In institutional arbitration, model clauses are widely used for their ascertained validity. On the basis of the model clause, the parties may also “customize” the arbitration procedure by incorporating special agreements to maximize the advantages of the arbitration procedure’s flexibility.
Recently, a dispute between a Swiss company and a Hong Kong company over the sale of masks was submitted to the China International Economic and Trade Arbitration Commission (CIETAC) South China Sub-Commission. According to the Arbitration Rules of China International Economic and Trade Arbitration Commission (2015 Edition), the arbitral tribunal shall render the arbitral award within six months from the date on which the arbitral tribunal is formed. However, the arbitration clause specifically stipulates that the arbitration procedure shall be completed within 30 days. In accordance with article 4(3) of the CIETAC arbitration rules, if a special agreement is enforceable and legal, it shall be followed.
The contract was signed on 24 March 2020, during the most severe covid-19 outbreak – and the most significant contradiction between supply and demand of masks. Affected by the pandemic, enterprises have been burdened with huge cashflow pressure, and the decision-making time of commercial activities has shortened.
Both sides expressed extremely high expectations for the efficiency of dispute resolution. If the award were to be rendered too late, the losses to both sides would expand further, resulting in a lose-lose situation. In view of the pandemic situation, after consulting both parties and making a preliminary evaluation of the difficulty of presenting the case, the service procedure and the willingness of both parties to co-operate, CIETAC South China Sub-Commission decided that the arbitration award should be made within 30 days from the formation of the arbitration tribunal.
The parties agreed with this decision and the corresponding procedural arrangements. The arbitral tribunal guided both parties to conduct a sufficient exchange of evidence and submissions before the hearing by issuing procedural orders and question lists. Thanks to the efficient work of the arbitration tribunal and the co-operation of both parties, the case was held on the 23rd day after the arbitration tribunal was formed, and the arbitral award was rendered on the 28th day.
In addition to the time period for rendering the award, in institutional arbitration practice, there are special agreements as follows:
Scope of arbitration
In order to avoid disputes arising from the same contract to be resolved by two procedures, the agreement on scope of arbitration is usually drafted to be general. However, due to special needs, some parties have tried to limit the scope of arbitration. For example, in common law cases, it was agreed to exclude the jurisdiction of the arbitral tribunal for injunctive relief and declaratory relief. However, a special agreement on the scope of arbitration is risky, for its validity usually depends on the interpretation of the court at the seat of arbitration.
Seat of arbitration
The seat of arbitration is an important part of an arbitration clause. The institutional arbitration rules generally stipulate the default seat of arbitration in case of no corresponding agreement. Usually the arbitration rules will also endorse the arbitration tribunal/arbitration institution having the power to decide the seat of arbitration concerning all circumstances.
Since the seat of arbitration is closely connected with the applicable arbitration procedure law, which may lead to different conclusions regarding the validity of arbitration clauses, a clearly agreed seat of arbitration means that the validity of arbitration clause is also well assured.
Special agreements on specific arbitration proceedings
Parties enjoy freedom in the CIETAC arbitration rules to broadly tailor their own arbitration proceedings. The parties can incorporate special agreements on the number and formation of the arbitral tribunal (including whether the parties are entitled to nominate arbitrators outside the panel of arbitrators), the application of the summary procedure, application of emergency arbitrator procedures, the arbitration language, place of hearing, conducting of hearing, the exchange and service of arbitration submissions, the consolidation of arbitration cases, etc.
Multi-tiered arbitration agreements
Multi-tiered clauses are an effective way to interact with other alternative dispute resolution methods. Usually the parties may agree to negotiation, mediation and expert evaluation taken as prior procedures of arbitration proceedings. For example, if any disputes arising out of the contract are unable to be resolved by mediation according to the CIETAC Mediation Centre Mediation Rules within 90 days from the day that either party sent out the written invitation to mediate, they shall be submitted to CIETAC South China Sub-Commission for arbitration.
In practice, there are also multi-tiered clauses specifying the final/first applicable dispute resolution method based on the amount in dispute. Such clauses should be carefully drafted to ensure that the choice of dispute resolution method is unique and deterministic, despite that it may be sequential. At the same time, special attention should be paid to the validity of such clauses depending on the seat of arbitration, especially when it comes to the validity of clauses similar to “arbitration or litigation” (meaning that the parties enjoy a flexible option between arbitration and litigation).
The parties are entitled to enjoy the freedom to customize the arbitration procedure as needed with the assistance of the special agreements in the arbitration clause. However, it should also be exercised in good faith, and with care. The enforceability, the impact on the rights of both parties, and the remedies in the case of its difficulty in enforcement should always be taken into consideration when drafting, so as to prevent the invalidity of the special agreements in arbitration clauses, or even of the whole arbitration procedure, due to its non-enforceability or violation of the principle of fairness.
Zhang Xiaoyu is a case manager at CIETAC South China Sub-Commission
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