PLI: International Arbitration 2007
From PLI’s Course Handbook
International Arbitration 2007
#10796
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17
arbitration in china
Louise Barrington
Professional Consultant
Chinese University of Hong Kong
School of Law
Practising Law Institute Conference: International Arbitration 2007
26-7 March 2007
Arbitration in China
by Louise Barrington, Professional Consultant
Chinese University of Hong Kong School of Law
Tel: + (852) 3529 5908
Fax: + (852) 2521 4963
Outline:
1. The Field
2. The Players
3. The Rules
4. The Game
5. The Future
1.The Field: The Peoples’ Republic of China - Oriental Giant
Nearly 10 million square kilometers (70 times the size of New York state)
22 provinces, 5 autonomous regions, 4 municipalities, plus Taiwan, Macau and Hong Kong
Population estimate: 1.3 Billion people
GDP of over US$ 2.3 trillion –
World’s fourth largest economy (and gaining)
Third largest importer and exporter
Growth is 9.4% per year
“One country, two systems” since 1997, Hong Kong’s reintegration with China after a century and a half of British colonial rule
Hong Kong
1104 square kilometers, 262 islands + NT
Population: 7 million people
GDP of over US$ 2.54 billion
($US37,500 per capita v $7,800 in Mainland)
Growth is >5% per year
Political & Economic Risk Consultancy Survey 2006:
ranks Hong Kong SECOND (1.55 / 10) in Asia (Australia 1.35. USA 1.83)
Hong Kong retains common law
Basic Law is “Constitution” but is a law of the PRC
Court of Final Appeal instead of the English Privy Council
Many new pieces of HK legislation added to existing English law
2. The Players – Arbitration Institutions
CIETAC, CMAC
Bejing Arbitration Commission (BAC)
Other Mainland Institutions
International Chamber of Commerce
Hong Kong Int’l Arbitration Centre
ICSID
Others (Stockholm, regionals)
CIETAC /CMAC
Established 1956 by CCPIT (government)
CMAC added later for maritime disputes
Offices in Beijing, Shanghai, Shenzhen
Monopoly until 1996
2005: 979 cases, 400+ foreign related
May 2005 revision to rules brought welcome changes
Beijing Arbitration Centre
Established 1997
This year 2200 cases – 51 foreign-related
Aggressive “catch-up” marketing and good facilities
Taking some CIETAC business due to user concerns
Others
China has nearly 200 licensed arbitration commissions
Many are newcomers, without experience of foreign-related cases
Most foreigners avoid the “others”
ICC not among the licensed institutions
ICC Status Unclear
About 15% of its 600 cases involve Asian parties
ICC is not licensed or recognized as an arbitration institution under PRC law
Very few ICC arbitrations with Mainland seat – no one knows their fate
Not an “institution” under PRC law
ICC cases have taken place on Mainland:
One known refusal to enforce – reasons unclear
One has been waiting 2 years in Shanghai~
Uncertain if HK courts would recognize / enforce an ICC award from Mainland but probably yes, given liberal attitude of HK courts
Parties reluctant to risk it
HKIAC
Hong Kong International Arbitration Centre, founded 1985
Appointing authority under HK law
Administers under rules chosen by parties, or UNCITRAL Rules
300+ cases per year
Serves as research and training hub for dispute resolution in HK and region
Regional Centres
KLDRC
SIAC
BANI
KCAB
Stockholm
Awards may be enforced in Mainland China under NYConvention
Partners
HKIAC and CIETAC created a joint venture, the Asian Domain Name Dispute Resolution Centre in 2001
Now joined by Korean body, KIADRC
The only Asian body recognized by ICANN
3.The Game
Yu Jianlong of CIETAC, observes two trends:
Diversification of subject-matter
Increased use by FIEs* (so of 500 “domestic” arbitrations, many are FIE-related)
48,000 arbitrations last year (4 m. in court)
BITS
China has 110 and still counting…
Newer ones (Netherlands, Germany) do contain umbrella arbitration clauses
Why? China is now exporting FDI
CITIC’s $US 97 million in Indonesia
PetroChina’s $US 4 billion in Kazakhstan
ICSID – good news
China signed in 1993
Hong Kong can use it through China
Neutral forum for investor-state disputes
Review only by ICSID internal process
Four attacks on ICSID awards in Chinese courts - all unsuccessful
ICSID: less good news
SPC Note from 1993 limits scope of ICSID to specifically designated SOEs
Excludes non-designated SOEs from scope of the Convention, thereby rendering Convention protection useless to their foreign partners
ICSID / UNCITRAL
Only signatory states can use Rules
Alternative is UNCITRAL Rules + NYC
However, SPC note of 1987 interprets investor-state disputes as being non-commercial
China’s accession to NYC has commercial reservation
How to enforce ?
Huge consumer growth, and construction in Mainland China drive increases in dispute resolution
China’s entry to WTO opened doors for services from abroad
Professional opportunities are obvious, and multi-national law firms see potential and are establishing offices, arbitration capacity
Where a question of Chinese law is in issue, foreign party must have Chinese counsel
4. The Rules
Hong Kong Arbitration Ordinance (Cap 341)
Chinese Arbitration Law of 1995
New York Convention (both are parties)
The “Arrangement”
Hong Kong - Cap 341 – The Ordinance
Model Law with improvements
2GA requires tribunal to act fairly and impartially and give parties a reasonable opportunity to present their case, and
Use appropriate procedures to avoid unnecessary delay and expense
HKIAC as appointing body
Default tribunal is ONE
2GB,2GC, 2GF: specific powers to tribunal and court regarding interim measures, any relief a court can give
Legal Practitioners Ordinance restrictions do not apply in arbitration
HK was one of first ML jurisdictions
Very supportive judiciary
Government promotes HK as arbitration hub
Mainland PRC
Arbitration Law of 1995, supplemented by Notices from Supreme Peoples’ Court
Domestic and “foreign-related” cases treated differently
Interaction and effects not always crystal-clear
SPC Note of Sept 2006 consolidates previous communications and adds guidance on:
validity of arbitration agreements
challenges to awards
Writing: Clarified inclusion of exchanged letters, electronic documents (fax, telex, e-mail)
Arbitrability:
Generous interpretation if clause unclear
May include contract formation, validity, modification, performance, liability, interpretation, rescission
Kompentenz-Kompetenz? Still not the law in PRC. Arbitral institution decides
Peoples’ Court will not challenge this decision
CIETAC may delegate decision to tribunal under its rules; but no legislative support for this
Other provisions:
Reviewing Court may set aside part of award
Challenge to validity of agreement waived if not raised during proceedings
Invalidates “split” or “election” clauses
Governing law probably that of seat
Previous note of 26 December 2005 of SPC clarified that arbitration may cover tort claims
Clause binds successors after merger / split / death of signatory
Awards of ad hoc tribunals outside Mainland are enforceable in PRC *
Caveat: Establishes possible restriction on parties leaving PRC !
Institutional Arbitration
s. 16 recognizes only institutional arbitration, not ad hoc
Seems to mean licensed, Chinese arbitration institutions, named by Parties
SPC note seems to relax rules to validate choice of institution if clearly ascertainable by parties’ choice of rules (viz. ICC Model clause)
Three Lacunae
1. Status of ICC cases with PRC seat
Case: “ICC Rules, Shanghai, shall apply”
Tribunal held it had jurisdiction and P applied for enforcement in Wuxi Court
two years later, still waiting for SPC reply…
2. Can two Chinese parties arbitrate outside Mainland? (NB: FIE is Chinese, not foreign, under Chinese law)
3. Ad hoc Arbitration outside China when one party is Mainland Chinese
SPC Guideline recognizes an ad hoc award made outside PRC, provided the law of the parties allows for it. Chinese law does not allow for it.
The 1997 Anomaly
Both HK (via Britain) and Mainland are members of New York Convention
Prior to 1997, no legal problem to enforce awards under NYC between them
As of July 1, 1997 HK and Mainland could not use NYC since the relationship was no longer “international”
Very bad for HK as arbitration hub
The Arrangement
Signed between Mainland and HK in 1999
In force since 2000
Provides for recognition and enforcement on similar basis to NYC
Caveat: Mainland exceptions include public “interest” in place of “policy” – leeway for broader interpretation
Hong Kong as a commercial compromise
Chinese party wishes to remain in China
Foreign party nervous of Mainland seat
Use Hong Kong as a good compromise:
Legal system and judicial support, infrastructure, expertise, cultural blend, geography…
However, a FIE incorporated in Mainland is not “foreign”
If FIE and a Chinese company have a dispute, it is not considered “foreign-related”, so domestic rules apply
It is unclear if two “domestic” entities have the right to arbitrate outside Mainland – even in HK
CIETAC and ICC
CIETAC rules borrowed heavily from ICC
Some parties with ICC clauses agree to have CIETAC administer Mainland cases
Not recognized by ICC, but enforceable in Mainland
5. Conclusion – The Future:
Arbitration Institutions alive and expanding
Competition in Mainland for huge growth industry
Still lack of international expertise in Mainland among judges, counsel and arbitrators
“Other” institutions dangerous for foreign parties
Cooperation both within China and from other jurisdictions is necessary
Chartered Institute of Arbitrators, AAA and others doing joint programmes in China
Hong Kong is for most purposes, the ideal compromise
Arbitration professionals continue to press Chinese authorities for clarifications on the hard questions which make it interesting for foreigners to invest there.
Rule is still: “Caveat investor! Caveat arbitrator!