A Look at CIETAC: Is it Fair and Efficient?

The PRC Government established the Foreign Trade Arbitration Commission (FTAC) in 1956 to handle foreign trade disputes. Following the opening up of China's economy, FTAC's jurisdiction was expanded in 1980 to cover disputes relating to various types of foreign economic cooperation, which were then newly authorized. FTAC was renamed the Foreign Economic and Trade Arbitration Commission (FETAC).

As China continued to develop during the 1980s, the demand for more sophisticated international arbitration increased. FETAC was again renamed, as CIETAC, and a new set of arbitration rules was adopted in 1988. These rules were subsequently revised in 2000. Under the new rules, CIETAC's jurisdiction was extended to cover not only international or foreign-related disputes but also domestic disputes that were until then within the exclusive jurisdiction of local arbitration commissions.

In 1985, CIETAC handled 37 cases. By 1992, the caseload had increased more than six-fold to 267 cases.² In 2002, the number of cases handled was 684, compared to 731 cases in 2001. The total amount involved in these cases was Rmb11.28 billion in 2002, compared with Rmb10.55 billion in 2001. 40% of the cases in 2002 related to sale of goods; 28% related to joint venture disputes. The remaining cases handled include those relating to finance/leasing, construction, securities, insurance, technology transfer and real estate.³

Parties to cases submitted to CIETAC in 2002 originated from over 40 countries and regions, including: Hong Kong (199 cases or 29.09%); the US (57 cases or 8.33%); Japan (29 cases); South Korea (21 cases); UK (16 cases); Singapore (15 cases); Taiwan (14 cases); Italy (13 cases) and Germany (12 cases).

CIETAC is certainly China's best-known international arbitration commission and one of the busiest in the world.⁴ Although there was a discernible drop in the number of cases handled by CIETAC between 2001 and 2002, the number of cases handled in 2002 compares very favourably with equivalent figures from 1998 to 2000.⁵ There is therefore no evidence of any general decline in the number of arbitration cases submitted to CIETAC, although anecdotal evidence and statistics from other arbitration bodies suggest that CIETAC is facing credible competition from within and outside mainland China in respect of China-related arbitrations.

The most prominent of the local arbitration commissions is probably the Beijing Arbitration Commission (BAC) established in 1995. Handling only seven cases in 1995, the BAC has grown very rapidly in recent years and now rivals CIETAC's caseload. In 2001, for example, BAC handled 666 cases (representing an increase of 48.3% over the previous year) although only 10 of these were foreign-related.⁶

The BAC is better known than CIETAC for handling disputes from certain sectors, such as construction (in 2001, construction-related cases constituted 31.23% of all cases handled by BAC, while the equivalent number for CIETAC was small by comparison).⁷ BAC's experience in dealing with construction disputes may well improve its international profile. Especially it is important to bear in mind that the BAC will likely have a significant role in resolving some of the disputes that are anticipated to come out of the ambitious construction projects in Beijing ahead of the 2008 Olympic Games.

In addition, other international arbitration centres around China have seen growing caseloads. These centres may have benefited from some of the negative perceptions about CIETAC arbitration.

Are Foreigners Disadvantaged at CIETAC Hearings?

Although the sample surveyed in the 2001 AmCham Survey is relatively small, it does suggest that there may be misconceptions among foreign companies about the fairness and efficiency of arbitration in major arbitration centres in China.

The survey showed that 75% of respondents⁸ who had actual arbitration experience in China considered that arbitration at major Chinese arbitration centres tended to be more fair, more efficient or about the same in terms of fairness and efficiency compared with arbitration at other major international arbitration centres. In terms of cost, 100%⁹ of those who had actual arbitration experience in China believed that arbitration in China tended to be less expensive (two-thirds) or about the same (one-third) compared with arbitration at other major international arbitration centres.

For those respondents¹⁰ who did not have any experience in arbitration in major arbitration centres in China, they considered that arbitrations in China tended to be generally less fair (55%) and less efficient (55%) compared with arbitration at other major international arbitration centres.

According to information from CIETAC,¹¹ in 2000 the "success rate" of foreign parties compared with Chinese parties in CIETAC arbitrations was as shown in the table at the top of this page.

Problems and Issues Facing CIETAC

While it is true that CIETAC typically appoints a Chinese arbitrator to act as presiding arbitrator in an arbitration involving a Chinese and a foreign party, there is no evidence to suggest that a Chinese presiding arbitrator would be biased against the foreign party and there is also nothing inherently wrong with this practice. In all countries in the world, judges who are nationals of the country in which they sit are called upon to decide cases between their compatriots and foreigners. I'm not clear what justification there is to suggest that a Chinese arbitrator would favour his fellow national but an American or French judge, for example, would not.

In non-public international law disputes, it is not uncommon for the presiding judge or arbitrator to be from the same country as one of the parties. Besides, parties to potential CIETAC arbitration are free to agree in their arbitration contract that the presiding arbitrator should be a foreign arbitrator¹³ or that English or another foreign language be the language of the arbitration. My own experience is that in a typical China-related matter involving Chinese documents, it is often preferable to appoint a Chinese arbitrator and have a Chinese presiding arbitrator because they tend to be more experienced in dealing with similar cases, do not need translators or translations and perhaps more importantly, are often better able to understand the factual and legal issues in the arbitration.

The panel system employed by CIETAC may be considered to be restrictive. However, it is arguable that this may actually protect foreign parties in certain circumstances. For example, in the absence of such restriction, there would be nothing to prevent a Chinese party (or indeed a foreign party) from appointing a friendly and politically powerful but otherwise unsuitable person to act as its appointed arbitrator.

As for enforcement difficulties, one has to distinguish between refusal of enforcement and other difficulties such as difficulty in locating assets. With regard to the former, the Chinese Supreme People's Court has taken resolute steps to control and improve the situation. If any Chinese court decides not to enforce foreign-related arbitral awards, it must refer that decision to the court at the next higher level, and finally to the Supreme People's Court. The Supreme People's Court needs to make a final decision on whether or not to enforce foreign-related arbitral awards.¹⁴ Recently the Supreme People's Court also directed that only certain courts have the jurisdiction to deal with enforcement of foreign and foreign-related arbitral awards.¹⁵ As a result of these measures, it is today rare to hear of Chinese courts refusing to enforce foreign or foreign-related arbitral awards in the absence of justifiable reasons.

Whether or not successful foreign parties to such awards are able to obtain the fruits of their success is a separate issue. Some critics of the enforcement record for CIETAC awards do not distinguish between refusal of enforcement and other difficulties. They often simply refer to the fact that the rate of success in enforcing CIETAC awards is not high. It should be borne in mind that in respect of business disputes anywhere in the world, the vast majority of reputable defendants would automatically satisfy a final court judgment or arbitral award and there would be no need for any enforcement action against them. In other words, those defendants who do not respond to a final judgment or arbitral award and are prepared to wait for enforcement action against them are very likely not to have sufficient or reachable assets to satisfy the judgment or award. By definition therefore, the rate of successful enforcement of a court judgment or arbitral award anywhere in the world is likely to be low. In my experience as a litigation lawyer in Hong Kong for over 10 years, I have only come across one serious business dispute where the successful plaintiff managed to recover in full the fruits of its success following enforcement action by the court.

Conclusion

For nearly 50 years, CIETAC has been China's premier international arbitration institution, and has now emerged as one of the busiest international arbitration centres in the world.

CIETAC certainly has its shortcomings. However, I believe that at least some of the negative perceptions of foreign companies and commentators about CIETAC arbitrations are unwarranted, and may reflect a lack of understanding about arbitration in CIETAC. CIETAC arbitration can be markedly different from arbitrations elsewhere, especially in common law jurisdictions such as Hong Kong and the US (where many of the parties to CIETAC arbitration originate). CIETAC arbitrations are relatively informal and are more akin to meetings than the type of hearings that common law lawyers are used to. CIETAC hearings typically last for no more than a day and arbitrators typically take a comparatively broad-brush approach with regard to evidence. Consistent with the findings of the AmCham survey, many parties from common law jurisdictions that are involved in CIETAC arbitration welcome the relative informality of the procedure and the absence of hostile cross-examination as well as long and expensive hearings that detract from more productive business activities.

Misunderstandings on how CIETAC arbitrations work cannot be taken to imply a general inadequacy of CIETAC itself.

The author acknowledges the assistance of his colleagues Gary Lee and Renee Gu in preparation of this article. Ms Gu is a former judge with the Shanghai Higher People's Court.

Endnotes

1 See "Views of American Companies Regarding Arbitration in China," Timothy P. Stratford, Chairman, AmCham China, Vice Chairman and General Counsel, GM(China), dated May 30 2001, available at www.amcham-china.org.cn.

2 See article by Mark O'Neill in South China Morning Post July 1 2002, citing figures from the Hong Kong International Arbitration Centre.

3 Figures from CIETAC Secretariat.

4 See footnote 2 above.

5 See footnote 2 above.

6 See Beijing Arbitration Commission 2001 Work Summary and 2002 Work Plan dated February 8 2002

7 See footnote 6 above.

8 Excludes those that did not respond to the particular questions.

9 Also excludes those that did not respond to particular questions.

10 Again excluding those that did not respond to specific questions.

11 See footnote 2 above.

12 Not specified, due to a discrepancy between the total numbers of cases and those categorized in the SCMP article, see footnote note 2 above.

13 It should be borne in mind, however, that from the potential arbitrators' perspective, generally CIETAC's low remuneration for foreign arbitrators has not made their appointment a very attractive proposition.

14 See Notice Concerning the Handling of Foreign and Foreign-related Arbitration dated August 28 1995, issued by the Supreme People's Court.

15 See the Jurisdiction of Foreign-related Civil and Commercial Cases Provisions dated December 25 2001, issued by the Supreme People's Court.