Draft amendment a big leap for China arbitration 

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Draft amendment a big leap for China arbitration, 仲裁法修订草案助力中国仲裁迈出一大步

On 30 July 2021, the Ministry of Justice issued a draft revision to the Arbitration Law for public comment. The 2021 draft amendment contains important changes to the Arbitration Law, which was first promulgated in 1994, updating the basic framework and bringing it more closely in line with well recognised international practice as represented by the UNCITRAL Model Law on International Commercial Arbitration, with greater emphasis on the doctrine of party autonomy and a more decidedly pro-arbitration posture by the Chinese courts. The most notable changes are summarised below.

Green light for ad hoc arbitration in foreign-related disputes. The 2021 draft amendment for the first time permits parties to a Chinese-seated arbitration to submit their “foreign-related commercial disputes” to ad hoc arbitration (article 91). Under Chinese law, foreign-related disputes refer to disputes containing one or more foreign-related factors, such as where the place of incorporation or habitual residence of one of the parties is outside of China, or the facts giving rise to the dispute occurred overseas, or the subject-matter of the dispute is located overseas, or there are other foreign-related circumstances.

Although foreign ad hoc awards issued in foreign-seated arbitrations have traditionally been enforceable in China by virtue of the New York Convention, the 1994 Arbitration Law does not allow ad hoc arbitration in mainland China. In line with the Model Law, the 2021 draft amendment now offers international parties in Chinese-seated disputes a choice between arbitration administered by an institution, or arbitration before an ad hoc tribunal.

Upholding party autonomy in determining the validity of an arbitration agreement. The 1994 Arbitration Law differs from the Model Law in stipulating that any agreement not containing an unequivocal reference to an arbitral institution is invalid. This often results in the PRC courts exercising jurisdiction over cases, notwithstanding the parties’ clear intention to arbitrate.

The 2021 draft amendment takes a significant step towards respecting party autonomy by removing the existing requirement that an arbitration agreement include “a chosen arbitration commission”. Thus, even in disputes with no foreign elements, where the arbitration agreement is ambiguous on the choice of the arbitration institution, the 2021 draft amendment provides a number of rules for ascertaining the arbitration institution, provided that the parties have reached a clear agreement to arbitrate. Article 35 of the 2021 draft amendment provides that:

“… If the arbitration agreement is unclear as to the arbitration institution, but the arbitration institution can be determined by the agreed arbitration rules, the arbitration institution determined thereby shall accept the case; if there is no agreement on the arbitration rules either, the parties may supplement the agreement; if no supplemental agreement can be reached, the arbitration institution that first registered the case shall accept the case.

If the arbitration agreement does not provide for an arbitration institution and the parties fail to reach a supplementary agreement, the arbitration may be commenced before the arbitration institution of the parties’ common domicile; if the parties do not have a common domicile, the arbitration institution of the place other than the domicile of the parties that first registered the case shall accept the case.”

The 2021 draft amendment further incorporates a waiver clause in similar terms to article 7(5) of the Model Law, holding that an arbitration agreement will be presumed to exist if no objection is raised by the other party to the existence of the arbitration agreement.

These modifications further eliminate any doubts concerning the validity under PRC law of arbitration agreements that do not specify the name of the arbitration institution.

Endorsement of the doctrine of competence-competence. One of the most fundamental doctrines underpinning arbitration in Model Law jurisdictions is the doctrine of competence-competence, which expressly recognises the inherent competence of arbitral tribunals to rule on their own jurisdiction.

The 1994 Arbitration Law diverges significantly from the Model Law in its rules for handling jurisdictional challenges. Rather than giving priority to the tribunal’s inherent competence to determine its own jurisdiction, the 1994 Arbitration Law confers parallel jurisdiction upon both the arbitration institution (not the tribunal) and the Chinese courts in resolving jurisdictional objections, while specifying that arbitration proceedings must be suspended when the parties bring a jurisdictional challenge before the Chinese courts. Parties to Chinese arbitrations commonly exploit these arrangements by raising jurisdictional objections in the Chinese courts, thereby adding to the time and cost of the proceedings.

The 2021 Draft Amendment rectifies this shortcoming by embracing the internationally recognised competence-competence rule. Under the draft, any challenge to a tribunal’s jurisdiction must first be filed with the tribunal itself. Only after being decided by a tribunal can jurisdictional challenges be submitted for review by the Chinese courts.

The 2021 draft amendment also incorporates a number of additional safeguards to the competence-competence rule by stipulating that:

    • If the arbitral tribunal’s jurisdiction is rejected by the Chinese courts, parties are provided with an opportunity to appeal to a higher court; and
    • The conduct of court review will no longer suspend the arbitration proceeding – the arbitration proceeding will only be terminated if the Chinese courts eventually hold that the arbitration agreement is invalid, or that the dispute should not have been submitted to arbitration.

This new set of rules for determining jurisdictional challenges reflects the prevailing practice in international arbitration as represented by the Model Law (article 16), and the provision of a right of appeal to a higher Chinese court to review the rejection of the arbitral tribunal’s jurisdiction by a lower court is a further sign of the pro-arbitration policy adopted by Chinese courts.

Further expansion of the tribunal’s power to grant interim relief. The 2021 draft amendment also contains important revisions to the rules governing the issuance of interim relief in PRC arbitrations, offering greater options for parties seeking to protect their interests by applying for interim relief, either before or during the arbitration proceeding.

First and foremost, article 43 of the 2021 draft amendment brings Chinese arbitration into line with the Model Law by extending the power to grant interim relief to arbitral tribunals, rather than the courts alone. Once an interim relief order is made by the tribunal, the applicant and the tribunal are then entitled to apply for enforcement of such orders before the competent PRC courts (article 47).

Second, the forms of interim measures available in support of Chinese arbitrations are no longer restricted to the preservation of assets and evidence, but also include orders aimed at restraining or mandating certain conduct (injunctions) and other forms of interim measures (article 43).

Notwithstanding the above-mentioned, it should still be noted that, unlike the Model Law, the 2021 draft amendment remains silent as to:

(1) the standard of review to be applied by the PRC courts in enforcing such interim measures ordered by arbitral tribunals; and

(2) whether the parties to a foreign arbitration proceeding may apply for interim measures before the PRC courts, and whether the PRC courts will recognise and enforce interim relief granted by a foreign tribunal.

Conclusion

The 1994 Arbitration Law has long been considered in need of renovation to better harmonise the Chinese legislative framework with international practice. The 2021 draft amendment delivers on that goal, embracing a number of longstanding principles and approaches in international arbitration that move Chinese arbitration in the direction of increased efficiency, greater respect for party autonomy, and less court interference in the arbitral process.

The 2021 draft amendment nevertheless still contains a number of elements that set it apart from the Model Law. For example, with respect to challenges to arbitrators, the power to determine the validity of a challenge to an arbitrator resides with the arbitration institution, rather than the arbitral tribunal.

The 2021 draft amendment also has not adopted the Model Law approach where the parties to an arbitration may appeal a tribunal’s decision on a challenge of one of its arbitrators to the competent courts in that jurisdiction.

The 2021 draft amendment will surely be further revised after receiving public comments. To ensure the Model Law principles function, the corresponding revisions to a number of other PRC laws, in particular the Civil Procedure Law, are inevitable, which will be the major challenge, in the author’s view, for the proposed changes in the 2021 draft amendment to be finally adopted and implemented.


Helen Shi is the vice president of the International Court of Arbitration of the International Chamber of Commerce, and a partner at Fangda Partners. Diane Peng, Michael Edwards, Liu Yang, Corwin Feng and Dai Xingmao, from Fangda’s dispute resolution team, also contributed to this article