1.1 Describe the prevalence of commercial arbitrations as a method of settling disputes, both domestic and international.
In China, arbitration and mediation are uniquely tied to Confucian understanding of conflict resolution in which litigation is seen to be disruptive of the harmony necessary to hold together the fabric of society. The adversarial nature of litigation is viewed as an impediment to the very goal of business agreements, namely, mutual benefit and profit for the parties involved. The traditional Confucian desire to obviate outright confrontation was later reinforced by communist ideology which held high the ideal that dispute resolution that benefits both parties is beneficial to the entire society. Because of the aforementioned historical reasons the very notion of an agreement or contract is thought to hinge upon fairness. Consequently, the renegotiation of contracts in order to ensure fairness is relatively common. Modern day, long-term shipbuilding contracts, for instance, often lead to vessels being built in China for less than they are worth upon completion of construction. In such a scenario it is common for friendly consultations/negotiations to ensue over the contractual unit price for each vessel rather than resorting to litigation or arbitration. A claim that fluctuations in the market or changes in the overall situation surrounding the agreement serve to disadvantage one of the contractual parties inevitably leads to a call for a second look at the content of a signed contract. Then, if negotiations fail to bring about a compromise, the decision to proceed by way of arbitration or litigation is forced upon the parties. In such a business environment, arbitration has proved a natural ‘middle way’ for businessmen to obtain the closure sometimes unobtainable via mediation. Arbitration has been recognised as expedient and less expensive than litigation in the courts.
Also, arbitration is seen as a method of avoiding a court system that some suspect to be staffed by unqualified but well-connected individuals and tainted by corruption.
Foreign enterprises often find the idea of endless negotiation daunting and add a clause calling for a set time limit for negotiations. Such a clause is regularly accompanied by an arbitration clause or agreement. Arbitration has become the dispute resolution method of choice for foreign parties operating in China, perhaps in part due to the fluid changes taking place in the context of the Chinese market combined with the above-cited predilection for renegotiation, and in part due to the oft-cited difficulties faced by those attempting to navigate China’s formal legal system. Simple fears over ‘home court advantage’ or a lack of neutrality in the Chinese courts makes foreign parties increasingly inclined to determine arbitration to be their best dispute resolution option. The China International Economic and Trade Commission (CIETAC), the arbitration commission most commonly used to resolve international disputes, has seen incredible growth in the number of cases it accepts over the years. In 1985 the CIETAC handled 37 cases while in 2004 the CIETAC saw 850 cases, the majority of which were international disputes.
Domestically, despite the comparatively small number of arbitrations conducted in China when contrasted with the huge volume of cases handled by the Chinese courts, arbitration is also experiencing growth. Domestic cases are predominately handled by local arbitration commissions first created as a result of the 1995 People’s Republic of China (PRC) Arbitration Law. Although local arbitration commissions are allowed to decide disputes involving international parties, these commissions were established to handle domestic disputes.
Despite Chinese national’s natural predisposition to arbitration, long-standing problems such as inexperienced arbitrators and political interference originally stymied the growth of the use of the arbitration system for domestic disputes. More recently, changes in the domestic arbitration system effected by the 1995 Arbitration Law have encouraged many to give arbitration a second look. One example of an important change afforded by the Arbitration Law is that art 6 permits the freedom to choose jurisdiction regardless of location of the transaction/arbitration agreement, a change in law that helped diminish local government interference and consequently has led to an increased number of arbitration cases taking place in alternative jurisdictions. More specifically, because the Beijing, Shanghai, Guangdong and Shenzhen local arbitration commissions are becoming well known for having expert arbitrators on hand and producing ‘fair’ conclusions they are witnessing a dramatic rise in domestic cases. In 2003, the Beijing Arbitration Commission (BAC) accepted over 977 cases, the majority of which were domestic.
In short, arbitration has become the dispute resolution method of choice for international parties and an increasing number of domestic parties are beginning to turn to arbitration as a viable dispute resolution method. Most disputes brought to arbitration in China are in fact settled, and the number of actual arbitration awards rendered in China does not reflect the large number of disputes settled through tribunal-facilitated negotiation or mediation.
* The authors wish to thank their Shanghai office collegues, Andrew Stainer and Trevor Fox, for their respective contributions to this chapter.
3 Civil Procedure Law, art 258.
4 Civil Procedure Law, art 259.
5 Civil Procedure Law, art 260.
6 Civil Procedure Law, art 261.
7 Arbitration Law, art 78.
8 A reciprocity reservation under art I(3) of the New York Convention serves to limit the
application of the Convention to only those awards rendered in another contracting
country.
9 A commercial reservation under art I(3) of the New York Convention serves to limit the
application of the Convention 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.
10 China also excludes awards against government entities from enforcement.
11 www.cietac.org.cn.
3.1 What are/describe the principal institutions and/or government agencies that assist in the administration or oversight of international and domestic arbitrations?
Before the promulgation of the 1995 Arbitration Law, arbitration cases in China were divided into ‘foreign related’ and ‘domestic’ arbitrations, with separate arbitration institutions serving each. Though some distinctions still exist, arbitration institutions in China can now hear both domestic and international cases. The oldest and most significant arbitration institutions in China are the China International Economic and Trade Commission (CIETAC), and the China Maritime Arbitration Commission (CMAC), both of which predominately handle international disputes. Local arbitration commissions, designed to hear domestic arbitration cases but permitted to hear both domestic and international disputes, are located in cities all across China. All arbitration commissions are members of the China Arbitration Association, which is the self-regulating body that conducts supervision over the conduct and any breach of discipline of the arbitration commissions and their members and arbitrators. Arbitration commissions are generally established by co-operation between the relevant local departments and the local Chamber and must be registered with the department of Justice of the corresponding province, autonomous region, or municipality directly under the central government.12
Article 11 of the Arbitration Law stipulates that arbitration commissions must meet the following conditions:
CIETAC
CIETAC is a permanent arbitration institution headquartered in Beijing that handles both contractual and non-contractual economic and trade disputes.
Originally known as the Foreign Trade Arbitration Commission, CIETAC was established in 1954 under the auspices of the China Council of the Promotion of International Trade. It has altered its arbitration rules six times since the original drafting; its present rules became effective as of 1 May 2005. Since the enactment of the Arbitration Law of 1995, CIETAC has been able to handle both domestic and international arbitrations; however, CIETAC’s focus is on international disputes. Due to the increasing number of international companies setting up operations and being engaged in transactions in China, CIETAC has become one of the busiest arbitral institutions in the world.
International parties often prefer CIETAC over local arbitration commissions because it has built up a reputation for having qualified arbitrators and also because the Supreme People’s Court 1995 Notice on Foreign and Foreign-Related Arbitration provides a higher level of protection to awards rendered by CIETAC arbitration commissions than to the corresponding LAC awards. The enforcement stipulations for international decisions only permit the review of procedural irregularities, while domestic decisions are subject to both procedural and substantive review. In accordance with the above proclamation, courts that decide not to enforce a CIETAC arbitration award must get approval from the provincial-level people’s court above it. The presence of qualified arbitrators and extra enforcement protection allow international businesses to feel confident CIETAC is able to fairly resolve complicated disputes.
The new 1 May 2005 CIETAC rules are bound to increase foreign respect for this Chinese arbitration commission. One important change is that foreign arbitrators who are not members of CIETAC’s panel of arbitrators may now act as arbitrators in a CIETAC-heard dispute. Also, the new rules permit CIETAC arbitration tribunals to have more leeway as to how to run the arbitration, allowing them to employ either an inquisitorial or an adversarial approach, to hold pre-trial meetings, and to cross-examine witnesses.
CIETAC rules dictate that it may hear:
CIETAC also has an exclusive mandate to hear certain types of disputes, this mandate being set not by PRC law but by certain organisations operating in China. State Council Securities Commission regulations only allow CIETAC to hear disputes between domestic parties in regard to shares and other securities issued by PRC companies. Also, the China Internet Network Information Centre (CNNIC) only permits CIETAC to accept arbitration cases involving the names of Chinese websites. CIETAC does not accept cases involving adoption, marital, guardianship, support and succession disputes; administrative disputes are required to be dealt with by administrative authorities; labour disputes and contract management in agriculture and disputes within agricultural collective organisations.
12 Arbitration Law, art 10.
CMAC
Established in 1959 under the China Council for the Promotion of International Trade, CMAC’s jurisdiction now covers cases involving collision, towing, ship mortgages, agency, sales, repairs, shipbuilding, dismantling of ships, bills of lading, pollution, marine insurance, fuel supply contracts, fishing, salvage, and charter parties. CMAC sees very few cases, averaging around 20 cases per year. Many suspect CMAC has sole jurisdiction over all maritime cases, but that is not the case as CIETAC and local arbitration commissions are also permitted to hear maritime cases. Nevertheless, because CMAC has experience in trying maritime-related disputes and also has a panel of maritime experts on hand, the majority of maritime cases do end up being handled by the CMAC.
CMAC arbitrations are held according to China’s Maritime Code, domestic statutory law, international treaties and the Supreme People’s Court interpretations. CMAC’s regulations have been updated several times: in 1982, 1988, 1995, and 2001. Updated CMAC regulations are for the most part in line with CIETAC regulations. These rules are legally binding on the parties involved in the arbitration. In hearing cases, CMAC permits the arbitrating parties to choose the law to be applied to the dispute, whether it be an individual nation’s laws or international law.
It is worth noting that there is a court structure dedicated to maritime matters in China comprising ten courts in major ports and a further 17 branch courts in smaller ports. The dramatic increase of China trade since the Maritime Code was first introduced in 1993 has resulted in those courts handling a very large number of cases, both domestic and foreign related. It is always open to the parties to refer existing disputes to CMAC rather than proceeding in the local maritime court. Not only is the same level of experience and expertise available in terms of the arbitrators that can be appointed, but also CMAC is a one-tier adjudication process with no appeal stage; in the maritime court structure, the first instance judgment can be appealed to the local provincial high court.
China’s local arbitration commissions
Local arbitration commissions were first established in accordance with the 1995 Arbitration Law which stipulated that any city that administers a district shall be permitted to establish a local arbitration commission. Presently, there are 185 local arbitration commissions located in cities all across China.13
Though local arbitration commissions may hear disputes involving foreign elements, their rulings are still technically ‘domestic’ arbitration rulings and their caseload is still predominately made up of domestic disputes. Nevertheless, foreign lawyers or other foreigners are allowed to act as representatives in local arbitration sessions.
In the early days of local arbitration commissions the commissions were seen as quite corrupt and unpredictable in their decisions. Both international
13 2005 National Arbitration Meeting Brief, available at www.china-arbitration.com, visited 15 December 2005 and domestic parties noted the fact that local arbitration commissions are technically civil institutions and are often tied to the government for financing and personnel appointments. Foreign internationals noted local arbitration commissions lacked international experience and arbitrators with appropriate levels of expertise in matters related to international business. Foreign parties also worried about the fact that local arbitration commissions’ decisions are subject to substantive rather than simple procedural review, which has the effect of making such ‘domestic’ awards more open to challenge than ‘foreign’ awards. Plus, as stated above, local arbitration commissions’ decisions are viewed as ‘domestic rulings’ and the grounds for refusal of enforcement of domestic awards are quite broad.
Over time some local arbitration commissions have addressed these issues and have consequently become to be seen as a viable alternative to the courts for domestic arbitration cases and to the CIETAC and CMAC for international cases. The local arbitration commissions’ low fees and brief resolution periods have encouraged many to give them a second look. Presently, some of the larger local arbitration commissions, such as the Beijing Arbitration Commission and the Shanghai Arbitration Commission, earn enough through arbitration fees to be self-sufficient or independent from government financing. Some regional local arbitration commissions are witnessing a rise in popularity. In particular, the arbitration commissions in Beijing, Shanghai, Shenzhen, and Guangdong have built up a reputation for having eminently qualified arbitrators. Both the Beijing and the Shanghai Arbitration Commissions, eg, maintain a large number of possible arbitrators, many of whom can speak English and are qualified to decide international cases of a technical nature. In addition, the commissions have appointed so-called ‘international arbitrators’ who are overseas nationals either living in Beijing or Shanghai and offering expertise and experience in a particular field.
Commercial Arbitration Association of the Republic of China
The Arbitration Association of the Republic of China is a social organisation with the status of a legal entity. Arbitration commissions are all members of the Association and the Charter of the Association was formulated by its national congress of members.14
According to its Charter the Association is responsible for supervising all arbitration commissions in China.
14 Arbitration Law, art 15.
4.1 What is the relationship between agreements to arbitrate and access to the courts? Is there a presumption of arbitrability/policy support for arbitration? Will the courts stay court actions in favour of agreements to arbitrate?
Disputes which stem from foreign economic, trade, transport or maritime activities in China and in which the parties have a proper arbitration agreement in place may not be heard by the people’s court. Article 257 of the 1991 Civil Procedure Law makes it clear that in signing an arbitration agreement the parties have in effect waived or surrendered their rights to bring an action in a people’s court. Furthermore, art 5 of the Arbitration Law provides that where there exists an effective agreement to arbitrate, and one party brings a suit in the people’s court, the court shall not accept the case unless the arbitration agreement is null and void. In this sense there is legal backing for arbitration and the courts have in fact been known to stay actions in favour of agreements to arbitrate
China has a relatively well-developed body of law in relation to arbitration which is largely consistent with international practice; however, there still exist some gaps between the letter of the law and its application. Furthermore, because China is a civil law jurisdiction operating without the guidance of legal precedent, there are also some difficulties relating to the variability with which the law is interpreted and applied by courts across the country.
Though arbitration is often cited as a focal point in the expansion and modernisation of the Chinese commercial legal system, in reality there has been little in the way of significant national policy initiatives related to arbitration or its promotion from either the Supreme Court or the central government. Unfortunately, this has resulted in pervasive ‘court first’ thinking through most of the country. Without such support, China’s arbitration system has in large part been left to fend for and market itself, with many institutions thriving on user fees and successful self-promotion, and other institutions falling into decline. Nevertheless, both international and domestic arbitration are seeing increasing numbers of cases.
4.2 May an arbitral tribunal rule on a party’s challenge to its own jurisdiction (‘competence-competence’)? Need a tribunal suspend its proceedings if a party seeks to test jurisdiction in the courts?
Where a party challenges the validity of an arbitration agreement, that party may request that either the arbitration commission decide on the validity of the agreement or that the appropriate people’s court15 make such a decision. Where one party has made such a request to an arbitration commission and another party has made the same request to a people’s court, the people’s court shall make judgment. Where a party wishes to challenge the validity of the arbitration agreement, that party must raise such a challenge before the arbitration tribunal begins the first hearing of the case.
15 Question 68, The Practical Questions and Answers Relating to Foreign-Related Maritime
Trials. For cases involving foreign related elements the appropriate court the intermediate level people’s court at the place of the domicile of the applicant or defendant or the Intermediate People’s Court at the place where the arbitration agreement was made having jurisdiction over the commercial case involving the foreign elements shall decide on the validity of the agreement.
5.1 Provide a selected bibliography of the most influential publications in or relied upon in the jurisdiction – books, journals, newsletters and pamphlets.
Websites
China International Economic and Trade Commission (CIETAC):
www.cietac.org.cn
China Maritime Arbitration Commission (CMAC): www.cmac-sh.org
Beijing Arbitration Commission: www.bjac.org.cn
6.1 Are there form and/or content requirements for an enforceable agreement to arbitrate? How may they be satisfied?
An arbitration agreement may be a clause in a contract or other written agreement.17 Chinese Arbitration Law requires that such an arbitration agreement explicitly contains: (1) an expressed intent to arbitrate; (2) the items for arbitration; and (3) the specific institution chosen to act as the arbitration commission(s). The Arbitration Law 1995 stipulates that an arbitration agreement will be invalid unless it designates the arbitration commission, therefore ad hoc arbitration is not permitted in China. Oral agreements or promises to resolve disputes by arbitration are non-binding or meaningless under Chinese law; the arbitration agreement or clause must be in a written document. Governing language in which to conduct the arbitration, governing law, and the location that the arbitration should take place should all be included at the time the contract is concluded.
An arbitration agreement shall be null and void if any of the following conditions prove true: (1) matters for arbitration exceed the range of arbitrable matters in reference to the law; (2) one of the arbitration parities lacks capacity for civil conduct; or (3) there is evidence of coercion to sign the arbitration agreement. If an arbitration agreement lacks stipulations or contains unclear stipulations, a supplementary agreement should be sought; if this proves impossible then the arbitration agreement is null and void.
17 Question 84, The Practical Questions and Answers Relating to Foreign-related Maritime Trials states that the arbitration agreement may specify more than one Arbitration Commission if it states the parties will use either commission A or commission B.
Arbitration is not mandated by law for any type of commercial dispute in China.
17 Question 84, The Practical Questions and Answers Relating to Foreign-related Maritime Trials states that the arbitration agreement may specify more than one Arbitration Commission if it states the parties will use either commission A or commission B.
7.2 Is arbitration prohibited for certain types of dispute (restraints of fundamental public policy)?
Disputes over marriage, adoption, guardianship, child maintenance and inheritance, and administrative disputes falling within the jurisdiction of the relevant administrative organs according to law cannot be submitted to arbitration.21
8.1 May an arbitral clause be considered valid even if the rest of the contract in which it is embedded is invalid?
Under Chinese law an arbitration agreement may stand on its own even if the rest of the contract in which it is embodied is deemed invalid. Modification, rescission, termination or the declaration of a contract as invalid does not affect the validity of an arbitration agreement, and even where a contract has been concluded but is not yet effective, the arbitration agreement is independently effective.22
The arbitration tribunal does have the power to affirm an arbitration agreement as valid.
22 Question 75, The Practical Questions and Answers Relating to Foreign-related Maritime
9. QUALIFICATION/APPOINTMENT/LIABILITY OF ARBITRATORS
9.1 Are there specific provisions regulating the qualifications of arbitrators? Are there requirements (including disclosure) for ‘impartiality’ and ‘independence’, and do such requirements differ as between domestic and international arbitrations?
Arbitration commissions must appoint ‘fair and honest persons’ as their arbitrators and all arbitrators must fulfill one of the following five conditions:23
Most arbitration commissions also have rules in relation to impartiality and independence of their arbitrators. The CIETAC Arbitration Rules call for appointed arbitrators who have a personal interest in the case to volunteer this information and step down.
Beyond those explicitly stated in the law, additional provisions relating to the qualifications of arbitrators are also contained in the respective rules of each specific arbitration organisation. CIETAC and CMAC, in particular, have a large number of experienced professional arbitrators available for selection. Local arbitration commissions, however, have only in recent years begun to overcome the impression that they lack international experience and arbitrators with appropriate levels of expertise in matters related to international business. It also bears noting, though technically civil institutions, many local arbitration commissions as institutions are reliant on various levels of government support for financing and personnel appointments. Furthermore, many judges at the district court level also act as arbitrators in local arbitration tribunals, which may affect the impartiality of the process.
9.2 Are there provisions governing the challenge or removal of arbitrators? Do the courts or other jurisdictions play/have a role in any such challenge?
Chinese arbitration law specifies that an arbitrator must withdraw from the arbitration, and the parties shall have the right to apply for his or her withdrawal if the arbitrator:24
Each respective arbitration commission also has its own provisions governing the challenge or removal of arbitrators. CIETAC and CMAC have similar but differing provisions in place for the challenge and replacement of an arbitrator with whom there exists justifiable doubt as to his or her impartiality or independence. Challenges directed at arbitrators based on impartiality are decided by the chairman of the arbitration commission. Challenges should be made before the first oral hearing provided that evidence of impartiality exists at that point in time, otherwise challenges can be raised any time before the decision of the final hearing.25
9.3 Does legislation govern, or have the courts developed rules regarding the liability of arbitrators for acts related to their decision-making function?
Under Chinese law an arbitrator may not be found liable for acts related to his or her decision-making functions. However, where an arbitrator breaches art 34(4) (as stated above) or art 58(6),26 he or she shall be liable and legally responsible according to the law and the arbitration commission must remove his or her name from its panel of arbitrators.27
22 Question 75, The Practical Questions and Answers Relating to Foreign-related Maritime
24 Arbitration Law, art 34.
25 Arbitration Law, art 35.
26 Article 38 of the Arbitration Law stipulates that if an arbitrator has solicited or accepted bribes, practiced favouritsm and bent the law while arbitrating a case or making a ruling, he or she shall be liable and legally responsible according to the law and must be removed form the commissions panel of arbitrators.
27 Article 38 of the Arbitration Law stipulates that if an arbitrator has solicited or accepted bribes, practiced favouritism and bent the law while arbitrating a case or making a ruling, he or she shall be liable and legally responsible according to the law and must be removed form the commissions panel of arbitrators.
10. PARTY REPRESENTATION
10.1 Are there particular qualification requirements for representatives (‘counsel’) appearing in the jurisdictions?
Under Chinese law either party or its legal representative may request a lawyer or an agent to act as their representative at arbitration, provided they submit a proper power of attorney to the arbitration commission. The Chinese Arbitration Law remains silent on the subject of foreign lawyers acting as representatives at arbitration. In the absence of any such law the regulations of the individual arbitration bodies are to be applied; CIETAC and CMAC both allow foreign representatives. Some but not all local arbitration commissions permit foreign lawyers to act as advocates.
11. PLACE OF ARBITRATION/PROCEDURES
11.1 Are there provisions governing the place (seat) of arbitration, or any requirement for arbitral proceedings to be held at the seat?
Flexibility with regard to provisions governing the place of arbitration varies significantly between each commission. In many cases, where the parties agree, the arbitration may be held in a place other than where the arbitration commission is located, though in such cases any associated costs must be borne by the parties. The CIETAC Arbitral Rules 2005 stipulate arbitration hearings may be held anywhere including in foreign countries. CIETAC arbitrations have taken place outside of mainland China, in Hong Kong, but have not up to this point in time been held in foreign countries.
11.2 Are specific procedures mandated in particular cases, or in general?
Though in many cases the rules of the various arbitration commissions allow for parties to use other agreed upon arbitration procedures, the key issue is that such procedures remain consistent with Chinese law governing arbitration. Notably, the UNCITRAL Arbitration Rules are in compliance with Chinese Arbitration law and may be applied where the parties agree. Where alternative rules such as the UNCITRAL Arbitration Rules are not agreed upon within an arbitration agreement, the rules applied must be those of the nominated arbitration institution at the time of arbitration. Lack of agreement on arbitration rules will not prejudice an arbitration agreement or ruling under Chinese law. Significantly, all arbitration conducted in China must be institutional; ad hoc arbitration is disallowed by default by art 16 of the Arbitration Law which stipulates a valid arbitrational agreement must include a designated arbitrational commission.
12. EVIDENCE GATHERING
12.1 What is the general approach to the gathering and tendering of evidence at the pleading stage and at the hearing stage (production, discovery, privilege, use of witness statements etc)? Are there differences between domestic and international arbitrations?
The approval of an application for arbitration is usually followed by a general exchange of evidence. Each party is essentially responsible for the provision of evidence to support their respective positions and/or counterclaims. Where it deems necessary, the tribunal may also collect its own evidence, or may, of its own volition require a party to produce evidence in support of its claim.28 Appointment of experts or auditors, inspections and onsite visits are viable methods of evidence collection that the tribunal may chose to engage. Appraisal is permissible if requested by either party or the arbitration tribunal itself.29 The appraiser may also be asked to attend the arbitration process and field questions from both parties. Evidence presented during the arbitrational process shall be open to examination by the parties.30
More specific rules governing the exchange of evidence are specific to each respective arbitration institution.
There is no legislation or article of the 1995 Arbitration Law that allows the court to intervene in matters of disclosure and discovery. Nevertheless, Chinese arbitration institutions do have their own rules relating to disclosure and discovery which approximate foreign arbitration institutions. For example, point 2 of art 38 of CIETAC’s rules reads: ‘The arbitration tribunal has the power to request the parties to deliver or produce to the expert or appraiser any relevant materials, documents, or property and goods for checking, inspection and/or appraisal. The parties shall be obliged to comply.’
A ‘domestic’ arbitration award may be set aside where it is found that the evidence on which the arbitration ruling was based is forged or where evidence concealed by a party has influenced the impartiality of the ruling;31 ‘foreign’ arbitration awards may not be set aside on such grounds.
Chinese law requires that attorneys maintain confidentiality with regard to state secrets relating to national security and commercial secrets of clients learned through practice, and may never reveal the confidential information of the clients. Parties have the right to enjoy privilege of confidentiality in any form of arbitration proceedings, and except in the extremely rare circumstance where a cases is of particular significance to national interest, this privilege should not be limited.32
Commissions generally contain provisions in their rules in relation to the submission of documentary evidence, and the majority routinely accept witness affidavits. Hearings themselves are generally conducted orally; however, in some cases, such as under the CIETAC summary procedure, or at the request or consent of the parties, an arbitration tribunal may, where it considers oral hearings unnecessary, hear and decide a case on the basis of documents only.
12.2 What powers of compulsion or court assistance are there for arbitrators to require attendance of witnesses or production of documents, either prior to or at the substantive hearing? Is there a difference between domestic and international tribunals or as between parties and non-parties? Do special provisions exist for arbitrators appointed pursuant to international treaties (ie bilateral or multilateral investment treaties)?
An arbitration tribunal may issue a notice requiring a witness to attend a hearing; however, unlike court notices, arbitration tribunal notices are of limited enforceability. There is little an arbitration tribunal can do to compel a witness to attend; therefore witnesses at arbitration are generally co-operative and voluntary.
Chinese arbitration law provides for the preservation of evidence prior to a hearing where such evidence is perishable or may be difficult to obtain in the future. Where a party makes an application for requests the preservation of evidence in a ‘domestic’ arbitration, the arbitration commission must submit the request to the district-level people’s court at the place where the evidence is located and obtain a favourable ruling. Requests for the preservation of evidence in a ‘foreign related’ arbitration are to be made to the Intermediate People’s Court at the place where the evidence is located.
28 Arbitration Law, art 43.
29 Arbitration Law, art 44.
30 Arbitration Law, art 45.
31 Arbitration Law, art 58, stipulation 4.
32 www.aippi.org/reports/q163/quest02/q163_china.pdf.
13. INTERIM MEASURES/ROLE OF THE TRIBUNAL
13.1 Are there special provisions relating to the granting of interim and preliminary relief? Have the courts recognised and/or limited any such authority? Do the courts themselves play a role in interim relief in arbitration proceedings?
Under Chinese law, only the court has the power to take interim relief measures. Arbitration-related applications for interim relief which may be granted by the courts are limited to the preservation of property and evidence, and applications must be submitted by an arbitration commission to the court, which must effect the preservation in accordance with Chinese civil procedure law.
14. TAXATION OF ARBITRATORS’ FEES
14.1 Does the state, or any of its sub-divisions, purport to tax domestically the fees of foreign arbitrators conducting hearings in the state? Is there a difference if the arbitration is ‘seated’ in the state or elsewhere?
If an arbitration takes place in China, and the fees are paid to the foreign arbitrator in China, as long as the arbitrator’s stay in China does not exceed 180 days (non-resident) such fees are non-taxable under Chinese law. Where the foreign arbitrator is a resident of China, the arbitrator will generally be liable to pay tax on any fees earned.
15. DEFAULT PROCEEDINGS
15.1 Are there provisions governing a tribunal’s ability to determine the controversy in the absence of a party who, on appropriate notice, fails to appear at or seek adjournment of the arbitral proceedings?
Litigants may request a postponement of the session for legitimate reasons, though in such cases, it is for the arbitration tribunal to decide whether a session shall be postponed.33 Rulings are made by default where the applicant fails to attend the tribunal session without legitimate reason. Where the applicant leaves the tribunal during session without the tribunal’s approval, the application shall also be deemed to be withdrawn.
16. THE ARBITRAL AWARD
16.1 Must an award take any particular form, eg in writing, signed, dated, place, the need for reasons, delivery etc?
A written arbitration ruling should state the arbitration request, the facts of the dispute, the reasons for the ruling, the result of the ruling, the arbitration expenses to be borne, and the date of the arbitration. However, where both parties agree, the facts of the dispute and the reason for the ruling can be omitted from the arbitration ruling. The ruling must also be signed by the arbitrators and given the seal of the arbitration commission, though the signatures of dissenting arbitrators are optional.
16.2 Are there limits on arbitrators’ powers to fashion appropriate remedies, eg punitive or exemplary damages, rectification, injunctions, interest and costs?
Under the Arbitration Law 1995 arbitrators may render whatever remedies the parties apply for (interests and costs included) except for those types of remedies reserved only for the courts, such as maritime injunctions. Beyond determining the award, the arbitrators may also determine the arbitration fees and other expenses to be paid by the parties to the commission and may require the losing party to compensate the winning party for expenses reasonably incurred in pursuing their case.
33 Arbitration Law, art 41. 270 European Lawyer Reference Series
17.1 Are there provisions governing modification, clarification or correction of an award?
Article 56 of the Arbitration Law permits litigants 30 days after receiving the written ruling to request that the arbitration tribunal make corrections. It also requires arbitration tribunals to correct any terminological or calculation errors in the written arbitration or any ruling decision left out in the written arbitration. The Arbitration Law does not include any provision that would allow a party to directly appeal an award.
The rules of individual arbitration commissions also contain differing provisions for the correction and modification of awards. For example, CIETAC also allows 30 days from the date of the award for a party to apply in writing for an additional award on any claim or counterclaim which was advanced in the arbitration proceedings but was omitted from the award. The arbitral tribunal may also make an additional award on its own initiative within a reasonable period of time after the issue of the arbitral award.
17.2 May an award be appealed to or set aside by the courts? If so, on what grounds and by what procedures?
Under Chinese arbitration law an arbitration award is not subject to judicial appeal; however, the courts may supervise arbitration activities, refuse enforcement of an award, and repeal or set aside awards independently of the arbitration tribunal. In the different translations of Chinese Law Code, one encounters three types of arbitration awards, namely, ‘foreign’, ‘domestic’ and ‘foreign-related’, the last of which should be understood as a type of domestic award that involves foreign elements. Awards purely ‘foreign’ in nature can be refused enforcement, for reasons explained in section 18.1 below, but for obvious reasons they cannot be set aside by any Chinese institution. To set aside a ‘domestic’ or ‘foreign-related’ arbitral award, an application to set aside the award must be filed within six months after the receipt of the award.34
To reiterate, Chinese arbitration awards are divided into ‘foreign related’ and ‘domestic’ arbitration awards. Awards are designated ‘foreign related ‘or ‘domestic’ on the basis of whether the case involves foreign-related elements, the key difference being that the respective awards may be repealed or set aside on different grounds. The Supreme People’s Court opinion on the Civil Code stated that ‘foreign related’ cases are those containing a civil element in which at least one party is foreign, where the object of the relationship lies outside China, and when the legal facts that create modify or extinguish the relationship are located outside of China. In regard to domestic arbitration, the PRC Contract Law 1999 stipulates that if two Chinese parties cannot settle their dispute they may refer the dispute to an arbitral body, not stating whether this body needs to be domestic or international.35 Foreign-related business transactions may choose a Chinese arbitration body or ‘other arbitration body’, the other obviously indicating international arbitration bodies.36
‘Domestic’ arbitration parties may request that the Intermediate People’s Court of the place where the arbitration commission is located repeal the award when a party to an arbitration produces evidence as proof of any of the following:37
‘Domestic’ rulings that are ‘foreign related’ may be partially set aside where an award exceeds the range of an arbitration agreement or is beyond the scope of matters which can be arbitrated, and where such issues are separable from other issues.38
‘Foreign related’ arbitration awards may be repealed or set aside where a party against whom the application for enforcement is made establishes that:39
Awards may also technically be repealed or set aside where the court determines that the enforcement of the award goes against the social and public interest of the country.40 Significantly, any court seeking to set aside a foreign related award on any grounds must first obtain approval from the Superior People’s Court.
35 PRC Contract Law 1999, art 128.
36 PRC Contract Law 1999, art 128.
37 Arbitration Law, art 58.
38 Question 90, The Practical Questions and Answers Relating to Foreign-related Maritime Trials.
39 Arbitration Law, art 70 and Civil Procedure Law, art 260.
40 Notice of the Supreme Court on Relevant Issues in the Setting Aside of Foreign-related Arbitral awards by the People’s Court No 40, issued on 23 April 1998.
18.1 What are the procedures and standards for enforcing an award? Is there a difference between ‘domestic’ and ‘non-domestic’ awards?
There are three kinds of arbitration awards ‘foreign’, ‘domestic’ and ‘foreign related’, the latter two of which are technically types of Chinese domestic awards. This is not confusing if one remembers the defining difference between domestic and non-domestic awards is the jurisdiction where the arbitration takes place.
Foreign awards
Under the principle of reciprocity, China limits the recognition of foreign arbitration awards to only those awards rendered in another contracting country of the New York Convention41 in countries with which China has a relevant bilateral treaty.42 Foreign arbitration awards including ad hoc arbitration awards of such countries may be enforced in China, where an application for enforcement is made to an intermediate-level people’s court having jurisdiction over the party’s residence or property.43 The Chinese courts may refuse an application for enforcement on any of the grounds for non-enforcement contained in art V of the New York Convention; however, if the court finds no grounds for refusal under the Convention, the court is in theory required to recognise and enforce the award.
As a precautionary measure, any intermediate-level people’s court which intends to refuse recognition and enforcement of a foreign arbitration award must refer the decision to a Higher People’s Court of Jurisdiction for further examination. Where the Higher People’s Court also agrees that it is appropriate to refuse recognition and thus enforcement of an award, it must report its opinion to the Supreme Court.44
Domestic awards
If a party refuses to co-operate with the implementation of a domestic award against it, the opposing party may apply to the court. In the instance that a ‘foreign related’ award (a kind of domestic award) involves foreign property, foreign courts will be asked to assist Chinese courts in accordance with the bilateral or multinational agreements on judicial assistance. Although ‘foreign related’ awards are domestic in that the arbitration takes place in China, the
41 China signed this Convention with a reciprocity reservation under art I(3).
42 As of 30 May 2003, China had reached Judicial Assistance Agreements (civil and
commercial matters only) with: Argentina; Belarus; Belgium; Bulgaria; Cuba; Cyprus;
Egypt; France; Hellenic Republic; Hungary; Italy; Kazakhstan; Kyrgyzstan; Laos;
Lithuania; Mongolia; Morocco; Poland; Romania; Russia; Singapore; Spain; Tajikistan;
Thailand; Tunisia; Turkey; Ukraine; Uzbekistan; Vietnam (source: Ministry of Foreign Affairs
of the People’s Republic of China).
43 Civil Procedure Law, art 269.
44 See Notice of the Supreme People’s Court Concerning the Handling of Certain Issues of
Foreign Related Arbitration, 28 August 1995 and Notice of the Supreme People’s Court
Concerning Setting-Aside by the People’s Court of Foreign Related Arbitration Awards,
23 April 1998.
grounds for non-enforcement are solely procedural in nature, therefore providing a degree of extra protection to ‘foreign related’ awards.
Thus, the grounds for non-enforcement for ‘domestic’ arbitration awards that in no way involve foreign elements include substantive grounds as well as procedural irregularities. The people’s court may issue a ruling against the execution of an arbitration award where a collegiate bench of the court has determined that one of the following circumstances is found in the ruling of the arbitration commission:
(7) the verdict runs counter to society’s public interests. Chinese arbitration law also provides that in a ‘domestic’ arbitration where the matter being adjudicated falls neither within the limits of the agreement of arbitration nor the limits of the arbitration organ’s authority, an arbitration ruling may not be executed.
The grounds for non-enforcement of ‘foreign related’ domestic arbitration awards are slightly different and are limited to those based on the procedural irregularities listed below:45
Generally speaking, the most common problem involving enforcement of domestic awards is insolvency. When facing a situation in which the solvency of the respondent is in question it can become very difficult to collect an arbitration award. A fraudulent transfer of assets to a conspiring company or individual is difficult to prove. In short, whether the respondent is truly insolvent or merely faking insolvency is always a concern to those relying on arbitration as their dispute resolution method. However, similar default can arise in the enforcement of a court judgment.
19.1 What are the confidentiality requirements of the arbitral process, ie existence of the arbitration, pleadings, documents produced, hearing, award?
Chinese arbitration hearings are conducted as closed hearings, except where the parties concerned agree to hold open sessions. Cases deemed to involve state secrets are not permitted to have open hearings.46 Individual arbitration commissions have specific rules relating to confidentiality, eg art 33(2) of the CIETAC Rules states:
‘For cases heard in camera, the parties, their representatives, witnesses, interpreters, arbitrators, experts consulted by the arbitral tribunal and appraisers appointed by the arbitral tribunal and the relevant staff-members of the Secretariat of the CIETAC shall not disclose to any outsiders any substantive or procedural matters of the case.’
Chinese law contains no provisions relating to the use of information that has been referred to in arbitration being used in subsequent proceedings, though the CIETAC Rules at art 40(8) provide that within the context of conciliation conducted within arbitration proceedings:
‘Where conciliation fails, any opinion, view or statement and any proposal or proposition expressing acceptance or opposition by either party or by the arbitral tribunal in the process of conciliation shall not be invoked as grounds for any claim, defence or counterclaim in the subsequent arbitration proceedings, judicial proceedings or any other proceedings.’
20.1 Is there any particular aspect of the approach to arbitration in the jurisdiction which bears special mention?
Chinese arbitration bodies routinely conduct mediation throughout the course of arbitration. Under Chinese law an arbitration tribunal may conduct mediation on the agreement of the parties to a dispute; however, where mediation fails, Chinese law requires that an arbitration ruling be made promptly. Where an agreement is reached through mediation, the arbitration tribunal can issue a legally binding written mediation document47 or the parties may withdraw from arbitration.
