Shanghai arbitration hub: converge and innovate

In the first working day of 2019, the Shanghai Municipal Development and Reform Commission passed the Implementation Opinions on Improving the Arbitration Management Mechanism, Improving the Credibility of Arbitration and Accelerating the Establishment of a Global Asia-Pacific Arbitration Centre. It was the first major provincial reform document that focused on arbitration, calling for supply-side innovation of Shanghai’s arbitration system, and acceleration of building an Asia-Pacific arbitration centre.

More recently, the city’s government issued Several Measures to Support the Establishment of an Asia-Pacific Arbitration Hub with Worldwide Coverage to Enhance the City’s Soft Power, once again promoting innovation in arbitration, optimisation of supportive policies corresponding to building a centre for international commercial arbitration, and enhancing China’s status as an emerging global arbitration destination.

So, why is Shanghai so determined to become an arbitration hub for the Asia-Pacific? An international arbitration hub is where the high-end legal services industry converges. With an opportunity to resolve legal disputes locally and in a swift and fair manner, businesses within the territory are more capable of preventing risks and more likely to engage in transactions, improving the business and investment environment, and driving the development of related service sectors. For these reasons and more, becoming an Asia-Pacific arbitration hub is critical for Shanghai, vying for the highest international standards befitting the status of a world-class city.

Opening the gate

Looking back on Shanghai’s path so far, the goal is long term, a culmination of more than 30 years of arbitration practice, where a sophisticated plan was implemented to internationalise and modernise China’s arbitration based on the experience of opening up Shanghai and evolving its business environment with international standards and rule of law.

As the city opened up in the late 1980s, the Council for the Promotion of International Trade Shanghai, with approval from the State Council, established the China International Economic and Trade Arbitration Commission Shanghai Commission, known today as the Shanghai International Arbitration Centre (SHIAC). Referencing similar arbitration institutions established by respective foreign chambers of commerce, Shanghai took its first step in foreign-related arbitration.

Over the years, the SHIAC witnessed and participated in the city’s developments, giving play to both arbitration’s longstanding philosophy to uphold the autonomy of parties, and its unique function of facilitating cross-border commercial co-operation and safeguarding the opening-up process.

For example, in 1992, the SHIAC handled a dispute over equity between a Hong Kong company and a US company in a real estate development of the first leased land in Pudong Development Zone. Under the principle of independence and impartiality, the tribunal combined arbitration and mediation, issuing a consent award based on the settlement agreement efficiently reached four months later.

Notably, during the hearing, the SHIAC issued an emergency notice to the parties requesting them to cease any and all activities – including through news and other media – that may compromise the other’s reputation so that the tribunal may independently continue arbitration in a fair and lawful environment free from interference. While China’s Arbitration Law had not been enacted at the time, the move in this case corresponded perfectly with the international practice of “interim measures”.

In 2008, the SHIAC handled a raw food material supply contract dispute filed by a UK company against a company based in the Jiangsu province. Under the arbitration clause, the contract was governed by Hong Kong law, with arbitration conducted in English, and the chief arbitrator on the tribunal was neither a Chinese nor a British national.

In the end, the tribunal consisted of a UK arbitrator selected by the applicant, a Singaporean arbitrator selected by the respondent, and an Australian chief arbitrator designated by the SHIAC, becoming the first international arbitration case handled by a domestic institution established in Shanghai that involved only foreign arbitrators.

Regarding the parties’ request for an arbitrator to abstain based on the International Bar Association [IBA] Guidelines on Conflicts of Interest in International Arbitration, the SHIAC, after consulting the arbitrator in question and comprehensively considering the situation of the case and the guideline referred to, decided to refuse. It was the first time that a domestic institution made a decision on arbitrator abstention based on the above-mentioned IBA guidelines.

In 2013, the SHIAC set up China’s first pilot free trade zone (FTZ) court of arbitration, followed by the first set of arbitration rules for a pilot FTZ a year later. Soon after its enactment, the SHIAC handled a dispute involving the performance of a product distribution contract between an internationally renowned medical equipment company registered in the Shanghai FTZ and a domestic company, with a disputed amount up to RMB200 million (USD27.9 million).

Based on the mediation mechanism set up under the arbitration rules of the FTZ, the parties eventually reached an M&A settlement plan after rounds of negotiation presided by the mediator, then entrusted the subsequently formed arbitration tribunal to arrive at an award.

Since then, the FTZ arbitration rules have served as a blueprint for the rule revision of many domestic institutions, with many precedent-setting practices such as interim measures, consolidated arbitration and third-party participation included in the amendment to the Arbitration Law.

Such a case was no rarity. Behind nearly 16,000 cases that the SHIAC has handled since inception is a longstanding philosophy of openness and integration in international commercial arbitration. In other words, international commercial arbitration should, to the greatest possible extent, accommodate the party autonomy of global commercial entities in the resolution of economic and trade disputes.

The systems of “Chinese institution + international rules”, “Chinese law + international practice”, and “Chinese attorney + overseas arbitrator” benefit immensely from the “soft connectivity” of the rule of law. This is also why the International Air Transport Association co-operated with the SHIAC to set up the world’s first aviation court of arbitration in Shanghai.

The IBA picked the SHIAC as its promotion partner for its first Arbitration Day in Shanghai, the first international co-operation platforms for Sino-Africa and BRICS (Brazil, Russia, India, China and South Africa) dispute resolution, respectively, were established in Shanghai, and the ICC Arbitration Court of Arbitration and Singapore International Arbitration Centre set up their Shanghai offices on the SHIAC’s international dispute resolution platform.

Matching global standards

However, according to international opinions based on common standards from the International Arbitration Survey conducted by Queen Mary University of London and White & Case, the CIArb London Centenary Principles and other professional reports, Shanghai has not yet attained the status of a truly influential arbitration venue in the Asia-Pacific region.

International arbitration hubs are usually equipped with modern procedural law, outstanding judges and judicial system, professional arbitration institutions, a strong talent development system, and convenient and secure infrastructure.

This would require the city to go beyond “integration” and innovate in terms of its arbitration legal system, arbitration rules and talent cultivation, with further work in the following aspects.

Innovation is driven by arbitration needs. In the past decade, the international arbitration community became keenly aware of a change in market needs, innovating in key areas including investor-state dispute settlement (ISDS) reform, transparency, third-party funding, diversity, environmental social and governance (ESG), smart contract, data security and virtual hearings.

On its part to better meet the needs of commercial parties in specific cases, the SHIAC has prepared procedural documents such as guidelines for assisting in ad hoc arbitration and online hearings, and is also promoting the study of special rules in investment and data-related disputes.

At present, the SHIAC hosts arbitrators from 80 jurisdictions around the world, including 361 arbitrators from Hong Kong, Macau and Taiwan as well as foreign jurisdictions, representing about 32.4% of the total panel. To ensure diversity, the records show that the SHIAC designates 30 instances of overseas arbitrator participation in hearings each year.

The SHIAC is striving to enhance its arbitration transparency without compromising the principle of confidentiality. Since 2019, the SHIAC has been publishing annual reports to disclose data related to its practice, including not only regular data and news of events, but also information on the types of cases, application of laws and rules, designation of arbitrators, jurisdiction, and verification of awards. This helps parties understand the practices of the SHIAC, and manages expectations.

Innovation requires adherence to the spirit of openness and sharing. A key trend in the arbitration community in recent years has been increased international communication and co-operation between institutions. Apart from work headed by the UN Commission on International Trade Law (UNCITRAL) and the International Council for Commercial Arbitration, the SHIAC has itself organised co-operations and gained valuable experience.

In 2015, the SHIAC, along with three other Chinese institutions, took part in the China-Africa joint arbitration mechanism. After seven years of constant exchanges and mutual efforts with three institutions in Africa, the arbitration rules of the China-Africa Joint Arbitration Centre came out in 2022, integrating the characteristics of both sides.

At present, the SHIAC has entered into co-operation agreements with 23 internationally renowned dispute resolution agencies and legal service providers, including the ICC International Court of Arbitration, seven of which are from Regional Comprehensive Economic Partnership (RCEP) signatory nations and 12 from Belt and Road Initiative (BRI) countries. These agreements serve to facilitate in-depth arbitration exchanges, arbitrator recommendations and talent development.

Innovation cannot be separated from China’s practice. With the BRI, RCEP and the quickened outbound pace of Chinese enterprises, the “global practice” of mainstream international arbitration institutions and the “Chinese practice” of China’s foreign-related institutions are competing on the same stage. Already the lines are blurring.

Given that the autonomy of parties is a basic principle of commercial arbitration, Chinese and foreign-based parties, with differentiated needs, should together evolve “best practice” with professional assistance from arbitration institutions, which is also where international arbitration benefits from Chinese innovation.

In an international “reverse engineering” IP case governed by Chinese law and handled by the SHIAC, the tribunal – after consulting the parties’ opposite opinions and institution’s advice on whether to apply the IBA Rules on the Taking of Evidence in International Arbitration – presided over signing of an “attorney’s eyes only” agreement.

Accordingly, the applicant’s technical documents may only be viewed by the respondent’s attorney, but not the respondent. Thus, the applicant’s burden of proof under Chinese law and need to protect technical secrets were both satisfied, and the respondent may also make targeted rebuttal to the applicant’s statements. Ultimately, the case came to a successful conclusion.

With the world going through profound changes, China’s arbitration has arrived at a crossroads. The proposal to build an Asia-Pacific arbitration hub is not only the path forward, but also a sign of the determination and courage of Shanghai’s legal community to keep forging ahead.

Wang Weijun is the secretary-general of Shanghai International Economic and Trade Arbitration Commission /Shanghai International Arbitration Centre (SHIAC)

Going with the global flow: arbitration developments and practice By Chen Fuyong, Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC/BIAC)

Marching towards the inner circle of international arbitration By Wang Chengjie, China International Economic and Trade Arbitration Commission (CIETAC)

Innovation and resilience: arbitration in Hong Kong By Yang Ling, Hong Kong International Arbitration Centre (HKIAC)

Institutions must step up to protect arbitration ecosystem By Donna Huang, International Chamber of Commerce

Innovations in GBA arbitration By Liu Xiaochun, Shenzhen Court of International Arbitration (SCIA)