China: ICC Arbitration in Mainland China: Validity of Arbitration Clauses and Enforcement of Awards

Last Updated: 19 November 2006
Article by Yuwu Liu

Introduction

In recent years, more and more Chinese companies are using the International Court of Arbitration of the International Chamber of Commerce ("ICC Court") to resolve their disputes arising from international trade and commerce. According to ICC statistics, seven parties from Mainland China were involved in ICC cases in 2001, ten in 2002, fifteen in 2003, twenty-four in 2004 and twenty-six in 2005.

Under Article 14.1 of the Rules of Arbitration of the International Chamber of Commerce ("ICC Rules"), parties are free to agree upon the place of arbitration; where the parties fail to do so, the place shall be fixed by the ICC Court. In fact, in two out of three ICC cases, the place of arbitration is not Paris, where ICC headquarters are located.

Nevertheless, uncertainty may arise when parties choose for ICC arbitration to take place in Mainland China, ignoring the fact that ICC arbitrations may be conducted elsewhere in the world.

The Validity of Arbitration Clause provided for ICC Arbitration in Mainland China

The standard arbitration clause recommended by the ICC Court to all parties wishing to obtain recourse to ICC arbitration is as follows:

"All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules."

However, if the parties include the above standard ICC arbitration clause in their contract, while at the same time provide for arbitration to take place in Mainland China, such a clause may be declared null and void by Chinese courts.

For example, in regards to the validity of the arbitration clause in Züblin International GmbH (Germany) v. Wuxi Woke General Engineering Rubber Co., Ltd., the Supreme People's Court of the People's Republic of China ("PRC") replied on July 8, 2004 to the Jiangsu High People's Court that:

"The arbitration clause in the contract in this case provides that Arbitration: ICC Rules, Shanghai, shall apply'. According to the well-established principle, the law of the place of arbitration shall apply where the contract is silent on the governing law for the validity of the arbitration clause. Therefore, Chinese law shall be applied to determine the validity of the arbitration clause in the present case. Pursuant to the relevant provisions of the Arbitration Law of China, a valid arbitration clause shall contain three particulars, i.e., an expression of intention to apply for arbitration, matters for arbitration, and a designated arbitral institution. From the wording of the arbitration clause in this case, there are an expression of intention to apply for arbitration, applicable arbitration rules and the place of arbitration, but there is no explicit designation of an arbitration institution. Thus, this arbitration clause shall be held as invalid."

To avoid similar cases from arising in the future, the ICC Court suggested in January 2005 on its website that:

"¡t would in any case be prudent for parties wishing to have an ICC arbitration in Mainland China to include in their arbitration clause an explicit reference to the ICC International Court of Arbitration, so as to avoid the risk of having the standard ICC clause declared null and void for lack of a sufficiently explicit reference to the arbitration institution of their choice."

It further advised that such parties may adapt the wording of the standard ICC arbitration clause as follows:

"All disputes arising out of or in connection with the present contract shall be submitted to the International Court of Arbitration of the International Chamber of Commerce and shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules."

The author believes that it is necessary for China to accept the standard ICC arbitration clause and permit foreign arbitral institutions, including the ICC Court, to conduct arbitration in Mainland China, not only because the arbitration is contractual and private in nature, but more importantly, the service provided by domestic Chinese arbitral institutions may be improved upon by learning from foreign arbitral institutions. As a result of the internationalization and modernization of Chinese arbitration, parties' confidence in Chinese arbitral institutions will be enhanced.

In addition, permitting foreign arbitral institutions, including the ICC Court, to conduct arbitration in Mainland China would make it more convenient for those parties who wish to choose Mainland China as their venue for arbitration. This will also allow for more opportunities for Chinese lawyers and arbitrators to participate in international arbitration and thus promote the development of the Chinese legal profession and arbitration practice.

On the contrary, if foreign arbitral institutions are not allowed to conduct arbitration in Mainland China, the parties may in many cases have to conduct arbitration in countries other than China, which, consequently, will cause unnecessary inconvenience to and increase the costs of those parties who wish to have the arbitration taken place in Mainland China by foreign arbitral institutions.

Enforcement of ICC Awards Made in Mainland China

Article 25.3 of the ICC Rules provides that "The Award shall be deemed to be made at the place of the arbitration and on the date stated therein." Hence, an ICC award will be deemed to be made in China when the place of arbitration is in Mainland China, regardless of whether it is chosen by the agreement of the parties or fixed by the ICC Court . However, uncertainty still exists as to the legal basis for the enforcement of ICC awards made in Mainland China.

First, China ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention") on December 2, 1986 with reciprocity and commercial reservations. According to the reciprocity reservation, "the People's Republic of China will only apply the Convention to recognize and enforce arbitral awards made in another convention country on the basis of reciprocity". In addition, the concept of a "non-domestic award" does not exist under Chinese law. As a result, the New York Convention could not be applied to the enforcement of an ICC award made in Mainland China.

Second, the Civil Procedure Law of the People's Republic of China adopted on April 9,1991 ("Civil Procedure Law") classifies arbitral awards into three categories, i.e., "award made by arbitral institution established according to law" (Article 217), "award made by foreign-related arbitral institution of the PRC" (Article 260), and "award made by foreign arbitral institution" (Article 269). Article 269 of the Civil Procedure Law provides that "If an award made by a foreign arbitral institution requires the recognition and enforcement by a people's court of the PRC, the party concerned shall directly apply to the intermediate people's court in the place against whom arbitration award will be enforced has its domicile or where its property is located. The people's court shall deal with the matter in accordance with the relevant provisions of the international treaties concluded or acceded to by the PRC or on the principle of reciprocity." Hence, Article 269 of the Civil Procedure Law could not be applied to enforce an ICC award made in Mainland China, because the legal basis for the enforcement of such an award is neither the New York Convention (the international treaties concluded or acceded to by the PRC), nor the principle of reciprocity.

Third, the Arbitration Law of the People's Republic of China ("Arbitration Law"), which took effect as of September 1 1995, categorizes an arbitral award as either "domestic" or "foreign-related". Article 58 and Article 63 of the Arbitration Law stipulate for the setting aside and refusal of enforcement of a "domestic arbitral award", whilst Article 70 and 71 of the Arbitration Law stipulate for the setting aside and refusal of enforcement of a "foreign-related arbitral award". In recent years, the Supreme People's Court in practice no longer sticks to the arbitral institution criteria but decides an award as "domestic" or "foreign-related" by the nature of each case. However, the court has not confirmed whether an ICC award made in Mainland China is a "foreign-related arbitral award" or not.

When the Civil Procedure Law and the Arbitration Law were drafted, there were no foreign arbitral institutions conducting arbitration in Mainland China; nor was there arbitration taking place outside of China by Chinese arbitral institutions. Therefore, it is not surprising that there are loopholes under current Chinese laws as to the categories of arbitral awards. It is submitted that, before the revision of relevant laws by Chinese legislature, it would be appropriate for the Supreme People's Court to issue an interpretation clarifying the questions of the place of arbitration, nationality of arbitral award, etc. The Supreme People's Court should adopt criteria regarding the place of arbitration to distinguish "foreign arbitral award" from "Chinese arbitral award". As to Chinese arbitral awards, they may be further differentiated as "domestic arbitral award" and "foreign-related arbitral award" based on whether there are foreign elements involved.

The author believes that an ICC award made in Mainland China should be a "Chinese arbitral award" and such an award should be enforced in accordance with the relevant provisions on a "foreign-related arbitral award" stipulated in the Arbitration Law. In the meantime, the Supreme People's Court should, by means of judicial interpretation, confirm that it is the Chinese courts' authority to set aside and thus exercise judicial control over an arbitral award made in Mainland China by foreign arbitral institutions.

Conclusion

Based on universally accepted international practices, it is absolutely necessary for China to accept the standard ICC arbitration clause and permit foreign arbitral institutions, including the ICC Court, to conduct arbitration in Mainland China. In addition, the awards made in Mainland China by the ICC or other arbitral institutions should be enforced pursuant to relevant provisions on a "foreign-related arbitral award" stipulated in the Chinese Arbitration Law.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions