Arbitration Agreements 

What, if any, are the legal requirements of an arbitration agreement under the laws of China? Under the PRC Arbitration Law, an arbitration agreement has to be in writing and may be concluded before or after the dispute arises. The arbitration agreement shall contain the following particulars:

(a) An expression of intention to apply for arbitration;

(b) Matters that should be referred to arbitration; and,

(c) A designated arbitration commission. 

Pursuant to Article 17 of the PRC Arbitration Law, an arbitration agreement shall be void if:

(a) The agreed matters for arbitration exceed the range of arbitrable matters as specified by law;

(b) A party to the arbitration agreement has no capacity for civil acts or has limited capacity for civil acts (which limit has been exceeded); or,

(c) A party coerced the other party into concluding the arbitration agreement.

Other elements ought to be incorporated in an arbitration agreement?

Language: Parties should specify the language in which the arbitration is to be conducted. If the arbitration is to be handled by the China International Economic and Trade Commission (“CIETAC”), Article 85 of the CIETAC Arbitration Rules provides that “the Chinese language is the official language of the Arbitration Commission but if the parties have agreed to use another language, their agreement shall prevail”.

Governing Law: Article 145 of the PRC General Principles of Civil Law (“Civil Law”) provides that “unless otherwise stipulated by law, the parties to a contract involving foreign elements may choose the law applicable to handling of disputes arising from the contract. If the parties to any such contract have not made a choice, the law of the country of closest connection to the contract shall be applied” (see also Article 126 of the PRC Contract Law). By legislation some matters fall within the exclusive ambit of the Chinese Law (for example, Sino-foreign joint venture contracts). In the absence of any express choice of law by the parties to a foreign-related arbitration, the tribunal will apply such law as it determines appropriate. However, for purely domestic arbitration which does not involve a foreign-related contract, Chinese law will apply.

Location: There are numerous local arbitration commissions in the main cities throughout China. Where the parties have decided to refer the dispute between them to one of the local Arbitration Commissions, they should check the correct name of such commission. For example, whilst local Arbitration Commissions exist in Guangzhou and Shenzhen, the “Guangdong Arbitration Commission”, for example, does not exist. Where the parties wish to have the arbitration referred to CIETAC, it is important to note that CIETAC has its head office in Beijing and sub-commissions in Shanghai and Shenzhen.

Parties should specify which of the three offices they would like to submit their dispute to. If the parties fail to reach an agreement in this regard, according to Article 12 of the CIETAC Arbitration Rules, the claimant may opt to have the arbitration conducted by the Arbitration Commission in Beijing or by its Shenzhen Sub-Commission in Shenzhen or by its Shanghai Sub-Commission in Shanghai. In practice, generally speaking, the office that receives the claim will initiate the case, and the case will stay with that office unless an objection is received, in which case CIETAC will decide on the matter.

The parties are free to agree on where the hearing of the arbitration should take place. For example, it is possible for the parties to agree that the hearing of an arbitration submitted to the CIETAC Shanghai Sub-Commission in Shanghai should take place in, say, Wuhan. In the absence of any such agreement, Article 35 of the CIETAC Arbitration Rules provides that the hearing of the arbitration shall take place at the place where the Commission or Sub-Commission to which the case is referred to is located unless the Secretary-General of the Commission or of that Sub-Commission decides otherwise. The major local Arbitration Commissions also adopt a similar rule (see, for example, Article 36 of the Rules of Arbitration of the Beijing Arbitration Commission and Article 50 of the Rules of Arbitration of the Shenzhen Arbitration Commission).

What has been the approach of the national courts to the enforcement of arbitration agreements? Article 5 of the PRC Arbitration Law provides that where there is a valid arbitration agreement, the case has to be submitted to arbitration and the Court should not hear the matter (see also Article 111(2) of the Law of Civil Procedure of the PRC). However, pursuant to Article 26, if one party initiates court proceedings without informing the Court of the existence of the arbitration agreement and the other party does not raise any objection prior to the first hearing, the other party will be deemed to have waived its right under the arbitration agreement and the Court shall continue to try the case.

Generally speaking, Chinese Courts (especially those in the major cities) have been very willing to enforce arbitration agreements.

Governing Legislation

What legislation governs the enforcement of arbitration agreements in China? Enforcement of arbitration agreements is dealt with under the PRC Arbitration Law and the Law of Civil Procedure of the PRC (“Civil Procedure Law”).

The PRC Arbitration Law governs both domestic and international arbitrations. The provisions of Chapter 7 (Articles 65 to 73) of the PRC Arbitration Law specifically apply to international arbitrations. The other provisions of the PRC Arbitration Law apply to both domestic and foreign-related arbitrations. Apart from the establishment, rules and composition, of foreign-related arbitration commissions and appointment of foreign arbitrators, the main differences between the provisions governing domestic and foreign-related arbitration are as follows:

(a) Preservation of evidence - applications are made in respect of foreign-related arbitrations to the Intermediate People’s Court instead of the local level People’s Court where the evidence is located;

(b) Setting aside and refusal of enforcement of awards - the grounds for setting aside / refusal to enforce a foreign-related arbitral award are more restrictive. 

The drafting of the PRC Arbitration Law was influenced by the UNCITRAL Model Law. However, the PRC Arbitration Law is different from the UNCITRAL Model Law in many important respects, including the following:

(a) Application - whilst the UNCITRAL Model Law applies to international commercial arbitrations only (Article 1), the PRC Arbitration Law applies to both international and domestic arbitrations (Articles 1 and 65);

(b) Form of arbitration - it is generally agreed that the PRC Arbitration Law permits institutional arbitrations, but not ad hoc arbitrations (Articles 10-15);

(c) Jurisdictional challenge - the UNCITRAL Model Law permits the arbitral tribunal to rule on its own jurisdiction, including any objection with respect to the existence or validity of the arbitration agreement (Article 16). Under the PRC Arbitration Law, the Arbitration Commission may rule on the validity of the arbitration agreement if the parties agree, failing which, such power is vested in the Court (Article 20);

(d) Number of arbitrators - under the UNCITRAL Model Law, parties have a choice of the number of arbitrators, failing which three arbitrators shall be appointed (Article 10). Under the PRC Arbitration Law, the number of arbitrators is either one or three, failing agreement the Arbitration Commission chairman shall make the decision (Articles 30 and 32);

(e) Default appointment of arbitrators - the UNCITRAL Model Law vests the power of appointing arbitrators in default in the Court or other specified authority (Article 11). Such power is vested in the Arbitration Commission chairman under the PRC Arbitration Law (Article 32);

(f) Minimum qualifications of arbitrators - under the PRC Arbitration Law, a person can only be appointed as an arbitrator if he can satisfy the specified minimum requirements in terms of qualifications, experience and knowledge (Article 13). There are no such minimum requirements under the UNCITRAL Model Law;

(g) Interim measures of protection - the UNCITRAL Model Law permits parties to apply directly to the Court for interim measures of protection (Article 9). Under the PRC Arbitration Law, a claimant may apply to the Arbitration Commission for interim measures of protection, instead of applying directly to the Court. The Arbitration Commission will then submit such application to the Court (Articles 28, 46 and 68);

(h) Court’s assistance in taking evidence - the UNCITRAL Model Law provides that the arbitration tribunal or a party with the approval of the tribunal may request the Court to assist in taking evidence (Article 27). There is no similar provision in the PRC Arbitration Law;

(i) Decision-making - under the UNCITRAL Model Law, parties may agree that the decision of the tribunal has to be unanimous or by the majority of the arbitrators. Under the PRC Arbitration Law, decision must be made in accordance with the opinion of the majority of the arbitrators. If there is no majority opinion, the presiding arbitrator shall decide (Article 53).

(Edited By: China West Lawyer)