When can a validity period be interrupted?

By Lilla Guo, Yao Liang Law Offices
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Interruption of the validity period of arbitration, causing calculation of the period to be restarted, adversely affects the interests of the parties concerned. However there are no related provisions in major civil and commercial legislation in China.

In practice, the parties, arbitrators and arbitral bodies are only guided by article 74 of the PRC Arbitration Law, which states “where the law has provisions governing the validity period of an arbitration, the provisions shall be applied. If the law has no such provisions, the provisions for the validity period of lawsuits shall be used”.

Reasons for interruption

Lilla Guo
Lilla Guo
Associate
Yao Liang Law Offices

Theorists and practitioners generally hold there to be three reasons for interruption of the validity period in commercial arbitration: where a rights holder claims a right; where an obligor agrees to fulfil his or her obligations; and where the parties apply for arbitration.

First, the claiming of a right by a rights holder means the rights holder requesting that an obligor fulfil his or her obligations.

According to article 10 of the Supreme Court’s Several Issues Concerning the System for the Application of Time Limitations on Civil Litigation Provisions, an interruption in litigation can occur in the following circumstances, which, under article 74 of the Arbitration Law, also therefore interrupts the validity period of arbitration.

Actually reach. One party sends to the other a document claiming a right and the other party signs it or affixes a seal, or it can otherwise be proved that the document has reached him or her.

Reach electronically. One party claims a right by sending a letter or electronic message which reaches or should reach the other party.

Indicate through action. One party is a financial institution and, in accordance with the law or with the agreement of the other party, deducts the principal of a loan and the interest on arrears from the other party’s account.

Reach through notification. One party’s whereabouts are unclear and the other party publishes a notice containing a claim to a right in national media or in influential provincial media in the first party’s place of domicile (unless special provisions apply).

The second reason for an interruption is the agreement by the obligor to fulfil his or her obligations. This is contained both in the PRC General Principles of the Civil Law and in judicial interpretations. An obligor may recognize his or her obligations implicitly as well as explicitly. It is generally agreed that tacit indications, such as the a request by the obligor to pay in instalments, a delay in performance, a settlement or a request for third-party mediation can also cause an interruption of the validity period in arbitration. Tacit recognition can reflect true intent, which is a characteristic of civil law. It can also reduce the burden of proof on rights holders, preventing wilful repudiation of debt by a debtor.

The third reason for interruption is a request by the parties concerned for arbitration. It is generally recognized that such a request can interrupt the validity period, as can the commencement of a lawsuit.

Bringing a lawsuit

If the parties to an agreement agree to arbitration, they exclude any jurisdiction of the courts in resolving disputes between them. Can the filing of a lawsuit therefore interrupt the validity period of arbitration? There is academic debate, but the answer is generally thought to be yes.

First, the courts’ lack of jurisdiction does not prevent the validity period from being interrupted. According to article 15 of the Supreme Court’s provisions, mentioned above, “if a rights holder reports a case or brings an accusation to a public security authority, people’s procuratorate or people’s court requesting protection of his or her civil rights, the validity period of the litigation shall be interrupted from the date of the report or accusation”.

Thus the validity period of civil litigation can be interrupted if the rights holder reports the case to public security organs which have no jurisdiction over that case; similarly, the validity period of arbitration can also be interrupted if the rights owner files a lawsuit with a court that has no jurisdiction over the case.

Second, the interruption of a validity period is based on the actions of the parties themselves. According to article 12 of the Provisions, “if either party submits a complaint or files a lawsuit orally with a people’s court, the validity period of litigation shall be interrupted from that date”. The relevant action is the filing of the lawsuit by either party, rather than whether or not the court accepts the case.

Similarly, the interruption of the validity period of arbitration should also stem from the actions of the parties.

Third, underlying the validity period of arbitration, as for a lawsuit, is the right to be heard. This right can be claimed against arbitral organs and obligors. However, the courts are also a forum in which rights holders’ right can be heard – a point confirmed by article 15 of the Provisions.

Other causes of interruption

In addition, according to articles 13, 14 and 15 of the Provisions, any of the following will interrupt the validity period of arbitration in the same way as bringing a lawsuit:

(1) an application for a payment order;

(2) an application for bankruptcy or a declaration of a creditor’s claim linked to a bankruptcy;

(3) an application, in connection with a claim to rights, for a declaration that obligors are dead or missing;

(4) an application for pre-litigation measures such as property preservation or an interim injunction;

(5) an application for a compulsory enforcement order;

(6) an application to add a party to the action or notification to a party to participate in the proceedings;

(7) claims for offsets in a lawsuit;

(8) proposals to a people’s mediation committee for the protection of civil rights; and

(9) reporting of a case to the public security organs or the people’s procuratorates with a request for protection of civil rights.

Lilla Guo is an associate in the Shanghai office of Yao Liang Law Offices

701/702 Huaxia Bank Tower

256 Pudong Nan Road
Pudong New Area

Postal code: 200120

Tel: + 86 21 5155 0338

Fax: + 86 21 5155 0051

www.yaolianglaw.com

E-mail:lilla.guo@yaolianglaw.com

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