Third, if you select Cietac, specify in the arbitration agreement that the parties may appoint arbitrators from outside Cietac's own panel of arbitrators (this is not possible under the BAC rules). This will give you greater choice when it comes to constituting the tribunal.

And finally, the default language for arbitrations conducted under both the Cietac and the BAC rules is Chinese. This can be a daunting prospect for foreign investors and limit the available pool of arbitrators and counsel. It's therefore sensible to specify that the language of the proceedings will be English.

Frances van Eupen
Senior associate
Allen & Overy

The domestic perspective

The best way to draft an arbitration clause valid and workable in mainland China is to follow clear and established laws and regulations while trying to stay away from open and unsettled legal issues. Liberally speaking, a foreign arbitration institution does not qualify as an “arbitration commission” as defined in the PRC Arbitration Law. It follows that there is a possibility (and uncertainty) that selecting a foreign arbitration institution for arbitration in mainland China might be held invalid if the PRC Arbitration Law is the governing law for the arbitration agreement and the relevant “arbitration commission” language in the PRC Arbitration Law has been mechanically interpreted. We suggest that you consider the following ways to avoid the above uncertainty and to formulate a valid China arbitration clause in the context of institutional arbitration:

1. Select a PRC domestic arbitration commission for domestic or international disputes. You may select Cietac, which is particularly known for its international arbitration services. You may wish to consider choosing other PRC domestic arbitration commissions as well. These PRC domestic arbitration commissions (including Cietac) are in practice allowed to take both domestic and international arbitration cases.

2. Select a foreign arbitration institution for international disputes. If the dispute is an international or foreign-related one, you may consider selecting a foreign arbitration institution (such as Hong Kong International Arbitration Centre, ICC, etc). If so, you may need to make it clear in the arbitration agreement that the seat of arbitration is somewhere outside of mainland China (like Hong Kong, Singapore, Paris, etc.), and/or the arbitration agreement is governed by laws of a foreign jurisdiction. In this case, the PRC Arbitration Law would not be applicable to determine whether such arbitration agreement is valid or not and, therefore, you do not need to worry about the possible uncertain interpretation of the “arbitration commission” language. Of course, you need to make sure that under the laws of the seat of arbitration or the foreign jurisdiction, as the case may be, the proposed arbitration agreement is valid.

Needless to say, these are general observations and shall not serve as formal legal advice. Consultation with your legal counsel is needed or suggested.

Jie Tao
Partner
Haiwen & Partners

The in-house perspective

The PRC Arbitration Law, which applies in all domestic arbitration proceedings, requires that an arbitration agreement reflect the intention of the parties to arbitrate; describes the dispute to be arbitrated; and designates an arbitration commission. Except in the unlikely event that a subsequent agreement can be reached, an arbitration agreement that fails in any respect will be void.

So consider first whether your matter will be deemed “domestic” or “foreign-related” under Chinese law. The distinction is critical. Disputes involving foreign multinationals operating through a Chinese subsidiary are deemed domestic unless the legal facts occurred or the subject matter is located abroad. Domestic awards can be cancelled or enforcement in China refused on a wider range of grounds than foreign-related awards under the New York Convention. Moreover, the Prior Reporting System, a safeguard requiring that Chinese court decisions to set aside an award must be confirmed by a higher court, does not apply to domestic awards.

The PRC Contract Law prohibits parties to a domestic dispute from selecting a seat of arbitration outside the mainland of China, and to select a foreign arbitral institution where the arbitration agreement is governed by Chinese law (as contrasted with the substantive law of the contract) would be unwise. Proceeding under either Cietac or Beijing Arbitration Commission rules would be acceptable choices under these facts.

When negotiating the language of the arbitration, expect that Chinese parties may wish to use Chinese (much as your Western client may prefer the use of English), and prepare accordingly. Also, to avoid the likely outcome in a Cietac or Beijing arbitration that your tribunal will comprise two Chinese arbitrators and one non-Chinese arbitrator (your nominee), you may wish to specify when drafting your arbitration agreement that the presiding arbitrator shall not be of the same nationality as any of the parties.

In a foreign-related arbitration, identify both the foreign seat and the foreign law governing the arbitration clause, to avoid a possible default to Chinese law. In such cases, Hong Kong, Singapore, and Stockholm are welcome offshore seats whose arbitral institutions are experienced in administering Chinese cases. Note, as well, that Chinese courts are presumed to recognise and enforce ad hoc awards made overseas in connection with foreign-related disputes, even though ad hoc arbitration is prohibited in China.

David Kreider
General counsel
Vodafone New Zealand