On May 1, 2014, the China (Shanghai) Pilot Free Trade Zone Arbitration Rules (the "FTZ Arbitration Rules") of Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Centre, or "SHIAC") formally became effective. In a matter of a few weeks, Shanghai No.2 Intermediate People's Court ("Shanghai No.2 Intermediate Court"), the court designated by the higher court to be in charge of reviewing arbitration cases by SHIAC, immediately issued "Opinions on Judicial Review and Enforcement of Arbitration Cases Applying the China (Shanghai) Pilot Free Trade Zone Arbitration Rules" (the "Opinions"). The Opinions provide strong judicial support for the implementation of the FTZ Arbitration Rules.
The Opinions have altogether 20 articles, specifying judicial review and enforcement of arbitration cases applying the FTZ Arbitration Rules, and being applicable to all types of cases including applications for property preservation, confirming validity and effect of arbitration agreement, and enforcing, revoking, and setting aside awards. The Opinions present three highlights, namely, (i) establishing a mechanism of concerted actions within the court to ensure cases be dealt with in a just, convenient and effective way; (ii) proactively responding to new innovations in the FTZ Arbitration Rules from the perspectives of judicial review and enforcement; and (iii) improving court management in steps of filing, review and enforcement, consolidating the team of judges, and achieving an "overall speed-up" within the time limits required by the law.
The following is a summary of the general principles and key points of the Opinions.
I General Principles
Article 2 (General Principles) of the Opinions clearly provides that "judicial review and enforcement of FTZ Arbitration Rules Cases shall adhere to the principles of abiding by laws, supporting the development and innovation of arbitration system, respecting the autonomy of will by the parties, as well as the principles of impartiality, convenience and efficiency." These general principles are proactive, innovative and practical, and echoing with the pioneering spirit of the FTZ.
II Establishing Concerted Actions
According to Article 3 of the Opinions, Shanghai No.2 Intermediate Court will establish a mechanism of concerted actions for filing, hearing and enforcement to ensure cases be dealt with in a just, convenient and effective way. In particular, (i) a specific case filing and acceptance mechanism will be established, setting up identifications in the case filing hall to indicate windows specifically for accepting cases relating the FTZ Arbitration Rules, and arranging special personnel responsible for acceptance and review of filings; (ii) a special court for judicial review will be established, where the president will act as the chief judge in the special trials designed for the cases relating to the FTZ Arbitration Rules; and (iii) special teams will be set up who are responsible for enforcing awards made under the FTZ Arbitration Rules.
III Affirming System Innovations under the FTZ Arbitration Rules
In our previous article "Formal Promulgation of FTZ Arbitration Rules of SHIAC" (see Junhe Bulletin dated April 14, 2014), we introduced several highlights in the FTZ Arbitration Rules regarding relevant system innovations. As can be seen from the relevant provisions of the Opinions, such highlights are also reflected.
1. Respect to Party Autonomy; No Restriction on the Scope of Application of the FTZ Arbitration Rules
According to Article 3 of the FTZ Arbitration Rules, in addition to the FTZ-related cases (i.e., the parties or the subject matter to a dispute or the legal facts that lead to establishment, change or termination of a civil and commercial relationship are connected with the FTZ), other cases seemingly unrelated to the FTZ may also apply the FTZ Arbitration Rules according to the parties' agreement.
In the Opinions, Shanghai No.2 Intermediate Court puts no restriction on the scope of application of the FTZ Arbitration Rules. Based on the principle of "respecting party autonomy" as emphasized by the Opinions, if the parties agree on applying the FTZ Arbitration Rules, even if the case is not related to the FTZ, Shanghai No. 2 Intermediate Court will respect parties' choice in the judicial review proceedings.
2. Confirming Interim Measures and Providing Convenience
Article 6 (Case Filing Review of Application for Preservations) of the Opinions provides: "If a party applies for preservation before or during the arbitration, such application shall be immediately accepted. In urgent cases, if corresponding requirements provided in laws are satisfied, a decision shall be made within twenty-four (24) hours and then transferred for enforcement immediately..." This shows that, the system innovation of "interim measures" in Chapter III of the FTZ Arbitration Rules has at a large degree obtained confirmation and support from the court. For example: (i) act preservation becomes possible, as Article 6 of the Opinions does not limit the preservation to property and evidence, and thus if the parties apply according to the act preservation system newly added in Article 6 of the FTZ Arbitration Rules, such application will be supported by Shanghai No.2 Intermediate's Court; and (ii) the system of pre-arbitration interim measures has clearly obtained judicial support.
Besides, Article 6 of the Opinions provides more convenience to the parties using the FTZ Arbitration Rules by providing several more easy ways of giving security, specifically including, (i) in case of cash security, the amount generally shall be no less than 30% of the preservation value and, where the preservation value exceeds RMB 50 million, may be reduced depending on circumstances but shall not be less than 10% of the preservation value; (ii) in case of credit security provided by a third party, it will generally be permitted if such third party is a large and well-known enterprise or a financial institution with sufficient assets; and (iii) if the party applies for preservation is a large and well-known enterprise or a financial institution with sufficient assets, a credit security provided by itself may be permitted.
On the other hand, Article 14 of the Opinions gives the time limit for taking preservative measures, clearly providing that "preservative measures shall be implemented within forty-eight (48) hours after the ruling is rendered." This will greatly promote the efficiency of courts to take preservative measures and provide further convenience to the parties.
3. Recognizing Appointment of Non-panel Arbitrators
Article 9 (Judicial Review of Arbitrators Appointed outside the Panel) of the Opinions clearly provides that "where one party/parties recommends/jointly recommend arbitrators or the presiding (sole) arbitrator out of the Panel of Arbitrators, it shall be recognized under the judicial review, if the appointment has been affirmed by the Chairman of SHIAC, the appointed persons satisfy the criterion on qualification provided in Article 13 of the Arbitration Law, and the proceedings of appointment are legitimate under the FTZ Arbitration Rules and relevant provisions of Chinese laws." This provision enables the parties to recommend and select arbitrators outside the panel more freely.
4. Recognizing Joinder of Third Parties
Article 11 (Judicial Review of Joinder Cases) of the Opinions provides that "the joinder shall be recognized under the judicial review, if the third parties voluntarily join the arbitral proceedings, with the written application or consent by both parties, and as approved by the tribunal or the Secretariat of SHIAC, and if the procedures of joinder accord to the FTZ Arbitration Rules and do not violate relevant Chinese laws." This provision is a confirmation on and support for Article 38 (Joinder of Third Parties) of the FTZ Arbitration Rules.
5. Recognizing Awards ex aequo et bona
under the FTZ Arbitration Rules
Article 13 (Award ex aequo et bona) of the Opinions provides that "where the tribunal renders an award ex aequo et bono, the proceedings may be recognized in judicial review, if the proceeding is agreed to jointly by the parties in writing, does not violate mandatory provisions of Chinese laws, and the award rendered in the proceeding complies with the FTZ Arbitration Rules."
An award ex aequo et bona generally refers to an arbitral award with binding effect that is made, as authorized by both parties, under the principle of ex aequo et bona regarding the substantive issues of a dispute. Awards ex aequo et bona can greatly satisfy parties' need for autonomy, especially when dealing with controversies and disputes difficult to be resolved by laws and rules, yet still complying with the pursuit of substantive justice under private international law and international commercial arbitration. However, for a long time, an award ex aequo et bona is not recognized in China, which causes uncertainty when enforcing such an award. This provision in the Opinions really sets up a good pioneering precedent, and to a large extent reduces the concerns of the parties when applying for an award ex aequo et bona under the FTZ Arbitration Rules.
IV Establishing Security Mechanism for Effective Enforcement
In order to promote efficiency in the enforcement proceedings for cases using the FTZ Arbitration Rules, the Opinions provide effective measures in various aspects, including:
1. Article 15 (Fast-track Enforcement) of the Opinions provides: "Generally, review of application for enforcement shall be finished within the same day when the application is filed. Examinations shall be imposed promptly with regard to the clues of assets of the person to be enforced, which are provided by the parties or other people. If clues of properties are clear, the investigation proceedings shall start within twenty-four (24) hours; if clues of properties are not clear, the parties shall be informed in time to submit more materials. Where necessary, a court may act in its authority to investigate. With regard to the properties of a person against whom an award is sought to be enforced that have been sealed-up, frozen or seized, compulsory measures such as transfer, evaluation, auction and sale shall be made in due time."
2. Article 16 (Enforcement Measures) of the Opinions provides: "The investigation and enforcement shall be held intensively and collectively. The assets of persons to be enforced including real property, vehicles, savings, stocks and debentures shall be investigated and controlled promptly. The measures including restrictions on high consumption and departure, the order of tracing and exposure on Internet will be imposed on those who failed to fulfill the awards. To those bad faith persons subject to enforcement as have been officially disclosed by the Several Provisions of Supreme People's Court on Announcement of List of Dishonest Persons subject to Enforcement, they shall be made public promptly and a credit punishment shall be imposed according to laws. If the person to be enforced transfers or removes its assets, provides fake financial reports or refuses to perform its obligations decided by the arbitration award, the Court shall strengthen the punishment measures including search, punitive fine and even detention. If any said behavior constitutes a crime, the criminal liability shall be pursued according to the law."
Under these two provisions, when the assets or the persons against whom enforcement is sought are located with the jurisdiction of the Shanghai No. 2 Intermediate Court, we believe that awards made under the FTZ Arbitration Rules will get effective and forceful enforcement in the court.
In addition to the major provisions in above aspects, the Opinions also address the case-filing and judicial review of arbitration cases under procedures for small claims (Articles 4 and 8), case filing and judicial review of arbitration cases under consolidation (Article 5 and 10), time limit for judicial review (Article 7), review of evidence (Article 12), settlement during enforcement (Article 17), review of challenge to enforcement (Article 18), summary review procedure (Article 19) and enforcement during judicial review (Article 20). We will not go into detailed discussions here.
In conclusion, the Opinions issued by Shanghai No. 2 Intermediate Court greatly guarantee the implementation of the FTZ Arbitration Rules, and give tremendous convenience to the parties when choosing and using the FTZ Arbitration Rules. Most importantly, the court provides strong judicial support to the application of the FTZ Arbitration Rules. As can be seen from the relevant provisions of the Opinions, by adopting the FTZ Arbitration Rules, SHIAC not only provides more options to the parties, but also tactfully bypasses its "jurisdictional war" with China International Economic and Trade Arbitration Commission that has been vexing many people for a long time. Meanwhile, the FTZ Arbitration Rules provide many system innovations that are in line with international practice, reasonably designed, highly operable and consistent with the parties' need. All this bestows the parties with reason and confidence to choose SHIAC and apply the FTZ Arbitration Rules. We highly recommend that parties choose Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Centre) or China (Shang) Free Trade Zone Court of Arbitration as the arbitration institution and use the FTZ Arbitration Rules in your commercial transactions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
