China as an emerging economic superpower is an active player in
the field of arbitration. The enforcement of arbitral awards in
China has become an important topic not only in the legal community
but also for those looking to do business with Chinese
There are two components of the Chinese Arbitration Law
("the Law") which are critical to the validity of
Article 16 of the Law provides that
an arbitration agreement shall contain a designated arbitration
Article 10 of the Law further
provides that arbitration commissions may be established in
municipalities directly under the Chinese Central Government, and
the establishment of an arbitration commission shall be registered
with the administrative department of justice of the relevant
municipality, directly under the Chinese Central Government.
There are few instances where an arbitration agreement (which
provides for the arbitration to be administered by a non-Chinese
institution under its own arbitration rules) also provides for the
seat of arbitration to be in China. In fact such an agreement will
likely be declared invalid by Chinese Courts. This is of vital
importance to foreign companies trading with Chinese
A recent decision in the BP vs Long Li De case indicates the
Chinese judicial position may be changing. We include below details
of the case.
BP vs Long Li De
In 2010 BP Agnati ("BP") and Anhui Long Li De ("Long
Li De") entered into a commercial contract. The contract
contained a clause for the disputes to be submitted to the ICC
Court of Arbitration. It also stated that "the place of
arbitration shall be Shanghai, China" and that any arbitration
was to be conducted in English.
A dispute arose between the parties and BP commenced proceedings
against Long Li De. Long Li De submitted a jurisdictional challenge
to the Intermediate People's Court of Hefei (Hefei Court). The
basis of this challenge was that the arbitration clause was invalid
and in breach of Article 16 of the Law. Long Li De contended that
the arbitration clause did not identify a Chinese arbitration
commission. It was further asserted that the appointment of the ICC
to administer the arbitration in China violated the judicial
sovereignty of China.
The Hefei Court took judicial notice of the provisions of Article
10 of the Law. The Hefei Court then found that as Chinese
arbitration was not open to foreign arbitral institutions these
institutions (such as the ICC) did not qualify as arbitration
commissions for the purposes of Article 10 of the Law. Accordingly,
Article 16 of the Law is not satisfied by inclusion of an ICC
On the basis of these findings the Hefei Court was prepared to find
the arbitration clause to be invalid. Under the Chinese judicial
reporting system the Hefei Court referred the case to the Anhui
Higher People's Court ("AHPC").
The AHPC was divided on the question of the validity of the
arbitration clause under Article 16 of the Law. While a minority
supported the Hefei Court's reasoning, the majority held that
the arbitration clause was valid in accordance with the
requirements of Article 16 of the Law. Upon further referral to the
Supreme People's Court ("SPC") in 2013, the SPC
concurred with the majority decision of the AHPC, and agreed that
the requirements of Article 16 of the Law were satisfied. The
arbitration clause was accordingly determined to be valid via the
reply from the SPC ("the Reply).
The Reply on the Long Li De decision is a positive development and
reverses the earlier predominant Chinese judicial position.
However, the decision has no binding effect upon Chinese
To streamline and regulate the position the SPC needs to issue a
binding, judicial interpretation on this issue once and for all.
Until such time, traders are advised to avoid agreeing to
China-seated arbitration which is administered by a foreign
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.
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