CIETAC goes global

Where parties have not agreed on the seat of arbitration or their agreement is ambiguous, the CIETAC Rules still provide at Article 7 (Place of Arbitration 仲裁地) (previously Article 31) that the seat shall be the domicile of CIETAC or its sub-commission or centre administering the case. A party's consenting to CIETAC arbitration may therefore have the consequence of seating the arbitration in a Chinese city, and having the process supervised by courts in that city.

But such a feature is by no means unique to CIETAC. The Arbitration Rules of the Singapore International Arbitration Centre (SIAC Rules) provide at Rule 18.1 that failing the parties' agreement, the seat shall be Singapore unless the tribunal determines otherwise. The Hong Kong International Arbitration Centre Administered Arbitration Rules (HKIAC Rules) go even further and provide at Article 15.1 that the seat shall be Hong Kong unless the parties have expressly agreed otherwise. In this regard, the 2012 revision now allows CIETAC to determine the seat to be another location “having regard to the circumstances of the case” (see Article 7.2).

For certainty, the advice given to foreign parties is to expressly state the seat of arbitration in the arbitration agreement. If the arbitration is deemed a domestic one under Chinese law, parties may wish to specify CIETAC in Beijing or its branch in a major Chinese city.

Delegation of powers

The CIETAC Rules now clarify when certain powers are to be delegated to the arbitral tribunal. Article 6 (Objection to Arbitration Agreement and/or Jurisdiction 对仲裁协议及/或管辖权的异议) provides that CIETAC shall have the power to determine the existence and validity of an arbitration agreement and its jurisdiction over an arbitration case, and that CIETAC may, where necessary, delegate such power to the arbitral tribunal. The 2012 revision adds that where a case is to be dismissed before the formation of the arbitral tribunal, the decision shall be made by CIETAC; but where a case is to be dismissed after the formation of the arbitral tribunal, the decision shall be made by the arbitral tribunal (see Article 6.7).

At first glance this gives certainty to when such a decision would be made by CIETAC, and when the arbitral tribunal has Kompetenz-Kompetenz or the ability to rule on its own jurisdiction. But the difficulty remains with the PRC Arbitration Law (中华人民共和国仲裁法), which provides at Article 20 that a request can be made to the People's Court for a ruling on the validity of the arbitration agreement, and that where such requests are made to both CIETAC and the People's Court, the latter shall pass a ruling. That said, the Interpretation of the Supreme People's Court concerning Some Issues on Application of the PRC Arbitration Law (2006) provides at Article 13 that the People's Court may not accept such a request if the party fails to object before the first hearing by the arbitral tribunal or the arbitral institution has already made a decision. Although the 2012 revision clarifies when the arbitral tribunal has power to rule on its own jurisdiction, for arbitrations in mainland China this is still constrained by a party's availability to turn to the People's Court.

Similar clarifications have also been made throughout the 2012 Rules: Article 14.1 (extension of time for filing statement of defence), Article 15.1 (extension of time for filing counterclaim), Article 43.3 (suspension or resumption of arbitration proceedings), Article 57.3 (extension of time for filing statement of defence and counterclaim in summary procedure) and Article 66.3 (extension of time for filing statement of defence and counterclaim in domestic arbitration).

Consolidating arbitrations

One key revision to the CIETAC Rules is the addition of Article 17 (Consolidation of Arbitrations 合并仲裁). With the agreement of the parties, CIETAC may now consolidate two or more arbitrations into a single arbitration. Article 17.2 sets out a non-exhaustive list of factors which CIETAC may take into account in deciding whether to consolidate the arbitrations: whether all of the claims in the different arbitrations are made under the same arbitration agreement, whether the different arbitrations are between the same parties, or whether one or more arbitrators have been nominated or appointed in the different arbitrations.

In practice, Article 17 will be useful especially for disputes arising out of multi-party contracts or related contracts between the same parties, as is common for joint ventures structured between foreign and Chinese partners. While the HKIAC and SIAC Rules do not provide for the consolidation of arbitrations, the revised Rules of Arbitration of the International Chamber of Commerce (ICC Rules) effective from January 1 2012 contains a similar provision in Article 10. What the 2012 revision could also have added is a provision allowing additional parties to be joined in an existing arbitration, just as in the ICC Rules (Article 7), the HKIAC Rules (Article 14.6) and the SIAC Rules (Rule 24.b). Nonetheless, the addition of Article 17 allowing consolidation of arbitrations is a useful development, reflecting emerging best practice.

Conservatory and interim measures

Perhaps the most important revision to the CIETAC Rules is Article 21 (Conservatory and Interim Measures 保全及临时措施). While the 2005 edition provided for the preservation of property and protection of evidence separately, these have now been combined in Article 21.1, which provides that where a party applies for conservatory measures (保全), CIETAC shall forward the application to the competent court designated by the party in accordance with the law.

The 2012 Rules go on to provide at Article 21.2 that at the request of a party, the arbitral tribunal may order any interim measure (临时措施) it deems necessary or proper in accordance with the applicable law, and may require the requesting party to provide appropriate security in connection with the measure. This is by far the most significant revision to the CIETAC Rules, because for the first time a CIETAC arbitral tribunal is empowered to order interim measures. In principle, at least, it brings the CIETAC Rules in line with other arbitral rules, including the ICC Rules (Article 28), the HKIAC Rules (Article 24) and the SIAC Rules (Rule 26).

However, Article 21.2 states that any interim measure ordered by the arbitral tribunal must be “in accordance with the applicable law”. Under Chinese law, only courts and not arbitral tribunals have the power to order interim relief in support of arbitration, and such relief is limited to the preservation of property and protection of evidence. What, then, is the effect of an interim measure ordered by a CIETAC arbitral tribunal seated in mainland China? In spite of their inclusion in the 2012 Rules, it is unlikely that interim measures ordered by arbitral tribunals seated in mainland China will be enforceable, at least under the existing laws. But for arbitrations seated outside mainland China, parties seeking interim relief will no longer be at a disadvantage when arbitrating under the CIETAC Rules as compared to other arbitral rules.

Appointment of arbitrators

The 2012 Rules provide at Article 24 (Nomination or Appointment of Arbitrator 仲裁员的选定或指定) (previously Article 21) that parties must still nominate arbitrators from the CIETAC panel of arbitrators. But on the panel appointed in May 2011 (revised every three years), CIETAC included as many as 282 arbitrators outside mainland China. Article 24.2 also allows parties to agree to nominate arbitrators from outside the panel, subject to confirmation by CIETAC (and for arbitrations in mainland China, subject to the requirements under Articles 13 and 67 of the PRC Arbitration Law). Further, the 2012 revision increases the number of candidates each party may propose as presiding arbitrator from three to five (see Article 25.3). These features provide greater opportunity for parties to reach agreement on the selection of arbitrators.

For the appointment of arbitrators in a multi-party situation, Article 27 (Multiple-Party Tribunal 多方当事人仲裁庭的组成) (previously Article 24) now provides that if either side fails to jointly nominate an arbitrator, CIETAC shall appoint all three members of the arbitral tribunal. This puts right the situation under the 2005 edition, where one side can retain the right of nominating its arbitrator, while the multi-party side loses such right if its parties cannot agree on an arbitrator.

Another revision is the addition of Article 28 (Considerations in Appointing Arbitrators 指定仲裁员的考虑因素), which lists the factors that CIETAC shall take into consideration when appointing arbitrators, including: the law as it applies to the dispute, the place of arbitration, the language of arbitration and the nationalities of the parties. Article 28 therefore provides assurance to parties who may otherwise be concerned about the appointment of an unsuitable arbitrator.

Med-arb or arb-med

One hot topic in the past year is the med-arb or arb-med process, which has been revised at Article 45 (Combination of Conciliation with Arbitration 仲裁与调解相结合) (previously Article 40). With the consent of the parties, the arbitral tribunal may conciliate the case during the arbitration. If settlement is reached, the parties sign a settlement agreement; but if conciliation fails, the arbitral tribunal shall resume the arbitration and render an arbitral award. This may, of course, cast doubt on the impartiality of the arbitrators, who may have had access to confidential information during conciliation. In the recent Hong Kong case of Gao Haiyan and Xie Heping v Keeneye Holdings Limited and another (2011), concerns were raised about arb-med proceedings conducted in mainland China (though under the rules of the Xi'an Arbitration Commission).

In this regard, the CIETAC Rules have in place several safeguards. If the conciliation fails, any opinion, view, statement, proposal or proposition expressing acceptance or opposition shall not be invoked in any proceedings (see Article 45.9). The 2012 revision now allows parties the option of not having the conciliation conducted by the arbitral tribunal, and instead having the assistance of CIETAC (see Article 45.8). Ultimately arb-med or med-arb has always been and will continue to be an essential part of arbitration in mainland China; according to CIETAC, 20% to 30% of all CIETAC cases are resolved through this process. Nonetheless, the safeguards in the 2012 Rules will hopefully go some way in preserving the impartiality of the med-arb or arb-med proceedings.

Raising summary procedure limit

Unless otherwise agreed, Summary Procedure (简易程序) applies to any case where the amount in dispute does not exceed the prescribed limit. The 2012 revision has raised this limit from Rmb500,000 to Rmb2 million ($79,000 to $316,000) (see Article 54.1). Further, Article 61 provides that the application of summary procedure shall not be affected by any amendment to the claim or by the filing of a counterclaim (even if the amount in dispute later exceeds Rmb2 million), unless the parties agree or the arbitral tribunal decides that a change to the procedure is necessary. Parties should therefore take note that if they prefer not to have summary procedure apply to their dispute, they should expressly opt out of it in the arbitration agreement itself. By comparison, the limit is still lower than that for Expedited Procedure under the SIAC Rules (S$5 million or $4 million) but is now higher than that for the same under the HKIAC Rules ($250,000).

Best practices

Finally, the 2012 revision contains many other features, which seek to align the CIETAC Rules with best practices worldwide and give effect to autonomy of the parties. For instance, Article 5 (Arbitration Agreement 仲裁协议) states that where the applicable law has different provisions as to the “form and validity of the arbitration agreement”, those provisions shall prevail. Even the unique CIETAC feature of prescribing Chinese as the default language has now been qualified in Article 71 (Language 仲裁语言) with “or any other language designated by CIETAC having regard to the circumstances of the case”. Most of all, the 2012 Rules continue to provide that where parties have agreed on a modification of these Rules, their agreement shall prevail (unless it is inoperative or in conflict with a mandatory provision of the law) (see Article 4.3). Therefore, even if there are particular CIETAC Rules that parties may not be comfortable with, it is nonetheless open to them to agree to customise the procedure for their arbitration.

Moving beyond mainland China

In many ways, the 2012 revision marks the internationalisation of the CIETAC Rules. Importantly, the CIETAC Rules are no longer envisaged to be used only in mainland China. Article 1 of the 2005 edition has been deleted entirely – it stated that the Rules were “formulated in accordance with” the PRC Arbitration Law (中华人民共和国仲裁法)and other provisions. Article 49 of the 2005 edition has also been amended in Article 53 of the 2012 Rules, which now makes reference to “a competent court for enforcement of the award in accordance with the law” instead of a “Chinese court” and pursuant to “Chinese laws”.

Undoubtedly for domestic arbitrations (involving even Chinese-registered subsidiaries of foreign corporations), CIETAC continues to remain important. Under Chinese law, if an arbitration is considered a domestic one, it must have its seat in mainland China, and will have to be administered by a Chinese arbitral institution. The 2012 revision is an improvement, but is ultimately limited within the framework of the domestic legislation. Though unlikely in the near future, it is possible that revision of the CIETAC Rules may lead to a review of the domestic legislation. After all, the adoption of the HKIAC Rules in 2008 was soon followed by the Hong Kong Arbitration Ordinance (Cap 609) in 2011, and the revision of the SIAC Rules in 2010 has been followed by proposed amendments to the Singapore International Arbitration Act (Cap 143A) this year. Whether or not there will be such changes in the future, only time will tell.

But for arbitrations seated outside Mainland China, the 2012 revision now brings the CIETAC Rules closer in line with the best practices of leading arbitral institutions, and opens a world of new possibilities. With the increase in Chinese outbound investments, Chinese foreign investors will perhaps be more willing to agree to seat their arbitrations outside mainland China, so long as the arbitration can be administered by CIETAC under the CIETAC Rules.

In the past year, CIETAC has taken significant strides towards going global. In April 2011, CIETAC launched an inaugural Foreign Arbitrators Forum in London, and is understood to be considering forums for other cities. In May 2011, CIETAC appointed an unprecedented number of foreign arbitrators to its panel of arbitrators. And as the revised Rules are scheduled to come into effect from next month, CIETAC has already been holding seminars to promote these Rules. With the rise of Chinese state owned enterprises and private corporations as emerging players in the global economy, CIETAC is likely to become increasingly important – not just for foreign parties looking to invest in China, but also for any party dealing with Chinese outbound investors.

(Shaun) Zhuang-Hui Wu, King & Spalding