International Arbitration 2019

Last Updated August 08, 2019

China

Law and Practice

Authors



AnJie Law Firm is a full-service law firm with offices in Beijing, Shanghai, Shenzhen and Hong Kong. The dispute resolution team consists of more than 20 partners and 50 associates based at all four offices. The team has experience dealing with both domestic and international commercial disputes and the partners appear before different levels of the Chinese courts and the world’s major arbitration institutions. Several of the leading partners have been appointed as arbitrators of renowned international arbitration institutions. The firm represents leading multinational corporations, major state-owned enterprises, private companies and financial institutions in complex and high-value litigation and arbitration proceedings, covering a wide spectrum of industries, including finance, insurance, energy, oil and natural resources, manufacturing, aerospace, automobile, consumer electronics, fashion, information technology, media and pharmaceutical.

Based on the statistics announced by the Ministry of Justice of China for 2016 to 2018, the number of arbitration cases handled by all Chinese arbitration commissions in 2016 was over 208,000. Following that, there was a 15% increase in 2017 with a total number of over 239,000 arbitration cases. In 2018, the Chinese arbitration commissions administered over 540,000 cases, a huge increase of 127% compared to the figure in 2017. Obviously, arbitration has become a popular way to resolve commercial disputes in China (for the purpose of this guide, China refers to Mainland China excluding Hong Kong, Macau and Taiwan).

Due to the Belt and Road Initiative (BRI) and 'go global' policy of Chinese companies, an increasing number of Chinese parties are searching for a desirable mechanism to resolve their potential cross-border disputes. International arbitration is widely chosen as an effective method to resolve these disputes, among other reasons, because enforceability is a crucial factor to consider.

Arbitration in China has undergone rapid development in the last few years. During the period 2018 to 2019, further changes and improvements have been made to arbitration practice in China with a strengthened pro-arbitration judicial environment. 

A series of judicial interpretations and circulars were issued by the Supreme People’s Court of China (SPC) in 2018. These pertain to, among other things, the centralisation of the court divisions that handle arbitration cases; the 'prior reporting system' which requires that a court has to seek the approval of the SPC via higher courts before it can decide that an arbitration agreement is invalid, or that an arbitral award shall be set aside or not be enforced; the jurisdiction of the courts that conduct the judicial review of arbitration cases; and the enforcement of arbitral awards, etc. 

In addition, the Central Office of the Communist Party of China and the General Office of the State Council of China jointly issued the Several Opinions on the Improvement of Arbitration System and Credibility in December 2018, which indicated the strong supportive position of the Chinese government regarding the development of arbitration in China.

Arbitration commissions in China have been actively updating their arbitration rules to adapt to the users’ demands for arbitration. For example, the Shenzhen Court of International Arbitration (SCIA) Arbitration Rules (2019) adopted the Optional Appellate Arbitration Procedure as well as the SCIA Guidelines for the Optional Appellate Arbitration Procedure. In that regard, unless prohibited by the laws of the place of arbitration, where the parties have agreed on submitting to the SCIA for appellate arbitration in respect of an award rendered by an arbitral tribunal according to Chapter VIII herein, their agreement shall prevail. However, this is not applicable as an expeditious procedure. 

Lastly, China established two international commercial courts in Xi’an and Shenzhen in 2018. One of their functions is to provide judicial support in order to co-ordinate the different dispute resolution mechanisms, ie, litigation, arbitration and mediation, and to set up a 'one-stop' platform for the resolution of international commercial disputes. According to a notice announced by the SPC, several arbitration commissions, including China International Economic and Trade Arbitration Commission (CIETAC), Beijing Arbitration Commission (BAC)/Beijing International Arbitration Center (BIAC), SHIAC and SCIA etc, were selected as the first group of arbitration and mediation institutions included in the one-stop diversified dispute resolution mechanism. The international commercial courts may order interim relief, such as property preservation, evidence preservation and prohibitory injunction, concerning the cases handled by selected arbitration commissions as stipulated under the Provision of the Supreme People’s Court on Several Issues Concerning the Establishment of International Commercial Courts (effective as of 1 July 2018).

Since the BRI was launched in 2013, it has stimulated an increase in the number of connections and transactions between China and foreign countries, involving individuals, enterprises and states. The BRI official website shows that several industries have seen more international collaborations, including infrastructure, international transportation/trade/construction, and finance and investment. 

With increased co-operation and more international transactions between China and countries with different legal systems, it is expected that more China-related international disputes in these related industries might arise in the coming years. Meanwhile, as international arbitration is a favourable dispute resolution method for international commercial disputes, more Chinese parties will probably be involved in this in the future.

In terms of international arbitration, CIETAC is traditionally the predominant arbitration institution in China which administers substantial numbers of foreign-related arbitrations. According to the statistics published by CIETAC, the total caseload for the year 2018 was 2,962, of which 522 were foreign-related cases. 

In addition, BAC, SHIAC and SCIA are other popular arbitration institutions in China which regularly administer foreign-related arbitrations. 

Most of these major Chinese arbitration institutions have in recent years amended their arbitration rules to adapt to the needs of international users. The updated arbitration rules incorporate new provisions regarding emergency arbitrator, consolidation, joinder of additional parties, and multiple contracts, etc. 

Chinese national legislation does not define 'international arbitration.' Under the Chinese arbitration legal framework, arbitrations are generally divided into domestic arbitrations and foreign-related arbitrations. Therefore, international arbitration that is seated in China is usually referred to as foreign-related arbitration. 

Foreign-related arbitrations are subject to the Arbitration Law of the People's Republic of China (Chinese Arbitration Law) and various judicial interpretations issued by the SPC. Relevant legal rules can also be found in the Civil Procedure Law of the People’s Republic of China (CPL) and the Law on Application of Laws to Foreign-Related Civil Relations. These legislations and judicial interpretations are not based on UNCITRAL Model Law.

Chinese Arbitration Law has not significantly changed since its issuance in 1994. However, the SPC issued three judicial interpretations in 2018/19 which focused on the judicial review of arbitration cases, including the prior reporting system and enforcement of arbitral awards, etc. 

The Provisions on Issues Relating to the Report and Approval of Judicial Review of Arbitration Cases came into effect on 1 January 2018. It has broadened the scope of arbitrations that are subject to the prior reporting system. As for domestic arbitration cases, where an intermediate court intends to rule on the invalidity of an arbitration agreement, setting aside or not enforcing an arbitral award, it must report to the higher court for final decision. However, it must report to the SPC through a higher court if the arbitral award rendered is set aside or not enforced on the grounds of violation of public policy or when both parties are located in different provinces. By comparison, foreign-related arbitration cases must be reported to the SPC via intermediate courts without exception, on the same premise mentioned above. 

In accordance with the above, the SPC has further established the Provisions on Several Issues Relating to the Conduct of Judicial Review of Arbitration Cases (effective as of 1 January 2018), being a comprehensive interpretation of the judicial review of arbitration cases, to some extent supplementing Chinese Arbitration Law. Accordingly, it explicitly specifies some new provisions regarding judicial review cases. Firstly, where an applicant applies for the recognition of a foreign arbitral award that is related to a lawsuit pending before a people’s court, and the respondent has neither domicile nor property in Mainland China, the people’s court before which the related lawsuit is pending shall be competent to hear the application. Secondly, where there is a conflict between the law of the place where the arbitration commission is located and the law of the seat of arbitration, the law which could affirm the validity of the arbitration agreement shall be applied, showing a pro-arbitration attitude in China. Lastly, it makes clear that except for three types of rulings which include inadmissibility, dismissal of application and objections to jurisdiction, the decision of the judicial review of the arbitration case is always final and comes into effect immediately upon being served. 

On 23 February 2018, the SPC issued the Provisions on Several Issues Relevant to the Enforcement of Arbitral Award (Provisions on Enforcement). It mainly concerns jurisdiction over the enforcement of arbitral awards, the standard of enforcement of arbitral awards where the content is unclear or unspecific, and the standard of judicial review for non-enforcement of arbitral awards, etc. 

Additionally, a notable achievement for both Mainland China and the Hong Kong Special Administrative Region (Hong Kong) is the conclusion of two arrangements, an Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of Mainland China and Hong Kong (Arrangement on Judgments) and an Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of Mainland China and Hong Kong (Arrangement on Interim Measures), which will come into effect soon. 

With the Arrangement on Judgments, the scope of judgments has been substantially increased so that as long as a judgment in civil and commercial matters is legally effective between Mainland China and Hong Kong it could be recognised and enforced. Similarly, the Arrangement on Interim Measures enables the parties concerned to apply interim measures before either a competent court in Mainland China or in Hong Kong, which provides a chance for parties to better safeguard their rights in time. 

According to Chinese Arbitration Law, an arbitration agreement shall be in written form, either as an arbitration clause incorporated in any main contract, or as a separate arbitration agreement thereto. A valid arbitration agreement shall include:

  • an express intention to arbitrate;
  • matters for arbitration; and
  • a designated arbitration commission. 

In addition, in order for an arbitration agreement to be enforceable, it is required that:

  • the matters to be arbitrated shall be arbitrable;
  • the arbitration agreement is executed by persons with full civil capacity; and
  • parties shall voluntarily enter into the arbitration agreement without coerciveness.

Pursuant to Article 3 of Chinese Arbitration Law, the following disputes shall not be subject to arbitration:

  • disputes concerning marriage, adoption, custody, fostering and succession; and
  • administrative disputes which shall, in accordance with the law, be dealt with by administrative bodies.

In addition, labour disputes shall be filed with labour arbitration commissions, which are administrative bodies and are different from commercial arbitration institutions. 

There is also controversy as to whether antitrust disputes are arbitrable in China. Jiangsu Provincial High Court held in 2016 that an antitrust dispute is not arbitrable because public interest might be involved in the resolution of the disputes.

The general approach in China to determine whether a dispute is arbitrable mainly depends on the subject matter of the dispute. According to Article 2 of Chinese Arbitration Law, any contractual dispute or other disputes concerning property rights between equal parties may be subject to arbitration.

Under Chinese law, where the validity of an arbitration agreement is questioned, a party may request that either an arbitration commission or a judicial court should rule on the issue. Under Article 20 of Chinese Arbitration Law, if one party applies to an arbitration commission for determination while the counterparty applies to a court, the court prevails to determine the validity of the arbitration agreement. 

Typically, a party will submit an application for determination of the validity of an arbitration agreement before the competent Chinese court. The court will then examine the arbitration agreement according to the law applicable to the arbitration agreement. Under Article 18 of Chinese Arbitration Law, if the arbitration agreement does not provide or is unclear regarding the subject matter to be arbitrated and/or the designated arbitration commission, the parties are allowed to reach a supplementary agreement. In the absence of such supplementary agreement, the arbitration agreement shall be invalid. 

Several recent cases have illustrated that the Chinese courts have taken a pro-arbitration approach in deciding on the validity of an arbitration agreement. A recent case is Chinalight Tri-Union International Trade Company Ltd v Tata International Metals (Asia) Ltd (the No 4 Intermediate People’s Court of Beijing, 2017, Jing 04 Min Te No 23, 14 December 2018) where the Chinese court held that a pathological arbitration agreement was valid and binding.

Under Chinese law, an arbitral clause might be considered valid even if the rest of the contract in which it is contained is invalid. Chinese Arbitration Law adopts the rule of separability with regard to arbitration clauses. 

Article 13 of Chinese Arbitration Law provides that “an arbitration commission shall set up panels of arbitrators according to different specialities.” For many years this article has been interpreted as requiring that parties can only select and appoint arbitrators from the panel list set up by the arbitration institution. In other words, the parties’ autonomy in selecting arbitrators is limited to the pool established by the specific arbitration commission. Very few institutions out of 255 arbitration commissions (the number of arbitration commissions in China by the end of 2018) endeavoured to reform this practice in their arbitration rules, in order to recognise the parties’ right to autonomy in selecting an arbitrator from outside the panel list. 

Article 64 of BAC Arbitration Rules (2019) includes special provisions concerning the composition of an arbitral tribunal for international commercial arbitrations. Arbitrators may be selected by the parties from among arbitrators who are not on BAC’s panel of arbitrators. Parties who wish to select arbitrators off panel shall submit their candidates’ resumes and contact details to BAC. A candidate selected from off-panel arbitrators may act as an arbitrator with the approval ofBAC.

Similarly, under Article 26 of CIETAC Arbitration Rules (2015), where the parties have agreed to nominate arbitrators from outside CIETAC’s panel of arbitrators, an arbitrator so nominated by the parties, or nominated according to the agreement of the parties, may act as an arbitrator subject to confirmation by the chairman of CIETAC. 

Parties are advised to check the specific institutional arbitration rules to confirm whether they are allowed to select and appoint arbitrators outside the panel list set up by that arbitration institution.

Chinese Arbitration Law recognises the parties’ autonomy in agreeing on the procedure to constitute an arbitral tribunal. However, if the parties fail to constitute the arbitral tribunal according to their agreed procedure, Chinese Arbitration Law stipulates a default procedure on the method of arbitrator selection. 

Where parties agree to form an arbitral tribunal of three arbitrators, each party shall select or entrust the chairperson of the arbitration commission to appoint an arbitrator. The third arbitrator shall be selected jointly by the parties or be appointed by the chairperson of the arbitration commission. 

Where the parties agree to have a sole arbitrator tribunal, the arbitrator shall be selected jointly by the parties or be appointed by the chairperson of the arbitration commission.

The arbitration rules of each institution also provide default procedures, applicable when the parties’ chosen method for selecting arbitrators fails. These procedures are generally in line with the above rules under Chinese Arbitration Law.

Under Chinese Arbitration Law, there is no rule that permits the court to intervene in the selection of arbitrators. 

Nonetheless, an arbitral award could be set aside or not be enforced by a competent court if the arbitral tribunal is not constituted properly. 

Articles 34 to 37 of Chinese Arbitration Law stipulate particular provisions regarding the challenge and removal of arbitrators.

According to Article 34, an arbitrator may be challenged and removed in the following circumstances:

  • the arbitrator is a party in the case or an immediate relative of a party or its representative in the case;
  • the arbitrator has a personal interest in the case;
  • the arbitrator has some other relationship with a party or its representative in the case which may affect the impartiality of the arbitrator; or
  • the arbitrator has a private meeting with a party or its representative, or accepts an invitation for entertainment or a gift from a party or its representative. 

If any of the foregoing circumstances arises, the relevant arbitrator is required to withdraw and a party shall challenge the arbitrator prior to the first hearing. If the circumstances giving rise to the challenge are known only after the first hearing, the challenge may be filed before the final hearing of the case.

The decision on challenge and removal of an arbitrator will be decided by the chairperson of the arbitration commission. If the chairperson is an arbitrator in the case, the decision will be collectively made by the arbitration commission.

Article 13 of Chinese Arbitration Law requires that arbitrators shall be honest and just. Pursuant to Article 34 of Chinese Arbitration Law, in certain circumstances, an arbitrator may be challenged and removed due to conflicts of interest or other irregularities.

In addition to the general requirements stipulated by Chinese Arbitration Law, the principal arbitration commissions have their own more detailed ethical codes to regulate the conduct of arbitrators. For example, CIETAC has adopted the Code of Conduct for Arbitrators and Rules for Evaluating the Behaviour of Arbitrators which not only generally states that arbitrators shall be impartial, independent and treat the parties concerned equally, but also sets out the specific circumstances for challenge or removal of arbitrators. 

See 3.2 Arbitrability, above.

The principle of competence-competence is not recognised in Chinese Arbitration Law. In this regard, it is the arbitration commission rather than the arbitral tribunal which may rule on the tribunal’s jurisdiction. However, in practice, arbitration institutions may delegate their power to decide on the jurisdiction to the tribunal, pursuant to their arbitration rules. For instance, Article 6.1 of CIETAC Arbitration Rules (2015) provides that “CIETAC has the power to determine the existence and validity of an arbitration agreement and its jurisdiction over an arbitration. CIETAC may, where necessary, delegate such power to the arbitral tribunal.”

Upon an application by either party, the Chinese court will make a decision on the validity of an arbitration agreement.

According to Article 20 of Chinese Arbitration Law, where a party challenges the validity of an arbitration agreement, it may either apply to the relevant arbitration commission or the competent court for determination. If one party approaches the arbitration commission while the other party applies to the court, the decision shall be made by the competent court.

In addition, after the issuance of the arbitral award by the tribunal, the parties may still request the Chinese court to review the validity of the arbitration agreement and the jurisdiction of the tribunal, if they request the court to:

  • set aside the award made in China; or
  • refuse recognition and enforcement of the award. 

The Chinese courts are generally willing to uphold the validity of an arbitration agreement where possible and appropriate.

Either party may request the competent Chinese court to rule on the validity of an arbitration agreement without initiating an arbitration proceeding. 

If an arbitration proceeding is initiated, the challenging party shall request either the arbitration commission or the competent court to decide on the tribunal’s jurisdiction prior to the first hearing of the arbitration. However, if the arbitration commission has already ruled on the tribunal’s jurisdiction, the parties are no longer entitled to submit the challenge to the competent court.

Chinese courts review the issue of jurisdiction and admissibility on a de novo basis and are independent from the arbitration commission’s views.

Where a party commences court proceedings in breach of an arbitration agreement, the Chinese court will either refuse to accept such a case at the filing stage, if it discovers a valid arbitration agreement; or dismiss an existing case, if the other party challenges the court’s jurisdiction by invoking a valid arbitration agreement. 

Generally, as long as there is a valid arbitration agreement, the Chinese court will respect the parties’ choice of arbitration without judicial intervention. 

In China, there are three scenarios where an arbitration agreement may bind a third party who is neither party to the arbitration agreement nor a signatory to a contract containing the arbitration agreement. This is explicitly stipulated in the SPC Interpretation of Arbitration Law (2006).

According to Articles 8 and 9 in the SPC Interpretation of Arbitration Law, non-signatories will be bound by an arbitration agreement:

  • where there is a change to a company’s structure involving mergers and acquisitions, then the successor of that company shall be bound by the previous arbitration agreement;
  • where a party died after concluding an arbitration agreement, that person's heirs shall be bound by the arbitration agreement; or
  • where a contract is partially or entirely assigned to an assignee, the arbitration agreement shall be binding upon the assignee, unless the parties concerned have otherwise agreed, or the assignee explicitly objects to or is unaware of the separate arbitration agreement.

Although it is not explicitly stated, this is generally applicable to both domestic and foreign third parties.

In China, neither an arbitral tribunal nor an arbitration institution is empowered to order interim relief in the process of arbitration proceedings. 

Interim Relief in Arbitration Proceedings

Chinese courts play a very important role in interim relief in arbitration proceedings since the power to grant interim relief is solely the preserve of the courts, rather than any arbitration commission or arbitral tribunal. Typically, a party may apply for interim relief prior to or in the process of the arbitration proceeding. The arbitration commission is then required to forward the application to an applicable court in accordance with Chinese Arbitration Law and CPL. 

Accordingly, Chinese Arbitration Law and CPL provide three kinds of interim relief, known as property preservation, evidence preservation and prohibitory injunction. 

Regarding evidence preservation, a party may seek an order where there is a possibility that the evidence concerned will be destroyed or lost, or subsequently be difficult to obtain. 

Similarly, a party may file an application for a property preservation order where a party believes:

  • that the execution of a judgment may become impossible or difficult because of the actions made by the opposing party; or
  • that a party may suffer irretrievable damages without an immediate property preservation order. 

In addition to property preservation and evidence preservation, based on CPL, a party may also consider seeking a prohibitory injunction from the competent court before or in the process of arbitration proceedings.

Interim Relief in Foreign-seated Arbitrations

For arbitration seated outside Mainland China, parties to the arbitration generally cannot apply to the court of Mainland China for interim relief. In Mainland China, CPL does not grant the court the power to implement interim relief for offshore arbitration. 

However, in maritime arbitration seated outside China, regardless of whether the arbitration is institutional or ad hoc, parties may apply to the maritime courts of Mainland China for maritime interim relief, as prescribed under the Special Maritime Procedure Law of China. The types of interim relief include property preservation and evidence preservation. Specifically, the scope of property preservation is limited to the vessel, the cargo, fuel, and other vessel-related property.

In a recent development on 2 April 2019, the government of Hong Kong and the Supreme People's Court of the People's Republic of China signed an Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of Hong Kong Special Administrative Region (Arrangement). The Arrangement allows the parties to arbitration seated in Hong Kong (or Mainland China) to apply for interim relief to courts in Mainland China (or in Hong Kong). This Arrangement has, however, not yet come into effect. Mainland China and Hong Kong will announce its effectuation date after:

  • the SPC has promulgated the relevant judicial interpretation; and
  • Hong Kong has completed the relevant procedure.

Emergency Arbitrators

No emergency arbitrator (EA) procedure is stipulated in Chinese Arbitration Law. 

However, some arbitration commissions, like CIETAC and BAC, have included an EA procedure as part of their arbitration rules. It is understood that these rules are mainly aimed at assisting the party that wants to enforce the EA order in other jurisdictions. For example, under CIETAC Arbitration Rules (2015), a party may apply for an EA procedure pursuant to the CIETAC Emergency Arbitrator Procedure (Appendix III). The emergency arbitrator may decide that it is necessary to order emergency measures. The EA order made by the emergency arbitrator shall be binding upon both parties. 

Accordingly, interim relief ordered by the EA is not enforceable before Mainland Chinese courts because the power of granting interim relief belongs exclusively to Mainland Chinese courts, rather than arbitral tribunals. 

Nonetheless, this does not mean that there is no chance for the parties concerned to enforce an EA order in other states or regions where the law of that jurisdiction allows the enforcement of EA orders. In this regard, Chinese arbitration commissions, ie, CIETAC and BAC, are attempting to help the parties increase the possibility of enforcing an EA order, thereby protecting their lawful rights and interests in a better and timely way. In addition, in the absence of EA procedure under Chinese Arbitration Law, CIETAC and BAC nevertheless do their utmost to continue the international arbitration. 

It is worth noting that an emergency arbitrator case was administered by BAC in 2017. The EA order rendered by a Chinese arbitrator was thereafter enforced by the Hong Kong High Court. Based on this, BAC has revised the EA procedure in BAC Arbitration Rules (2019), which specify the requirements in an application for EA procedure and the priority of delivery by electronic means in EA procedure.

China does not have legislation or a practice on security for costs. In practice, the claimant pays all the arbitration fees in advance to the arbitration institutions. After that, in accordance with the principle of Costs Follow the Event, it is a general rule that the losing party will finally bear the arbitration fees provided that there is no agreement between the parties concerning the allocation thereof.

As to arbitration seated in China, whether domestic or foreign-related arbitration, the procedure of arbitration is mainly governed by Chinese Arbitration Law, the SPC Interpretation of Arbitration Law, CPL and the SPC Interpretation on the Application of the CPL. 

In addition, the relevant Rules of the Arbitration Commission will also be adopted in the arbitration proceedings, as they are deemed to be incorporated into the parties’ agreement.

Chinese Arbitration Law provides general procedural steps that the parties are required to comply with when they commence arbitration proceedings. 

Threshold and Acceptance of an Arbitration Case 

As the basis for arbitration, the parties shall have a valid and enforceable arbitration agreement. Where a party, as a claimant, files a Request for Arbitration, it shall include the facts, reasons and the arbitration agreement involved. 

The arbitration commission shall, within five days of receipt of the Request for Arbitration, notify the claimant that the case is filed on record if the documents provided by the claimant are in accordance with Chinese Arbitration Law. 

The arbitration commission will then deliver copies of its arbitration rules, the panel list of arbitrators and the claimant’s Request for Arbitration to the respondent. 

Upon receipt of the above documents, the respondent shall submit a Statement of Defence to the arbitration commission within the time limit under the rules of the arbitration commission. The respondent is also entitled to submit counterclaims.

Hearing

After the arbitral tribunal has been constituted, the tribunal notifies the parties of the date of the hearing. 

At the hearing, the parties have the right to produce evidence to support their claims. The tribunal also has the power to obtain evidence if necessary. Both parties have the right to examine the authenticity of the evidence submitted by the other party andboth parties are entitled to submit their oral arguments during the hearing.

Settlement, Mediation and Award 

The parties may settle the dispute after a Request for Arbitration has been filed. If a settlement agreement has been reached, the parties may either apply to the arbitral tribunal for an award based on the settlement agreement or withdraw the Request for Arbitration. 

The tribunal may conduct mediation before the award is given. It is stipulated by Chinese Arbitration Law that the arbitral tribunal shall conduct mediation if both parties so wish. In practice, arbitrators are encouraged by the arbitration institutions to resolve the disputes through mediation. 

Where no settlement agreement is reached through mediation, the tribunal shall render an arbitral award within the time limit stipulated by the rules of the arbitration commission. This awardcannot be appealed to the courts.

Possible Judicial Review of an Arbitral Award

As stipulated under Chinese Arbitration Law and the CPL, there are two chances for the losing party to challenge the arbitral award: apply to the court to set aside the award within six months after receiving the award; alternatively, apply to the court to refuse to enforce the arbitral award when the winning party tries to enforce it. 

It is worth noting that there is a different standard of judicial review for domestic awards and foreign-related awards. Domestic arbitral awards may be set aside due to some substantial matters such as forging or hiding evidence, but this does not apply to foreign-related arbitral awards. Details in this regard can be found in 11.3 Standard of Judicial Review

Powers of Arbitrators

Power of managing arbitration proceedings

Under Chinese Arbitration Law, arbitrators as members of a tribunal have the power to organise and conduct arbitration proceedings, and decide a case independently in a fair and reasonable manner based on the facts and laws. 

For example, an arbitral tribunal could decide whether to resume a proceeding if an arbitrator is replaced or removed. Similarly, a tribunal has the power to decide whether to approve an application to postpone a hearing. 

Power of collecting evidence and appraisal 

The arbitral tribunal has the power to collect evidence by itself if necessary. As for specific issues, the arbitral tribunal may appoint appraisers if it considers this necessary. 

Power of approval for extension

Arbitrators have the power to decide whether or not to accept the parties’ application for an extension of the time limit for submitting the statement of defence or counter claims, and documents submitted after the expiration of the time limit.

Power of allocation of fees

The tribunal has the power to determine the arbitration fees and other expenses to be paid by the parties. In addition, upon a party’s request, arbitrators also have the power to decide in an arbitral award, having regard to the circumstances of the case and that the losing party shall compensate the winning party for the expenses reasonably incurred by it in pursuing/defending the case. 

Several factors, such as the outcome and complexity of the case, the workload of the winning party and/or its representatives and the amount in dispute, etc, may be taken into consideration by the arbitrators when deciding whether or not the expenses incurred by the winning party in pursuing the case are reasonable.

Duties of Arbitrators

Under Chinese law, the provisions stipulating arbitrators’ duties can be found in several articles of the statute. 

Additionally, Chinese arbitration commissions have also imposed duties on arbitrators through codes of conduct, which provide more details to regulate arbitrators’ behaviour in an arbitration proceeding. These are summarised as follows:

Duty of being independent and impartial

Arbitrators shall conduct arbitration independently and impartially based on the facts and governing laws. In general, an arbitrator shall treat the parties equally and shall not represent either party. The parties concerned shall enjoy reasonable and fair opportunity to present their case. 

An arbitrator shall withdraw from the arbitration, and the parties concerned shall have the right to challenge and remove the arbitrator if the arbitrator:

  • is a party in the case or an immediate relative of a party or its representative in the case;
  • has a personal interest in the case;
  • has any other relationship with a party or its representative in the case which may affect the impartiality of the arbitrator; or
  • has a private meeting with a party or its representative or accepts an invitation of entertainment or a gift from a party or its representative.

Duty of confidentiality

Arbitrators shall not disclose any information about a case, either substantial or procedural, to any third parties.

Duty to conduct mediation

Where the parties agree to mediation, the arbitral tribunal shall conduct mediation accordingly before making an arbitral award. 

Duty of rendering an arbitral award in time

Arbitrators shall respect the time limit as required by the arbitration rules, and render an arbitral award within the time limit required. 

Under Chinese Arbitration Law, a party may appoint lawyers or other representatives to attend arbitration proceedings on behalf of the party concerned. In this case, a power of attorney shall be signed by the parties and submitted to the arbitration commission. There is no limitation preventing foreign lawyers and/or foreign individuals from acting as legal representatives before Chinese arbitration commissions.

In general, there is no limit on the number of legal representatives in arbitration proceedings, which is in line with UNCITRAL Model Law. However, a few arbitration commissions, like SHIAC, only allow one to five legal representatives in one case. It is suggested the parties check the specific arbitration rules beforehand. 

The underlying rule is that each party shall bear the burden of proving the facts on which it relies to support its claim, defence or counterclaim.

Article 45 of Chinese Arbitration Law requires that evidence be presented during the hearings and the authenticity of the evidence may be examined by the parties. There is no specific provision in Chinese Arbitration Law empowering the tribunal to determine the admissibility, relevance, materiality and weight of the evidence. In practice, however, the tribunal usually has broad discretion regarding collection, submission and admission of evidence.

China does not have the practice of discovery or disclosure in legal practice. Unless otherwise agreed in advance, the parties lack the explicit power to request the production of documents. 

The use of witness statements and cross-examination are permitted, but rarely used, since traditionally, litigation and arbitration in China are to a great extent reliant on documentary evidence. 

Article 43 of Chinese Arbitration Law gives the tribunal power to collect evidence on its own, as it considers necessary. However, this power is almost impractical without the support of judiciary powers and is rarely used in arbitration practice. 

There are no unified rules of evidence applicable to commercial arbitration, and institutional arbitration rules provide limited reference to the collection and submission of evidence. Some arbitral tribunals resort to the Provisions on Evidence in Civil Litigation published by the SPC for guidance. 

In March 2015 CIETAC published its Guidelines on Evidence (Guidelines) to assist the parties in dealing with issues of evidence in arbitration proceedings. Like the IBA Rules on the Taking of Evidence in International Arbitration (IBA Rules), the application of the Guidelines is subject to the consent of the parties in each case.

In international cases administered by Chinese arbitration institutions, it is common for the parties to agree to adopt the IBA Rules.

Arbitrators in China do not have powers of compulsion to order the production of documents or to require the attendance of witnesses. 

However, if the parties agree to adopt CIETAC Guidelines on Evidence, the arbitral tribunal may require a party to produce any evidence that the tribunal considers necessary. Meanwhile, the tribunal shall ensure that the opposing party has the opportunity to express opinions on the evidence submitted by the other party. 

Article 40 of Chinese Arbitration Law provides that arbitral proceedings shall be conducted in camera. This provision lays out the foundation of the principle of confidentiality in arbitration practice.

Many arbitration commissions provide provisions for confidentiality, such as Article 26 of BAC Arbitration Rules (2019) and Article 38 of CIETAC Arbitration Rules (2015). To be specific, not only the parties concerned but also their representatives, arbitrators, witnesses, interpreters and experts shall not disclose any information to any third party concerning the arbitration, whether substantive or procedural. 

Nonetheless, information in arbitration may be disclosed when judicial courts get involved. A party may apply to the courts to confirm the validity of the arbitration agreement during the initial stage, which may result in publication of information of the arbitration agreement or the existence of the arbitration. This is the case in the stage of enforcement of the arbitration award as well. In addition, if a party in the arbitration procedure is a listed company, its performance of its statutory disclosing obligation may also lead to the disclosure of relevant arbitration information.

Article 54 of Chinese Arbitration Law requires that an arbitral award shall set forth the claims, facts in dispute, the grounds upon which an award is rendered, the reliefs granted by the award, the allocation of arbitration fees and the date of the award. The facts in dispute and the grounds may not be included in the award, however, if this has been agreed by the parties. The award shall be signed by the arbitrators and affixed with the stamp of the arbitration commission. 

In addition, an arbitral award must be signed by the majority of arbitrators if there is one dissenting arbitrator. An arbitrator who has a dissenting opinion may or may not sign their name on the award. CIETAC and BAC Arbitration Rules additionally require that an award must state the place where it was made. 

Chinese Arbitration Law does not specifically stipulate the time limit during which an arbitral award should be given. However, all arbitration commission rules have articles specifying the length of time during which a tribunal shall deliver an award. For international cases, as stipulated in Article 68 of BAC Arbitration Rules (2019) and Article 48 of CIETAC Arbitration Rules (2015), an arbitral tribunal shall render its award within six months of the tribunal's constitution, unless there are special circumstances justifying an extension. The time limit for domestic cases is four months. The time limit will be even shorter if Summary Procedure is adopted, in which case, it will be within three months from the date on which the arbitral tribunal was formed, as stipulated in Article 62 of CIETAC Arbitration Rules (2015). 

Under Chinese legislation, a tribunal has broad discretion to award remedies, including monetary damages, declaratory reliefs and specificperformance. 

According to Chinese law, a party is generally liable for the actual loss caused to other parties. Therefore, the concept of punitive damages is seldom used or upheld, unless it is explicitly stipulated by law. 

In addition, an arbitral tribunal may also make a ruling on the expected profit which shall be compensated by the breaching party, to meet the reasonable anticipation of the non-breaching party. 

In respect of liquidated damages under the Contract Law of the People’s Republic of China (Chinese Contract Law), an arbitral tribunal may adjust the amount of liquidated damages previously stipulated in a contract, when these are compared with the actual damages incurred. When requested by one party, supported by evidence to prove the actual losses of the non-breaching party, an arbitral tribunal may properly reduce/increase the amount of the liquidated damages where the amount is significantly higher/lower than the actual damages. 

Under Chinese Contract Law, an arbitral tribunal may also require the breaching party to carry out specific performance in compliance with the contract concerned, which is deemed as an effective way to protect the non-breaching party’s expected interest. 

As in many other jurisdictions, in China, an arbitral tribunal has broad discretion to award costs. Generally speaking, the 'costs follow the event' principle applies in arbitration in China. As provided in Article 52 of BAC Arbitration Rules (2019) and Article 52 of CIETAC Arbitration Rules (2015), a party may recover 'reasonable costs and expenses' from another party to cover the arbitration process if so determined by the tribunal. This means, however, that if the arbitration costs/expenses of the winning party are considered unreasonable, the tribunal might not uphold the recovery of those costs. 

When deciding the allocation of costs, the tribunal will also consider several other factors, including the outcome of the arbitration and bad faith behaviour. With regard to the disputed issue of in-house counsel fees, different tribunals will take different approaches. If, however, a party manages to convince the arbitral tribunal that the costs are 'closely connected' to the arbitration proceedings, then the arbitral tribunal is more likely to uphold the recovery of those costs. 

There is no mandatory rate of interest. The parties can agree on the applicable rate of interest. The pertaining provisions in the contract will firstly be examined by the tribunal to award interest. According to the Reply of the SPC on the Criteria for Calculation of the Liquidated Damages for Delayed Payment (2000), without an agreement between the parties concerned, the interest rate released by the People’s Bank of China for RMB loans of a similar term and type will be used as a reference by the tribunal.

However, even if the parties concerned have agreed otherwise, there is a ceiling to the interest that a party can be awarded. According to Article 29 of the Provisions of the SPC on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases (2015), when an arbitral tribunal is deciding the amount of interest, the interest rate on an overdue loan may not exceed the annual interest rate of 24%.

According to Article 9 of Chinese Arbitration Law, an arbitral award is final and binding. Therefore, no appeal of an arbitral award is allowed in China. 

However, there are two chances for the losing party to challenge the award: 

  • the parties are entitled to challenge the award by applying to the judicial court to set aside the award within six months after receiving the award. The court that has jurisdiction to set aside the award is the intermediate court in the area where the arbitration institution is located; or
  • the losing party could also apply to the court to refuse to enforce the award on limited and prescribed grounds, which are stated in 11.3 Standard of Judicial Review, below. 

There are statutory grounds ('judicial review') to set aside the award or refuse to enforce the award, as stipulated in Chinese Arbitration Law and the CPL. Parties are not empowered to expand the scope of judicial review.

At present, China adopts a 'dual-track' judicial review system for foreign-related arbitration and domestic arbitration. 

For arbitration awards with foreign-related factors, only procedural issues can be examined bya judicial court, according to Article 70 of Chinese Arbitration Law and Article 274 of the CPL. These are identical to the stipulations of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 1958 New York Convention). To be specific, in the process of judicial review, competent Chinese courts may consider the following factors as to whether:

  • the arbitration agreement does not exist or is invalid; 
  • the respondent is not notified to appoint an arbitrator, or about the arbitration procedure, or fails to present its case;
  • the composition of the arbitral tribunal, or the arbitration procedure itself, does not conform with arbitration rules;
  • the matters arbitrated are outside the scope of an arbitration agreement, or the matters are not arbitrable; or
  • enforcing the arbitration award is contrary to public interest.

For domestic arbitration, according to Article 58 of Chinese Arbitration Law and Article 237 of the CPL, in addition to the procedural issues listed above, the judicial court can, upon the request of one of the parties, also examine the evidence-related issues of the arbitral awards, which means wider discretion to review the merits of the case. 

The relevant conditions considered include: 

  • whether the evidence as the basis of the award is forged; and
  • whether the opposing party has hidden evidence, which is sufficient to affect the fairness of the award.

The court will also set aside the award, or refuse to enforce the award, if it finds the arbitrator has committed embezzlement, accepted bribes, practised favouritism for personal gains, or rendered the award by bending the law.

China ratified the 1958 New York Convention in 1987, with reciprocity and commercial reservations, ie, China only recognises and enforces arbitral awards dealing with commercial disputes, whether contractual or not, and on the basis of reciprocity with other contracting states. 

The recognition and enforcement of arbitral awards between Mainland China and Hong Kong/Macau are subject to separate and respective arrangements between Mainland China and Hong Kong/Macau.

Basically, awards can be divided into three categories in China: 

  • foreign awards (awards made outside China, but inclusive of awards made in Hong Kong/Macau/Taiwan);
  • foreign-related awards (awards made by Chinese arbitration institutions with a foreign element and inclusive of Hong Kong/Macau/Taiwan-related awards); and 
  • domestic awards (awards made by Chinese arbitration institutions with no foreign element).

For the purpose of this guide, only the enforcement procedure of foreign awards and foreign-related awards is discussed.

Foreign Awards

The parties seeking to enforce a foreign award shall apply to the intermediate people's court in the domicile of the party subject to enforcement, or at the place where the property subject to enforcement is located. 

Upon receipt of the application, the competent court shall examine the award in accordance with the CPL and the relevant judicial interpretations which establish the mechanism to implement the 1958 New York Convention. Where the enforced party is not from a contracting state of the 1958 New York Convention, the Chinese court may enforce the award based on other applicable treaties or reciprocity. In addition, arbitral awards made in Hong Kong/Macau are enforced in Mainland China according to the respective special arrangements between Mainland China and these areas. Arbitral awards made in Taiwan are enforced in Mainland China according to the Provisions of the SPC on Recognition and Enforcement of the Arbitral Awards of the Taiwan Region (effective as of 1 January 2015).

A two-tier 'prior reporting system' is applied if an intermediate people’s court proposes to dismiss an application to recognise and enforce a foreign arbitral award. In this case, it must first report its proposal to refuse the enforcement to the higher people’s court in the same province. Furthermore, if the higher people’s court agrees with the proposal of the intermediate people’s court not to enforce the foreign award, the higher people’s court must report its opinion to the SPC. After reviewing the higher people’s court report, the SPC will make a final decision as to whether to recognise and enforce that award. Ultimately, the SPC will issue its decision to the higher people’s court and then that court will forward the instruction to the intermediate people’s court. Eventually, the intermediate people’s court will make a ruling in light of the instruction issued by the SPC.

This prior reporting system aims to avoid any local protectionism over the refusal of enforcement of foreign awards. This also indicates the highly pro-arbitration attitude of the SPC. However, it has been criticised for not being transparent enough and for uncertainty regarding the time limit that the review process will take.

Foreign-related Awards

The grounds for refusing enforcement of a foreign-related award are very similar to those for refusing enforcement of a foreign award under the 1958 New York Convention. If an enforcing court intends to refuse the enforcement of a foreign-related award, it has to go through the same prior reporting system as in the enforcement of a foreign award. In the circumstances, the SPC is the ultimate authority to determine not to enforce a foreign-related award.

According to the Notice of the SPC on Implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Acceded to by China (effective as of 10 April 1987), Chinese courts shall dismiss the application or refuse recognition and enforcement of an arbitral award if the arbitral award has been set aside by the courts in the seat of arbitration. 

A state or state entity may successfully raise a defence of state immunity at the enforcement stage, as Chinese law has traditionally held the position of absolute immunity for a state and its property. 

The recognition and enforcement of a foreign award is subject to the courts’ judicial review pursuant to Article V of the 1958 New York Convention. The grounds for refusing recognition and enforcement of an arbitration award are summarised as follows:

  • incapacity of a contracting party or an invalid arbitration agreement;
  • no proper notice regarding appointment of arbitrators and arbitration proceedings, or the inability of a party to present its case;
  • the arbitral award contains a decision beyond the tribunal’s jurisdiction;
  • the composition of the tribunal or the arbitral proceedings were not in accordance with the parties’ agreement or the applicable law;
  • the award has not yet become binding or has been set aside or suspended;
  • the subject matter of the dispute is non-arbitrable; or
  • the recognition and enforcement of the arbitral award would be contrary to the public policy of China.

The SPC is greatly supportive of the recognition and enforcement of foreign arbitral awards. Any court which intends to set aside or refuse to recognise or enforce a foreign arbitral award will be subject to the ultimate supervision of the SPC by way of the 'prior reporting system.' Accordingly, the vast majority of foreign arbitral awards have been recognised and enforced in China. The limited number of foreign arbitral awards which were not recognised or enforced is mainly due to irregularities in the composition of the tribunal or the arbitration proceedings, in breach of the parties’ arbitration agreement.

It is extremely rare for the Chinese courts to refuse to enforce a foreign arbitral award based on the grounds of public policy. As illustrated in the Reply of the Supreme People's Court to the Request for Instructions on the Non-Recognition of No 07-11 (Tokyo) Arbitral Award issued by the Japan Commercial Arbitration Association dated 29 June 2010, a strict interpretation of public policy could be seen. Public policy can only be the grounds for non-enforcement provided that the recognition and enforcement of the award would violate China’s basic principles of law and would harm China’s fundamental public interests. In practice, the violation of laws and administrative regulations by the award itself, does not necessarily constitute a violation of public policy.

Chinese legislation does not provide for class-action arbitration or group arbitration. However, some Chinese academics have suggested the introduction of class-action arbitration to China, in view of the fact that more collective disputes have arisen in recent years. For instance, one professor proposed that class action might be feasible in China for air crash or product liability disputes, etc. However, nothing has yet come into being.

Chinese lawyers are generally governed by the PRC Lawyers' Law and the ethical codes issued by the All China Lawyers Association, for their conduct in arbitration proceedings in China. However, this national legislation and Chinese lawyers’ self-regulatory rules are not applicable to foreign lawyers who conduct arbitration proceedings in China. 

With respect to arbitrators, each arbitration institution has its own code of ethics for arbitrators appointed in administered cases. For example, BAC published its code of ethics for arbitrators in 2006, which provides that arbitrators shall be honest, independent and impartial, and shall not represent either party or have any private relationship which may lead to reasonable doubt regarding an arbitrator’s independence or impartiality. Also, an arbitrator shall treat each party equally and render an award based on the facts and applicable laws. 

As of 30 June 2019, there has been no specific Chinese legislation or administrative regulation governing third-party funders’ activities in China. However, some institutional arbitration rules have incorporated provisions regarding third-party funding. For example, Article 27 of the CIETAC International Investment Arbitration Rules (2017) provides that a funded party shall notify the other party, the tribunal and the arbitration commission immediately after the third-party funding agreement is concluded. The funded party is required to disclose the existence and nature of the third-party funding arrangement, as well as the name and address of the third-party funder. The tribunal has the power to order the funded party to disclose any relevant information regarding the third-party funding arrangement. The tribunal may take such an arrangement and compliance with the above disclosure requirement by the funded party into account when ruling on the costs of arbitration.

Chinese Arbitration Law does not provide specific rules regarding the consolidation of different arbitral proceedings. However, the latest arbitration rules of leading Chinese arbitration institutions, such as CIETAC, BAC and SHIAC, have all adopted provisions regarding the consolidation of separate arbitral proceedings. 

For example, according to CIETAC Arbitration Rules (2015), CIETAC may, at the request of a party, consolidate two or more arbitrations pending under the rules into a single arbitration, if:

  • all arbitrations are made under the same arbitration agreement;
  • the claims in the arbitrations are made under multiple arbitration agreements that are identical or compatible, and the arbitrations involve the same parties as well as legal relationships of the same nature;
  • the claims in the arbitrations are made under multiple arbitration agreements that are identical or compatible and the multiple contracts involved consist of a principle and its ancillary contract(s); or
  • all the parties to the arbitrations agree to consolidation.

The arbitrations shall be consolidated into the arbitration that commenced first, unless otherwise agreed by the parties.

Generally, a third party is not bound by an arbitration agreement if it is not a signatory to the arbitration agreement. However, under Chinese law, a third party may be bound by an arbitration agreement in some circumstances. 

Pursuant to the SPC Interpretation of Arbitration Law (Articles 8 and 9), an arbitration agreement may bind a non-signatory party in three circumstances where:

  • a third party is the successor of a party which has merged or divided after an arbitration agreement has been executed;
  • a third party is the successor of a party straight after an arbitration agreement has been executed; or 
  • a third party is a transferee of any credits or debts, whether in whole or in part, which are subject to the arbitration agreement, unless the transferee clearly objected or was unaware of the existence of a separate arbitration agreement at the time of the transfer.

The first two circumstances above shall not apply if the parties have agreed otherwise in the arbitration agreement.

Besides, although Chinese statutes do not provide any rules concerning the joinder of third parties, many Chinese arbitration commissions have adopted the joinder of additional parties in their arbitration rules. For example, under CIETAC Arbitration Rules (2015), the joinder of additional parties is possible where the arbitration agreement prima facie binds the additional party. Under BAC Arbitration Rules (2019), an additional party may join the arbitration under the same arbitration agreement, subject to approval by BAC. Following that, no application for joinder will be accepted once the arbitral tribunal has been constituted, unless the claimant, the respondent and the additional parties agree.

AnJie Law Firm

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Liangmaqiao Diplomatic Office Building,
No. 19 Dongfangdonglu,
Chaoyang District,
Beijing 100600,
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+86 10 8567 5998

dongxiao@anjielaw.com www.anjielaw.com
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Law and Practice

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AnJie Law Firm is a full-service law firm with offices in Beijing, Shanghai, Shenzhen and Hong Kong. The dispute resolution team consists of more than 20 partners and 50 associates based at all four offices. The team has experience dealing with both domestic and international commercial disputes and the partners appear before different levels of the Chinese courts and the world’s major arbitration institutions. Several of the leading partners have been appointed as arbitrators of renowned international arbitration institutions. The firm represents leading multinational corporations, major state-owned enterprises, private companies and financial institutions in complex and high-value litigation and arbitration proceedings, covering a wide spectrum of industries, including finance, insurance, energy, oil and natural resources, manufacturing, aerospace, automobile, consumer electronics, fashion, information technology, media and pharmaceutical.

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