Validity of arbitration agreements under designated agents

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Validity of arbitration agreements under designated agents

From rapid development of the education industry to growing popularity for wealth management, disputes are surging over the quality of teacher training or financial advice.

Amid the inevitable consequences of any fast-developing society, contractual disputes are in tandem arising from the investments and financial management of natural persons suspected of suffering from mental diseases.

As a result, the validity of arbitration agreements involving persons without, or with limited, civil capacity, also known as “persons with insufficient civil capacity”, are becoming an increasing focus of arbitration institutions and tribunals.

Are all arbitration agreements involving persons without full capacity for civil conduct invalid? Or can the validity of arbitration agreement be ratified? These questions are all closely related to roles played by the statutory agent in such cases.

According to the Civil Code, civil juristic acts performed by a person who has no capacity for civil conduct shall be null and void. Such a person shall be represented by their agent ad litem (appointed by a court of one party to act in a lawsuit on behalf of another party).

A civil juristic act performed by a person who has limited capacity for civil conduct shall be valid provided such an act relates to the pure acquisition of benefits, or is made according to their age and intelligence, and other civil juristic acts shall be performed or acknowledged or consented by their agent ad litem.

Under the Arbitration Law, an arbitration agreement executed by a person with insufficient capacity for civil conduct is also invalid.

The Arbitration Law does not address the validity of an arbitration agreement executed on behalf of a person with insufficient capacity for civil conduct by the statutory agent, and does not address whether the statutory agent can retroactively recognise the validity of the arbitration agreement.

The author is of the opinion that the Arbitration Law, as a special law, is consistent with the Civil Code as a general law with respect to arbitration agreements concluded by persons without civil capacity, and such arbitration agreements shall be valid only if they are concluded by their statutory agents.

An arbitration agreement concluded by a person with limited capacity for civil conduct shall be an agreement whose validity is pending if such an agreement is based on the Civil Code as a general law. However, the Arbitration Law, as a special law, directly provides that such an agreement shall be null and void. Therefore, if there are relevant provisions in the special law, such provisions shall prevail.

At this time, it seems there is no room for the statutory agent to ratify the arbitration agreement. But, limited to the complex reality, it is important to ask what is the “agency” behaviour?

In practice, since a civil contract concluded by a person with limited capacity for civil conduct has to perform the payment obligation of the contract, it is rare for their statutory agent to be unaware of the contract. Rather, the person with limited capacity concludes the contract under the guidance of the statutory agent.

Take education and training contract disputes as an example. Parents are often very selective when signing up their children for training courses. Sometimes they accompany their children to sign contracts with education and training institutions, and sometimes they pay the fees directly.

Therefore, identifying acts of “agency” should not be limited to the objective form of “signature”, but considered comprehensively.

To sum up, in arbitration practice it is inadvisable to be too rigid in determining the performance of juristic acts by the agent ad litem on behalf of the person without full capacity.

The act of “agency” does not only mean the written “signature” or oral consent. It can also be embodied directly by the act of the legal agent; namely, if there is evidence that the statutory agent performed in obligations under the contract on behalf of the person without full civil capacity by implication, or performed partial obligations under the contract or otherwise, or actively filed an application for arbitration to claim for refund of the contract price, etc.

Therefore, if the arbitral tribunal finds that one of the parties to the arbitration agreement has incomplete capacity for civil acts, it should further analyse the statutory agent’s role in performance of the contract, make a case-by-case analysis on each specific case, and appropriately judge the arbitration agreement’s validity according to the actual circumstances of the case.


Deng Yu is a case manager at the BAC/BIAC