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In the past year, the economic downturn has not necessarily led to a decreased use of arbitration in China. On the contrary, the number of arbitration cases and amounts in dispute soared to a new record. In response to the demand for arbitration services, China’s arbitration institutions worked quickly towards institutionalising their respective networks by expanding branches or establishing cooperative relationships with their counterparts. For example, in 2015, the China International Economic and Trade Arbitration Commission (CIETAC) set up three sub-commissions in the Zhejiang, Hubei and Fujian provinces, and two arbitration centres in the Guangdong pilot and Tianjin free trade zones. The Shanghai International Economic and Trade Arbitration Commission (SHIAC) entered into a cooperation agreement with the Arbitration Foundation of Southern Africa, the Association of Arbitrators Southern Africa and Africa ADR, and in November 2015 they set up the China-Africa Joint Arbitration Centre Shanghai (CAJAC Shanghai) and the China-Africa Joint Arbitration Centre Johannesburg (CAJAC Johannesburg). In October 2015, SHIAC also launched the BRICS Dispute Resolution Centre Shanghai, the first institution dedicated to business, trade and investment dispute settlement in BRICS countries. The South China International Economic and Trade Arbitration Commission (SCIA) reinforced its Arbitration Center in the Guangdong Pilot free trade zone, and commenced a substantial revision of its arbitration rules aimed at bringing SCIA arbitration closer to the universally accepted standard.
Foreign arbitration institutions are now allowed to enter the Shanghai Pilot Free Trade Zone to set up representative offices. Comfortingly, the Supreme People’s Court (SPC) finally settled the long-pending dispute over jurisdictional issues arising from the split of CIETAC. Progress has also been made by the Chinese arbitration institutions and courts of law to better serve or aid arbitration.
Caseloads of Chinese arbitration institutions
In March 2016, the Law Office of the State Council released arbitration statistics for 2015.1 The statistics shows that the total number of new arbitration cases accepted by 244 arbitration commissions in Mainland China in 2015 reached 136,924, an increase of 20 per cent compared with 2014, and the disputed amount totalled 411 billion renminbi, representing a sharp rise of 55 per cent compared with 2014.
In 2015, CIETAC hit its highest caseload record. According to the statistics released on CIETAC’s official website,2 CIETAC accepted 1,968 arbitration cases in 2015, including 437 foreign-related cases and 1,531 domestic cases. The 2015 caseload represents a 22 per cent increase (by 358 cases) from 2014. The total amount claimed in all cases accepted by CIETAC in 2015 reached 42.5 billion renminbi, which represents an increase of 12.5 per cent from 2014. The parties involved came from 57 countries and regions. In 2015, CIETAC administrated arbitration primarily under its own rules, but there were 16 arbitration cases under the auspice of other rules, including UNCITRAL Rules. The number of international cases where both parties came from outside mainland China is 40.
The Beijing Arbitration Commission (BAC) took cognisance of 2,944 cases in 2015, an increase by 44.2 per cent in terms of newly accepted cases compared to 2014. Of the 2,944 cases, 52 cases are international, corresponding to 1.77 per cent of BAC’s total case number. The total amount claimed in all cases accepted by the BAC in 2015 reached 41.11 billion renminbi, which represents a remarkable increase by 157.9 per cent from 2014. In 2015, the BAC concluded 2,425 cases: 1,373 by award, 349 by successful conciliation and 700 by withdrawal. The BAC maintained a good record where none of its arbitral awards were set aside by the competent people’s court in Beijing, and only three arbitral awards were refused enforcement in the whole of 2015.
The statistics demonstrate that mainland China is still a rising and appealing venue for arbitration users doing business in China.
CIETAC Guidelines on evidence taking in arbitration
In order to assist the parties, their counsels and arbitral tribunals in dealing with issues of evidence in arbitration proceedings, CIETAC adopts its Guidelines on Evidence (the Guidelines) in accordance with the Arbitration Law, the CIETAC Arbitration Rules, CIETAC’s arbitration practice, and with appropriate reference to the IBA Rules on the Taking of Evidence in International Arbitration, as well as those of the Chinese principles of evidence in civil litigation that are suitable for use in arbitration. The Guidelines, passed by the CIETAC chairmen’s meeting on 26 September 2014, came into effect on 1 March 2015.
The CIETAC Guidelines are not deemed an integral part of the CIETAC Arbitration Rules. Application of the Guidelines is subject to the consent of the parties in each case. The parties may agree to adopt the Guidelines in whole or in part, or they may agree to vary them. In case of conflict between the CIETAC Arbitration Rules and the Guidelines that the parties have agreed to adopt in a specific case, the tribunal shall apply the Guidelines. Parties may also agree that the tribunal and the parties will use these Guidelines for reference, and not in any binding capacity.
In general, the CIETAC Guidelines resemble the IBA Rules on the Taking of Evidence in International Arbitration in many respects. Both contain detailed provisions on the burden of proof, submission, the taking and exchange of evidence, and the examination and assessment of evidence, but the CIETAC Guidelines has its own salient features.
On assumption of the burden of proof
The CIETAC Guidelines provide that each party shall bear the burden of proving the facts that it alleges. Specifically, the Guidelines set out a clear borderline under the following circumstances:
- Where there is a dispute over the fact of the formation or the coming into force of a contract, the party alleging the same shall bear the burden of proof; the party alleging the modification, rescission, termination or cancellation of a contract shall bear the burden of proving the facts giving rise to the change in the contractual relationship.
- Where there is a dispute over the fact of the performance of a contract, the party with the obligation of performance shall bear the burden of proof.
- The party claiming damages or other relief and the party rejecting such claims shall each bear the burden of proving the facts supporting their own claim. The party alleging that the amount of liquidated damages as provided for in the contract is lower or higher than the actual loss suffered shall bear the burden of proving its claim.
On the production of documents
Traditionally, the arbitral tribunals of mainland China are reluctant to order the production of documents. However, the CIETAC Guidelines now expressly provide that a party may request that the tribunal order the other party to produce a specific document or a narrow and specific category of documents. The requesting party shall state the reasons for its request, identify in sufficient detail the requested documents, and explain the relevance and materiality of the requested documents. The tribunal shall invite the other party to comment on the request to produce. Where the other party does not object to the request to produce, the relevant documents shall be produced in accordance with the request to produce. Where the other party objects, the tribunal shall decide whether or not to grant the request to produce.
Compared with the IBA Rules, the CIETAC Guidelines on production of document are relatively conservative. There is no broad scope of discovery as usually allowed in litigation in the common law jurisdiction, and the Chinese-style production must be specific and narrow. The tribunal retains discretionary power over whether to grant the request to produce or not. For instance, the tribunal may dismiss a request to produce for considerations of procedural economy, fairness or equality of the parties.
On expert opinions
The CIETAC Guidelines permit a party to submit an expert opinion on specific issues to support its claims. The tribunal may appoint one or more experts on its own initiative. Historically, Chinese tribunals take a liberal approach to accepting expert opinions, seldom asking the party-appointed expert to appear at hearing. Under the CIETAC Guidelines, the situation has been significantly changed.
A number of rules are formulated to regulate the conduct of an expert witness:
- A witness or an expert shall, in principle, appear in person at the hearing or by way of videoconferencing, and be questioned by the party who calls him or her (ie, direct examination) and by the opposing party (ie, cross-examination).
- The examination process shall be controlled by the tribunal, which shall ensure that each party has an opportunity to question the witness or the expert, and may limit the time for direct examination or cross-examination. The tribunal may decide that the expert’s written opinion serves as an answer to the direct examination and proceed to cross-examination directly.
- The tribunal, after consultation with the parties, may arrange expert-conferencing or witness-conferencing.
- The tribunal may limit any questions raised by a party, or inform an expert that he or she is not required to respond to a specific question. The tribunal may put questions to an expert at any time.
The Guidelines are a mixture of civil law approach and common law approach; they are deemed useful tools and options for those concerned with evidence-taking in international arbitration in China.
The SPC reply on jurisdictional issues after the split of CIETAC
As noted previously, the unexpected split of CIETAC that took place in 2012 created a great deal of uncertainty with regard to jurisdictional allocation and determination. For over three years, CIETAC could not reach consensus with its former sub-commissions, SHIAC and SCIA, to offer the outside world a certain, practical and transparent solution package to calm the chaos on jurisdiction issues. The deadlock was eventually broken by the SPC.3
On 15 July 2015, the SPC issued a Notice of Reply to Questions raised by the Shanghai Municipal Higher People’s Court et al relating to Judicial Review of Arbitral Awards involving the China International Economic and Trade Arbitration Commission and Its Former Sub-commissions (the SPC Reply). The SPC Reply became effective on 17 July 2015 and all lower people’s courts should abide by it in their trial activities. In essence, it has four key points confirming the judicial position that the lower courts must take regarding the validity of arbitration agreements and potential challenges to arbitral awards in setting aside or enforcement proceedings.
First, the SPC Reply clarifies the principles of jurisdictional allocation among CIETAC, SHIAC and SCIA as follows:
- If an arbitration agreement referring to the ‘CIETAC Shanghai Sub-Commission’ or the ‘South China Sub-Commission’ was concluded before the former CIETAC sub-commissions renamed themselves as a result of the CIETAC split, then the newly formed SHIAC or SCIA will have jurisdiction over those disputes. The relevant dates of name change for SHIAC and SCIA are 8 April 2013 and 22 October 2012 respectively. If a party subsequently applies to court to invalidate the arbitration agreement, set aside the arbitral award or resist the enforcement of the arbitral award on the ground that SHIAC or SCIA has no jurisdiction, such application will not be supported.
- If the parties have entered into an arbitration agreement referring to the ‘CIETAC Shanghai Sub-Commission’ or the ‘South China Sub-Commission’ on the date of or after the name change, but before 17 July 2015, CIETAC will have jurisdiction over any disputes. However, if the claimant submits the disputes to SHIAC or the SCIA and the respondent does not raise any objection, the courts should not support a party’s later application to set aside or resist enforcement of an arbitral award on the ground that the SCIA or SHIAC had no jurisdiction.
- If the parties have entered into an arbitration agreement referring to the ‘CIETAC Shanghai Sub-Commission’ or the ‘South China Sub-Commission’ on or after 17 July 2015, CIETAC will have jurisdiction over any disputes.
Second, the SPC Reply sets out exceptional rules that deviate from article 13.2 of the SPC Interpretation on Relevant Issues in Application of the Arbitration Law. Under the SPC Reply, even after CIETAC, SHIAC or the SCIA has confirmed the validity of the arbitration agreement and made a decision on jurisdiction in relation to the jurisdiction issue caused by CIETAC’s split, a respondent may still apply to the court to determine the validity of the arbitration agreement provided it does so before the first arbitral hearing. In such cases, the court should accept the respondent’s application and make a civil ruling.
Third, the SPC Reply affirms that the previously decided cases should maintain the status quo by stipulating that the people’s court shall not uphold the application for setting aside or refusal of enforcement of an arbitral award on the ground that CIETAC, SHIAC or the SCIA should not have taken the case in relation to CIETAC’s split. This rule is to mitigate a waste of arbitration and litigation resources merely attributed to the split of CIETAC.
Finally, the SPC Reply delimitates the principles where CIETAC, SHIAC and the SCIA have accepted the same dispute under the same arbitration agreement before the SPC Reply took into effect. When it occurs, any party concerned may apply to the people’s court to confirm the validity of the arbitration agreement before the first hearing of the arbitral tribunal, and the people’s court shall hear the case and make a ruling accordingly, otherwise the arbitration body that first accepted the case shall have jurisdiction over the case.
The SPC Reply has provided long-awaited and much-needed clarity on issues arising from the split of CIETAC. It provides the business community with a higher degree of certainty and transparency. It gives a final say to the jurisdiction disputes among CIETAC, SHIAC and the SCIA, by a clear cut depending on the date of the conclusion of the arbitration agreement. It also offers CIETAC, SHIAC and the SCIA the peace of mind to pursue future plans without being held back by endless quarrels over jurisdiction. Hopefully the principles of delimiting jurisdiction of CIETAC, SHIAC and the SCIA in the SPC Reply will be equally acceptable to judges in other jurisdictions if the relevant arbitral awards are sought for recognition and enforcement outside mainland China.
Judicial decision reconsidering the foreign-related element
The Chinese law distinguishes foreign-related arbitration from purely domestic arbitration. There are bifurcated treatments towards foreign-related arbitration and domestic arbitration in many aspects. The concept of ‘foreign-related’ is not defined by the Civil Procedure Law or the Arbitration Law, but rather by the Interpretation of the Supreme People’s Court on Several Issues Concerning the Law Applicable to Foreign-Related Civil Relation (2012), according to which an arbitration is ‘foreign-related’ if any of the following conditions is met:
- either party or both parties are foreign citizens, foreign legal persons or other organisations or stateless persons;
- the habitual residence of either party or both parties is located outside the territory of China;
- the subject matter is located outside the territory of China;
- the legal fact that leads to establishment, change or termination of civil relationship happens outside the territory of China; or
- other circumstances under which the civil relationship may be determined as a foreign-related one.
Except for the arbitration which contains those elements as outlined above, in all other circumstances an arbitration should be categorised as a domestic one. In this regard, an arbitration between two sino-foreign joint ventures will normally be deemed as domestic arbitration because a sino-foreign joint venture incorporated in China is a Chinese legal entity.
The Chinese law provides no basis for allowing two PRC legal persons to choose a foreign arbitration institution or engage in ad hoc arbitration outside the territory of the PRC. In several cases, the Chinese courts have ruled to deny the validity of the arbitration agreement reached by two Chinese legal persons who agreed arbitration of domestic disputes without any foreign-related element outside mainland China. For example, in the cases Jiangsu Aerospace Wanyuan Wind Power Co, Ltd v LM Wind Power (Tianjin) Co,4 Liupanshui Hengding Development Co, Ltd v Zhang Hongxing5 and Beijing Chaolaixinsheng Sports and Leisure Co Ltd v Beijing Suowangzhixin Investment Consulting Co Ltd,6 the Chinese courts have ruled to deny enforcement of the relevant arbitral awards to which both parties are Chinese entities without any other foreign-related elements involved.
It is therefore intriguing to explore whether there are indeed ‘any other circumstance under which the civil relationship may be determined as a foreign-related one’ if the parties to arbitration are Chinese entities. In November 2015, a landmark case in this regard emerged in Shanghai attracting much attention in arbitration community.
In Siemens International Trading (Shanghai) Co, Ltd v Shanghai Golden Landmark Co, Ltd,7 the Shanghai No. 1 Intermediate People’s Court (SNIPC) decided to recognise and enforce an arbitration award made by an arbitral tribunal under the rules of Singapore International Arbitration Center (SIAC), even though the arbitration took place in Singapore between two PRC-incorporated companies.
In this case, the SNIPC found that both of the two parties to the SIAC arbitration are Chinese legal persons that were incorporated within the Shanghai Pilot Free Trade Zone and wholly controlled by foreign companies. Normally, the dispute between two Chinese legal persons is not allowed to be arbitrated outside mainland China. However, after further examination, the court ascertained that it was satisfied that the underlying contract in dispute had a foreign-related element, since the goods were transported from a location outside the territory of China and delivered within China after clearance of custom formalities, so the transaction could be deemed as the international sale of goods. The court ruled that the contract in dispute was foreign-related, the arbitration agreement was valid and the SIAC arbitral award should be recognised and enforced pursuant to the 1958 New York Convention. The Court further contended that the defendant initiating the SIAC arbitration and seeking for non-enforcement of the arbitral award in favour of plaintiff’s counterclaim breached the principle of estoppel, bona fide, fairness and reasonableness.
Practitioners and commentators welcomed this ruling.8 It is noted that the SNIPC took a liberal approach and pro-arbitration policy to interpret the concept of foreign-related element when ‘any other circumstances’ occur. In this case, the movement of goods in dispute across territory borders is deemed a foreign-related element even though the contracting parties are Chinese entities. The rationale and presumption behind this case are widely applauded as a sign of further progress made by the Chinese judicial organs in support of international commercial arbitration.
Entry of foreign arbitration institutions into mainland China
A milestone achievement made in the past year is that three eminent and leading international arbitration bodies entered Shanghai and established their respective representative offices in the Shanghai Pilot Free Trade Zone.
On 20 November 2015, the Hong Kong International Arbitration Center (HKIAC) set up its Shanghai office in the China (Shanghai) Pilot Free Trade Zone, which has been designated by the state council as an area to ‘support the introduction of internationally renowned commercial dispute resolution institutions’. The launch of the HKIAC’s Shanghai office marks the beginning of a new chapter of arbitration in mainland China, since it is the first time an offshore arbitration institution has set up a formal presence on the mainland. According to the HKIAC, this is an important milestone that represents a major stride made by the HKIAC to promote international arbitration services on the mainland. Operating through its Shanghai office, the HKIAC seeks closer cooperation with local arbitration commissions to promote international arbitration best practice on the mainland by providing professional training to mainland Chinese arbitrators and practitioners, as well as by facilitating the development of an overall pro-arbitration policy across China. Where necessary, the Shanghai office will extend the HKIAC’s world-class services to support its hearings on the mainland and provide such other appropriate services as may be permitted under Chinese law.9
On 2 March 2016, SIAC commemorated the official launch of its Shanghai office. According to SIAC, the Shanghai office will serve as a platform for SIAC to promote and develop international arbitration in China together with its partners and friends in the Chinese arbitration community.10
On 3 March 2016, the International Chamber of Commerce (ICC) unveiled the ICC Shanghai Office. The ICC is the first non-Asian headquartered dispute resolution institution to establish an office in mainland China, following receipt of an official licence from the State Administration of Industry and Commerce (SAIC) permitting the opening of a new ICC representative office in the Shanghai Free Trade Zone. According to the ICC, the opening of its second regional office in Asia represents another milestone for court expansion in Asia and will facilitate its ambitions to further leverage the growth in demand for its services not only from arbitration users in China but across the entire region. By establishing a presence in Shanghai, the ICC hopes to build on its ties with the Chinese authorities and stand ready to adapt to dispute resolution developments in China.11
No doubt the opening of the representative offices of HKIAC, SIAC and the ICC in Shanghai is a historical event. The foremost importance of their inauguration marks a breakthrough for foreign arbitration institutions to be able to establish a lawful presence in mainland China, though it is still uncertain whether these institutions may be allowed to administer arbitration proceedings and fix mainland China as the place of arbitration. It is reasonable to expect that they will conduct training, assist in hearings and deepen cooperative ties with their counterparts in China at the preliminary stage, before moving on to accept and administer cases once the Chinese law gives a clear-cut green light to them. A recent positive result is that the judicial decisions approved by the Supreme People’s Court recognise the validity of an arbitration agreement where the parties have agreed arbitration by foreign arbitration institution in China. In Longlide Packaging Co Ltd v BP Agnati SRL12 and Ningbo Beilun Licheng Lubricating Oil Co Ltd v Famowanchi Corporation,13 the Chinese courts hold the arbitration agreements that subject relevant disputes to ICC arbitration in Shanghai and Beijing.
Logically, the permission of entry into China and the upholding of the ICC arbitration agreement that designates China as the place of arbitration are bound to move toward a final goal that the Chinese court will sooner or later recognise and enforce the arbitral awards rendered by foreign arbitration institutions in China. The only issue left is that there is no unambiguous provision in the Arbitration Law or Civil Procedure Law to facilitate or directly support the enforcement of arbitral awards as such. Since China has made ‘reciprocal reservation’ to the 1958 New York Convention and the Chinese courts only recognise and enforce arbitral awards made outside the territory of China in accordance with the Convention, the notion of ‘non-domestic award’ is not very helpful for the enforcement. To promulgate supplemental laws or rules that admit the enforcement of arbitral award made by foreign arbitration institutions in China will become very much desirable.
- Source from Zhang Wei’s report at http://mp.weixin.qq.com/s?__biz=MzA5MTM0NzM0MQ==&mid=402328291&idx=1&sn=44fc0453ac0ea0812d3dd77a2e17bad2&scene=0#wechat_redirect.
- For this part of report, we cited with permission the article written by our colleagues Chao Yang and Jingjing Chen of Hui Zhong Law Firm, entitled 'Breaking a Jurisdictional Deadlock', published in IFLR Dispute Resolution 2015.
- (2012) Min Si Ta Zi No. 2 Reply given by the Supreme People’s Court on 31 August 2012.
- The case was reported in the SPC’s publication, the Guidelines for Accepting Cases, edited by Case Acceptance Division of the SPC, Vol. 1 (2011).
- (2013) Er Zhong Min Te Zi No. 10670 Civil Ruling given by Beijing No. 2 Intermediate People’s Court. The context of the Ruling was recited in (2014) San Zhong Min Zhong Zi No. 09403 Civil Ruling given by Beijing No. 3 Intermediate People’s Court. It can be visited at www.bjcourt.gov.cn/cpws/paperView.htm?id=100039499405.
- (2013) Hu Yi Zhong Min Ren (Wai Zhong) Zi No. 2 Civil Ruling given by Shanghai No. 1 Intermediate People’s Court on 27 November 2015.
- See, Chen Luming and Bi Sien, 'A Breakthrough on Characterization of Foreign-related Element by the Shanghai No. 1 Intermediate People’s Court', at www.aiweibang.com/yuedu/73324280.html.
- HKIAC, ‘HKIAC Achieves Breakthrough by Launching Office in Mainland China’, at www.hkiac.org/news/hkiac-achieves-breakthrough-launching-office-mainland-china.
- SIAC, ‘Official Launch of SIAC Shanghai Office’, at http://siac.org.sg/.
- ICC, ‘New Shanghai office lays groundwork for ICC Asia developments’, at www.iccwbo.org/News/Articles/2016/New-Shanghai-office-lays-groundwork-for-ICC-Asia-developments/.
- (2013) Min Si Ta Zi No. 13 Reply given by the Supreme People’s Court on 25 March 2013.
- The Reply to the Request for Instructions in the Sale and Purchase Contract Dispute Between Ningbo Beilun Licheng Lubricating Oil Co Ltd and Famowanchi Corporation Involving the Issue of the Validity of an Arbitration Clause rendered by the Supreme Court( issued by the SPC on 5 December 2013 and published in Vol. 28 (2014), Reference Guide for Foreign-related Commercial and Maritime Litigation.