United States: The International Arbitration Review - China

Last Updated: May 4 2016
Article by Keith Brandt and Michael Kan

I INTRODUCTION

The Civil Procedure Law and the Arbitration Law of China regulate arbitrations seated in China. China is pro-arbitration and arbitration is preferred to litigation, which suffers from inefficiency, administrative interference and local protectionism. Because the Arbitration Law requires arbitrations seated in China to be administered by a Chinese arbitral institution, a number of prominent arbitral institutions have emerged.

Competition among these institutions to be the best has been fierce to date. Importantly, while the China International Economic and Trade Arbitration Commission (CIETAC) has traditionally been the preferred arbitral institution for foreign-related disputes, and has continued to strive to do so with the announcement of its new rules on 1 January 2015, it faces serious challenges from its split-off Shanghai sub-commission, now formally known as the Shanghai International Arbitration Center (SHIAC), which has been able to take advantage of its geographical proximity to offer arbitration-related services to the Shanghai Pilot Free Trade Zone through its launch of the Shanghai Pilot Free Trade Zone Court of Arbitration in 2013, followed by the Shanghai Pilot Free Trade Zone Arbitration Rules in 2014. All the more so when SHIAC's legal status and standing have now been widely confirmed by the highest and intermediate courts in China. The dynamics have certainly changed.

II THE YEAR IN REVIEW

i CIETAC updated its arbitration rules to reflect the latest international trends On 4 November 2014, CIETAC issued its revised arbitration rules (the 2015 Rules) to replace the previous version of the rules issued on 3 February 2012 (the 2012 Rules) in its continued quest to strive for international best practice. The 2015 Rules came into effect on 1 January 2015. The key changes introduced by the 2015 Rules may be summarised as follows.

Dealing with joinder, multiple contracts and consolidation of arbitrations

The 2015 Rules have introduced extensive provisions to deal with joinder, multiple contracts and consolidation of arbitrations.

Joinder (Article 18 of the 2015 Rules)

CIETAC may now join third parties to the arbitration at any stage if the third party is prima facie bound by the same arbitration agreement invoked in the arbitration. Either party to the arbitration may request CIETAC to order a third party to join the arbitration proceedings, provided that the applicant can prove that the third party is prima facie bound by the same arbitration agreement invoked in the arbitration. However, CIETAC also has the power to refuse ordering a joinder where it deems circumstances exist that make the joinder inappropriate.

Multiple contracts (Article 14 of the 2015 Rules)

Parties may now commence a single arbitration concerning disputes arising out of multiple contracts, provided, among other things, that such contracts comprise a principal contract and its ancillary contracts, or they involve the same parties which have legal relationships of the same nature; the disputes arise out of the same transaction or the same series of transactions; and that the arbitration agreements are identical or compatible.

Consolidation (Article 19 of the 2015 Rules)

Under the 2012 Rules, only upon the agreement of all parties could multiple proceedings be consolidated into a single arbitration. CIETAC's power to consolidate two or more arbitrations has been expanded under the 2015 Rules to include the power to consolidate arbitrations even in the absence of the consent from all parties, where the claims are made under multiple arbitration agreements that are identical or compatible, and they involve the same parties and legal relationships of the same nature; the claims in different arbitrations are made under the same arbitration agreement; or the claims are made under multiple arbitration agreements that are identical or compatible, and the multiple contracts involved consist of a principle contract and its ancillary contracts.

Emergency Arbitrator Procedure (Article 23 of and Appendix III to the 2015 Rules)

Another key change under the 2015 Rules is the introduction of emergency arbitrator procedure, which has been prevalent among established arbitral institutions, including the International Chamber of Commerce (ICC), Singapore International Arbitration Centre (SIAC) and Hong Kong International Arbitration Centre (HKIAC) in recent years. Under the procedures set out in Appendix III, parties may now apply to an emergency arbitrator to grant urgent interim injunctive relief such as preservation of property, prohibitory or mandatory injunctions, and preservation of evidence, before the arbitral tribunal is constituted. Appendix III provides that once the Arbitration Court (as discussed below) has decided that the emergency arbitrator procedure shall apply, the emergency arbitrator shall be appointed within one day of receipt of the relevant documents and payment. The emergency arbitrator is required to then provide a procedural timetable within two days leading to a decision within 15 days of his appointment. The usual safeguards including procedures for challenging the emergency arbitrator (e.g., on ground of lack of independence or impartiality) and the requirement for the applicant to provide security are provided for. It remains to be seen, however, whether an emergency arbitrator's decision, which under the 2015 Rules may be in the form of an order or award and is stated to be binding upon parties, may be readily enforced in the courts of various jurisdictions in accordance with local laws notwithstanding that it is arguably interim in nature. One example of such a hurdle is that, as mentioned in our previous article, only the Chinese courts have jurisdiction to grant interim measures such as injunctions or preservation of property or evidence order under the current PRC Civil Procedural Code.

Organisational changes within CIETAC

The 2015 Rules has also made changes to CIETAC's internal organisational structure by creating an arbitration court. Under the 2015 Rules, all functions and powers of the former CIETAC Secretariat will be transferred to the Arbitration Court, which are reflected in various provisions throughout the 2015 Rules. As such restructuring is more of an internal adjustment within CIETAC, it is not anticipated to have a significant impact on the actual conduct or progress of the arbitration.

Increasing the threshold for the application of its summary procedure

Under the 2015 Rules, the threshold for the application of its summary procedure has been increased from 2 million to 5 million renminbi. This adjustment is in line with the rules of other international arbitral institutions and is aimed to improve CIETAC's administrative efficiency and effectiveness, by offering parties the option of agreeing upon a leaner, and therefore quicker, arbitration procedure in the appropriate dispute.

Attempted clarification on the relationship (if any) between CIETAC Beijing and its Shanghai and South China (Shenzhen) sub-commissions

On 30 April 2012 and 16 June 2012, the CIETAC's sub-commissions in Shanghai and Shenzhen respectively declared independence from CIETAC headquartered in Beijing, followed by name changes to the SHIAC and the Shenzhen Court of International Arbitration (SCIA), and the adoption of their own respective arbitration rules and panels of arbitrators. The 2015 Rules attempt to address the split between CIETAC Beijing and its Shanghai and South China (Shenzhen) sub-commissions after the latter two broke away from CIETAC in 2012, by providing effectively in Article 6 that where an arbitration agreement provides for arbitration before the old CIETAC Shanghai or South China (Shenzhen) sub-commissions, the arbitration will fall under the jurisdiction and administration of CIETAC (Beijing). Pursuant to Article 4(2) and Article 84, the 2015 Rules and therefore Article 6 should apply to arbitration commenced after they came into force (i.e., 1 January 2015).

Further, on 31 December 2014, CIETAC announced the reconstitution of its Shanghai and South China sub-commissions.

The validity and effectiveness of Article 6 should be viewed with extreme caution. As will be seen below, there has been a number of judicial authorities, presumably following guidance issued by the Supreme People's Court (SPC), the highest court in China, that the split sub-commissions (not CIETAC (Beijing)) had jurisdiction pursuant to the arbitration agreements providing for administration by such sub-commissions. Accordingly, while there may be more substance in an argument that Article 6 should apply to fresh arbitration agreements entered into after the 2015 Rules came into force on 1 January 2015 expressly providing for the application of those rules and expressly referring to the CIETAC Shanghai or South China Sub-Commission, in each case clearly and accurately identifying the rules or sub-commission, this may well not be the position in other situations, in particular in respect of arbitration agreements entered into prior to 31 December 2014 and arbitrations commenced pursuant to the same.

Special Rules for CIETAC Hong Kong Arbitration Centre

In September 2012, CIETAC established the CIETAC Hong Kong Arbitration Centre. Article 73 to Article 80 of the 2015 Rules make provisions for arbitrations administered by the CIETAC Hong Kong Arbitration Centre. Of significance is that the rules now provide that any arbitration referred to the CIETAC Hong Kong Arbitration Centre shall be seated in Hong Kong and an award shall be a Hong Kong award. As such, the arbitration shall be subject to Hong Kong procedural law, including the Hong Kong Arbitration Ordinance, and the supervisory jurisdiction of the Hong Kong courts. Sino-West business partners may find the prospect of a Hong Kong award carrying a CIETAC hallmark an attractive compromise. First, from the Chinese side, the oversight of arbitration by a familiar Chinese arbitral institution and from the Western side, the supervisory powers exercisable by an internationally recognised quality judicial system displacing concerns of local protectionism and uncertainty associated with arbitrating on the counterparty's turf. Secondly, the Chinese side may perceive that a Hong Kong award may be more readily recognised and enforced in foreign jurisdictions where the counterparty is situated under the New York Convention, and the Western side may perceive that a CIETAC-administered award may be more readily recognised and enforced in the counterparty's hometown in mainland China.

The 2015 Rules have once again reinforced CIETAC's prominence among leading arbitral institutions in the region and internationally. The effectiveness of the highlights remain to be tested, both as a matter of law (at least insofar as enforceability of interim relief award or order before an emergency procedure is concerned) and attractiveness to business people.

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Footnotes

1 Keith M Brandt is the managing partner and Michael KH Kan is a senior managing associate at Brandt Chan & Partners in association with Dentons HK LLP.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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