Out-Law Analysis | 14 Sep 2020 | 9:10 am | 2 min. read
Virtual hearings have become much more common in the aftermath of lockdowns and travel bans caused by the coronavirus pandemic. And while one of arbitration's main benefits is its flexibility, there are still challenges to navigate.
The law of the People's Republic of China (PRC) should be considered if a virtual hearing involves a party from the PRC or if someone is attending a virtual hearing from there.
Under PRC law, any PRC company can engage in arbitration, except in relation to issues outside the scope of arbitration law.
Article 64 of the Civil Procedure Law of PRC provides that in any commercial dispute, a party is responsible for providing evidence in support of its assertions. However, Article 277 provides that no foreign authority or individual will serve process or "conduct investigation and collection of evidence within the territory of the People's Republic of China" if they do not have permission from the competent PRC authorities. Therefore, an authority or individual that conducts an investigation or collects evidence within the PRC may be in breach of Article 277 of the Civil Procedure Law.
There is a risk that the arbitral tribunal is considered as an 'authority or individual' that could be deemed to be collecting evidence within the territory of the PRC when it receives evidence in chief at a virtual hearing or when it receives witness statements or cross examination evidence from a witness physically located in the PRC.
If the arbitral tribunal is constituted outside the PRC, in accordance with procedural rules that are not subject to PRC law, it would be deemed 'foreign.'
If the arbitration is seated in Hong Kong, it is unclear whether the arbitral tribunal would still be deemed 'foreign' under Article 227 of the Civil Procedure Law and therefore in breach of PRC law.
Article 277 is part of Chapter XXVII "Judicial Assistance of the Civil Procedure Law of the PRC," which mainly regulates judicial assistance on cross-border matters, such as the service of legal documents, investigation, collection of evidence in connection with litigation or arbitration and, therefore, primarily provides direction to PRC Courts petitioned by a party to prevent a foreign party from collecting evidence.
Though it is unclear, it seems unlikely that the Ministry of Justice or any relevant enforcing authority would seek to enforce this provision without a prior application from a party, in particular when the prevention of witness evidence being provided to the arbitral tribunal is on behalf of a Chinese entity and the prevention may be unhelpful to the Chinese entity's case.
However, a potential breach of Article 277 of the Civil Procedure Law remains. This may be used strategically either by one party seeking to prevent evidence submitted by a counterparty's witness, or deployed by either party to disrupt or delay proceedings. Strategically, a party may be unwilling to accept a virtual hearing feeling its ability to have its team together in one place may be compromised.
Moreover, where evidence has been received by the Arbitral Tribunal from a witness in the PRC, contrary to Article 227, this could form the basis of a challenge to the enforcement of an arbitral award.
For Contracting States, the challenge could arise from Article V2(b) of the New York Convention by way of an argument that evidence was collected illegally. Of course, this would depend on the relevant provisions of the law in the jurisdiction of enforcement and the specifics of the evidence, and whether that evidence was or could have been fundamental to the outcome of the arbitration.
To avoid such risks, the witness could still give evidence remotely but from outside the PRC, although if strict border controls for re-entry to the PRC are in place, this may not offer much of a solution and the only option may be to reschedule the hearing date for receiving witness evidence.
This story was co-written by Wanhe Ye of law firm Cyan