Latest developments in PRC arbitration

Jianwei (Jerry) Fang and Zhengzheng Mai

[email protected] and [email protected]

As the Chinese legal system matures, PRC litigation is an increasingly viable option for commercial dispute resolution. At the same time, arbitration continues to evolve and play and important role.

Foreign arbitration institutions in China

According to PRC laws, foreign-related disputes can be submitted to a domestic or international institution according to the arbitration clause or agreement. Many foreign parties choose major global arbitration institutions to settle disputes with their Chinese counterparties. Popular forums include the International Chamber of Commerce (ICC), Singapore International Arbitration Center (SIAC) and Hong Kong International Arbitration Centre (HKIAC). China already takes up much of the caseload of these major institutions. 20% of the SIAC's cases, for instance, are China-related.

Rep offices in Shanghai FTZ

The ICC, SAIC and HKIAC have been expanding their footprints in China. Between November 2015 and February 2016, all three had established representative offices in the China (Shanghai) Pilot Free Trade Zone (Shanghai FTZ). Although these offices cannot provide arbitration services to cases seated in mainland China, they allow for cooperation with local arbitrators and practitioners, and help promote global practices in the PRC.

Expansion of foreign-related disputes

Chinese law has historically drawn a line between “foreign-related” and domestic disputes. In practice, wholly foreign-owned enterprises (WFOEs) are considered Chinese legal entities. Foreign investors doing business in China through WFOEs or other types of foreign-invested enterprises (FIEs) are therefore often required to arbitrate in China, if the opposing parties are Chinese.

But there was a breakthrough recently. In the case of Siemens International Trading (Shanghai) Co., Ltd. v Shanghai Golden Landmark Co., Ltd., the Shanghai No.1 Intermediate People's Court handed a landmark ruling by recognizing and enforcing an SIAC arbitral award, although both parties to the dispute were WFOEs incorporated in the Shanghai FTZ.  While this was not a typical “foreign-related” dispute, the court concluded that there was a sufficient degree of foreign element, as the source of registered capital and the parties' ultimate ownership interests and decision makers were closely connected to foreign investors. Although the case has no stare decisis effect, it potentially allows Chinese parties—especially those based in the Shanghai FTZ—to opt for arbitration with international institutions outside mainland China.

Chinese arbitration institutions

The China International Economic and Trade Arbitration Commission (CIETAC), established in 1956, is China's oldest and most experienced arbitration institution. Headquartered in Beijing, CIETAC has sub-commissions in Shanghai, Shenzhen, Tianjin, Chongqing, Hangzhou, Wuhan and Fuzhou, and also established the CIETAC Hong Kong Arbitration Center—its first branch outside the PRC.

The Shanghai International Economic and Trade Arbitration Commission (SHIAC) and South China International Economic and Trade Arbitration Commission (SCIA) were originally established in 1988 and 1983, respectively, and they absorbed the Shanghai and South China sub-commissions of CIETAC in 2013 and 2012, respectively.