A. LEGISLATION AND RULES
A.1 Legislation
New amendments to the PRC Civil Procedure Law
On 1 September 2023, the Standing Committee of China’s National People’s Congress (“China NPC“) released the amendments to the PRC Civil Procedure Law (“2021 CPL“), which has taken effect from 1 January 2024 (“2024 CPL“). The amendments also touch on international arbitration, which, among others, clarify the criteria for the nationality of an arbitral award issued pursuant to an arbitration administered by a foreign arbitration institution in China.
Under the 2021 CPL, a foreign award is referred to as an award issued by foreign arbitration institutions. This means that the nationality of the award is decided by the location of the foreign arbitration institution. As such, presumably, an award made by a foreign arbitration institution with a seat in China should be considered a foreign award.
However, under the New York Convention, a foreign award means an award made in the territory of a state other than the state where the recognition and enforcement of such award is sought. This means that the nationality of the award is determined by the place of the arbitration. When it comes to an arbitral award made by a foreign institution in China, if it is considered a foreign award as provided under the 2021 CPL, then there will be a question as to whether it can be enforced pursuant to the New York Convention, which applies only to an award made in a foreign state.
The 2024 CPL revised the previous position and made it clear that the nationality of the arbitral award shall be decided by reference to the seat of arbitration. This means that an arbitral award rendered by a foreign arbitration institution with China being the place of arbitration will be considered a Chinese award and will be enforced pursuant to PRC law rather than the New York Convention.
Foreign State Immunity Law
On 1 September 2023, the Standing Committee of China NPC promulgated the PRC Law on the Immunity of Foreign States, which has taken effect from 1 January 2024 (“Immunity Law“). The Immunity Law deviates from the previous “absolute” doctrine of immunity adopted by China and now applies the “restrictive” approach to foreign state immunity, including in the area of international arbitration.
According to the Immunity Law, when an international dispute arising from a commercial activity or an investment is submitted to arbitration according to a written agreement, the foreign state shall not enjoy immunity with respect to the following matters: (1) the validity of the arbitration agreement; (2) recognition and enforcement of an arbitral award; (3) setting aside of an arbitral award; and (4) other arbitration matters that are subject to judicial review by a Chinese court.
Regulation of the Shanghai Municipality on Promoting the Initiative for an International Commercial Arbitration Center
On 22 November 2022, the eighth meeting of the Standing Committee of the 16th Shanghai Municipal People’s Congress voted to adopt the Regulation of the Shanghai Municipality on Promoting the Initiative for an International Commercial Arbitration Center (“Regulation“), which has taken effect from 1 December 2023.
The purpose of the Regulation is to promote Shanghai as the international arbitration hub of Asia, and various measures are adopted in the Regulation to achieve this objective:
- Allowing well-known overseas arbitration and dispute resolution institutions to set up business offices in Shanghai to administer foreign-related arbitration proceedings for disputes arising from international commerce, maritime affairs and investment.
- Encouraging arbitration institutions in Shanghai to employ overseas arbitration professionals to serve as members of decision-making bodies, arbitrators and arbitration secretaries.
- Supporting Shanghai’s arbitration institutions in setting up branches or offices abroad, expanding the international arbitration business, and improving the institutions’ own capability of foreign-related arbitration services.
- Exploring the possibility of ad hoc arbitration in Shanghai for foreign-related commercial and maritime disputes in accordance with the specific arbitration rules and by certain arbitrators.
A.2 Institutions, rules and infrastructure
China International Economic and Trade Arbitration Commission amends Arbitration Rules
The amendment to the Arbitration Rules of the China International Economic and Trade Arbitration Commission (CIETAC) has taken effect from 1 January 2024. The changes demonstrate CIETAC’s efforts to align with best international arbitration practice.
Recognizing the kompetenz-kompetenz principle. The amendment clarifies that the arbitral tribunal has the power to decide jurisdiction.
Single arbitration for multiple contracts. The new rules relaxed the requirements for filing a single arbitration concerning disputes arising out of multiple contracts. Under the previous arbitration rules, one of the requirements is that multiple contracts shall be of a principal-ancillary relationship, or such contracts involve the same parties as well as legal relationships of the same nature. The new rules have expanded to allow contracts involving subject matters that are related to each other to be filed under a single arbitration, even if the contracting parties are not identical.
Nomination of the presiding arbitrator. The amendment provides more mechanisms for the parties to select the presiding arbitrator, including, for instance: (i) joint selection by the parties; (ii) joint selection by the parties’ nominated arbitrators; (iii) common candidates among the parties’ recommended list; (iv) selection from CIETAC’s recommended candidates; and (v) nomination by CIETAC.
Preservation application to non-PRC court. According to the 2024 Rules, CIETAC can now accept and forward applications to a court out of Mainland China for interim/preservation measures, provided that the foreign court is willing to take preservation measures in aid of CIETAC arbitration proceedings.
Mechanism of early dismissals. A party may apply for an early dismissal of all or part of arbitration claims or counterclaims on the ground that they are manifestly without legal basis or outside the tribunal’s jurisdiction.
Shanghai International Arbitration Center amends Arbitration Rules
On 7 November 2023, a new version of the Shanghai International Arbitration Center (SHIAC) Arbitration Rules was released, which incorporate innovations in the China (Shanghai) Pilot Free Trade Zone Arbitration Rules in 2014.
The key changes include new provisions for emergency arbitration, single arbitration for multiple contracts, third-party funding arrangements, publication of awards with party consent, and increased monetary threshold for applying summary procedures from RMB 1 million to RMB 5 million.
The new rules also provide that a party may recommend a person not on the Panel of Arbitrators to act as an arbitrator, or parties may agree to choose a presiding arbitrator not on the Panel of Arbitrators, and such recommendation or choice shall be decided by the chairman of SHIAC.
In addition, the new rules clarify that IBA Guidelines on Conflicts of Interest in International Arbitration or relevant guidance documents shall be referred to when arbitrators disclose any facts or circumstances that may give rise to justifiable doubts as to their impartiality or independence.
First foreign arbitration institution to administer foreign-related arbitration cases registered in China
On 1 December 2023, the Korean Commercial Arbitration Board (KCAB) received approval to set up the Shanghai Center of the KCAB (“Center“).
The Center is the first institution established by a foreign arbitration body in China. It is allowed to administer foreign-related arbitration for civil and commercial disputes arising from international commerce, maritime affairs, and investment.
The business scope of the Center encompasses case acceptance, conducting hearings, issuing awards, and case management and services. Additionally, the Center can also provide business consulting, guidance, training and seminars.
Air Silk Road Investment and Trade Dispute Resolution Center inaugurated in Shanghai
On 26 November 2023, the Air Silk Road Investment and Trade Dispute Resolution Center was inaugurated in Shanghai. This center operates under the auspices of SHIAC and marks the pilot establishment of a “Belt and Road” dispute resolution initiative in Shanghai.
The primary objective of the Air Silk Road Investment and Trade Dispute Resolution Center is to judiciously address investment and trade conflicts within the aviation sector, thereby safeguarding the fundamental developmental interests of China’s civil aviation.
B. CASES
First case in mainland China to apply the China Maritime Law Association Ad Hoc Arbitration Rules published
This case involves an international dispute in which the claimant was a resident of the PRC, and the respondent was a Chinese Hong Kong company. The arbitration clause of the contract provides for ad hoc arbitration in accordance with China Maritime Law Association (CMLA) Ad Hoc Arbitration Rules, and the appointing authority was the China Maritime Arbitration Commission (CMAC) or the China Maritime Arbitration Commission Qingdao Arbitration Center.
Since the place of arbitration is not specified in the arbitration clause, the tribunal first determined that the place of arbitration was Qingdao, and the procedure was governed by the arbitration laws of the PRC. According to PRC laws, the parties may choose the governing law of the arbitration agreement. Given that the parties have expressly chosen HK law as the governing law of the arbitration agreement, the tribunal applies HK law to determine the validity of the arbitration agreement. Since HK law allows ad hoc arbitration, the ad hoc arbitration clause was found to be valid by the tribunal.
Beijing Fourth Intermediate People’s Court confirms that the English text of a Chinese contract had specified a clear arbitral institution
Rofs Microsystem (Nanchang) Co., Ltd. (“Rofs“) entered into a contract with AIR LIQUIDE (Wuhan) Co., Ltd. (“Air Liquide“). The contract was drafted in both Chinese and English, and the Chinese version prevails in case of any discrepancy between the two versions.
The Chinese version refers to “Beijing International Trade Arbitration Commission” as the arbitration institution, while the English version designates “Beijing International Arbitration Center”. Rofs contended that the arbitration agreement was invalid because the Beijing International Trade Arbitration Commission agreed that the Chinese version did not exist.
The Beijing Fourth Intermediate People’s Court held that although the institution specified under the Chinese version was not accurate, the court should follow the principle of recognizing the validity of the arbitration agreement and supporting the parties’ choice to resolve their disputes through arbitration. Therefore, the court decided to ascertain the parties’ true intent by reference to the English version. Since the English version can point to an accurate arbitration institution, the court took the view that the parties have selected Beijing International Arbitration Center as the arbitration institution, and hence, under PRC law, the arbitration agreement is valid.
Dalian Intermediate People’s Court holds that substantive liability provisions in Company Law should not be used to expand the scope of the effectiveness of arbitration clauses
Cao Manxia entered into a contract with Fujiang Company, and they agreed to resolve disputes through arbitration. Fujiang Company is a one-person limited liability company, with Li Tao being the sole shareholder. Cao Manxia applied to the Yingkou Arbitration Commission to join Li Tao as a respondent on the ground that Article 63 of the PRC Company Law stipulates that the sole shareholder of a one-person limited liability company should bear joint liabilities with the company unless there is evidence proving that the shareholder’s assets are independent from the company’s. The Yingkou Arbitration Commission approved the application. Li Tao applied to the Dalian Intermediate People’s Court, requesting confirmation that he is not bound by the arbitration clause between Cao Manxia and Fujiang Company.
The Dalian Intermediate People’s Court held that the scope of the arbitration clause should not be expanded arbitrarily without clear legal basis. Article 63 of PRC Company Law is a substantive legal provision on liability, which is irrelevant to the scope of arbitration clauses. In this case, Li Tao didn’t directly sign the contract, and hence, there is no clear intent from Li Tao to be subject to arbitration for disputes arising from the contract between Cao Manxia and Fujiang Company. The Dalian Intermediate People’s Court held that there is no arbitration agreement between Li Tao and the other two parties, and Cao Manxia can commence a separate civil action to pursue liabilities against Li Tao.
Beijing Fourth Intermediate People’s Court holds that the arbitration clause of a branch office is binding on its home office
Beijing AUTOMOBILE Works Co., Ltd. (“Beijing AUTOMOBILE“) and Nanjing Siwei Zhilian Technology Co., Ltd. (“Siwei Zhilian“) entered into a contract whereby it was agreed that disputes arising from the contract should be submitted to arbitration. However, instead of affixing the seal of Beijing Automobile, the seal of its branch company (namely Beijing AUTOMOBILE Works Co., Ltd. Huanghua Company, “Huanghua Company“) was affixed to the signature page of the contract.
Siwei Zhilian commenced arbitration before the Beijing Arbitration Commission against Beijing AUTOMOBILE. Subsequently, Beijing AUTOMOBILE requested the Beijing Fourth Intermediate People’s Court to confirm the invalidity of the arbitration clause toward Beijing AUTOMOBILE.
The Beijing Fourth Intermediate People’s Court held that the arbitration clause in the contract between Siwei Zhilian and Huanghua Company is valid. According to Article 74 of the PRC Civil Code, where a branch office conducts civil activities in its own name, any civil liability arising therefrom shall be assumed by the head company. Therefore, the arbitration clause in the Contract was binding on Beijing AUTOMOBILE.
Shenyang Intermediate People’s Court holds that defects in the validity of arbitration clauses can be considered as being contrary to the public interest
Chinatopcredit Financial Information Service (Shanghai) Co., Ltd. (“Chinatopcredit“) applied to the Shenyang Intermediate People’s Court to enforce an award against Han Liping. However, Han Liping challenged the award on the ground that there was no arbitration agreement between the parties.
Chinatopcredit submitted a “Confirmation of Arbitration Clause” to the court in support of its position that the parties have agreed to submit disputes to arbitration. However, the Confirmation of Arbitration Clause submitted by Chinatopcredit only has a printed signature of Han Liping.
The Shenyang Intermediate People’s Court held that according to the PRC Electronic Signature Law, it was not possible to confirm the authenticity of the electronic signature of Han Liping in the Confirmation of Arbitration Clause, or whether the electronic signature reflects the true intent of Han Liping. Therefore, the court ruled that there was no valid written arbitration agreement between the parties, and the award should not be enforced.
Foshan Intermediate People’s Court confirms that the arbitration clause could be validly established if the foreign party had exercised reasonable care and diligence
Art Mosaic of Uzbekistan LLC (“Art Mosaic“) and Hongguan Co., Ltd. (“Hongguan Company“) entered into a sales contract that opted for arbitration. When Hongguan Company failed to deliver the goods, Art Mosaic initiated an arbitration at the International Commercial Arbitration Court under the Chamber of Commerce and Industry of the Republic of Uzbekistan. Later, Art Mosaic applied to the Foshan Intermediate Court for recognition and enforcement of the award. Hongguan Company defended that the person who signed the contract was not an employee of Hongguan Company and did not have the authority to sign the contract, and hence, there was no valid arbitration agreement between the parties.
The Foshan Intermediate Court held that pursuant to the New York Convention, the prerequisite for recognizing and enforcing an arbitral award is that there is a valid arbitration agreement between the parties. Considering the circumstances of the case (e.g., the negotiation process, the official seal on the contract, the contract address, and the bank account of Hongguan Company in the contract), the court concluded that Art Mosaic has reason to believe that the signatory is authorized to sign the contract on behalf of Hongguan Company. Therefore, the arbitration agreement was valid, and the foreign arbitral award shall be recognized.
Hangzhou Intermediate People’s Court confirms that an arbitration clause is separable from the contract
After Yihai Co., Ltd. (“Yihai“) and Lianshun Co., Ltd. (“Lianshun“) reached a preliminary agreement on the elements of the sales contract, Yihai emailed Lianshun a form containing four contracts, all of which stipulated that disputes would be submitted to the HKIAC for arbitration. Lianshun objected to certain clauses in three contracts but did not object to the arbitration clause in any of the four contracts. Yihai then sent the revised drafts to Lianshun, who responded that they would sign the contracts after going through the internal approval process. However, Lianshun never sent back the signed contracts. Also, Lianshun refused to take delivery of the goods on the ground that the contracts had not been signed.
Yihai then applied for arbitration with the HKIAC, who rendered an award against Lianshun. Yihai applied to the Hangzhou Intermediate People’s Court to recognize and enforce the award. Lianshun challenged the application on the ground that there was no arbitration agreement between the parties.
The Hangzhou Intermediate People’s Court held that the law of the place of the arbitration, i.e., Hong Kong law, should be applied to review the validity of the arbitration agreement. Although the parties did not sign the contract, a consensus on the arbitration clause was reached when Lianshun responded to the draft contracts but did not raise any objection regarding the arbitration clause. Therefore, the court held that the arbitration clause should be deemed valid.
Shanghai First Intermediate Court confirms that the selection of a foreign arbitral institution complies with the requirement of Article 16 of China’s Arbitration law
Daesung Industrial Gases Co., Ltd. (“Daesung Korea“) and Praxair (China) Investment Co., Ltd. (“Praxair“) entered into a contract, agreeing that any dispute arising out of the contract should be referred to the SIAC for arbitration in Shanghai in accordance with the SIAC’s arbitration rules. There is also a Supplemental Agreement assigning Daesung Korea’s rights and obligations under the contract to Deasung (Guangzhou) Gases Co., Ltd. (“Daesung Guangzhou“), and Daesung Korea bears joint and several guarantee liability.
Daesung Korea and Daesung Guangzhou initiated an arbitration at the SIAC. Praxair filed a jurisdiction challenge, and the arbitral tribunal determined that it had jurisdiction over the dispute. Praxair then initiated litigation in Singapore to confirm that the arbitral tribunal did not have jurisdiction. The Court of Appeal of the Supreme Court of Singapore finally ruled that the place of arbitration is Shanghai and that the Singaporean court is not the proper forum to review the arbitration clause.
Therefore, Daesung Korea and Daesung Guangzhou applied to the Shanghai First Intermediate People’s Court to confirm the validity of the arbitration clause. The Shanghai First Intermediate People’s Court held that the arbitration clause, which chooses a foreign arbitration institution to administer arbitration seated in China, is valid.
