A. LEGISLATION AND RULES
A.1 Legislation
Mutual assistance in interim measures in aid of arbitral proceedings by the courts of the Mainland and the Macau Special Administrative Region
On 24 February 2022, the Supreme People’s Court published the Arrangement Concerning Mutual Assistance in Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and the Macau Special Administrative Region (“Mutual Assistance Arrangement”).
The Mutual Assistance Arrangement is largely the same as the mutual arrangement between Hong Kong and Mainland China regarding the interim measures. It provides a legal basis for parties to arbitral proceedings in Macau to apply to Mainland courts for interim measures (which was previously not available unless for maritime disputes) and vice versa. Specifically, now a party to arbitration proceedings seated in Macau can apply to Mainland courts for the preservation of property, evidence and conduct. Likewise, a party to arbitration proceedings seated in mainland can apply to Macau’s courts for both ordinary preservation (e.g., asset preservation) or advance measures to ensure the realization of threatened rights.
The Mutual Assistance Arrangement does not apply to ad hoc arbitration seated in Mainland or Macau, but only to institutional arbitration proceedings (i.e., arbitration administered by arbitration institutions in Mainland and Macau). Unlike the Mainland-Hong Kong interim measure arrangement, the Mutual Assistance Arrangement includes all arbitration institutions established under Macau law.
The Mutual Assistance Arrangement also provides that the parties to the arbitration proceedings seated in Mainland or Macau can apply for interim measures both before and during the arbitration proceedings. Previously, the Mainland-Macau mutual recognition arrangement had provided for interim measures after the arbitral award is made, before or after the court accepts an application for recognition and enforcement of an arbitral award.
Draft law on civil compulsory enforcement
A draft law on civil compulsory enforcement was submitted for the first reading to the 35th session of the 13th National People’s Congress Standing Committee on 21 June 2022. The draft law focuses on constraint and supervision of enforcement power, regulation of enforcement behaviors as well as issues regarding the law application that cannot be solved through enforcement practices and judicial interpretations.
The draft law on civil compulsory enforcement specifies punitive measures against deadbeat debtors, such as refraining them from buying luxury goods and restricting them from leaving the country. It also sets out the conditions, implementation and duration of punitive measures such as fine and detention.
The draft law on civil compulsory enforcement also touches upon the enforcement of an arbitral award. It provides that:
“before the conclusion of the enforcement procedure, if the enforcement court finds that the enforcement of the arbitral award is contrary to public order and good customs, it shall rule not to enforce it. If an arbitral award is ruled not to be enforced by a people’s court, the parties may reapply for arbitration in accordance with the written arbitration agreement reached by both parties, or may file a lawsuit in the people’s court.”
This seems to imply that only the court can refuse to enforce an award ex officio. However, it fails to take into consideration that the parties are also allowed to apply for non-enforcement of an arbitral award under the existing PRC Arbitration Law and Civil Procedure Law under limited grounds. For example, the Civil Procedure Law provides that a party can apply to the court requesting for non-enforcement of the arbitral award if there is no valid arbitration agreement agreed between the parties, or the party is not given proper notice to present its case.
Therefore, we expect that there may be amendments to the draft law on civil compulsory enforcement to better coordinate with the PRC Arbitration Law and Civil Procedure Law.
Several measures to support the development of a globally oriented Asia-Pacific arbitration center and enhance the soft power of cities
On 9 November 2022, the General Office of the Shanghai Municipal Party Committee and the General Office of the Shanghai Municipal Government issued the “Several Measures to Support the Development of a Globally Oriented Asia-Pacific Arbitration Center and Enhance the City’s Soft Power” (“Measures”) at the 4th Shanghai International Arbitration Summit Forum, which include the following reform measures:
- Further open up the arbitration business: Previously, only the Linggang New Area allowed foreign arbitration institutions to operate there, but now the Measures support the opening-up of the region from the Lingang New Area to the whole of Shanghai, and encourage overseas arbitration institutions to set up business centers in Shanghai to administer foreign-related arbitration covering international investment, maritime affairs, and commercial disputes.
- Optimize preferential policies to facilitate arbitration development: The Measures specify three preferential measures to promote the opening-up of arbitration in Shanghai, including providing (i) entry and exit facilitation for arbitration-related personnel, (ii) fiscal and tax support policies for relevant institutions and personnel, and (iii) payment and foreign exchange purchase facilitation policies.
- Promote innovation in the arbitration system: The Measures clearly encourage enterprises registered in Shanghai to opt for ad hoc arbitration (i.e., refer their disputes to be resolved by certain personnel at certain location within China and in accordance with certain arbitration rules) and encourage arbitration institutions to expand their business to cover international investment dispute between the host government and investors.
A.2 Institutions, Rules and Infrastructure
Beijing Arbitration Commission amends arbitration rules
On 1 February 2022, the Beijing Arbitration Commission/Beijing International Arbitration Center implemented the new version of the Beijing Arbitration Commission/Beijing International Arbitration Center Arbitration Rules, with the main revisions including the following:
- It is made clear in the arbitration rules that the hearing methods include online hearings, and the arbitral tribunal has the right to determine the hearing methods having regard to the circumstances of the case
- There are now more options to select the presiding arbitrator. Specifically, it is provided that if the parties fail to jointly select the presiding arbitrator, the presiding arbitrator may be jointly selected by the two co-arbitrators
- It also confirms the effect of service via electronic means. Specific, the revised arbitration rules provide that “documents, notices, materials, etc. relating to arbitration may be served in person or by mail, special delivery, fax, e-mail or other electronic means to the parties or their representatives,” and further provide that “the [Beijing Arbitration Commission] or the arbitral tribunal has the right to adopt appropriate service methods having regard to the specific circumstances of the case”
Shanghai Arbitration Commission amends arbitration rules
On 1 July 2022, the new version of the Shanghai Arbitration Commission Arbitration Rules came into effect, and its main revisions include the following:
- The scope of Shanghai Arbitration Commission’s (“Commission”) jurisdiction is expanded to include international investment dispute arbitration
- The new arbitration rules introduce the concept of governing law to the arbitration agreement. The rules provide that the parties may agree on the law applicable to the arbitration agreement; if there is no agreement between the parties, the law of the place of arbitration shall apply; if there is no agreement on the place of arbitration, the arbitration commission or the arbitral tribunal shall determine the applicable law to the arbitration agreement
- The new arbitration rules also clarify the concept of the place of arbitration. The rules provide that if the parties have an agreement on the place of arbitration, the agreement shall prevail; if the parties have not agreed on the place of arbitration, the location of the Commission shall be the place of arbitration, and the Commission may also determine other places as the place of arbitration having regard to the specific circumstances of the case
- The new arbitration rules also add third-party funding disclosure requirements. The rules provide that if a party adopts third-party funding, the parties shall, upon the signing of the third-party funding agreement, immediately notify the Commission, the arbitral tribunal and other parties the agreement they have signed to fund their request for arbitration or conduct a defense as well as any third party that has a financial interest in the outcome of the arbitration
- The new arbitration rules encourage parties to resolve disputes through environmentally friendly means such as informatization and digitalization
A number of arbitration commissions at home and abroad jointly issued the Arbitration Rules of the China-Africa Joint Arbitration Center
In July 2022, the Shanghai International Economic and Trade Arbitration Commission, the Beijing Arbitration Commission and the Shenzhen Court of International Arbitration, together with three African arbitration institutions representing Southern, Northern and Central Africa, namely the Southern Africa Arbitration Foundation, the Nairobi International Arbitration Centre and the African Organization for Harmonization of Commercial Law, signed and issued the China-Africa Joint Arbitration Center (CAAC) Charter and the CAAC Arbitration Rules.
This is the first arbitration rule jointly formulated and issued by a Chinese and foreign arbitration institution. According to these rules, for disputes arising from international trade and investment between China and Africa, the parties may choose to submit the dispute to a CAAC located in either China or Africa, and choose an arbitrator on the Panel of Arbitrators appointed by the CAAC.
The implementation of ad hoc arbitration system for maritime disputes
On 18 March 2022, the China Maritime Law Association (CMLA) promulgated the Ad Hoc Arbitration Rules of CMLA, and the China Maritime Arbitration Commission (CMAC) issued the Ad Hoc Arbitration Service Rules of the CMAC, which came into effect simultaneously on 18 March 2022.
The CMLA Ad Hoc Arbitration Rules cover all aspects and stages of ad hoc arbitration proceedings, including the scope of application of the rules, service and time limit, place of arbitration, language of arbitration, composition of the arbitral tribunal, joining of new parties, consolidation of hearings, interim measures, preparatory meetings, presentation and cross-examination of evidence, awards, arbitration costs, etc.
It should be noted that the CMAC Service Rules provides operation guidance to the CMLA Ad Hoc Arbitration Rules, and CMAC’s role is to provide good service to facilitate the ad hoc arbitration if the parties agree to designate CMAC as the service body. The scope of CMAC’s service will be limited to providing partial management, auxiliary and support services for ad hoc arbitration, and CMAC will not be administering the entire process of the arbitration proceedings.
B. CASES
The Beijing Fourth Intermediate People’s Court recognized third-party funding practice in arbitration
The two arbitral awards that were requested to be set aside were rendered by the China International Economic and Trade Arbitration Commission (CIETAC) and involved disputes over aircraft operating lease agreements between the claimant and the respondent and related parties. The claimant to the two arbitral awards applied to set aside the same on the ground that the respondent signed an arbitration funding agreement with a third party, which amounts to disclosure of the arbitration proceedings to external parties, and hence undermined the principle of confidentiality of arbitration.
The Beijing Fourth Intermediate People’s Court held that the current law does not prohibit third-party institutions from funding parties to conduct arbitration proceedings. It is within the parties’ civil rights to rely on third-party funding for the conduct of the arbitration proceedings and such right should be respected when the exercise of the same does not violate the laws or affect impartiality of the arbitration proceedings.
With respect to the “principle of confidentiality,” the Beijing Fourth Intermediate People’s Court held that the key to the confidentiality of arbitration lies in the fact that the circumstances of the case are not disclosed to the public, so as to protect the parties’ trade secrets and social image, but it does not restrict relevant personnel from obtaining information relating to the arbitration proceedings. When the existing arbitration rules do not prohibit a third-party funding arrangement, the establishment of a funding relationship between the third-party funding institution and one party to the arbitration does not violate the principle of confidentiality, and the existing evidence in this case is not sufficient to prove the violation of the confidentiality principle, or in other words the existing evidence cannot prove that the disclosure to the third-party funding institution results in the merit and procedure of the arbitration to the public.
Therefore, the Beijing Fourth Intermediate People’s Court dismissed the claimant’s application to set aside the abovementioned two arbitral awards.
The SPC confirms that an antitrust dispute does not fall within the scope of the arbitration clause
Baicheng Xinniu Dairy Co., Ltd (“Xinniu”) and Lindian Yili Co., Ltd (“Yili”) entered into a contract for the purchase and sale of fresh milk. Xinniu filed a tort lawsuit with Jilin Changchun Intermediate Peoples’ Court against Yili and other related parties of Yili, claiming that, among others, (i) the said contract should be deemed void because it constitutes a monopoly agreement; and (ii) Yili and its affiliates should compensate Xinniu economic loss that the latter has suffered due to the former’s monopolistic behavior including abuse of dominant market position.
Yili filed jurisdiction challenge on the ground that there is an arbitration clause under the said contract and hence any dispute relating to the dispute including antitrust related disputes should be resolved through arbitration. The Jiling Changchun Intermediate People’s Court upheld Yili’s jurisdictional challenge, but Xinxiu filed an appeal with Supreme People’s Court (SPC).
The SPC held the following:
- The arbitration clause stipulated in a contract involved in a monopoly dispute cannot automatically exclude the jurisdiction of the people’s court
- In a monopoly dispute arising from the signing and performance of a contract, the contract concluded between the victim and the monopoly actor is only the carrier or tool for the monopoly actor to carry out the monopolistic act, and the part of the contract involving monopoly is the source and root cause of the tortious infringement
- The identification and handling of the monopoly act exceeds the relationship of civil rights and obligations between the victim and the monopoly actor
- Therefore, a monopoly dispute arising from the signing and performance of a contract far exceed the scope of the arbitration clause previously agreed between the victim and the monopoly actor
- In addition, the legislative purpose of the Contract Law and the Anti-Monopoly Law is different, and the Anti-Monopoly Law has an obvious public law nature, and the determination and treatment of monopolistic acts far exceed the rights and obligations between the contractual parties, and hence the arbitration clause agreed by the parties in this case cannot exclude the jurisdiction of the people’s court over monopoly disputes
SPC confirms that the Chinese courts have the right to ascertain the enforcement amount when the foreign award itself does not specifically mention the amount
The foreign award involved in this case does not specify the amount to be paid by the debtor. When Xiamen Intermediate People’s Court is enforcing the said foreign award, it takes initiative in calculating the amount to be paid. The award debtor filed a challenge against the enforcement on the ground that Xiamen Intermediate People’s Court has no right to calculate the payable amount in the foreign award when it fails to send any written notice to the foreign arbitration institution to supplement the award, or requests to retrieve a copy of the case files from the foreign arbitration institution for review.
The SPC held that the Xiamen Intermediate People’s Court’s clarification of the amount to be enforced having regarding to the facts of the case (e.g., the content of the award) when it is not clear in the award was in line with the actual situation of the case, and hence is appropriate.
Beijing Fourth Intermediate People’s Court confirms the validity of arbitration clause that seems to have chosen two arbitration institutions
The contract in dispute (an equity transfer and nominee holding agreement) opts for the Shanghai International Economic and Trade Arbitration Commission/Shanghai International Arbitration Centre (SHIAC/HKIAC) as the dispute resolution forum. One party to the contract argues before Beijing Fourth Intermediate People’s Court that the arbitration clause should be invalid because it chooses two arbitration institutions (i.e., SHIAC and HKIAC) which under PRC law is invalid.
The Beijing Fourth Intermediate People’s Court held that although “HKIAC” written in the arbitration clause refers to the Hong Kong International Arbitration Center, the court should interpret it in accordance with the principle of respecting the parties’ will to arbitrate and making the arbitration agreement legal and valid by taking into account the parties’ express intention to arbitrate. Since the contract language is Chinese and the arbitration commission can be determined according to the Chinese wording, the “HKIAC” in parentheses does not affect the determination that the parties have chosen a clear and sole arbitration institution, and therefore the arbitration clause involved in the case should be valid.
The same party has also argued that the subsequent supplementary agreement chooses CIETAC as the arbitration institution, which is different from SHIAC chosen in the equity transfer and nominee holding agreement, and hence the arbitration agreement should be deemed invalid due to the uncertainty as to which arbitration institution is chosen.
The Beijing Fourth Intermediate People’s Court held that the parties signed an equity transfer agreement, a supplementary agreement, and an equity transfer and nominee holding agreement. The three contracts are corelated in terms of both content and time. Among the above three contracts, the equity transfer and nominee holding agreement is independent and the latest, so the arbitration commission chosen in the arbitration clause should be the basis for determining whether it has selected a clear arbitration commission. On that basis, the court was of the view that a clear and sole arbitration institution was chosen albeit that it is different from the arbitration institution selected by the equity transfer agreement or supplementary agreement. Therefore, the court ruled that the arbitration clause was valid and enforceable.
