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Chinese arbitration adapts to international market

FOCUS: The use of arbitration is growing in China, both in terms of the number of cases and the value of the claims involved. The country is working hard to improve the quality of its arbitration system to keep up, moving to adopt international standards wherever possible. 29 Sep 2015

There were 235 arbitration commissions in mainland China in 2014 and these administered a total of 113,660 cases, a rise of 9% from the previous year. The total value of claims was 265 billion yuan (US$42 billion), a 61% increase from 2013 and five times the value of claims in 2004.

The Supreme People's Court (SPC) and major Chinese arbitration institutions are now making determined efforts to improve the legal environment for arbitration cases and to clear up some issues that have arisen in the past year.

In July, the SPC issued a 'reply' giving guidance on the jurisdiction of the China International Economic and Trade Arbitration Commission (CIETAC) and its former South China and Shanghai sub-commissions. The two former sub-commissions had declared themselves independent in 2012 and 2013, and renamed themselves the Shenzhen Court of International Arbitration (SCIA) and the Shanghai International Arbitration Centre (SHIAC), respectively. This raised questions over the jurisdiction that new cases would fall under.

The SPC ruled that cases emanating from arbitration agreements agreeing to submit their disputes to the "CIETAC South China Sub-Commission" or the "CIETAC Shanghai Sub-Commission" for arbitration that were concluded before SCIA and SHIAC changed their names will fall under the jurisdiction of the new bodies.

However, cases from agreements that concluded after the name change but before the SPC ruling became effective on 17 July 2015 will be under the jurisdiction of CIETAC, unless they have already been referred to SCIA or SHIAC and the parties did not object to the jurisdiction of SCIA or SHIAC in the arbitral proceedings. All cases whose agreements concluded after the ruling will be under CIETAC.

The ruling cleared up uncertainty caused by the split-off and was welcomed by the arbitration community.

In another reply, the SPC said that an arbitral clause for arbitration administered by the International Chamber of Commerce (ICC) in Shanghai was valid. This was welcomed by foreign arbitration institutions, as it opened up the possibility of running arbitrations under foreign rules within mainland China. However, the reply did not address enforcement, so we have yet to see whether an arbitration run by a foreign institution, seated in China, can be enforced by a Chinese court.

Another area open to question is the right of foreign arbitration organisation to set up branches in the Shanghai free trade zone (FTZ). The State Council issued a notice on the reform and opening of the FTZ in April which said that it supports foreign arbitration bodies "entering into" the FTZ. However, it did not define "entering into", and the institutions involved are keen to discover whether this gives them a solid legal basis to administer arbitrations in the FTZ. The Hong Kong International Arbitration Centre has filed an application, and many other organisations are keeping a close eye on the result.

Chinese organisations, meanwhile, have been trying to improve their own rules and give clearer procedural guidance. For example, CIETAC, SHIAC and the China Maritime Arbitration Commission all had new rules become effective on 1 January 2015, followed by the Beijing Arbitration Commission (BAC) on 1 April. All of these bodies took international practice into consideration when updating their rules.

BAC, for example, introduced an "Arbitration Fee Schedule for International Commercial Arbitration" under which, in arbitrations with a foreign element, the parties and arbitrators may agree that the arbitrators' remunerations should be calculated either on an hourly basis or as a percentage of the amount in dispute.

BAC and CIETAC also now include provisions to allow a stenographer to record proceedings, to increase transparency.

With the size and power of the Chinese economy, the growth of foreign-related arbitrations in mainland China is inevitable. It will be interesting to see how the Chinese government continues to open the arbitration market to foreign institutions, and also to watch Chinese arbitration commissions improve their own services in order to compete.

Beijing-based Helena Chen is an arbitration specialist at Pinsent Masons, the law firm behind Out-Law.com