Arbitration Development: Under Tradition and Reformation

This is an Insight article, written by a selected partner as part of GAR's co-published content. Read more on Insight

In a letter to the Shanghai International Arbitration Center (SHIAC), the International Bar Association (IBA) commented that: ‘The election of Shanghai as the venue for the 19th International Arbitration Day conference is because arbitration has become an increasingly important way of dispute resolution in the Asia-Pacific region’. Witnessing the rapid development of arbitration among Asia-Pacific countries and realising the huge impact of the legal and business communities on arbitration in Shanghai, SHIAC cooperated with IBA for the first time and became the supporting unit of the 19th International Arbitration Day conference in 2016 to coordinate matters related to the conference. On this occasion, innovative measures in arbitration practices of SHIAC, such as adopting advanced practices on interim measures, establishing an emergency tribunal, rendering awards ex aequo et bono, creating the rules for mediation before the tribunal is constituted and proceeding for small claims, opening up the panel of arbitrators, and improving the rules of third-party entry and consolidation of arbitrations, all drew the attention of the conference attendees and arbitration practitioners who visited SHIAC during that period of time.

The combination of arbitration and mediation is a topic closely related to the development of international arbitration in China. Debates on this topic go hand in hand with the continuous innovation of China’s arbitration industry. The practice of SHIAC respects traditional practices but also actively follows international trends. Meanwhile, the ultimate goal is to provide more diversified dispute resolution services for parties with different needs.

Mediation, a traditional dispute resolution method in East Asia, has demonstrated a positive effect in China after years of being utilised. In fact, a model combining mediation with arbitration has been widely used in the practice of arbitration, and around 40 per cent of arbitration cases handled by Chinese arbitration organisations (including SHIAC) have been resolved through such a model. While a broad legal culture in terms of using this model has been formed in China, countries in the Asia-Pacific region and other regions still prefer to separate arbitration from mediation. In practice, both models have their own advantages and disadvantages. Based on the advantages and disadvantages of the two models and considering parties’ needs, reformatory measures on arbitration and mediation were made in the China (Shanghai) Pilot Free Trade Zone Arbitration Rule (the Rule) of SHIAC, which came into effect on 1 January 2015. A mechanism of ‘mediation by meditators before the tribunal is constituted’ was established. Article 50(1) of the Rule states that: ‘Any party may apply for mediation upon the consent of the other party during the period after an arbitration case has been accepted and before the tribunal is constituted. The Chairman of SHIAC shall, within three (3) days upon the receipt of consent to mediate in writing, appoint a mediator from the Panel of Mediators.’ Article 50(7) of the Rule states that: ‘Unless otherwise agreed to by the parties in writing, a mediator shall not act as an arbitrator in the subsequent arbitration proceedings.’

In order to remove parties’ doubt on the objectivity of arbitration awards rendered when traditional mediation is combined with arbitration, and to solve the problem of unpredictability of settlement time and cost under the organised proceedings, the Rule has made corresponding arrangements. Article 50(2) of the Rule states that: ‘Mediation shall not affect the arbitration proceedings. During mediation, if one party requests the postponement of the constitution of the tribunal, to which the other party agrees, the Secretariat may postpone the process of constituting the tribunal.’ Article 50(6) of the Rule states that: ‘The mediator shall terminate mediation if either party requests such termination in the mediation proceedings. In any event, the mediation proceedings shall be terminated on the date of constitution of the tribunal.’ Fees for mediators and mediation have been included in the arbitration fee, which is calculated based on the amount sought in dispute, therefore no extra service fee will be charged.

The model of mediation used before the tribunal is constituted has been applied in the SHIAC’s practice for a while. At present, nearly 20 cases have been handled in this way and four of them were successfully settled through mediation. There were two cases in which an invested enterprise of one multinational company in China signed two contracts with two enterprises that had an affiliate relationship and filed two requests for arbitration to SHIAC after the occurrence of some transaction disputes. All parties in those two cases requested for mediation and SHIAC therefore appointed a mediator from the panel of mediators to conduct the mediation. Owing to the complexity of the case and the strong desire for reconciliation, all parties proposed to suspend the subsequent arbitration proceeding and the proposals were then approved by the SHIAC Secretariat. After four rounds of mediation and negotiation, the three parties finally reached a package of settlement agreements and asked the tribunal to render an award on the basis of these settlement agreements. Afterwards, the chairman of SHIAC appointed the same sole arbitrator for each case based on the parties’ request. The arbitrator consolidated those two cases in accordance with arbitration rules and a settlement award was eventually rendered. This case reflects the fact that SHIAC not only fully respected the parties’ wishes, but also successfully consolidated two arbitration cases with different parties, which was recognised and highly praised by the parties. This case also demonstrates that arbitration can develop when traditional and modern approaches are combined.

The Internet Age is the era in which tradition meets bold changes. SHIAC has paid close attention to the trend of the Internet Age because we realise that the internet has significantly affected the understanding of arbitration and its practices. There is no doubt that the use of internet and the internet-based economy will develop rapidly in China. Those changes will not only encourage tangible innovation and reformation in technologies and transaction carriers, but will also bring profound changes to people’s ways of thinking. As a reflection, SHIAC has received a growing number of requests for resolving disputes related to the use of internet, software development and online financial services. Those disputes have illustrated various challenges, such as technology complexity, high hurdles in terms of fact finding and difficulties in evidence determination for both parties and arbitration tribunals. Because of that, SHIAC is planning to establish mechanisms of third-party IT assistance in areas of forensic expertise, valuation and diagnosis in order to resolve disputes in a quicker and more professional way, while promoting the utilisation of internet technologies in the management of arbitration proceedings. 

Unlock unlimited access to all Global Arbitration Review content