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Arbitration in China: looking toward a better future
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ARBITRATION is a form of alternate dispute resolution that has become an invaluable instrument in commercial transactions. It is especially important in cross-border disputes.
With the rise of the Chinese economy and the increasing openness and incubatory environment for Western investment, Chinese companies are becoming more active in international trade. With this rise, Foreign-Sino relations are becoming increasingly closer. In an effort to propel the situation forward, two of the most eminent Arbitral Institutions — the SHIAC and SCIA — recently undertook innovative action in an effort to rethink and improve the arbitration mechanism in China.
On December 1, the Shenzhen Court of International Arbitration (SCIA) updated its rules to enable it to hear investor-state disputes. Under the new rules, the SCIA will accept arbitration cases related to investment disputes between states and nationals of other states, provided that they are under UNCITRAL (United Nations Commission on International Trade Law) rules and that all parties involved follow the newly drafted procedural guidelines. This means that the SCIA is the first arbitration institution in China’s mainland to administer investor-state arbitrations.
Additionally, arbitral rules within the Free Trade Zone (FTZ) have also improved in recent memory with the Shanghai International Economic and Trade Arbitration Commission Pilot Free Trade Zone Arbitration (SHIAC) issuing new rules and guidelines.
In typical cases, the Rules apply if (i) the parties have agreed to refer their disputes to SHIAC and (ii) either the parties have elected to apply the FTZ Rules, or there is a connection between the FTZ and the parties. The rules, as updated, provide flexible and useful provisions which improve upon the gaps left by other Chinese arbitration institutions. One such provision is the emergency arbitration, which is available even before the tribunal is constituted, including the granting of injunctions and temporary restraining orders or other measures.
This is built upon by the pre-arbitration interim measures, allowing for a party to apply directly to the Court before commencing an arbitration for interim measures. By allowing applications for injunctions before the commencement of the full arbitral tribunal, both parties can preserve evidence and reduce the time spent on peripheral matters during the actual course of the arbitration.
Bolstering this is the Open Panel of Arbitrators, which enables the parties to appoint arbitrators from a panel of arbitrators or allow them to recommend an arbitrator from outside the panel to be the arbitrator. Fundamentally, this is still subject to approval by SHIAC.
Framed as pro-arbitration and innovative, these can be considered a welcome development in the process of liberalizing trade, particularly in Shanghai. This is a timely and useful development, particularly as more foreign businesses attempt to build business within China and with Chinese companies.
In recent years, the Supreme People’s Court has also taken strides to monitor the compliance of lower courts and increase the recognition and enforcement of foreign arbitral awards in China according to the New York Convention. There are also rumors about a new expected improvement from the SPC that will positively affect the efficiency of the enforcement of foreign arbitral awards.
As China integrates its economy with the rest of the world, this trend is encouraging as it promotes a greater openness for foreign investment as well as instigating more openness for greater bilateral treaties and reciprocal enforcements. With the SCIA opening up to greater jurisdiction and more cases of commercial contexts, we will likely see an increase in enforcement of foreign awards. This is inspiring for foreign businesses looking to conduct business within China whilst reserving their disputes to being resolved elsewhere.
The author is Managing Partner and lawyer at GWA Law, Tax & Accounting.
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