China

Guide to Arbitration Rules and Procedures in the PRC

Our Country Chapters set out key aspects of the arbitration framework of each jurisdiction highlighted in our website, covering basics like judicial hierarchy and domestic arbitral institutions to substantive issues such as conflicts of laws and the extent of adoption of the UNCITRAL Model Law.

1. Legal System and Framework

China is primarily a civil law system. The main rule making power lies with the National People’s Congress and its standing committee. The Supreme People’s Court and the Supreme People’s Procuratorate have the power to interpret the laws of China. Such interpretations may have the force of law in China as well.

The Chinese courts are divided into four levels, namely the Supreme People’s Court, the Higher People’s Court, the Intermediate People’s Court and the Basic People’s Court. Usually, judgments and orders of the court of the second instance are seen as final. However, in some circumstances, orders of the first instance in relation to an arbitration (usually on procedural matters) shall be final.

The Chinese courts play a role in ordering interim measures in support of arbitration, determining jurisdictional disputes, as well as setting aside and enforcing arbitral awards.

The main statutory framework consists of the Chinese Arbitration Law and the Chinese Civil Procedure Law. There are various judicial interpretations relating to arbitration matters which may be applicable, including:

  1. Notice of the Supreme People’s Court Concerning the Handling by People’s Courts of Issues Relating to Foreign-Related and Foreign Arbitration Matters (2008);
  2. Notice on Several Issues Concerning Implementation of the Arbitration Law of the People’s Republic of China (2008);
  3. Interpretation of the Supreme People’s Court Concerning Some Issues on Application of the Arbitration Law of the People’s Republic of China (2008);
  4. Notice on Issues Concerning the Centralised Handling of Judicial Review of Arbitration (2017);
  5. Provisions on Several Issues Related to the Trial of Arbitration Judicial Review Cases (2017);
  6. Provisions on Issues Concerning the Reporting and Review of Arbitration Judicial Review Cases (2017); and
  7. Provisions on Several Issues Concerning the Handling of Arbitration Awards Enforcement Cases by People’s Courts (2018).

No, China has not adopted the UNCITRAL Model Law. 

A key difference in the two regimes is that the Chinese arbitration regime does not in principle recognise ad hoc arbitration. In this regard, Article 16 of the Chinese Arbitration Law expressly requires a designated arbitration commission to be indicated in the arbitration agreement itself, failing which it will be an invalid arbitration clause.

Under Chinese law, the distinction is drawn between “foreign related arbitration” and “non-foreign related arbitration”. Different rules apply to govern the conduct of non-foreign related arbitration, as well as the grounds for setting aside and/or enforcement of the award. As an example, non-foreign related arbitration is generally prohibited from being seated outside China.

“Foreign related arbitration” is defined as one which involves foreign-related elements, where:

  1. at least one party concerned is a foreign citizen, legal person or organisation in a foreign country;
  2. the habitual residence of at least one party concerned is outside the territory of China;
  3. the subject matter is outside the territory of China; or
  4. the legal facts that established, changed or eliminated civil relations between the parties occurred outside the territory of China.

Chinese courts may be involved in the arbitration process in four ways: making orders for preservation measures, ruling on the validity of the arbitration agreement, setting aside the arbitral award, and ruling on whether to recognize and/or enforce the arbitral award.

Preservation measures

The interim measures used by the Chinese courts are termed “preservation measures”. There are three types of preservation measures:

  1. Property preservation: The court can make orders to seal up, restrain and/or freeze a party’s assets to prevent the party’s assets from being concealed, transferred or sold.
  2. Evidence preservation: The court can make orders to preserve evidence by photographing, duplicating, video recording, sampling, sequestering, seizing, detaining, etc.
  3. Conduct preservation: The court can make orders prohibiting one party from doing something, or compelling one party to do something.

Applications for the above preservation measures can be made prior to or during the arbitration. 

If one party wants to apply for preservation prior to the arbitration, the application shall be filed with the relevant Chinese court. The applicant is required to provide counter-security. Where one party applies for preservation prior to the arbitration, it shall commence arbitration within 30 days after the court issues the preservation order, failing which the court shall discharge the preservation order.

If one party wants to apply for preservation during the arbitration, the application shall be filed with the corresponding arbitration commission, then submitted by the arbitration commission to the Chinese courts. The applicant may be required to provide counter-security.

The court’s ruling on whether to make preservation measures cannot be appealed, but any party whose interest is affected by the preservation measures may apply to the court that makes the ruling for review of the court’s order. The review process is not an appeal, and is usually dealt with by the court in a summary manner.

Ruling on the validity of the arbitration agreement

A party who disputes the validity of an arbitration agreement may apply to the agreed arbitration commission or the people’s court for a ruling. If one party submits the application to an arbitration commission while the other party submits it to a court for determination, the decision shall be made by the court.

However, if the arbitration commission has already decided on the validity of the arbitration agreement before an application is made to the court, the arbitration commission’s decision will be binding on the parties and the decision cannot be challenged in court. When one party is challenging the validity of the arbitration agreement in court, the arbitral proceedings shall be suspended pending the court’s determination.

The court’s ruling on the validity of the arbitration agreement cannot be appealed.

Ruling on whether to set aside the arbitral award

A party who wishes to apply to set aside an arbitral award made by a Chinese local arbitration commission may, within six months from the date of receipt of the arbitral award, submit such an application to an intermediate people’s court where the arbitral institution is domiciled.

The grounds for setting aside an arbitral award vary depending upon the nature of the award. Chinese law sets out a bifurcated treatment towards domestic arbitration and foreign-related arbitration. The definition of domestic arbitration and foreign-related arbitration is set out in the answers to question 1.5 above.

According to Article 58 of the Chinese Arbitration Law, the court shall set aside a domestic arbitral award in the following circumstances:

  1. there is no arbitration agreement;
  2. the matters awarded are outside the scope of the arbitration agreement or are beyond the limits of authority of an arbitration commission;
  3. the composition of the arbitral tribunal or the conduct of arbitral proceedings violates the procedures provided by law;
  4. the evidence on which the award is based is forged;
  5. the other party has concealed evidence which has sufficient impact on the impartiality of an award;
  6. the arbitrators have accepted bribes, resorted to deception for personal gains, or perverted the law in the award; or
  7. the award is contrary to public policy.

According to Article 70 of the Chinese Arbitration Law and Article 274 of the Chinese Civil Procedural Law, the court shall set aside a foreign-related arbitral award in the following circumstances:

  1. the parties have not stipulated an arbitration clause in the contract and have not subsequently reached an arbitration agreement in writing;
  2. the applicant (namely the party who applies to set aside the award) had not been duly notified to appoint arbitrators or to proceed with the arbitration, or the applicant failed to state its opinions because of reasons for which the applicant is not responsible;
  3. the composition of the arbitral tribunal or the conduct of arbitral proceedings is not in conformity with the rules of arbitration; or
  4. the matters for arbitration are out of the scope of the arbitration agreement or are beyond the limits of authority of the arbitration commission.

The court’s ruling on whether to set aside an arbitral award cannot be appealed. However, the Supreme People’s Court has issued judicial interpretations which set up a level-by-level reporting mechanism for setting aside arbitral awards. The reporting mechanism is as follows:

  1. If a People’s Intermediate Court does not intend to set aside an arbitral award, it does not need to report to its higher court. If a People’s Intermediate Court intends to set aside an arbitral award, it shall report to the People’s High Court that has jurisdiction on the domicile of the arbitral institution.
  2. If the People’s High Court does not agree to set aside the award, the People’s High Court shall advise the People’s Intermediate Court not to set aside the award, and the People’s Intermediate Court will follow this advice. If the People’s High Court agrees to set aside the award, the People’s High Court shall report to the Supreme People’s Court.
  3. The Supreme People’s Court will then issue its advice to the People’s Intermediate Court, which will issue its ruling based on the Supreme People’s Court’s advice.

Ruling on whether to recognise and/or enforce the arbitral award

A party who wishes to enforce an arbitral award made by a Chinese arbitral institution may submit such an application to a people’s court within two years from the last date of the voluntary performance period prescribed by the arbitral award. The respondent (namely the award debtor) and/or a third party to the arbitration may submit an application to resist the recognition or enforcement of the arbitral award.

Where an award is too uncertain to be enforced, the Chinese courts may dismiss the application on their own initiative. If the court, on its own initiative, dismisses the application due to uncertainty of the award, such a ruling cannot be appealed. However, the applicant (namely the party who applies to recognise or enforce the arbitral award) is entitled to apply to the court of a higher level for reconsideration within 10 days after receiving the ruling. An application for reconsideration is distinct from an appeal in that the ruling remains enforceable while the application is pending, unlike an appeal where the ruling is automatically rendered unenforceable.

The Chinese law also sets out different grounds for refusing to recognise and/or enforce domestic arbitral awards and foreign-related arbitral awards.

According to Article 63 of the Chinese Arbitration Law and Article 237 of the Chinese Civil Procedural Law, the court shall refuse to recognise and/or enforce a domestic arbitral award in the following circumstances:

  1. the parties have not stipulated an arbitration clause in the contract and have not subsequently reached a written arbitration agreement;
  2. the matters awarded are outside the scope of the arbitration agreement or are beyond the limits of authority of an arbitration commission;
  3. the composition of the arbitral tribunal or the conduct of arbitral proceedings violates the procedures provided by law;
  4. the evidence on which the award is based is forged;
  5. the other party has concealed evidence which has sufficient impact on the impartiality of an award;
  6. the arbitrators have accepted bribes, resorted to deception for personal gains or perverted the law in the award; or
  7. the award is contrary to public policy.

According to Article 71 of the Chinese Arbitration Law and Article 274 of the Chinese Civil Procedural Law, the court shall refuse to enforce a foreign-related arbitral award if a party can furnish evidence to prove the existence of the following circumstances:

  1. the parties have not stipulated an arbitration clause in the contract or have not subsequently reached a written arbitration agreement;
  2. the applicant (namely the party who applies to set aside the award) had not been duly notified to appoint arbitrators or to proceed with the arbitration, or the applicant had failed to state its opinions because of reasons for which the applicant is not responsible;
  3. the composition of the arbitral tribunal or the conduct of arbitral proceedings is not in conformity with the rules of arbitration; or
  4. the matters for arbitration are out of the scope of the arbitration agreement or are beyond the limits of authority of the arbitration commission.

The level-by-level report mechanism mentioned above (see “Ruling on whether to set aside the arbitral award” in this question) also applies to the court’s ruling to refuse to recognise and/or enforce an arbitral award.

The court’s ruling on whether to refuse to recognise and/or enforce an arbitral award cannot be appealed. However, if the ruling stemmed from a third party application, the parties to the arbitration may apply to a court of a higher level for reconsideration within 10 days of receiving the ruling.

2. Arbitral Institutions

The China International Economic and Trade Arbitration Commission (“CIETAC“) is one of the major permanent arbitral institutions in China. Headquartered in Beijing, CIETAC has several sub-commissions in various cities in China and around the world. Since 1990, CIETAC’s caseload has been one of the heaviest among the major arbitral institutions in the world. A salient feature of CIETAC arbitration is the possibility of combining arbitration with mediation, which not only encourages dispute resolution but also helps to maintain relationships between parties.

The Beijing Arbitration Commission (“BAC“), also known as the Beijing International Arbitration Commission (“BIAC“), is another permanent arbitration body in China, and is generally recognised as a leading Chinese arbitral institution owing to its constant innovation and revision of its arbitration rules. For instance, BAC administered the first emergency arbitral proceeding in China. BAC is also the first Chinese arbitral institution to reform its arbitration fee schedule to provide a more fair, competitive and transparent scheme of compensation for arbitrators, setting yet another welcome precedent for fellow Chinese arbitral institutions to follow.

Apart from the abovementioned two arbitral institutions, there are many other famous arbitral institutions in China, such as the Shenzhen Court of International Arbitration (“SCIA“), the Shanghai International Economic and Trade Arbitration Commission – also known as the Shanghai International Arbitration Centre (“SHIAC“) – and the China Maritime Arbitration Commission (“CMAC“). In addition, usually there will be one small local arbitral institution in every prefectural-level city in China, for instance, the Shanghai Arbitration Commission, the Guangzhou Arbitration Commission, the Wuhan Arbitration Commission, etc.

Furthermore, some well-known international arbitral institutions such as ICC, SIAC and HKIAC have established their representative offices in Shanghai, China. However, their Shanghai representative offices are not allowed to handle case management and therefore cannot accept notices of arbitration. The major function of these representative offices is to organise training workshops and network events for arbitrators and practitioners.

3. Confidentiality

Arbitral proceedings in China are generally recognised to be confidential in nature. The Chinese Arbitration Law provides that arbitration hearings may, with the consent of the parties, be held in public unless State secrets are involved. The rules of Chinese arbitration commissions such as CIETAC prohibit parties, counsel, witnesses, experts, arbitrators and staff of the arbitration commissions from disclosing the substantive or procedural matters relating to the arbitration.

Having said the above, once the arbitration involves court procedures such as an application to set aside or to enforce the arbitral award, information with respect to the arbitration (such as the parties’ names, nature and amount of claims, award amount etc.) will be disclosed in the court papers.

4. The Law of the Arbitration and Conflicts of Law

Chinese law recognises the concept of the seat of arbitration.

Generally speaking, for an arbitration seated in China, the Chinese law (being the law of the seat of arbitration) will be the law applicable to the arbitral proceedings.

In the absence of an express choice of law, for an arbitration seated in China, the Chinese Law will also be the law which governs the validity and interpretation of the arbitration agreement.

Different rules apply to foreign related arbitration (as defined in question 1.5) and non-foreign related arbitration.

It is a mandatory rule that Chinese law shall apply to the substance of the parties’ dispute in a non-foreign related arbitration. The parties cannot choose a foreign law. 

For foreign related arbitrations, the rules for the law applicable to the substance of the parties’ dispute are set out in the Chinese Law on Choice of Law for Foreign-Related Civil Relationships.

Generally speaking, for contractual disputes, the law agreed upon by the parties shall apply. If there is no agreement, the principle of “closest connection” shall apply. In judicial practice in China, the concept of implied choice of law is not recognised.

For some special types of contracts, Chinese law is mandatorily applied even if the parties have agreed on a different applicable law. Such special types of contracts include:

  1. Sino-foreign joint venture contracts to be performed within the territory of China;
  2. Sino-foreign cooperative joint venture contracts to be performed within the territory of China (cooperative joint ventures are a more flexible type of joint venture); and
  3. contracts for Sino-foreign joint exploration and development of natural resources to be performed within the territory of China.

No, save for the circumstances where the law provides exceptions (i.e., non-foreign related arbitration and the mandatory application of Chinese law as stated in question 4.2 above), and where application of foreign substantive law breaches public policy.

According to Article 44 of the Chinese law on Choice of Law for Foreign-Related Civil Relationships, in the absence of any agreement on the applicable law, the laws of the place of the tort shall generally apply. However, if the parties are habitual residents of the same jurisdiction, the laws of that jurisdiction shall apply.

Nevertheless, if the parties have agreed on the applicable law prior to the tort, the agreed law will usually be accepted as the applicable law. If the parties choose the applicable law by agreement after the tort has taken place, such agreement shall prevail.

Yes. The law governing the arbitration agreement determines the validity and interpretation of the arbitration agreement, whereas the law applicable to the arbitration governs the procedure applicable to the arbitral proceedings.

For an arbitration seated in China, the law applicable to the arbitration shall be Chinese law (being the law of the seat of arbitration).

Under Chinese law, limitation periods are governed by the lex causae.

If Chinese law is to apply, the limitation period of a certain claim would depend on the nature of claim and the type of contract (if it is a contractual claim). Usually, the limitation period is 3 years for most types of contractual and non-contractual claims.

5. Arbitration Agreements

For an arbitration agreement governed by Chinese laws to be valid and enforceable, it must be in written form and must contain an expression of intention to apply for arbitration, the matters for arbitration, and a designated arbitration commission. However, there is no clear definition of “written form” or “written” under Chinese law.

Article II.2 of the New York Convention defines the term “agreement in writing” as an agreement including an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. In judicial practice in China, this definition is usually referred to when determining the meaning of “written form”.

The arbitration agreement will be null and void if:

  1. the agreed matters for arbitration are non-arbitrable under the law; or
  2. a party to the arbitration agreement lacks the necessary capacity to enter into an arbitration agreement; or
  3. one party coerced the other party to enter into the arbitration agreement; or
  4. the arbitration clause is unclear and uncertain with respect to the matters for arbitration or the arbitral institution.

Yes, electronic arbitration agreements can constitute a written form of arbitration agreement (2008 SPC Interpretation on Certain Issues Concerning the Application of Arbitration Law, Article 1), and will be recognised as long as it fulfils the requirements of a valid arbitration agreement under the Chinese Arbitration Law.

There are no express laws regarding the incorporation of an arbitration agreement by reference.

In judicial practice in China, most courts accept the incorporation of an arbitration agreement by reference, save for incorporating the arbitration clause in a charter party into a bill of lading.

Under the Chinese Arbitration Law, contractual disputes and “other disputes over rights and interests in property between citizens, legal persons and other organisations that are equal subjects” may be arbitrated, including any claims in the nature of tort, unjustified enrichment etc. If an arbitration clause is wide enough to cover all non-contractual disputes relating to the contract, then an allegation of fraud relating to the contract can be covered by the arbitration.

The principle of separability is enshrined in Article 19 of the Chinese Arbitration Law. The invalidity or unenforceability of the underlying contract does not affect the validity and enforceability of the arbitration agreement.

Please contact the editorial team of Arbitration Asia at arbitrationasia@rajahtannasia.com.