CHINA: An Introduction to Dispute Resolution: Arbitration (PRC Firms)
Contributors:
Xue (Allison) Zhao
Yining (Ninon) Dong
Jianxiang (Michael) Tang
Zelun Zhu
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China Initiates Revision of Arbitration Law
The current Arbitration Law of China (the “Arbitration Law”) has been in force since 1 September 1995. In the subsequent thirty years, arbitration in China has experienced a swift expansion, boasting a total of 282 arbitration institutions and a swiftly growing caseload of more than four million cases, involving more than CNY5 trillion in subject matter and more than 100 countries and regions. Across various industries, arbitration has gained widespread recognition as an efficacious method for resolving commercial disputes. As China’s economy advances and its openness to the global community expands, arbitration encounters challenges such as a deficient foreign-related arbitration framework and an incomplete oversight system. Consequently, there is an urgent need to revise the Arbitration Law. To enact the principles outlined in the Opinions on Improving the Arbitration System and Enhancing the Credibility of Arbitration, issued jointly by the General Office of the CPC Central Committee and the General Office of the State Council, the revision process of the Arbitration Law has been officially initiated. The draft of the Arbitration Law (Amendment) for public consultation was released on 30 July 2021, known as the Draft for Comments. On 8 November 2024, the Arbitration Law (Amendment) was formally submitted to the National People’s Congress for deliberation.
The revision involves the concept of the seat of arbitration, the formal introduction of ad hoc arbitration mechanism, and the addition of provisions such as the arbitral tribunal's right to self-determination of jurisdiction (ie, the competence-competence), measures for conduct preservation, arbitrator disclosure, combating fake arbitrations, and provisions specific to investment arbitration. It also supports Chinese arbitration institutions to set up offices overseas, and allows foreign arbitration institutions to set up business offices in free trade zones. Parties to foreign-related arbitration are encouraged to choose Chinese arbitration institutions or agree on China as the place for arbitration. The subsequent sections will introduce and comment on these revisions.
The seat of arbitration is a fundamental concept, particularly pertinent to foreign related or international arbitration contexts. It serves as the cornerstone for establishing critical aspects such as the nationality of an arbitral award, the governing arbitration procedural law, the applicable law of the arbitration agreement, judicial assistance for arbitration, and the court’s oversight. There is no stipulation on the seat of arbitration in the Arbitration Law. The Amendment clarifies that parties may agree in writing on the seat of arbitration and the arbitral award is to be issued at the seat. The concept of the seat of arbitration is now only explicitly recognised within the arbitration rules of certain arbitration bodies and this revision will elevate its status to formal legal recognition.
Ad hoc arbitration has long been a focal point of discussion within arbitration circles, with high expectations placed upon it. The Arbitration Law, however, does not acknowledge ad hoc arbitration and such arbitration can only be available for disputes involving enterprises established within the Free Trade Zone. The Draft for Comments proposed to legalise ad hoc arbitration in all foreign related arbitrations while the Amendment does not embrace the proposal, but merely allows ad hoc arbitration in foreign-related maritime cases and only enterprises established in free trade zones may use ad hoc arbitration in foreign-related disputes and the use of ad arbitration must be filed with the arbitration association. This signifies that discussions regarding ad hoc arbitration can come to an end.
The competence-competence principle is a basic one widely applied in the field of international arbitration. The Arbitration Law does not explicitly address this principle. The current rule is that it is the arbitration institution, instead of the arbitral tribunal, or the people’s court that is tasked with determining jurisdiction and the court has the final say, which means that if one party resorts to the people’s court, the court will decide and the arbitration proceedings should stay pending the court’s ruling. In practice, arbitration rules frequently stipulate that the arbitration commission may empower the arbitral tribunal to decide on its own jurisdiction, despite the tribunal not inherently possessing such authority. The Draft for Comments proposed that parties ought to solicit the arbitral tribunal's adjudication on jurisdictional disputes, granting the tribunal the authority to render its own rulings. Only in the event of dissatisfaction with the tribunal’s decision may a party seek a court ruling. The Amendment partially endorses this approach, stipulating that a party may indeed request the arbitral tribunal to rule on jurisdictional matters. However, should the opposing party opt to seek a court's determination, the court retains the prerogative to make the final decision.
Regarding interim measures, the revised version is to expand the scope to include the preservation of acts during arbitral proceedings, in addition to the traditional preservation of property. Should a party anticipate that enforcement of an award might be hindered or that it could suffer other damages due to the opposing party’s actions or other factors, it has the option to seek property preservation or to request that the other party be mandated to undertake specific actions or be restrained from certain actions. Nevertheless, applications for such preservation measures must be transferred to the People’s Court by the arbitration commission, as the arbitral tribunal remains without authority to rule on these interim measures. The enforcement of interim measures issued by courts outside of China will pose a significant challenge, which could impact the appeal of Chinese arbitration institutions within the international arbitration arena.
The Amendment introduces an enhanced disclosure protocol for arbitrators, mandating that in the event an arbitrator encounters circumstances that could reasonably cast doubt on their independence and impartiality, they must promptly disclose such circumstances in writing to the arbitration commission. The commission is then responsible for informing all parties involved about the disclosure. It is worth noting that, as of now, each arbitration commission operates its own disclosure system, and this practice is now codified into law within the Amendment.
The Amendment has introduced provisions for sham arbitration and investment arbitration. In China, the scope of criminal law regulation now encompasses fraudulent litigation. Regarding sham arbitration, the Amendment specifies that if it is discovered that parties have colluded in bad faith to infringe upon national interests, public interests, or the legitimate rights of others, their claims will be dismissed. As for investment arbitration, a new clause has been incorporated, allowing arbitration commissions and tribunals to adjudicate international investment arbitration cases in accordance with the arbitration rules agreed upon by the parties, as stipulated by relevant international investment treaties and agreements that govern the submission of investment disputes to arbitration.
With regard to the carrying on of business in China by foreign arbitration institutions, the current rule has recognised an arbitration administered by a foreign arbitration institution as a foreign-related arbitration. The Amendment goes further to allow foreign arbitration institutions to have offices in free trade zones to implement foreign-relation arbitration. Simultaneously, the Amendment supports Chinese arbitration institutions to set up business offices overseas,, encourages parties to foreign-related arbitration to select Chinese arbitration institutions or to agree on China as the seat of arbitration, with the goal of establishing an international arbitration hub.
Despite the aforementioned revisions, the Amendment still retain a significant amount of existing provisions. The Amendment does not adopt the suggestion in the Draft for Comments that the list of arbitrators should be considered merely recommended, and continues to enforce a stringent and closed list system. It also preserves those provisions of the Arbitration Law such as that arbitrators must satisfy certain criteria to be admitted, the arbitral tribunal will conduct mediation, evidence should be present during hearings, expert will be either jointly appointed by the parties or selected by the arbitral tribunal, the court is not tasked with aiding the arbitral tribunal in evidence collection, the arbitration agreement must designate an arbitration institution to be considered valid, and hearings in foreign-related arbitrations may only produce a summary of the transcript, among others. Moreover, the Arbitration Law only outlines the conditions for the cancellation of domestic awards.
In contrast, to cater to the demands of international arbitration, certain arbitral institutions have evolved more sophisticated systems within their arbitration rules. For instance, the China International Economic and Trade Arbitration Commission (CIETAC) has provisions allowing parties to select an individual not on the list, provided both parties consent. Additionally, the Beijing Arbitration Commission (BAC) Rules permit parties to request the substitution of an arbitrator during foreign-related arbitration proceedings if the arbitrator is involved in mediation. It is evident that the amendments to the Arbitration Law have enhanced the arbitration framework, albeit with increased prudence.