China: CIETAC Arbitration

Last Updated: 22 July 2002
Article by Zhu Yongrui

CIETAC has been one of the busiest arbitration institutions in the world. In 1999 it resolved 706 cases, and the number is expected to rise quickly after China’s entry into the WTO in 2001. This article discusses some problem areas where disputes arise frequently and other related issues including: the validity of arbitration agreements, enforcement of the award, the shifting role between arbitrators and conciliators, selection of arbitrators, strengths and weaknesses of arbitrators, the situation of ad hoc arbitration in the PRC, and the concern of CIETAC’s independence and impartiality.

Parties have the right to choose any arbitration commission in China and CIETAC is usually regarded as the best one for dealing with foreign related matters.

The premise of CIETAC arbitration is the existence and validity of an arbitration clause in the contract or an arbitration agreement. It is advisable to use the standard arbitration clause/agreement published by CIETAC. In this way the parties can avoid any ambiguity, because the existence and validity of such an agreement have proved to be the weakest link in the life of an arbitration. For example, the use of more than one language and the translation between them can make relevant expressions uncertain. Furthermore, it is much easier to show a defect in such an agreement than to prove other procedural mistakes, should a party decide to challenge the jurisdiction of any arbitration commission including CIETAC.

Jurisdiction

CIETAC has the power to decide on the existence and validity of the arbitration agreement only when both parties agree. If one party turns to the People’s Court for a ruling, the court has the final say. It should be noted that the said court is not necessarily in the place where CIETAC is located, it can be any local court chosen in accordance with the Civil Procedure Law. This can give rise to problems. If a local Chinese party is not sure about the case’s future in CIETAC, it may submit the case to a local court for the ruling to deny the agreement. Then the local government, fearing that the local economy will suffer a great loss if a foreign party wins the case and takes a big sum of money out of the area, will, very possibly, try to influence the local court to decide in favour of the local party. Thus if only one word is different from the standard arbitration agreement, the agreement will be in trouble. To minimise this problem the court must report the matter to the Supreme People’s Court when it decides to deny a CIETAC arbitration agreement and has no right to deny it without the Supreme Court’s agreement pursuant to the Notice Concerning the Handling by People’s Courts of Issues Relating to Foreign-Related and Foreign Arbitration Matters.

Enforcement

According to the Civil Procedural Law a People’s Court may refuse to enforce an arbitration award, including CIETAC, if the party against whom the enforcement action is brought can prove certain exceptions including: that there is no arbitration clause/agreement; the respondent was not notified to appoint an arbitrator or to take part in the arbitration proceedings or the respondent was unable to state his case due to reasons for which he is not responsible; the composition of the arbitral tribunal or the arbitration procedure was not in conformity with the rules of arbitration; or matters decided in the award exceed the scope of the arbitration agreement or are beyond the arbitral authority of the arbitration institution. These conditions comply with the provisions of Article V(I) of the New York Convention.

In addition, a court may also refuse enforcement if it finds the enforcement would violate the "public interest" of the state, mirroring Article V(2) of the New York Convention. Pursuant to the Notice to the Supreme People’s Court mentioned above the reporting system is also necessary in this matter, requiring the lower court to first report the matter to a Higher Court for consideration. If that court agrees to the lower court’s opinion, it must report the matter to the Supreme Court. And only with the Supreme Court’s agreement to the views of lower court may a ruling to refuse to enforce the award be issued. However the Notice does not specify the time limit for such reporting procedure. Thus once a court decides to challenge the award, it can at least delay the enforcement.

Arbitration/conciliation

During the process of the arbitration arbitrators may suggest and encourage the use of conciliation. A unique aspect of Chinese arbitration is that the arbitrator and the conciliator is the same person. It is assumed that these roles are to some extent incompatible. In order to reach a settlement agreement parties should discuss their disputes frankly, and to indicate their practical objectives. In the event the conciliation fails, the same person will have received information that the parties would have been unwilling to provide to an arbitrator. One protection available is the preservation of their freedom to decide whether to use conciliation. Another option is for the parties to negotiate with each other without the arbitrator being present. They should remember not to leave any unnecessary records.

Arbitrators

Who is suitable to act as an arbitrator? An arbitrator should be a leading expert with an outstanding reputation in their field. The arbitrator should also be impartial and independent and withstand bribery or undue influence. It is also advisable that parties chose an arbitrator holding an academic opinion amenable to their respective positions. Many arbitrators on the list at CIETAC are professors or famous experts, whose works are readily available in libraries or bookshops. Some arbitrators registered at CIETAC are foreigners, whom any party can appoint as a member of the tribunal. If both parties can reach an agreement, they can nominate the third arbitrator as the presiding arbitrator. If no such agreement can be reached, the chairman of CIETAC has the power to appoint the third arbitrator, usually a Chinese national.

Strengths/weaknesses of CIETAC arbitration

The strengths of CIETAC arbitrators are their prestige and acknowledged expertise. Their weakness sometimes can be the lack of courtroom skills, as a result sometimes an oral hearing can be inefficient. An experienced lawyer should try to guide the hearing in a reasonable way.

Ad hoc arbitration, accepted in many jurisdictions, is a controversial problem in China. On the one hand, there is no express provision prohibiting such arbitrations in the laws of China. The Arbitration Law provides that if an arbitration agreement contains no or unclear provisions regarding arbitral matters or on the arbitration commission to hear the matter, the parties may reach a supplementary agreement, failing which the arbitration agreement shall be void. On the other hand, it has no express legal basis, which may mean that the Courts will refuse to enforce the award. So ad hoc arbitration in China is impractical and ill advised.

Foreign practitioners often express their concerns about CIETAC as to its independence and impartiality. CIETAC is financially dependent upon the CCOIC (Chinese Chamber of International Commerce), which is supervised by the Ministry of Foreign Trade. Also, CIETAC’s higher posts largely comprise senior-ranking civil servants. In this sense, CIETAC is not a completely independent body.

Nevertheless, CIETAC can be trusted by foreign parties for a number of reasons. Firstly, appointed arbitrators are independent, they are not working at CIETAC for a living. As a result, if any organisation, including CIETAC itself or individuals such as senior officers of the government or the Party, tries to put pressure upon an arbitrator in order to influence the award, the arbitrator is able to refuse to comply more easily than any judge at a court of law. Moreover, in accordance with the law, arbitrators have complete power to decide cases on their own, which is the basis for them retaining independence. Secondly, parties are able to rule out an arbitratorsuspected of being more readily given to influence by other powers by choosing an alternative arbitrator from the list. Thirdly, after China’s entry into the WTO, CIETAC has been concentrating on gaining an international reputation. It will therefore try to maintain the independence of the arbitration progress. Finally, a foreign party remaining doubtful on this matter has the right and chance to select foreign arbitrators from the arbitrators register.

In conclusion CIETAC is a sensible option for parties when they have decided to submit their dispute to an arbitration commission within China. CIETAC’s history has proved it is an arbitral body worth being trusted and its future is likely to be bright due to the stable development of the Chinese economy.

Zhu Yongrui

Mr. Yongrui is a lawyer at Jingdu law firm in Beijing where he works in the commercial arbitration department. He was on the Lord Chancellor’s Training Scheme 2001- 2002 when he spent five months at Herbert Smith (two months in Hong Kong and three months in London) and three months at Stone Chambers.

© Herbert Smith 2002

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us.

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