Clarifying the PRC Arbitration Law: Questions and Answers

What constitutes a 'written' arbitration agreement?

PRC law requires a valid arbitration agreement to be in writing. Article 1 of the SPC Interpretation clarifies that a 'written' arbitration agreement may be reached by express agreement in writing, by exchange of letters and by electronically transmitted documents (including telegrams, telexes, facsimiles, electronic data interchange and emails). This aligns the definition of written arbitration agreement with that of a written contract under PRC law and is consistent with international practices.

What if parties have not designated an arbitration institution?

Under PRC law, a valid arbitration agreement must expressly designate an 'arbitration commission' (仲裁委员会), such as the China International Economic and Trade Arbitration Commission (CIETAC). Such a designation requirement is unusual in international practice, as parties frequently agree to arbitration rules without expressly designating an arbitration institution in their arbitration agreement.

Articles 3 and 4 of the SPC Interpretation suggest a possible relaxation of this requirement. In particular, Article 4 provides that even if an arbitration institution is not expressly designated, the arbitration agreement will not be invalid if the arbitration institution can nonetheless be ascertained under the applicable arbitration rules. In practice, it should be possible to ascertain the relevant arbitration institution where parties have adopted major institutional rules such as those of CIETAC. Therefore, if the above analysis is correct, it is no longer necessary to designate the arbitration institution by name. However, as a practicality, parties should continue to name the arbitration institution in their arbitration agreement to avoid any doubt.

What if there are two arbitration institutions?

Article 5 deals with the situation where two or more arbitration institutions are stipulated in the arbitration agreement. Article 6 contemplates the situation where the arbitration agreement stipulates that arbitration must be conducted by an arbitration institution in a certain locality and there are two or more institutions in that locality. In both situations, parties may try to reach an agreement to address the ambiguity, failing of which the arbitration agreement is considered invalid.

Which disputes are arbitrable?

Article 2 of the SPC Interpretation adopts an expansive interpretation of which matters may be arbitrated by providing that where the scope of the arbitration agreement is unclear, 'arbitrable matters' include (but are not limited to) disputes relating to contractual formation, validity, modification, assignment, performance, liability for breach of contract, interpretation and rescission of a contract.

Can a party agree to both court jurisdiction and arbitration?

An agreement stating that a dispute may be referred to either an arbitration institution or the people's court is invalid, unless one party commences arbitration and the other party does not object before the specified deadline (Article 7).

Validity of an arbitration agreement: Who decides?

In international practice, the validity of an arbitration agreement is primarily determined by the arbitral tribunal. However, under PRC law, this question is reserved for determination by either the arbitration commission or the people's court. This is sometimes a cause for concern to foreign parties, who usually agree to arbitration in order for their dispute to be resolved by their chosen arbitral tribunal and not by either the arbitration commission or by the local courts. As between the two, most foreign parties prefer the former option.

Article 13 is consistent with this preference. It builds on a previous judicial interpretation and provides that once an arbitration institution has decided on the validity of an arbitration agreement, the people's court must not entertain any application to challenge such a decision. This is a welcome development, bringing greater certainty to the legitimacy of the proceedings once the validity of the arbitration agreement is confirmed by the relevant institution.

What law governs the validity of the arbitration agreement?

Article 16 addresses this question. The provision is not entirely clear, but when read in conjunction with previous judicial pronouncements it suggests that in most cases the validity of an arbitration agreement will be determined based on the law of the 'seat' (or place) of arbitration. Therefore, if a contract governed by Hong Kong law is subject to arbitration in the PRC, according to the SPC Interpretation, the validity of the arbitration agreement will be a matter of PRC law.

Can parties incorporate an arbitration clause by reference?

In modern commercial practice, it is common for a signed contract to refer to and incorporate standard terms set out in another document. The issue sometimes raises the question whether incorporation of an arbitration clause contained in another document is effective.

Article 11 addresses this issue by providing that where a contract stipulates that a valid arbitration clause in another document (or contract) must be applied to resolve disputes under the signed contract, the parties must refer the dispute to arbitration in accordance with such a clause.

Can an arbitration clause be 'transferred'?

Where rights and obligations are transferred after an arbitration agreement has been entered into, the arbitration agreement will be binding on the transferee except in circumstances where parties agree otherwise or, at the time of the transfer, the transferee objects or is 'unaware' of the existence of a separate arbitration agreement (Article 9).

Is ICC arbitration in the PRC permitted?

Unfortunately, as with previous interpretations, the SPC Interpretation fails to directly address the status of International Chamber of Commerce (ICC) arbitration in the PRC. It therefore remains debatable whether a clause providing for ICC (or other foreign institutional) arbitration in the PRC is valid.

Challenging awards

Can an award be partially set aside?

Article 19 clarifies that the people's court may set aside the relevant part of an arbitral award lying beyond the scope of the arbitration agreement. This echoes a previous judicial pronouncement and also mirrors the New York Convention provision.

What if there are concurrent applications to set aside and enforce an award?

Article 25 reiterates the existing PRC law position that if one party applies to enforce an award and the other party applies to set aside the award, the people's court is obliged to suspend the enforcement proceedings. Thus, enforcement proceedings will be delayed where a party applies to set aside an award.

However, Article 26 provides that where an application to set aside an award has been dismissed, the people's court must not support a subsequent attempt to resist enforcement of the award on the same grounds. Such an approach is practical and will generally prevent the same issues from being raised twice.

It is worth noting that Article 26 applies only where both applications to set aside and to resist enforcement are dealt with by the people's court. It does not expressly address the situation where a party fails in its application to set aside an award outside the PRC and then seeks to resist enforcement of that same award within the PRC.

What if a party delays in challenging the award?

Article 27 provides, in effect, that a party waives its right to set aside or to resist enforcement of an award, on the basis that the arbitration agreement is invalid if it raises the argument after the arbitral award is made, and not during the course of the proceedings.

A step in the right direction

Arbitration in the PRC has made significant and encouraging progress in recent years. The SPC Interpretation represents the PRC's latest effort to bring both the law and practice of arbitration more closely in line with commonly accepted international practice. Although the SPC Interpretation falls short of addressing several questions that concern foreign or foreign-related entities (for example, it does not specifically state whether foreign arbitral institutions (such as the ICC) can conduct arbitrations in the PRC, nor does it alter the generally accepted view that in disputes that only involve Chinese parties where there are no foreign-related elements, they cannot agree to arbitrate outside the PRC), it does represent a step in the right direction and moves the PRC arbitration framework closer to commonly accepted international practice.