Arbitration in China

On 16 January 2024, the Supreme People’s Court of China published ten court cases on judicial review of arbitration. Case 3 recognized the validity of an arbitration agreement on arbitration in China administrated by a foreign arbitration institution. Previously, another court case published by the SPC in 2022 had already determined that an arbitral award rendered by a foreign arbitration institution in China should be regarded as a foreign-related arbitral award of China rather than a foreign arbitral award. Lawyer Monthly recently met up with BAI Xianyue (Simon) from Grandall Law Firm, China to explain arbitration agreements and legislation in China.

What conclusions can be drawn from the recent Supreme Court of China’s recent publication regarding arbitration in China?

The ten selected cases published by the Supreme Court of China (the “Supreme Court”) show that the Supreme Court attaches much importance to the judicial review of arbitration and commits to continuously improving the mechanism of judicial supervision of arbitration in its effort to uphold the principle of rule of law, maintain a unified standard and promote internationalization of commercial arbitration in China. The types of cases published are rather diverse, including recognition and enforcement of foreign arbitral awards, setting aside arbitral awards, validity of arbitration agreements, and disputes over jurisdiction.

The Supreme Court has maintained a relatively consistent standard towards arbitration administered by foreign arbitration institutions. As can be seen from Case 3, since Chinese law does not expressly prohibit selection of foreign arbitration institution with place of arbitration located in China, provided foreign-related elements are present. The court, following its interpretation of provisions of Arbitration Law of China ruled that the arbitration agreement by which the parties agreed to submit a foreign-related dispute to a foreign arbitration institution with the place of arbitration in Mainland China is valid, reflecting the stance of the Chinese courts in respecting the parties’ autonomy. This is a welcoming clarification on uncertainties surrounding similar cases where the parties, fulfilling requirements of foreign-related elements, agree on conferring jurisdiction to a foreign arbitration institution while the place of arbitration is designated inside China. The award thus rendered shall be regarded as a domestic award by nature, a foreign-related arbitration award to be specific, for the purpose of enforcement in accordance with Civil Procedure Law of China.

What, if any, are the legal requirements of an arbitration agreement under the laws of your jurisdiction?

Article 16 of the Arbitration Law[i] was cited in Case 3, and the court found that the arbitration agreement in question expressed intention of the parties to request arbitration, agreed on the matters to be arbitrated and selected a specific arbitration institution, and thus should be considered valid.

Article 16 of the Arbitration Law sets out the definition of an arbitration agreement and the indispensable elements of an arbitration agreement which must include an expression of intent to request arbitration; the subject matters of arbitration; and the selected arbitration institution.

Meanwhile, Article 17[ii] of the Arbitration Law specifies the circumstances under which an arbitration agreement is invalid, including the fact that the matters to be arbitrated exceed the scope of arbitration provided for by law, that the arbitration agreement was concluded by those who are without legal capacity or with limited legal capacity, or where the conclusion of the arbitration agreement was by coercive means. 

What other elements ought to be considered for an arbitration agreement to confer jurisdiction to a foreign arbitration institution?

If the parties intend to select a foreign arbitration institution, it is important to note that the contractual dispute should have a foreign-related element.

According to Supreme Court, disputes without a foreign-related element are prohibited from being submitted to a foreign arbitration institution. Chinese courts have generally found such arbitration agreements invalid. Otherwise, even if an arbitral award by a foreign arbitral institution is obtained, the Chinese courts will not recognise and enforce the arbitral award.

Foreign-related elements refer to one of the following  factors：

(I) One of the parties is a foreign entity; or

(II)  habitual residence of one of the parties is outside China; or

(III) the subject matter of the dispute is outside China; or

(IV)  legal facts which creates modifies or terminates the civil relationship, occurs outside China. 

What legislation governs the enforcement of arbitral awards in your jurisdiction?

The enforcement of arbitral awards in China is mainly governed by the Civil Procedure Law of China, judicial interpretations and circulars issued by the Supreme Court.

Arbitral awards rendered by foreign arbitration institutions with Mainland China as the place of arbitration, are deemed to be foreign-related arbitral awards (i.e. a Chinese domestic award) and shall be enforced in accordance with the procedures set forth in Chapter IV “Special Provisions on Foreign-Related Civil Procedure”of the Civil Procedure Law without first having to be recognized by a court in China, while foreign arbitral awards may be enforced in accordance with the 1958 New York Convention, or on the basis of the principle of reciprocity.

For the enforcement of both foreign-related arbitral awards and foreign arbitral awards, the parties may apply to the intermediate people’s court at the place of residence or property of the person against which the enforcement is sought. But the standards for judicial review are not the same. In general, foreign arbitral award under New York Convention, are subject to a more stringent review process where local courts intend to refuse to recognize or set aside such award. In particular, where a local court inclines to reject the recognition or enforcement of a foreign award, it has to report the contemplated decision to the Supreme Court for final review and approval, which, as a result, substantially reduces the success rate of such attempt over the years according to official statistics released.  Thanks to such continuous efforts by Supreme Court, China has enjoyed a good reputation of consistently fulfilling its obligations under New York Convention. 

Does the same arbitration law govern both domestic and international arbitration proceedings?  If not, how do they differ?

Yes. China’s current Arbitration Law contains provisions on both domestic arbitration and foreign-related arbitration, with Chapter VII (9 articles in total) containing special provisions on “foreign-related arbitration”, focusing mainly on the scope of foreign-related arbitration, the selection of arbitrators, foreign-related arbitration commissions and special provisions on the setting aside and enforcement of foreign-related arbitral awards. Meanwhile, Chapter VII also provides that “where there are no provisions in this Chapter, other relevant provisions of this Law shall apply”.

China’s current Arbitration Law was promulgated in 1994, which has been in force for 30 years nearly unchanged except small amendments made in 2009 and 2017. Certain provisions of China’s current Arbitration Law are alleged to be not in line with international standards.

On 30 July 2021, the Ministry of Justice of China issued the Draft Amendments to Arbitration Law which makes significant changes to the existing Arbitration Law and is open for public comment. The Draft still distinguishes between foreign and domestic arbitration and draws heavily on the United Nations Model Law on International Commercial Arbitration. These amendments intended to resolve existing problems in the current Arbitration Law and enhancing the international competitiveness of China’s arbitration by introducing international best practices. However, the amendments to the Arbitration Law remain to be officially adopted.

ABOUT:

Grandall, founded in 1998, currently boasts over 680 partners and over 5,000 attorneys, paralegals and supporting personnel, with 36 offices in major cities worldwide.

BAI Xianyue has been practicing as a Chinese lawyer for 25 years, advising a large number of domestic companies, foreign-invested joint-ventures, as well as multinationals. He has been involved in various litigation and arbitration cases as counsel and in the capacity of arbitrator.

He was panel member of both the Ad hoc Division of Court of Arbitration for Sports (CAS AHD), for the 18th Asian Games in 2018 and CAS AHD during Beijing Winter Olympic Games in 2022. He has acted as sole, presiding arbitrator and counsel under the rules of the BAC, CIETAC, SHIAC, CAS, SCIA, HKIAC, SCC etc. 

Contact Bai Xianyue
28/F, China Life Financial Center,No.38 Qufu Road, Heping District, Tianjin 300042, China
Tel: +86 22 85586588
Email: baixianyue@grandall.com.cn
www.grandall.com.cn

 

[i] Article 16 of the Arbitration Law of the People’s Republic of China:

“An arbitration agreement shall include arbitral clauses stipulated in the contract and other written agreements which request arbitration to be made prior to or following the occurrence of a dispute.

An arbitration agreement shall include the following:

(1) the expression of an application for arbitration;

(2) subject matters for arbitration;

(3) the selected arbitration commission.”

[ii] Article 17 of the Arbitration Law of the People’s Republic of China:

“An arbitration agreement shall be deemed invalid in any of the following circumstances:

(1) the matters to be arbitrated exceed the scope of arbitration provided for by law;

(2) the arbitration agreement was concluded by persons without legal capacity or with limited legal capacity;

(3) one party has forced conclusion of the arbitration agreement through coercive means.”