Following our report on International arbitration: 10 trends in 2016, we now turn to a review of key developments in arbitration in Hong Kong and China.

The CIETAC split – welcome clarification from the PRC courts 

  • In July 2015, the Supreme People’s Court of China (the SPC) moved to resolve the ongoing uncertainty regarding the split within the China International Economic and Trade Arbitration Commission (CIETAC) by issuing a long-awaited notice of clarification in July 2015, which largely adopted a common sense and pro-arbitration stance. 
  • The split, which occurred in 2012, involved the Shanghai and Shenzhen sub-commissions of CIETAC (which is headquartered in Beijing) declaring independence and renaming themselves. Prior to the SPC’s notice, parties who had elected to use the Shanghai and Shenzhen sub-commissions of CIETAC faced potentially complex questions regarding the validity of the arbitration agreements and the enforceability of any awards rendered.
  • The notice has largely resolved these issues, which should provide parties considering arbitration in the PRC with much-needed comfort, although they should take care to specify the correct institution when drafting arbitration agreements.
  • Our full briefing on the matter can be found here.

Foreign award between two Chinese entities enforced in the PRC 

  • In November 2015, a Shanghai court recognized and enforced a foreign arbitration award made between two Chinese parties, on the basis that the dispute was ‘foreign-related’.
  • Traditionally, disputes between two Chinese parties (including foreign investment vehicles such as foreign invested entities (FIEs) and wholly foreign-owned enterprises (WFOEs)) have been required to be heard in the PRC, unless the dispute is ‘foreign related’.
  • Here, although the two parties were Chinese entities, the court held that the parties’ incorporation in the Shanghai Free Trade Zone, as well as the tariff-free import mechanism in the disputed sale of goods contract meant that there was a sufficient ‘foreign element’ in this case.
  • The case indicates a willingness by the courts to allow ‘domestic’ disputes to be heard outside the PRC, in appropriate circumstances.  
  • Our full briefing on this case can be found here

The HKLRC recommends allowing third party funding for arbitration in Hong Kong. 

  • In October 2015, the Hong Kong Law Reform Commission (the HKLRC) released a consultation paper recommending that third party funding be permitted for arbitrations.
  • The status of third party funding of arbitration - where a party such as a dedicated third party fund agrees to pay some or all of the claimant’s fees in exchange for a financial return – is currently unclear under Hong Kong law, and it is generally not permitted in relation to Hong Kong litigation. 
  • Given the various views which are held on third party funding, it is significant that the HKLRC has come out in favour of third party funding in arbitrations, albeit with strict ethical and financial standards to be imposed on third party funders.
  • The consultation period for the paper will end on 1 February 2016, and the HKLRC is then expected to release its results within the next few months.
  • Our more detailed briefing on third party funding can be found here.

Hong Kong courts grant their first anti-suit injunction 

  • In April 2015, the Hong Kong courts issued their first anti-suit injunction under the current Arbitration Ordinance, preventing the defendant from continuing with litigation proceedings in Turkey, in favour of Hong Kong arbitration proceedings.
  • Anti-suit injunctions are an effective means of upholding an arbitration agreement, if an uncooperative party seeks to commence court proceedings (usually in their home jurisdiction) in breach of an obligation to arbitrate a dispute.
  • In granting the injunction, the courts in Hong Kong adopted a pro-arbitration stance, emphasizing that parties should be held to their contracts, and that the court would require ‘strong reasons’ to be shown before refusing to grant an anti-suit injunction where there was an apparently clear breach of the arbitration agreement.
  • Interestingly, the court also confirmed that the party seeking the anti-suit injunction could in principle sue for damages to recover its losses, for instance in relation to costs incurred in having to litigate in a different jurisdiction.  
  • Our full summary of the case can be found here.  In contrast, the Hong Kong courts have more recently, in Sea Powerful II, exercised their discretion and dismissed a similar application, on the basis that there was inordinate delay on the part of the applicant, after taking into account comity considerations.