Onshore Arbitration by Offshore Institutions Recognized by China’s Highest Court

By Zhang Shouzhi Hu Ke Tian Jing king&WoodMallesons’ Dispute Resolution Group

Abstract

In the case of Anhui Longlide Packing and Printing Co., Ltd. v.s. BP Agnati S.R.L., which related to a dispute regarding the validity of an arbitration agreement, the Supreme People’s Court confirmed that the selection of the ICC International Court of Arbitration (“ICCICA”) with the “place of jurisdiction” at Shanghai is valid. This is a milestone for Mainland China opening its arbitration market to offshore arbitration institutions.

Full Text

In the Reply of the Supreme People’s Court regarding the Dispute on the Validity of an Arbitration Agreement between Anhui Longlide Packing and Printing Co., Ltd. and BP Agnati S.R.L.([2013] Min Si Ta Zi No.13) (the “Decision”)[1], issued in March 2013, the Supreme People’s Court (“SPC”) confirmed the validity of an arbitration agreement selecting the ICCICA with the “place of jurisdiction” at Shanghai. This is a significant step for Mainland China to open its arbitration market to offshore arbitration institutions.

The Decision

The Decision is published in the recently released Volume No. 26 of Guide on Adjudication of Cases involving Commercial and Maritime Affairs. The arbitration clause in the case provides: “Any dispute arising out of or in connection with this Agreement shall be submitted to ICCICA, with one or several arbitrators appointed according to the ICC Arbitration Rules, for arbitration pursuant to the ICC Arbitration Rules. The place of jurisdiction shall be Shanghai and the language shall be English.” The Intermediate People’s Court of Hefei and the High People’s Court of Anhui reported the case to the SPC according to the “reporting system”[2].

The SPC held that, pursuant to Article 16 of The Interpretation concerning Some Issues on the Application of the Arbitration Law of the P.R.C.[3], since the parties did not prescribe the laws applicable to the validity of the arbitration agreement, the laws at the place of arbitration, namely Chinese law, should apply. The SPC also held that the arbitration clause had an unambiguous intention to resolve the parties’ dispute via arbitration, provided the matters subject to arbitration and designated an arbitration institution. As a result, the SPC held that the arbitration clause conformed with Article 16 of the Arbitration Law[4] and therefore was valid.

By declaring this arbitration clause valid, the SPC opened the door for offshore arbitration institutions to conduct arbitration in Mainland China.

Background

The Arbitration Law does not clearly stipulate whether offshore arbitration institutions can conduct arbitrations in Mainland China.

Before Longlide, it has been fiercely disputed whether offshore arbitration institutions were permitted to conduct arbitration in Mainland China due to different understanding on the Arbitration Law and related judicial policies in China. Some experts, invoking Article 10 of the Arbitration Law, held the view that “arbitration commissions” under the Arbitration Law do not include foreign institutions, and that for conducting arbitration, being professional service, a license granted by administrative authorities is needed, and before the Chinese government opens the arbitration service market, offshore arbitration institutions still cannot arbitrate in Mainland China[5]; but some comments, interpreting the “arbitration commissions” more liberally, believe that there is no legal obstacle for foreign institutions conducting arbitration in Mainland China[6].

In April 2009, in Duferco v.s. Ningbo Arts and Craft Imp.&.Exp. Co, Ltd.[7], a case of recognition and enforcement of an arbitral award, the Intermediate People’s Court of Ningbo characterized this arbitral award rendered by ICC in Mainland China as a “non-domestic award”. The Court recognized and enforced the award pursuant to Article I (1) of the New York Convention, without taking into account China’s declaration under Article I (3). The Duferco ruling, though hotly contested in the arbitration community[8], was final and thus did not go to higher courts for appellate review.

The Court’s decision in Longlide makes it clear that arbitration agreements choosing offshore arbitration institutions to arbitrate in Mainland China are valid, declares the opening of Chinese arbitration market and removes the main legal obstacle for offshore arbitration institutions such as ICC to arbitrate in Mainland China.

Remaining Issues

Though the Decision allows offshore arbitration institutions to conduct arbitration in Mainland China, there still are numerous issues to be resolved.

First, how will awards rendered in Mainland China by offshore arbitration institutions be characterized? Should they be regarded as “domestic awards” or “non-domestic awards”? If they are regarded as “non-domestic awards”, whether and how will they be enforced in Mainland China?

Second, if an offshore arbitration institution arbitrates in Mainland China, how should parties ensure compliance with Chinese laws? Can the Chinese judicial system intervene in the arbitration and, if so, how would it do so? More details need to be clarified.

For example, pursuant to Art. 28 and Art. 46 of the Arbitration Law, applications for interim measures in arbitration should be submitted to an arbitral institution and then forwarded to a competent court by that institution. When an offshore arbitration institution conducts arbitration in Mainland China, how will these applications be forwarded?

For another example, pursuant to Art. 58 of the Arbitration Law, the intermediate people’s court at the place where the arbitration institution is located has jurisdiction over the application for setting aside arbitral awards. However, there is no stipulation relating to the annulment of arbitral awards rendered by an offshore institution. Assuming that the court at the place of arbitration has jurisdiction, it would be still unclear which particular court has supervisory jurisdiction of the arbitration when the place of arbitration is not so specified as sufficient to identify a competent intermediate court (for instance, in Longlide, the parties agreed that the arbitration shall be conducted in Shanghai, but there are two intermediate courts in Shanghai, and it is unclear which one has the jurisdiction).

All of these issues need to be clarified in Chinese arbitral and judicial practice. It appears that, amending the Arbitration Law and keeping it in line with international mainstream practice, is probably the most effective way to answer these questions, and to address the concerns of arbitration practitioners and the business community regarding arbitration in Mainland China.