The Supreme People’s Court (SPC) issued its long-awaited Interpretation on Certain Issues Relating to the Application of the PRC Arbitration Law (the SPC Interpretation) on 8 September 2006. The SPC Interpretation is significant in that it consolidates previous judicial interpretations and provides guidance on two key issues in arbitration: the validity of arbitration agreements and challenges to arbitral awards. In general, the interpretation applies to both domestic and foreign-related arbitrations that are subject to PRC law.

Validity of arbitration agreements What if parties have failed to designate an arbitration institution?

Under PRC law, a valid arbitration agreement must expressly designate an arbitration commission (?????). Such a requirement is unusual in international practice, where parties frequently agree to arbitration rules without expressly designating an arbitration institution in their arbitration agreement..

The SPC Interpretation suggests a possible relaxation of this requirement. In particular, article 4 suggests that even if an arbitration institution is not expressly designated, the arbitration agreement will not be invalid if the arbitration institution can be ascertained under the applicable arbitration rules.

What constitutes a written arbitration agreement?

PRC law requires a valid arbitration agreement to be in writing. Article 1 of the SPC Interpretation clarifies that a ‘written’ arbitration agreement may be reached by express agreement in writing, by exchange of letters and by electronically transmitted documents (including telegrams, telefaxes, facsimiles, electronic data interchange and emails).’ This is consistent with international practice.

What disputes can be arbitrated?

Article 2 adopts an expansive interpretation of which matters can be arbitrated, providing that where the scope of the arbitration agreement is unclear, ‘arbitrable matters’ include, but are not limited to, disputes relating to contractual formation, validity, modification, assignment, performance, liability for breach of contract, interpretation and rescission of a contract.

Can a party agree to both court jurisdiction and arbitration?

Where an agreement provides that a dispute may be referred to both an arbitration institution and the people’s court, article 7 renders the agreement invalid unless one party commences arbitration and the other party does not object promptly.

Validity of an arbitration agreement: who decides?

In international practice, the validity of an arbitration agreement is primarily determined by the arbitral tribunal. However, under PRC law, this question is reserved for determination by either the arbitration commission or the people’s court. Most foreign parties prefer the commission, as the people’s court is perceived to be more susceptible to local influence and protectionism.

Article 13 endorses earlier judicial approaches, providing that once an arbitration institution has decided an arbitration agreement is valid, the people’s court may not entertain any application to challenge the decision. This is a welcome development that will bring greater certainty to the legitimacy of proceedings once the arbitration agreement is validated by the relevant institution.

What law governs the validity of the arbitration agreement?

Article 16 addresses this question. The provision is not entirely clear, but when read together with previous judgments it suggests that in most cases the validity of an arbitration agreement will be determined based on the law of the seat, or place, of arbitration. Therefore, if a contract governed by Hong Kong law is subject to arbitration in China, the SPC Interpretation provides that the validity of the arbitration agreement will be a matter of PRC law.

Is ICC arbitration permitted in China?

Unfortunately, as with previous interpretations, the SPC Interpretation fails to directly address the status of International Chamber of Commerce (ICC) arbitration in China. It therefore remains debatable whether a clause providing for ICC or other foreign institutional arbitration in China is valid.

Challenging awards Can an award be partially set-aside?

Article 19 clarifies that the people’s court may only set-aside that part of an arbitral award that lies beyond the scope of the arbitration agreement. This is consistent with an earlier judicial pronouncement and also mirrors the New York Convention.

What if a party delays in challenging the award?

To challenge an award, the invalidity of an arbitration agreement must be raised as an argument during the proceedings. Article 27 provides that a party that argues invalidity after an arbitral award is made waives its right to set aside or to resist enforcement of an award.

Conclusion

Arbitration in China has made significant and encouraging progress in recent years. The SPC Interpretation represents China’s latest effort to bring both the law and practice of arbitration more closely in line with commonly accepted international practice. However, while it is certainly a step in the right direction, it falls short of addressing several questions that concern foreign or foreign-related entities. For example, it does not specifically state whether foreign arbitral institutions, such as the ICC, can conduct arbitrations in China. Moreover, the interpretation does not seem to alter the generally accepted view that disputes solely involving Chinese parties, with no foreign-related elements, may not be arbitrated outside of China.