China opens further to international arbitration

By Chen Xianglin, Han Kun Law Offices
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In less than two years, both central and local governments have introduced a number of measures to promote China’s adoption of international arbitration. Just what has been introduced at the levels of national policy and judicial practice?

Since the outbreak of covid-19 in December 2019, all parts of China went all out to deal with and control the epidemic, but in the field of commercial arbitration, China’s further opening to international arbitration has abated, despite the crisis. In less than two years, both central and local governments have introduced a number of measures to promote China’s further opening to international arbitration.

陈湘林, Chen Xianglin, Partner, Han Kun Law Offices
Chen Xianglin
Partner
Han Kun Law Offices

At the national policy level, the measures specifically include but are not limited to the following measures.

On 21 October 2019, Shanghai Municipal Bureau of Justice issued the Administrative Measures for Business Offices Established by Overseas Arbitration Institutions in Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone. According to the administrative measures, from 1 January 2020, non-profit arbitration institutions legally established in foreign countries and the Hong Kong Special Administrative Region (SAR), Macau SAR and Taiwan Region of China, as well as arbitration institutions established by international organisations that China has joined, can apply to Shanghai Municipal Bureau of Justice for registration and establishment of business offices in Lin-gang Special Area of Shanghai Free Trade Zone to carry out relevant foreign-related arbitration activities.

On 28 December 2020, Beijing Municipal Bureau of Justice issued the Administrative Measures for Registration of Business Offices Established by Overseas Arbitration Institutions in China (Beijing) Pilot Free Trade Zone. According to these administrative measures, from 1 January 2021, non-profit arbitration institutions legally established in foreign countries and the Hong Kong SAR, Macau SAR and Taiwan Region of China, as well as arbitration institutions established by international organisations that China has joined, may, after registration, establish business offices in China (Beijing) Pilot Free Trade Zone to carry out foreign-related arbitration activities with respect to civil and commercial disputes arising in the fields of, among other things, international commercial affairs and investment.

On 8 January 2021, the Supreme People’s Court (SPC) issued the Opinions on the People’s Court Providing Judicial Services and Guarantee for the Construction of Hainan Free Trade Port. According to the opinions, the state supports overseas international arbitration institutions to establish business offices in Hainan Free Trade Port to carry out arbitration activities, and supports that enterprises registered in this free trade port agree on arbitration for disputes at a specific place, and by a specific person, in accordance with specific arbitration rules, and supports and guarantees the application and enforcement of interim measures such as property preservation, evidence preservation and behaviour preservation of Chinese and foreign parties, before and during arbitration, according to law.

As for judicial practice, the above-mentioned measures specifically include, but are not limited to, the following arrangements.

The Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of Hong Kong Special Administrative Region (arrangement), signed between the SPC and the Government of Hong Kong SAR, came into effect on 1 October 2019, and has been applied to a large number of international arbitration cases in Hong Kong.

For a long time, except for maritime cases, Chinese courts did not recognise and enforce the order of interim measures in overseas arbitration proceedings. This situation has changed with the signing of the arrangement, on 2 April 2019, between the SPC and the Government of Hong Kong SAR.

According to the arrangement, in the international arbitration proceedings administered by a specific overseas arbitration institution jointly confirmed by the SPC and the Government of Hong Kong SAR, with Hong Kong as the arbitration seat, the parties concerned may apply to the courts in mainland China for property preservation.

Since coming into effect, the arrangement has been widely used in international arbitration proceedings where Hong Kong is the arbitration seat. Taking the data published by Hong Kong International Arbitration Centre as an example, as of 9 February 2021, Hong Kong International Arbitration Centre had handled a total of 37 arbitration preservation applications filed with mainland courts. Of these, 34 are for property preservation, two are for evidence preservation, and one is for behaviour preservation. The total assets involved in all property preservation applications are RMB12.5 billion (about US$1.9 billion).

Some Chinese courts hold the arbitral award made by the arbitral tribunal in international arbitration cases administered by overseas arbitration institutions, and with the arbitration seat in mainland China, as China’s foreign-related arbitral award. In China, arbitral awards of different nationalities will be subject to different judicial supervision and enforcement procedures.

The nationality of arbitral award is usually determined based on the arbitration seat. For arbitral awards made by the arbitral tribunal in international arbitration cases, where the parties agree that the arbitration seat shall be in mainland China, but which are administered by an overseas arbitration institution, previously Chinese courts determined these as “non-domestic arbitral awards” as provided in the New York Convention, and applied the New York Convention for recognition and enforcement of the awards.

This determination has changed in the latest judicial practice. In the case handled by Guangzhou Intermediate People’s Court, where the applicant Brentwood Industries applied for recognition and enforcement of a final award made by the ICC International Court of Arbitration on 17 March 2014 in Guangzhou, China – concerning Brentwood and the respondents, Guangdong Fa’anlong Machinery Complete Set Equipment Engineering, Guangzhou Zhengqi Trading, and Guangdong Environment Engineering Equipment General Company – the Guangzhou court determined that: “… the arbitral award is one made by a foreign arbitration institution in mainland China, and can be regarded as China’s foreign-related arbitral award …”. This determination conforms to the international practice of determining the nationality of arbitral awards according to standard of seat, but the application of Chinese domestic laws to this kind of procedure requires further study in theory and practice.

The author believes that the covid-19 epidemic in China and around the world will eventually end, but China’s further opening to international arbitration will continue to advance.


Chen Xianglin is a partner at Han Kun Law Offices. He can be contacted on +86 135 2146 9731 or at email xianglin.chen@hankunlaw.com