How objecting to validity of arbitration agreement affects procedure

In an arbitration procedure, objection to the validity of the arbitration agreement is a form of objection to the arbitration jurisdiction, which is an important procedural right of the parties.

A choice to make

Article 20 of the Arbitration Law stipulates that: “If a party challenges the validity of the arbitration agreement, he/she may request the arbitration commission to make a decision or apply to the people’s court for a ruling. If one party requests the arbitration commission to make a decision, and the other party applies to the people’s court for a ruling, the people’s court shall give a ruling.”

It should be noted that, according to article 13(2) of the Interpretation of the Supreme People’s Court Concerning Some Issues on the Application of the Arbitration Law: “Where an arbitration agency has decided on the validity of an arbitration agreement, and a party subsequently applies to the people’s court to determine the validity of the arbitration agreement or overturn the decision of the arbitration agency, the people’s court shall not hear such a case”. In other words, if the arbitration institution has already made a decision on the validity of the arbitration agreement, the court will no longer review this matter.

In addition, if one party raises a defence that there is no arbitration agreement concluded at all, although not falling under the matter of validity, it should still be reviewed as an application for confirming the validity of the arbitration agreement, an opinion affirmed by the Supreme People’s Court (SPC) in Luck Treat v Zhong Yuan Cheng Commercial Investment (2019).

Impact of the choice

Most arbitration institutions in mainland China provide in their arbitration rules that an application to the institution for confirming the validity of the arbitration agreement shall not affect the continuation of the arbitration proceedings, and the arbitration institution, or its authorised tribunal, may make a decision on the objection to jurisdiction. The decision of the tribunal may be made during the arbitration proceedings or afterward but, regardless, the proceedings will not be blocked.

According to article 10 of the SCIA Arbitration Rules (revised in 2022), objection to the validity of the arbitration agreement is an objection to jurisdiction, and the arbitration shall proceed notwithstanding an objection to jurisdiction. This approach is also reflected in overseas rules, such as article 6(3) of the ICC Arbitration Rules (2021), which provides that where any party raises one or more pleas concerning the existence, validity or scope of the arbitration agreement, the arbitration shall proceed. The Singapore International Arbitration Centre and London Court of International Arbitration also provide that the decision over objection to jurisdiction may be given in an award as to jurisdiction or authority, or later in an award on the merits.

In contrast, when an application for confirming the validity of the arbitration agreement is proposed to the people’s court, the arbitration proceedings will, in most cases, be suspended. The conduct of the arbitration procedure must be premised on the existence of a valid arbitration agreement, which means if it is not determined whether the parties agreed to submit the dispute to arbitration jurisdiction, the proceedings of the case should not be advanced.

According to article 4 of the SPC’s Reply Regarding Several Issues Relating to the Validity of Arbitration Agreements, “where one party applies for arbitration in respect of a contract dispute or other property rights dispute, while the other party challenges the validity of the arbitration agreement and requests the people’s court to confirm that the arbitration agreement is invalid, and files a lawsuit with the court regarding the contract dispute or other property rights dispute, the people’s court shall accept the suit and notify the arbitration institution to suspend the arbitration proceeding”.

Reference can also be made to article 153 of the Civil Procedure Law (2021 amendment), which provides that, “an action shall be suspended in any of the following circumstances: … (5) the case in question is dependent upon the outcome of the trial of another case that has not been concluded.” Similar provisions are also found in the arbitration rules of institutions.
In practice, challenging the validity of an arbitration agreement in a people’s court has become a common strategy to suspend the arbitration procedure and stall for time.

How to proceed

China’s legal system gives multiple courts with possible jurisdiction over actions to confirm the validity of arbitration agreements, including those local to the arbitration institution, the place of signing the arbitration agreement, and domicile of the parties.

Although article 4 of the SPC’s Provisions on Judicial Review of Arbitration stipulates that, “where an applicant applies to two or more people’s courts of competent jurisdiction, the people’s court which dockets the case first shall have jurisdiction”, many have in practice applied to different courts.

After obtaining the ruling confirming the validity of the arbitration agreement, they would submit another confirmation application to a different competent court with the explicit purpose of suspending the arbitration procedure again. It is the author’s opinion that the arbitration proceedings should not be suspended again in this circumstance, as repeated litigations can easily delay the entire procedure.

According to article 48 of the Provisions on Cause of Action for Civil Cases, applications for confirmation of the validity of arbitration agreements should generally apply the provisions of special civil procedure, and the ruling shall be legally effective on the date it is given.

The Heilongjiang Provincial Higher People’s Court held this view, in Hei Jian Min Zai Zi No. 26 (2015), as well as the No. 3 Intermediate People’s Court of Beijing municipality, in Jing 03 Min Jian No. 8 (2017). The SPC also made it clear that the ruling of rejecting an “application for confirming the invalidity of the arbitration agreement” is not appealable, in Chen Benfang v Zunyi New Innovation Decoration (2020). Therefore, the arbitration proceedings were to resume, absenting evidence proving that the existing ruling had been revoked or that another invalidity existed.

In practice, parties should timely submit the court’s notice of acceptance to the arbitration institution, who should immediately suspend the arbitration proceedings on receiving the notice. If, according to the court’s ruling, that arbitration agreement was valid, the procedure should resume; if not, the case should be promptly dismissed.

Cheng Qinlin is a case manager at Shenzhen Arbitration Commission/Shenzhen Court of International Arbitration (SAC/SCIA)