to BAC arbitration rules, although the BAC Arbitration Rules do not expressly provide for such possibility. The task of the arbitrator will in principle be limited to verifying that the content of the settlement is in compliance with the law and social and public interests (see e.g. Article 55(2) of the Wuhan Arbitration Commission Arbitration Rules (2007)). Since the object of the proceedings is merely to confirm the settlement agreement, the applicable procedure is simplified and in practice the tribunal will often follow the ‘Summary Procedure’ [9.6]. Thus, generally the case will be heard by a sole arbitrator, who will examine the case based on the written submissions and without any oral hearing, and the arbitration fee may further be reduced in consideration of the quantity of work and the actual expenses incurred by the arbitration commission. The advantage of this solution is that it enables the parties to easily convert a settlement agreement, which is simply a contractual document, into an enforceable arbitration award [15.2].

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11.

CONFIDENTIALITY

11.1 Lack of General Principle of Confidentiality Chinese arbitration law does not contemplate a general principle of confidentiality of arbitration proceedings. The only provision of the PRC Arbitration Law (1994) dealing with confidentiality is Article 40, which provides that arbitration hearings [9.3.3.2] must be held in private session, unless otherwise agreed by the parties. However, in practice it is generally acknowledged that arbitration proceedings are subject to a duty of confidentiality although the scope thereof is not clearly defined. Such duty is expressly provided for in most of the arbitration rules [8.1.3.3] of Chinese arbitration commissions [8.1], whereby different rules put emphasis on different aspects of the proceedings, with a particular focus on the hearing (see e.g., Article 36 of the CIETAC Arbitration Rules (2012), Article 13 of the CIETAC Ethical Rules for Arbitrators (1993) , Article 24 of the BAC Arbitration Rules (2008), Article 11 of the Wuhan Arbitration Commission Arbitration Rules (2007), and Article 38 of the Guangzhou Arbitration Commission Arbitration Rules (2007)) The lack of general duty of confidentiality raises particular issues in particular with regard to (i) publication of arbitration awards [11.2], and (ii) service of arbitration documents [9.5].

11.2 Confidentiality and Publication of Arbitration Awards Confidentiality of the award is generally covered by the provisions on confidentiality contained in arbitration rules [8.1.3.3] of Chinese arbitration commissions [8.1], such as for example Article 36(2) of the CIETAC Arbitration Rules (2012), which applies to all ‘substantive or procedural matters of the case’. In practice however, some Chinese arbitration commissions [8.1], such as CIETAC and BAC, regularly compile and publish a selection of awards. Although the published versions of these awards will usually hide the names of the parties and arbitrators and other identifying information about the parties, it is not clear to what extent their publication is authorized by the parties. In addition, and similarly with other jurisdictions, if a procedure for annulment or enforcement is initiated before the Chinese courts, the confidentiality of the award will not be maintained to the extent that these proceedings are public and the award is submitted as evidence in these proceedings. The same applies to other proceedings, in which one party wants to rely on facts previously established in an award. Such party may submit the award as evidence of the facts established by the arbitral tribunal (see Article 9 of the SPC Regulations on the Evidence in Civil Litigation (2002)).

11.3 Confidentiality and Service of Documents Where a party cannot be located and documents can therefore not be served to their address, some Chinese arbitration commissions [8.1] have provided for rules of service mirroring the service system in litigation and providing for service of documents by public notice [9.5.2.2]. It is evident that this practice, which leads to the publication of the existence of the arbitration and other key information, may constitute an infringement of confidentiality. However, service by public notice leaves no room for the concerned party to later claim that it did not receive the relevant documents [9.5.2.2], which constitutes a significant advantage compared to other means of service on defaulting parties [9.5.2].

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12.

COSTS

12.1 Arbitration Costs 12.1.1 Definition The term arbitration costs include: (i) the so-called ‘arbitration fees’ [12.1.2], i.e. the administrative fees and expenses of the arbitration institution [12.1.2.1] and the fees and expenses of the arbitrators [12.1.2.2]: In Chinese practice, the arbitrators’ fees and expenses and the arbitration commissions’ administrative fees and expenses are not clearly separated, they are all included in the so-called ‘arbitration fees’ which are collected by the arbitration commission; and (ii) the lawyers’ fees [12.1.3], i.e. the fees and costs of the lawyers. 12.1.2 12.1.2.1

Arbitration Fees

Administrative Fees and Expenses of the Arbitration Commission

According to the Arbitration Fee Collection Measures of Arbitration Commissions (1995) promulgated by the State Council on 28 July 1995, the arbitration fees of the arbitration institution include two parts: (i) case registration or acceptance fees, and (ii) case handling fees. As with arbitration institutions in other countries, Chinese arbitration commissions’ schedules of arbitration fees normally provide a standard of scale of percentages of the dispute amount (See the BAC Arbitration Fees Schedule (2004); the CIETAC Arbitration Fee Schedule (2005)). While the Arbitration Fee Collection Measures of Arbitration Commissions (1995) as well as the attached Table of Fees for Accepting Arbitration Cases 1995 provide some guidelines for arbitration commissions on how to determine and calculate these fees, they are neither comprehensive nor very clear. Thus, differences in practice remain, and different arbitration institutions have different ways to administer and invoice the case registration and handling fees. For example, whilst BAC fixes both the case acceptance fees and the case handling fees on the basis of the amount in dispute (see the BAC Arbitration Fees Schedule (2004)), CIETAC provides different schedules for domestic cases and foreign-related cases, and the registration fee is always 10,000 RMB for foreign-related cases (see the CIETAC Arbitration Fee Schedule (2012)). Many arbitration commissions provide an online system of calculation of arbitration fees on their website. (See for instance http://www.bjac.org.cn/en/Arbitration/Fees.html for BAC; or http://www.accsh.org/accsh/ english/node67/node72/index.html for the Shanghai Arbitration Commission). 12.1.2.2

Arbitrators’ Fees and Expenses

In China the arbitrators’ fees and expenses are included in the ‘arbitration fees’ [12.1.2] and are collected by the arbitration commission, which will distribute the fees to the arbitrators. However, the specific split, and whether the arbitrators’ fees are paid from the case registration fee and/or from the case handling fees is not always clear. In China, arbitrators are rarely paid based on an hourly rate and the arbitration commissions generally fix the arbitrators’ fees on the basis of a percentage of the arbitration fees [12.1.2]. In practice, the arbitrators’ fees usually constitute approximately 50% of the arbitration fees [12.1.2] levied for the case. However, this proportion may vary based on the amount in dispute, the complexity of the case and the extent of the arbitrators’ work and diligence.

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Compensation of arbitrators in China is a problematic area. First, there is no real transparency regarding arbitrators’ fees. Second, it is public knowledge that the level of arbitrators’ fees in China is very low compared to international standards. On one hand, arbitration commissions justify the low level of compensation with the argument that arbitration in China is partly considered as a kind of public service and arbitrators should serve for the public good. On the other hand, the low level of compensation is a real problem and has a dissuasive effect on many arbitrators, in particular foreign arbitrators used to higher levels of remuneration. Therefore, in order to attract foreign arbitrators, higher standards of remuneration apply to foreign arbitrators, though no uniform standard exists. In the light of the difference between the remuneration of Chinese arbitrators and foreign arbitrators, where parties decide to appoint foreign arbitrators, they will usually be requested to pay a special advance on the foreign arbitrator’s fee (see Article 55(4) of the BAC Arbitration Rules (2008)). This may lead to the situation where one of the arbitrators may end up being paid much more than the other arbitrators. Where such arbitrator is a party-appointed arbitrator, one may wonder whether this is in line with the arbitrators’ duty of independence and impartiality. 12.1.3 Lawyers’ Fees and Expenses Lawyers’ fees and expenses usually constitute the largest part of the arbitration costs. There is no uniform practice regarding the rate of lawyers’ fees in China, although various local governments have promulgated regulations on the administration over lawyers’ fees in order to harmonize and control the various practices. Under these regulations, various charging methods are acceptable and may be adapted depending on the nature and content of the service provided, including time or quantity-based rates, subject-matter based rates, contingent fees, success fees, etc. In Beijing for example, and according to the Beijing Municipality’s Guidance Rates of Attorney’s Fee and Implementation Measures (2010), which were put into trial implementation as of 30 May 2010, law firms are free to negotiate their fees with their clients concerning arbitration cases.

12.2 Principles of Costs Allocation There is no specific provision on the allocation of arbitration costs in the PRC Arbitration Law (1994). The parties can in principle agree on the allocation of their arbitration costs in the arbitration clause, and/ or in any subsequent settlement agreement. However, with regard to agreements on allocation of costs contained in arbitration clauses, it is unclear to what extent the arbitral tribunal is actually bound by such agreement, and in practice, the arbitrators on occasion deviate from the parties’ agreement. If the parties arrive at a settlement agreement during the arbitration, they can jointly agree on the allocation of arbitration fees and other costs (see e.g. Article 9 of Arbitration Fee Collection Measures of Arbitration Commissions (1995); Article 45(2) of the BAC Arbitration Rules (2008)), and arbitral tribunals will usually not deviate from such agreement. In the absence of any agreement of the Parties, the principles of costs allocation will be determined by the arbitral tribunal. With regard to arbitration fees [12.1.2], the principle of ‘costs follow the event’ is in practice generally accepted (e.g. see Article 9 of the Arbitration Fee Collection Measures of Arbitration Commissions (1995), Article 45(2) of the BAC Arbitration Rules (2005)). Thus, the arbitral tribunal will generally order the losing party to pay the arbitration fees to the arbitration commission. In cases where the parties have partly won or lost, the parties will in principle be ordered to share the arbitration fees, though the arbitral tribunal normally orders the respondent to pay more than 50% of the arbitration fees.

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With regard to lawyers’ fees, the same principle applies although the amount of fees to be borne by the losing party is usually limited to what is ‘reasonable’ (see Article 50(2) of the CIETAC Arbitration Rules (2012), Article 45(3) of the BAC Arbitration Rules (2008)). In deciding whether a party’s expenses incurred in pursuing its case are reasonable, the arbitral tribunal will consider factors such as the outcome and complexity of the case, the workload of the winning party and/or its representative(s), and the amount in dispute, etc. (see Article 50(2) of the CIETAC Arbitration Rules (2012)). In practice, it is not uncommon for an arbitral tribunal to reduce the lawyers’ fees to be reimbursed by the other party. This is especially the case where the legal costs of one party are substantially higher than the costs of the other party.

12.3 Payment of Arbitration Costs 12.3.1

General Practice

As is the case in international arbitration practice, payment of the arbitration costs is done in two stages. The parties will be invited to make an advance on arbitration fees [12.3.2] at the beginning of and/or during the proceedings. At the end of the proceedings, once the final and total arbitration costs as well as the principles of allocation of such costs have been determined, the tribunal will issue a final cost order [12.3.4] determining how the advance on costs will be allocated and ordering, if necessary, the losing party to pay any outstanding amount. 12.3.2

Advance on Arbitration Fees

There is no relevant provision in the PRC Arbitration Law (1994) on the issue of advance payment of arbitration fees. However, according to Article 4 of the Arbitration Fee Collection Measures of Arbitration Commissions (1995) and to the practice of various arbitration institutions, the parties are required to provide advance payments on arbitration fees before the commencement of arbitration proceedings (see e.g. Articles 12 (3) and 15(3) of the CIETAC Arbitration Rules (2012), Article 7(2) of the BAC Arbitration Rules (2008)). •

Regarding the time of payment of the advance, the advance on arbitration fees must be paid– for the Claimant – when it files its arbitration application or – for the Respondent – when it raises counter-claims. If a party has difficulties in paying the advance, the party may apply for postponement of the payment deadline. If a party neither pays the advance nor applies for a postponement of the payment deadline, it will be deemed to have withdrawn its application for arbitration or counter-claims, as the case may be (see Article 6 of the Arbitration Fee Collection Measures of Arbitration Commissions (1995)).

•

Regarding the amount of the advance, it is generally accepted that the case registration or acceptance fees must be fully paid in advance, to be determined according to the schedule provided by the relevant arbitration commission. If the amount in dispute has not yet been determined when the arbitration is launched, the arbitration commission will, on the basis of the specific rights and interests involved in the dispute, determine the fee to be paid in advance for accepting the case (see Article 7 of the Arbitration Fee Collection Measures of Arbitration Commissions (1995)). With regard to the case handling fees, the amount of the advance will be fixed by the arbitration institution so as to cover the expenses and compensation of the arbitrators, witnesses, identifiers, translators and other persons whose presence is necessary at the hearing (see Article 7 of the Arbitration Fee Collection Measures of Arbitration Commissions (1995)). 12.3.3

Return of Advance on Arbitration Fees

If the applicant withdraws its request for arbitration, whether following a settlement agreement or on its own initiative, the advance of arbitration fees will be returned wholly or partly to the parties depending on the stage of the proceedings:

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•

All of the advance will be returned upon withdrawal of the request for arbitration, if the applicant withdraws the application after the arbitration commission accepts the request but before the formation of the arbitration tribunal (see Article 12(1) of the Arbitration Fee Collection Measures of Arbitration Commissions (1995));

•

A portion of the advance will be returned, if the applicant withdraws the arbitration application after the formation of the arbitration tribunal. The specific portion will be decided on the basis of the specific circumstances and stage of the proceedings (see Article 12(2) of the Arbitration Fee Collection Measures of Arbitration Commissions (1995), Article 38(3) of the BAC Arbitration Rules (2008));

•

Where an applicant has been notified in writing to appear at the hearings and fails to do so without good reason, or where an applicant leaves the hearings without permission of the arbitration tribunal, the request for arbitration will be considered withdrawn, and the advance will not be returned (see Article 11 of the Arbitration Fee Collection Measures of Arbitration Commissions (1995), Article 38(3) of the BAC Arbitration Rules (2008)). 12.3.4

Final Costs Order

In the final arbitral award, the arbitral tribunal must rule on the amount of arbitration fees to be paid by the parties, as well as on the principles of their allocation [12.2] (see Article 9 of the Arbitration Fee Collection Measures of Arbitration Commissions (1995), Article 45(1)(2) of the BAC Arbitration Rules (2008), Article 50(1) of the CIETAC Arbitration Rules (2012)). The arbitral tribunal also has the power to determine in the arbitral award the allocation of the lawyers’ fees [12.2] and other related expenses concerning the arbitration proceedings between the parties (see Article 45(3) of the BAC Arbitration Rules (2008), Article 50(2) of the CIETAC Arbitration Rules (2012)).

13.

COURT INTERVENTION

13.1 Possible Scenarios for Court Intervention The participation and intervention of the people’s court in arbitration is inevitable in China. According to Articles 5 and 26 of the PRC Arbitration Law (1994), a court may not accept a case in which the parties have concluded an arbitration agreement, unless such arbitration agreement is deemed null and void. Thus, where a valid arbitration agreement exists, litigation before state courts is excluded. There are however three sets of circumstances under which state courts may have a say in arbitration proceedings: (i) A state court may be called to intervene at the outset of the arbitration proceedings and review the validity of an arbitration agreement [13.2]; (ii) A state court may be called to intervene during the arbitration proceedings and provide limited assistance through interim measures [13.3]; (iii) A state court may be called to intervene at the end of the arbitration proceedings and review the award [13.4]; Chinese law does not provide for court intervention or assistance in any situation other than those listed above. Thus, this system is sometimes referred to as a ‘minimal court intervention’ system, although it is doubtful whether this designation truly reflects reality. Comparing the courts’ limited means to assist arbitration and their key role in the determination of the validity of an arbitration agreement and the annulment and enforcement of arbitral awards, the limitation of the courts‘ power seems to affect more their capacity to support arbitration rather than their power to hinder it.

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13.2 Review of the Validity of Arbitration Agreements 13.2.1

Power of the Court to Review Arbitration Agreements

Under Article 20 of the PRC Arbitration Law (1994), where a party contests the validity of an arbitration agreement and requests a ruling from the competent court [13.2.2], the court has in principle the last word on the validity of the arbitration agreement and its decision will be binding on the parties, the arbitration commission and the arbitral tribunal. There exists however one exception to this principle under Article 13 of the SPC Interpretations on Arbitration Law (2006): Where the party challenging the validity of the arbitration agreement has already submitted its challenge to the arbitration commission and the latter has already decided upon such challenge, the decision of the arbitration commission is binding on the parties and the court may not re-decide the issue (see e.g., 16 CNMC et al. v. Hainan Yedeli et al. (2007)). 13.2.2

Competent Court

According to Article 12 of the SPC Interpretations on Arbitration Law (2006), the court competent to decide on the validity of an arbitration agreement depends on the nature and kind of the arbitration: (i) For domestic arbitrations [14.2], the competent court is the Intermediate People’s Court at the place of the arbitration institution, and where the arbitration institution was not clearly designated in the arbitration agreement, the Intermediate People’s Court at the place of signature of the arbitration agreement or at the domicile of the respondent. (ii) For foreign-related arbitrations [14.2 ], the party challenging the validity of the arbitration agreement has the choice between the Intermediate People’s Court at the place of the arbitration institution, or the place of signature of the arbitration agreement, or the domicile of the claimant or the domicile of the respondent. (iii) For both domestic and foreign-related [14.2 ] maritime cases, the competent court is the maritime court at the place of the arbitration institution, or the place of signature of the arbitration agreement, or the domicile of the claimant, or the domicile of the respondent. Where there is no maritime court at those places, the parties may refer their case to the closest maritime court. However, the question of the validity of the arbitration agreement is sometimes also decided upon by another court: It is quite common in practice that the party contesting the validity of the arbitration agreement tries to launch a lawsuit before the court which would have jurisdiction over the dispute according to Chinese procedural rules (i.e. if there was no arbitration agreement). To prevent such court from hearing the case, the party relying on the arbitration agreement will have to file an objection to this court’s jurisdiction. The court will then decide on such objection and determine the validity of the arbitration agreement. This practice is to some extent a circumvention of Article 20 of the PRC Arbitration Law (1994), which requires parties to submit the question of validity of the arbitration agreement to a specific court (see e.g. Tipco Asphalt v. Jinye Group (2004), Jilin Chemical v. W.P. International (2005), Xinggang Electronic v. Brose (2006), PAIC Dalian v. COSCOL et al. (2007), Heping Economic Commission v. Goubuli JV et al. (2008), Shanxi Gasification v. Meiwa Corp. et al. (2009), Cui Huishen v. Huarong Plastics (2010), Tianjin Stell et al. v. Niagara Maritime (2011), etc.) 13.2.3

Scope of Examination

When examining the validity of the arbitration agreement, the court will verify that all validity requirements [7.2] set forth in Articles 16-18 of the PRC Arbitration Law (1994) are fulfilled. Thus, the examination includes formal [7.2.1] as well as material validity requirements [7.2.2].

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13.2.4

Effects of the Invalidity of an Arbitration Agreement

If the court rules that the arbitration is invalid, the dispute can no longer be submitted to arbitration and the arbitration commission and/or the arbitral tribunal must dismiss the case. The parties have then no other choice but to refer their dispute to the competent courts, unless they are able to conclude a new arbitration agreement.

13.3 Interim Measures in Support of Arbitration Under Chinese law, state courts have exclusive jurisdiction [17.2] to grant interim measures [17], which are limited to property [17.3.1] or evidence preservation measures [17.3.1]. Other types of interim measures [17], such as for example security for costs or anti-arbitration injunctions, are not available.

13.4 Review of Awards Article 9 of the PRC Arbitration Law (1994) establishes the principle of finality of the arbitral award, meaning that there is no possibility of appeal, and that a dispute that has already been subject to arbitration cannot be re-arbitrated or submitted to the courts (so-called res iudicata effect). This principle is however not absolute and where a party is unsatisfied with an arbitral award, it may — under certain circumstances — ask the court to review the award. This review can be done in two ways:

14.

(i)

Within the context of proceedings aimed at the annulment of the arbitration award [2];

(ii)

Within the context of proceedings aimed at the enforcement of the arbitration award [15].

DOMESTIC VS. FOREIGN-RELATED ARBITRATION

14.1 Distinction between ‘Domestic’ and ‘Foreign-Related’ As is the case in many other countries, the Chinese arbitration regime distinguishes between purely domestic arbitrations, and so-called ‘foreign-related’ arbitrations based on specific criteria [14.2]. These two kinds of arbitration are subject to different legal provisions with different practical implications [14.3].

14.2 Criteria for Distinguishing between Domestic and Foreign-Related Arbitration According to Article 1 of the SPC Interpretations on Several Issues Concerning the PRC on the Laws Applicable to Foreign-related Civil Relations (I)(2013), a case is deemed foreign-related (i) where either party or both parties are foreign citizens, foreign legal persons or other organizations or stateless persons; (ii) where the habitual residence of either party or both parties is located outside the territory of the People’s Republic of China; (iii) where the subject matter is outside the territory of the People’s Republic of China; (iv) where the legal fact that leads to establishment, change or termination of civil relationship happens outside the territory of the People’s Republic of China; or (v) other circumstances under which the civil relationship may be determined as foreign-related civil relationship. Unless one of these circumstances applys, the arbitration will be qualified as domestic. In practice, the first criteria, i.e. the nationality of the parties involved, is the criteria which is given the most weight. As long as all parties are Chinese, it is extremely rare for a court to qualify a situation as ‘foreign-related’ based only on the other four criteria (see e.g., PCK Pipe v. Panapond Forwarding (2009) and COSCO Shipping v. CMEC Comtrans (2009), in which the courts relied on the place of performance to qualify the relationship as ‘foreign-related’).

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In this respect, it is important to note that Foreign Invested Enterprises (FIEs), including joint ventures and Wholly Foreign-Owned Enterprises (WFOE), are considered to be Chinese entities established under Chinese law. Therefore, disputes involving FIEs are considered domestic disputes, unless other foreign elements exist. Cases involving parties from Hong Kong, Macau or Taiwan are not formally considered ‘foreign-related’ and belong to a separate category [15.1.4.1], although they have in practice always been treated as equivalent to ‘foreign-related’ cases. This is now confirmed in Article 19 of the SPC Interpretations on Several Issues Concerning the PRC on the Laws Applicable to Foreign-related Civil Relations (I)(2013), which provides that the legal provisions applicable to foreign-related cases shall apply by analogy to the cases involving Hong Kong, Macau and Taiwan elements.

14.3 Practical Implications The distinction between domestic and foreign-related arbitration dates back to the early days of arbitration in China, when domestic arbitration was handled by administrative arbitration bodies [8.1.2] and arbitrations involving foreign elements were dealt with by the foreign-related arbitration commissions [8.1.2] established for that very purpose, i.e., CIETAC and CMAC. Thus, originally, the first implication of the distinction was that domestic and foreign-related arbitrations were not handled by the same arbitration commissions. This has gradually changed [8.1.2.2]. Since the State Council Notice on the Implementation of the Arbitration Law (1996) was issued, domestic arbitration institutions are entitled to accept foreign-related cases. In 2000 and 2001, CIETAC and CMAC adapted their jurisdictional scope to include domestic arbitration cases. Nowadays, any arbitration commission can handle any kind of arbitration. Differences however remain concerning the autonomy given to the parties under these two regimes, in particular regarding: ⇒

The law applicable to the merits [3.1]

⇒

The law applicable to the arbitration proceedings – lex arbitri [3.2]

⇒

The law applicable to the arbitration agreement [3.3]

⇒

The relevant procedural rules [3.4]

⇒

The appointment of arbitrators [6.1.3]

Differences further remain with regard to the annulment [2] and enforcement [15] of awards. The applicable legal provisions and relevant grounds for annulment [2.2] or non-enforcement [15.4] vary depending on the domestic or foreign-related nature of the award.

15.

ENFORCEMENT OF ARBITRAL AWARDS

15.1 Legal Framework for Enforcement of Awards 15.1.1

Overview of the Legal Framework

The legal framework for enforcement of awards in China varies depending on whether your award is: ⇒

A Chinese Award [15.1.2]

⇒

A Foreign Award [15.1.3]

⇒ A Greater China Award [15.1.4] If you do not know what nationality your award is, please click here [5.2].

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15.1.2

Legal Framework for Enforcement of Chinese Awards

With regard to the enforcement of Chinese awards [15.1.2], the two most important pieces of legislation are: (i)

The PRC Arbitration Law (1994), which constitutes the starting point for enforcement of arbitral awards and contains in Chapter VI (Articles 62 to 64) general principles for the enforcement of domestic arbitral awards and in Chapter VII (Articles 71 to 72) general principles for the enforcement of foreign-related awards.

(ii)

The PRC Civil Procedure Law (2012), which complements the PRC Arbitration Law (1994) providing technical provisions concerning the specific enforcement procedure to be followed. While some of these provisions apply specifically to arbitral awards (e.g., Articles 241, 273 to 275, 283), most of them concern enforcement in general (Part III ‘Procedure of Enforcement’ Articles 224 to 258, and Part IV ‘Special Provisions Governing Procedure for Civil Actions Involving Foreign Nationals’ Articles 259 to 283) and apply to both court decisions and arbitral awards.

In addition to these laws, the Supreme People’s Court has promulgated a considerable number of regulations and interpretations, which range from general guidelines to very detailed procedural rules. 15.1.3

Legal Framework for Enforcement of Foreign Awards 15.1.3.1

Starting Point

The starting point for enforcement of foreign awards [5.2] is Article 283 of the PRC Civil Procedure Law (2012), according to which a party can only request a Chinese court to enforce a foreign award (i) where there is an international treaty [15.1.3.2] ratified by China and providing for such enforcement, or (ii) where the country in which the award was made offers reciprocity [15.1.3.3] by recognizing and enforcing Chinese arbitral awards. 15.1.3.2

Relevant International Treaties on Enforcement of Awards

The most important international convention in the field of enforcement of commercial arbitral awards is The New York Convention, which took effect in China on 22 April 1987. For more information on The New York Convention, click here [16.3.1]. China has not concluded any bilateral treaty directly concerning enforcement of commercial arbitral awards. However, bilateral treaties concluded in other areas incidentally cover the issue of enforcement of arbitral awards. This is namely the case with certain Mutual Assistance Treaties [16.3.4] and of the ICSID Convention 1965 [16.3.2] in relation to China’s Bilateral Investment Treaties [16.3.3]. 15.1.3.3

Reciprocity Principle

An arbitral award made in a foreign country which is not a party to The New York Convention [16.3.1] or to any other international treaty or convention [16.3] providing for the enforcement of such arbitral award may only be enforced in China based on the principle of reciprocity. In order for reciprocity to be established, the country where the award was made must have recognized and enforced Chinese arbitral awards in the past. At present, there is no record of any country which would – outside of The New York Convention [16.3.1] – have established such reciprocity. This means that unless an award falls within the scope of any relevant convention or treaty, it is – in practice - not enforceable in China.

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15.1.4.1

Legal Framework for Enforcement of Greater China Awards 15.1.4.1

Hybrid Nature of Greater China Awards

Arbitral awards from Greater China are a sort of hybrid legal document, neither considered fully Chinese [15.1.2], nor fully foreign [15.1.3]. This carries only limited practical consequences [14.2], since awards from Hong Kong, Macao and Taiwan are subject to specific provisions dealing with enforcement of awards issued in these regions. You are interested in the legal framework for enforcement of: ⇒

Hong Kong awards [15.1.4.2]

⇒

Macao awards [15.1.4.3]

⇒

Taiwan awards [15.1.4.4] 15.1.4.2

Legal Framework for Enforcement of Hong Kong Awards

Enforcement of Hong Kong awards in Mainland China is subject to the Mainland – SAR Hong Kong Mutual Enforcement Arrangement (2000), which entered into effect on 1 February 2000. According to the preamble of this Arrangement, the courts of Hong Kong SAR agree to enforce the awards made in accordance with the Arbitration Law 1995 by the arbitral authorities in Mainland China, and the Mainland courts agree to enforce awards made in the Hong Kong SAR pursuant to the Arbitration Ordinance of Hong Kong SAR. The Mainland - Hong Kong Arrangement 2000 provides for a very similar regime to The New York Convention, largely mirroring the pre-1997 situation when Hong Kong was a territory belonging to Great Britain. In China, this Arrangement applies to all awards “made in Hong Kong SAR pursuant to the Arbitration Ordinance of the Hong Kong SAR” including institutional and ad hoc awards, as well as commercial and non-commercial awards (see SPC Notice on Enforcing Hong Kong Awards (2009)). 15.1.4.3

Legal Framework for Enforcement of Macao Awards

Enforcement of Macao awards in Mainland China is subject to the Mainland – SAR Macao Mutual Enforcement Arrangement (2008), which entered into effect on 1 January 2008. The enforcement regime provided therein is very similar to the regime applicable to Hong Kong awards [15.1.4.2] and New York Convention awards [15.1.3]. Article 1 of the Mainland – SAR Macao Mutual Enforcement Arrangement (2008) states that these provisions apply in China where the courts in Mainland China are called to recognize and enforce civil and commercial arbitral awards made by arbitration institutions and arbitrators of Macao in accordance with the arbitration laws and regulations of Macao, including both institutional and ad hoc awards. 15.1.4.4

Legal Framework for Enforcement of Taiwan Awards

Enforcement of Taiwan awards in Mainland China is subject to the SPC Provisions on Recognition of Civil Judgments made in Taiwan (1998), promulgated on 22 May 1998 and which entered into effect on 26 May 1998. These provisions were complemented by the SPC Supplementary Taiwan Provisions (2009).

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According to Article 2 of the SPC Provisions on Recognition of Civil Judgments made in Taiwan (1998), if the parties have permanent domicile, habitual residence in Mainland China, or the relevant properties are located in Mainland China, the parties can apply to the Mainland courts “for recognition of verdicts made by courts in Taiwan on civil cases” on the basis of this set of regulations. Thus, the SPC Taiwan Provisions on Recognition of Civil Judgments made in Taiwan (1998) are primarily intended to deal with the recognition of civil court judgments. However, the last article of the SPC Provisions on Recognition of Civil Judgments made in Taiwan (1998), Article 19, states that these provisions also apply to “arbitration awards rendered by arbitration organizations in the Taiwan region”. Consequently, these SPC Provisions on Recognition of Civil Judgments made in Taiwan (1998) entitles a party, whose domicile, residence or relevant property is located in Mainland China, to request the courts from the Mainland to recognize institutional awards rendered by arbitration institutions in Taiwan in civil and commercial matters. In contrast, ad hoc awards rendered in Taiwan do not fall within the scope of the SPC Provisions on Recognition of Civil Judgments made in Taiwan (1998).

15.2 Decisions Subject to Enforcement Article 62 of the PRC Arbitration Law (1994) establishes the principle that if one party fails to comply with its obligations under the award, the other party can request the court to enforce the arbitral award. According to Articles 237 et seq. of the PRC Civil Procedure Law (2012), the parties must automatically execute the arbitral award as of its receipt within the time period specified in the award, and if no time limit is specified in the award the parties must execute the arbitral award immediately. If a party fails to perform the arbitral award, the other party may apply to the court for enforcement. Only decisions qualifying as ‘awards’ [5.1] under the meaning of Article 62 of the PRC Arbitration Law (1994) are enforceable. This includes in particular final awards [5.3.2.1], as well as partial awards [5.3.2.2] providing they deal with claims of an enforceable nature. In contrast, interim awards [5.3.2.3], procedural orders [5.3.2.4], or interim measures [17] are not enforceable.

15.3 Process of Enforcement 15.3.1

Reference to Local Procedural Law

Neither The New York Convention nor the various mutual enforcement arrangements with Greater China, nor the PRC Arbitration Law (1994) deal with the specifics of the enforcement procedure. The enforcement of arbitral awards is subject to the general provisions on enforcement contained in Part III (Articles 224 et seq.) of the PRC Civil Procedure Law (2012), as complemented every now and then by various judicial interpretations and provisions issued by the Supreme People’s Court. Therefore, issues such as determining the competent court [15.3.2], the application process [15.3.3], the acceptance process [15.3.4], the examination process [15.3.5], the review by higher courts [15.3.6], the rendering of the decision on enforcement [15.3.7] and the enforcement proper stage [15.3.8] will be dealt with by the local procedure law. 15.3.2

Competent Court

The court which has jurisdiction to hear enforcement requests is determined based on two criteria: the territorial jurisdiction and the jurisdiction by level.

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(i)

Territorial jurisdiction: In principle, the court competent for enforcing arbitral awards is the court at the place where the defendant is domiciled or where the property that is subject to the enforcement is located (see Articles 224 and 273 of the PRC Civil Procedure Law (2012), as well as SPC Provisions on Jurisdiction concerning Foreign-Related Civil and Commercial Cases (2002)). The choice between these two locations should not be made randomly and one should consider where the defendant has the most attractive, i.e. liquid, assets, as well as the competence, independence, and reputation of the courts in question.

(ii)

Jurisdiction by level: As concerns foreign-related, Greater China, and foreign awards, the level of court in charge of enforcement of arbitral awards was unified in 2002 (see SPC Provisions on Jurisdiction concerning Foreign-Related Civil and Commercial Cases (2002)) and is in principle the Intermediate People’s Court. As concerns domestic awards, Article 224 of the PRC Civil Procedure Law (2012), which sets forth the territorial jurisdiction of the courts for the enforcement of domestic awards, does not specify which level of court has jurisdiction. In fact, the specific jurisdiction of the lower courts is often determined by the local High People’s Court and therefore varies from region to region, although it is most often the Basic People’s Court (see e.g. Article 1 of the Beijing HPC Circular on Jurisdiction (2000); Article 13(2) of the Shanghai HPC Opinions on Implementation of Arbitration Law (2001)). As concerns maritime arbitration, the competent court is the maritime court either at the place of the property subject to enforcement, or of the defendant’s domicile (see Article 11 of the PRC Maritime Procedure Law (1999)). 15.3.3

Application Process

15.3.3.1

Written Request

In order to initiate enforcement proceedings, the applicant must file a written request complying with a series of procedural requirements: This request must contain the following information: (i)

The names and addresses of the parties and – if applicable – of their legal representative;

(ii)

The basis for the enforcement, i.e. a description of the kind and nature of the award/decision, and of the rights and obligations of the parties contemplated therein;

(iii)

A description of the relief sought, i.e. the kind of enforcement measures requested (i.e. is the applicant seeking specific performance, money damages, or both);

(iv)

A description of supporting reasons, i.e. a description of the defendant’s failure to comply with the award within the applicable deadline;

(v)

A description of the property subject to enforcement, i.e. its nature, characteristics and location;

(vi)

A description of the defendant’s economic situation, according to the applicant’s knowledge;

(vii) The signature and seal of the applicant. The written application is therefore an important document, which should in theory contain all the necessary information and arguments needed to convince the court to proceed with the enforcement. In practice however, the enforcement application is often just a few pages long. 15.3.3.2

Supporting Documents

The written request [15.3.3.1] for e1nforcement must be supported by the following documents:

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(i)

An original or certified copy of the arbitral award;

(ii)

An original or certified copy of the arbitration agreement;

(iii)

A copy of the applicant’s identity card or passport, and in case of a legal entity, a copy of its incorporation certificate as well as a power of representation issued to an authorized representative (and where the applicant is not identical to the winning party designated in the award, documents evidencing that the applicant is the legal successor of such winning party);

(iv)

Proof of the existence of enforceable property of the defendant within the territorial jurisdiction of the court (although courts in practice often admit the submission of such documents at a later stage, such as during the hearing);

(v)

The lawyer’s power of attorney;

(vi)

Further documents as requested by the courts: In practice, various courts have diverging practices and some of them do sometimes request further documents which may not be listed in the applicable laws and regulations, such as the business license of the applicant, evidence that the award/judgment has been duly served on the defendant, or other evidentiary documents submitted during the arbitration/court proceedings, etc.

Where one of these documents has been issued abroad, it needs to be notarized by a public notary and further legalized by the relevant Chinese Embassy and Consulate abroad. Documents which are not drafted in Chinese also have to be translated into Chinese by a certified translator in China. 15.3.4

Acceptance Process

Upon receipt of an enforcement application, the court will first examine whether the following conditions for acceptance are fulfilled, including: (i)

The legal effectiveness of the award;

(ii)

The appropriateness and completeness of the written application (See e.g. Weimao v. Tianli Enterprise (2004), Macor Neptun v. Shanghai Mechanical (2001));

(iii)

The proper jurisdiction of the court;

(iv)

Compliance with the applicable two year time limit (See e.g., Bunge S.A. v. Shenzhen Trade (2007));

(v)

The identity of the applicant and defendant;

(vi)

The enforceable character of the obligations at stake.

This list of conditions is in principle exhaustive and the courts should not introduce supplementary conditions. However, the way these conditions are handled in practice may vary from one court to another and the de facto result may be some courts imposing stricter conditions than others. If the conditions for acceptance are met, the court must accept the case and designate a responsible officer in charge of the case (‘Enforcement Officer’). If the conditions for acceptance are not met, the court will reject the case. In principle, and according to Article 2 of the SPC Provisions on Enforcement Time Limits (2006), the court has to make a decision within seven days upon receipt of the application.

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15.3.5

Examination Process

Once the case is accepted, the enforcement officer must first send a Notice of Enforcement to the defendant compelling the defendant to comply with the award within a specified time limit. If the defendant fails to comply with the award within such time limit, the enforcement proceedings will continue and the court will then examine whether or not enforcement is to be granted, i.e. whether there are any relevant grounds for non-enforcement [15.4]. In addition, the enforcement officer will also verify and examine the applicant’s information concerning the economic situation of the defendant and its property. In this respect, Article 242 of the PRC Civil Procedure Law (2012) now expressly provides the court with the power to make inquiries about the defendant’s assets with banks, credit unions or other units dealing with saving deposits, and such institutions are under a legal obligation to provide the necessary assistance. The court has the further power to order a search of the defendant’s premises (see e.g. Article 248 of the PRC Civil Procedure Law (2012)). 15.3.6

Review by Higher Courts - Prior Reporting System

As concerns arbitration, the most notable intervention of the SPC following the enactment of the PRC Arbitration Law (1994) concerns the establishment in August 1995 of the so-called ‘Prior Reporting System’ (see SPC Notice on Prior Reporting System (1995)). Under the Prior Reporting System, if an Intermediate People’s Court intends to refuse enforcement of a foreign-related [14.2] or foreign arbitral award [15.1.3] or arbitration agreement (including Greater China awards), it must report to and request approval from the High People’s Court. If the High People’s Court concurs with the position of the Intermediate People’s Court, it must further report to and request approval of the Supreme People’s Court. Unfortunately, there are no specific deadlines for the filing of such requests, nor are there specific deadlines for the higher courts to respond. In April 1998, the Supreme People’s court extended this Prior Reporting System to any decision of the local courts to annul a foreign or foreign-related arbitral award [2.4]. The Prior Reporting System is an internal court process in which the parties are neither invited nor allowed to participate. In practice however, the lawyers will be informed of the process and may be given some informal opportunity to present their views. 15.3.7

Decision on Enforcement

After the examination of the case [15.3.5], and if applicable the completion of the Prior Reporting System [15.3.6], the court will render its decision. If there is no relevant and valid ground for non-enforcement [15.4], the court will issue an enforcement order. If there are relevant grounds for non-enforcement [15.4], the court will render a decision refusing the enforcement of the arbitral award. As a general rule, the court must make such decision on the enforcement within one month (for Chinese awards) or two months (for foreign awards) upon acceptance of the case, but this time limit can be extended (see e.g. Article 11 of the SPC Provisions on Enforcement Time Limits (2006)). The decision takes effect upon service on the parties. In certain circumstances, the court can request the assistance of another relevant person or institution by issuing an Enforcement Assistance Notice to the concerned parties. Although Article 114 of the PRC Civil Procedure Law (2012) states that the institutions asked to assist have the duty to do so, and thereby establishes a legal duty for such institutions to cooperate, it does not provide for any time limit for them to respond. A failure to assist may nevertheless lead to criminal liability and other sanctions. The efficacy of these measures largely depends on the good will of the institutions requested to assist and on the court’s determination to make use of the available coercive means. The court’s decision to or not to enforce an award is issued in the form of a written order and can in principle not be appealed. China is one of the rare New York Convention Member States not to provide for any recourse possibility against a decision not to enforce an award, in particular a foreign award.

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15.3.8 15.3.8.1

Enforcement Proper

Types of Enforcement Measures Available

Once a decision to grant enforcement has been rendered, the enforcement authorities have then to carry out the enforcement. At this stage, the process enters the stage of ‘enforcement proper’, which is aimed at directly or indirectly compelling the debtor to perform its obligations under the award. Chinese law provides for two main types of enforcement measures: (i) measures for enforcement by direct coercion [15.3.8.2], and (ii) measures for enforcement by indirect coercion [15.3.8.3]. 15.3.8.2

Measures for Enforcement by Direct Coercion

Measures for enforcement by direct coercion focus on enforcement against property. They include the sealing up, detaining and freezing of property, and are available against any movable property in possession of the defendant, and any immovable property, special movable property and any other property rights registered under the name of the defendant, including among others savings deposits, income, intellectual property rights of the defendant, as well as any debts of third parties towards defendant which are due. After having sealed up, detained or frozen property, the enforcement officer will proceed to obtain satisfaction for the applicant by realizing the defendant’s property. There are four main ways to realize property: (i) auction, (ii) sale, (iii) transfer of assets and/or property, and (iv) other measures. Where the property at stake has a currently ascertainable market price, auctioning is the usual method adopted. Where all the parties agree, the property may be sold off instead of being auctioned, and in some cases, the court may directly order the transfer of the property to the applicant. Other specific measures are sometimes provided with regard to special kinds of property, such as for example with regard to state-owned stocks and stocks of listed companies 15.3.8.3

Measures for Enforcement by Indirect Coercion

In addition to measures for enforcement by means of direct coercion [15.3.8.2], Chinese law also provides for a series of additional sanctions imposed on the debtor, aimed at increasing the indirect pressure on him to perform his obligations. These sanctions can be classified as follows: (i)

Civil sanctions, such as a duty to pay a delay penalty and the restriction of certain civil rights of the defendant (right to exit the country, publishing information about his unwillingness to settle his debts, etc.) (see e.g. Articles 253 and 255 PRC Civil Procedure Law (2012), and also Article 36 of the SPC Enforcement Interpretations (2008);

(ii)

Administrative sanctions, such as fines and detention (Articles 111 et seq. of the PRC Civil Procedure Law (2012));

(iii)

Criminal sanctions, such as fines and imprisonment (see e.g. Articles 277, 313 and 314 of the PRC Criminal Law (1997), and SPC/SPP/PSB Joint Notice on Punishing Crimes of Obstructing Enforcement (2007), SCNPC Interpretations on Art. 313 of the Criminal Law (2002);

(iv) Other corollary contract law measures, such as the right of an applicant to request the subrogation of claims of the defendant and the right to request the annulment of disposal acts made by the defendant (see e.g. Articles 73-75 of the PRC Contract Law (1999)).

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15.4 Grounds for Non-Enforcement 15.4.1

List of Applicable Grounds for Non-Enforcement 15.4.1.1

Different Applicable Regimes

Once a case is accepted, the competent court [15.3.2] must examine [15.3.5] whether or not enforcement is to be granted, i.e. whether there are any relevant grounds for non-enforcement. The grounds for which a court may refuse to enforce vary depending on the nationality of the award and are subject to different legal frameworks [15.1]. You are interested in: ⇒

Grounds applicable to Chinese Foreign-Related Awards [15.4.1.2]

⇒

Grounds applicable to Chinese Domestic Awards [15.4.1.3]

⇒

Grounds applicable to Foreign Awards [15.4.1.4]

⇒

Grounds applicable to Hong Kong Awards [15.4.1.5]

⇒

Grounds applicable to Macao Awards [15.4.1.6]

⇒

Grounds applicable to Taiwan Awards [15.4.1.7]

⇒

Overview of Commonalities and Differences among the Various Regimes [15.4.1.8] 15.4.1.2

Grounds Applicable to Chinese Foreign-Related Awards

According to Article 71 of the PRC Arbitration Law (1994), a party against whom enforcement is sought may resist enforcement and request the court to refuse to enforce the award, provided it can advance evidence of any of the following grounds listed in Article 274 of the PRC Civil Procedure Law (2012): (i)

Lack of a Valid Arbitration Agreement, i.e. where the parties have not stipulated an arbitration clause in the contract or have not subsequently reached a written agreement on arbitration (see e.g., President Hotel v. Yang Guangda (2002), ABC v. Zhenghua Industry et al. (2002), Aike Engineering v. Dongfang Real Estate (2004));

(ii)

Lack of Due Process, i.e. where the defendant was not duly notified of the appointment of the arbitrators or the arbitration proceedings, or the defendant was otherwise unable to defend its case due to reasons beyond its control (see e.g., Mawan Power v. Runhe Development (2008));

(iii) Irregularity in the Arbitration Procedure, i.e. where the formation of the arbitration panel or the arbitration procedure was not in conformity with rules of arbitration (see e.g. Zhanyu Development v. Liming Hotel (2002), Clinton Engineering v. Dongjun Real Estate (2004)); (iv) Exceeding the Arbitration Scope, i.e. where the matters decided by arbitration exceed the scope of the arbitration agreement or the arbitration commission’s scope of authority (see e.g., China Construction v. Lido Hotel (1992), Misuer v. Guangxia Industry et al. (2011)); or (v)

Breach of Public Policy, i.e. where a court determines that the enforcement of the award would violate the social and public interest (see e.g., USA Productions et al. v. Women Travel (1997), Baosheng Environment v. Hefei Environment Bureau et al. (2006), Misuer v. Guangxia Industry et al. (2011)).

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The first four grounds need to be invoked by the defendant, while the last ground may be examined by the court ex officio. 15.4.1.3

Grounds Applicable to Chinese Domestic Awards

According to Article 63 of the PRC Arbitration Law (1994), a party against whom enforcement is sought may resist enforcement and request the court to refuse to enforce the award, provided it can advance evidence of any of the following grounds listed in Article 237 of PRC Civil Procedure Law (2012): (i)

Lack of a valid Arbitration Agreement, i.e. where the parties have not stipulated an arbitration clause in the contract or have not subsequently reached a written agreement on arbitration;

(ii)

Exceeding the Arbitration Scope, i.e. where the matters being arbitrated exceed the scope of the arbitration agreement or the authority of the arbitration commission (see e.g., Guanyi Pipeline v. Anhui Telecom (2009));

(iii) Irregularity in the arbitration procedure, i.e. where the formation of an arbitration tribunal or the procedure of arbitration is not in conformity with legal procedure (see e.g., Xinchangjiang Relay v. China Kindle (2008)); (iv) Forged Evidence, i.e. the evidence for rendering the award is forged (see e.g., Vantone Mall v. Yaofu Shoes (1999)); (v)

Concealing of the Evidence, i.e. the opposing party withholds any evidence to the arbitral institution, which suffices to affect an impartial award;

(vi) Misconduct of an arbitrator, i.e. where the arbitrators are involved in embezzlement, bribery, practice favoritism towards himself or relatives, or distorting the law in rendering the arbitration award (see e.g., Janful Limited v. Nanjing Skytech (2010)); or (vii) Breach of Public Policy, i.e. where a court determines that the enforcement of an arbitration award would contradict the social and public interest (see e.g., Su Aihua v. Hunan Zhong’ao Real Estate (2012)). The grounds (iv) and (v) above are new and have replaced the former two grounds of insufficient evidence and misapplication of the law. Through this amendment, the grounds for non-enforcement of domestic awards have been harmonized with the grounds for annulment of domestic awards listed in Article 58 of the PRC Arbitration Law (1994). Thus, the legal grounds for annulment and non-enforcement of domestic arbitral awards have now been merged and unified, similar to the situation applicable to foreign-related awards. This unification is seen as a step forward in judicial consistency when examining arbitral awards. It is also expected that the new provisions will prevent the courts from revisiting the factual analysis and application of the law in domestic arbitration disputes and thereby interfering with an arbitral tribunal’s ruling on the merits of domestic disputes, except in case of breach of public policy. The first six grounds need to be invoked by the defendant, while the last ground may be examined by the court ex officio. 15.4.1.4 Grounds Applicable to Foreign Awards The most important instrument for the enforcement of foreign arbitral awards in China remains The New York Convention [16.3.1]. The grounds for non-enforcement applicable to New York Convention awards are listed in Article V of The the New York Convention in connection with the SPC NYC Implementation Notice (1987) and include the following grounds:

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(i)

Incapacity of a Party or Lack of Valid Arbitration Agreement, i.e. where the parties to the arbitration agreement were, under the law applicable to them, under some incapacity, or the said arbitration agreement was not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made (see e.g., Glencore International v. Chongqing Machinery (2001), Yideman v. Huaxin Cocoa (2003), Züblin International v. Woke Rubber (2006), Voest-Alpine Trade v. Jiangsu Foreign Trade (2009), Unicon v. Tianbao (2010));

(ii)

Lack of Due Process, i.e. where the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case (see e.g., Dunavant S.A. v. Huafang Imp. & Exp. (2007), Bunge Singapore v. Fengyuan Grain (2007), NAFT Corp. v. Lionda Group et al. (2009), Eastland v. Xinxing Rubber (2009), Cosmos Marine v. Tianjin Kaiqiang (2007));

(iii) Exceeding the Arbitration Scope, i.e. where the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or where it contains decisions on matters beyond the scope of the submission to arbitration (see e.g., Hemofarm DD et al. v. Yongning Pharmaceutical (2009), GMI v. Wuhu Smelter et al. (2003)); (iv) Irregularity in the Arbitration Procedure, i.e. where the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place (see e.g., PepsiCo v. Pepsi-Cola Sichuan and PepsiCo China v. Yunlv Co. (2006), FIC v. Mawei Shipbuilding (2008), Shin-Estu Chemical v. Xinmao Science (2008), LM Holdings et al. v. Jiashijie Group et al. (2009)); (v)

Lack of Binding Character of the Award, i.e. where the award has not yet become binding on the parties, or as been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made;

(vi) Lack of Arbitrability, i.e. where the subject matter of the dispute is not capable of settlement by arbitration under the law of the country of enforcement (see e.g., Mrs Wu v. Zhang (2009)); (vii) Breach of Public Policy, i.e. where the recognition and enforcement of the award would be contrary to the public policy of the country of enforcement (see e.g., ED & F Man v. National Sugar (2003), GRD Minproc v. Shanghai Flyingwheel (2009), Hemofarm DD et al. v. Yongning Pharmaceutical (2009), Tianrui Investment v. Yiju Hotel (2010)). The first five grounds need to be invoked by the defendant, while the last two grounds must be examined by the court ex officio. 15.4.1.5

Grounds Applicable to Hong Kong Awards

According to Articles 7(1)-(3) of the Mainland – SAR Hong Kong Mutual Enforcement Arrangement (2000), where a defendant advances evidence of one of the following circumstances, the court may refuse to enforce the arbitral award: (i)

Incapacity of a Party or Lack of Valid Arbitration Agreement, i.e. where a party to the arbitration agreement lacks sufficient civil capacity to enter into the arbitration agreement or where the arbitration agreement was otherwise not valid under the law to which the parties subjected it, or, failing any indication thereon, under the law of the place where the award was made (see e.g., Xiangjin Cereals v. Anhui Cereals (2003), Eurasian Technology v. Xinjiang Hops (2007));

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(ii)

Lack of Due Process, i.e. where the party against whom the application was filed was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case (see e.g., Harvest Shipping v. Sinotrans Shenyang (2006), Addax v. Zhongji Trade (2009));

(iii) Excess of the Arbitration Scope, i.e. where the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or where the award contains decisions on matters beyond the scope of the submission to arbitration; (iv) Irregularity in the Arbitration Procedure, i.e. where the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, with the law of the place where the arbitration took place (China Shipping Development v. Anhui Technology (2008)); (v)

Lack of Binding Character of the Award, i.e. where the award has not yet become binding on the parties or has been set aside or suspended by the court, in accordance with the law of the place where the arbitration took place;

(vi) Inarbitrability of the dispute, i.e. where the dispute is incapable of being settled by arbitration under the law of the place of enforcement; (vii) Breach of Public Policy, i.e. where the enforcement of the award would be contrary to the social and public interests of the Mainland (see e.g., Noble Resources v. Zhonghai Cereals & Oils (2009)). The first five grounds need to be invoked by the defendant, while the last two grounds must be examined by the court ex officio. 15.4.1.6

Grounds Applicable to Macao Awards

According to Article 7(1) of the Mainland – SAR Macau Mutual Enforcement Arrangement (2008), where a defendant advances evidence of one of the following circumstances, the court may refuse to enforce the arbitral award: (i)

Incapacity of a Party or Lack of Valid Arbitration Agreement, i.e. where a party to the arbitration agreement lacks sufficient civil capacity to enter into the arbitration agreement or where the arbitration agreement was otherwise not valid under the law to which the parties subjected it, or, failing any indication of the law to which the parties subjected the arbitration agreement, under the law of the place of arbitration;

(ii)

Lack of Due Process, i.e. where the party against whom enforcement is sought was not adequately notified to select arbitrators or to proceed with the arbitral procedure, or was otherwise prevented from defending its case;

(iii) Exceeding the Arbitration Scope, i.e. where the dispute dealt with in the arbitration award is not the dispute submitted for arbitration or is not within the scope of the arbitration agreement, or where the arbitration award contains decisions on issues beyond the scope of arbitration; (iv) Irregularity of the Arbitration Procedure, i.e. where the formation of the arbitral tribunal or the arbitral procedure is in breach of the parties’ agreement, or of failing such agreement, in breach of the law of the place of arbitration; (v)

Lack of Binding Character of the Award, i.e. where the arbitration award has not yet become binding on the parties concerned, or where the court at the place of arbitration has revoked it or refused to enforce it;

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(vi) Inarbitrability of the Dispute, i.e. where the dispute cannot be settled by way of arbitration according to the law of the place of enforcement; (vii) Breach of Public Policy, i.e. where admitting and enforcing the arbitration award in the Mainland would be against the ‘basic principles of law or the social and public interests’ of the Mainland. The first five grounds need to be invoked by the defendant, while the last two grounds must be examined by the court ex officio. The above grounds are, except for minor wording differences, almost identical to the grounds for non-enforcement applicable to Hong Kong awards. 15.4.1.7

Grounds Applicable to Taiwan Awards

According to Article 9 of the SPC Provisions on Recognition of Civil Judgments made in Taiwan (1998), the Mainland courts must refuse to recognize (and consequently enforce) a civil judgment issued in Taiwan under a certain number of circumstances. These circumstances are primarily tailored to apply to court judgments and thus, only some of them or part of them may apply to arbitral awards: (i)

Lack of Binding Character of the Judgment, i.e. where the award has not yet become effective;

(ii)

Lack of Due Process and Incapacity of a Party, i.e. where the award to be recognized has been made without the presence or due notification of the defendant, or under the defendant’s lack of due capacity either in person or in representation;

(iii) Conflict with an Exclusive Jurisdiction, i.e. where the civil dispute is not arbitrable and therefore falls under the total jurisdiction of the courts, or where the arbitral tribunal exceeded the scope of arbitration and therewith entailed the courts’ jurisdiction; (iv) Breach of the Principle of Res Iudicata, i.e. where the case was already subject to a ruling from a competent court or arbitral organ recognized in China; (v)

Breach of Public Policy, i.e. where the civil case applied for recognition goes against the basic principles of national law and regulation, or inflict harm to social and public interests (see e.g., Hehua Real Estate v. Kaikou Golf (2004)).

In addition, according to Article 9 of the SPC Provisions on Recognition of Civil Judgments made in Taiwan (1998), any application must comply with the ‘One China Principle’ (see e.g., Hehua Real Estate v. Kaikou Golf (2004)). Thus, although not provided in Article 9 and therefore not constituting a ground for non-enforcement in the technical sense, a breach of the ‘One China Principle’ will lead to the rejection of the application, i.e., to the refusal to recognize the decision. 15.4.1.8

Overview of Commonalities and Differences among the Various Regimes

With regard to the specific grounds for non-enforcement, those provided for by The New York Convention and the relevant provisions applicable to Hong Kong [15.4.1.5], Macau [15.4.1.6] and foreign-related awards [15.4.1.2] are very similar. In contrast, substantial differences exist compared to the grounds for non-enforcement applicable to domestic [15.4.1.3] and Taiwan awards [15.4.1.7]. Indeed, as can be seen from the table below, whilst the first eight grounds for non-enforcement are common to all applicable regimes (although their specific scope of application may slightly vary from regime to regime), the regime applicable to domestic and Taiwan awards provide for particular grounds for non-enforcement not known under the other regimes.

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COMPARISON Domestic Awards

Foreign-Related Awards

Hong Kong Awards

Art. 237 Civil Procedure Law 2012

Art. 274 Civil Procedure Law 2012

Mainland-Hong Kong Arrangement 2000

Lack of valid arbitration agreement

Art. 237(2)[1]

Art. 274(1)[1]

In capacity of a party

Indirectly covered by 237(2)[1] in connection with Art. 17 Arbitration Law 1995

Lack of Due Process

Macao Awards

Taiwan Awards

New York Convention Awards

Mainland-Macao Arrangement 2008

SPC Taiwan Provisions 1998

Art. 7(1)[1]

Indirectly covered by Art. 9(3)

Art. V(1)(a)

Similar

Indirectly covered by Art. 274(1)[1] in connection with Art. 17 Arbitration Law 1995

Art. 7(1)[1]

Art. 9(2)

Art. V(1)(a)

Similar

Indirectly covered by Art. 237(2)[3]

Art. 274(1)[2]

Art. 7(1)[2]

Art. 9(2)

Art. V(1)(b)

Similar

Irregularity in the 0arbitration procedure

Art. 237(2)[3]

Art. 274(1)[3]

Art. 7(1)[4]

Indirectly covered by Art. 9(2)

Art. V(1)(d)

Same

Exceeding the scope of arbitration

Art. 237(2)[2]

Art. 274(1)[4]

Art. 7(1)[3]

Indirectly covered by Art. 9(3)

Art. V(1)(c)

Same

Lack of binding character

Indirectly covered by Art. 257(2) in connection with Art. 64 Arbitration Law 1995

Art. 7(1)[5]

Art. 9(1)

Art. V(1)(e)

Similar

Lack of arbitrability

Indirectly covered by Art. 237(1)[1] in connection with Art. 17 Arbitration Law 1995

Indirectly covered by Art. 274(1)[1] in connection with Art. 17 Arbitration Law 1995

Art. 7(2)

Indirectly covered by art. 9(3)

Art. V(2)(a)

Similar

Violation of Public Policy

Art. 237(3) ‘social and public interests’

Art. 274(2) ‘social and public interests’

Art. 7(3) ‘social and public interests’

Art. 7(3) ‘basic principles of law or social and public interests’

Art. 9(6) ‘basic principles of national laws and regulations and social and public interests’

Art. V(2)(b) ‘public policy’

Similar

Forged Evidence

Art. 237(2)[4]

Not provided

Different

Evidence Withheld

Art. 237(2)[5]

Not provided

Different

Misconduct of Arbitrators

Art. 237(2)[6]

Not provided

Different

Breach of the principle of Res Iudicata

Not provided

Art. 9(5)

Not provided

Different

Breach of the One China Principle

Not provided

Art. 4

Not provided

Different

Award previously refused enforcement

Not provided

Art. 7(1)[5]

Not provided

Different

New York Convention 1958

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15.4.2

Practical Relevance of the Grounds for Non-Enforcement

Looking only at the grounds for non-enforcement common to all regimes [15.4], and according to the WunschArb’s own research, the most popular grounds for non-enforcement seem to be the following: (i)

The ground most often invoked by defendants and most often retained by the courts to justify the non-enforcement of an award is the ground of irregularity in the arbitration procedure;

(ii)

In second position comes the ground of excess of the arbitration scope, which occasionally leads to partial non-enforcement especially with regard to the involvement in arbitration proceedings of non-signatory parties;

(iii) The ground of lack of due process comes in in third position; (iv) in fourth position comes the ground of procedural irregularity; (v)

In fifth position comes the ground of ‘insufficient evidence’ followed in sixth position by the ground of ‘misapplication of the law’, which only applied to domestic awards and which have ceased to apply with the entering into force of the PRC Civil Procedure Law (2012).

(vi) In seventh position comes the ground of breach of Public Policy, which is often invoked by the defendant to the enforcement, but has so far rarely be retained by the courts with regard to foreign-related, Greater China, and foreign awards. 15.4.3 15.4.3.1

Standard for Review by the Courts

Standard for Review Regarding Grounds for Non-Enforcement

The UNCITRAL Arbitration Model Law (2006) and The New York Convention contemplate the following principles with regard to the review of grounds for non-enforcement: (i)

The list of grounds for non-enforcement listed in the relevant provisions is exhaustive and the courts may not refuse enforcement based on any other grounds. This principle is also contemplated by the relevant provisions of Chinese law regarding all kinds of awards, i.e., domestic [15.4.1.3], foreign-related [15.4.1.2], New York Convention [15.4.1.4], Hong Kong [15.4.1.5], Macau [15.4.1.6], and Taiwan [15.4.1.7].

(ii)

There are two kinds of grounds for non-enforcement: grounds which must be invoked by the defendant, and grounds which may be examined ex officio. This differentiation is also contemplated by the relevant provisions regarding domestic [15.4.1.3], foreign-related [15.4.1.2], Hong Kong [15.4.1.5], Macau [15.4.1.6], and New York Convention awards [15.4.1.4]. It does not however apply to Taiwan awards [15.4.1.7], where Article 10 of the SPC Taiwan Provisions on Recognition of Civil Judgments made in Taiwan (1998) seems to indicate that all the grounds are to be examined ex officio by the court.

(iii) A court may not re-examine the merits of an arbitral award: This limitation is also contemplated by the relevant provisions of Chinese law regarding foreign-related [15.4.1.2], Hong Kong [15.4.1.5], Macao [15.4.1.6], and New York Convention awards [15.4.1.4]. With regard to domestic [15.4.1.3] and Taiwan awards [15.4.1.7] however, Chinese law allows the court to review certain aspects of the merits of the case, such as the evidence and the application of the law.

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15.4.3.2

Discretionary Power of the Courts

Article 36 of the UNCITRAL Arbitration Model Law (2006) and Article V of The New York Convention provide that a court ‘&ldquo;may’ refuse to enforce an award under the circumstances listed therein. It is widely acknowledged that the word &ldquo;‘may’ is meant to give the court some sort of discretion, allowing it to enforce an award even though a ground for non-enforcement is given. This power of discretion is sometimes referred to as ‘Residual Discretionary Power to Enforce’ and may be exercised in the following circumstances: (i) when the respondent invoking the ground for refusal is deemed to be estopped from invoking the ground; (ii) when the defect is insignificant; or (iii) when the existence of the defect did not influence the final result. Such a discretionary power of the courts is unfortunately not contemplated to the same extent by Chinese law: (i)

&With regard to Chinese awards, Articles 237 and 274 of the PRC Civil Procedure Law (2012) and Articles 63 and 71 of the PRC Arbitration Law (1994) provide that where any ground of non-enforcement is given &ldquo;“[the court,] after examination of the case by the collegial panel, rules to refuse the enforcement”&rdquo;. Thus, the court is not given any margin of appreciation and must refuse enforcement where a relevant ground is given;

(ii)

&bWith regard to foreign awards, Article 4 of the SPC NYC Implementation Notice (1987) provides that “where [the court] finds that any of the circumstances listed in Article V par. 2 is given, or that any of the circumstances listed in Article V par. 1 as brought forward by the defendant is given, it shall reject the application and refuse to recognize and enforce the award”&ldquo;. This is commonly understood as depriving the Chinese courts of the possibility of exercising any discretionary power and granting enforcement despite the existence of a ground for non-enforcement.

(iii) With regard to Hong Kong and Macao awards, Article 7 of the Mainland –SAR Hong Kong Mutual Enforcement Arrangement (2000) and the Mainland –SAR Macau Mutual Enforcement Arrangement (2008) provide that “[…] if the party against whom the application is filed has evidence to prove any of the following circumstances, upon check and verification, the court may rule to refuse the application”&ldqu. Notwithstanding the use of the term ‘may’, in the light of the above-mentioned practice with regard to The New York Convention, it is doubtful whether this discretion was really intended by the legislator, and even if so, whether the Chinese courts will actually make use of such power. (iv) With regard to Taiwan awards, Article 10 of the SPC Taiwan Provisions on Recognition of Civil Judgments made in Taiwan (1998) stresses that “[a]fter an examination of the application, the People’s Court is entitled to recognize the effect of a verdict on a civil case made by a court in Taiwan, only if the case is not in violation of the stipulations under Article 9”&ldquo;.&rdquo; Thus, it appears quite clear that the power to refuse enforcement of an arbitral award where one of the circumstances of Article 9 is given is to be seen as a duty and not as an option. In summary, under Chinese law and practice, courts are deprived of any discretionary power and have in principle no other choice than to refuse enforcement of an award where a ground for non-enforcement is present and properly raised. 15.4.4

Questions of Waiver and Preclusion

15.4.4.1

Lack of Express Legal Basis

Chinese law does not expressly provide for the possibility to waive the right to object to the enforcement of a Chinese arbitral award, and it is thus to be assumed that a party may in principle not validly waive such right in advance.

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However, notwithstanding the lack of express legal basis, the Supreme People’s Court has developed certain practices with regard to the inapplicability, waiver, or preclusion to invoke specific grounds for non-enforcement, namely in connection with (i) consent awards [15.4.4.2], (ii) annulment proceedings [15.4.4.3], and (iii) the failure to invoke a ground in a timely manner [15.4.4.4]. These principles mainly apply to Chinese awards [5.2.1], and indirectly also to Greater China Awards. They are not directly extendable to foreign awards [5.2.1] and it remains to be seen whether, and if so, to what extent the Chinese courts may refer to these principles when dealing with foreign awards [5.2.1]. 15.4.4.2

Waiver In Connection With Consent Awards

According to Article 28 of the SPC Interpretations on Arbitration Law (2006), “where a party objects to the enforcement of an award that has been rendered based on a settlement agreement, the court shall not support such objection.” This provision, which does not differentiate between different types of awards, theoretically means that by agreeing to a consent award [5.2.2], the parties actually implicitly waive their right to object to the enforcement of such award. This is an interesting development, whose application in practice remains to be seen. 15.4.4.3

Preclusion In Connection With Annulment Proceedings

According to Article 26 of the SPC Interpretations on Arbitration Law (2006), where after a party‘s application to the court for annulment of an award has been rejected, that party objects to the enforcement on the basis of the same ground, the court hearing the enforcement may not support such objection. Thus, where a ground for non-enforcement [15.4] also constitutes a ground for annulment [2.2] of an award, and a party has already tried without success to annul the award based on this ground, such party is precluded from invoking it again during enforcement proceedings (see e.g., Shenzhen Development Bank v. Zaichuang Aluminium (2007), Foshan Decoration v. Zhang Hongjun et al. (2008)). 15.4.4.4

Implicit Waiver through the Failure to Invoke the Ground

According to Article 13 of the SPC Interpretations on Arbitration Law (2006), where a party has failed to contest the invalidity of the arbitration agreement before the first hearing of the arbitral tribunal, it is precluded from invoking such ground before the court in annulment or enforcement proceedings or in proceedings in which a party attempts to invalidate the arbitration clause (see e.g., Lianhua Hotel v. Puyang Government (2009)). Chinese law does however not generalize this principle to other procedural deficiencies. Nevertheless, it should be noted that some arbitration rules of Chinese arbitration commissions apply this principle to other situations providing that a party shall be “deemed to have waived its right to object where it knows or should have known that any provision of, or requirement under, these Rules has not been complied with and yet participates in or proceeds with the arbitration proceedings without promptly and explicitly submitting its objection in writing to such non-compliance” (see e.g. Article 10 of the CIETAC Arbitration Rules (2012), Article 52 of the CMAC Arbitration Rules (2004) and Article 3 of the BAC Arbitration Rules (2008)).

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The question arises whether such preclusion provided in the arbitration rules with regard to the arbitration proceedings may have any extended effect on subsequent judicial proceedings and preclude the right of a party to raise a similar ground at the enforcement stage. Due to the lack of legal basis underpinning this issue, it is to be expected that courts will in principle not consider themselves bound by a waiver made during the arbitration proceedings. Nevertheless, in practice, Chinese courts have on certain occasions rejected objections to the procedure when the concerned party failed to raise such objection in a timely manner during the arbitration proceedings (see e.g., Contestar Shipping v. Sinotrans Zhanjiang (1998), ABC v. Zhenghua Industry et al. (2002). It remains to be seen whether or not this trend will continue (see e.g., Voest-Alpine Trade v. Jiangsu Foreign Trade (2009)).

16.

GENERAL LEGAL FRAMEWORK

16.1 Laws 16.1.1

Overview of Relevant Laws

Though China issued the PRC Arbitration Law (1994), this law does not deal with all arbitration-related issues in a comprehensive and systematical manner. Consequently, in order to get an overview of the legal framework applicable to arbitration, it is further necessary to consult various other laws, the main ones being the Contract Law [16.1.5], the General Principles of Civil Law [16.1.3], Civil Procedure Law [16.1.4], laws on Conflict of Laws [16.1.6], and relevant laws with regard to Greater China [16.1.7]. 16.1.2

PRC Arbitration Law (1994)

On 31 August 1994, the Standing Committee of the 8th National People’s Congress at its 9th Meeting adopted the PRC Arbitration Law (1994), which entered into effect on 1 September 1995. It is the first law dealing only with arbitration and it is supposed to replace the prior provisions on arbitration which prior to 1994 were spread among various laws and over 80 administrative rules and regulations. It is divided into eight chapters, dealing successively with general provisions (Chapter 1); provisions on the establishment, structure, and organization of arbitration commissions and the China Arbitration Association (Chapter 2); validity requirements of the arbitration agreement (Chapter 3); provisions as to the arbitration procedure (Chapter 4); provisions concerning the procedure for the setting-aside of an arbitral award (Chapter 5); provisions concerning the procedure of enforcement of arbitral awards (Chapter 6); special provisions concerning foreign-related arbitration (Chapter 7); and supplementary provisions (Chapter 8). The PRC Arbitration Law (1994) shows the following key characteristics: •

It maintains the dual-track system differentiating between domestic [14.2] and foreign-related [14.2] cases, and dealing with each of them separately.

•

It did not substantially modify foreign-related [14.2] arbitration, which remains as it was in almost all respects. In contrast, it drastically modernized domestic arbitration.

•

It was widely inspired by the UNCITRAL Arbitration Model Law (2006) although the PRC Arbitration Law (1994) did not incorporate all of the principles contained in the UNCITRAL Arbitration Model Law (2006) and therefore shows major differences with it. 16.1.3

General Principles of Civil Law

The PRC General Principles of Civil Law (1986) issued in 1986 contain fundamental principles of civil law, such as general principles of legal personality, agency, liability, limitation periods, etc. Thus, they will in principle apply where Chinese law is the law applicable to the merits.

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Before the entering into force of the PRC Law on the Law Applicable to Foreign-Related Civil Relations (2010), the PRC General Principles of Civil Law (1986) contained also relevant principles on conflict of laws [16.1.6]. However, these provisions have now been mostly replaced and questions on conflict of laws on commercial disputes are generally subject to the PRC Law on the Law Applicable to Foreign-Related Civil Relations (2010). 16.1.4

Civil Procedure Law

The PRC Civil Procedure Law issued in 1991, and the related SPC Civil Procedure Law Opinions (1992), contain several important provisions concerning the jurisdiction of the courts with regard to arbitration, and in particular their duty to refrain from hearing disputes subject to a valid arbitration agreement, the procedure concerning measures for preservation of property and evidence in relation with an ongoing arbitration, and the procedure of enforcement of arbitral awards. The PRC Civil Procedure Law has been revised twice on 28 October 2007 (with effect as of 1 April 2008) and 31 August 2012 (with effect as of 1 January 2013) by the Standing Committee of the National People’s Congress. The new Civil Procedure Law contains many important modifications regarding arbitration, for example, pre-arbitration preservation measures, the unification of legal grounds for refusal of enforcement and annulment of domestic arbitral awards, and other arbitration-related amendments. The new amendments have been warmly welcomed in arbitration circles, since the new amendments show an ongoing legislative tendency towards arbitration-friendliness although further amendments remain necessary for Chinese arbitration to adapt to international standards. 16.1.5

Contract Law

The PRC Contract Law (1999) was issued in 1999 and contains general principles of contract law. Some of them also apply in case of disputes submitted to arbitration, the most important concerning principles of choice of law (Article 126), choice of forum (Article 128) and limitation period (Article 129). 16.1.6 Laws on Conflict of Laws China has so far not enacted any specific law on private international law. Instead, many issues of private international law are dealt with by other miscellaneous laws and regulations. With regard to issues of conflict of laws, the Standing Committee of the National People’s Congress has adopted on 28 October 2010 the PRC Law on the Law Applicable to Foreign-Related Civil Relations (2010) and which has come into effect on 1 April 2011. This law deals with the issue of the law applicable to foreign-related [14.2] civil cases. With regard to arbitration, following provisions are of particular interest: •

Article 3 of the PRC Law on the Law Applicable to Foreign-Related Civil Relations (2010) provides as a principle that parties may explicitly choose the law applicable to foreign-related [14.2] civil cases in accordance with the provisions of law.

•

Article 10 of the PRC Law on the Law Applicable to Foreign-Related Civil Relations (2010) further sets out that foreign laws will be ascertained by the People’s Court, the arbitration body or the relevant administrative organ. Where the parties choose to apply the law of a foreign country, they must provide the relevant laws of such country and ascertain their content. Where it is not possible to ascertain the applicable foreign laws or their content, Chinese law applies.

•

Article 18 of the PRC Law on the Law Applicable to Foreign-Related Civil Relations (2010) specifies that the parties may by agreement choose the law applicable to the arbitration agreement. In the absence of a choice by the parties, the law of the locality of the arbitration institution or the law of the seat of arbitration applies.

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16.1.7

Relevant Laws with regard to Greater China

The PRC Arbitration Law (1994) and the other laws relevant with regard to arbitration only apply in Main-

land China. Arbitration in Taiwan, Hong Kong, and Macao are subject to separate statutes and rules enacted by the relevant legislative and administrative authorities of these regions and are not dealt with here.

However, the two systems interact where an award rendered in one region is to be enforced in another, and special provisions [15.1.4] exist to deal with such situations.

16.2 Regulations & Court Interpretations 16.2.1

Overview

Where relevant laws are not sufficiently clear or are silent on a specific issue, these loopholes are often de-

alt with by regulations [16.2.2] issued by relevant administrative bodies and/or court interpretations [16.2.3]. 16.2.2

Regulations

The regulations relevant to arbitration in China concern mostly the establishment and administration of arbitration commissions. The Chinese State Council has issued almost 20 regulations concerning for example the change of name of arbitration commissions, the procedure of establishment of arbitration commission

and the drafting of arbitration rules, the standard of arbitration fees of Chinese arbitration commissions, etc.

These regulations are mostly of an administrative nature and have little relevance to the practice of arbitration proceedings in China.

16.2.3

Court Interpretations

The Supreme People’s Court regularly issues provisions and interpretations on issues concerning the application of laws, including the PRC Arbitration Law (1994) and other relevant laws and regulations. Although

these provisions and interpretations do not constitute laws, they are of utmost importance and are generally considered binding by the lower courts.

The most important interpretations and provisions in arbitration related fields include: SPC NYC Implementation Notice (1987); SPC Notice on Prior Reporting System (1995); SPC Notice on

the Prior Reporting System (1998); SPC Reply on Partial Setting Aside of Arbitral Awards (1999); Mainland

– SAR Hong Kong Mutual Enforcement Arrangement (2000); SPC Draft Provisions on Foreign-Related

Arbitration (2003); SPC Notice on Prohibiting in-service Judges from Acting as Arbitrators (2004); SPC In-

terpretations on Arbitration Law (2006); Mainland – SAR Macao Mutual Enforcement Arrangement (2008);

SPC Reply on Defaulting Party in Arbitration Related Cases (2008); SPC Interpretations on Several Issues

Concerning Application of the PRC Law on Choice of Law for Foreign-Related Civil Relationships (I) (2013). In contrast, the lower courts have no express authorization to issue judicial interpretations, though it has

happened that some courts have issued so-called ‘opinions’ or ‘provisions’ expressing their views on certain arbitration related issues. These views are only binding on lower courts within their jurisdiction as long as they do not contradict the laws, regulations, or interpretations of the Supreme People’s Court.

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16.3 Relevant International Conventions and Treaties 16.3.1 16.3.1.1

New York Convention

China’s Accession to the New York Convention

China adopted The New York Convention with effect from 22 April 1987. It is the most important international convention relating to arbitration, focusing in particular on the enforcement of arbitral agreements and awards. Its implementation in China is based on the SCNPC Decision on China‘s Accession to the New York Convention (1986) and on the SPC NYC Implementation Notice (1987). By signing The New York Convention, China undertook to recognize and enforce arbitration agreements and foreign arbitral awards rendered after 22 April 1987 in any New York Convention member country under the conditions stipulated therein. This commitment applies to both institutional awards and ad hoc awards. However, China made two reservations when acceding to the Convention: (i)

a reciprocity reservation [16.3.1.2]; and

(ii)

a commercial reservation [16.3.1.3]. 16.3.1.2

Reciprocity Reservation

Article I (1) of the New York Convention provides that the Convention applies to arbitral awards made in another contracting state, as well as to awards which are considered ‘non-domestic’ by the State where enforcement is sought. China made a reciprocity reservation under Article I (3) of the New York Convention, stating that it would only apply The New York Convention to the recognition and enforcement of awards made in the territory of another contracting state. Through its reciprocity reservation, China excluded the broader application of The New York Convention and limited its application to awards made in one of the contracting states to the Convention. In other words, -

It does not apply to awards made in non-signatory countries. It should, however, be noted that as of 31 December 2010, 146 countries have ratified The New York Convention. The effect of the reciprocity reservation with regard to non-contracting States is consequently very limited.

It does not apply to foreign-related [14.2] arbitral awards or Greater China awards, which are enforced according to separate legal provisions [16.3.5]. Indeed, through its reciprocity reservation, China chose not to make use of the possibility to apply The New York Convention to so-called ‘non-domestic’ awards, thereby excluding its application to foreign-related [14.2] awards (see however Macor Neptun v. Shanghai Mechanical (2001), TH&T International v. Hualong Auto (2003), Weimao v. Tianli Enterprise (2004), Duferco S.A. v. Ningbo Imp. & Exp. (2009), where courts applied The New York Convention to awards which were considered ‘non-domestic’ due to the involvement of a foreign arbitration institution). 16.3.1.3

Commercial Reservation

According to Article I(3) of The New York Convention, a contracting state may make a so-called ‘commercial reservation’ by declaring that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered ‘commercial’ under the national law of the state making such declaration. China made use of this possibility and made a commercial reservation.

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In Article 2 of the SPC NYC Implementation Notice (1987), the term ‘commercial’ is defined as referring to “relations concerning economic rights and obligations arising out of contracts, tort or relevant statutory provisions.” Examples of such relations are sales of goods, leases of property, technology transfers, equity joint ventures, cooperative joint ventures, insurance, exploration and development of natural resources, provisions on labor, agency and consulting, etc. Shipping and other maritime disputes are usually also considered to be commercial disputes. Disputes between foreign investors and the Chinese state are expressly excluded from the scope of ‘commercial’ disputes. The scope of ‘commercial dispute’ under Chinese law is thus very broad, although not clearly defined. 16.3.2

ICSID Convention

The ICSID Convention (1965) was signed by China on 9 February 1990, ratified in 1992, and came into effect in China on 6 February 1993. Besides providing foreign investors with certain substantial rights, the ICSID Convention (1965) also establishes a settlement mechanism for disputes between private investors and host states, which includes arbitration and provides for a system of enforcement of arbitral awards. When acceding to the Washington Convention 1965, China made however a declaration under Article 25(4) of the ICSID Convention (1965) and notified the ICSID that it would only consider submitting to the jurisdiction of the Centre ‘disputes over compensation resulting from expropriation and nationalization’. The ICSID Convention (1965) is silent on the nature and effect of a declaration under Article 25(4), and it is therefore controversial whether such a declaration constitutes a reservation in the sense of Article 2(1)(d) of the Vienna Convention on the Interpretation of Treaties, with the effect of excluding ICSID arbitration for disputes other than those ‘over compensation resulting from expropriation and nationalization’. Various authors argue that interpreting such declaration as a ‘reservation’ makes little sense in the light of the ICSID Convention (1965)’s ‘double consent’ requirement under Article 25 of the ICSID Convention (1965). Under such requirement, the accession to the convention by a State is not sufficient to submit a dispute involving China to ICSID arbitration, and further requires an express and specific consent between the host state and the investor on the use of ICSID arbitration for the resolution of their dispute. A contrario, a declaration indicating that a State will not accept ICSID jurisdiction for a certain kind of dispute should not per se be considered final, and should leave the State with the possibility to later expressly consent to ICSID jurisdiction with regard to a specific dispute. Therefore, whether a dispute involving China is subject to ICSID arbitration should depend on the existence of a specific consent, the scope of which should be determined by the consent itself, and irrespective of China‘s declaration under Article 25(4) of the ICSID Convention (1965). This question is all the more important in the light of the many more recent Bilateral Investment Treaties [16.3.3] concluded by China which do not limit ICSID jurisdiction to compensation issues, and cover the obligation to compensate as well as other disputes related to the investor‘s investment in the host state. It remains to be seen how an ICSID tribunal would decide if faced with such question. To the extent that the ICSID Convention (1965) applies, it fills the gap left by China’s commercial reservation [16.3.1.3] under The New York Convention, which does not apply to ‘disputes between foreign investors and the host State‘s government. Awards rendered in an ICSID arbitration are enforceable in China under section 6 of the ICSID Convention (1965). The ICSID Convention (1965) could play a major role in the future. On 24 May 2011, the Secretary-General of the ICSID registered an arbitration request submitted by a Malaysian company Ekran Berhad against China (Ekran Berhad v. People‘s Republic of China (ICSID Case No. ARB/11/15)). It is the first case ever filed before the ICSID against the Chinese government. According to information on the ICSID website, the case was suspended on 22 July 2011 and later on apparently discontinued based on a joint request for discontinuance filed by the parties on 16 May 2013.

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16.3.3

Bilateral Investment Treaties

16.3.3.1

Overview of Relevant BITs

Bilateral Investment Treaties establish comprehensive protection for foreign investors under international law and typically include protection of substantive rights for foreign investors and dispute settlement mechanisms, among which arbitration. As of 1 June 2013, China had signed over 140 BITs with most of its commercial partners (see http://www. unctad.org/templates/Page.asp?intItemID=2344&lang=1), except the U.S. although China is currently negotiating a Free Trade Agreement which may also cover certain aspect of investment protection. As such, China is in the second place in the world in terms of the number of BITs that it has signed. China’s Bilateral Investment Treaties are typically classified into 2 different categories, (i) first generation treaties [16.3.3.2], and (ii) second generation treaties [16.3.3.3] depending mostly on the time of their conclusion. 16.3.3.2

First Generation BITs

From 1982 until the late 1990s, China had no standard form of Bilateral Investment Treaty [16.3.3], and the treaties concluded during this period therefore vary greatly in their structure, content, and scope. Concerning the available procedural remedies, if they provided such procedural remedies, the first generation treaties frequently provided for a three-step dispute resolution mechanism for disputes between investors and states: (i) attempt of amicable settlement, (ii) reference of the dispute to ‘competent judicial or administrative body’ for a certain period of time (usually 6 months), and (iii) initiation of arbitration with regard to disputes specifically concerning the amount of compensation for an expropriation. The first generation BITs usually provide for either genuine ad hoc arbitration, arbitration under UNCITRAL Arbitration Rules (2010), or ICSID arbitration. 16.3.3.3

Second Generation BITs

Although China has officially still no standard Bilateral Investment Treaties [16.3.3], the second generation treaties are becoming more and more similar and show the following common features with regard to the available procedural remedies: •

The parties should first try to amicably settle their dispute where a dispute arises in connection with a breach of an obligation under the treaty;

•

If no amicable settlement is reached, the investor may resort to arbitration, either directly or after completion of an administrative review procedure which is not satisfactory.

The second generation Bilateral Investment Treaties [16.3.3] usually contemplates all kinds of arbitration, including ICSID arbitration, genuine ad hoc arbitration, ad hoc arbitration under the UNCITRAL Arbitration Rules (2010) or other arbitration rules, ICC arbitration, etc. The revolutionary aspect of second generation treaties is not that much the reference to ICSID arbitration which appeared also in first generation treaties [16.3.3.2], but rather, the fact that the second generation treaties contain wider and sometimes even unconditional consents to submit investment disputes to arbitration irrespective of the nature of the claims at stake. Such consents are no longer restricted to claims concerning the amount of compensation but cover the obligation to compensate as well as other disputes related to the investor‘s investment in the host country. It remains however to be seen if such wider consent will effectively prevail over China’s declaration [16.3.2] under Article 25(4) of the ICSID Convention (1965).

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Although a third generation of BITs is already emerging, the changes affect largely the substantial protection standards afforded in those BIT, rather than the dispute resolution mechanism. 16.3.4

Mutual Assistance Treaties

Between 1987 and 2012, China concluded MATs in civil and/or criminal matters with about 37 countries, including, in chronological order, Poland, France, Belgium, Mongolia, Romania, Italy, Spain, Russia, Turkey, Ukraine, Cuba, Belarus, Kazakhstan, Bulgaria, Thailand, Egypt, Canada, Greece, Cyprus, Hungary, Morocco, Kyrgyzstan, Tajikistan, Singapore, Uzbekistan, Vietnam, South Korea, Laos, Tunisia, Lithuania, Argentina, North Korea, Brazil, Mexico, Peru, Algeria, Kuwait. China has no such treaties with some of the major industrialized economies such as Japan, the UK, and the USA. These treaties aim to guarantee to the citizen of each country a minimum of legal protection in the other country and usually cover matters such as serving of documents, collection of evidence, recognition and enforcement of court judgments, and sometimes also recognition and enforcement of arbitral awards. However, with regard to the recognition and enforcement of arbitral awards, these treaties have in practice very little relevance: With the exception of Taiwan, Tajikistan and North Korea, all other countries are signatories to The New York Convention, which therefore applies either directly or indirectly. 16.3.5

Relevant Treaties with regard to Greater China

China has entered into bilateral arrangements with Hong Kong and Macao, and has issued special provisions regarding Taiwan. However, these provisions only concern the enforcement of arbitral awards and are therefore dealt with here [15.1.4].

16.4 Arbitration Rules ⇒

Arbitration Rules [8.1.3.3]

17.

INTERIM MEASURES

17.1 Limited Availability of Interim Measures Under Chinese law and practice, the availability of interim measures in support of arbitration is limited and subject to various restrictions. These restrictions relate to the application process and the authority competent to issue interim measures [17.2] and to the kind of available interim measures [17.3], and carry important practical implications [17.4].

17.2 Request Process & Competent Authority According to Articles 28, 46, and 68 of the PRC Arbitration Law (1994), a party requesting interim measures within the context of arbitration proceedings must file such request with the arbitration commission (and not the arbitral tribunal). The arbitration commission must then forward such request to the competent court. In practice, the arbitration institution simply transfers the party‘s application to the competent court, without considering the appropriateness of the motion. The competent court will decide on the request for the preservation measures and may for this purpose collect further information directly from the parties. The competent court is the court at the place where the defendant is domiciled, where the concerned evidence or property is located, or the court which has jurisdiction over the main dispute (see Articles 81 and 101(1) of the Civil Procedure Law (2012)). According to Articles 46, and 68 of the PRC Arbitration Law (1994), for domestic cases [14.2], the Basic People’s Court in principle has jurisdiction, and for foreign-related case [14.2], the Intermediate People’s Court in principle has jurisdiction.

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While the arbitration institution has no decisional power with respect to interim measures under Chinese law, it is the intermediary between the parties and the court. In contrast, the arbitral tribunal plays no role in this process and has no power to make any such orders, except in case the applicable law to the arbitration procedure [3.2] is other than the Chinese law and provides for the power of the arbitral tribunal to make such orders (see Article 21(2) of the CIETAC Arbitration Rules (2012)).

17.3 Kinds of Interim Measures 17.3.1

Two Main Kinds of Interim Measures

Articles 28, 46, and 68 of the PRC Arbitration Law (1994) refer only to two types of interim measures: (i)

Property preservation measures [17.3.2]

(ii)

Evidence preservation measures [17.3.3]

Based on the restrictive wording of these provisions, courts have in principle no competence to issue other types of interim measures, such as security for costs orders or anti-suit injunctions [7.8]. Some exceptions apply in intellectual property disputes, where the applicable law provides for a broader range of injunctive reliefs. 17.3.2 17.3.2.1

Property Preservation

Pre-arbitration Property Preservation

Before the promulgation of the PRC Civil Procedure Law (2012), the system in place under the PRC Civil Procedure Law (2007) which required a party to file preservation measures through the arbitration commission [17.2] de facto meant that parties could not request preservation measures before the initiation of arbitration proceedings, i.e., before an arbitration commission has accepted the case. There was no legal basis for parties to request interim measures before the initiation of arbitration, i.e. pre-arbitration property preservation measures. This loophole has now been closed by , in particular by Article 101 of the PRC Civil Procedural Law (2012), which provides that any interested party may “before instituting an action or applying for arbitration” directly apply to the courts for preserving property. There are however three main limitations to a party’s possibility of requesting pre-arbitration preservation measures: (i) preservation measures may only be granted under ‘urgent’ circumstances, (ii) the court may request the applicant to provide security for its application and (ii) if granted, the party will have to file for arbitration within 30 days. 17.3.2.2

Property Preservation During Arbitration Proceedings

According to Article 28 of the PRC Arbitration Law (1994) and Article 100 of the Civil Procedure Law (2012), a party may apply for property preservation during arbitration proceedings if it may become impossible or difficult for the party to implement the award due to an act of the other party or other causes. While Article 100 of the Civil Procedure Law (2012) does not expressly refer to arbitration and is a general provision of civil procedure law, Article 28(2) of the PRC Arbitration Law (1994) has remained unchanged with the regard to the requirement to file an application for preservation measures through the arbitration commission [7.2]. It thus remains to be seen whether courts will also accept applications filed directly by the parties or whether they will request that such applications be filed by the arbitration commission.

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17.3.3 17.3.3.1

Evidence Preservation

Pre-arbitration Evidence Preservation

Before the promulgation of the PRC Civil Procedure Law (2012), the system in place under the PRC Civil Procedure Law (2007) which required a party to file preservation measures through the arbitration commission [17.2] de facto meant that parties could not request preservation measures before the initiation of arbitration proceedings, i.e., before an arbitration commission has accepted the case. There was no legal basis for parties to request interim measures before the initiation of arbitration, i.e. pre-arbitration property preservation measures. This loophole has now been closed by the PRC Civil Procedure Law (2012), in particular by Article 81, which provides that any interested party may “before instituting an action or applying for arbitration” directly apply to the courts for preserving property. There are however three main limitations to a party’s possibility of requesting pre-arbitration preservation measures: (i) preservation measures may only be granted under ‘urgent’ circumstances, (ii) the court may request the applicant to provide security for its application and (ii) if granted, the party will have to file for arbitration within 30 days. 17.3.3.2

Evidence Preservation During Arbitration Proceedings

According to Articles 46, and 68 of the PRC Arbitration Law (1994), Article 81 of the PRC Civil Procedure Law (2012), a party may request evidence preservation measures where the evidence may be destroyed or lost or difficult to obtain at a later time and a people’s court may also take preservation measures on its own initiative. While Article 81 of the Civil Procedure Law (2012) does not expressly refer to arbitration and is a general provision of civil procedure law, Article 46 of the PRC Arbitration Law (1994) has remained unchanged with the regard to the requirement to file an application for preservation measures through the arbitration commission [7.2]. It thus remains to be seen whether courts will also accept applications filed directly by the parties or whether they will request that such applications be filed by the arbitration commission.

17.4 Practical Implications 17.4.1

Lack of Power of the Arbitral Tribunal

In the system implemented [16.1] by Articles 28, 46, and 68 of the PRC Arbitration Law (1994), the arbitral tribunal plays no role whatsoever and has no power to issue any such measures. Interim measures for property or evidence preservation are under the exclusive jurisdiction of the courts. 17.4.2

Lack of Interim Measures in Support of Foreign Arbitration Proceedings

The requirement of Articles 28, 46, and 68 of the PRC Arbitration Law (1994) to go through an arbitration commission [17.2] is usually understood as referring only to Chinese arbitration commissions. In other words, there is no legal basis enabling a foreign arbitration institution to file a request for preservation measures with a Chinese court in support of foreign arbitration proceedings. With regard to pre-arbitration property [17.3.2.1] and evidence preservation measures [17.3.3.1], the new Civil Procedure Law (2012) has created an avenue for parties to requests preservation measures directly. As such nothing officially prevents parties to a foreign arbitration from applying for preservation measures before Chinese courts. However, it is unclear whether parties to arbitration outside China may also benefit from this new pre-arbitration protection mechanism. This would constitute a substantial change in practice and it is unclear whether the new provisions really intended to open that door and whether Chinese courts will feel comfortable granting preservation measures in support of arbitration proceedings taking place abroad.

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18.

JURISDICTION OF THE ARBITRATION TRIBUNAL

18.1 Conditions for Jurisdiction In order for an arbitral tribunal to have jurisdiction over a dispute, it is necessary that the parties have concluded a valid arbitration agreement [7.2], the matter subject to arbitration be arbitrable [4] and within the scope of the arbitration agreement [7.2.1.4], and the arbitral tribunal has been constituted [6.1] in accordance with the applicable rules..

18.2 Challenges to Jurisdiction 18.2.1

Right to Challenge the Jurisdiction of the Arbitral Tribunal

Where a party considers that the arbitral tribunal lacks jurisdiction, according to Article 20 of the PRC Arbitration Law (1994), it may challenge the jurisdiction of the arbitral tribunal. Such challenge must be addressed to the competent authority [18.2.2] according to the applicable process [18.2.3] and based on a relevant ground for challenge [18.2.4]. Under certain circumstances, a party may be precluded [18.2.5] from raising a jurisdictional challenge. While Article 20 of the PRC Arbitration Law (1994) expressly only refers to cases where a party challenges the validity of the arbitration agreement, this provision is to be read as applying more generally to cases where a party challenges the jurisdiction of the arbitral tribunal, since in the vast majority of cases a lack of jurisdiction of the arbitral tribunal goes back to a lack of valid arbitration agreement (one notable exception being however the case where the arbitral tribunal was not constituted in accordance with the arbitration agreement and therefore lacks jurisdiction, in which case Article 20 of the PRC Arbitration Law (1994) will not apply). 18.2.2

Competent Authority to Decide on Jurisdictional Challenges – Limited Competence-Competence

Under Article 20 of the PRC Arbitration Law (1994), where a party challenges the jurisdiction of the arbitral tribunal, it may request the arbitration commission [8.1] or the competent court [13.2.2] to make a determination. Where one party requests the arbitration commission to make a decision and the other party applies to the court for a ruling, the court has in principle the last word, unless the arbitration commission has already rendered its decision. This principle has the following two main implications: (i)

The arbitral tribunal has no authority to decide on its own jurisdiction; this authority belongs either to the arbitration commission or to the court;

(ii)

The court has overriding jurisdiction over the question of the jurisdiction of the arbitral tribunal.

As such, Article 20 of the PRC Arbitration Law (1994) completely undermines the principle of competence-competence. This lack of competence-competence creates a split between the jurisdiction-ruling (under the authority of the arbitration commission or court) and the merit-adjudicating (under the authority of the arbitral tribunal), which causes not only delays but further creates a risk of conflicting decisions. In addition, it is difficult to conceive how an arbitral tribunal can be considered independent from the arbitration commission if it is deprived of the most important decisional prerogative, i.e., the right to decide on its own jurisdiction. Due to these disadvantages, some arbitration commissions such as BAC and CIETAC have opened a back door and implemented in their rules the possibility to delegate the power to decide on jurisdiction to the arbitral tribunal (see e.g. Article 6 of the CIETAC Rules (2012) and Article 6(4) of BAC Arbitration Rules (2008)).

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While it is controversial whether these provisions are in accordance with Article 20(1) of the PRC Arbitration Law (1994), no court has so far ever challenged the legality of such provision. 18.2.3

Challenge Process

Where a party intends to challenge the jurisdiction of the arbitral tribunal, it must do so before the first hearing of the arbitral tribunal (see Article 20(2) of the PRC Arbitration Law (1994)). This challenge can be raised either before the arbitration commission/arbitral tribunal or before the competent court [13.2.2] (see Article 20(1) of the PRC Arbitration Law (1994)). If raised in the arbitration, the arbitration commission or, if the arbitration commission has delegated this power [18.2.2] to the arbitral tribunal, the arbitral tribunal may decide on the jurisdiction. The arbitral tribunal may either make a separate decision on jurisdiction during the arbitration proceedings by interim award [5.3.2.3] or incorporate the decision on jurisdiction in the final award [5.3.2.1] (see e.g. Article 6(3) of the CIETAC Arbitration Rules (2012); Article 6(4) of the BAC Arbitration Rules (2008)). However, until the arbitration commission (or arbitral tribunal) makes a determination on jurisdiction, the other party may apply to the court and request the court to determine the issue of jurisdiction. If raised before the court, the latter will decide and this decision will bind the arbitral tribunal, who will in principle suspend the arbitration proceedings until decision by the court. . If the court comes to conclusion that the arbitration agreement is valid, it must refer the parties to arbitration according to Article 124(2) of the PRC Civil Procedure Law (2012). Where both the arbitration commission and the court are dealing with the issue, the relevant decision will be the one issued by the court. The only exception is where the arbitration commission has made a decision before the initiation of the court proceedings, in which case the court shall not accept the case (see Articles 3 and 4 of the SPC Reply on Determination of Validity of Arbitration Agreement (1998) and Article 13(2) of the SPC Interpretations on Arbitration Law (2006)). This principle is however not always consistently applied in practice and courts tend to be protective of their jurisdiction (see e.g., Xiamen Xindeco v. HK Archer (1996), Shenzhen Transport et al. v. Shennan Investment (2006), 16 CNMC et al. v. Hainan Yedeli et al. (2007), Fuyang Restaurant v. Zhao Lihua (2009), Lianhua Hotel v. Puyang Government (2009)). 18.2.4

Grounds for Challenge

Although there is no list of specific grounds for challenging the jurisdiction of the arbitral tribunal, the relevant grounds derive from the conditions for jurisdiction [18.1] of the arbitral tribunal. Consequently, the jurisdiction of the arbitral tribunal can be challenged where: (i)

There is no valid arbitration agreement [7.2];

(ii)

The matters in dispute are not covered [7.2.1.4] by the arbitration agreement or are not arbitrable [4.1];

(ii)

The arbitral tribunal was not constituted [6.1] properly. 18.2.5

Preclusion of Jurisdictional Challenge

According to Article 20(2) of the PRC Arbitration Law (1994), a party‘s challenge of the validity of the arbitration agreement shall be raised prior to the arbitration tribunal’s first hearing. According to Article 13 of the SPC Interpretations on Arbitration Law (2006), where a party has failed to contest the invalidity of the arbitration agreement before the first hearing of the arbitral tribunal, it is precluded from invoking such ground before the court (see e.g., Lei Feiran v. Haorong Real Estate (2011)). Unfortunately, Chinese law does not generalize this principle to other procedural deficiencies.

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19.

MULTI-PARTY AND COMPLEX ARBITRATION

19.1 Concept of Multi-Party and Complex Arbitration In practice, the concept of multi-party arbitration and complex arbitration are often used together, and while encompassing a variety of situations, they refer most often to (i) factually-related claims by or against multiple parties (‘multi-party arbitration’), or (ii) factually-related multiple claims between the same parties (‘complex arbitration’). Among the possible situations of multi-party and/or complex arbitration, the most common scenarios that arise are as follows: •

Where there are more than two parties involved, each of them having different interests so that it is not possible to divide them into a single group of claimants and a single group of respondents (so-called ‘complex multi-party arbitration’ [19.2]);

•

Where additional parties are brought into an arbitration by extending the arbitration agreement to such non-signatory party [19.3];

•

Where two or more arbitrations concerning a related subject matter are consolidated (so-called ‘consolidation’ [19.4]);

•

Where a third party, which was not included when the arbitration started, is technically joined into the proceedings and becomes a party to the arbitration (so-called ‘third party joinder’ [19.5]); and

•

Class-arbitrations [19.6].

The PRC Arbitration Law (1994) does not contain any provisions on multi-party or complex arbitration. While some Chinese arbitration commissions provide for provisions dealing with some of the situations mentioned above, the general practice is quite slow in developing ways to cope with complex and multi-party arbitrations and cases of multi-party and/or complex arbitrations will most often result in parallel proceedings [20].

19.2 Simple and Complex Multi-Party Arbitration Under most arbitration rules of Chinese arbitration institutions, where there are more than two parties and these parties can be separated into a distinct group of claimants and a group of respondents (‘simple multi-party arbitration’), each group should jointly appoint an arbitrator, or request the Chairman of the arbitration institution to do so (see e.g. Article 27(1) of the CIETAC Arbitration Rules (2012), Article 18 (4) of the BAC Arbitration Rules (2008) and Article 22(3) of the Guangzhou Arbitration Commission Arbitration Rules (2007)). If within the group, the parties can neither jointly appoint an arbitrator nor jointly request the Chairman of the arbitration institution to do so, such arbitrator will be appointed by the Chairman of the arbitration institution (see e.g. Article 18 (4) of the BAC Arbitration Rules (2008); Article 22(3) of the Guangzhou Arbitration Commission Arbitration Rules (2007)), or, in CIETAC arbitration, the Chairman of CIETAC will in such case appoint all three members of the arbitral tribunal and designate one of them to act as the presiding arbitrator (see Article 27(3) of the CIETAC Arbitration Rules (2012)). Where there are more than two parties, and they cannot be divided into a distinct group of claimants and a group of respondents (‘complex multi-party arbitration), Chinese arbitration practice does - as of today - not yet provide for appropriate appointment mechanisms. Consequently, these cases often result in different parties initiating parallel proceedings [20].

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19.3 Extension of Arbitration Agreements to Non-Signatories ⇒

automatic redirect to [7.6]

19.4 Consolidation of Proceedings Most arbitration rules [8.1.3.3] of Chinese arbitration institutions [8.1] do not deal with the issue of consolidation of different arbitration proceedings. Nevertheless, there are some provisions dealing with consolidation of arbitrations in Article 17 of the CIETAC Arbitration Rules (2012), Article 30 of the SHIAC Arbitration Rules (2013), Article 36 of the SCIA Arbitration Rules (2012), Article 27 of the BAC Arbitration Rules (2008) as well as in Article 22 of the CMAC Arbitration Rules (2004). According to these provisions, where two or more arbitrations are related to each other or involve a similar subject matter, the arbitration commission or the arbitral tribunal may order consolidation of the proceedings if a party so applies and provided all other parties agree. This, however, requires that the arbitrators involved in the different arbitrations are the same persons, otherwise consolidation will not be possible (see e.g., Article 27(2) of the BAC Arbitration Rules (2008)). In addition, in CIETAC arbitration, other factors will come into play when deciding whether to consolidate different arbitration proceedings, including whether all of the claims in the different arbitrations are made under the same arbitration agreement, whether the different arbitrations are between the same parties, or whether one or more arbitrators have been nominated or appointed in the different arbitrations (see Article 17(2) of the CIETAC Rules (2012)). The arbitration proceedings will in principle be consolidated into the arbitration proceeding that was first commenced, unless otherwise agreed by all the parties (see e.g., Article 17(3) of the CIETAC Arbitration Rules (2012)). Thus, except as for CIETAC, BAC and CMAC arbitration and providing all the relevant conditions are met, consolidation will not be possible in Chinese arbitration and will result in parallel arbitration proceedings [20].

19.5 Third Party Joinder Chinese law and most arbitration rules [8.1.3.3] of Chinese arbitration institutions [8.1] do not provide for any mechanism of third party joinder in arbitration proceedings. Consequently, joinder is not possible under most Chinese arbitration rules and most Chinese arbitration institutions will thus refuse to join a third party into ongoing arbitration proceedings. The only exception expressly provided is to be found in Article 50 of the CMAC Arbitration Rules (2004), Article 31 of the SHIAC Arbitration Rules (2013) and Article 35 of the SCIA Arbitration Rules (2012), according to which where a party other than the parties to the arbitration considers that it has legal interests relating to the claim or counterclaim raised by any of the parties, and if such party applies for participation into the arbitration proceedings, the arbitral tribunal or or the Secretariat of this Commission where the arbitral tribunal has not yet been constituted,may approve and join in such party, provided all other parties to the arbitration agree.

19.6 Class Arbitrations Class arbitration is the arbitration equivalent of class action lawsuits, known in certain jurisdictions such as the United States. A class action, also called representative action, is a form of lawsuit in which a large group of people collectively bring a claim to court, or to arbitration, against a limited number of respondents. Though representative action, as stipulated in Articles 54, 55 of the PRC Civil Procedure Law (2012), theoretically (but not practically) exists in China, there is no provision for class arbitration under Chinese law. Class arbitration is therefore not possible in China.

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20.

PARALLEL PROCEEDINGS

20.1 Concept of ‘Parallel Proceedings’ Within the context of complex disputes involving parties from different regions, it is not uncommon that various lawsuits or arbitrations are initiated at different places regarding the same or related disputes. The question thus arises how Chinese courts deal with such ‘parallel proceedings’. The issue is closely related to the issue of lis pendens [20.2].

20.2 Lis Pendens under Chinese Law The term ‘lis pendens’ is Latin for ‘suit pending’ and referred originally to a notice issued by the court confirming that a lawsuit had been initiated and was pending. This notice served to prevent other courts from hearing the same or related disputes until a decision by the court which had first accepted the case. While the principle of lis pendens is recognized under Chinese civil procedural law and expressly contemplated in Article 35 of the PRC Civil Procedure Law (2012), it is not yet officially recognized and contemplated as a principle of private international law, nor is it expressly recognized as applying within the context of parallel arbitration proceedings. Consequently, while the idea of lis pendens is not a total stranger to the Chinese legal system, in view of the lack of specific implementation rules of this principle, identical or related disputes submitted to various bodies will most often lead to simultaneous parallel proceedings.

20.3 Chinese Arbitration vs. Chinese Court Proceedings With regard to the relationship between Chinese court proceedings and Chinese arbitration proceedings, issues of lis pendens may arise regarding the determination of the jurisdiction of the arbitral tribunal [18] and are closely related to the issue of Competence-Competence [18.2.2]. In this respect, the relevant provisions are Articles 5 and 20 of the PRC Arbitration Law (1994), according to which the court has priority over the arbitral tribunal [18.2.3] concerning the determination of the jurisdiction, unless the arbitration commission has already positively decided over its jurisdiction. In other words, the relevant moment for lis pendens to kick in is not at the time of initiation of arbitration proceedings, but rather the time of decision by the arbitration commission or the court on the jurisdictional issue. Once jurisdiction is determined, lis pendens is no longer an issue, and there are only two possibilities: either the jurisdiction of the arbitral tribunal is confirmed, and the court must dismiss the case and refer the parties to arbitration; or the jurisdiction of the arbitral tribunal is rejected, and the court has sole jurisdiction. There will be no parallel arbitration and court proceedings.

20.4 Foreign Arbitration vs. Chinese Court Proceedings According to Article II(3) of the The New York Convention, the Chinese courts may not hear a case in respect of which the parties have made an arbitration agreement, and must, at the request of one of the parties, refer the parties to arbitration, unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed. What Article II (3) of The New York Convention does not say, is who – the courts or the arbitral tribunal - is competent to decide on the validity of the arbitration agreement.

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While Article 20 of the PRC Arbitration Law (1994) establishes that the courts have priority over Chinese arbitration commissions and arbitral tribunals [18.2.3], this provision does not apply with regard to arbitration proceedings taking place abroad. In other words, foreign arbitration institutions and tribunals are not subject to Article 20 of the PRC Arbitration Law (1994) and are therefore not bound by any decision of a Chinese court regarding the validity of the arbitration agreement. Consequently, this may result in parallel arbitration and court proceedings: It can and does happen that while a foreign arbitral tribunal is handling a case, one of the parties initiates a law suit with the Chinese courts. If the Chinese court considers the arbitration agreement to be invalid, it will maintain jurisdiction over and hear the dispute. At the same time, the foreign arbitral tribunal can ignore the Chinese court decision and continue to hear the case if it considers the arbitration agreement to be valid (see e.g., Woke Rubber v. Züblin International (2004) and Züblin International v. Woke Rubber (2006)). In such a situation, there will be two parallel proceedings regarding a same dispute leading to two different maybe conflicting - decisions. Problems may therefore arise later on if the winning party tries to enforce the future award in China. Such enforcement may be refused based on Public Policy issues. For relevant cases, see e.g. Hemofarm DD et al. v. Yongning Pharmaceutical (2009).

20.5 Chinese Arbitration vs. Chinese Arbitration In principle, issues of lis pendens do not arise within the context of arbitration in the same manner as within the context of court proceedings. The reason is that, based on the arbitration agreement designating a specific arbitral tribunal as competent, such tribunal will in principle have exclusive jurisdiction over the dispute. However, in case of complex contractual relationships based on separate but related contracts and involving various parties, it is not impossible that the same or related disputes are submitted to different arbitral tribunals. This risk is currently increased in view of the internal split at CIETAC [7.3.4], which may lead to former CIETAC branches and CIETAC to both claim jurisdiction over a case. In such case, in the light of the lack of relevant principles of lis pendens, the various cases will in principle be dealt with separately and thus give rise to ‘parallel arbitration proceedings’, unless the arbitration agreement and the applicable rules make it possible to consolidate [19.4] these proceedings, or have the parties concerning one proceeding either join [19.5] or brought into the other proceedings based on an extension of the arbitration agreement [19.3]. For relevant cases, see e.g., President Hotel v. Yang Guangda et al. (2002), Macau Daming v. Dongjian Industry (2003).

20.6 Chinese Arbitration vs. Foreign Arbitration In principle, issues of lis pendens do not arise within the context of arbitration in the same manner as within the context of court proceedings. The reason is that, based on the arbitration agreement designating a specific arbitral tribunal as competent, such tribunal will in principle have exclusive jurisdiction over the dispute. However, in case of complex contractual relationships based on separate but related contracts and involving various parties, it is not impossible that the same or related disputes are submitted to different arbitral tribunals. There is no internationally recognized rule of lis pendens or guidelines indicating how arbitral tribunals should deal when faced with cases, which are already pending before another arbitral tribunal. Consequently, the various cases will in principle be dealt with separately and thus give rise to ‘parallel arbitration proceedings’, unless the arbitration agreement and the applicable rules, or the Parties’ subsequent agreement, make it possible to consolidate [19.4] these proceedings, or have the parties concerning one proceeding either join [19.5] or brought into the other proceeding based on an extension of the arbitration agreement [19.3].

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21.

PLACE OF ARBITRATION

21.1 Concept of the Place of Arbitration under Chinese Law While the concept of the place (or seat) of the arbitration is one of the most important concepts in international arbitration practice, it does not carry the same importance and is not understood fully in the same way in Chinese arbitration practice. The PRC Arbitration Law (1994) does not contain any reference to the ‘place of arbitration’. The reason is that in the light of its historical development and the prohibition of ad hoc arbitration [1.1], arbitration in China was always tied to a specific arbitration institution. Therefore, instead of developing a concept of place of arbitration, Chinese arbitration law and practice always relied on the seat of the arbitration institution. While this is still the case as of today, the increased exposure of Chinese courts, arbitration commissions and practitioners with foreign arbitration has led to an increased attention given to the place of arbitration. Some recent regulations and arbitration rules expressly refer to the ‘place of arbitration, in particular with regard to the law applicable to the arbitration agreement [3.3], and the place where the award is made, which bears relevance when determining the nationality of the award [5.2.1] (see e.g., Article 7(3) of the CIETAC Arbitration Rules (2012) or Article 25(2) of the BAC Arbitration Rules (2008)). However, even where arbitration rules refer explicitly to the notion of place of arbitration, it is always closely linked to the seat of the arbitration institution (see e.g. Article 7(3) of the CIETAC Arbitration Rules (2012) or Article 25(2) of the BAC Arbitration Rules (2008)). In addition, contrary to what is generally the case in countries having adopted the UNCITRAL Arbitration Model Law (2006), the relevant provisions determining the jurisdiction of Chinese courts concerning annulment [2] of awards do still rely – among others - on the seat of the relevant arbitration commission, and not on the place of arbitration. Among other practical problems [5.2.2] related to this approach, it means that where a Chinese arbitration commission administers an arbitration with a place of arbitration outside of China, there may be a positive conflict of competence between Chinese courts and foreign courts with regard to annulment of awards. Vice versa, where an arbitration is handled by a foreign arbitration institution with a place of arbitration in China, a negative conflict of competence may arise: the Chinese courts may reject their jurisdiction based on the seat of the arbitration institution being abroad, and the foreign courts may reject their jurisdiction based on the place of arbitration being in China.

21.2 Determining the Place of Arbitration The parties are in principle free to determine the place of arbitration. But only the parties of foreign-related disputes [14.2] have the freedom to choose a place of arbitration outside of China. Thus, the place of arbitration is in principle the place designated as such in the arbitration agreement. Where the parties have not chosen any place of arbitration, the common solution under Chinese arbitration practice is to assume that such place is located at the seat of the relevant arbitration institution (see e.g. Article 7(2) of the CIETAC Arbitration Rules (2012), see also Article 25(2) of the BAC Arbitration Rules (2008) which imposes the place of arbitration at the seat of the arbitration institution).

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This is in contrast to Article 20 of the UNCITRAL Arbitration Model Law (2006), which provides that where the parties have not agreed on the place of arbitration, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties. Therefore, and in order to adapt to the international practice, CIETAC added in its CIETAC Arbitration Rules (2012) the possibility to fix the place of arbitration elsewhere depending on the circumstances of the case (see Article 7(2) of the CIETAC Arbitration Rules (2012)). This possibility is however only given where the case is foreign-related, as parties to a domestic arbitration may not choose a place of arbitration abroad [14.3].

22.

REPRESENTATION ISSUES

22.1 Overview While most countries regulate the conditions for legal representation before state courts, there are often no such rules with regard to representation in arbitration proceedings. The same is true in China, where parties have a right to be represented by any person of their own choice [22.2]. However, certain limitations exist with regard to foreign lawyers [22.3] due to China’s strict regulation over the activities of foreign lawyers. Also, due consideration should be given to applicable ethical and other professional rules [22.4].

22.2 Right to Representation in Arbitration Proceedings According to Article 29 of the PRC Arbitration Law (1994), “a party or its legal representative may appoint a lawyer or other agent to carry out arbitration activities”. Based on this provision, parties to arbitration have a right to be represented by a person of their own choice, be it a lawyer or a non-lawyer. The only legal requirement for appointment of a representative is the issuance of a Power of Attorney describing the specific scope of authorization of the representative (see Article 29 of the PRC Arbitration Law (1994), Article 20 of the CIETAC Arbitration Rules (2012), Article 16 of the BAC Arbitration Rules (2008)). Unlike in Chinese litigation, the Power of Attorney need not be certified or notarized, the submission of the original being sufficient. Given that Article 29 of the PRC Arbitration Law (1994) does not give any indication concerning the nationality of the representative, it is understood as allowing parties to arbitration to appoint a representative of Chinese nationality or of a foreign-nationality. This is for example expressly contemplated in Article 20 of the CIETAC Arbitration Rules (2012). However, representation by foreign lawyers is limited due to various restrictions applicable to foreign lawyers in China [22.3].

22.3 Foreign Lawyers as Representatives in Chinese Arbitration Proceedings Under the relevant Chinese regulations (Article 15 of the State Council Regulations on Foreign Law Firms (2002); Article 32(4) of the Ministry of Justice Regulations on Implementation of the State Council Regulations on Foreign Law Firms (2002)), foreign lawyers are not permitted to advise clients on matters involving ‘Chinese legal affairs’, which is understood to mean matters governed by Chinese law. Consequently, while a foreign lawyer may represent a client in Chinese arbitration proceedings, he/she may not issue an opinion on a legal issue subject to Chinese law. This is why, while foreign lawyers have been permitted - unlike in litigation - to represent their clients in arbitration proceedings, it has been quite common for foreign companies and their local entities to opt for joint representation, meaning a representation by both a foreign lawyer and a local Chinese lawyer. The Chinese lawyer will then provide all relevant opinions regarding issues subject to PRC law.

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Some Chinese practitioners however want to further limit this right of representation to foreign-related arbitration, given that domestic arbitration is necessarily subject to Chinese law [3.1] and should therefore be under the monopoly of PRC qualified lawyers. There seems to be no unanimous practice in this respect, although CIETAC arbitral tribunals tend to accept joint representation, especially in disputes involving Foreign Invested Entities, which qualify as domestic [14.1] but nevertheless involve foreign interests. Under Article 20 of the CIETAC Arbitration Rules (2012), CIETAC has now officialized its practice of admitting ‘foreign representatives’ (presumably including lawyers) in all CIETAC arbitrations without distinguishing between foreign-related and domestic arbitration proceedings. In order to avoid any problem, it is generally recommended to opt for joint representation and ask the arbitral tribunal to officially approve such joint representation.

22.4 Ethical and Professional Rules for Lawyers in Arbitration China has issued specific professional and ethical rules for lawyers, including the PRC Law on Lawyers (2008) and the Professional Ethics and Conduct Disciplinary Code for Lawyers (2002) issued by the All China Lawyers Association. These rules apply in principle only to court proceedings, and their compliance is supervised and enforced by the local department of justice and the local bar association. They do not directly apply to arbitration proceedings. However, in practice, due to the lack of similar provisions applicable to arbitration proceedings, most lawyers in China will pay attention to these rules.

23.

TAKING OF EVIDENCE IN ARBITRATION

23.1 Lack of Comprehensive Specific Legal Basis While the PRC Arbitration Law (1994) contains a couple of provisions concerning evidentiary issues (see Articles 43 to 45 of the PRC Arbitration Law (1994)), which apply to both domestic and foreign-related arbitrations, Chinese law does not provide for a formal and comprehensive set of rules on evidence. However, the PRC Arbitration Law (1994) itself provides that where the PRC Arbitration Law (1994) is silent, reference is to be made to the PRC Civil Procedure Law (2012). Consequently, lawyers and arbitrators regularly rely on the rules of evidence which apply to litigation, and in particular to the SPC Regulations on the Evidence in Civil Litigation (2002). These regulations provide a rather detailed system of rules of evidence including rules on the burden of proof (Section 1), judges’ powers of investigation (Section 2), limitation periods concerning the timeline for production and exchange of evidence (Section 3), examination of evidence (Section 4), and the assessment and admissibility of evidence (Section 5).

23.2 Kinds of Evidence The PRC Arbitration Law (1994) does not provide for any specific kinds of evidence. Therefore, reference needs to be made to the relevant provisions on evidence which apply to civil litigation, i.e. under the PRC Civil Procedure Law (2012). Article 63 of the PRC Civil Procedure Law (2012) and the SPC Regulations on the Evidence in Civil Litigation (2002) provide for seven kinds of evidence admissible in Chinese litigation, and thus also in arbitration: 1. Statements of interested parties, including the disputing parties; 2. Documentary evidence;

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3. Physical evidence; 4. Audio-visual recordings; 5. Electronic data; 6. Witness testimony; 7. Expert opinion; and 8. Records of investigation and inspection.

23.3 General Principles for the Taking of Evidence 23.3.1

Relevant Legal Basis

Articles 43 to 45 of the PRC Arbitration Law (1994) provide for certain basic principles regarding evidence: •

Article 43 deals with the burden of proof and provides that while the parties must in principle produce evidence in support of their own claims, the tribunal may, as it considers necessary, collect evidence on its own;

•

Article 44 deals with the tribunal’s power to submit certain issues to an appraisal institute;

•

Article 45 provides that evidence must be produced at the hearing and can be examined by the parties.

Thus, these provisions do not provide a detailed or comprehensive mechanism for evidence production. Therefore, in practice, lawyers and arbitrators will refer to the principles of evidence-gathering of the PRC Civil Procedure Law (2012) applicable to civil litigation, although parties and arbitrators will usually be given more latitude when determining the applicable rules of evidence than in civil proceedings. In this respect, it is also more and more common for arbitration institutions to provide for evidentiary rules in the arbitration rules (see e.g. Article 39 of the CIETAC Arbitration Rules (2012); Article 30 of the BAC Arbitration Rules (2008); Article 27 of the Guangzhou Arbitration Commission Arbitration Rules (2007)). In addition, some parties and arbitrators also increasingly refer to the IBA Rules on the Taking of Evidence in International Arbitration [23.3.5], and CIETAC has recently promulgated its own Rules on Evidence [23.3.6]. You would like to know more about: ⇒

Inquisitorial vs. Adversarial Taking of Evidence [23.3.2]

⇒

Rules of Evidence Agreed by the Parties [23.3.3]

⇒

Rules of Evidence Decided by the Tribunal [23.3.4]

⇒

The IBA Rules on the Taking of Evidence [23.3.5]

⇒

The CIETAC Rules on Evidence [23.3.6]. 23.3.2

Inquisitorial vs. Adversarial Taking of Evidence

As a country with a civil law tradition, the litigation procedure in China is broadly of an inquisitorial nature. Consequently, while the burden of proof lies on the party asserting a claim, judges have the power and also the duty to collect evidence on their own initiative where they deem it necessary or where such evidence cannot be collected by the parties themselves (see Article 64 of the PRC Civil Procedure Law (2012)). The judges have also the power to compel a third party to produce evidence (see Article 65 of the PRC Civil Procedure Law (2012)).

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The inquisitorial nature of the judges’ power is reflected also in the powers of the arbitrators, who are provided with the right to conduct investigations and collect evidence on their own initiative (see second sentence of Article 43 of the PRC Arbitration Law (1994)). The same power is also conferred on arbitrators under various arbitration rules (see e.g. Article 41 of the CIETAC Arbitration Rules (2012); Article 31 of the BAC Arbitration Rules (2008); Articles 29 of the Guangzhou Arbitration Commission Arbitration Rules (2007)). Such investigations may include appointment of experts/auditors and site visits and inspections. However, in contrast to civil litigation, arbitrators have no power over third parties, who are under no obligation to provide evidence requested by the arbitrators. In practice however, arbitral tribunals in China rarely collect evidence on their own initiative and largely rely on the parties to produce relevant evidence. Thus, Chinese arbitration is to a certain extent less inquisitorial and more adversarial than Chinese litigation. 23.3.3

Rules of Evidence Agreed by the Parties

Notwithstanding the lack of provisions on evidence in the PRC Arbitration Law (1994), the parties can agree on and provide relevant rules on evidence in their arbitration agreement in various ways: They can tailor some rules for their particular needs or choose a specific set of arbitration rules, such as the CIETAC Arbitration Rules (2012), which include some rules of evidence; they can decide to modify the rules of evidence provided for in the applicable arbitration rules (see e.g. Article 4(3) of the CIETAC Arbitration Rules (2012)); they can also decide to apply special rules, such as the IBA Rules on the Taking of Evidence in International Arbitration [23.3.5] or the CIETAC Rules on Evidence [23.3.6]. 23.3.4

Rules of Evidence Decided by the Tribunal

Notwithstanding the general tendency of lawyers and arbitrators to refer to rules applicable in civil litigation, it is generally recognized that arbitral tribunals have a broad latitude when managing evidentiary issues and evaluating evidence in a specific case. This principle is for example illustrated in Article 33(1) of the CIETAC Arbitration Rules (2012), according to which the arbitral tribunal has the power to examine the case “in any way that it deems appropriate unless otherwise agreed by the parties”, provided it does so in an impartial and fair manner and affords reasonable opportunities to be heard to all parties. In practice however, arbitrators are still reluctant to make use of this latitude and tend to stick to the principles set forth in the SPC Regulations on the Evidence in Civil Litigation (2002). 23.3.5

The IBA Rules on Evidence

The IBA Rules on the Taking of Evidence in International Arbitration (2010) (‘IBA Rules on the Taking of Evidence’) constitute so-called ‘soft law’. This means that they do not apply automatically, but only if the parties have provided for their application. While these rules are recognized worldwide as an important source of inspiration and parties and arbitrators across the globe refer to the guidelines provided therein, they have not yet really ‘penetrated’ the Chinese arbitration community. In arbitrations without any foreign element, Chinese parties rarely provide for their application in the arbitration agreement, and Chinese arbitrators rarely refer to them. The situation is a bit different where arbitrations involve foreign parties and/or arbitration practitioners, where the IBA Rules on the Taking of Evidence in International Arbitration (2010) are increasingly referred to as a source of inspiration. However, it remains very rare that parties formally agree on their application.

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23.3.6

CIETAC Rules on Evidence

CIETAC has been working for some time on the issuance of its own ‘Rules on Evidence’, which would be apparently inspired by the IBA Guidelines on the Taking of Evidence in International Arbitration but with some adaptations to the Chinese environcment and legal culture. These Rules have not been promulgated yet and drafts are also not publicly available.

23.4 Selected Issues 23.4.1

Discovery - Document Production

The PRC Arbitration Law (1994) does not deal with the issue of discovery and/or document production. The same is true with regard to the arbitration rules of Chinese arbitration institutions. Influenced by the civil law tradition, Chinese arbitrators tend to favor limited documentary disclosure. While it is very rare that there is a document production process between the parties, the arbitrators may nevertheless, based on their power to collect evidence [23.3.2] on their own initiative, order one party to produce certain documents requested by the other. If a party bearing the burden of proof fails to produce evidence within the specified time period, it shall bear the consequences thereof (see e.g., Article 39 of the CIETAC Arbitration Rules (2012)). In addition, domestic awards [14.2] can be annulled [2] where a party has ‘withheld evidence’ [2.2.1] sufficient to affect the impartiality of the arbitration’. Consequently, arbitrators need to make sure that their award is based on sufficient evidence and may thus order the production of further evidence from either party. According to Article 45 of the PRC Arbitration Law (1994), evidence produced in a specific case must be presented during the hearing in order to be examined by the parties. In addition, the documentary evidence presented during the hearings must consist of original copies; duplicates may only be presented upon approval of the arbitral tribunal in special circumstances. These principles are sometimes applied rather strictly, even where there is no dispute over particular items of evidence. 23.4.2

Witness Examination

Except for Article 45 of the PRC Arbitration Law (1994), which requests that each party gets the opportunity during the hearing to examine the evidence, Chinese law and arbitration rules from arbitration institutions do not provide for any specific rules. Thus, under Chinese arbitration practice, the procedure for the examination of witnesses is largely ‘dictated’ by the arbitral tribunal, which must ensure that each party gets a fair and same opportunity to challenge the evidence submitted by the other party. Based on relevant standards in litigation proceedings, Chinese arbitrators tend to attach more weight to written evidence than to oral witness testimonies. Therefore, very often parties and arbitrators in China do not insist on formal and lengthy oral witness examination, and cross-examination of witnesses is also very limited. Nevertheless, it is not uncommon for the arbitral tribunal to examine witnesses either on its own initiative or at the request of one of the disputing parties. 23.4.3 23.4.3.1

Expert Evidence

Main Types of Expert Evidence

As is the case in international arbitration practice, expert evidence is often used in arbitration in China to provide evidence regarding certain specific issues of fact or law. There are two principal methods to appoint experts in arbitration proceedings in China:

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(i)

either the tribunal appoints an expert [23.4.4.2], or

(ii)

the parties each appoint their own experts [23.4.4.3]. 23.4.3.2

Experts Appointed by the Tribunal

Article 44 of the PRC Arbitration Law (1994) provides the tribunal with the power to appoint experts and examine them during the hearing. The tribunal can do so on its own initiative or upon a party’s request. According to the Supreme People’s Court, it is an implied requirement that the arbitration tribunal should resort to qualified appraisal institutions (see e.g. Clinton Engineering v. Dongjun Real Estate (2004)). In practice, experts will most often be selected by the parties or the arbitral tribunal from the panel of official qualified appraisers issued by the Supreme People’s Court (see SPC Provisions on the Appointment of Experts (2007)). This is particularly the case for Chinese experts. It is unclear to what extent this list is – if at all - mandatory, and arbitral tribunals have in the past appointed foreign experts and appraisal institutions, which are of course not listed on that list. While many national laws and institutional rules expressly require the expert to be independent and impartial (e.g., Article 3.8 of the IBA Rules on the Taking of Evidence in International Arbitration (2010), Article 7 of the ICC Rules for Expertise (2003), Article 21.1of the LCIA Arbitration Rules (1998)), the PRC Arbitration Law (1994) and the CIETAC Arbitration Rules (2012) are silent in this regard. Article 42(1) of the CIETAC Arbitration Rules (2012) merely provides that “such an expert or appraiser may either be a Chinese or foreign organization or citizen”. In practice, however, and based on Article 46 of the SPC Provisions on the Appointment of Experts (2007), arbitral tribunals must ensure the expert’s independence and impartiality. Mirroring Article 26(1) (b) of the UNCITRAL Arbitration Model Law (2006), Article 42(2) of the CIETAC Arbitration Rules (2012) provides that the arbitral tribunal may require a party to deliver or produce to the expert any relevant materials, documents, goods or other property for the expert’s inspection. Following the submission of evidence and the completion by the expert of his/her investigations, the expert usually renders a report, on which the parties are invited to comment. At the request of either party and with the approval of the arbitral tribunal, the expert may be present at the hearing and may give an oral explanation on his/her report. 23.4.3.3

Experts Appointed by the Parties

Similarly to the UNCITRAL Arbitration Model Law (2006) and the main institutional arbitration rules, the PRC Arbitration Law (1994), the CIETAC Arbitration Rules (2012) and the BAC Arbitration Rules (2008) do not contain guidance on party-appointed experts. Thus, the parties and the tribunal are in principle free to agree on the rules and procedures for the appointment and use of party-appointed experts in each case. In practice, arbitrators in China will often refer to the SPC Regulations on the Evidence in Civil Litigation (2002). According to Article 28 of the SPC Regulations on the Evidence in Civil Litigation (2002), where one party appoints an expert and the other party objects to such expert’s report on sufficient grounds, the court should, at the request of the objecting party, appoint a new expert. Article 61 of the SPC Regulations on the Evidence in Civil Litigation (2002) provides further detailed rules on the participation of a party-appointed expert in oral hearings: the party appointing the expert can request – at its own expense - his/her participation in the hearing; during the hearing, the judges and other parties may examine the expert, the experts appointed by each party may also be examined together (also known in international arbitration as ‘expert conferencing’), and the experts appointed by the parties may also examine the expert appointed by the court.

23.5 Evidence Preservation Measures ⇒

Evidence Preservation [17.3.3]

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