Things You Must Know before Commencing Arbitration in China--- an ABC Checklist
AllBright Law Offices
Jiong (John) Liu, Minli Tang, Yi Zhu
The differences between domestic and foreign-related arbitration, validity of arbitration agreements, arbitrability, time limit, party autonomy, and the intervention of the court in arbitration proceedings under Chinese law[1]
I. Domestic Arbitrations vs Foreign-related Arbitrations
Under Chinese law, domestic arbitrations and foreign-related arbitrations (different from the purely foreign arbitrations) are governed by different legal provisions. The distinctions are as follows:
Domestic Arbitrations:
The case merits (i.e. parties, the dispute, and the subject matter, etc.) are purely domestic and involve no foreign-related factors at all.
Foreign-related Arbitrations:
Defining Foreign-related Factors:
Article 1 of the Interpretation of the Supreme People's Court on Several Issues Relating to Application of the Law of China on Application of Laws to Foreign-related Civil Relations (I) (hereinafter Interpretation of Foreign-related Civil Relation):
Under any of the following circumstances, the People's Court may determine a civil relation as a foreign-related civil relation:
Where a party concerned or both parties concerned is/are (a) foreign citizen(s), (a) foreign legal person(s) or any other organization, or (a) stateless person(s); Where the habitual residence of a party concerned or both parties concerned is located outside the territory of China; Where the subject matter is located outside the territory of China; Where the legal facts that trigger, change or terminate the civil relation take place outside the territory of China; or Any other circumstances that can be determined as foreign-related civil relations.
II. Validity of the Arbitration Agreement
A valid arbitration agreement shall be in written format (including a contract, letter, or electronic text) and include the following elements (article 16 of the Arbitration Law of PRC, hereinafter Arbitration Law):
(1) the expression of an application for arbitration;
(2) submissions;
(3) the designated arbitration institution (i.e. arbitration commission under Chinese law).
Validity of the Arbitration Agreement that has No Designated Arbitration Commission:
Under Chinese law, in principle, ad hoc arbitration is not allowed, thus parties have to designate an arbitration institution in the arbitration agreement. Without the designation, it very likely that the arbitration agreement will be rendered as invalid, however, there are some exceptions:
Where the name of the arbitration commission provided in the arbitration agreement is inaccurate but is nevertheless identifiable. (Article 3 of the Interpretation of the Supreme People's Court on Certain Issues relating to Application of the Arbitration Law of China, hereinafter Interpretation of the Arbitration Law) Where an arbitration agreement only provides the applicable arbitration rules, it shall be deemed that no arbitration commission is designated, unless the parties have concluded a supplementary agreement, or an arbitration commission can be determined pursuant to the arbitration rules provided. (Article 4 of the Interpretation of the Arbitration Law) Where an arbitration agreement chooses two or more arbitration commissions, the parties may negotiate to pick up one of them; whereas the parties are unable to agree on the choice, the arbitration agreement shall be deemed invalid. (Article 5 of the Interpretation of the Arbitration Law) Where an arbitration is agreed to be administered by an arbitration commission at a certain locality and there is only one arbitration commission exists at that locality, that arbitration commission shall be deemed to be chosen by the parties. Where there are two or more arbitration commissions at that locality, the parties may negotiate to select one of them, whereas fail to do so will render the arbitration agreement invalid. (Article 6 of the Interpretation of the Arbitration Law)
Validity of the Optional Arbitration Clause:
Where the parties agree that a dispute may be submitted to arbitration or litigation, the arbitration agreement shall be invalid, unless one party fails to object before the first hearing after the other party has submitted the dispute to arbitration. (Article 7 of the Interpretation of the Arbitration Law)
Institutional Arbitration as Principle with Restriction on Ad Hoc Arbitration:
In principle, Chinese law does not recognize ad hoc arbitration but only institutional arbitration in mainland China.
However, Article 9 of the Opinions of the Supreme People's Court on Providing Judicial Safeguard for the Development of Free Trade Zones (carried out on December 30, 2016), under limited conditions, permits ad hoc arbitration between enterprises registered in Free Trade Zones. If enterprises registered in Free Trade Zones agree with each other to arbitrate the relevant disputes by designated personnel at a designated location in Mainland China (not necessarily in Free Trade Zones) according to designated arbitration rules, such arbitration agreement can be held valid by the People’s Court.
The Principle that Disputes without Foreign-related Factors cannot be Submitted to Foreign-seated Arbitration and the Exception:
Under Chinese law, parties can only submit disputes with foreign-related factors for foreign-seated arbitration. (Article 128 of Contract Law, Article 271 of Civil Procedure Law, etc.) In principle, disputes without foreign-related factors cannot be submitted to foreign-seated arbitration. (See Supreme Court (2012) Civil Tribunal 4 No.2: the Judicial Reply for the Validity of the Arbitration Agreement between Jiangsu Space Wanyuan Wind Power Equipment Manufacturing Co, LTD vs LM Wind Power (Tianjin) A/S.)
However, article 9 of the Opinions of the Supreme People's Court on Providing Judicial Safeguard for the Development of Free Trade Zones provides for an exception. Wholly foreign-owned enterprises registered in Free Trades Zones can agree to submit commercial disputes for foreign-seated arbitration.
III. Commencing the Arbitral Proceeding
In China, to commence arbitral proceedings, one shall submit arbitration application to the arbitration commission chosen under the arbitration agreement. The application shall specify the following items (Article 21 and 23 of the Arbitration Law):
The names and addresses of the Claimant and the Respondent, including the zip code, telephone, fax, email, or any other mean of electronic telecommunications; A reference to the arbitration agreement that is invoked; The claim submissions of the Claimant with facts and grounds. Evidences and sources of that evidences.
IV. Arbitrability
Under the Arbitration Law, Contractual disputes and other disputes concerning property rights and obligations between citizens, legal persons and other organizations of equal status may be arbitrated. (Article 2 of the Arbitration Law)
The following disputes shall not be arbitrated (Article 3 of the Arbitration Law):
Disputes concerning marital, adoption, custody, fostering and succession; Administrative disputes that shall be handled by administrative organs as prescribed by law.
V. Time Limit
General Rules:
General Principles of Civil Law of China provides that the period of limitation of actions for the protection of civil rights is two years. In the following cases, the period of limitation shall be one year (Article 135 and 136 of General Principles of Civil Law of China):
Claim for compensation for bodily injury; Sale of substandard products without notice; Delay or default in payment of rent; Loss of or damage to a bailed property.
The time limit has been modified in General Rules of the Civil Law of China. General Rules of the Civil Law which will come into force on 1st October 2017, under which the limitation of action for protection of civil rights is three years. (Article 188 of General Rules of the Civil Law)
The period of limitation of actions shall be calculated from the time the infringement of right was known, or should have been known.
Special Rules:
Article 129 of the Contract Law of China: “the time limit on applying for arbitration in relation to a dispute arising from a contract for international sale of goods or a contract for the import and export of technology is 4 years, and this time limit is calculated from the date on which the party knows or ought to know that there has been an infringement of its rights.”
VI. Party Autonomy
Can parties choose arbitration rules? Can they choose governing laws, language, and the seat of the arbitration?
As to the issues mentioned above, only a few are regulated directly by law, more are regulated by arbitration rules of the arbitration commission. The following is an overview of these issues and more specific rules can be found in arbitration rules made by different commissions.
Arbitration Rules
Where the parties have agreed to submit their dispute to an arbitration commission, they shall be deemed to have agreed to arbitrate in accordance with that commission’s arbitration rules. Where the parties have agreed on a modification of these rules or have agreed to use other arbitration rules, the parties’ agreement shall prevail unless such agreement is unenforceable or in conflict with jus cogens in the locality of the seat of the arbitration.
Governing Law
Parties cannot choose governing law in domestic arbitrations as the Chinese Law shall always apply.
In a foreign-related arbitration, the parties can choose applicable law applied to the arbitration agreement itself. When there is no such choice, the laws in the locality of the arbitration commission or the seat of the arbitration shall apply. (Article 18 of Law of China on the Application of Laws to Foreign-related Civil Relations) The parties can also choose substantive law applicable to the dispute. (Article 3 of Law of China on the Application of Laws to Foreign-related Civil Relations) When parties do not make an agreement or the agreement is in conflict with jus cogens, the arbitration tribunal shall determine the substantive governing law issues.
Language
Parties can make an agreement on the language of arbitration. In the absence of such agreement, the arbitration commission can order to use Chinese or other language as the language of arbitration based on case merits.
The Seat of Arbitration
Parties can make an agreement on the seat of arbitration. Where the parties do not choose the seat of arbitration or the agreement is ambiguous, the seat of the arbitration shall be the domicile of the arbitration commission administering the case. The arbitral award shall be deemed as having been made at the seat of arbitration.
VII. The Intervention of the Court
Courts may intervene in arbitration proceedings in the following situations:
To Rule on the Validity of Arbitration Agreements
The time limit of raising an objection of the validity: where a party fails to object the validity of an arbitration agreement before the first hearing in the arbitration proceedings, but the party subsequently applies to the People's Court to rule on the invalidity of the arbitration agreement, the People's Court shall not hear such a case. (Article 13 of the Interpretation of the Arbitration Law)
Where the parties have dispute against the validity of an arbitration agreement, a request can be raised before the arbitration commission or before the People's Court. Where one party requests before the arbitration commission and the other party requests before the People's Court, it shall be decided by the People's Court. (Article 20 of the Arbitration Law)
Where an arbitration institution has decided on the validity of an arbitration agreement and a party subsequently applies to the People's Court to determine the validity the arbitration agreement or overturn the decision of the arbitration commission, the People's Court shall not hear such a case. (Article 13 of the Interpretation of the Arbitration Law)
Where a party applies to the People's Court to determine the validity of an arbitration agreement, the case shall come under the jurisdiction of the intermediate People's Court at the locality of the arbitration institution stipulated in the arbitration agreement; where the arbitration agreement fails to stipulate an arbitration institution clearly, the case shall come under the jurisdiction of the intermediate People's Court at the locality where the arbitration agreement was concluded, or the domicile of the respondent. (Article 12 of the Interpretation of the Arbitration Law)
Where a party applies for the determination of validity of an arbitration agreement in a foreign-related arbitration, the case shall come under the jurisdiction of the intermediate People's Court at the locality of the arbitration institution as stipulated in the arbitration agreement, or the locality where the arbitration agreement was concluded, or the domicile of the applicant or respondent. (Article 12 of the Interpretation of the Arbitration Law)
In foreign-related arbitration, the applicable law for the determination of validity of an arbitration agreement shall be the applicable law as agreed upon by the parties; where the parties have not agreed upon an applicable law to the arbitration agreement but have agreed upon the seat of the arbitration, the law of that place shall apply; where the parties have agreed upon neither the applicable law nor the seat of the arbitration or where they fail to clearly agree upon the seat of the arbitration, the law of the place where the court is located shall apply. (Article 16 of the Interpretation of the Arbitration Law)
Where a party applies for the determination of validity of an arbitration agreement involving maritime or admiralty disputes, the case shall come under the jurisdiction of the admiralty court at the locality of the arbitration institution as stipulated in the arbitration agreement, or the locality where the arbitration agreement was concluded, or the domicile of the applicant or respondent; where there is no admiralty court at these locations, the case shall come under the jurisdiction of the nearest admiralty court. (Article 12 of the Interpretation of the Arbitration Law)
Property Preservation
If necessary, parties can apply for property preservation. Parties can apply for preservation before or during the arbitration proceedings. It shall be noted that if the applicant fails to apply for arbitration within 30 days from the adoption of preservation measures by the People's Court, the People's Court shall discharge the preservation. (Article 101 of Civil Procedure Law)
Where a party applies for the property preservation, the arbitration commission shall submit the application to the People's Court. Where there is a wrongful application, the claimant shall compensate the respondent for losses incurred during the property preservation procedures. (Article 28 of the Arbitration Law)
In domestic arbitrations, if the party makes an application for property preservation, which is submitted to the People's Court by the arbitration institution, the local court (the courts of the first instance) of the domicile of the respondent or the locality of the properties shall decide the case and enforce the property preservation order. (Article 11 of the Provisions of the Supreme People’s Court on Several Issues Concerning Judicial Enforcement by the People’s Courts (for Trial Implementation))
In foreign-related arbitrations, if the party makes an application for property preservation, which is submitted to the people's court by the arbitration institution, the intermediate people's court of the domicile of the respondent or the locality of the properties for which preservation is applied shall decide the case and enforce the property preservation order. (Article 12 of the Provisions of the Supreme People’s Court on Several Issues Concerning Judicial Enforcement by the People’s Courts (for Trial Implementation))
Evidence Preservation
Where evidence is vulnerable to being destroyed or lost and would be difficult to recover, the parties may apply for the preservation of the evidence.
In domestic arbitrations, where a party applies for evidence preservation, the arbitration commission shall submit the application to the local People's Court (the courts of the first instance) of the locality of the evidence. (Article 46 of the Arbitration Law)
In foreign-related arbitrations, the foreign-related arbitration commission shall submit the application to the intermediate People's Court of the locality of the evidence. (Article 68 of the Arbitration Law)
Interim Measures
There is no specific provision of interim measures except for property preservation and evidence preservation under Chinese law. If parties apply for preservation in accordance with Chinese law, arbitration commissions shall submit the application to the People’s Court which has the jurisdiction (the arbitral tribunal has no power to make the decision). Meanwhile, the arbitral tribunal can make the decision pursuant to the specific rules made by the arbitration commission of those interim measures that are not provided in law.
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[1] Under Chinese law, some types of labor disputes are subject to mandatory pre-litigation arbitration proceedings. Only if a party does not agree with the arbitral award, it can then bring a law suit in the court. For more details please refer to Labor Dispute Mediation and Arbitration Law of the People's Republic of China. This article does not deal with labor arbitration but only ordinary commercial arbitration.
