China: New Choice for Mainland-Related International Arbitration—Establishment of the China International Economic and Trade Arbitration Commission Hong Kong Arbitration Center

Background

On September 24, China International Economic and Trade Arbitration Commission ("CIETAC") launched its Hong Kong Arbitration Center ("the Center") as its first branch outside mainland China. This is a significant step taken by CIETAC in its plan to expand globally.

CIETAC, established in 1956, is the dominant arbitration institution in mainland China and one of the main arbitration institutions in the Asian-Pacific region. For Chinese enterprises, CIETAC is their first choice for an international arbitral institution due to historical and practical reasons.

From a historical perspective, when it was established in 1956, CIETAC was the sole arbitral institution with jurisdiction over international arbitration. Since then CIETAC has dealt with many international arbitrations and accumulated rich experience in this area. CIETAC has thereby developed a reputation amongst Chinese enterprises as one of the most competent international arbitral institutions in mainland China.

From a practical perspective, Chinese enterprises tend to choose CIETAC because of its working language and culture. The majorities of CIETAC panel arbitrators are Chinese or have a Chinese background. Therefore, Chinese enterprises are more comfortable communicating with CIETAC arbitrators.

In addition, the CIETAC arbitration rules are similar to mainland civil procedure rules, which are based on the civil law system. Chinese enterprises are more confident with the inquisitorial system compared with the adversarial system which has a much greater focus on witness cross examination. Thus Chinese enterprises are more likely to choose CIETAC and avoid other international arbitral institutions.

New Era of International Arbitration of CIETAC

Now, more Chinese enterprises are doing business abroad, including by establishing joint ventures. In this scenario, CIETAC is not the first choice for foreign parties for dispute resolution and foreign companies will seek familiar arbitral institutions such as ICC, LCIA, SCC, etc. This is to avoid the unfamiliar laws and rules associated with mainland arbitration, and the possibility that the arbitration will be conducted in Chinese. Some foreign companies are also concerned about local protectionism and local government intervention and will try to avoid mainland arbitral institutions for this reason. Finding a reasonable balance between the concerns of Chinese parties and those of foreign parties is critical for CIETAC's success in 'going global'.

Hong Kong, with a long history as a regional center for international arbitration, has been widely acknowledged internationally because of its independent and impartial legal system and the non-interventionist approach by the government. CIETAC has opened a branch at the Hong Kong Arbitration Center for these advantages.

As a branch of CIETAC, the Center will be well acknowledged by Chinese enterprises. As the Center is located in Hong Kong and is subject to the Hong Kong Arbitration Ordinance which came into effect in June 2011, the Center will also be well acknowledged by foreign companies. As such, it is likely that the Center will be a convenient choice when parties have to compromise on the choice of arbitral institution specified in their contract. Given that CIETAC is now operating in two jurisdictions and is in disagreement with its mainland sub-commissions as to case handling, when documenting the arbitration agreement for disputes to be determined by CIETAC in Hong Kong, parties should clearly state that 'CIETAC Hong Kong Center' is the chosen arbitral institution.

Enforcement of the Center's Awards in the Mainland

According to our research and consulting with CIETAC, we understand that the Center is regarded as a Hong Kong arbitral institution, the awards made by the Center will be Hong Kong awards for the purpose of enforcement. According to Chinese law, the awards made by the Center can be enforced in line with the Arrangement of the Supreme People's Court on Reciprocal Enforcement of Arbitration Awards between the Mainland and the Hong Kong Special Administrative Region ("the Arrangement").

To apply for enforcement of an award made by the Center, an applicant shall submit to the competent court an application for enforcement within two years of the award being made. The competent court is the Intermediate People's Court located where the party who refuses to fulfill the award domiciles, or its property is located. If the place of domicile or the locality of the property is both in the mainland and the HK, the applicant can choose either mainland courts or Hong Kong courts for enforcement. If the enforcement in the chosen jurisdiction is inadequate to cover the amount of the award, then the applicant can seek enforcement for the unrecovered amount in the other jurisdiction.

Elsewhere the awards will be enforceable according to the New York Convention.

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