Ideal and Reality: 

The Path to Amending Chinese Arbitration Law

Ladies and Gentlemen, Distinguished panelists, dear friends, 

My name is David Gu, a partner from TianTong Law Firm.  I am a Chinese arbitration lawyer.  It is my honor to join this distinguished panel and make the presentation: Ideal and Reality: The Path to Amending Chinese Arbitration Law. 

The Current Chinese Arbitration Law was enacted in 1994 and was amended twice in 2009 and 2017.  Prior to the birth of Chinese Arbitration Law, Chinese legislators had taken UNCITRAL Model Law on International Commercial Arbitration (1985 version) into account.  That being said, mainland China is technically speaking not a Model Law Jurisdiction.  As this diagram shows, to date, 111 jurisdictions including Hong Kong and Macau adopt Model Law, with the latest version in 2006.  In September 2018, the 13th Standing Committee of National People’s Congress announced to include the plan of amending Chinese Arbitration Law in its legislative agenda.  Since then, the debates have arisen as to whether China should literally and directly adopt international standards of arbitration, which are enshrined in Model Law or take a different path to amending the current Chinese Arbitration Law regime.

What Chinese Arbitration Law looks like?  What major different features Chinese Arbitration Law has compared to Model Law?  No matter which path we Chinese would take, we must answer these questions first.  On its surface, we may find some differences such as Model Law applies to international commercial arbitration, with the term “commercial” given a broad interpretation; by contrast, although Chinese Arbitration Law adopts a different rhetoric suggesting that it would only address contractual disputes and disputes over property rights, we can see Chinese Arbitration Law generally focuses on civil and commercial issues, but not on international commercial arbitration only.  As to the formality of arbitration agreement, Chinese Arbitration Law suggests that an arbitration agreement must be made in the written form such as contract, telegraph, fax and email, etc. while under Model Law the written form is not necessarily required to establish an arbitration agreement.  The other differences include: under Model Law, ad hoc arbitration is permissible while under Chinese Arbitration Law, except in the Shanghai Free Trade Zone, ad hoc arbitration is not allowed in mainland China; under Model Law, competence-competence principle is well established while under Chinese Arbitration Law, when the validity of the arbitration agreement is challenged, both the arbitral tribunal and the competent court have jurisdiction to determine this issue and the court’s jurisdiction prevails where there are parallel proceedings; under Model law, both the arbitral tribunal and the court have the power to order interim measures but under Chinese Arbitration Law, generally speaking, the court has the power to order interim measures; under Model Law, the parties are free to agree on the procedures of challenging arbitrators while under Chinese Arbitration Law, the procedures are set forth, namely, the parties must submit its challenge prior to the first hearing of the arbitration proceeding.  In addition to these differences in legal rules, the mindset of using and developing arbitration under two bodies of law are different: under Model Law, arbitration is a private dispute resolution mechanism, where party autonomy should be encouraged and a pro-arbitration liberal approach is adopted; by contrast, Chinese Arbitration Law was originally enacted in 1994 when China started to move from the center-planned economy model toward the market-oriented model, and therefore arbitration institution, which was perceived as quasi-administrative agency (事业单位 in Chinese) was given an important role to further arbitration, and each arbitration institution has to be regulated by local governments.    

Nevertheless, since 1994 when Chinese Arbitration Law was enacted, 25 years have elapsed.  The social and economic landscape of China has been remarkably changed.  As the other panelists have said, China arbitration practice has made a lot of progresses with the arbitration institutions having reformed on its case management capability and arbitration rules, with the Chinese courts having had rendered decisions to create a pro-arbitration judicial environment, and with the central and local governments having had courage to embrace international standards of arbitration.  For example, Mainland China and Hong Kong have recently made the mutual arrangement for granting interim measures by each side’s court in aid of arbitration proceedings seated in Mainland China and Hong Kong; for another example, the Chinese central government and Shanghai local government have recently decided to allow overseas arbitration institutions to administer arbitration proceedings in Shanghai Free Trade Zone, Lingang area.  Bearing all these accomplishments we Chinese have made so far, it seems that we are ready to move on and start to amend Chinese Arbitration Law.  But before doing that, before moving toward the direction set by Model Law, we need to look right at the landscape of Chinese arbitration, recognise today’s reality in China and think about whether to entirely change the Chinese arbitration law regime and become a Model Law jurisdiction.  

Here are some factors we should consider.  First, the Chinese government plays and will continue to play an important role in furthering arbitration in China.  Under the support and supervision of the central and local governments, the reform on domestic arbitration institutions would continue, and in the course of furthering arbitration in China, the Chinese government officials have accumulated knowledge and experience about international arbitration, enabling them to provide more support for arbitration community in China.  That being said, whether the Chinese legislative body, National People’s Congress would adopt Model Law in its entirety would be a big question.  Second, the caseload of arbitration is growing fast but is unbalancedly distributed among Chinese arbitration institutions.  By 2018, there are 255 Chinese arbitration institutions.  Although arbitration cases, in its number and value grow very fast in the past few years, the majority of cases with high stakes are submitted to leading arbitration institutions such as CIETAC, BAC, etc.  Although leading arbitration institutions would be able to deal with the reform of Chinese Arbitration Law toward Model Law, can the other local arbitration institutions adapt the changing arbitration law regime in a short timeframe? We need to think about this question.  Third, leading Chinese lawyers and arbitrators with overseas education background and experience, who frequently act as counsel and arbitrator before leading Chinese arbitration institutions, may praise the adoption of Model Law, but it would take some time for Chinese local arbitration community, arbitrator and counsel to get their practice tuned to Model Law.  Fourth, some Chinese courts, such as Shanghai No. 2 Intermediate People’s Court have embraced international standards of arbitration, but if Model Law is literally adopted in its entirety, can all of the Chinese courts and judges change their mindset from the current arbitration law regime?  This factor should be considered either.  

Based on foregoing, I’d like to share some thoughts on amending Chinese Arbitration Law.  First, when amending Chinese Arbitration Law, we should take Model Law seriously as a reservoir of international standards and practice of arbitration, where we may draw inspirations from its spirit and rules.  In the meantime, we should not ignore and must take the existing Chinese arbitration system and practice into account.  Second, we should do whatever we could do to march toward the direction of Model Law.  For example, it might as well introduce the seat of arbitration as a core concept to Chinese Arbitration Law.  Third, we may not necessarily adopt Model Law in its entirety.  For example, it should be cautious to recognize and adopt ad hoc arbitration seated in Mainland China, partly because the social credit system and the credibility of arbitration in mainland China needs to be strengthened and a quick adoption of ad hoc arbitration may increase the number of sham arbitration and overburden Chinese courts with a sharply increased caseload of judicial review of ad hoc arbitration  Fourth, some established principles and rules under Model Law, even if adopted into Chinese Arbitration Law, we may be at our liberty to amend it to fit into our needs.  For example, in BNA v BNB case, the arbitration agreement stipulates that “all disputes shall be finally submitted to SIAC for arbitration in Shanghai”.  The arbitral tribunal, following the competence-competence principle, ruled that it has jurisdiction to hear the dispute, because the arbitration agreement should be interpreted as the SIAC arbitration, seated in Singapore with the place of hearing in Shanghai.  In the setting-aside proceeding, the Singapore High Court upheld the Tribunal’s decision, but the Court of Appeal of Singapore reversed the first instance court ruling.  The challenge of jurisdiction in this case squarely followed the competence-competence principle, but it should be noted that when such an arbitration agreement contains a China-related element, and Chinese law may be the governing law of the arbitration agreement, it may be sensible at the early stage of the arbitration to seek an order from the competent Chinese court to interpret such an arbitration agreement, because the Chinese judge may be in a better position than an international tribunal to determine a Chinese law issue, and the arbitral award on merit would be eventually taken to China for recognition and enforcement.  This example illustrates that the current Chinese arbitration law regime serves the purpose of ensuring Chinese judges to have a final say about Chinese law issues, and even if it is not the same with competence-competence principle under Model Law, it is indeed sensible to keep it as it is.  Fifth, some rules in Model Law may be worthwhile being adopted in its entirety to make arbitration more efficient.  Broad categories of interim measures, the arbitral tribunal’s power to directly grant interim measures and the specific standard of granting interim measures under Mode Law could be such areas for Chinese arbitration community to learn from.  

This marks the end of my presentation.  Thank you all for your time and I wish you have a good time in Beijing.