International Arbitration 2020

Last Updated August 18, 2020

China

Law and Practice

Authors



AnJie Law Firm is a full-service comprehensive law firm with offices in Beijing, Shanghai, Shenzhen and Hong Kong SAR. The dispute resolution team consists of more than 20 partners and 50 associates who are based at all the four offices. The AnJie dispute partners have substantive experience in dealing with both domestic and international commercial disputes. AnJie appears before different levels of the Chinese courts and the world’s major arbitration institutions. Several 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. AnJie's legal service covers a wide spectrum of industries, including finance, insurance, energy, oil and natural resources, manufacturing, aerospace, automobile, consumer electronics, fashion, information technology, media, pharmaceutical, semiconductor, and chemical.

Based on the statistics announced by the Ministry of Justice of China for 2018, the number of arbitration cases handled by all Chinese arbitration commissions in 2018 was over 540,000, which is an increase of approximately 127% on 2017.

Although the total number of arbitration cases for 2019 has not been announced yet, it is clear from the statistics published by the leading Chinese arbitration commissions that their case load has increased in 2019 compared to 2018. Particularly, the number of foreign-related arbitrations administered by these arbitration institutions have been raised.

For example, in 2019, the China International Economic and Trade Arbitration Commission (CIETAC) administrated 617 foreign-related arbitration cases, an increase of 95 cases compared to 2018. As for the Beijing Arbitration Commission (BAC)/Beijing International Arbitration Center (BIAC), it has handled 163 foreign-related arbitration cases in 2019, which is an increase of approximately 85% on the figures for 2018.

It is obvious that arbitration has become a popular way to resolve commercial disputes in China. Please note: for the purpose of this article, "China" refers to "Mainland China" and excludes Hong Kong, Macau and Taiwan.

Due to the Belt and Road Initiative (BRI) and the "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, partly because enforceability is a crucial factor to consider.

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

On 27 July 2019, the State Council established the Notice on Issuing the Overall Plan for the Lin-gang Special Area of the China (Shanghai) Pilot Free Trade Zone (Guo Fa [2019] No 15). Renowned foreign arbitration centres and dispute resolution agencies are allowed to develop their arbitration businesses upon relevant registration and record filed to the judicial administration department of Shanghai and the State Council. The new policy demonstrates the Chinese government’s friendly approach towards international arbitration – it welcomes the renowned international arbitration institutions to bring their business to China.

The COVID-19 pandemic has impacted arbitration proceedings in China. In early 2020, almost all Chinese arbitration commissions had their staff working from home and suspended face-to-face hearings. Instead, some of the arbitration hearings have gone online and the parties tend to be adaptive to virtual hearings as they get used to the video-conference software and technology.

In the meantime, Chinese arbitration commissions have made efforts to effectively mitigate the negative influence of the COVID-19 pandemic. For example, CIETAC has implemented several measures for remote working, such as online case filing, electronic service of documents, documents-only case examination, audio-video conference and virtual hearing, etc.

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

On the other hand, with increased conflicts between the Chinese and US governments and what some experts see as the general trend of de-globalisation, it is expected that Chinese parties would be involved in the international disputes arising from this process 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 the future.

In terms of international arbitration, CIETAC is traditionally the predominant arbitration commission in China which administers substantial numbers of foreign-related arbitrations. According to the statistic published by CIETAC, the total caseload for the year 2019 was 3,333, of which 617 was foreign-related cases.

In addition, BAC, SHIAC and SCIA are other commissions that have in recent years amended their 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 a "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 Supreme People’s Court of China (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, with only two slight amendments in 2009 and 2017.

On 2 April 2019, the SPC and the Hong Kong government 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). This Arrangement has come into effectiveness on 1 October 2019 and provides the legal basis for a party in an arbitration seated in Hong Kong to seek for interim relief from the People’s Court in the Mainland or vice versa. It is worth noting that the Arrangement only applies to institutional arbitrations which are administered by the specific arbitration institutions in Hong Kong.

Further, the 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) was concluded between the SPC and the Hong Kong government on 18 January 2019. Under the Arrangement on Judgments, the scope of judgments has been substantially expanded 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. However, this Arrangement on Judgment has not yet come into effect and will not do so until the SPC and Hong Kong both complete their respective approval procedures.

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 commissions.

There is also controversy as to whether antitrust disputes are arbitrable in China. The Supreme People’s Court in China held in 2019 that an antitrust dispute is not arbitrable because of the public law character of antitrust law, on the same ground as that of Jiangsu Provincial High Court held in 2016.

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 the 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 a competent Chinese court. The court will then examine the arbitration agreement according to the law applicable to the arbitration agreement. Under Article 18 of the 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. 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) is such a case where the Chinese court held that the pathological arbitration clause in the case was valid and binding while another similar arbitration clause was found invalid by the relevant Chinese court about ten years ago. (See Reply of the Supreme People's Court to Request for Instructions Re Arbitration Clause Validity in the Agency Contract Dispute in the Case of Mashan Group Co., Ltd. v Korea Sungdong Shipbuilding Ocean Co., Ltd. and Rongcheng Chengdong Shipbuilding Ocean Co., Ltd., (2008) Min Si Ta Zi No 26, 30 October 2008.)

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

Article 13 of the 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 arbitration commissions. In other words, the parties’ autonomy in selecting arbitrators is limited to the pool established by the specific arbitration commissions. Very few commissions out of the 258 arbitration commissions (the number of arbitration commissions in China by the end of 2019) 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 of BAC.

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.

The 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, the 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 the Chinese Arbitration Law.

Although it is not explicitly stipulated in the Chinese Arbitration Law, some arbitration commissions, like CIETAC, have included a default procedure regarding multi-party arbitration.

According to Article 29 of CIETAC Arbitration Rules (2015), where there are two or more claimants and/or respondents in an arbitration, the group of claimants and/or respondents shall, after discussion, each jointly nominate one arbitrator for its side, or jointly entrust the chairman of CIETAC to appoint one arbitrator. Where either the claimant side or the respondent side fails to jointly nominate or jointly entrust the chairman of CIETAC to appoint an arbitrator, the chairman of CIETAC shall appoint all three members of the tribunal and designate one of them to act as the presiding arbitrator.

Under the 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 the Chinese Arbitration Law stipulate particular provisions regarding the challenge and removal of arbitrators.

According to Article 34 of the Chinese Arbitration Law, 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 the Chinese Arbitration Law requires that arbitrators shall be honest and just. Pursuant to Article 34 of the 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 the 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.

The principle of competence-competence is not recognised in the 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 commissions 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 the 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.

According to Article 13 of the SPC judicial interpretation of the Arbitration Law (2006), where a relevant arbitration commission has ruled on the validity of the jurisdiction, and a party then applies to the court to determine the validity of such an arbitration agreement or to set aside the ruling of the arbitration commission, the court shall not accept such a case. In other words, the Chinese court will not review negative rulings on jurisdiction made by relevant arbitration commissions.

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: (i) refuse to accept such a case at the filing stage, if it discovers a valid arbitration agreement; or (ii) 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 judicial interpretation of the Arbitration Law (2006).

According to articles 8 and 9 of the SPC judicial interpretation of the 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 commission 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 the competent court in accordance with the Chinese Arbitration Law and CPL.

Accordingly, the 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
  • 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 addition, as introduced in 2.2 Changes to National Law, the Arrangement made between the SPC and Hong Kong government has enabled parties in an arbitration seated in Hong Kong and administered by the specific arbitration institutions to seek for interim reliefs from the People’s Court in Mainland China. The Arrangement is considered as a substantive advantage of Hong Kong seated arbitrations for arbitration claimants who requires interim reliefs against the counterparty’s assets in Mainland China.

According to the public information, there have been more than 20 applications for interim relief submitted to the People’s Court in Mainland China by parties in Hong Kong seated arbitrations since the implementation of the Arrangement. Among these applications, at least seven applications have been granted by the relevant People’s Courts.

Emergency Arbitrators

No emergency arbitrator (EA) procedure is stipulated in the 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 the 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 the Chinese Arbitration Law, CIETAC and BAC nevertheless do their utmost to enable the parties to resort to EA procedures where possible. 

It is worth noting that the first known EA 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 the Chinese Arbitration Law, the SPC judicial interpretation of the Arbitration Law, CPL and the SPC judicial 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.

The 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 the 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 and both 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 the 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 award cannot be appealed to the courts.

Possible Judicial Review of an Arbitral Award

As stipulated under the 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 the 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 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 the 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, such as 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 the 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 the 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 the Chinese Arbitration Law gives the tribunal power to collect evidence on its own, as it considers necessary. However, this power is quite 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 (CIETAC Guidelines on Evidence) 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 the 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 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 the 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. 

The 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 specific performance. 

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 or increase the amount of the liquidated damages where the amount is significantly higher or lower than the actual damages. 

Under the 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.

In China, as in many other jurisdictions, 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. Recently, the Provisions of the SPC on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases have been amended and came into effectiveness on 20 August 2020. According to Article 29 hereof, when an arbitral tribunal is deciding the amount of interest, the interest rate on an overdue loan may not exceed four times the loan prime rate (LPR) quoted for one-year loan at the time of conclusion of contract.

According to Article 9 of the 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 commission 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.

There are statutory grounds (“judicial review”) to set aside the award or refuse to enforce the award, as stipulated in the 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 by a judicial court, according to Article 70 of the 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 the 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, arbitral 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 article, 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 2020, 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.

The 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.

The Chinese courts are not empowered under the Chinese law to consolidate separate arbitral proceedings.

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 judicial interpretation of Arbitration Law (articles 8 and 9), an arbitration agreement may bind a non-signatory party in three circumstances, as listed below:

  • 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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Global Law Office was one of the first law firms in China to take its perspective international, embracing the outside world. More than 500 lawyers' practise from offices in Beijing, Shanghai, Shenzhen and Chengdu. The firm's arbitration legal team has long been engaged in legal consulting and dispute resolution in the fields of international trade, international investment and international finance, including dispute resolution methods such as negotiation, mediation, expert review, arbitration and litigation. The areas involved are international cargo trading, maritime business laws in the fields of maritime affairs, foreign investment in China, Sino-foreign joint ventures, international syndicated loans, project financing, construction engineering contracts, insurance, logistics, international technology transfer, patent and know-how licensing, trade mark licensing, processing and distribution agreements, etc.

Interim Measures in Mainland China in Aid of Hong Kong Arbitrations

Background

Many foreign companies choose Hong Kong arbitration to resolve disputes with their Chinese counterparts. However, interim measures ordered by Hong Kong Courts or arbitration tribunals are not enforceable in Mainland China.  Subsequently, enforcement of an award could be a tough issue when the winning party finds that its opponent has transferred its assets in the Mainland to associated companies. 

The Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland & of the Hong Kong Special Administrative Region (“the Arrangement”) came into force on 1 October 2019. The Arrangement gives parties to a Hong Kong-seated arbitration rights to seek interim measures (including but not limited to property preservation) before Mainland courts.

Through property preservation, Mainland courts may order to seal up (eg, real properties), seize (eg, facilities and equipment), or freeze (eg, bank accounts); such that an arbitral award could be effectively enforced in mainland China. The property preservation can diminish the risk of dissipation of assets and place more pressure on the opponent in achieving settlements.

Different types and functions of interim measures ordered by Mainland courts

Interim measures ordered by the Mainland courts include property preservation, evidence preservation, and conduct preservation. The most significant and common measure among the three is property preservation.

Property preservation usually is ordered by a Mainland court upon a party’s application when the judgment would be rendered unenforceable or other damages would be caused by the conduct or other reasons of the other party. Property Preservation is similar to a Mareva injunction in common law jurisdictions.

Pre-requisites for an application for interim measures before Mainland courts

To apply for property preservation, a Hong Kong Arbitration must be seated in Hong Kong (by parties’ agreement or otherwise decided by the arbitral tribunal in accordance with relevant arbitration rules); and administered by an arbitral institution or its permanent offices, which includes Hong Kong International Arbitration Centre, China International Economic and Trade Arbitration Commission Hong Kong Arbitration Center, International Court of Arbitration of the International Chamber of Commerce – Asia Office, Hong Kong Maritime Arbitration Group, South China International Arbitration Center (HK), and eBRAM International Online Dispute Resolution Centre.

It is noteworthy that ad hoc arbitrations and investment arbitrations are excluded for the purpose of the Arrangement.

Materials for an application to Mainland courts for interim measures

General requirements

Pursuant to the Arrangement and relevant PRC laws, a party applying for interim measures shall submit the following to a Mainland court:

  • the application for interim measure;
  • the arbitration agreement;
  • documents of identity;
  • letter from relevant institution or permanent office certifying its acceptance of the case;
  • particulars of assets; and
  • guarantee.

In practice, the most important materials are the application, the particulars of assets, and the guarantee.

An Application for Property Preservation

In Hong Kong, an applicant for a Mareva injunction must first prove a good arguable case and real risk of dissipation. The court then may consider the balance of convenience before granting an injunction.

In comparison, the threshold is much lower in applying for property preservation before Mainland courts. There is no need to satisfy the requirements of a Mareva injunction. In practice, the Mainland courts would not consider the possibility of the applicant’s chances of winning in the case nor would it investigate into whether the other party is dissipating assets. As a result, the chance of Mainland courts granting a property preservation is considerably high.

Particulars of assets

Contrary to the common law system, there is no order for disclosure per se under PRC laws. The applicant for property preservation must provide clear evidence of the other parties’ assets. Mainland Courts would only preserve the assets identified by the applicant.

Identifying the assets for preservation is usually the toughest practical barrier for an applicant. 

In practice, a party normally would engage lawyers to carry out an investigation, and conduct company search or other types of due diligence in order to obtain particulars of assets.

Guarantee provided by the applicant

Unlike requirement for a Mareva injunction in Hong Kong, an applicant’s undertaking of compensating the other opposing party’s losses is not sufficient before a Mainland court. In practice, the applicant for property preservation are usually required to provide guarantees in the following ways:

  • assets security by the applicant or a third party;
  • third party guarantee;
  • letters of guarantee issued by financial institutions; or
  • letter of indemnification provided by insurance companies.

Applicants usually follow PRC lawyer’s advice and submit a letter of guarantee or indemnification by a financial institution or an insurance company so that the financial burden placed upon the applicant itself could be relieved. 

Application procedures

When to apply

Article 3 of the Arrangement requires an application be submitted “before the arbitral award is made,” which means that a party may file an application to Mainland courts before the commencement of an arbitration or during the arbitration proceedings. However, no application can be made once an arbitral award is issued.

Currently, these is no provision allowing a party to apply for preservation measures after an arbitral award is rendered. Therefore, it is advisable for parties to a Hong Kong-seated arbitration to apply for preservation measures before an arbitral award is issued. In addition, because the recognition and enforcement of a Hong Kong award can be time-consuming in the Mainland, while the losing party might have opportunities to transfer assets which can further obstruct the actual enforcement, applying for and utilising the interim measures, thus, can offer significant advantages to the winning party in the subsequent enforcement.

How to apply

If an application is made prior to the commencement of an arbitration, it should be submitted to the relevant Mainland courts directly. Upon the interim measure being taken, it is required the letter of acceptance be submitted to the court within 30 days by the arbitral institution.

If an application is made during the arbitral proceedings, the applicant should submit it to the arbitral institution, and the latter will pass on the application together with a letter of acceptance to relevant Mainland courts. In practice, the Mainland courts would accept that the party submits the application, together with the letter issued by the arbitral institution, directly to the court.

In practice, it is advantageous for a party to instruct lawyers to file the application directly to the Mainland courts so as to save time for transmission and to reduce the risk of assets dissipation.

Jurisdiction

Article 3 of the Arrangement provides that the intermediate People’s Court of the place of residence of the party against whom the application is made or the place where the property or evidence is situated has jurisdiction in granting interim measures.

An applicant is free to choose to apply to the court of the place of residence or the court where the property is situated. But the application can be made only to one court. In practice, an applicant usually seeks assistance from experienced lawyers in choosing a proper court to prevent local protectionism and smooth the procedure.

Hearing, time and costs

In an application for a Mareva injunction in Hong Kong, the court will conduct an oral hearing, and the opposing party has a chance to object. In a case of emergency, the court will have an ex parte hearing to scrutinise the case of the applicant. On the contrary, Mainland courts in general do not hold hearings to consider applications for property preservation.

Instead, they only review written applications submitted by applicants. Hence, it is more likely that Mainland courts would grant applications for property preservation.

For applications submitted before the commencement of arbitration, Mainland courts are required to make their decisions within 48 hours upon receiving applications. For applications submitted during arbitral proceedings, the time period is five days upon receiving applications. In cases where guarantees are required, courts must decide within five days after guarantees are provided. The preservation measures shall be taken within five days upon courts granting orders.

Costs of the court in granting interim measures are relatively low, which are charged based on the amount of assets involved. In any case, the cost shall not be more than RMB5,000.

Conclusion

Overall, with the Arrangement coming into force, parties to a Hong Kong-seated arbitration now are able to apply for property preservation in the Mainland, which highlights prominently the advantages of Hong Kong-seated arbitrations. It is advantageous for parties to make use of such more likely granted and costs effective property preservation measure in the Mainland courts.

Since the legal regimes in the Mainland are noticeably different from those in Hong Kong, especially regarding assets disclosure and guarantee requirements, parties to Hong Kong-seated arbitrations and their lawyers should make themselves familiar with the Arrangements and seek necessary assistance from Mainland lawyers in order to obtain fully the protections and benefits offered by the Arrangement.

A Hong Kong-seated Arbitral Award Probably Should be Recognised Before it is Enforced

Background

Article 283 of the Civil Procedural Law of PRC provides that foreign arbitral award should be applied for recognition prior to the enforcement procedure. Whether a Hong Kong-seated arbitration awards should be recognised first, however, is not so clear. The bilateral arrangement between Mainland China and Hong Kong only provides that the applicant may make an enforcement application of the Hong Kong-seated arbitral award to the relevant court.

Views of Mainland courts

Different Mainland courts adopted different views towards this issue.

In 2017, an application for enforcing a Hong-Kong seated arbitral award in Shenzhen Intermediate People’s Court was denied because the applicant did not apply for recognition first. However, in 2019, the application, filed by the same applicant, for enforcing the same award, was granted by Wuhan Intermediate People’s Court, even though the respondent raised a defence on the ground that the award had not yet been recognised.

Recent decisions from Supreme People’s Court (SPC) tend to require the recognition process before enforcing Hong Kong-seated arbitral award. In a case (case number: (2013) Zhi Jian Zi No 202) ruled by SPC, SPC stated the internal review for recognition of a Hong Kong seated arbitral award was indispensable, even though the applicant only applied for enforcement.  In a Reply Letter (number: (2016) Zui Gao Fa Min Ta No 63) sent by SPC to Beijing Higher People’s Court, SPC also reiterated that the necessity of reviewing whether a Hong Kong-seated arbitral award has been recognised or not before the enforcement stage.

In 2017, SPC issued a judicial interpretation named Provisions of the SPC on Several Issues relating to the Hearing of Cases Involving Judicial Review of Arbitration, and an internal notice called Notice of the SPC on Issues Concerning the Centralized Handling of Cases of Arbitration-related Judicial Review, both of which listed the recognition equally to enforcement of Hong Kong-seated arbitral award.

Foreign Arbitration Institutions are Allowed to Establish Offices and Conduct Arbitrations in the Lin-Gang Special Area of Shanghai

Background

On 27 July 2019, PRC State Counsel issued the Framework Plan for the Lin-Gang Special Area of China (Shanghai) Pilot Free Trade Zone, which specifically allows foreign arbitration institutions to conduct arbitration business in the Lin-Gang Special Area. On 12 October 2019, the Shanghai Municipal Government issued the Administrative Measures for Foreign Arbitration Institutions to Establish Business Offices in Lin-Gang Special Area of China (Shanghai) Pilot Free Trade Zone (“Administrative Measures”), which refines the qualifications and the scopes of business as required for foreign arbitration institutions to manage arbitration cases in the Lin-Gang Special Area.

Current business offices and the scope of business

Specifically, foreign arbitration institutions may register and establish business offices in the Lin-Gang Special Area to conduct foreign-related arbitration business in respect of civil and commercial disputes arising in the fields of international commerce, maritime affairs and investment, including acceptance, trial, hearing, awarding of cases, case management and services, consultancy, guidance, training and seminars.

After the issuance of the Administrative Measures, four world-renowned international arbitration institutions have set up their business offices in the Lin-Gang Special Area, including the International Chamber of Commerce International Court of Arbitration, the Hong Kong International Arbitration Centre, the Singapore International Arbitration Centre and the Korean Commercial Arbitration Board.

Conclusion

Allowing foreign arbitration institutions to set up business offices in Mainland China means that the parties have more choices of diversified and specialized international commercial arbitration services within the border of China. The improvement in the level of arbitration services would probably attract more domestic and foreign parties to choose Shanghai as the seat of arbitration, particularly in the context of the Belt and Road Initiative.

Allowing foreign arbitration institutions to set up business offices in Mainland China also signals that China is still committed to opening-up, which is conducive to optimising the business environment and attracting foreign investment.

Virtual Arbitration Services to Cope with the COVID-19 Outbreak

Background

The outbreak of COVID-19 has caused disruptions over the daily life and work exacerbated as travel and quarantine restrictions and other prevention measures adopted globally. Domestic and international arbitration in China is not immune to the influence of COVID-19 pandemic, and the demands for online or virtual arbitration services are visibly increasing.

The practice adopted by different arbitration institutions in China

HKIAC

Hong Kong International Arbitration Center (HKIAC) is the linchpin in promoting virtual hearing services among varied arbitration institutions in China. According to several official statistics published on the HKIAC website, the percentage for virtual hearing services that parties adopted fully or partly accounted for 85% in April and May 2020. Specifically, there are six technical tools which can be chosen by parties to smoothly facilitate the arbitration process instead of simply postponing them, including video conferencing, audio conferencing, electronic bundle services, electronic presentation of evidence, transcription services and interpretation services.

To ensure parties’ rights of participation in arbitration hearings, HKIAC allows parties to incorporate virtual services partially or fully. For example, the parties can be physically present before the Tribunal, and witnesses and interpreters may participate remotely through cloud-based platforms (ie, Zoom, WebEx) which offers more flexibility. All of these methods can robustly advance the arbitration proceedings by technical supplemental.

CIETAC and SCIA

The arbitration institutions in Mainland China are also pro-active to embrace the trend of virtual arbitration services. Compared to international arbitration, Chinese domestic arbitration usually adopts a relatively traditional way in case management. For example, documents and evidence materials in relation to the arbitration are generally delivered in person or by courier, instead of communicating by e-mail. But facing severe pandemic impacts, Chinese domestic arbitration institutions quickly adopted virtual arbitration services to facilitate case management.

Shenzhen Court of International Arbitration (SCIA) upgraded its three online service platforms, including online case fling platform, online hearing platform and online exchange and examination of evidence platform, for parties to take advantage. To encourage parties to choose online platforms, SCIA issued a decision on reduction of arbitration fees in February 2020.

For mitigating the influence of epidemic, China International Economic and Trade Arbitration Commission (CIETAC) also released the Guidelines on Proceeding with Arbitration Actively and Properly during the COVID-19 Pandemic on 28 April 2020, which was effective as of 1 May 2020. With respect to filling cases, it promotes several non-contact measures for submitting arbitration applications, documents and evidence, and conducting oral hearing via CIETAC oral hearing platform. Besides, arbitral tribunals are advised to ask for the parties’ permissions for hearing cases on a documents-only basis, which could accelerate the proceedings and the issuance of the arbitral awards.

There is no doubt that the virtual arbitration measures can help parties to resolve disputes in the difficult environment of COVID-19. As domestic arbitration institutions and parties are getting used to online platform and technology, they may soon embrace a more technology-based and modern way of case management system in arbitration proceedings.

Global Law Office

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AnJie Law Firm is a full-service comprehensive law firm with offices in Beijing, Shanghai, Shenzhen and Hong Kong SAR. The dispute resolution team consists of more than 20 partners and 50 associates who are based at all the four offices. The AnJie dispute partners have substantive experience in dealing with both domestic and international commercial disputes. AnJie appears before different levels of the Chinese courts and the world’s major arbitration institutions. Several 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. AnJie's legal service covers a wide spectrum of industries, including finance, insurance, energy, oil and natural resources, manufacturing, aerospace, automobile, consumer electronics, fashion, information technology, media, pharmaceutical, semiconductor, and chemical.

Trends and Development

Authors



Global Law Office was one of the first law firms in China to take its perspective international, embracing the outside world. More than 500 lawyers' practise from offices in Beijing, Shanghai, Shenzhen and Chengdu. The firm's arbitration legal team has long been engaged in legal consulting and dispute resolution in the fields of international trade, international investment and international finance, including dispute resolution methods such as negotiation, mediation, expert review, arbitration and litigation. The areas involved are international cargo trading, maritime business laws in the fields of maritime affairs, foreign investment in China, Sino-foreign joint ventures, international syndicated loans, project financing, construction engineering contracts, insurance, logistics, international technology transfer, patent and know-how licensing, trade mark licensing, processing and distribution agreements, etc.

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