China’s top court issues arbitration guidance

By John Choong and Eric Chan, Freshfields Bruckhaus Deringer

The Supreme People’s Court (SPC) has recently released two judicial interpretations on arbitration. The new rules are the most important SPC judicial interpretations on arbitration issued since 2006, addressing gaps in the more than 20-year old Arbitration Law.

The new rules focus on issues frequently encountered by the PRC courts in the judicial review of arbitration cases, and fill a number of significant gaps in the Arbitration Law and related laws.

Applicable law of an arbitration agreement. The new rules clarify that if the parties intend to choose a particular law to govern the validity of a foreign-related arbitration agreement, they should do so expressly. An agreement on the law governing the underlying contract will not necessarily mean that the same law will be applied to decide the validity of the arbitration agreement itself.

If the parties do not choose the applicable law of a foreign-related arbitration agreement, the court will apply either the law at the place of the arbitration institution, or the law at the seat of the arbitration. The new rules further clarify that if the choice of law leads to different results, the court will apply the law that results in a valid arbitration agreement.

The drawing of a distinction between the law governing the arbitration agreement and the law governing the underlying contract is consistent with the approach taken in a number of other jurisdictions. In addition, the pro-arbitration stance of the new rules is clear, given that the court will apply the law that upholds the validity of the arbitration agreement.

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John Choong is a partner at Freshfields Bruckhaus Deringer in Hong Kong and the firm’s head of international arbitration for mainland China and Hong Kong. Eric Chan is a senior associate in the international arbitration group at Freshfields in Hong Kong