Based on the statistics announced by the Ministry of Justice of China for 2019, the number of arbitration cases handled by all Chinese arbitration commissions in 2019 was around 487,000. Although there was a slight decline compared to the number of cases accepted in 2018, the increase was 103% compared to 2017.
Although the total number of arbitration cases for 2020 has not been announced yet, in view of the influence of the pandemic of the COVID-19, the caseload in 2020 for the leading Chinese arbitration commissions has increased compared to 2019. Particularly, the number of foreign-related arbitrations administered by these arbitration institutions has risen.
For example, in 2020, the China International Economic and Trade Arbitration Commission (CIETAC) administrated 739 foreign-related arbitration cases, up 20% year-on-year compared to 2019. As for the Beijing Arbitration Commission (BAC)/Beijing International Arbitration Center (BIAC), it has handled 215 foreign-related arbitration cases in 2020, which is an increase of approximately 31.9% on the figures for 2019.
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.
Arbitration in China has undergone rapid development in the last few years. During 2020, changes and improvements were 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  No 15) (Lin-gang Plan). Renowned foreign arbitration centres and dispute resolution agencies are allowed to develop their arbitration businesses upon registering and filing a record with the judicial administration department of Shanghai and the State Council.
In addition to the Lin-gang Plan, on 21 September 2020, the State Council issued the Overall Plan for the China (Beijing) Pilot Free Trade Zone (Guo Fa  No 10) (Beijing Plan). Beijing will be the second city after Shanghai to allow foreign arbitration institutions to conduct arbitration in China.
The COVID-19 pandemic has impacted arbitration proceedings in China. In early 2020, almost all Chinese arbitration commissions asked their staff to work from home and suspended face-to-face hearings. Some of the arbitration hearings have been held online, and the parties have adapted to virtual hearings as they have become used to the videoconference 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. On 10 September 2020, Guangzhou Arbitration Commission (GAC) announced that it would publish its Recommendatory Standard for Internet Arbitration for arbitration institutions and arbitration users with respect to online hearings, such as technical specifications, rules of hearing, evidence submission and authentication, etc.
Since the Belt and Road Initiative (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.
Meanwhile, due to the impact of COVID-19, the number of international arbitration cases involving Chinese parties in the commodities and international trading industries has experienced a significant increase during 2020-21.
In addition, as the Chinese government promotes the opening up of the Chinese financial market, we note from the statistics published by the relevant arbitration institutions that the number of international arbitrations involving Chinese parties arising from equity investment, equity transfer, corporate disputes, innovative financial products, etc has grown in 2020-21.
In terms of international arbitration, CIETAC is traditionally the predominant arbitration commission in China which administers substantial numbers of foreign-related arbitrations.
In addition, BAC, the Shanghai International Arbitration Center (SHIAC) and the Shenzhen Court of International Arbitration (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 arbitrators' remuneration, emergency arbitrators, consolidation, joinder of additional parties, multiple contracts, etc.
In 2020, CIETAC set up the Hainan Arbitration Center to promote the development of Hainan Free Trade Port and Xiong’an Sub-Commission to serve the Millennium Plan of Xiong'an New Area.
Pursuant to the Lin-gang Plan, in October 2019, the World Intellectual Property Organization (WIPO) established an arbitration and mediation centre in Shanghai, providing arbitration and mediation services for foreign-related intellectual property disputes. This centre marks the first international dispute resolution organisation established in the PRC that conducts arbitration and mediation.
Basically, arbitral awards can be divided into three categories in China:
There are no specific national courts for the foreign-related arbitration.
Normally, the intermediate people’s courts have jurisdiction over disputes related to arbitration. For example, the intermediate people’s court at the place where the arbitration commission is domiciled has exclusive jurisdiction over the setting aside of the arbitral awards made by the relevant arbitration commission (Article 58 of the Chinese Arbitration Law).
On 22 May 2017, the Supreme People’s Court of China (SPC) issued the Notice of the Supreme People's Court on the Centralized Handling of Relevant Issues in Arbitration Judicial Review Cases (Fa  No. 152), under which the relevant PRC courts should set up special divisions to hear cases on arbitration agreements’ validity, setting aside of domestic/foreign-related arbitral awards, and recognition and enforcement of foreign arbitral awards, including awards seated in Hong Kong, Macau and Taiwan.
In 2018, the SPC established the China International Commercial Court (CICC) which accepts applications for interim relief in support of arbitration, setting aside or enforcement of arbitral awards under certain circumstances.
In 2018 and 2021, the SPC directed that the Shanghai Financial Court, established in 2018, and the Beijing Financial Court, established in 2021, assume jurisdiction over judicial review of arbitration cases with respect to financial disputes at first instance which were originally heard by the relevant intermediate people’s courts in the respective regions.
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, 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 the UNCITRAL Model Law.
The Chinese Arbitration Law has not significantly changed since its issuance in 1994, with only two slight amendments in 2009 and 2017.
However, on 30 July 2021, the Ministry of Justice of the People’s Republic of China issued a draft amendment of the Chinese Arbitration Law for wide comments from the public, which includes substantial material changes to the current version, such as:
However, these proposed amendments are still pending further discussion and approval by the National People’s Congress of the People’s Republic of China.
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 the Hong Kong Special Administrative Region (Arrangement). This Arrangement came into effect on 1 October 2019 and provides the legal basis for a party in an arbitration seated in Hong Kong to seek interim relief from the court in Mainland China or vice versa. The Arrangement only applies to institutional arbitrations administered by the specific arbitration institutions in Hong Kong.
On 27 November 2020, the SPC and the Hong Kong government signed the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (Supplementary Arrangement). The Supplementary Arrangement, which became effective from 19 May 2021, clarifies that:
According to the Chinese Arbitration Law, an arbitration agreement shall be in written form, either as an arbitration clause incorporated in any contract, or as a separate arbitration agreement. A valid arbitration agreement shall include:
In addition, in order for an arbitration agreement to be enforceable, it is required that:
Pursuant to Article 3 of the Chinese Arbitration Law, the following disputes shall not be subject to arbitration:
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 SPC held in 2019 that an antitrust dispute is not arbitrable because of the public law character of antitrust law.
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 the Chinese Arbitration Law, any contractual dispute or other disputes concerning property rights between equal parties may be subject to arbitration.
PRC law provides that parties to a foreign-related arbitration may agree on the law applicable to their arbitration agreement. In the absence of the parties’ agreement, the law of the domicile of the arbitration commission or the law of the seat of arbitration will be applied. If the arbitration commission or the seat of arbitration is unclear, PRC law will be deemed the governing law of the arbitration agreement, whereas in domestic arbitration, PRC law shall be the exclusive governing law for the arbitration agreement.
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.
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 deemed 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.)
The Chinese Arbitration Law adopts the rule of separability with regard to arbitration clauses. Under Chinese law, an arbitration clause might be considered valid even if the rest of the contract in which it is contained is invalid.
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 260 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 chairperson 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.
Although it is not explicitly stipulated in the Chinese Arbitration Law, some arbitration commissions, such as 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 chairperson of CIETAC to appoint one arbitrator. Where either the claimant side or the respondent side fails to jointly nominate or jointly entrust the chairperson of CIETAC to appoint an arbitrator, the chairperson 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 provisions regarding the challenge and removal of arbitrators.
According to Article 34 of the Chinese Arbitration Law, an arbitrator may be challenged and removed under the following circumstances:
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.
Besides the requirements stated in 4.4 Challenge and Removal of Arbitrators, Article 13 of the Chinese Arbitration Law requires that arbitrators shall be honest and just.
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. Details in this regard can be found in 13.2 Ethical Codes.
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 decide on the validity of an arbitration agreement. Details in this regard can be found in 3.3 National Courts’ Approach.
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:
According to Article 13 of the SPC judicial interpretation of the Chinese 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. They are explicitly stipulated in Articles 8 and 9 of the SPC judicial interpretation of the Chinese Arbitration Law (2006) as follows:
The first two circumstances above shall not apply if the parties have agreed otherwise in the arbitration agreement.
Although it is not explicitly stated, these Articles are 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 proceedings. 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:
Interim Relief in Foreign-Seated Arbitrations
For arbitration seated outside of Mainland China, parties to the arbitration generally cannot apply to the court of Mainland China for interim relief according to CPL.
However, in maritime arbitration seated outside of Mainland 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 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 the 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 court of Mainland China. The Arrangement is considered as a substantive advantage of Hong Kong-seated arbitrations for arbitration claimants who require interim relief against the counterparty’s assets in Mainland China.
According to public information, there have been more than 47 applications for interim relief submitted to People’s Courts in Mainland China by parties in Hong Kong-seated arbitrations since the implementation of the Arrangement. Among these applications, at least 30 applications have been granted by the relevant People’s Court.
No emergency arbitrator (EA) procedure is stipulated in the Chinese Arbitration Law.
However, some arbitration commissions, such as CIETAC and BAC, have included an EA procedure as part of their arbitration rules. 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 EA order made by the emergency arbitrator shall be binding upon both parties. Interim relief ordered by the EA is not enforceable before 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 jurisdictions where the law thereof 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 timelier way.
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 Mainland China, whether domestic or foreign-related, the procedure of arbitration is mainly governed by the Chinese Arbitration Law, the SPC judicial interpretation of the Chinese Arbitration Law (2006), the CPL and the SPC judicial interpretation of the CPL (2020).
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.
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 award:
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 counterclaims, 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, 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, in the circumstances stated in 4.4 Challenge and Removal of Arbitrators.
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 the 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 CIETAC Guidelines on Evidence 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 the 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, the 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 be excluded from 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 Civil Code of the People’s Republic of China (Chinese Civil Code), 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 Civil Code, an arbitral tribunal may also require the breaching party to carry out specific performance in compliance with the contract concerned, which is deemed 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.
Factors to be considered by the tribunal for allocation of costs can be found in 7.3 Powers and Duties of Arbitrators. 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.
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 effect on 1 January 2021. According to Article 29 thereof, 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 a one-year loan at the time of conclusion of the 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, which are stated in detail in 7.2 Procedural Steps.
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:
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:
The court will also set aside the award, or refuse to enforce the award, if it finds that 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.
For the purpose of this article, only the enforcement procedure of foreign awards and foreign-related awards is discussed.
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 those 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 for final decision. 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.
When a foreign award is subject to ongoing set-aside proceedings at the seat of the arbitration, the PRC court follows the rule under Article VI of the 1958 New York Convention, namely the relevant PRC court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.
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.
The court in charge of enforcement of a foreign-related award shall suspend the enforcement proceedings when the award is subject to ongoing set-aside proceedings before the relevant People’s Court (Article 7 of the Provisions of the Supreme People's Court on Several Issues Concerning the Handling of Cases by People's Courts to Enforce Arbitration Awards).
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:
The SPC is greatly supportive of the recognition and enforcement of foreign arbitral awards. 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 does not itself 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 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 6 July 2021, 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:
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 as stated in 5.7 Third Parties.
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.
China encompasses a number of arbitral jurisdictions, the most popular of which are in Hong Kong and Mainland China. In the past year, we continued to see a significant rise in the number of arbitration cases seated in Mainland China and Hong Kong, and strong development of the arbitration market despite the pandemic. According to the Special Report made by the Vice Chairman and Secretary General of the China International Economic and Trade Arbitration Commission (CIETAC) on 25 June 2021, in 2020 alone, Mainland China’s 259 arbitration institutions handled about 400,000 cases with a total disputed amount of approximately CNY720 billion. The Hong Kong International Arbitration Centre (HKIAC) also reported an increase of close to 20% of administered arbitrations from 2019. Hong Kong, Beijing, Shanghai and Shenzhen are all named as favourite seats of arbitration in recent global surveys. In particular, the Queen Mary University of London 2021 International Arbitration Survey reported that HKIAC was ranked third and CIETAC was ranked fifth in terms of the most preferred arbitral institutions – meaning two of the top five most preferred arbitral institutions are located in China.
The most significant development in the past year has been the continued liberalisation of the international arbitration market in China and the strengthened ties between China and Hong Kong in terms of integration, recognition and assistance for enforcement of arbitral awards and interim measures in aid of arbitrations. On the judiciary level, the PRC courts continue to demonstrate a pro-arbitration attitude and their commitment to increasing the competitiveness and credibility of arbitrating in China. The Hong Kong courts also issued a number of important and significant decisions regarding enforcement of arbitral awards and anti-suit injunctions.
With these developments, it is expected that China and Hong Kong will continue to be one of the most important and busiest arbitration hubs within the Asia-Pacific region and in the world in the years to come.
Stronger Ties between Mainland China and Hong Kong
Hong Kong and Mainland China enter into a supplemental arrangement concerning mutual enforcement of arbitral awards
The New York Convention does not apply between Hong Kong and China. Mutual enforcement of arbitral awards has been governed by an agreed arrangement that was signed on 21 June 1999 and came into effect on 1 February 2000 (the “1999 Arrangement”).
On 27 November 2020, the Supreme People’s Court of the PRC in Mainland China and the Department of Justice in Hong Kong signed the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (the “Supplemental Arrangement”). The Supplemental Arrangement modifies and supplements the 1999 Arrangement.
The Supplemental Arrangement updated and improved the 1999 Arrangement by removing certain obstacles to enable timely enforcement of arbitral awards against assets in Mainland China and Hong Kong. The key provisions are as follows.
Articles 1 and 4 of the Supplemental Arrangement came into force on 27 November 2020 and Articles 2 and 3 came into effect on 19 May 2021.
Along with the Supplemental Arrangement, the Supreme People’s Court of the PRC has also published ten typical cases of the mutual enforcement of arbitral awards in China and Hong Kong in order to facilitate discussions on further effective improvement to the mutual enforcement mechanism between the two jurisdictions.
The Supplemental Arrangement and the commitment to further improve the mutual enforcement arrangement are a much welcomed development and will no doubt enhance the protection of parties’ interest in an arbitral award.
Hong Kong–Mainland China arrangement on interim measures
In addition to the Supplemental Arrangement, the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (the “Arrangement”) came into force on 1 October 2019.
Under the Arrangement, parties to an arbitration which is seated in Hong Kong and is administered by one of the institutions that fulfil the qualifications set out under the Arrangement (including the Hong Kong International Arbitration Centre (HKIAC)) are allowed, for the first time, to apply to the PRC courts for interim measures in aid of their arbitrations.
According to the latest statistics published by HKIAC as of 30 June 2021, HKIAC reported that since the Arrangement came into force, in less than two years it has already processed 47 applications made to 23 different Intermediate People’s Courts (IPCs) in Beijing, Shanghai, Shenzhen, Tianjin, Dalian, Dongying, Fuzhou, Guangzhou, Hangzhou, Jinan, Lianyungang, Nanjing, Qingdao, Quanzhou, Xiamen, Yantai, Zhangzhou, Zhaoqing and Zhoushan for interim measures. The majority of the applications were made for preservation of assets. Two applications were made for preservation of evidence and one for preservation of conduct.
According to the Supreme People’s Court of the PRC “Annual Report (2019) on Judicial Review of Commercial Arbitrations”, between 1 October 2019 and 31 October 2020, 32 applications for interim measures were granted by the PRC courts. According to HKIAC, of the 26 successful applications for preservation of assets that it was aware of, all were granted upon the applicant’s provision of security, and the total value of assets preserved amounted to CNY10.5 billion (approximately USD1.6 billion). The average time taken for an IPC to issue a decision was 20 days from its receipt of the complete application.
These figures show that, in the short time since its implementation, the Arrangement has already proven to be an effective tool for parties to arbitrations seated in Hong Kong. The arbitration institutions and the IPCs are able to process applications in a short period of time, and the IPCs readily grant applications for preservation of assets in aid of Hong Kong-seated arbitrations. We expect that the Arrangement will become more popular and more widely used as the market becomes more familiar with the Arrangement and procedures involved.
Together with the Supplemental Arrangement for mutual enforcement of arbitral awards, the arrangement has further supported Hong Kong to be the preferred seat of arbitration for China-related disputes.
Liberalisation of the PRC Arbitration Market
Shanghai, Beijing, Hainan opened to foreign arbitral institutions
In the past year, a number of ground-breaking policies have been rolled out to further liberalise the market to foreign arbitral institutions and promote the arbitration market in China.
On 7 September 2020, the State Council of China published a policy paper on opening up the service sector in Beijing, ie, the “Work Plan for Deepening Comprehensive Pilot and New Round of Opening Up of Services Sectors in Beijing and Building Comprehensive Demonstrative Area of Opening up of State Services Sectors” (the “Work Plan”). The Work Plan announced that foreign arbitral institutions will be allowed to set up “business organisations in designated area(s) in Beijing” to “provide arbitration services in relation to civil and commercial disputes arising in the areas of international commerce and investments”.
The Work Plan follows an earlier policy, the “Administrative Measures for Business Offices Established by Overseas Arbitration Institutions in Lingang Special Area of China (Shanghai) Pilot Free Trade Zone”, to open up the arbitration market in Lingang Free Trade Zone to foreign arbitration institutions announced on 21 October 2019. This Work Plan further expands to the areas where foreign arbitration institutions are allowed to provide services.
On 25 September 2020, the Supreme People’s Court of the PRC further issued the “Guiding Opinions on the Services and Guarantees of the People’s Courts for Further Expanding Opening-up”, which advocates support to overseas arbitration institutions to establish a business presence in China and respecting the parties’ right to choose a dispute resolution forum.
On 31 December 2020, the “Administrative Measures for Registration of Business Offices Established by Overseas Arbitration Institutions in China (Beijing) Pilot Free Trade Zone” (the “Administrative Measures”) were published and they took effect from 1 January 2021. The Administrative Measures specify the business scope of overseas arbitration institutions, the conditions and procedures for establishing business offices, the purpose of encouraging arbitration-related exchanges and cooperation, and other regulatory requirements.
Further, on 8 January 2021, the Supreme People’s Court of the PRC issued the “Opinion on the People’s Court Providing Judicial Services and Guarantee for the Construction of Hainan Free Trade Port” (the “Opinion”). According to the Opinion, overseas arbitration institutions will be supported in setting up business offices and providing arbitration services in the Hainan Free Trade Port. Renowned international commercial arbitral and mediation institutions will also be encouraged to be introduced to the Hainan Free Trade Port so as to establish a “one stop” international commercial dispute resolution mechanism. Furthermore, enterprises registered within the Free Trade Port will be encouraged to agree to choose specific places and specific persons to arbitrate their disputes in accordance with specified arbitration rules.
While it remains to be seen how these measures will be implemented to allow foreign arbitral institutions to operate in Mainland China, they are a very positive sign that the government is committed to promoting the international arbitration market in China, and it is expected that the market will continue to be liberalised and opened up to foreign arbitration institutions.
PRC Supreme People's Court upheld arbitrations seated in China administered by foreign arbitral institutions
The policies to open up to foreign arbitral institutions followed the recent decisions at the judicial level which recognised arbitral awards seated in Mainland China administered by foreign arbitration institutions.
It has been a long-standing question as to whether foreign arbitration institutions can administer arbitrations seated in Mainland China under the current PRC Arbitration Law regime. Before the administrative measures to open up the Lingang Free Trade Zone, Beijing and the Supreme Court’s opinion to open up the Hainan Free Trade Zone, there was no express law allowing foreign arbitration institutions to administer, or prohibiting them from administering, arbitration cases seated in Mainland China, and the status of these foreign institution-administered awards was uncertain.
Article 16 of the PRC Arbitration Law provides that an arbitration agreement shall contain, among others, the arbitration commission chosen, and Article 18 of the PRC Arbitration Law further provides that if an arbitration agreement fails to designate an arbitration commission and no supplementary agreement is reached to designate one, the arbitration agreement will be void. This gives rise to an uncertainty as to whether choosing an arbitration commission not established, registered and operated under the PRC Arbitration Law would render the arbitration agreement invalid and whether such awards are enforceable.
Two recent rulings in 2020 revisited the Supreme People’s Court’s judgment which upheld the validity of an arbitration agreement providing for ICC arbitration in Shanghai in the 2013 landmark case of Longlide Packaging Printing Co. Ltd. v BP Agnati S.r.l.
On 29 June 2020, the First Intermediate People’s Court in Shanghai upheld an arbitration agreement providing for SIAC arbitration in Shanghai in Daesung Industrial Gases Co., Ltd v Praxair (China) Investment Co., Ltd.
On 6 August 2020, in Brentwood Industries (US) v Guangzhou Zhengqi Trading Co Ltd., the Intermediate People’s Court in Guangzhou ruled that an ICC arbitration award made in Guangzhou should be considered as a Chinese arbitral award with a foreign element and enforced under the more direct route under the PRC Civil Procedural Law, instead of the New York Convention.
These important judicial decisions further demonstrate and confirm the general positive attitude and willingness of the PRC courts to uphold arbitrations administered by foreign arbitration institutions.
Pro-arbitration Approach by the PRC Courts
PRC courts confirm pro-arbitration attitude
On 23 December 2020, the Supreme People’s Court of the PRC for the first time published an “Annual Report (2019) on Judicial Review of Commercial Arbitrations” (the “Report”). Among other things, it is confirmed that among all 32 applications for recognition and enforcement of foreign arbitral awards considered by the Chinese courts in 2019, only one award was not fully recognised and enforced because it contained decisions on matters beyond the scope of the arbitration.
The Report also identifies and highlights six principles for reviewing arbitration cases which were summarised based on arbitration judicial review cases heard by the Supreme People’s Court in 2019 and typical cases selected by the national high courts. These principles include:
The Report reaffirms the judiciary’s new pro-arbitration attitude and renews its strong commitment to further developing the judicial system to increase the credibility and competitiveness of conducting arbitrations in China and to align with global trends. The initiative to publish annual official statistics and principles of judicial review of arbitration cases by the Supreme People’s Court is also a much welcomed and significant move towards a more standardised practice and increased transparency on how the PRC courts deal with challenges to arbitral awards.
Decisions by the Hong Kong Courts
In Hong Kong, the Hong Kong courts have demonstrated that they generally take a strong pro-arbitration attitude but have also shown that such an approach is not without limits. There have been a number of significant decisions in the past year. We discuss some of these cases below.
Xiamen Xinjingdi Group Co Ltd v Eton Properties Limited and Others  HKCFA 32
On 9 October 2020, the Court of Final Appeal (CFA) handed down its judgment in the case of Xiamen Xinjingdi Group Co Ltd v Eton Properties Limited and Others, where the CFA confirmed that the court may grant relief beyond the scope of an arbitral award in a common law action.
This case concerns the enforcement of a CIETAC award for damages for late delivery of land and specific performance of a land development agreement. The applicant commenced common law action to enforce the award and claimed damages and equitable compensation if specific performance was not achievable. In allowing the application, the CFA held that the common law action requires the plaintiff to bring the action pursuant to the award and prove their case. As such, it is not constrained by the requirement that the judgment must be “in terms of the award”.
Capital Wealth Holdings Limited and Ors v 南通嘉禾科技投资开发有限公司  HKCFI 3025;  HKCFI 272
On 19 October 2020, the Court of First Instance granted an interim anti-suit injunction restraining the defendant from continuing a series of court cases before the Nantong Intermediate People’s Court (NIPC), the subject matter of which was covered by an arbitration agreement between the parties contained in a series of joint venture agreements. The dispute concerned a joint venture between the plaintiffs and the defendant, a state-owned enterprise wholly owned by the Rugao City Government in the People’s Republic of China.
There were four court cases before the NIPC. The first, No. 89 (“89 Proceedings”), sought to challenge the validity of the Hong Kong arbitration agreement. The other three sets of proceedings, Nos. 389, 391 and 392 (“WFOE Proceedings”), were brought for recovery of loans and enforcement of share pledges. These loans were given by the defendant to the joint venture company (the “Project Company”) which were established by the parties under the joint venture agreements. The Project Company was jointly owned by the defendant (minority shareholder) and the plaintiff (majority shareholder) through four Wholly Foreign-Owned Enterprises (WFOEs). As security for the loans, the WFOEs pledged their shares in the Project Company to the defendant. The loan agreement did not contain any jurisdiction clause. The share pledge contained a jurisdiction clause referring disputes to the NIPC.
The Court of First Instance granted the interim anti-suit injunction in respect of both the 89 Proceedings and the WFOE Proceedings. The decision to grant the anti-suit injunction over the WFOE Proceedings, although the WFOEs were not a party to the joint venture agreement or the arbitration agreements, was because the subject loans were provided by a major shareholder of the Project Company (namely the defendant) to the Project Company to finance its working capital, and that the defendant is obliged by the joint venture agreements to provide working capital financing guarantee to the Project Company. Hence, the subject matter of the WFOE Proceedings is closely intertwined with the terms of the joint venture agreement.
The defendant applied to discharge the interim anti-suit injunction in respect of the WFOE Proceedings on the basis, among others, that the agreements for the share pledges were covered by a jurisdiction clause referring disputes to the NIPC. The loan agreement, having a closer connection to the share pledges, should not be prevented from being resolved before the NIPC. Although the loan agreement did not itself have a separate dispute resolution clause, the Court of First Instance accepted that the loan agreement is more closely connected to the share pledges and the NIPC, and discharged the interim anti-suit injunction in respect of the WFOE Proceedings.
The approach taken by the Hong Kong court is that while it accepts the Fiona Trust "one-stop shop" principle in arbitrations, it will be very careful in situations where there are multiple dispute resolution provisions in a series of related agreements. Even where a contract contains no dispute resolution mechanism of its own, the Hong Kong court will not assume that the parties have intended for disputes under that contract to fall within the one-stop shop presumption if it is considered to be more closely connected to another court or forum.
Cv D  HKCFI 1474
On 25 May 2021, the Court of First Instance ruled in the case of C v D that non-compliance with a precondition to arbitration set out in contracts (for instance, a condition that the parties should engage in good-faith negotiation before arbitration) does not affect the jurisdiction of the tribunal unless expressly provided by the parties. The tribunal may choose to give effect to the contractual precondition by ordering a stay of the arbitral proceedings pending compliance with the clause, impose costs sanctions or dismiss the claim as inadmissible.
This case concerns the application to set aside an award made by a tribunal which ruled that the requirement to refer disputes to CEOs set out in a dispute resolution clause was only optional and the precondition for arbitration had been fulfilled.
The approach taken by the Hong Kong court in finding that the arbitral tribunal would be well placed to deal with the preconditions to arbitration is consistent with the pro-arbitration approach taken by the Hong Kong court and its policy for respecting parties’ autonomy in choosing arbitral tribunal to resolve their disputes.
W v AW  HKCFI 1701
In the rare case of W v AW, the Court of First Instance held that an award is invalid because of inconsistent findings in another award made in parallel arbitrations.
The dispute arose under two agreements, a share redemption agreement and a framework agreement, both made as part of a series of transactions leading up to an envisaged acquisition by a Mainland investor of 80% of the interests and shares in a target company. Both agreements contain a HKIAC arbitration clause.
Separate arbitrations were commenced under the two agreements and two tribunals were formed. There was one common arbitrator between the two tribunals. The award for the first arbitration (“Award 1”) dismissed the respondent’s counterclaim that the framework agreement had been induced by misrepresentation. However, in the second arbitration, the tribunal found in favour of an identical claim for misrepresentation (“Award 2”).
In refusing the application for security, the court acknowledged that this is a “highly unusual case” and that setting aside an award is “an undesirable decision”. The court nonetheless found that Award 2 was manifestly invalid as there was substantial injustice arising out of Award 2 by virtue of the contradictory and inconsistent findings which had already been made in Award 1 on the same issues and which findings were binding on the same parties in the two awards. The fact that there was a common arbitrator and the lack of explanation in Award 2 on the inconsistent findings weighed heavily in the court’s decision.
Overall, the arbitration market and practice in China continued to undergo significant development and reacted quickly to adapt to the pandemic. For instance, CIETAC issued its “Guidelines on Proceeding with Arbitration Actively and Properly during the COVID-19 Pandemic” on 28 April 2020, and the Shenzhen Court of International Arbitration made amendments to its rules which came into effect on 1 October 2020 allowing arbitration proceedings to be carried out by means of information technology. The Supreme People’s Court of the PRC also issued the “Guiding Opinions on Several Issues of Properly Hearing Civil Cases involving COVID-19 Pandemic”, which suspended the two-year statute of limitation if parties are unable to apply for recognition and enforcement of arbitral awards due to the pandemic.
We believe that the development of the arbitration practice in China will continue to be strongly driven by both the administrative and judiciary levels, and we expect to see further significant development including amendments to the PRC Arbitration Law and other arrangements to create closer ties and further cooperation between Mainland China and Hong Kong.
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