Current & Future Development of ADR services for the Belt and Road and the Greater Bay Area Initiatives
Reporter: Dennis Wu (Sidley Austin, Hong Kong)
The Hong Kong Arbitration Week China Focus Session on 30 October 2018 featured discussions on a wide range of developments in the arbitration scene in the PRC, including the latest judicial interpretations and SPC opinions, key cases and the establishment of the Chinese International Commercial Courts (“CICCs”) and the Nansha International Arbitration Centre. Judge Chen Ji Zong from the Supreme People’s Court of the People’s Republic of China (“SPC”) and President Hao Fei of the Dongguan Branch of the Guangzhou Arbitration Commission were the speakers and Ms. Sylvia Siu of HKIArb served as the moderator.
After a warm round of applause and a welcoming speech by Ms. Siu, Judge Chen kicked off the seminar by giving the audience an update of the PRC arbitration scene.
Pro Arbitration Approach in the PRC
Judge Chen first referred to the SPC’s Opinion Providing Judicial Protection for the development of the Pilot Free Trade Zones (the “FTZ Opinion”) which permits ad hoc arbitrations within FTZs. Pursuant to the FTZ Opinion, an arbitration agreement is valid for companies registered within the Pilot Free Trade Zones (“FTZs”) as long as it provides for the place of arbitration, rules of arbitration, and a reference that the dispute be heard by certain persons. This is in contrast to the position under the PRC Arbitration Law which requires an arbitration agreement to include a specific reference to an arbitral institution. Judge Chen noted that the next development might be to extend the availability of ad hoc arbitration through an amendment of the Arbitration Law.
Judge Chen then moved on to discuss the SPC’s pro-arbitration approach exhibited by PRC courts. This is demonstrated by the recent enforcement of an award obtained by Castel Electronics Pty Ltd (“Castel”) against TCL Air Conditioner (Zhongshan) Co. Ltd. (“TCL”). After the award was rendered, TCL successfully sought a declaration from the PRC courts that the arbitration agreement between the parties was invalid. Castel then applied to enforce the award against TCL in the PRC. The SPC opined that enforcement of the award should not be refused because (i) the award was rendered before the invalidity finding, and (ii) TCL did not raise any objection as to validity of the arbitration agreement during the arbitration.
This pro-arbitration approach is also evident from the fact that there has only been one instance of an award being denied enforcement in the PRC under the public policy ground in recent years.
Judge Chen nonetheless noted that PRC courts approach enforcement issues judicially. PRC courts will refuse, and indeed has refused, enforcement where a proper ground for refusal of enforcement is made out. In Noble Resources International Pte. Ltd v Shanghai Good Credit International Trade Co., Ltd., the Shanghai No. 1 Intermediate People’s Court refused recognition and enforcement of an arbitral award made by a single arbitrator under SIAC’s expedited procedure when the arbitration agreement specifically provided for 3 arbitrators. In 2010, the PRC courts also refused enforcement of a Mongolian National Arbitration Court award, which dealt with certain succession issues, pursuant to Article V(2)(a) of the New York Convention as succession disputes are not arbitrable under PRC law.
Recent Judicial Reforms
Judge Chen next highlighted some salient points in two recent judicial interpretations issued by the SPC: one on the hearing of cases involving judicial review of arbitration (the “Judicial Review Interpretation”), and another on enforcement of arbitral awards (the “Enforcement Interpretation”).
- The Judicial Review Interpretation provides that in order to achieve consistency in judicial practice, the current “reporting up” system should be extended to domestic arbitrations.
- The Judicial Review Interpretation also calls for more transparency in the “reporting up” system by giving parties an opportunity to participate if the higher courts so request.
- More interestingly, the Judicial Review Interpretation now specifically endorses the “validation” principle in ascertaining the validity of an arbitration agreement. Article 14 of the Judicial Review Interpretation provides that (i) where the parties to a foreign-related arbitration agreement have failed to specify the applicable law, and (ii) the application of the law at the place of arbitration and the application of the law at the place where the arbitral institution is located will lead to different results in respect of the validity of the arbitration agreement, a PRC court should apply the law under which the agreement is regarded as valid.
- The Enforcement Interpretation provides that where an award is rendered pursuant to a sham arbitration, a third party can apply to challenge enforcement of the same if the enforcement process violates the third party’s legitimate interest.
- Judge Chen finally observed that the current Arbitration Law, which was first promulgated in 1995, is insufficient to meet current needs and expectations. The Arbitration Law may therefore be substantively revised at the 13th National People’s Congress.
The discussion next turned to the recent establishment of the CICCs. Judge Chen noted that there has been a lot of discussion in recent years on how litigation, arbitration and mediation could be brought together, and that CICCs were created in an attempt to create an integrated dispute resolution platform. Thus far two CICCs have been established, with one situated in Xi’an and the other in Shenzhen. They are both permanent courts of the SPC.
Judge Chen then provided a brief overview of the CICCs. CICCs have jurisdiction over, among others, international commercial cases where the amount in dispute is over RMB300,000,000 and the parties have specifically opted into the jurisdiction of the SPC. So far, 8 judges, who are all experienced in international commerce, have been appointed to the bench. The CICCs have also set up an “International Commercial Expert Committee”, a specialist panel to provide expert assistance and foreign law evidence to the judges. The first formulation of this International Commercial Expert Committee comprises of 32 experts, most of whom are from overseas.
The CICCs have the power to designate certain commercial arbitral or mediation institutions as “approved institutions”, although currently there is no plan to designate any foreign institution as an “approved institution”. After a case is submitted to CICC, the parties remain free to pursue arbitration or mediation under the auspices of these “approved institutions”. A settlement agreement reached through mediation may be converted into a CICC judgment, and if mediation fails, the parties remain at liberty to restore litigation proceedings before the CICC, or commence arbitration proceedings at an “approved institution”.
Judge Chen noted that while no case has been submitted to the CICCs thus far, the SPC has every intention to ensure that the CICC experiment is a successful one and will provide the CICCs with its full support.
The role and development of arbitration in resolving Greater Bay Area disputes
President Hao took over the proceedings to discuss recent development of arbitration in the Greater Bay Area. In view of the integration of cities and economic activity, the Nansha International Arbitration Centre (“Nansha Centre”) was established to promote better cooperation between different arbitral institutions / bodies in the region. According to President Hao, one of the aims of the Nansha Centre was to bring together common law (Hong Kong), civil law (Macau) and Chinese legal traditions to encourage the cross-pollination of ideas as well as to provide end users with more choices.
President Hao then provided a summary on the recent development of “internet arbitration” in the PRC. He noted that in recent years there has been an explosion in development of fintech, especially in the P2P lending space, with deal documentation often executed online. To provide for expeditious dispute resolution in the fast-moving digital economy, the Guangzhou Arbitration Commission started developing protocols for arbitrating disputes online. Further, given that deal documentation of P2P or internet loan transactions are usually standardised, and disputes often arise out of similar facts, the use of “big data” and artificial intelligence in such arbitrations is being mooted as a real possibility.
Next, President Hao observed that pursuant to the FTZ Opinion, ad hoc arbitration is now permitted in FTZs. The arbitration community in the PRC is excited by this development and is considering how to extend the reach of ad hoc arbitration so that parties outside the FTZ can also enjoy the flexibility offered by ad hoc arbitration (vis-à-vis traditional institutional arbitration in the PRC). In this regard, President Hao noted in PRC arbitrations, it is often the institution (rather than the tribunal or the parties) that makes the ultimate decision as to arbitral procedures. The FTZ Opinion might therefore encourage institutions to develop protocols that allow parties to design the most appropriate procedures or indeed to select the most appropriate arbitrator (whether or not he or she is on the panel of arbitrators of the relevant institution), with the institutions “rubber-stamping” any agreed procedure if no due process issue arises.
President Hao concluded by expressing his hope to see further cooperation in the arbitration space in the Greater Bay Area, a sentiment shared by all those present. Ms. Siu concluded the seminar by thanking Judge Chen and President Hao for their valuable insight on latest developments in the PRC, and Mr. Samuel Wong for his real-time interpretation to Judge Chen and President Hao’s presentations.