On February 3, 2012, the China Council for the Promotion of
International Trade and the China Chamber of International Commerce
revised and adopted the China International Economic and Trade
Arbitration Commission ("CIETAC") Arbitration Rules,
which come into effect on May 1, 2012. Although not as extensive as
the previous revision to the CIETAC rules in 2005, the 2012 edition
certainly makes some significant improvements.
By way of background, it is important to remember that the Chinese
concept of arbitration (as distinct from that in the international
arbitration arena) has, at its heart, the notion of submission to a
method of state-sponsored dispute resolution, somewhat different
from the courts, but still ultimately deriving its authority from
the state, not the parties. These Chinese state-sponsored
arbitration institutions number more than 200, of which CIETAC is
probably the most well known.
Given the increasing number of Chinese companies participating in
global trade and investment, it is likely that the number and scale
of disputes between Chinese enterprises and foreign companies will
increase. However, the perception (at least in China) is that
Chinese enterprises have not yet managed to fully understand the
process of international arbitration. Accordingly, one of
CIETAC's objectives is to build and internationalize its
"brand" by, among other things, modifying and improving
its arbitration rules, carrying out more arbitration education and
training, and diversifying and building up an influential group of
arbitrators. It is likely, therefore, that over time, CIETAC will
market itself not just as a Chinese arbitration institution, but as
an international arbitration institution in competition with the
International Chamber of Commerce ("ICC"), the London
Court of International Arbitration ("LCIA"), the Hong
Kong International Arbitration Centre ("HKIAC"), and the
Singapore International Arbitration Centre ("SIAC").
Arbitration is Growing in China
At a conference of arbitration practitioners in Guiyang on July 26, 2011, it was reported that nearly 80,000 arbitration cases were heard by 209 arbitration commissions in 2011, among which only 1,219 were foreign-related.1 Therefore, cases involving Hong Kong, Macao, and other foreign-related cases represented only 1.6 percent of the total. Shen Sibao (沈四宝), chairman of the China Law Society and the China Academy of International Economic Law, and vice chairman of the China Academy of Arbitration Law, commented that it is necessary to improve the overall environment for commercial arbitration in China, including the rule of law, market credibility, and the quality of arbitration institutions and arbitrators.2 The new CIETAC rules, therefore, represent a movement in the right direction.
CIETAC Allows Interim Measures
This is the first time that the CIETAC arbitration rules have
allowed an arbitral tribunal to grant interim measures. Previously,
the rules required that where a party to a CIETAC arbitration
applied for conservatory measures, such as preservation of property
and preservation of evidence, the secretariat of CIETAC was
required to forward that party's application to the competent
court at the place where the domicile of the party against whom the
measures was sought was located or where the property of that party
was located (Article 17 of the 2005 CIETAC Rules). Therefore,
neither CIETAC nor the arbitral tribunal had any power to order
interim measures. In other words, there was no scope for even a
recommendation by CIETAC or the tribunal.
Now, Article 21.2 of the revised CIETAC arbitration rules allows
the arbitral tribunal, at the request of a party, to order any
interim measure that it deems necessary or proper in accordance
with applicable law. The interim measure may take the form of a
procedural order or an interlocutory award. For example, an
arbitral tribunal could grant a procedural order or make an
interlocutory award to suspend or prohibit a party from carrying
out certain acts, such as intellectual property infringement.
Further, the arbitral tribunal is also empowered to require the
requesting party to provide appropriate security in connection with
the measure.
While this is a step in the right direction, there remain
significant problems with enforcement. In particular, such orders
or awards are not injunctions, and Chinese courts have no legal
basis to enforce such interim measures. These problems stem from
the Chinese Arbitration Law and the Civil Procedure Law, which
require applications for property or evidence preservation to be
forwarded to the courts (as was previously provided for in the old
CIETAC rules).
This can be contrasted with the position under the English
Arbitration Act 1996, where Section 42 expressly empowers the court
to make an order requiring a party to comply with a peremptory
order made by the tribunal. Similarly, in Section 44, the court has
a range of supportive powers that it may exercise where the
arbitrators themselves are unable to act (where, for example, they
have not yet been appointed). China is currently revising its Civil
Procedure Law, and it is to be hoped that the new provisions in the
CIETAC rules will be given the necessary support and teeth in the
revised Civil Procedure Law.
CIETAC's revisions also do not go as far as the Emergency
Arbitrator provisions in the new ICC arbitration rules, which allow
an Emergency Arbitrator to be appointed by the ICC at the request
of a party applying for urgent interim or conservatory measures
that cannot wait for the constitution of the arbitral tribunal.
This is because CIETAC's rules allow the arbitral tribunal only
to make the order or award, and do not address the issue of what
happens in the event that no tribunal has been constituted, which
is precisely what the new ICC rules seek to resolve.
Accordingly, while the new CIETAC rules on interim measures are an
improvement on the previous position, further improvements are
required, particularly in the absence of strong supporting
legislation.
Consolidation of Arbitrations
This is another first for CIETAC, and it also follows changes
made by the ICC to its rules earlier this year. Article 17(1) of
the new CIETAC rules allows CIETAC to consolidate two or more
pending arbitrations into a single arbitration where (a) it is
requested by a party and all the parties agree, or (b) CIETAC
believes it is necessary and all the parties agree. Therefore,
unlike the new consolidation provisions in the ICC rules, CIETAC
can order consolidation only if the parties agree. This has the
unfortunate consequence that one party can prevent
consolidation.
Article 10 of the new ICC rules is a much fairer and more practical
process insofar as it allows the ICC (at the request of a party) to
consolidate two or more ICC arbitrations into a single arbitration
where (a) the parties agree to that, or (b) all of the claims are
made under the same arbitration agreement, or (c) the claims are
made under different arbitration agreements but the arbitrations
are between the same parties, the disputes in the arbitrations
arise in connection with the same legal relationship, and the ICC
finds the arbitration agreements to be compatible.
In deciding whether to consolidate the arbitrations, Article 17(2)
of the new CIETAC rules allows CIETAC to take into account any
factors it considers relevant in respect of the different
arbitrations, including whether (i) all of the claims in the
different arbitrations are made under the same arbitration
agreement, (ii) the different arbitrations are between the same
parties, or (iii) one or more arbitrators have been nominated or
appointed in the different arbitrations. Factors (i) and (ii)
largely accord with the conditions in the new ICC rules set out at
(b) and (c) above, and factor (iii) is also referred to in the new
ICC rules.
Finally, when the arbitrations are consolidated, they are
consolidated into the arbitration that was commenced first, unless
otherwise agreed by the parties. Again, the CIETAC rules mirror the
new ICC rules.
The consolidation provisions are a major step forward for CIETAC
but unfortunately do not go as far as the ICC, LCIA, HKIAC, and
SIAC rules in containing joinder provisions.
Appointment of Arbitrators
Article 28 of the new CIETAC rules provides that the Chairman of
CIETAC, when appointing arbitrators, shall take into consideration
(a) the law as it applies to the dispute, (b) the place of
arbitration, (c) the language of arbitration, (d) the nationalities
of the parties, and (e) any other factors the Chairman considers
relevant. The ICC rules are similar but go further by expressly
stating that a sole arbitrator or the presiding arbitrator (in a
three-member tribunal) shall be of a nationality other than those
of the parties (unless none of the parties objects). CIETAC does
not go this far, and this is unfortunate, particularly in the case
of foreign-related arbitrations in CIETAC where one of the parties
is not Chinese.
Further, in multiparty arbitrations, the new CIETAC rules provide
that if any party defaults in appointing its party-appointed
arbitrator (or if both parties fail to jointly entrust the Chairman
of CIETAC to appoint), then the Chairman of CIETAC will appoint all
three arbitrators.
Suspension of the Arbitration
Again, for the first time CIETAC has included provisions dealing
with the suspension of an arbitration. Currently, there are no
rules governing the suspension of an arbitration, but in practice
the CIETAC case manager has some discretion to suspend an
arbitration before the appointment of the arbitral tribunal, if,
for example, the parties are in settlement
negotiations.3
The new rules clarify the position and expressly provide in Article
43 that the parties can request a suspension of the arbitration
proceedings. The decision on the suspension shall be made by the
arbitral tribunal or, in the case where the tribunal has not been
formed, by the Secretary General of CIETAC. The arbitration
proceedings will resume as soon as the reason for the suspension
disappears or the suspension period ends, and the arbitral tribunal
(or the Secretary General of CIETAC where there is no tribunal) is
empowered to order resumption of the arbitration proceedings.
Conciliation
One of the more contentious practices in CIETAC arbitrations is
the use of conciliation during the arbitration process. Both the
old and the new CIETAC rules allow the arbitral tribunal to conduct
conciliation during the arbitration proceedings. If the
conciliation is successful, the parties may request the tribunal to
issue an award based on the settlement agreement concluded as a
result of the conciliation. This is the traditional approach to
dispute resolution in China, where the Chinese see the conciliator
as the ideal arbitrator when the parties are unable to resolve
their dispute amicably. Chinese tradition suggests that there is no
need to have different people serve as conciliator and arbitrator,
and in practice, CIETAC says that almost 50 percent of arbitration
cases make use of conciliation by the arbitral
tribunal,4 with CIETAC statistics suggesting that 20
percent to 30 percent of all CIETAC cases are settled by this
method.
Most criticism of this hybrid arbitration/conciliation process
arises when the conciliation is not successful. In this situation,
the arbitral tribunal is often aware of prejudicial or confidential
information imparted by one or both parties in the conciliation
process. Conciliation may also reveal underlying interests that may
not surface in arbitration. Critics of the CIETAC
arbitration/conciliation process are therefore concerned that the
tribunal may acquire information in attempting to bring about a
settlement that should have no bearing on their decision as
arbitrators, and it is unrealistic to expect a
conciliator-turned-arbitrator to put these underlying issues aside
when making a decision. The argument made is that if parties
disclose their bottom line, that information cannot be erased but
must inevitably affect the arbitration award. Thus, conciliation
may pose both a serious impediment to the independent judgment of
the arbitral tribunal and real risk for the parties.
This is sometimes referred to as a suspension of "natural
justice," one of the fundamental concepts of legal proceedings
in common law countries. It has two basic tenets: (i) persons must
be allowed to hear and answer an opponent's case and (ii) any
decision affecting a person must be made by a tribunal that is
impartial and not biased. Critics are concerned that the private
and confidential meetings held during the conciliation process can
erode natural justice by removing the right of parties to respond
directly to any accusations or information of the other party.
Moreover, they fear that unchecked information obtained during
private conciliation meetings may bias the final binding decision
during the continuation of arbitration.
CIETAC is aware of this criticism and has therefore added a new
provision in Article 45.8, which provides that where the parties
wish to conciliate their dispute, but do not wish to have the
conciliation conducted by the arbitral tribunal, CIETAC may, with
consent of both parties, assist the parties to conciliate the
dispute in a manner and procedure it considers appropriate. Thus
CIETAC itself will undertake the conciliation and not the arbitral
tribunal empowered with arbitrating the dispute.
The Law of the Arbitration
CIETAC has included a new provision dealing with awards and the
choice of law for the dispute. Article 47.2 provides that the
parties' agreement shall prevail where they have agreed on the
law as it applies to the merits of their dispute. However, in the
absence of such an agreement, or where such agreement is in
conflict with a mandatory provision of the law, the arbitral
tribunal shall determine the law as it applies to the merits of the
dispute.
This is an important provision because there are a number of areas
where Chinese law is mandatory. For example, Article 126 of the
Chinese Contract Law requires that Sino-foreign joint venture
agreements must be governed by Chinese law. In addition, the
Chinese Supreme People's Court has issued an opinion on the
application of law,5 which extends the applicability of
Chinese law beyond the categories of contract expressed in Article
126 of the Contract Law.
In essence, a contract with a "foreign element" allows
the parties to choose a law other than Chinese law. The term
"foreign element" is not defined in the Contract Law.
However, the Supreme People's Court has issued a number of
opinions discussing the definition of "foreign element."
As a result, the contract will have a foreign element if:
- At least one of the parties to the contract is a foreign entity;
- The object of the contract is located outside the People's Republic of China; or
- The rights or obligations under the contract arise in, are modified in, or are terminated in a foreign country.
Given the above definition, at the very least one of the parties to a contract must be a foreign entity for the contract to be governed by a law other than the law of the People's Republic of China.
If this foreign element is not present or if the contract is a
Sino-foreign joint venture agreement, for example, and the parties
chose a foreign law for the resolution of disputes under the
contract, then this agreement will be in conflict with a mandatory
provision of the law. According to the new CIETAC rules, the
arbitral tribunal will be empowered to determine the law that will
apply to the dispute, in most cases Chinese law.
This is helpful because it allows the tribunal to make a
determination as part of its award. The other alternative would be
having to resort to obtaining an order from a Chinese court holding
the arbitration agreement to be invalid pursuant to the opinion of
the Supreme People's Court,6 in the event that
domestic parties agree to submit a dispute without a foreign
element to foreign arbitration.
Summary Procedure
The CIETAC rules provide for a fast track summary procedure. The jurisdiction for the summary procedure has now been increased from cases not exceeding RMB500,000 to cases not exceeding RMB2,000,000, a four-fold increase in the threshold for summary procedure cases. Accordingly, it is likely that more cases will now fall within the ambit of the summary procedure process and thus the three-month fast track process under the CIETAC Summary Procedure rules. This change is also consistent with the increased demand by arbitration users for expedited proceedings.
Language of the Arbitration
Under the previous CIETAC rules, where the parties had not
agreed on the language of the arbitration, the default language was
required to be Chinese. The new CIETAC rules give CIETAC the power
to designate any language, in the absence of party agreement,
taking into account the circumstances of the case. This should
ensure that a suitable language is adopted, taking into account the
nationalities of the parties, for example.
Further, it is becoming common for CIETAC arbitration agreements to
provide for dual-language proceedings. CIETAC has recognized this
trend, and the fact that it usually increases the cost of the
arbitration. Consequently, CIETAC has provided in Article 72.4 that
it may charge the parties the extra and reasonable costs incurred
where two or more languages are used.
Conclusion
The revised CIETAC rules are an attempt to further enhance CIETAC's international appeal and to build upon international practices and lessons learned from, for example, the ICC. However, a number of areas still require further work, including, most importantly, a revision of the Chinese Arbitration Law and the Civil Procedure Law in the case of interim measures. Nevertheless, CIETAC continues to move in the right direction and is becoming more established and recognized as an international arbitration institution.
Footnotes
1.http://news.cntv.cn/20110808/101947.shtml .
2.http://legal.people.com.cn/h/2011/0727/c226563-1765138596.html .
3.Ideally, any application for suspension should come from both parties, but we have seen situations where a suspension is granted on the application of only one party.
4.Conciliation in China, Professor Tang Houzhi.
5.Opinion of the Supreme People's Court on Issues Concerning the Application of the Law in the Hearing of Foreign-Related Contractual Disputes Related to Civil and Commercial Matters.
6.Opinion of the Supreme People's Court on the Handling by the People's Courts of Cases Involving Foreign-Related Arbitrations and Foreign Arbitrations.
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