Arbitration and litigation explained

• PRC Administrative Enforcement Law (promulgated June 20 2011);

• Supreme People's Court, Interpretation on Issues Relevant to the Application of the Law in Trials of Disputes over Sales and Purchase Contracts (promulgated May 10 2012);

• Supreme People's Court and Supreme People's Procuratorate, Interpretation on Several Issues Concerning the Specific Application of the Law when Handling Criminal Trials of Insider Trading and Divulgence of Insider Information (promulgated March 29 2012);

• Supreme People's Court, Interpretation on Several Issues Concerning the Application of the áPRC Marriage Lawñ (3) (promulgated August 9 2011);

• Supreme People's Court, Provisions on Several Issues Regarding Entrusted Enforcement (promulgated May 3 2011);

• Supreme People's Court, Circular on the Issuance of the «Several Opinions on Punishing Evasion of Enforcement in Accordance with the Law» (promulgated May 27 2011);

• Supreme People's Court, Circular on Lawfully and Properly Hearing Cases of Disputes over Private Lending to Promote Economic Development and Maintain Social Stability (promulgated December 2 2011); and

• China Banking Regulatory Commission, Implementing Opinions on Encouraging and Guiding the Entry of Private Capital into the Banking Sector (issued May 26 2012).

2. From your experience, what types of disputes have been most common in the past year? Are there any reasons for the growing emergence of these types of disputes?

China has seen an increase in shareholders' disputes in the past year, in particular disputes among shareholders in Sino-foreign joint venture companies.

We believe three factors can be attributed to this phenomenon. Firstly, historically, many Sino-foreign joint venture companies were formed because of China's restrictions on market entry policies. In finding a local partner, some foreign companies base their search not purely on commercial considerations, but on meeting the requirements for investment by the government. As China has loosened restrictions in recent years, some foreign investors decided to split from their partners and this has created numerous shareholder disputes in these joint venture companies.

In recent years, China has also promulgated some new laws and regulations regarding the PRC Company Law including the Provisions on Several Issues Concerning the Application of the «PRC Company Law» (1), (2) and (3) from the Supreme People's Court. These provisions have clarified some vague issues in the law, making corporate litigation more predictable. This also gives incentives to shareholders who want to resolve disputes with partners.

Finally, a diversified investment pattern also creates new types of disputes. As a result, legal professionals have witnessed unprecedented disputes such as controversy over the validity of the valuation adjustment mechanism.

3. What was one of your highlight cases or litigations this year and why was it challenging? What precedents, if any, did it set for litigation and arbitration in China?

I would choose the breakup of a variable interest entity (VIE) structure. A PRC company obtained financing from a US listed company through a VIE arrangement. After years of operation, disagreement arose between the founder of the PRC company and the board of the US listed company. In its shareholder and board resolutions the US listed company attempted to remove the founder from all positions and to deprive him of all powers and rights under the VIE structure. Both parties went into a series of litigations and arbitrations in Shanghai, the US, Singapore, the British Virgin Islands and Hong Kong over the control of the companies under the VIE structure. The disputed amount in the case exceeded Rmb300 million ($47 million). Martin Hu & Partners represented the founder in the arbitration in China, and successfully broke up the VIE structure by obtaining a favourable arbitration award where the VIE structure was ruled null and void for violating the prohibitive provisions of the administrative regulations of the state. The parties finally reached a settlement.

4. Clients are often concerned that court judgments are not effectively enforced. How do you respond to these concerns and what measures do you recommend to them if judgments are not enforced?

We have seen the Chinese courts make significant progress in judgment enforcement. In May 2011 alone, the Supreme People's Court promulgated two important pieces of legislation on judgment enforcement, namely the Supreme People's Court, Provisions on Several Issues Regarding Entrusted Enforcement and the Supreme People's Court, Circular on the Issuance of the «Several Opinions on Punishing Evasion of Enforcement in Accordance with the Law». This demonstrates the Supreme Court's intention to build up a more reliable judgment enforcement system. Enterprises concerned about enforcement are recommended to:

• try to find out the financial status of the defendant before starting a lawsuit;

• make good use of supplementary measures in judgment enforcement, such as judicial preservation; and

• not to wait, but proactively collect information concerning the defendant's assets and closely monitor news of the defendant such as in insolvency announcements, as this will significantly increase the chances of successful enforcement.

5. CIETAC has revised the Arbitration Rules, which took effect in May this year. What changes do you think are the most important and practical for both domestic and foreign parties? What issues need to be further improved and why?

The most prominent event in the arbitration area of China this year could be the dispute between CIETAC Beijing, CITEAC Shanghai and CIETAC Shenzhen.

Before May 2012, according to the CIETAC Arbitration Rules of 2005 commonly adopted by CIETAC Beijing and other CIETAC commissions, if parties stipulate in their arbitration agreement that the dispute is to be “submitted to China International Economic and Trade Arbitration Commission for arbitration”, CIETAC Beijing and other CIETAC commissions may accept and hear the case on their own. However, according to the new Rules adopted by CIETAC Beijing as of May 1 2012, cases under a similar arbitration clause may only be submitted to and heard by CIETAC Beijing, which ruled out the jurisdiction of other CIETAC commissions. The new Rules led to a strong backlash from CIETAC Shanghai and Shenzhen, both of which declared independence afterwards. CIETAC soon adopted its own arbitration rules of 2012, while CIETAC Shenzhen announced that it will continue following the CIETAC Arbitration Rules of 2005.

This has resulted in the complicated situation of three arbitration commissions with three sets of arbitration rules. What is even worse is that it has called the validity of the arbitration award by these arbitration commissions into question. Since CIETAC Beijing has declared the new rules of CIETAC Shanghai illegal and the CIETAC Arbitration Rules of 2005 outdated, we may see a series of cases requesting repeal and non-enforcement of arbitration awards rendered by these two arbitration commissions.

The Supreme People's Court will make the final decision on the validity of certain arbitration awards, namely foreign-related arbitration awards, which could lead to two precedents. If CIETAC Shanghai renders an award by its newly appointed arbitrators based on its new rules, the Supreme People's Court could repeal this award. Similarly, if a party submits a case to CIETAC Shenzhen for arbitration based on an arbitration agreement which stipulates “the dispute shall be submitted to China International Economic and Trade Arbitration Commission for arbitration”, and CIETAC Shenzhen accepts the case and renders an award, the Supreme People's Court could repeal this award.

If the Supreme People's Court decides not to repeal the above two awards, CIETAC Shanghai and Shenzhen will preliminarily secure their independence, and there will be three coexisting arbitration commissions under the name of CIETAC. If the Supreme People's Court decides to repeal the two awards, the tension between three arbitration commissions will get worse.

6. What factors do foreign clients need to take into account when involved in arbitration in China? What are their major concerns and how do you address these concerns?

In general, there is no difference between China's arbitration system and that of other major jurisdictions. We have been frequently asked the following questions by our foreign clients during their arbitration cases though, which we consider as typical questions.

Will an arbitration award rendered by a Chinese arbitration commission gain recognition and enforcement in other countries?

China is a party to the New York Convention and so an arbitration award rendered by a Chinese arbitration commission will gain recognition and enforcement in an overseas jurisdiction under the Convention. From the perspective of the Convention, there is no difference between a Chinese arbitration award and awards from other parties to the Convention.

Are interim measures such as preservation and seizure available during the arbitration?

Yes. But an arbitration commission cannot enforce the interim measures on its own, but through a competent court.

Will a Chinese arbitration commission strictly follow the regulations on trial deadlines?

In general, arbitration commissions will do their best to comply with the regulations on trial deadlines, while sometimes the deadlines have to be exceeded in more complicated cases. In our experience, arbitration commissions will generally proceed with caution when extension of deadline is required, such as giving written notice and notifying the anticipated time length of extension.

Can I request a Chinese arbitration commission to use the rules of other arbitration organisations, such as the International Chamber of Commerce and Singapore International Arbitration Centre, or to use languages other than Chinese throughout the hearing?

Yes. But the parties have to reach this agreement either in their arbitration agreement or before arbitration begins.

7. How was your experience of using CIETAC's online arbitration service? What issues do companies need to be aware of when opting for online arbitration?

So far, we have not tried CIETAC's online dispute service. This could be mainly attributed to clients' ignorance of the mechanism, but we believe most Chinese clients will disregard this as Chinese people are more comfortable with face-to-face communication and would consider it strange to resolve a dispute without meeting the arbitrators.

8. What are the biggest challenges or risks for a Chinese company involved in international arbitration?

When a Chinese enterprise is involved in an international arbitration, it faces the same predicament that a foreign party would face when required to arbitrate in China – the party will need the assistance of a local lawyer to represent the case due to lack of knowledge of the legal system and rules. However, due to the language barrier, the party will normally retain another lawyer in its own country, who will then serve as the communication medium with the foreign lawyer. This lawyer-lawyer arrangement makes cross-border arbitration possible, but its drawbacks are also obvious: it causes misunderstanding, low efficiency, and disputes between lawyers and clients. In the near future, the possibility of completely resolving this problem is low and the only hope lies in the internationalisation of Chinese enterprises and the localisation of international law firms, as opposed to the localisation of international enterprises and the internationalisation of Chinese law firms. It may reduce the distance between the two, and make it possible for international commercial arbitration to be conducted in a more efficient way.

仲裁及诉讼阐述

胡光律师事务所的牟笛律师为我们讨中国诉讼及仲裁的最新发展，并为外国企业就有关事项提供意见

1. 在过去12个月，诉讼及仲裁方面出台了什么主要法规？

以下法规对中国的诉讼制度有一定影响：

• 中华人民共和国刑事诉讼法（2012年3月14日发布）﹔

• 中华人民共和国行政强制法（2011年6月20日发布）﹔

• 最高人民法院关于审理买卖合同纠纷案件适用法律问题的解释（2012年5月10日发布）﹔

• 最高人民法院、最高人民检察院关于办理内幕交易、泄露内幕信息刑事案件具体应用法律若干问题的解释（2012年3月29日发布）﹔

• 最高人民法院关于适用《中华人民共和国婚姻法》若干问题的解释 (三) （2011年8月9日发布）﹔

• 最高人民法院关于委托执行若干问题的规定（2011年5月3日发布）﹔

• 最高人民法院印发《关于依法制裁规避执行行为的若干意见》的通知（2011年5月27日发布）﹔

• 最高人民法院关于依法妥善审理民间借贷纠纷案件促进经济发展维护社会稳定的通知（2011年12月2日发布）﹔

• 中国银行业监督管理委员会关于鼓励和引导民间资本进入银行业的实施意见（2012年5月26日发布）。

2. 根据您的经验，过去一年什么类型的争议最普遍？有没有什么原因导致这类争议的数目上升？

过去一年，中国的股东争议有上升趋势，尤其是中外合营企业股东之间的争议。

我们认为有三个因素导致股东争议上升。首先，很多中外合营企业的成立，源于中国过去的市场准入政策方面的限制。在选择本地合作伙伴时，一些外国公司所考虑的不只是商业因素，还包括本地公司是否符合政府对于投资条件方面的要求。由于中国近年放宽限制，一些外国投资者决定脱离合营关系，导致很多合营企业出现股东争议。

近年来，中国也发布了有关《中华人民共和国公司法》的新法规，其中包括最高人民法院出台的《关于适用〈中华人民共和国公司法〉若干问题的规定(一)、(二)、(三)》。这些法规说明了法律上一些不明确的事项，增加企业诉讼的明确性，也为希望与合伙人解决争议的股东提供了诱因。

最后，多元化的投资模式也衍生出新的争议类别。因此，法律专业人员目睹前所未有的争议，例如有关对赌协议有效性的争议。

3. 今年您的重点（诉讼）案件是什么？为何该案件具挑战性？案件有否为中国的诉讼及仲裁缔造先例？

我认为是可变利益实体 (VIEs) 的分拆。一家中国公司通过一项VIE安排，获取一家美国上市公司的融资。经过数年的营运后，中国公司的创立人与美国上市公司的董事会产生意见不合。该美国公司尝试在其股东及董事会的决议中罢免创立人的所有职务，剥夺他在VIE中的所有权益。双方就VIE安排下的公司控制权，在上海、美国、新加坡、英属维尔京群岛及香港提起一系列的诉讼和仲裁，案件中的争议金额超过3亿元人民币（4,700万美元）。胡光律师事务所为创立人于中国进行的仲裁案件中担任代表，并取得有利的仲裁裁决，VIE被裁定无效，违反国家行政法规中的禁止规定，因此成功分拆VIE。最后双方达成和解。

4. 客户常忧虑法院判决不能有效执行，您对此有何见解？判决未能有效执行时，您会建议客户采取什么措施?

我们看到中国法院在执行判决方面取得了重大进步。单单在2011年5月，最高人民法院发布了两项关于执行判决的重要法规：《最高人民法院关于委托执行若干问题的规定》及《最高人民法院印发〈关于依法制裁规避执行行为的若干意见〉的通知》，显示最高人民法院有意建立一个更可靠的判决执行制度。我们建议关注执行问题的企业采取以下措施：

• 提起诉讼前先尝试了解被告的经济状况；

• 充分利用如司法保全等执行判决的辅助措施；

• 不要怠慢，积极收集有关被告的资产的信息，并密切留意被告的最新动态，例如清算公告，这会大大增加成功执行判决的机会。

5. 中国国际经济贸易仲裁委员会修改了仲裁规则，新规则于今年5月施行。您认为哪些修正对中外双方最重要和实用？哪些问题需要进一步完善？为什么？

中国去年在仲裁方面最令人关注的是贸仲会北京总会与上海和深圳分会之间的争端。

2012年5月前，根据贸仲会北京总会及其他贸仲会分会普遍采用的2005年贸仲会发布的仲裁规则，如果双方在仲裁协议中规定争议“应提交中国国际经济贸易仲裁委员会进行仲裁”的，贸仲会北京总会及其他贸仲会分会可自行受理及审理案件。但根据2012年5月1日北京总会通过的新规则，在类似的仲裁条款下，案件只能提交北京总会审理，因此免除了其他贸仲会分会的管辖权。新规则惹来上海及深圳分会的强烈反响，这两个分会其后宣布独立。不久后，贸仲会通过其2012年仲裁规则，而深圳分会宣布该会将继续采用2005年的贸仲会仲裁规则。

这导致三个仲裁委员会、三个仲裁规则的复杂情况，更严重的问题是有关这些仲裁委员会作出的仲裁裁决的效力。由于贸仲会北京总会已宣布上海分会的新规则违法，2005年贸仲会仲裁规则也逾期不适用，因此可能出现一些案件要求撤销或不执行该两个仲裁委员会所作出的仲裁裁决。

某些仲裁裁决的效力，如涉外仲裁裁决，均由最高人民法院作最终裁定，这可能带来两个先例。如果贸仲会上海分会新委任的仲裁员根据分会新规则作出裁决，最高人民法院可撤销该裁决。同样，如果合约一方根据仲裁协议中“争议应提交中国国际经济贸易仲裁委员会进行仲裁”的规定，将案件提交贸仲会深圳分会仲裁，深圳分会受理并作出裁决，最高人民法院可撤销该仲裁裁决。

最高人民法院决定不撤销以上两项仲裁裁决的，上海及深圳分会便初步稳固了其独立性，在贸仲会的名义下将有三个并存的仲裁委员会。最高人民法院决定撤销该两项仲裁裁决的，三个并存的仲裁委员会之间的张力将更为紧张。

6. 外国客户在中国参与仲裁时，需要考虑什么因素？客户有什么主要关注的事项？您如何处理这些事项？

整体而言，中国的仲裁制度与其他主要司法管辖区没有什么分别。以下是外国客户经常提出，我们认为是典型有关仲裁案件的问题。

由中国仲裁委员会作出的仲裁裁决会否获其他国家承认并予以执行？

中国是纽约公约的缔约方，根据公约，由中国仲裁委员会作出的仲裁裁决为海外司法管辖区所承认和予以执行。从公约的角度来看，中国的仲裁裁决与公约其他缔约方所作出的仲裁裁决并无分别。

仲裁期间，可否实施财产保全和扣押等临时措施？

可以，但仲裁委员会不能自行执行这些临时措施，需要通过有管辖权的法院执行。

中国仲裁委员会会否严格遵守审理时限的规定？

一般来说，仲裁委员会会尽量遵守审理时限的规定，但处理复杂的案件时，有时需要延长时限。根据我们的经验，仲裁委员会一般会谨慎处理需要延期的案件，例如发出书面通知和向双方告知预计的延长期。

我可否要求中国的仲裁委员会使用国际商会、新加坡国际仲裁中心或其他仲裁机构的规则，或于案件审理时使用外语？

可以，但双方必须在仲裁协议中作出有关规定或在仲裁开始前达成有关协议。

7. 您对贸仲会的网上争议解决服务有什么意见？企业选择利用网上争议解决服务应注意什么事项？

直至目前，我们还没有使用贸仲会的网上争议解决服务，主要原因可能是客户不熟悉网上仲裁制度，但我们相信大部分中国客户不会留意这服务，因为中国人较接受面对面的沟通方式，认为未有与仲裁员会晤而能解决争议是很奇怪的事情。

8. 中国公司参加国际仲裁，会遇到什么主要挑战和风险？

一家中国企业参与国际仲裁时，遇到的困难与外国公司需要在中国仲裁时所遇到的困难一样，由于缺乏有关法制和法规的知识，该企业需要一位当地律师在案件中担任代表。但基于语言障碍，企业一般会聘任所属国的另一位律师负责与外国律师沟通。这种安排可促成跨境仲裁，但显然也有其弊端，包括导致误解、效率低，以及引起律师和客户之间的纠纷。在不久的将来，要完全解决此问题的可能性很低。唯一寄望是中国企业国际化及国际律师事务所本地化，而不是跨国企业本地化及中国律师事务所国际化，这有助缩短两者之间的距离，令国际商业仲裁能更有效率地进行。