Key takeaways:
The noteworthy highlights of the Revised Draft of PRC Arbitration Law include:
° Expanding the scope of arbitration cases,
° Incorporating ad hoc arbitration,
° Inclusion of a selected arbitration institution no longer being a prerequisite of a valid arbitration agreement
° Effect of the arbitration agreements to be decided by the arbitral tribunals instead of the courts,
° Choice of arbitrators no longer being limited by the list of arbitrators,
° Nomination of the presiding arbitrator being less likely to be manipulated,
° Arbitral tribunal to be empowered to grant interim measures, and
° Streamlining the judicial review of arbitral awards.
On 30 July 2021, China’s Ministry of Justice published on its official website the proposed Arbitration Law of the People’s Republic of China (Revision) (Draft for Public Comment) (“the Draft”), together with its explanatory notes.
This indicates that the Chinese Arbitration Law will receive its third and most significant revision since its promulgation in 1994. The previous two revisions only revised some individual provisions.
Although only the initial draft has been published so far, we can observe the substantial changes that may be brought about by the Chinese Arbitration Law. The most noteworthy eight points of the Draft are highlighted as follows.
1. Expanding the scope of arbitration cases
The current arbitration law provides that “contractual disputes and other disputes concerning property rights and obligations between citizens, legal persons, and other organizations of equal status may be subject to arbitration”.
The Draft deletes the limitation that the parties must be equal subjects. (Article 2)
The Ministry of Justice indicates that this is to recognize in China the arbitration between unequal parties, especially the investment arbitration and sports arbitration.
In fact, some arbitration institutions within China have developed arbitration rules that can be applied to investment arbitrations. This Draft will help to clarify the legal effect of awards in investment arbitration and sports arbitration cases where China is the seat of arbitration.
2. Incorporating ad hoc arbitration
The current Arbitration Law does not provide for ad hoc arbitration, which has been added in the Draft. (Articles 91-93)
On the one hand, the current Arbitration Law only stipulates institutional arbitration. Therefore, there is almost no ad hoc arbitration within China. On the other hand, China has been a party to New York Convention, so Chinese courts may recognize and enforce foreign ad hoc arbitral awards.
This means that China only recognizes foreign ad hoc arbitration but not domestic ones, which is considered unreasonable by the Ministry of Justice.
Some parts of China are also trying to introduce ad hoc arbitration by some flexible workarounds. The draft formally confirms this approach.
3. Inclusion of a selected arbitration institution no longer being a prerequisite of a valid arbitration agreement
The current Arbitration Law requires that a valid arbitration agreement must specify the “a selected arbitration commission”. The Draft deletes this requirement.
In China, there are many cases involving the validity of arbitration agreements, the setting aside of arbitral awards, and the non-enforcement of arbitral awards. In quite a few cases, the arbitration agreements were considered null and void because the parties did not specify the arbitration committees or the name of the arbitration committees were not precise enough, and therefore the parties, more often than not, had to resort to the court.
The Draft focuses more on the expression of intent between the parties to choose arbitration as the means of dispute resolution, and specifies how to determine the arbitration institution if the parties have not agreed on an arbitration institution, or their agreement is unclear.
The Draft may prevent cases where the parties have not expressly agreed on an arbitration institution rushed into court.
4. Effect of the arbitration agreements to be decided by the arbitral tribunals instead of the courts
The current Arbitration Law stipulates that the parties may choose to apply to an arbitration institution or a court for the disputes concerning the validity of an arbitration agreement, and the court has priority in dealing with such applications.
The Draft only authorizes the arbitral tribunal to deal with this issue. This approach strengthens the jurisdiction of the tribunal over the case, signaling the recognition of kompetenz-kompetenz to the full extent in China.
5. Choice of arbitrators no longer being limited by the list of arbitrators
The current Arbitration Law stipulates that “an arbitration commission shall prepare a list of arbitrators according to specialization”.
The draft adds the definite word “recommended” before the word “list”. The Ministry of Justice also clarifies that the list of arbitrators is only for recommendation, which means that the parties can appoint arbitrators outside the list.
6. Nomination of the presiding arbitrator being less likely to be manipulated
In China, the presiding arbitrator has an important role because “when the arbitral tribunal cannot form a majority opinion, the award shall be made in accordance with the opinion of the presiding arbitrator”.
The current Arbitration Law stipulates that the presiding arbitrator is chosen jointly by the parties concerned or appointed by the chairperson of the arbitration commission who has been jointly entrusted by the two parties. Generally, the parties cannot reach an agreement on the nomination, so the president is usually appointed by the chairperson of the arbitration committee. This results in the possibility that the chairperson of the arbitration committee may in fact have a significant influence on the case.
The Draft adds a step to the nomination, providing that “the presiding arbitrator shall be chosen jointly by the parties; if the parties cannot agree upon the choice, the two arbitrators already chosen or appointed shall choose jointly the presiding arbitrator; if the two arbitrators still fail to choose jointly, the presiding arbitrator shall be appointed by the arbitral institution”.
The draft adds more variables to the selection of the presiding arbitrator, which may provide some check on the power of the arbitral institution in the participation of appointing the presiding arbitrator.
7. Arbitral tribunal to be empowered to grant interim measures
The current arbitration law provides that the only interim measures that parties may take in arbitration proceedings are the preservation of property and preservation of evidence. The Draft adds preservation of conduct and other short-term measures that the arbitral tribunal deems necessary.
Under the current arbitration law, the arbitral tribunal does not have the power to decide on a party’s claim, but rather its role is to refer the party’s request to a competent court and have the court decide on it. The Draft empowers both the tribunal and the court to decide on interim measures.
8. Streamlining the judicial review of arbitral awards
Under the current Arbitration Law, there are two ways for a party to apply to the court for judicial review of an arbitral award. The first is to apply for the setting aside of an arbitral award. The second is to apply for non-enforcement of the arbitral award.
This provides the parties with two opportunities to initiate a review of the arbitral award, but the two reviews are not very different.
The Ministry of Justice considers that the two reviews are repetitive and that their results may conflict. Therefore, only one opportunity is reserved in the Draft for the parties to apply for the setting aside of arbitral awards.
However, the court may still take the initiative to review arbitral awards during the enforcement.
Photo by zhang kaiyv on Unsplash
Contributors: Meng Yu 余萌
