HKIAC Stakes Its Claim in Shanghai

In his keynote speech entitled "PRC Arbitration Law and Regulations - What to Expect in the Next Five Years" delivered at the Hong Kong Arbitration Week 2015, CIETAC Secretary General Dr. Yu Jianlong predicted that it would be more feasible for foreign arbitration institutions to set up offices in China's free trade zones than for ad hoc arbitration to be accepted and practiced in China. Dr Yu has been proven correct three weeks later.

On 19 November 2015, the Hong Kong International Arbitration Centre (HKIAC) announced the opening of a representative office in Shanghai at an opening ceremony held at the Shanghai Aurora Museum.  HKIAC's presence in Shanghai is the first time a foreign arbitral institution has set up an office in mainland China.  In a press statement issued at the time of the event, HKIAC stated that, operating through its Shanghai office, it intends to seek closer cooperation with local arbitration commissions to promote international arbitration best practice on the mainland.  It will do that by providing professional training to mainland Chinese arbitrators and practitioners and by facilitating the development of an overall pro-arbitration policy across China.  Where necessary, the Shanghai office will extend HKIAC's services to support its hearings on the mainland and provide such other appropriate services as may be permitted under Chinese law.

HKIAC has been careful to note that its Shanghai office does not provide case administration services, which will continue to be provided by the HKIAC Secretariat in Hong Kong.  This is no doubt in reference to the Chinese Arbitration Law which provides that all arbitrations seated and conducted in mainland China are subject to the Arbitration Law.  The prevailing view, until recently, was that an agreement to arbitrate in mainland China under the administration of a foreign arbitral institution was invalid under Arbitration Law.  However, it was held by the Supreme People's Court in the Longlide case (covered by our earlier newsletter) that an arbitration clause providing for arbitration of a foreign-related dispute in Shanghai under the ICC Rules was valid.

While the Longlide case is a positive development for arbitration in China, it remains our view that it is better to avoid using dispute resolution clauses which provide for arbitration of foreign-related disputes seated in mainland China to be administered by a foreign arbitration institution (eg ICC, HKIAC, SIAC etc.)  Considerable risks on validity and enforceability remain.  The HKIAC's announcement that its Shanghai office will not provide case administration services is consistent with this prevailing uncertainty.

Be that as it may, HKIAC's move to Shanghai is a positive development in the arbitration scene in mainland China and it is anticipated that other established international arbitration institutions (eg. ICC and perhaps SIAC) will follow suit.  However, their presence at the moment is more symbolic than substantive.  Despite the many changes that here occurred in the arbitration scene in China over the years, the Arbitration Law remains in force without any significant amendment.  It therefore remains to be seen whether and how the rep offices of foreign arbitration institutions will be allowed to play a more substantive role in administering arbitration cases in foreign-related arbitrations seated in mainland China.

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