International arbitration has become the norm for settling international commercial disputes, however, procedural and enforcement issues in some jurisdictions suggest caution in approach.
Historically, both procedural and enforcement issues for arbitrations involving mainland Chinese companies have raised questions regarding the efficiency of international arbitrations involving these parties. New developments in the procedural rules of Chinese arbitration institutions suggest a renewed dedication to international arbitration, but a recent British Columbia case illustrates the need for a more robust record of enforcement of arbitral awards in mainland China.
Changes to CIETAC Rules
On May 1, 2012, new arbitration rules (Rules) came into effect for arbitrations administered by the China International Economic and Trade Arbitration Commission (CIETAC), a permanent international arbitration institution in China. These new Rules replace the former rules which were previously in place since 2005.
The new Rules are relevant to Canadian and Chinese companies at the contract negotiations stage when determining the preferred method of dispute resolution, and in situations where parties to an existing contract containing an arbitration clause are contemplating litigation and one of the parties is based in mainland China. Not every arbitration involving a mainland Chinese company is governed by CIETAC Rules. These Rules only apply where CIETAC is named in the arbitration agreement.
CIETAC’s new Rules are coming into force at a time when other arbitration institutes around the world, including the International Chamber of Commerce and the Chambers of Commerce and Industry in Switzerland, are updating their own procedural rules to adapt to increasingly complex commercial arbitrations and to meet the requirements of parties looking to resolve disputes through alternative dispute resolution processes.
Changes set out in the new CIETAC Rules include the following:
- CIETAC tribunals are now empowered to grant interim relief measures in certain circumstances;
- Where the parties fail to jointly nominate an arbitrator, CIETAC will appoint the entire arbitration tribunal;
- The threshold amount for utilizing CIETAC’s fast-track arbitration process has increased from RMB 500,000 to RMB 2 million;
- CIETAC arbitrations may now be consolidated with the consent of all parties; and
- CIETAC may now conduct mediation during the arbitration proceeding, with the parties’ agreement and not involving the arbitral tribunal.
Impact of New Rules Unknown
Despite CIETAC’s efforts to modernize its Rules in keeping with similar trends in amendments to arbitration rules around the world, it is not yet known what impact the new Rules will have on arbitrations in China. The Rules do not address the more fundamental issue of recognizing and enforcing foreign arbitral awards in China.
Uncertainty of Enforcing Foreign Arbitral Awards in China
Historically, foreign parties have faced many obstacles when attempting to register and enforce foreign arbitral awards in China. Observers have long criticized China for taking a protectionist approach and refusing to register a disproportionate amount of foreign arbitral awards that were decided against Chinese parties and in favour of the foreign party seeking to enforce the award.
The difficulty regarding the enforcement of foreign arbitral awards in China is relevant to parties doing business in British Columbia who may find themselves in a contractual dispute where at least one of the parties is based in mainland China. British Columbia courts have taken note of the uncertainty over enforcing arbitral awards in China, and have weighed it as a factor in granting extraordinary interim relief to Canadian companies who are concerned that they may not be able to recover on an arbitral award against a Chinese company.
In a case earlier this year, the Supreme Court of British Columbia granted a Mareva injunction freezing the assets of a Chinese company after a Canadian company had already commenced arbitration proceedings pursuant to an arbitration clause in the parties’ contract which provided that certain disputes arising out of the contract were to be resolved through arbitration.
The Canadian company sought injunctive relief restraining the Chinese company from removing assets from British Columbia on the basis that once they were gone, the Chinese company would have no exigible assets in Canada, and foreign enforcement of any arbitral award would be problematic.
While the Chinese company argued that: (a) it required the movement of its assets in order to meet other contractual obligations; (b) the parties had agreed to resolve certain disputes by arbitration; and (c) in the event it was unsuccessful at arbitration, the Chinese company had substantial assets in China, the Court was persuaded that there was substantial uncertainty that any arbitral award in favour of the Canadian company could be enforced against the Chinese company in China, and ultimately concluded that it was just and equitable in the circumstances to freeze the Chinese company’s assets pending resolution of the dispute.
While the new Rules and their emphasis on efficiency are in line with similar amendments to arbitration rules in many other jurisdictions, it remains to be seen whether the changes to the Rules signal a shift in China as it relates to recognizing and enforcing foreign arbitral awards, or whether the irregular enforcement of foreign arbitral awards in China will continue.