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China’s arbitration reforms will align it with international rules

Out-Law Analysis | 08 Sep 2021 | 1:16 am | 3 min. read

China’s move to align arbitration rules with those in other large international arbitration centres could fundamentally change the way arbitration works in China.

Taking the best of international good practice, the changes will introduce increased consistency and certainty to arbitration in mainland China and are likely to be welcomed by practitioners.

In July the Chinese Department of Justice asked for opinions on its proposed changes to the Chinese Arbitration Law, which were a response to the central government’s call for greater transparency, openness and quality in the Chinese Arbitration Law. The consultation closed on 29 August.

The Arbitration Law was first implemented on 1 September 1995. With the changes made in 2009 and 2017, this marks the third time changes are proposed.

Some of these changes will be monumental and could potentially change the landscape of arbitration in China. Aligning its rules and procedures more closely with many other large international arbitration centres. A significant one addresses the issue of Kompetenz-Kompetenz which would be a very significant change.

The most important changes

The new rules propose that the seat of arbitration be distinct from the venue or and place of arbitration and that parties have the freedom to choose both, and they may differ. Where parties with ‘foreign elements’ have not selected their seat of arbitration or where such selection is ambiguous, the tribunal is empowered to make a determination “according to the circumstances of the matter”.  

If the validity of an arbitration agreement is challenged then the rules give the tribunal freedom to address the issue of validity of an arbitration agreement. Unless the tribunal hasn’t been formed then it falls to the institution to determine.

The new rules expressly recognizes the parties’ choice of arbitration rules, subject to the mandatory provisions of the Arbitration Law.

They also expressly provide that where a party continues to participate in the arbitration proceedings without any written objection it shall be considered to have waived its rights to object on the basis of non-compliance of the arbitration agreement.

They recognise the reality of the common practice of serving documents using modern technology.

The new rules contain a more comprehensive set of laws governing the powers of courts and tribunals. This is a welcome move as it reflects parties’ needs and provides clear guidelines on how interim measures can be applied for and should be managed. They also recognise the powers of emergency arbitrators in granting interim measures. 

The proposed changes include provisions to accommodate mediation in the arbitration proceedings where parties have agreed to do so. This is evident from the additions of Sections 32, 68, 69 and 70. In particular, it is interesting to note that Section 68 appears to be in line with the concept of arb-med-arb where it expressly states that the arbitral tribunal should mediate where parties are prepared to mediate before the final award is rendered.

The rules contain a comprehensive set of laws in relation to partial awards and confirm the enforceability of partial awards.

It is evident that drafters intend for the proposed changes to facilitate the enforceability of arbitral awards by minimising the chances of an arbitral award being refused enforcement on account of relatively minor problems. Section 75 now appears to oblige the enforcing Chinese Courts to offer the tribunal an opportunity to clarify any part of the arbitral award which might prevent the award from being enforced.

The proposed changes appear to streamline the Chinese Courts’ consideration of an application for enforcement and has revised the conditions under which the Chinese Courts can refuse enforcement. Section 82 proposes that the Chinese Courts may only refuse enforcement where it is against public interest.

The rules provide a clearer set of laws on how enforcement proceedings should be commenced for arbitral awards that were made outside China.

The proposed changes appear to refine and expand the conditions under which the Chinese Courts can set aside an arbitral award.

In particular Section 77(3) now allows for an arbitral award to be set aside if it is found that “the respondent fails to receive the notice of appointing an arbitrator or conducting arbitration proceedings or fails to state its opinions for other reasons for which the respondent is not responsible”. Further, Section 77 now empowers the Chinese Courts to set aside just part of the arbitral award where it is possible to do so.

One of the key changes would be the special laws governing arbitrations with foreign elements.

Sections 69 – 73 which used to govern issues including enforcement and setting aside of arbitral awards of arbitrations with foreign elements, have been removed in a bid to break down the distinction between arbitrations with and without foreign elements. This could be a welcome move, especially in line with the other changes highlighted above which appear to have been made with a view to aligning the new Chinese Arbitration Law towards the Model Law and existing good industry practices.

Further proposed changes are targeted at facilitating the recognition of the effectiveness of arbitrations with foreign elements. 

These include

  • section 90 which recognise parties’ autonomy in choosing the governing law for the arbitration agreement;
  • section 91 which expressly recognizes parties’ choice of arbitration institutes or choice of ad-hoc arbitration, and
  • section 92 aimed at facilitating ad-hoc arbitration by expressly providing the Chinese Courts with the power to assist parties in procedural matters in such ad-hoc arbitrations.

The proposed changes further include a model arbitration clause for referrals to the Shanghai International Economic and Trade Arbitration Commission or Shanghai International Arbitration Centre. 

Written by Chun Pin Yap of Pinsent Masons.