Simon Hui, Zhengwei Yang and Hailin Cui
A. LEGISLATION AND RULES
A.1.1 Opening to foreign arbitration institution
On 28 August 2020, the State Council issued the “Plan for Deepening the Comprehensive Pilot Program of a New Round of Expanding Opening-up of the Service Sector in Beijing Municipality and Building a National Comprehensive Demonstration Zone for Expanding Opening-up of the Service Sector”. The plan, among others, allows well-known overseas arbitration institutions to set up a business presence in Beijing and provide arbitration services for international commercial and investment disputes. Currently, there are two arbitration institutions in Beijing, the Beijing Arbitration Commission and the China International Economic and Trade Arbitration Commission (CIETAC). The plan provides a window for accelerating the introduction of internationally renowned arbitration institutions into China, that not only provides diversified choices of arbitration venues for Chinese and foreign parties but also promotes the development of China’s arbitration industry in the long run.
On 25 September 2020, the Supreme People’s Court (SPC) issued “Guiding Opinions on the Services and Guarantees of the People’s Courts for Further Expanding Opening-up”. The opinions emphasize respecting the parties’ right to choose a dispute resolution forum, promoting the amendment of the PRC Arbitration Law, supporting overseas arbitration institutions to establish a business presence in China, etc. The opinions once again demonstrate PRC judicial authorities’ pro-arbitration attitude and their resolution to turn China into an international or regional arbitration hub.
A.1.2 Arbitration and COVID-19
On 8 June 2020, the SPC issued the “Guiding Opinions on Several Issues of Properly Hearing Civil Cases involving the COVID-19 Pandemic (III”). The opinions were issued in the context of COVID-19, and provide guidance on issues such as the statute of limitation and applicable laws that may be encountered when courts are hearing cases involving epidemic-related foreign commercial disputes. Specifically, under the current PRC law, the statute of limitation for enforcing foreign judgments and awards is two years. However, the opinions now allow suspension of the two-year statute of limitation in the event that the parties are unable to apply for recognition and enforcement of the foreign judgment or award due to the epidemic or epidemic prevention/control measures.
A.1.3 Cross-border enforcement of arbitral award
On 27 November 2020, the SPC and the Department of Justice of the Hong Kong government signed the “Supplemental Arrangement of the Supreme People’s Court for the Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region” (“Supplemental Arrangement“). The Supplemental Arrangement, among others, (a) clarifies that “enforcement” of Hong Kong or Mainland arbitral awards under the previous arrangement shall be interpreted to include both “recognition and enforcement” of such awards; (b) expands the scope of mainland arbitral awards to cover all awards rendered pursuant to PRC Arbitration Law (as opposed to the previous regime which only covers awards rendered by arbitration institutions listed by the Legislative Affairs Office of the State Council); (c) allows the parties to simultaneously apply for enforcement of the arbitral award in both Hong Kong and Mainland courts; (d) allows the court to grant preservation measures after the award is issued and before enforcement action is filed with the competent court.
A.2 Institutions, rules and infrastructure
A.2.1 Shenzhen International Court of Arbitration amends arbitration rules
In order to ensure the arbitration process is conducted efficiently and conveniently, to protect the procedural rights of the parties, and to improve the parties’ participation in the arbitration with the aid of information technology, the Shenzhen Court of International Arbitration (SIAC) has amended its Rules. The new Rules came into effect on 1 October 2020. The main revisions include, for example, unless otherwise agreed by the parties, the arbitration court or the arbitral tribunal may decide to carry out all or part of the arbitration proceedings by means of information technology, including but not limited to online filing, service, hearing and cross-examination.
On 23 December 2020, the SPC issued an annual report on judicial review of arbitration in China (2019). The report provides, amongst other things, a summary of the arbitral awards that had been submitted to the PRC courts for judicial review in 2019 (“Cases under Judicial Review“). According to the report, the PRC courts’ decisions in the Cases under Judicial Review showcase that the PRC courts are more and more willing to respect the parties’ willingness to arbitrate and endeavor to give effect to the arbitration agreement wherever possible so as to encourage the parties to resort to arbitration for resolving their disputes.
B.1 Validity of the arbitration agreements
B.1.1 The Shanghai First Intermediate People’s Court upheld the validity of an arbitration clause choosing arbitration administered by foreign arbitration institution in China
The parties agreed in their contract that “with respect to any and all disputes arising out of or relating to this Agreement, the Parties shall initially attempt in good faith to resolve all disputes amicably between themselves. If such negotiations fail, it is agreed by both parties that such disputes shall be finally submitted to SIAC for arbitration in Shanghai.” On 20 January 2020, one party applied to the Shanghai First Intermediate People’s Court to confirm the validity of the arbitration agreement. The court held that as the parties to the contract in dispute involved a South Korean company, there is a foreign element in the case. The contract provided for SIAC, a foreign arbitration institution, to administer the arbitration, and the agreed place of arbitration was Shanghai, China. Therefore, the arbitration agreement clearly sets out the arbitration matters and the arbitration institution (i.e., SIAC), and hence should be considered valid. The court further opined that arbitration to be administered by a foreign arbitration institution in China refers to foreign arbitration institutions applying their arbitration rules to arbitration, and it should be considered as institutional arbitration.
B.1.2 SPC upheld the validity of an arbitration clause in a contract that contains another clause submitting to litigation
Clause 10(e) of the parties’ contract provides that disputes between the parties shall be submitted to the Beijing Municipal Arbitration Commission in accordance with the arbitration rules in effect at the time of application for arbitration unless otherwise provided in the contract. Further, clause 7 of the same contract provides that the applicable law of the contract is PRC laws, and both parties agree to submit to the exclusive jurisdiction of the competent court in Beijing, China. The SPC confirmed the validity of clause 10(e) due to the following reasons.
The SPC first found that the parties had a true intent to arbitrate their disputes. This was evident from the fact that one party proposed to amend the arbitration clause (by changing CIETAC to Beijing Municipal Arbitration Commission) during the negotiation of the contract and the other party agreed to such amendment.
Second, the SPC held that whilst the name of the arbitration institution in the contract (i.e., Beijing Municipal Arbitration Commission) has one more word than Beijing Arbitration Commission (i.e., “Municipal”). But in Beijing, there are only two arbitration institutions namely CIETAC and Beijing Arbitration Commission. Since the parties had already ruled out CIETAC during the negotiation stage, it can be inferred that the parties intended to choose Beijing Arbitration Commission.
Third, with respect to clause 7 which submits to the jurisdiction of the court, the SPC was of the view that as this clause related to governing law and hence only disputes concerning the governing law fall within the court’s jurisdiction. Further, clause 10(f) of the contract provides that despite any provisions to the contrary in the contract, disputes over data protection, privacy, non-payment, confidential information, or intellectual property rights are subject to arbitration by the Beijing Municipal Arbitration Commission. Therefore, the SPC held that clause 10(f) prevails over clause 7 when it comes to disputes described under clause 10(f).
B.1.3. Ningbo Intermediate People’s Court upheld the validity of an arbitration clause that says “arbitration first, litigation later”
The parties agreed in their procurement contract that any disputes arising from the contract shall be resolved in the following manner: a) Arbitration by Ningbo Arbitration Commission (NAC); b) Lawsuit in court (“a” shall be applied first). The Ningbo Intermediate People’s Court held that although the contract provided NAC’s arbitration or court litigation for dispute resolution, it has also clearly specified that the dispute shall be submitted to NAC first after it arises. Therefore, the parties had a clear intention to choose arbitration to resolve their disputes and there is a definite arbitration institution in the clause. Therefore, the court held that the above arbitration clause is valid.
B.2 Scope of the arbitration clause
B.2.1 The SPC held that the claim for abuse of market-dominant position falls within the scope of the arbitration clause
On 5 November 2012, two parties entered into a distribution agreement which provided that any dispute arising from the agreement should be irrevocably submitted to CIETAC in Beijing. Later, one party filed a lawsuit with the Beijing Intellectual Property Court, requesting the court to confirm that the other party had abused its dominant market position. The other party filed a jurisdictional objection to the court on the ground that an arbitration agreement existed between the parties.
The SPC held that the plaintiff’s claim to confirm that the defendant had abused its dominant market position and hence should refrain from such abuse is closely related to the parties’ rights and obligations under the distribution agreement. Therefore, the parties’ dispute is in essence a dispute arising out of the performance of the distribution agreement. As such, the SPC held that regardless of whether the defendant engaged in any monopolistic behavior, the arbitration clause agreed in the distribution agreement complies with the PRC Arbitration Law and should be considered valid. As such, the parties’ dispute including the plaintiff’s claim for abuse of dominant market position falls within the scope of the arbitration clause.
B.2.2 The SPC held that JV is not bound by the JV Contract between two shareholders
Two parties entered into a JV contract pursuant to which a JV company was established by the two parties. Later, one party (i.e., the shareholder of the JV company) filed a lawsuit against the JV company requesting the court to declare invalidity of a board resolution made by the JV company. The JV company filed a jurisdiction objection on the ground that there is an arbitration clause under the JV contract and hence the dispute in this case should be governed by the arbitration clause.
The SPC held that the foundation of arbitration lies in the autonomy of the parties’ will. The submission of a dispute to arbitration requires the unanimous willingness of the parties to arbitrate. This is mainly reflected in the signing of an arbitration agreement (arbitration clause) between the parties through consultation. The core of the arbitration agreement (arbitration clause) is the parties’ intention to submit the dispute to arbitration. The parties to the arbitration clause under the JV contract are the shareholders of the JV company, and the arbitration clause covers disputes arising from the performance of the JV contract between the shareholders, which does not include disputes over the validity of company resolutions between shareholders and the company. Therefore, the JV company should not be bound by the arbitration clause of the JV contract.
B.3 Challenging the arbitrators
B.3.1 The Beijing Fourth Intermediate People’s Court held that failure to challenge the arbitrator in a timely manner during the arbitration process may result in the party losing the right to raise any challenge at the enforcement stage
A party to the award applied to the Beijing Fourth Intermediate People’s Court to set aside the award on the ground that one of the arbitrators had a close business relationship with the other party, but the said arbitrator neither disclosed his relationship with the other party, nor applied for withdrawal.
The court held that under PRC Arbitration law, a party wishing to challenge the arbitrator shall make a submission before the first hearing, or if the circumstances giving rise to the challenge are known to the parties after the first hearing, the challenge shall be raised before the end of the last hearing. The above provision of the PRC Arbitration Law does not just provide the legal basis for the parties to challenge the arbitrator, but also imposes a procedural requirement that the parties need to follow when raising the challenge. Specifically, the parties should raise the challenge in a timely and reasonable manner after becoming aware of the circumstances giving rise to the challenge. In this case, the applicant wishing to set aside the award submitted evidence to the court to prove that the arbitrator failed to disclose circumstances that may give rise to reasonable doubts about their impartiality and independence. However, the matters to be proved by the above evidence occurred before the end of the arbitration procedure and were obtained by the applicant through the Internet. There are no objective obstacles for the applicant to obtain such evidence in the arbitration process. Therefore, the applicant should have raised the challenge within the statutory time limit. Besides, the court also held that the existing evidence cannot prove that the arbitrator has a personal interest in the case or the other party to the case that may impact their impartiality. As such, the court rejected the applicant’s request to set aside the award.
B.3.2 The Beijing Fourth Intermediate People’s Court held that the arbitrator and one party’s counsel being former colleagues does not constitute a valid ground for challenging the arbitrators
In this case, a party applied to the Beijing Fourth Intermediate People’s Court to set aside an arbitral award on the ground that the arbitration commission violated its Rules by rejecting the party’s challenge of the arbitrator. The party argued that the other party’s legal counsel and the said arbitrator were previously both lawyers of Beijing Junzejun Law Firm. From 2011 to 2013, the two were transferred to Beijing Zhongwen Law Firm. The two have been close colleagues for a long time. The other party’s legal counsel had submitted a personal statement to the arbitration commission in the course of the arbitration proceeding, explaining that he did not have any contact with said arbitrator, let alone be close with him. The Beijing Fourth Intermediate People’s Court held that the fact that the arbitrator and the legal counsel of one of the parties were once colleagues is insufficient to prove that the two are interested parties. There is no evidence to show that there is a direct exchange of interests between the arbitrator and the legal counsel that may affect the impartiality of the arbitrator. Therefore, the court rejected the application to set aside the award.
B.4 Enforcement of arbitral awards
B.4.1 The SPC set aside an arbitral award on the ground of the finality of the arbitral award
On 4 March 2005, Sinopec International Exploration and Production Corporation (SIPC) and UNI-TOP Asia Investment Limited (UNI-TOP) signed an Agency Agreement whereby SIPC appointed UNI-TOP as the exclusive agent to assist SIPC in acquiring shares of a third party. On 30 August 2012, UNI-TOP applied for arbitration to CIETAC, requesting SIPC to pay agency fees, etc. On 30 December 2013, the tribunal rendered an award rejecting UNI-TOP’s claims (“First Award“). On 30 September 2015, UNI-TOP once again filed an arbitration with the CIETAC, requesting the tribunal to declare that conditions for payment of agency fee under the Agency Agreement have been fulfilled and to order SIPC to pay the agency fee, etc. On 30 June 2017, the arbitral tribunal rendered an award granting UNI-TOP’s claims (“Second Award“).
Subsequently, SIPC applied to the Beijing Fourth Intermediate People’s Court to set aside the Second Award on the ground that the Second Award, which concerned the same dispute as arbitrated under the First Award, had violated the finality of the arbitral award (i.e., the arbitral award is final and binding). UNI-TOP argued that whether there is a violation of the finality of the award is a substantive issue that falls within the mandate of the arbitral tribunal and does not fall within the scope of the judicial review. Moreover, UNI-TOP argued that UNI-TOP’s request for the second arbitration relied on new facts and hence did not violate the finality of the award.
The SPC held that the Second Award had violated the finality of the award because it concerned the same parties, the same dispute, and the same arbitration claims. Further, the SPC opined that the so-called new facts as alleged by UNI-TOP are not new. In any event, the SPC opined that article 248 of PRC Civil Procedure Law which allowed a party to file a new lawsuit based on new facts only applies to civil lawsuits and not arbitration. The PRC Arbitration Law does not provide that a party can file a second arbitration based on the new facts. Accordingly, the Second Award was set aside by the court.
B.4.2 The Guangzhou Intermediate People’s Court decided on the nationality of an arbitral award rendered by foreign arbitral institution in China
This case concerns a dispute between Brentwood Industrial Co., Ltd (“Brentwood” ), and Guangdong Fa-anlong Mechanical Equipment Manufacture Co. Ltd / Guangzhou Zhengqi Trade Co. Ltd (“Respondents“), arising out of a Sale Contract of Construction Equipment and its supplementary agreements in 2010 (“Contract“). The parties agreed in the Contract that “any dispute arising out of or in relation to this Contract shall be resolved through friendly consultation. If the dispute cannot be resolved, it shall be submitted to the International Chamber of Commerce Arbitration Commission for arbitration at the place of the Project pursuant to international usages. According to the Contract, the place of the Project is Guangzhou. In 2011, Brentwood applied to Guangzhou Intermediate People’s Court to confirm validity of the abovementioned arbitration clause. In 2012, Guangzhou Intermediate People’s Court issued a ruling in Brentwood’s favor. In 2014, the ICC International Court of Arbitration issued an award (“ICC Award“). In 2015, Brentwood applied to Guangzhou Intermediate People’s Court for recognition and enforcement of the ICC Award pursuant to New York Convention.
Brentwood claimed in its application that the nationality of the ICC Award should be decided pursuant to the location of the arbitration institution. As the ICC International Court of Arbitration is headquartered in Paris, France, the ICC Award should be considered a French award and hence enforced pursuant to the New York Convention. In the alternative, Brentwood contended that although Guangzhou Intermediate People’s Court considered the ICC Award as a Hong Kong award due to it being made by the Hong Kong branch of ICC International Court of Arbitration, the ICC Award should be enforced pursuant to the Arrangements on the Reciprocal Enforcement of Arbitration Awards by Mainland China and the Hong Kong Special Administrative Region.
Guangzhou Intermediate People’s Court was of the view that since the ICC Award was made by the sole arbitrator Jane Willems in Guangzhou which is the place of arbitration, it is an award rendered by a foreign arbitration institution in China, or in other words a Chinese foreign-related arbitral award. In the event that the Respondents fail to comply with the ICC Award, Brentwood may apply to the competent Chinese court to enforce the same pursuant to the PRC Civil Procedure Law. However, Brentwood applied for recognition and enforcement of the ICC Award pursuant to the New York Convention or the Arrangements. As Brentwood refused to amend the legal basis of its application after the court’s repeated reminder, the Guangzhou Intermediate People’s Court decided to terminate the proceeding and opined that Brentwood could file a new application to enforce the ICC Award after the termination of the proceeding.