International Arbitration 2024 Comparisons

In 2023, as China’s economy steadily recovered, the number of international cases also increased according to the 2023 annual work reports of major Chinese arbitration institutions. The Shanghai International Arbitration Center (SHIAC) reported a 9.69% increase, the Beijing Arbitration Commission (BAC) saw a 13.57% rise, and the China International Economic and Trade Arbitration Commission (CIETAC) saw 0.4% growth compared to the same dates last year.

Since 2020, China has been committed to developing several cities into international commercial arbitration centres, with pilot projects in Beijing, Shanghai, Guangzhou, Shenzhen, and Hainan. These efforts include hiring foreign professionals, establishing overseas branches, and providing financial support. By 2023, significant progress had been made, with eight arbitration institutions in these regions handling 2,251 foreign-related cases (72% of the national total) involving CNY137.6 billion in disputes (69% of the national total), as reported by People’s Daily.

Moreover, 2023 marks the tenth year of China’s Belt and Road Initiative. The work reports from major arbitration institutions show a significant increase in participation from countries involved in the Belt and Road Initiative in international arbitration cases. Chinese arbitration institutions handled cases involving parties from over 80 countries, indicating the increasing popularity of international arbitration in China.

Popularity Among Domestic Parties

Arbitration is gaining traction among domestic companies due to national policy support. While litigation remains the default for companies operating solely within China, those involved in international activities, such as construction projects or import/export businesses, increasingly prefer international arbitration.

Major arbitration institutions in China have released 2023 data revealing the top five sectors that predominantly rely on arbitration for dispute resolution. Consistent with the previous year, these sectors are primarily trade of goods, finance and capital markets, construction, equity investment and transfers, and service and agency contracts.

The data also reveal a significant surge in arbitration cases in construction, financial and capital markets, and international trade compared to the previous year. Significantly, BAC experienced a remarkable increase of over 200% in cases involving construction contracts. The Shenzhen Court of International Arbitration (SCIA) was leader in cases related to financial and capital markets, showing a growth rate of 28%. Meanwhile, SHIAC predominantly managed disputes in international trade, marking a growth rate of 145%. Overall, these figures indicate a robust economic recovery following the COVID-19 pandemic.

Additionally, CIETAC’s work report highlighted a significant increase in the number of intellectual property cases and ESG cases, reflecting a growing emphasis on protecting intellectual property and promoting environmental sustainability, which mirrors the latest trends in international arbitration.

In 2023, the Guangzhou Arbitration Commission (GZAC) surpassed CIETAC to become the arbitration institution handling the highest number of international arbitration cases, with 671 cases and a year-on-year growth rate of 5.67%. These cases, primarily involving import and export disputes, suggest a post-pandemic recovery in international trade. Despite the high case volume, GZAC’s total disputed amount was CNY5 billion, just one-tenth of that of CIETAC.

CIETAC handled 645 cases with a disputed amount of CNY53 billion, remaining China’s most preferred arbitration institution. Influenced by the Belt and Road Initiative, CIETAC’s cases involved parties from 71 countries, with 62 cases featuring foreign entities on both sides.

SCIA ranked third, with 414 foreign-related cases and the highest disputed amount, at CNY59 billion, surpassing BAC and SHIAC, which handled 251 and 215 international cases, respectively. These trends highlight Guangdong Province’s growing prominence in international arbitration, alongside Beijing and Shanghai.

New Arbitration Institutions

Currently, there are almost 280 permanent arbitration institutions in mainland China. In May 2024, the SHIAC established a branch in Hong Kong. In November 2023, to better address disputes related to the Belt and Road Initiative, CIETAC established the Central Asia Trial Center in Xinjiang Province, providing a convenient venue for parties from Central Asia to participate in hearings.

Meanwhile, China is increasingly welcoming foreign arbitration institutions to establish branches within its jurisdiction. In December 2023, the Shanghai Municipal Bureau of Justice approved the registration of the Korean Commercial Arbitration Board’s Shanghai Center, which is the first foreign arbitration institution to establish a business office in Shanghai.

In China, intermediate courts have the authority to hear disputes related to arbitrations. This includes matters such as determining the validity of arbitration clauses, deciding on application to set aside and not to enforce domestic awards and ruling on recognition and enforcement of foreign arbitral awards.

Additionally, the power to grant interim measures, such as injunctions or asset preservation orders, is exclusively designated to the courts in accordance with the PRC Civil Procedure Law. If a party wishes to seek an interim measure in arbitration proceedings, the arbitral tribunal or the institution’s secretary (before the tribunal is constituted) will forward an application to the court.

The primary legislation governing arbitration in China is the PRC Arbitration Law (revised in 2017) and the PRC Civil Procedure Law (revised in 2023). These laws provide the legal framework for arbitration proceedings and the enforcement of arbitral awards in China. Additionally, there are also other regulations and judicial interpretations that supplement these laws and provide further guidance on arbitration-related matters. '

Redefinition of Foreign Arbitration

The amended PRC Civil Procedure Law, effective as of 1 January 2024, redefines foreign arbitration as “an arbitral award made outside of the PRC”, rather than “an arbitral award of an overseas arbitration organization”. This change aligns with international arbitration practices, determining the nationality of an arbitration award by the seat of arbitration instead of the location of the arbitral institution.

In practice, foreign-related arbitration (the arbitration is seated in China, with foreign-related elements involved) and foreign arbitration (the seat of arbitration is outside of China) are often referred to collectively as “international arbitration”. The scope of “foreign-related" disputes is expanding; for instance, cases involving foreign-invested enterprises in free trade zones such as the Shanghai Pilot Free Trade Zone are considered foreign-related under certain circumstances.

Legal Framework

For domestic arbitration and foreign-related arbitration, a comprehensive regulatory framework governs arbitration agreements, arbitrator qualifications, tribunal constitution, proceedings, issuance, and enforcement of awards, including:

• PRC Arbitration Law;
• PRC Civil Procedure Law;
• PRC Law on the Application of Laws to Foreign-related Civil Relations; and
• the SPC’s judicial interpretations on the application of laws, etc.

The primary focus of foreign arbitration revolves around the recognition and enforcement of foreign arbitral awards within the boundary of China which shall be subject to laws and regulations including:

• PRC Civil Procedure Law; and
• the SPC Notice on Implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Acceded to by China (effective as of 1987).

National Legislation and UNCITRAL Model Law

The PRC Arbitration Law, drawing inspiration from the UNCITRAL Model Law, incorporates key principles like party autonomy and separability of arbitration agreements. However, it currently lacks statutory provisions for ad hoc arbitration, the powers of an arbitral tribunal to order interim measures and the emergency arbitrator scheme.

Despite this, ad hoc arbitration is continuously developing in practice. First, a draft amendment to the PRC Arbitration Law (“Draft Amendment to Arbitration Law”) included provisions for ad hoc arbitration, and local regulations, such as the Shanghai Municipal Bureau of Justice’s draft measures in 2024, promote ad hoc arbitration in foreign-related maritime and commercial disputes.

Additionally, domestic arbitration institutions are increasingly incorporating ad hoc arbitration into their rules. For example, CIETAC’s new rules explicitly support ad hoc arbitration, and SHIAC’s guidelines for ad hoc arbitration assistance services became effective in 2024.

In June 2023, the first publicly disclosed ad hoc arbitration case concluded under the Ad Hoc Arbitration Rules of the China Maritime Arbitration Commission (CMAC). CMAC only provides specific administrative services as requested by the parties, such as appointing arbitrators, deciding on arbitrator challenges, handling financial aspects of the case, etc. This case has attracted considerable attention as the first of its kind in the PRC, and CMAC’s management approach has also been recognised.

On 1 January 2024, the amended PRC Civil Procedure Law of 2023 officially came into force, enhancing the approach to determining the recognition of arbitral awards and expanding the scope of application for enforcement of foreign arbitral awards as outlined in 2.1 Governing Law and 12.2 Enforcement Procedure.

On 9 May 2024, the Legislative Plan of the National People’s Congress for 2024 was announced, which includes the initial review of the Draft Amendment to Arbitration Law (released on 30 July 2021, including proposed changes regarding ad hoc arbitration, seat of arbitration, interim measures, etc).

Additionally, amidst strong policy support for arbitration, several institutions, including CIETAC, SHIAC, and GZAC, have updated their rules in late 2023 and 2024. These updates include provisions for ad hoc arbitration, emergency arbitrators, interim measures, etc, enhancing alignment with international arbitration standards.

In China, courts typically uphold the enforceability of arbitration agreements provided they comply with the compulsory stipulations outlined in the PRC Arbitration Law. Such an agreement can manifest either as an arbitration clause within a contract or as a standalone accord. According to Article 16 of the PRC Arbitration Law, under Chinese law, an arbitration agreement, to be deemed enforceable under Chinese law, must include the following elements:

• a clear expression of the parties’ mutual intention to arbitrate;
• an outline of the subject matter to be arbitrated, which must be arbitrable; and
• the selection of an arbitration institution.

Pursuant to Article 3 of the PRC Arbitration Law, certain disputes fall exclusively within the jurisdiction of the Chinese court and are thus non-arbitrable. These include disputes related to matrimonial matters, adoption, custody, fostering, and succession, as well as administrative disputes. These categories of disputes necessitate the direct involvement of the court and are not eligible for arbitration.

It is observed that the scope of arbitrable matters in China is gradually expanding. For example, international investment arbitration is becoming arbitrable under Chinese law. The Foreign State Immunities Act, effective 1 January 2024, allows arbitration against foreign states that have consented to an arbitration agreement and the following recognition/enforcement/setting aside of such arbitral awards or other judicial review of arbitration. Concurrently, the Draft Amendment to Arbitration Law removes the requirement of “equal entities” in its description of arbitrability clauses, aligning with the Foreign State Immunities Act.

Similarly, Public-Private Partnership (PPP) agreements were sometimes considered non-arbitrable previously. However, new policy documents now clearly state that PPP agreements of a commercial nature can be resolved through arbitration.

Determining Whether or Not a Dispute Is “Arbitrable”

In practice, Chinese courts often deem IP-related contractual disputes and false securities statements as arbitrable. However, in addition to cases excluded by PRC Arbitration Law, disputes involving public interests and administrative affairs, such as private antitrust disputes, are often considered non-arbitrable.

Private anti-trust disputes mainly include disputes over anti-trust agreements and abuse of dominance. The arbitrability of both types of disputes is not explicitly defined in the statutory law. However, judicial practice indicates that most of these disputes cannot be resolved through arbitration. In a 2023 ruling, the SPC held that arbitration clauses in commercial contracts do not bar courts from hearing anti-trust disputes, as these practices affect broader public interests beyond the parties involved.

This is consistent with Article 3 of the Draft SPC Interpretation on Anti-trust Cases, which has not yet come into effect. If and when this interpretation comes into force, the anti-trust disputes are to become non-arbitrable.

Under Chinese law, the governing law chosen for resolving contract disputes does not automatically extend to the arbitration agreement, which is treated separately. Article 16 of the SPC Interpretation of the PRC Arbitration Law outlines a hierarchy for determining the applicable law: parties’ mutual agreement prevails, followed by the law of the chosen arbitration seat if no agreement exists, and defaults to PRC law otherwise.

Agreements Enforced by Courts

The enforceability of an arbitration agreement hinges on the presence of specific elements outlined in 3.1 Enforceability. If a party wishes to challenge the validity of an arbitration agreement, it is entitled to file the case with a Chinese intermediate court. Subsequently, the court’s decision concerning the agreement’s validity will be predicated on the aforementioned elements.

Despite the presence of valid elements, courts may invalidate arbitration agreements under certain circumstances. For instance, an arbitration agreement that offers parties the option of resolving their disputes through either a court or an arbitration institution is deemed invalid, unless the opposing party neglects to challenge the agreement’s validity prior to the first hearing. Nevertheless, Chinese courts typically uphold the validity of an arbitration agreement that grants a single party the unilateral right to choose between dispute resolution via arbitration or litigation.

Moreover, for the protection of consumers, arbitration clauses in standard form contracts will be deemed invalid if the consumer was not provided clear notice and explanation of such arbitration clauses.

Additionally, the arbitration agreement which states that the parties submit a dispute without any foreign-related element to be arbitrated outside of mainland China is invalid, and the subsequent arbitration award will not be recognised and enforced by Chinese courts. However, an agreement to select a foreign arbitration institution while designating the arbitration seat within China is considered valid.

Validation Principle

Chinese courts generally uphold arbitration clauses unless there are significant defects (“validation principle”). In calendar-year 2023, there were a total of 449 cases regarding the validity of arbitration agreements, among which over 80% of the disputed arbitration agreements were affirmed as valid by Chinese courts.

For foreign-related judicial review cases, if a court proposes to invalidate an arbitration agreement, it shall report the case level by level up to the SPC for approval. Only after the SPC has reviewed and provided its opinion can a ruling be made based on that opinion. This rigorous review process also increases the difficulty of declaring arbitration agreements invalid in foreign-related cases.

Under Chinese law, the doctrine of separability in arbitration agreements is vigorously upheld. An arbitration agreement embedded within a contract is to be regarded as a distinct entity, independent from the remainder of the contract. Consequently, its validity remains unaffected by any modifications, terminations, or declarations of invalidity pertaining to the overall contract.

One typical case released by the SPC in 2024 highlighted the principle of the separability of arbitration clauses ((2021) Zhe 01 Ren Gang No.1). In this case, the parties exchanged a draft contract containing an arbitration clause during negotiations, while the other party raised objections to certain terms of the contract but did not object to the arbitration clause. Although the contract was not ultimately signed, the court held that the parties had reached an agreement on the arbitration clause in the draft contract. Therefore, based on the principle of the separability of arbitration clauses, the arbitration clause was deemed valid.

Parties generally have the flexibility to form an arbitral tribunal comprising either a sole arbitrator or three arbitrators, where the presiding arbitrator is selected by mutual agreement. In the past, there were no further limitations on the parties’ autonomy in nominating arbitrators, either under the law or the arbitration rules.

However, under the new rules of CIETAC in 2024, abuse of such autonomy is prohibited (Article 26). If the agreed method for constituting the tribunal is significantly unfair or unjust, or if one of the parties abuses its rights resulting in unnecessary delays in the arbitration proceedings, the Chairman of the Arbitration Commission may adjust the tribunal’s composition, or appoint any member of the arbitral tribunal.

Upon selection of a specific arbitration institution’s applicable rules by the parties, these rules inherently detail the procedures for arbitrator appointment and are binding on all involved. Many arbitration institutions, like CIETAC, SHIAC, and BAC, maintain their own panels of arbitrators for parties to select from. Additionally, certain institutions permit parties to nominate arbitrators outside of their established panels, subject to the approval of the institution’s chairman, as seen in the practices of CIETAC and SHIAC.

Where no such procedure for appointing arbitrators is agreed upon by the parties or set up in the institutional rules, Articles 31 and 32 of the PRC Arbitration Law provide the default procedures for the parties to nominate arbitrators. Please refer to Chambers International Arbitration 2023 for more details.

Improved Approach for Appointing a Presiding Arbitrator

To address the challenges in appointing a presiding arbitrator, the new arbitration rules of CIETAC and SHIAC have both introduced a new option: the nomination of a list of candidates for the role. This method facilitates the selection process and enhances efficiency in arbitrator appointments. Under CIETAC Rules (2024), Article 27(5) allows the CIETAC to nominate a list of candidates for presiding arbitrator, from which both parties can confirm their choice. SHIAC has introduced similar provisions.

The use of nomination or candidate lists is a well-established practice in international arbitration. The recent adoption of this method by major Chinese arbitration institutions enhances the clarity of the default procedures, and aligns their rules with international standards.

Meanwhile, Article 27 of CIETAC Arbitration Rules of 2024 stipulates that the parties may agree to have their respective party-appointed arbitrators jointly select the presiding arbitrator or jointly entrust CIETAC to appoint the presiding arbitrator. This practice of “co-arbitrators selecting the presiding arbitrator” has been widely used in practice, and is now explicitly included in the rules for the first time.

Under Chinese law, courts lack the authority to intervene in the selection of arbitrators, as there is no legal basis for them to exercise such power. The extent of court involvement is limited to conducting a judicial review of the arbitrator appointments. However, this review only occurs after the rendering of the arbitral award and upon application by one party for setting aside or non-enforcement of the arbitral award.

One of the grounds for Chinese courts to set aside or refuse to enforce an arbitral award is that the constitution of the tribunal is in breach of the parties’ arbitration agreement, arbitration rules or the law of the arbitration seat. Please refer to 11.3 Standard of Judicial Review for more details.

Article 34 of the PRC Arbitration Law sets out grounds for the parties to challenge or for the arbitration institution to proactively remove the arbitrator if the arbitrator:

• is a party to the case or a close relative of a party or of its representatives;
• has an interest in the case;
• has some other relationship with the parties or their representatives which may affect the arbitrator’s impartiality; or
• has private meetings with a party or its representative, or accepts gifts from a party or its representative.

In the above circumstances, the parties can request for removal of the arbitrator, and such request shall be made before the first hearing. In practice, different arbitration rules will vary slightly from the laws, and each will have its specific instruction. Please refer to Chambers International Arbitration 2023, China for more details.

Reluctance to Be Challenged

However, in practice, arbitrators would prefer not to be challenged by parties. Thus, in some cases, arbitrators will apply to quit even if there are no statutory events as long as any party applies to challenge the appointment of the arbitrator.

Protection Against Malicious Challenge

CIETAC and SHIAC have implemented new rules – Article 22 and Article 21, respectively - to curb parties from exploiting the arbitration process by changing or adding legal representatives as a tactic to challenge arbitrators and maliciously delay proceedings. The chairman of the arbitration institution may reject a party’s request to change or include new legal representatives if there are potential conflicts of interest between the new legal representatives and the current arbitrators, or based on the progress of the case proceedings and taking into consideration the opinions of both parties regarding recusal.

The general requirement is that the arbitrator shall not have any close relationship with the parties or their representatives which may compromise the arbitrator’s impartiality when deciding the case (please refer to Section 4.4 Challenge and Removal of Arbitrators).

Duty of Disclosure

The duty of disclosure for arbitrators under Chinese law is evolving. Article 52 of the Draft Amendment to Arbitration Law mandates arbitrators to disclose in writing any circumstances that could lead to doubts about their impartiality or independence. Major Chinese arbitration institutions, such as CIETAC and BAC, require arbitrators to declare and disclose potential conflicts per their respective rules. Additionally, SHIAC’s 2024 rules allow arbitrators to reference the IBA Guidelines on Conflicts of Interest, marking a significant step forward in transparency.

Further, in 2024, Chinese arbitration institutions publicly applied the IBA Guidelines for the first time to address issues concerning the recusal of foreign arbitrators. This landmark case, adjudicated by SHIAC, evaluated the relationship between an arbitrator and a party’s director, concluding that their past collaboration falls under the IBA Guidelines’ Green List and does not raise doubts about the arbitrator’s impartiality. It marks a significant milestone in addressing conflicts of interest involving foreign arbitrators in mainland China.

Under Chinese law, disputes concerning marriage, adoption, custody, fostering and succession, and administrative disputes are not arbitrable. Please refer to 3.2 Arbitrability.

Chinese law only adopts the principle of competence-competence to a limited extent. Under the PRC Arbitration Law, an arbitral tribunal is not entitled to the power to rule on its own jurisdiction. Instead, this power lies in arbitration institutions. Under the rules of Chinese arbitration institutions, the arbitration institution can delegate the power to determine a party’s jurisdiction objection to the arbitral tribunal.

Generally, if the tribunal has not been formed, the arbitration commission makes the initial decision. However, a prima facie jurisdictional decision by the commission does not bind the tribunal’s later conclusions. Notably, Article 28 of the Draft Amendment to Arbitration Law states that the arbitral tribunal decides the validity of the arbitration agreement directly, aligning with global practices.

In addition, disputes over the validity of an arbitration agreement can be referred to either arbitration institutions or Chinese courts. If both are approached, the court shall decide.

Multi-Tier Dispute Resolution Clause

The admissibility of a claim is as crucial as the question of jurisdiction. In international arbitration, multi-tier dispute resolution clauses often require parties to engage in negotiation, mediation, conciliation, or adjudication before initiating arbitration. However, there is considerable debate over the consequences of failing to comply with these pre-arbitration procedures.

Article 12 of the CIETAC Rules (2024) states that failing to negotiate or mediate before arbitration does not affect the admissibility of the arbitration case. The reasons lie in that pre-arbitration procedures do not impact the tribunal’s jurisdiction, and negotiation/mediation can occur during arbitration. This change prevents the misuse of pre-arbitration procedures to delay proceedings.

Chinese courts address arbitral tribunal jurisdiction in three scenarios, as follows.

• When a party challenges the validity of the arbitration agreement and submits the dispute to the court.
• When a party applies to set aside or refuse enforcement of an arbitral award, the court reviews the tribunal’s jurisdiction.
• When a party breaches the arbitration agreement by referring the dispute to the court directly, and the other party objects, the court makes a prima facie jurisdiction decision.

Generally, the court shall not intervene in arbitrations except for certain circumstances stipulated by law.

If an arbitration institution in China decides the arbitral tribunal lacks jurisdiction, courts have no legal ground to review this decision. Therefore, if an arbitration institution rules on the validity of an arbitration agreement, any subsequent court application to challenge this decision will be dismissed.

Article 20 of the PRC Arbitration Law sets out that the parties shall raise their objections to the jurisdiction of the arbitral tribunal prior to the first hearing before the tribunal. If the parties fail to challenge the arbitral tribunal’s jurisdiction before the first hearing but subsequently apply to the court to challenge the jurisdiction, the court shall dismiss such application (Article 13 of the SPC Interpretation of the PRC Arbitration Law).

After the arbitral award is rendered, a party may apply for setting aside or non-enforcement of the award based on the ground that the arbitration agreement is invalid, provided that the party has previously objected to the validity of the arbitration agreement during arbitration proceedings. However, if its previous objection was rejected by the tribunal or the arbitration institution, it is likely to be rejected by court as well.

In the process of judicial review of arbitral awards, Chinese courts, adhering to the statutory standards delineated in sections 3.1 Enforceability and 3.2 Arbitrability, will conduct a de novo review focusing on admissibility and jurisdiction issues. Specifically, they will scrutinise the existence of a valid arbitration agreement.

Should a party commence court proceedings in breach of an existing arbitration agreement, the opposing party is entitled to contest the court’s jurisdiction. This is achieved by invoking the arbitration agreement prior to the court’s first hearing.

Under such circumstances, the courts, upon identifying prima facie evidence of a valid existing arbitration agreement, would generally exhibit reluctance to proceed with the case, leading to its likely dismissal.

Subrogation Litigation

In subrogation litigations, arbitration agreements may be breached to protect creditors. Article 36 of the SPC Interpretation of the Civil Code, effective 5 December 2023, states that if a creditor sues the debtor’s debtor (“counterparty”) and the debtor or counterparty objects based on an existing arbitration agreement, the court will not uphold the objection. However, if arbitration regarding the debtor-counterparty relationship is initiated before the first hearing, the court may stay the litigation. Thus, an arbitration agreement between the debtor and counterparty does not necessarily prevent the creditor from suing the counterparty.

Arbitration requires mutual consent and cannot be enforced against third parties without such agreement.

Typically, the jurisdiction of the arbitral tribunal is limited to the signatories. However, exceptions include the following.

• Mergers or divisions binding successors to the arbitration agreement.
• The arbitration agreement binding a deceased party’s heirs.
• Assignees bound by the arbitration agreement in the contract.
• Principals directly bound by arbitration clauses in contracts made by agents with third parties who are aware of the agency relationship.

These rules apply to both foreign and domestic third parties, regardless of nationality.

Extension of Arbitration Agreements to Ancillary Contracts

Additionally, the Draft Amendment to Arbitration Law, pending review, aims to extend arbitration clauses to ancillary contracts. However, judicial practice remains cautious. In case (2022) Jing 74 Min Te No 13, the judge refused to extend an arbitration clause from a main contract to an ancillary contract, emphasising the necessity of explicit party consent and respecting party autonomy in arbitration agreements.

In China, interim measures are currently not available from an arbitral tribunal, but only from the competent Chinese court.

Currently, all six major arbitration institutions in China (CIETAC, BAC, SHIAC, SHAC, GZAC, and SCIA) have introduced emergency arbitrator procedures and for interim measures in its arbitration rules, such as Article 23 of CIETAC Rules (2024), Article 62 of BAC Rules and Article 25 of SCIA Rules. Among them, SHIAC introduced emergency arbitrator procedures this year in Articles 25 and 26.

By the parties’ mutual consent to choose the applicable arbitration rules, the relevant arbitral tribunal can order interim measures pursuant to arbitration rules. Such orders shall be binding to the parties and the parties may voluntarily comply with these interim measures.

However, as Chinese law does not vest the tribunal with the power of granting interim measures and such power currently is limited to only Chinese courts, the interim measures ordered by the arbitral tribunal are unenforceable in China, but the parties may apply for enforcement of such interim measures in other jurisdictions, provided that the laws of hosting jurisdiction allow the enforcement of such an interim measure. For example, on 15 November 2022, the Hong Kong High Court recognised and enforced an emergency arbitrator’s decision issued by the SHAC. This decision included a temporary measure to freeze the respondent’s assets for a period of six months.

Depending on arbitration rules, in foreign-related cases, the arbitral tribunal generally can order the following three types of interim relief:

• preservation of property;
• preservation of evidence; and
• ordering an injunction to restrain a person from doing anything or to compel a person to do something.

As mentioned in 6.1Types of Relief, Chinese court is the only competent authority to order any interim relief.

If a party needs to prevent the destruction of evidence or disposal of property, they can apply for interim measures through the arbitral tribunal, which will then forward the application to the intermediate court at the respondent’s residence or where the property or evidence is located.

It is worth noting that Article 23 of the CIETAC Rules (2024) has been amended to broaden the scope of forwarding property preservation applications from “domestic courts” to “courts,” making it possible for CIETAC to forward property preservation applications to foreign courts. However, there have been no reported cases yet.

In the realm of international arbitration, the arbitral tribunals, when adjudicating upon applications for interim measures, are guided by a minimum of three criteria. These requirements form the cornerstone of their decision-making process for granting interim measures:

• emergency/irreparable harm;
• prima facie case (the applicant has a reasonable possibility to succeed on the merits of its claim); and
• proportionality (whether the harm of rendering such interim relief caused to the respondent and/or third parties outweighs the benefit that would be gained by the applicant).

Unlike stringent international standards, Chinese courts adopt a more lenient approach to approving interim measures, focusing primarily on urgency. This makes it comparatively easier for parties in foreign-related arbitration to secure interim measures from Chinese courts.

Interim Relief in Aid of Foreign-seated Arbitrations

Chinese courts generally do not grant any interim measures in aid of foreign arbitrations (except for maritime arbitrations). There is no legislation providing for such a channel for Chinese courts to aid foreign arbitrations via ordering interim relief.

For arbitrations seated in Hong Kong SAR and Macao SAR, special arrangements allow Chinese courts to grant interim measures in aid of these arbitrations (“Interim Measures Arrangement”). Since the implementation of such arrangements on 1 October 2019, Hong Kong’s arbitration institutions have handled over 100 applications, with approved property preservation applications totaling CNY15.7 billion (based on statistics derived from a speech made by the Deputy Secretary for Justice of Hong Kong at the seminar “The Fourth Anniversary of the Interim Measures Arrangement: Review and Prospects”, please see link). Remarkably, no requests for interim measure assistance have been denied under this arrangement.

Intervention of National Courts

Chinese law does not recognise the concept of emergency arbitrators. However, analogous to the power vested in the tribunals by arbitration institutions to order interim measures, these institutions also codify emergency arbitrator procedures within their arbitration rules. This is demonstrated in the rules of organisations such as CIETAC, BAC, and SCIA. Decisions made by emergency arbitrators under these procedures are solely binding on the parties involved but lack enforceability within Chinese jurisdiction.

In accordance with Chinese law, no legislative provisions authorise courts or arbitral tribunals to instruct a claimant to furnish security for costs. This contrasts with the international practice, but aligns with China’s unique approach where the claimant pre-pays all arbitration fees. These pre-paid fees are later allocated between the parties in accordance with the principle of “costs follow the event.” This allocation occurs subsequent to the issuance of the arbitral award by the tribunal, ensuring a fair distribution of costs based on the outcome of the arbitration proceedings.

In accordance with the principle of party autonomy, parties have the discretion to select the governing law for the arbitration procedure. However, it is rarely exercised in practice. Instead, parties typically prefer to opt for specific arbitration rules which encompass detailed provisions concerning the arbitration procedure. This approach provides a structured framework, thereby facilitating a more efficient and predictable arbitration process.

Accordingly, the arbitration procedure will be conducted in accordance with the selected arbitration rules and the law of the arbitration seat. In cases where the arbitration is seated in China, the procedure will be governed by the following legislation:

• the PRC Arbitration Law;
• the SPC Interpretation of the PRC Arbitration Law;
• the PRC Civil Procedure Law; and
• the SPC Interpretation of the PRC Civil Procedure Law.

Chinese law only outlines general procedural steps for how arbitration proceedings should be conducted. However, institutional arbitration rules provide more detailed guidance.

Generally, the arbitration procedure shall be subject to the following rules under Chinese law:

• the arbitration institution shall decide within five (5) days as of the date of receiving the request for arbitration whether to hear the case or to dismiss it;
• arbitration shall be conducted by oral hearings, unless the parties agree otherwise;
• arbitration must be conducted confidentially unless the parties agree otherwise, except where a case involves State secrets;
• evidence shall be produced during the course of the hearing and the parties can cross-examine the evidence; and
• the parties have the right to debate in the course of the hearing.

Early Dismissal Procedure of CIETAC

In 2024, CIETAC introduced the early dismissal procedure mechanism into its arbitration rules, allowing the arbitral tribunal to review and decide whether to dismiss claims that are manifestly without legal merit or outside the jurisdiction of the tribunal at the early stages of the proceedings. According to Article 50 of the CIETAC Rules (2024), parties may apply for early dismissal no later than the submission of the statement of defence or the counterclaim.

The tribunal is required to make a decision or award on the early dismissal application within 60 days of its submission, although, in reasonable circumstances, this period may be extended as appropriate. If the tribunal grants or partially grants the early dismissal application, it does not prevent the tribunal from continuing to hear other claims and counterclaims, despite the one dismissal.

Digitalisation and Electronic Service in Arbitration

Priority for electronic service and filing

In the past, most cases heard by Chinese arbitration institutions required the submission of paper copies of legal documents and evidence materials. However, currently, many arbitration institutions introduce provisions for electronic service and filing. CIETAC and SHIAC, for instance, prioritise electronic means unless parties agree otherwise.

Electronic platforms

Many arbitration institutions have their own online filing platform. For example, SHIAC has developed its own “E-Platform” for parties to submit documents and evidence online and conduct exchanges (Article 10).

Online hearings

Popularised during the COVID-19 pandemic, online hearings are now widely accepted by major Chinese arbitration institutions. CIETAC Rules (2024), for example, allow tribunals’ discretion in conducting hearings online.

GZAC is a leading provider in the APEC Online Dispute Resolution mechanism, and has received significant recognition from APEC. APEC is dedicated to serving micro, small, and medium-sized enterprises (“MSMEs”) in resolving cross-border commercial disputes online. Over the past two years, GZAC has handled the highest number of international arbitration cases in China, despite the relatively small amounts involved. This demonstrates GZAC’s important role in facilitating the resolution of cross-border disputes among MSMEs.

Under Chinese law, arbitrators can exercise their powers to manage the arbitration proceedings, to collect evidence on their own initiative, to mediate between the parties and to issue the award based on a majority opinion.

In practice, despite arbitrators in China having the authority to collect evidence independently under the PRC Arbitration Law, this is rarely carried out. This is mainly because Chinese law reserves the exclusive right for evidence enforcement to national courts, leading arbitrators to primarily rely on evidence provided by the parties.

Arbitrators must also adhere strictly to rules requiring independent and impartial exercise of their powers, as outlined in Article 34 of the PRC Arbitration Law and detailed in arbitration regulations regarding disclosure requirements.

Implications of Disclosure Failures in Arbitration

If arbitrators fail to fulfil their disclosure obligations as required by law, it may serve as a basis for setting aside the award on the ground of “the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the arbitration rules.” In case (2022) Jing 04 Min Te No 454, the applicant sought to set aside a foreign-related arbitral award on this grounds. However, the court ultimately ruled that the arbitrator and one party’s attorney having worked together as co-judges in a moot court competition constituted a general social relationship rather than a conflict of interests, and therefore did not require disclosure.

This view aligns with the IBA Guidelines, where “have worked together as joint experts” is listed in the Green List (ie, matters that do not require disclosure). In fact, the case in question might not even fall within the Green List category. This demonstrates that Chinese courts’ approach to disclosure standards is largely consistent with common practices in international arbitration.

Under Chinese law, for legal representatives, ie, attorneys of a party, appearing in arbitration seated in China, there is no particular requirement in respect of their nationality and bar qualification. That is to say, in China, both foreigners and foreign lawyers can represent a party in arbitration proceedings as long as they hold the relevant power of attorney (Article 29 of the PRC Arbitration Law).

However, in litigation proceedings, there is a statutory requirement that the attorney representing the parties before a Chinese court must be a PRC lawyer (Article 274 of the PRC Civil Procedure Law).

In addition, it is notable that the autonomy to change or appoint new attorneys after the tribunal has been constituted is restricted with an attempt to prevent any malicious delays in the proceedings. Please refer to 4.4 Challenge and Removal of Arbitrators.

In the arbitral proceedings, the collection and submission of evidence is mostly carried out by the party with the burden of proof following the principle that whoever makes the claim bears the burden of proof (Article 67 of the PRC Civil Procedure Law).

A party with the burden of proof shall produce evidence within the time period specified by the arbitral tribunal. If a party experiences difficulties in producing evidence within the specified time period, it may apply for an extension.

Under Chinese law, there is no procedure of evidence discovery, although under Article 112 of the SPC Interpretation of the PRC Civil Procedure Law, the court may compel a party to a litigation to produce evidence that is under the party’s control upon another party’s request. However, this new system is not widely used in Chinese court proceedings.

Generally, the evidence can take the form of the parties’ statement, documentary evidence, physical evidence, electronic data, witness statement and expert report. However, in practice, the parties rarely submit a witness statement and call the witness to testify in a court hearing, as judges/arbitrators are more used to documentation evidence and subpoenaing witnesses can be costly and may complicate and delay the procedure. The expert report is more often used as in some professional fields, such as where the arbitral tribunal may need to consult experts or appoint appraisers for clarification on specific technical issues.

China lacks systematic rules of evidence specifically for arbitral proceedings, relying instead on the parties’ presented evidence and arbitrators’ discretion in evaluation. Provisions on evidence production for international arbitration seated in the PRC, outlined in the PRC Arbitration Law, PRC Civil Procedure Law, SPC Provisions on Evidence Production for Civil Actions, and the arbitration rules of the chosen institution, are the same as those for domestic arbitrations.

Additionally, if the parties agree to apply other specific evidence rules, such as IBA Rules on the Taking of Evidence in International Arbitration (“IBA Rules”), such evidence rules shall prevail. For example, Article 46 of SHIAC Rules of 2024 allows the parties to agree on the applicable rules of evidence.

Notably, in the absence of an agreement between the parties, tribunals constituted under CIETAC Rules (2024) may default to applying the “CIETAC Evidence Guidelines,” which are formulated with reference to the PRC Arbitration Law and the IBA Rules.

Notarisation and Legalisation of Foreign Documents

In arbitration, notarisation and legalisation of foreign documents are not mandatory, but parties often do this if authenticity is challenged. The Hague Convention, effective in China since 7 November 2023, simplifies the authentication of foreign public documents, enhancing convenience in international arbitration for evidence and other submissions like certificates of good standing, powers of attorney, and applications for interim measures.

Compulsion of Documents

Chinese law does not explicitly grant arbitral tribunals the power to compel document production or witness attendance, but they can order parties to produce evidence, with non-compliance potentially leading to adverse inferences.

Arbitrators cannot compel non-parties to produce documents. However, recent local regulations in places like Xiamen and Shanghai now allow arbitration institutions to seek court-issued investigation orders. These orders have been used in domestic arbitration cases, such as contract disputes involving identifying heirs of deceased respondents or owners of specific property.

Though no investigation orders have been issued yet in international arbitration cases, the local regulations do not explicitly restrict their application to domestic cases.

Compulsion of Witness Attendance

According to PRC Civil Procedure Law, witnesses are generally under an obligation to testify in court. The court has the authority to require witnesses to testify either on its own initiative or upon application by one of the parties.

However, arbitral tribunals do not have any legal authority (nor any arbitration rules) to compel witnesses to attend. Generally, the powers of the tribunals are limited to the parties involved.

Under Article 40 of the PRC Arbitration Law, arbitration proceedings are strictly confidential, extending to all participants, including parties, arbitrators, witnesses, experts, translators and other individuals. Failure to comply with confidentiality obligations may result in legal liabilities.

Although arbitration is typically confidential, disclosure may be necessary in specific situations. Exceptions allow disclosure for enforcement or challenge of an arbitral award in court, legal mandates in criminal or civil cases, or transparency requirements for publicly listed companies.

In exceptional situations, a breach of confidentiality may lead to the nullification of contracts. In a dispute involving third-party funding, the court invalidated the agreement, ruling that it breached arbitration confidentiality by disclosing case details to a non-party to the arbitration.

An arbitral award shall be determined based on the majority opinion of the tribunal. Where a majority opinion cannot be reached, the award shall be decided according to the presiding arbitrator’s opinion (Article 53 of the PRC Arbitration Law). An award shall be legally binding from the date on which it is made.

For the general content of an award, please refer to the China Law & Practice chapter of Chambers International Arbitration 2023.

Time Limit

Under Chinese law, there is no statutory time limit for arbitral tribunals to render awards. However, many arbitral institutions set their own time limit. For instance, CIETAC mandates awards within four months of tribunal formation, while BAC sets a six-month timeframe. Extensions, permitted once for exceptional circumstances, require the chairman’s approval.

Partial Award

Article 55 of the PRC Arbitration Law provides that, “[w]here a portion of the facts have been clarified during arbitration of a dispute by an arbitration tribunal, an award concerning those facts may be made first,” which empowers the tribunals to grant partial awards. This is often applied in construction disputes.

Interim Award

Although the PRC Arbitration Law does not specifically address interim awards, some arbitration institutions’ rules do permit tribunals to issue interim awards on any issues within the case before the final award is rendered (Article 49 of CIETAC Rules and Article 61 of SHIAC Rules, both newly introduced in 2024; Article 28 of SHAC Rules, Article 62 of BAC Rules). In the past, interim awards were rarely issued by the tribunal, now the new arbitration rules may promote the practical application of it.

The distinction between interim awards and partial awards has always been unclear under Chinese Law. This stems from the absence of clear legal provisions delineating the scope of application for each type of award, coupled with the broad discretion granted to arbitral tribunals in their application.

The Draft Amendment to Arbitration Law intends to clarify the distinction between partial awards and interim awards, emphasising that the former is an award made after clarifying some issues of facts, while the latter addresses disputed matters, including procedural issues. But this draft amendment is still pending its first review by the National People’s Congress.

Chinese law does not impose legal constraints on the types of remedies that tribunals can award. In practice, the arbitral tribunal often awards remedies as follows:

• legal remedies, such as damages including compensatory damages and liquidated damages if it is reasonable in light of the expected/actual harm; and
• equitable remedies, such as specific performance, injunction relief and declaratory remedies.

The arbitral tribunal shall decide on the allocation of legal costs between the parties in the arbitral award (Article 54 of the PRC Arbitration Law). In practice, the legal costs often include arbitration fees, attorney’s fees, and other third-party fees such as expert fees, appraisal fees, etc. Interest will also be concluded in an award provided that the party made such a petition regarding the interest.

The tribunal typically allocates legal costs based on the parties’ agreement or the principle that “costs follow the event” in the absence of agreement. The principle means that the losing party generally bears the costs. When both parties partially succeed, the tribunal determines each party’s share of costs based on their respective liabilities.

As for interest, parties can recover interest as per their agreement, not exceeding four times the Loan Prime Rate (LPR) set by the Bank of China. If no rate is agreed upon, the tribunal may refer to the LPR instead.

Additionally, arbitration institutions like SHIAC have implemented new rules where parties causing delays in proceedings will bear additional arbitration costs. This promotes adherence to the principle of good faith and expedites the arbitration process.

Under Chinese law, an arbitral award cannot be appealed since it is final and binding as of the date of its issuance.

However, the parties are entitled to the following recourses to raise objections to the award:

• apply to Chinese courts for setting aside of the award; and
• apply to Chinese courts for non-enforcement of the award.

Resumption of the Arbitration Procedures

When a party applies to set aside the award, a Chinese court may instruct the arbitration tribunal to resume the arbitral proceedings for a re-trial within a specified time limit according to article 61 of the PRC Arbitration Law. This provision aligns with the Article 34(4) of the UNCITRAL Model Law.

However, the application of this provision under Chinese law is currently ambiguous, with few specific regulations in arbitration rules. This year, SHIAC introduced new rules stipulating that the arbitral proceedings will resume if instructed by the court, provided that the arbitrators agree (Article 68).

Under Chinese law, grounds for a party to challenge an arbitral award are established by legislation and are considered mandatory. Therefore, parties cannot exclude or expand the scope of these grounds through mutual agreement. This means the rules for contesting an arbitral award are fixed and cannot be modified by the parties involved.

Chinese courts judicially review arbitral awards with deference, emphasising respect for the arbitral tribunal’s decision on the merits. The court primarily focuses on ensuring compliance with arbitration procedures rather than reevaluating the case’s substantive aspects. This approach underscores the central tenets of these laws, which form the primary foundation for the court’s review standards and grounds concerning arbitral awards.

Dual-track System

China’s dual track system for setting aside awards differentiates between domestic and foreign-related cases, with the key distinction being an additional ground for domestic awards: arbitrator misconduct, including corruption and bribery (please refer to the China Law & Practice chapter of Chambers International Arbitration 2023).

Notably, the Draft Amendment to Arbitration Law proposes transition from the above dual-track system to a unified system by harmonising grounds for setting aside awards applicable to both foreign-related and domestic cases.

Enforcement of Awards

The grounds for refusing to recognise and enforce a foreign arbitral award are set out under Article V of the New York Convention.

For the enforcement of an award made in Hong Kong SAR, Macau SAR and Taiwan Region, the grounds for refusal are provided in special arrangements respectively, which are largely analogous to the grounds contained within Article V of the New York Convention.

Reporting Regime

There is an internal reporting regime governing Chinese courts’ decisions on setting aside/non-enforcement of arbitral awards. A ruling on setting aside/non- enforcement of a foreign-related award or non-recognition/non-enforcement of an award made in mainland China can only be rendered subject to the SPC’s approval. For a domestic award, the Chinese high court’s approval is sufficient to make such a ruling.

On 2 December 1987, China officially ratified the New York Convention, thus becoming a Contracting State, with two reservations, as follows.

• Reciprocity reservation: on the basis of reciprocity, China declares that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another Contracting State.
• Commercial reservation: China declares that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration.

If a foreign-related or foreign award under the New York Convention is not voluntarily complied with by the respondent, the claimant can apply for enforcement or recognition and enforcement to the Chinese intermediate court where the respondent is domiciled, where their property is located, or at a location relevant to the dispute (Article 29 of the SPC Interpretation of the PRC Arbitration Law and Article 290 of the PRC Civil Procedure Law).

The enforcement application must be filed within two years, with the starting point varying depending on the circumstances (please refer to Chambers International Arbitration 2023, China).

Ongoing Set-aside Proceedings

If the award applied to be enforced in Chinese court is subject to ongoing set-aside proceedings at the seat, Chinese courts will tend to adjourn the decision on the enforcement of the award.

For foreign arbitral awards made within a non-contracting state of the New York Convention, the party can apply for recognition and enforcement of the award based on the relevant treaties and the principle of reciprocity (Article 304 of the PRC Civil Procedure Law).

Raising a Defence of Sovereign Immunity

In the past, states and state agencies were immune from enforcement proceedings in China. However, the court’s approach was overturned as the Foreign State Immunities Act, effective on 1 January 2024, includes Article 12 allowing a party to apply for enforcement of an arbitral award against a state or a state agency.

For Chinese court’s approach/standards towards the recognition and enforcement of arbitral awards, please refer to response to 11.3 Standard of Judicial Review.

Public Policy

Public policy plays a crucial role in the enforcement of arbitration awards. In the enforcement of foreign arbitration awards, Chinese courts principally adhere to domestic public policy standards. The court will examine, on its own initiative, whether there is a violation of public interest, without requiring the applicant or the respondent to raise this as a defence.

Generally, the SPC will deem a foreign award as contravening public policy only if the award violates fundamental legal principles, state sovereignty, national or public security, social and public interests or moral standards. However, the invocation of public policy as a ground for refusal is a rare occurrence. In the last two decades, only two foreign awards have been denied enforcement in China due to public policy violations (for further details, please refer to Chambers International Arbitration 2023, China).

Under Chinese law, class action arbitration or group arbitration is not specifically provided for in foreign-related or international arbitration. Such mechanisms are limited to certain cases like labour disputes and securities misrepresentation disputes.

Counsel

Ethical standards for counsels in arbitral proceedings are guided by the PRC Lawyers’ Law (amended in 2017) and further detailed by national and local lawyers’ associations. The All China Lawyers Association, for example, issued the Rules of Counsels’ Participation in Arbitration in 2013, providing specific guidelines for counsel conduct in arbitration.

Arbitrator

Arbitrators in China currently lack specific legislation or self-disciplinary organisations governing their ethical standards. Although the China Arbitration Association was registered on October 14, 2022, it has not yet begun formal operations. Despite this, each arbitration institution has established its own arbitration rules that arbitrators must follow upon appointment, ensuring ethical conduct and professional integrity throughout proceedings. For updates on arbitrators’ disclosure duties, please refer to Sections 4.4 and 7.3 of the relevant guidelines.

Third-party funding is an emerging practice in China, currently with no specific legislation in place to regulate its use. As for arbitration rules, CIETAC has taken a leading role in arbitration rules, notably addressing third-party funding in its 2024 Arbitration Rules and International Investment Arbitration Rules.

However, Chinese courts have divergent views on the enforceability of third-party funding agreements. Please refer to Chambers International Arbitration 2023, China for potential risks of unenforceability of such contracts in China.

Importance of Third-Party Funding Disclosure in Arbitration

It is necessary to truthfully disclose third-party funding arrangements to the arbitral tribunal. For example, Article 48 of the CIETAC Rules (2024) stipulates that details such as third-party funding arrangements, economic interests involved by each party, and the name and address of the third-party must be disclosed to the tribunal and cannot be kept confidential independently.

The presence of third-party funding can create potential conflicts of interest that may necessitate an arbitrator’s recusal from the case. Should an arbitrator have grounds for recusal, it could serve as a basis for setting aside the arbitration award. Consequently, it is imperative for parties to disclose any third-party funding to the arbitral tribunal.

Chinese law is silent on consolidation of separate arbitral proceedings. However, the majority of arbitration institutions have established rules regarding consolidation of arbitral proceedings.

Types of Consolidation Under PRC Law

Specifically, consolidation of arbitration involves merging independent and related arbitration cases accepted by the same institution into a unified arbitration proceeding. Concurrent hearing involves the simultaneous adjudication of multiple arbitration cases within the same proceedings, under certain conditions. Although the cases are heard together, each case maintains its individual procedures, and separate awards are issued for each case. Single arbitration under multiple contracts refers to the consolidation of disputes arising from interrelated contracts based on the same underlying transaction. This consolidation allows the applicant to seek arbitration for all related disputes as a single case.

For more detailed distinctions among the three types of consolidation, please refer to Chambers International Arbitration 2023, China.

One update is that the new rules introduced by CIETAC and SHIAC in 2024 have expanded the scope of arbitration under multiple contracts. Article 14 of the CIETAC Rules (2024) stipulates that arbitration applications can be consolidated if the multiple contracts:

• are interrelated as principal and ancillary contracts,
• involve the same parties with similar legal relationships, or
• have interconnected subject matters.

Similarly, Article 15 of the SHIAC Rules mirrors these provisions.

Arbitration agreements or awards usually bind only the parties directly involved, but, under certain conditions, third parties – whether domestic or foreign – may be bound by them. This principle is outlined in Articles 8 and 9 of the SPC’s Interpretation of the PRC Arbitration Law.

Updates in PRC Arbitration Rules

Certain arbitration rules in China, such as Article 27(3)-(4) of GZAC Arbitration Rules of 2023 and Article 41(5) of SHIAC Rules of 2024, allow additional parties who are not signatories to the arbitration agreement to join proceedings if both such additional parties and all existing parties to the arbitration agree. This mechanism is designed to protect the rights of the additional parties who have an interest in the case.

Group of Companies Doctrine

The Group of Companies Doctrine, though not formally adopted under PRC law, finds its application in some cases where subsidiaries have been bound by arbitration awards. For instance, in case (2023) Jing 04 Min Te No 549, the court refused to set aside an arbitral award involving several non-signatory sub-entities of a group company, ruling that these sub-entities, though not signatories to the arbitration clause, had interests tightly intertwined with the contract and were therefore bound by its terms.