The Council of Hong Kong
Professional Associations
Arbitration in Mainland of
China – A better alternative to
resolving commercial disputes?
By Christopher To
christo@cityu.edu.hk
Outline
•
•
•
•
Why use Arbitration
Key Factors in drafting Arbitration Clauses
Domestic Arbitration Law and Procedure
International Arbitration Law and
Procedure
• Practical Tips and the Pitfalls
• Enforcement of Arbitration Awards in
China
Introduction
Business Disputes
Definition of a Dispute
The New Shorter Oxford English Dictionary 1993 defines it as

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“A logical argument” or
“An oral or written discussion of a subject in which arguments for
and against are put forward and examined” or
“An instance of disputing or arguing against something or
someone, argument, a controversy” or
“A heated contention, a disagreement in which opposing views are
strongly held” or
“The act of disputing or arguing against something or someone;
controversy, debate” or
“A fight, a struggle”
Introduction
Business Disputes (cont’d)
Examples of International Business Disputes
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Contracts on sale of goods (including commodities)
Distributorship, agency and intermediary contracts
Construction, engineering and infrastructure contracts
Intellectual property contracts
Registration of domain names
Joint Venture agreements
Maritime contracts ( such as bills of lading, charter parties)
Dealings with a pre shipment inspection agency
Dealings with customs authorities
Documentary Credit arrangements
Employment Contracts
Where a State or a State owned entity is involved
Introduction
Ways to Resolve Disputes


Violence
Avoidance

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
Negotiation
Mediation
Adjudication


Arbitration
Litigation
BATNA
•
•
•
•
•
Best
Alternative
To a
Negotiated
Agreement
WATNA
•
•
•
•
•
Worst
Alternative
To a
Negotiated
Agreement
Negotiation
•
•
•
•
•
Interests/Priorities
Options
Standards
Constraints
Alternatives to Agreement
Barriers to Negotiation
•
•
•
•
Emotions
Lack of Information
Lack of Creativity
Miscalculation
What a Mediator Can Add to
Negotiations
•
•
•
•
•
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•
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Open communication
Help parties understand interests and priorities
Help generate creative solutions
Help discover mutually acceptable standards
Help parties understand negotiating constraints
Help assess alternatives to agreement
Bring closure
Help attain ratification
Personal Qualities of a
Mediator
•
•
•
•
•
Listening skills
Patience
Commonsense
Ability to close
Ability to
summarise
• Analytical skills
• Ability to keep
confidences
• Ability to recognise the
issues
• Lateral thinking
• Neutrality
• Persuasive ability
• Persistence
• Creativity
What is Mediation ?
• Mediation is a voluntary, non-binding,
private dispute resolution process in which
a neutral person helps the Parties try to
reach a negotiated settlement.
Why Mediation Works ?
• Facilities communication and separates the people from
the problem
• Helps overcome deadlock and emotional blockages
• Restores the negotiation process
• Identifies and focuses on the real issues and needs of
the Parties
• Gets the right people and the right information to the
table
• Helps Parties to reassess their case
• Increases the options for resolution
• Keeps ownership of the problem and the settlement with
the Parties
• Restores and safeguards relationships
Mediation is Not
•
•
•
•
•
•
•
•
•
•
•
Mediation is not toothless
Mediation is not just compromise
Mediation is not a bar to litigation or arbitration
Mediation is not what lawyers or managers do ‘all the
time’
Mediations is not a waste of time and money if it fails
Mediation is not ‘yet another’ cost to the unfortunate
Parties
Mediation is not a sign of weakness or for ‘wimps’
Mediation need not prevent Parties having their ‘day in
court’
Mediation need not ‘disclose your hand’
Mediation need not be risky
Mediation is not counselling
What are the Main Strengths
of Mediations ?
• It can take place quickly and often with relatively
little expense in contrast to taking the dispute to
a court, to a tribunal or to arbitration.
• It focuses on the parties’ real commercial,
emotional and psychological needs and not just
on their legal rights.
• It gives the parties an opportunity to participate
directly and informally in resolving their own
dispute.
What are the Main Strengths
of Mediations ? (cont’d)
• It gives the parties control over the process itself
and the outcome
• It produces outcomes which are likely to endure
because the parties themselves have chosen
them.
• It eliminates the conflict and hostility that nearly
always accompany the compulsory decision of
the dispute by a court, tribunal or arbitrator.
• It can improve understandings between parties
with an ongoing relationship.
The Corner-Stones of
Mediation
•
•
•
•
•
Confidentiality
Ownership by the Parties
Neutrality and impartiality
Avoiding assumptions
Respect, empathy and
genuineness
The Do’s and Don’ts
• Do not make a non-negotiable demand in the joint
session and walk out (or threaten to) if your needs
are not met
• Do not insult the opposing lawyer in the joint session
• Do not insult your opposing party
• Prepare
• Bring crucial documents
• Provide legal support
• Bring a businessperson with authority to settle
• Factor in other benefits which may result from a
settlement
• Trust the mediator
• Stop, look, and listen
Iron Laws of Mediating
• No one will make a difficult decision if
there is any possible way to avoid it.
• All specific dispute have to end sometime.
• No settlement is entered into without some
doubt and some trust.
General Issues
1. What is Arbitration ?


Flexible, Inexpensive, Confidential, Fair and Final
Features distinguishing a reference to arbitration from other dispute
resolution techniques :
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the presence of a dispute or difference between parties which has
been formulated in some way or another;
the dispute of difference has been remitted by the parties to a person
to resolve in such a manner that he is called upon to exercise a
judicial function;
where appropriate, the parties must have been provide with the
opportunity to present evidence and / or submissions in support of
their respective claims in dispute;
the parties have agreed to accept the decision.
Arbitrators are appointed by or on behalf of the parties in disputes
and has to decide a dispute that has already arisen. Inquisitorial
powers are not normally given to an arbitrator.
Arbitration is conducted in accordance with the terms of the parties’
arbitration agreement, usually found in the provisions of a
commercial contract between the parties.
General Issues : 1. What is Arbitration ?
Essential Features of Arbitration



Consensual – arbitration agreement
Party autonomy – e.g Choice of tribunal, manner of
case presentation, procedure and powers of the
tribunal
Jurisdiction of the tribunal is fixed primarily by the terms
of the arbitration agreement and the submission to
arbitration

Final and legally binding process

Limited scope for intervention by the courts
General Issues
2. How is the Arbitration Started ?


Disputes governed by arbitration agreements trigger the
arbitration process.
Arbitration agreements come in two forms :
i. where parties to a contract include a clause in which they
agree to resolve any dispute which may arise under the contract by
arbitration. This is known as an arbitration clause. Many Hong
Kong trades and industries have applicable standard forms of
contract with standard arbitration clauses, although parties can
tailor clauses to suit their circumstances.
ii. where parties are already in dispute but their contract does not
contain an arbitration clause, they may enter into a separate
agreement to refer the matter to arbitration. This is known as a
submission agreement.

Occasionally disputes are referred to arbitration by a court
order or the operation of a statute.
General Issues
2. How is the Arbitration Started ? (cont’d)
“ Disputes hereunder shall be
referred to arbitration,
to be carried out by arbitrators
named by the International Chamber of
Commerce in Geneva
in accordance with
the arbitration procedure set forth in
the Civil Code of Venezuela and
in the Civil Code of France,
with due regard to
the law of the place of arbitration. ”
General Issues : 2. How is the Arbitration Started ?
The Agreement
INSANE CLAUSES
“(1) Should either party come to feel that the Arbitrator is
insane or for reasons it comes to know after
commencement of the arbitration, it may consult with the
other party, and should both parties agree that the
Arbitrator is likely to be insane, they shall serve a notice
of doubt on the Arbitrator. “Causes giving rise to a notice
of doubt” must be extreme and not be limited to
continuous
making
of
senseless
remarks,
absentmindedness and queer conduct such as dancing
alone in the public without cause, and the parties may
serve a notice of doubt only once during the arbitration.
General Issues : 2. How is the Arbitration Started ?
The Agreement (cont’d)
INSANE CLAUSES
(2) On such notice of doubt being served the Arbitrator may
not refuse medical examination by a psychiatrist
specialist at one of the hospitals listed in Appendix 1
appended to and made a part hereof.
(3) If in the opinion of the psychiatrist specialist the
examination would require more than four weeks or if the
psychiatrist specialist is unable to conclude that the
Arbitrator is positively insane, then the Arbitrator shall be
deemed to be not insane. The medical examination shall
be at the parties’ cost and shall be conducted under the
condition that the result will be made known only to the
Arbitrator and the parties.
General Issues : 2. How is the Arbitration Started ?
The Agreement (cont’d)
INSANE CLAUSES
(4) If the Arbitrator is found insane, he shall resign in which
event he shall not be entitled to the fee for the services he
will have rendered, but each party shall pay to the
Arbitrator a get well fee of Yen 100,000 and one-half of
the disbursements covering the amount the Arbitrator will
have expended in connection with the arbitration. If the
Arbitrator is found not insane as the result of the
examination, the parties shall jointly provide him with a
letter of apology and each party shall pay a so-sorry fee
of Yen 1,000,000 to the Arbitrator which he may treat as
damages for tax purposes. The arbitrator, however, may
not count the time spent for the medical examination as
time spent for arbitration.
General Issues : 2. How is the Arbitration Started ?
The Agreement (cont’d)
INSANE CLAUSES
(5) While the provisions of these clauses are not intended to
permit the parties to take the arbitrator to the hospital by
dint of force, it does not bar the parties from initiating
judicial proceedings for removal of the arbitrator.
Such proceedings may be resorted to only where the
arbitrator refuses to subject himself to medical
examination or where the parties are not satisfied with
the findings of the psychiatrist that the arbitrator is not
insane. If the parties initiate judicial proceedings and fail
to remove the arbitrator, each party shall pay a
nuisance-fee of Yen 2,000,000 to the arbitrator. During
such proceedings, the arbitrator may proceed, but the
arbitrator may not render an award. If rendered, such
award may not be enforced.”
General Issues : 2. How is the Arbitration Started ?
The Agreement (cont’d)
MAGIC FORMULA
“ Any dispute, controversy, or claim arising
out of or in connection with this contract, including any
question regarding its existence, validity, or termination shall
be finally resolved by arbitration under the Rules of
[rules/institution].
The tribunal shall consist of [a sole/three] arbitrator(s).
The place of arbitration shall be [city]. ”
General Issues : 2. How is the Arbitration Started ?
The Agreement (cont’d)
OTHER USEFUL POINTS
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Language
Expertise and special requirements of
arbitrators
Discovery
Multi party proceedings
Costs
Confidentiality
Med-arb, ADR
Sovereign immunity waiver
Points to Consider when Drafting an
Arbitration Clause
Agreement to Arbitrate
Require Negotiation,
Mediation and Conciliation?
If so, Fix Time Limit
Points to Consider when Drafting an Arbitration Clause
(cont’d)
Select Rules
Ad Hoc
UNCITRAL
Institutional
No Rules
AAA
HKIAC
Centre for
Public
Resources
Name appointing
Authority (“AA”)
ICSID
ICC
Comm Arb
Rules
Int’l Arb
Rules
LCIA
Other
Points to Consider when Drafting an Arbitration Clause (cont’d)
straight forward
case,
smaller amount
in dispute
Determine Number of Arbitrators
1
1
Claimant nominates
several from
pre-determined
acceptable category;
Defendant picks one
3
Period for agreement by parties
Exchange lists
of names
Selection by
Institution / AA
Pre-designated list;
Defendant picks one
Requiring
meeting
No
Rules
Fix time period;
if no agreement
Fix time period
Restrictions on choice
(i.e. nationality)
Party designated
selects 3rd
Fix time period
Provide that
arbitrators shall be
independent and
impartial?
Large amount
in dispute
Each side
picks one
Institution / AA
selects all 3
Default: If party
fails to appoint
Institution / AA
appoints
Institution / AA
selects 3rd
AAA-style list
procedure?
Fix time
period?
Require
consultation
with parties?
Points to Consider when Drafting an Arbitration Clause
(cont’d)
Select Seat
Factors : NY Convention ratification;
limited mandatory procedural rules;
absence of restrictions on counsel. arbitrators;
good facilities; limited judicial intervention
Place of Performance
Neutral Place
City in Defendant’s
Home Country
Provide that hearings may be held
anywhere arbitrators find convenient?
Points to Consider when Drafting an Arbitration Clause
(cont’d)
Choose Governing Law
Procedural Law = Seat of Arbitration
Substantive Law
Non Specified
Specify National Law
“General Principles
of International Law”
Points to Consider when Drafting an Arbitration Clause
(cont’d)
Provide Optional Procedural Matters (Specify on or more)
Provide time limits
Consolidation
Discovery
Documents
Tribunal –
Appointed Expert(s)
Depositions
Arbitrators’
Discretion
Language
Provide limits?
Only one
Two, neither dominant
Two, but require translation to
one dominant
Require ability for
parties to crossexamine or to
comment
No
Restrictions
Think about
other
possible
procedures
(i.e. after
determinati
on of
liability
each side
submits
damages
proposed
and
arbitrators
must pick
one)
Points to Consider when Drafting an Arbitration Clause
(cont’d)
Issuance of Award
Permit partial
awards
Final award
only
Injunctive relief
No injunctive
relief
Permit court action
for injunction to
maintain status quo
pending arbitration
No injunctive
relief
Permit arbitrators
to issue
injunction
All awards final and binding on parties
Points to Consider when Drafting an Arbitration Clause
(cont’d)
All awards final and binding on parties
Permit arbitrators
to act as
amicable compositeurs
Permit specific
performance
Permit arbitrators
to adapt contract
arbitrators may award costs
All to winner
As arbitrators
may determine
award interest ?
Pre-judgment
Post-judgment
rate ?
Points to Consider when Drafting an Arbitration Clause
(cont’d)
Provide for judgment currency?
Award may be enforced…
In any court having
jurisdiction thereof
Designate specific
court and consent to
jurisdiction
Waive sovereign immunity
if necessary
Exclude court appeal?
In England & Switzerland:
yes
In other countries,
optional
Mainland of China
 Institutional arbitration widely recognized in the
Mainland of China.
 More than 180 Chinese arbitral institutions in
existence as of 2006.
 Article 16 of the Chinese Arbitration Law
requires the designation of an “arbitration
commission”.
 Ad hoc arbitration is not encouraged.
Landscape of Dispute Resolution

Judicial Proceedings/Court Litigation

Alternative Dispute Resolution (ADR)
•
–
–
–
–
Negotiation
Conciliation/Mediation
Expert Determination
Commercial Arbitration
Others
Advantage of Commercial
Arbitration
• Party Autonomy
• Expert Adjudication
• Confidentiality
• Finality of Award
• Universal Enforceability
Categories of Commercial
Arbitration

Ad Hoc Arbitration
• Ad Hoc Arbitration is banned in mainland China.

Institutional Arbitration
• Leading International Arbitration Institutions
ICC Court in Paris, LCIA in London, SCC in Stockholm, AAA in
New York, SIAC in Singapore, HKIAC in Hong Kong and CIETAC
in China
• More than 200 local arbitration commissions
in Mainland China
Types of Arbitration Proceedings
Institutionalized
An institutional arbitration is one which is administered by
one of the many specialist arbitral institutions under its
own rules of Arbitration.
Ad-hoc
Ad-hoc arbitrations often take place under the provisions
of a submission agreement which itself often establishes
the arbitral tribunal and sets out the procedural rules upon
which the parties have agreed. An ad-hoc arbitration arises
under an arbitration clause.
Advantages of Ad Hoc Arbitration
 Flexibility – Can be shaped to meet the wishes of
the parties and the facts of the particular dispute –
Requires complete cooperation of the Disputants.
 Saving on administrative costs.
 UNCITRAL Arbitration Rules a substitute for the
rules of arbitral institutions – offer a low cost and
speedy, flexible alternative to institutional
arbitration.
Disadvantages of Ad Hoc Arbitration

When an arbitrator refuses to disqualify himself, it usually requires court
assistance to obtain his removal.
 Lengthier procedure if challenge of the arbitrator occurs.
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Courts feel less comfortable with ad hoc arbitrations as they feel much more
comfortable in confirming institutional awards where there is some assurance
that a neutral body has fairly referred both the procedural and substantive
controversies which invariably arise during the course of arbitration
proceedings.
Difficult to enforce a default award – was due process accorded to the
defaulting party?
Care must be afforded to drafting Ad hoc clauses as there is no administering
body on hand to point out errors and attempt to fix them.
What if the parties do not cooperate?
Too much flexibility could lead to inappropriate procedures being adopted.
Are they really cost effective?
Advantages of Institutional Arbitration
 Ease of incorporating by reference the institution’s rules in an
international contract.
 Clear set of rules
 Model clauses stood the test of time
 Arbitrator selection – Parties are spared the burden of negotiating a fee
for services with their adjudicator – Less embarrassing and difficult
situations can occur.
 In ad hoc arbitrations it is more difficult to monitor arbitrators’ hourly billing also
there could be cases of abusive arbitrators attempting to re-negotiate fee
arrangement to include cancellation indemnity.
 Disclosure and Challenge procedures are provided for the institution to
remove and replace any arbitrator nominees whose independence is
challenged by a party.
 Professional Staff available to guide disputants through the arbitration
process.
 Arbitral institutions have received the increasingly favorable recognition
of national courts.
Disadvantages of Institutional Arbitration
 Costs are the prime factor. Are they?
 Arbitrators may prefer ad hoc arbitrations
 Can fix their own fees and conditions.
 Avoid administrative constraints of institutional arbitration
 In-house counsels’ belief that ad hoc arbitration provides greater
control over the process:
 “institionalised procedures can become costly and bureaucratic without
proper oversight and management by the parties.” Earl McLaren Journal of
International Arbitration Volume 19 Number 5 (2002) pages 473 to 490.
 Some believe that institutions are very bureaucratic and hinder the
dispute resolution process.
 Confidentiality could be an issue.
 Arbitrators are remunerated less favorably and they do not put in the
amount of effort compared to an ad hoc arbitration.
 Some believe that institutions only look after their own interests.
Legal Framework of
Arbitration in China

Statutes
• Civil Procedural Law (1991, 2007) (“CPL”)
• Arbitration Law (1994) (“AL”)

Judicial Interpretations
• SPC Interpretation on Several Issues regarding the
Application of the PRC Arbitration Law (2006) (“SPC 2006
Interpretations”)

International Convention
• Convention on the Recognition and Enforcement of Foreign
Arbitral Award (“New York Convention”)
Dual System of Arbitration in
China [I]
Arbitration in China
Domestic Arbitration
(The arbitration without
foreign-related elements)
Foreign-related Arbitration
(The arbitration with
foreign-related elements)
Foreign-related elements:
(i) either one or both of the parties is a person with foreign nationality or a stateless
person, or a company or organization domiciled in a foreign country;
(ii) the subject matter of the dispute is situated in a foreign country; or
(iii) the legal facts that establish, change, or terminate the civil legal relationship
between the parties take place in a foreign country.
Dual System of Arbitration in
China [II]
 Different Treatments of Domestic
Arbitration and foreign-related Arbitration
under PRC Arbitration Law:
–
–
–
–
–
Arbitration Place/Place of Oral Hearing
Arbitration Language
Nationality of Arbitrators
Applicable Law
Judicial Review
•
•
Domestic awards: substantive and procedural review
Foreign-related awards: merely procedural review
Arbitration Agreement: Form

Forms of Arbitration Agreement (AL Art. 16)
• Arbitration Clause in the contract; and
• Separate Arbitration Agreement

The Written Form
• An arbitration agreement is in writing if it is contained in a tangible
form of a document such as a contract, letter, telegram, telex,
facsmile, EDI or email. (Article 11 of Contract Law, Art. 1 of SPC
Interpretations, and Article 5.3 of CIETAC Rules)
Arbitration Agreement: Validity 1

A valid arbitration agreement should
contain the following three particulars: (AL
Art. 16)
– an intent to resolve disputes through
arbitration;
– express subject matter for arbitration; and
– the designated arbitration institution
Arbitration Agreement: Validity 2

An arbitration agreement is void if one
of the following circumstances exists
(AL Art. 17) :
– the arbitration matter exceeds the
statutory scope of arbitration;
– the arbitration agreement was entered by
party/parties without or with limited civil
capacity; and
– A party enters into the arbitration
agreement under duress.
Arbitration Agreement: Validity 3
Valid or Invalid arbitration agreement?
(SPC 2006 Interpretations)
• “…arbitration at China International Trade Arbitration
•
•
•
•
•
•
•
Commission”;
“…arbitration at China Arbitration Association”;
“…arbitration under the Rules of CIETAC”;
“…arbitration under UNCITRAL Rules”;
“…arbitration at CIETAC or AAA”;
“…arbitration in Shanghai” ;
“ …arbitration in Xi’an”; and
“…arbitration at CIETAC or litigation before Chinese court”.
Arbitration Agreement:
Arbitrability
The following matters are not arbitrable
under PRC Arbitration Law:
– Marital, adoption, guardianship, support and
succession disputes (AL Art.3)
– Administrative disputes (AL Art.3)
– Labor disputes (AL Art. 77)
– Disputes arising out of agricultural
contractor’s contract (AL Art. 77)
Arbitration Agreement:
Severability
Severability of Arbitration Clause (AL Art. 19)
The validity of an arbitration agreement is
not affected by the amendment, rescission,
termination or invalidity of the underlying
contract.
Applicable Law

Law applicable to the substances

Law applicable to the procedure (lex arbitri)
•

usually the law of the arbitration place
Law applicable to the validity of arbitration
agreement
•
Art. 16 of SPC 2006 Interpretation
Arbitrators

Panel system

Qualifications of arbitrators
– qualifications for domestic arbitrators (AL
Art. 13)
– Qualifications for foreign arbitrators
(including HK, TW and Macao) (AL Art. 67)
Arbitral Tribunal

Three-member tribunal or one-member
tribunal

Appointment of chief arbitrator/sole arbitrator

Appointment off the panel (CIETAC)

Challenging and replacing an arbitrator
• Grounds for challenging: AL Art. 34
• Time limit of challenging: first hearing ~ close of final hearing
• Replacing arbitrator / Re-conduct of arbitration proceedings
Interim Measures

Property preservation measures

Evidence preservation measures

Who shall make the decision? Tribunal or
Court?

What are the preconditions?
–
posting of security
YES
–
–
–
urgency
irreparable harm
probability to overwhelm in merits
NO
NO
NO
Evidence
• Rules of Evidence
• Burden of proof
• Tribunal’s option: inquisitorial or
adversarial
• Witness
• Expert witness
Arbitral Award
•
•
•
•
•
Time Limits
Reasoned awards
Interlocutory award/Partial award
Consent award
Dissenting opinions
Judicial Review of Arbitral Award


Two regimes:
• Setting aside an award
• Non-enforcement of an award
Bifurcated system
• Domestic awards: substantive and
•
procedural review
Foreign and foreign-related awards:
solely procedural review
 Prior Reporting System
Grounds for Setting-aside or Nonenforcement an Arbitral Award





Foreign awards: Art. V of New York
Convention
Domestic awards: Art. 213 of Civil
Procedural Law
Foreign-related awards: Art. 258 of Civil
Procedural Law
HK and Macau awards: Art. 7 of the
Arrangements between mainland and
HK/Macao SAR
Taiwan awards: reciprocity
CIETAC Arbitration: Introduction

Establishment in 1954

Headquarters and Sub-commissions

Lianson Offices
CIETAC Organization
China International Economic and Trade
Arbitration Commission
Expert
Consultation
Committee
Case
Edition
Committee
Arbitrator
Qualification
Review Committee
Special
Sectors’
Committee
Research
Institute of
CCOTC
Domain Name Dispute Resolution
Committee (On line Dispute
Resolution Committee)
Secretariat
Secretariat
Registration and
Consultation
Division
Domestic
Business
Division
Foreign Related
Business
Division
Business
Development
Division
Arbitration
Supervision
Division
Logistic
Affairs
Division
CIETAC Annual Caseload
1400
1200
1000
800
Caseload
600
400
200
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Categories of CIETAC Cases
•
•
•
•
•
•
•
Sale of goods
Investment disputes (joint ventures)
Finance
Construction
Real Estate
Securities
Intellectual property
Typical CIETAC Arbitration
Procedure
Stage 1:
Stage 2:
Stage 3:
Stage 4:
Filing of the Request for Arbitration
Formation of Arbitral Tribunal
Defense & Counterclaims
Pre-hearing meetings & Preliminary
hearings
Stage 5: Hearings
Stage 6: Post-hearing submission
Stage 7: Award
Questions?
THANK YOU!