Applying judicial interpretations in international commercial arbitration

The interpretations of the Supreme People’s Court on how laws and regulations are to be applied, and its interpretations concerning the application of laws and regulations to actual cases, are classified as judicial interpretations. Judicial interpretations are not laws or regulations that have been formulated by a legislative body in accordance with the statutory legislative procedure, and as such, it is difficult, in theory, to include them within the scope of “legislation”.

However, in practice, as a one of the sources of PRC law, judicial interpretations are universally binding on judicial organs at every level, provided that they do not violate the constitution or law. Accordingly, in foreign-related trials, people’s courts rely on judicial interpretations when making their rulings and judgments.

This raises the question of whether, in international commercial arbitration cases in which PRC law is the governing law, a concerned party can apply for arbitration or argue in its defence on the basis of judicial interpretations. A further question raised is whether an arbitration tribunal can apply a judicial interpretation which addresses a matter on which laws and regulations are silent.

Common practice

It has long been common for parties to apply for arbitration or make arguments in their defence on the basis of judicial interpretations of the Supreme People’s Court.

For example, in one arbitration case, the respondent submitted three supplementary exhibits in support of its claims after the conclusion of the first hearing, but the applicant argued that, pursuant to the requirements of the Supreme People’s Court Evidence in Civil Procedures Several Provisions, the genuineness of the three exhibits could not be confirmed.

Although the arbitration award ultimately made by the arbitration tribunal did not directly cite the Provisions, the tribunal only accepted the respondent’s exhibits that were in conformity with those provisions.

Theoretical analysis

Examining current PRC laws and statutes, one can see that there is no basis in law for the application of judicial interpretations in arbitration cases.

The PRC Arbitration Law, implemented in 1995, does not address the issue of the application of laws in arbitration, and such laws as the PRC Civil Code General Provisions and the PRC Contract Law neither establish specific rules for the application of laws in international commercial arbitration nor stipulate whether any particular dispute should be subject to international commercial arbitration. The current arbitration rules of the China International Economic and Trade Arbitration Commission only provide that an arbitration tribunal should independently and impartially make its award based on the facts, in accordance with the provisions of laws and the contract, by referring to international practice and by adhering to the principles of fairness and reasonableness.

Such a provision clearly is not a provision concerning the application of laws. From this it can be seen that current PRC laws and the arbitration rules of various arbitration institutions do not specifically address the issue of the application of laws in arbitration, let alone the issue of the applicability of judicial interpretations in arbitration.

Examining the issue from the perspective of the nature of arbitration, an arbitration institution’s jurisdiction derives from an agreement between the parties, not from the law of the place of arbitration. The rights of the arbitrators are also conferred by the parties, not based on provisions of law. The parties in arbitration, as compared to litigation, have a high degree of freedom in selecting the governing law, with a great many international commercial arbitration institutions permitting parties to opt for a law that has no connection with the dispute.

Accordingly, in a situation where the parties have not reached agreement on the applicability of judicial interpretations, it is difficult for an arbitration tribunal to apply those judicial interpretations.

Practical demands

However, with a view to ensuring the smooth enforcement of their awards, arbitration tribunals may subjectively wish to ensure that their awards do not conflict with judicial interpretations. Pursuant to the PRC Arbitration Law and PRC Civil Procedure Law, if an arbitration award has a procedural or substantive flaw, the court has the right to cancel or refuse to enforce the arbitration award. Clearly, arbitration tribunals will wish to avoid this. Objectively, arbitration tribunals have a practical need to apply judicial interpretations. As current legislation cannot possibly cover all gaps in the law or new problems, the Supreme People’s Court will normally supplement it by issuing judicial interpretations. Thus the application of judicial interpretations becomes unavoidable for arbitration tribunals.

It can therefore be seen that, although judicial interpretations should not, in theory, be applied in international commercial arbitration governed by PRC law, in reality it is difficult to avoid them.

Flexibility

While arbitration tribunals are under no obligation to apply judicial interpretations, the provisions of applicable laws and regulations are limited and often unclear, so it is often necessary to apply judicial interpretations in arbitration in order to supplement such regulations. In general, arbitration tribunals will adopt one of the following flexible means to deal with the application of judicial interpretations.

First they may, indirectly rather than directly, apply or refer to judicial interpretations: if, in particular circumstances, the application of judicial interpretations is absolutely necessary, then they may appropriately clarify the intent of the judicial interpretation and convert the relevant provisions of the judicial interpretation into the opinion of the arbitration tribunal.

Second, where both parties invoke judicial interpretations or where one party invokes a judicial interpretation without the other party raising any objections, it may be surmised that the parties have reached agreement on applying the judicial interpretations.

Charles Pan is a senior consultant in the Shanghai office of Yao Liang Law Offices