PRC law sets forth specific requirements for individuals who serve as arbitrators in China. Article 13 of the PRC Arbitration Law requires arbitrators to be “fair and honest.” Arbitrators must also meet at least one of the following qualifications: (1) have a minimum eight years work experience in arbitration; (2) have a minimum eight years experience as a lawyer or as a judge; (3) be engaged in legal research and teaching with a senior academic title; or (4) be engaged as a professional focused on economic and trade matters with a senior academic title or equivalent professional title also having legal knowledge.
Despite these specific criteria, PRC law did not initially place restrictions on lawyers who also act as arbitrators. The PRC Lawyers Law first promulgated in 1996 did not impose such restrictions nor did its 2002, 2007 and 2012 amendments. In 2010, however, the Ministry of Justice issued the Measures for Penalties of Lawyers and Law Firms for Illegal Acts (“Punitive Measures”) which expressly prohibit lawyers who act or have acted as arbitrators from representing clients in disputes before the same institution where he or she is listed on the panel of arbitrators. Under Article 7.5 of the Punitive Measures, a lawyer who also acts as arbitrator before the same institution is considered a conflict of interest under Article 47.3 of the Lawyers Law which prohibits lawyers from “representing both parties in a same case, or representing a client in a legal affair that has conflict of interest with himself or his close relative.” As set forth below, we believe that Article 7.5 is unwarranted, contrary to international arbitration practice, and serves little more than a vehicle for meritless challenges to the enforcement of arbitral awards and should be revoked.
Article 7.5 does not address intended concerns
It appears that Article 7.5 is intended to address concerns that a lawyer who acts as lawyer before the institution where he or she is listed as an arbitrator creates an opportunity for partiality and bias due to his or her relationship with the institution, thus impacting confidence and trust in arbitration proceedings. Given the attenuated relationship between arbitrators and institutions, however, we believe this concern is misplaced.
To begin, arbitrators and arbitral institutions maintain a fairly distant relationship. Unlike judges, arbitrators are not full time employees of arbitration institutions. They are appointed by a party or the institution to resolve one of many disputes at hand. The vast majority of arbitrators maintain full time professional careers outside of the arbitration institution, especially those who are practicing attorneys, and have limited communication with the arbitral institution in their role as arbitrator. Most communication between arbitrators and institutions is in writing, with arbitrators appearing before the institution only when hearings are conducted.
In addition, the institution’s role during the arbitral proceedings is primarily limited to case administration. It is the tribunal, not the institution, who hears and reviews the merits of the dispute and determines and writes the award. The arbitral institution has no bearing on the outcome of the dispute.
While Article 7.5 may in theory be intended to prevent partiality and bias due to a litigant’s relationship with the arbitration institution, we believe it is misplaced. Certainly there may be other relationships which give rise to justified concern, but we do not believe that the attenuated nature of the arbitrator-institution relationship creates an opportunity for a lawyer who is also listed as an arbitrator to impact other proceedings administered by that institution.
Article 7.5 restricts lawyers from acting as arbitrators and hinders development of commercial arbitration in China
As noted above, China, unlike many other countries, sets forth specific criteria for the inclusion of individuals in an institution’s list of arbitrators. As a result, lawyers who serve as arbitrators in China are legal experts with extensive expertise in a wide array of fields and industries. Practicing lawyers occupy a significant percentage of domestic and international arbitrator lists. For example, one-third of arbitrators listed with the China International Economic and Trade Arbitration Commission (CIETAC) are practicing attorneys. Their involvement and insight in the resolution of commercial disputes have made an important and valuable contribution to the development of commercial arbitration in China.
Given the nature of arbitrator appointments, most of these lawyers maintain separate professional careers and derive their income primarily from private practice. Due to restrictions on the number of arbitration institutions which may exist in each municipality, most cities only have one arbitration institution and institutions capable of resolving foreign-related disputes are even more limited. For lawyers listed as arbitrators in institutions in the locality in which they practice, Article 7.5 is likely to have a significant impact on their ability to represent clients before those institutions.
Being listed as an arbitrator is a symbol of prestige and often a valuable qualification for litigators in China. Nonetheless, we believe that continued application of Article 7.5 will force most lawyers to walk away from their role as arbitrators in order to maintain their professional careers and their livelihood, thus depleting the pool of qualified arbitrators in China and potentially stalling or even diminishing the development of commercial arbitration in China. It turns out to be especially worse for over hundreds of local arbitration commissions. Lawyers take up a substantial portion of arbitrators in local arbitration commissions, because the number of qualified legal professionals is relatively small due to geographical restrictions. The restriction of Article 7.5 on lawyers will definitely have a more profound negative impact on the developments of local arbitration commissions.
Article 7.5 is inconsistent with international arbitration practice
In international practice, a lawyer who appears before an arbitration institution where he or she is listed as an arbitrator is generally not deemed a conflict of interest. The rules of most international arbitration institutions also do not restrict this practice. Indeed, many leading international arbitration practitioners are listed as arbitrators with the very same institutions before which they litigate cases.
Nor has the international arbitration community determined a lawyer’s dual capacity as litigator and arbitrator before a single institution to be a conflict of interest. In 2004, the International Bar Association published the IBA Guidelines on Conflicts of Interest in International Arbitration (“IBA Guidelines”). The IBA Guidelines are the product of leading international arbitration practitioners and scholars who set forth a list of scenarios deemed to constitute waivable and non-waivable conflicts of interest. The restrictions set forth in Article 7.5 are not included in this list. In fact, the only situation addressed by the IBA Guidelines that is remotely similar to Article 7.5 is where an arbitrator and counsel have previously served together as arbitrators or co-counsel, and the IBA Guidelines do not consider this alone to be a conflict.
Article 7.5 increases the likelihood that enforcement of an arbitral award will be challenged
While Article 7.5 does not expressly address arbitration procedure or rules, it creates a basis to challenge enforcement of an arbitral award. For example, after the Punitive Measures were issued, a single PRC intermediate court was faced with three cases in which the parties applied to set aside arbitral awards based on alleged violations of Article 7.5. In 2011, the court agreed with the applicant and set aside the award because it viewed violation of Article 7.5 to constitute a violation of arbitration procedure. In 2012, however, the same court overruled two applications to set aside arbitral awards on the same grounds because it considered the Punitive Measures to be a departmental decree and not binding legislation. Accordingly, it is unclear whether a violation of Article 7.5 amounts to a violation of arbitral procedure warranting refusal to recognize or enforce an award or whether Article 7.5 is merely an ethics rule governing lawyer conduct. We expect that other PRC courts adopt similar inconsistent approaches thus injecting further uncertainty to the finality and enforceability of an arbitral award in China.
In practice, Article 7.5 is seldom applied. The Punitive Measures only bind lawyers and law firms, not arbitration institutions, though they may be referenced by institutions. Only a few arbitration institutions, such as the Beijing Arbitration Commission and the Shenzhen Arbitration Commission, have issued rules consistent with Article 7.5. The majority of institutions do not have such rules. Unless an objection is raised by the other side, lawyers rarely withdraw from their representation of clients when Article 7.5 scenarios arise. Even if an objection is raised, arbitration institutions are not in a position to compel a lawyer to withdraw as counsel. Article 7.5 also has no impact on offshore arbitration institutions. Because Article 7.5 does not distinguish between domestic and offshore arbitrations, however, it is unclear whether it applies to a PRC lawyer listed as an arbitrator before an offshore institution.
Some members of local bar associations point out that the initial purpose of Article 7.5 was to avoid potential challenges to arbitral awards based on alleged conflicts of interest resulting from the lawyer’s role as a listed arbitrator. They suggest that the Ministry of Justice is aware that the impact of Article 7.5 may have resulted in the opposite effect and accordingly Article 7.5 has not been strictly enforced. Nevertheless, Article 7.5 remains valid and binding. This inconsistency between practice and legislation has created additional legal uncertainty, with many lawyers uncertain as to the scope and application of the restrictions imposed by Article 7.5. To align China with international arbitration practice and restore certainty to arbitration practice in China, Article 7.5 should be immediately revoked.