Commercial Dispute Resolution in China: An Annual Review and Preview 2020

Annual Review on Commercial Arbitration in China (2020)

FEI Ning, JIANG Hong & LIU Jing

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PART 1. OVERVIEW

As the China-USA trade war² embarks on the second year and the global economy are getting increasingly complex and volatile, the turbulent situation offers both challenges and opportunities for the resolution of commercial disputes. In 2019, commercial arbitration in China continued to adhere to the principles of reform, opening-up, and innovation, achieving a stable performance. Many areas in commercial arbitration see more improvement in standardization, fostering a more transparent rule-of-law business environment in China.

In general, in 2019, commercial arbitration in China has made remarkable progress with respect to policy and guidance, laws and regulations, rules construction, practice innovation, and theoretical research. This report reviews the key progress in these areas and draws conclusions based on our observation.

1. 1 On the Policy Level, Commercial Arbitration in China Emerges in the Scope of the Top-Level Design Once Again

The Arbitration Law of the People’s Republic of China (hereinafter referred to as Arbitration Law) promulgated on 31 August 1994 marks the first top-level design of great importance for commercial arbitration after China adopted the policy of reform and opening-up. Twenty-five years having passed by since the promulgation of the Arbitration Law, the development of arbitration in China is unprecedented. By the end of 2018, in the field of commercial arbitration, 255 arbitration commissions with more than 60,000 staff have been established in China, and the arbitration institutions in China have handled more than 2.6 million civil and commercial cases, with the amount in dispute exceeding RMB 4 trillion and the parties coming from more than 70 countries and regions. In year 2018 alone, arbitration institutions in China have handled more than 540,000 cases with the amount in dispute of nearly RMB 700 billion.³ However, in terms of the goal of establishing and improving the brand of Arbitration in China that suits China’s status in the world, the inner spirit of the Arbitration Law has not been explored to its full strength. There are still gaps to fill and nonconformities to be rectified.

On 31 December 2018, the General Office of the Central Committee of the Communist Party of China (CCCPC) and the General Office of the State Council issued the Several Opinions on Improving the Arbitration System to Strengthen the Creditability of Arbitration, setting out new regulations and requirements on the nature, tasks, code of conduct, and supervision of commercial arbitration institutions in China from the perspective of top-level design.

On 12 September 2019, the Ministry of Justice of China sought public comments on the Administrative Measures for the Registration of Arbitration Commissions (Draft for Comment) to further regulate and improve the administration and the registration of arbitration commissions.

1. 2 On Institutional Level, Commercial Arbitration in China Has Entered into the Deep Level of Reform and Opening-Up

The new Beijing Arbitration Commission Arbitration Rules came into effect from 1 September 2019, which made groundbreaking changes to the mechanism of collecting and allocating of the arbitrator’s fees. The Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC/BIAC) is the first arbitration institution in China to differentiate the arbitrator’s fees and the administration fees, and it allows the arbitrators to be paid on the basis of hourly rate, if the parties so agree.

In the first half of 2019, the People’s Government of Hainan province and the Shenzhen Municipal People’s Government issued the Administrative Measures for the Hainan International Arbitration Court and the Administrative Regulations of Shenzhen Court of International Arbitration respectively, both of which aim to promote the corporate governance structure centered on the council for the Hainan International Arbitration Court (HIAC) and the Shenzhen Court of International Arbitration (SCIA). These provident arbitration institutions in China have made great efforts to reform themselves and have laid a solid foundation for the development of arbitration at the institutional level.

1. 3 With Respect to Building China’s Arbitration Brand, Many Regions Have Adopted the Multi-Linkage Mechanism and Made Great Achievements

The Ministry of Justice specified in April 2019 that one of the objectives of the reform and development of the arbitration in the new era is to establish a globally and regionally recognized brand of arbitration in China by 2022.⁴ To achieve this goal, on 8 November 2019, Shanghai Municipal Bureau of Justice issued the Administrative Measures for Overseas Arbitration Institutions to Establish Representative Offices in New Lin-gang Area of the China (Shanghai) Pilot Free Trade Zone, which provides convenience for registered overseas arbitration institutions to set up operation offices in New Lin-gang Area to carry out arbitration activities, building Shanghai as the Asia-Pacific arbitration center, and branding Arbitration in Shanghai as a representation of Arbitration in China.

The Supreme People’s Court (SPC) and the Department of Justice of Hong Kong signed the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region in April 2019. The signing of this Arrangement is a major breakthrough for Hong Kong SAR to further benefit from one country, two systems, signifying that Hong Kong SAR has become the first and only jurisdiction outside the mainland China in the world where, as a seat of arbitration, parties to arbitration proceedings administered by designated arbitration institutions in Hong Kong would be able to apply to the courts in the mainland China for interim measures in order to ensure that the arbitral proceedings can be carried out effectively.⁵ It may serve to increase the attractiveness of Hong Kong as a seat of arbitration to handle dispute resolution related to the mainland China. Meanwhile, it may also promote the brand building strategy of China extending to different jurisdictions in Greater China area.

1. 4 With Respect to Promoting the Legislation of Arbitration, Laws and Regulations Related to Arbitration Have Been Further Improved, and the Gaps in the Arbitration Law Have Been Filled to Some Extent

In 2019, SPC has issued a series of judicial interpretations and judicial documents, which include:

(1)   the Several Provisions of the Supreme People’s Court on Evidence in Civil Proceedings, which detail the rules of evidence and have a positive effect on the arbitration proceedings seated in China;

(2)   the Provisions of the Supreme People’s Court on Several Issues concerning the Application of the Enterprise Bankruptcy Law of the People’s Republic of China (III), which specify that bankruptcy administrators may apply to set aside arbitral awards;

(3)   the judicial interpretations involving administrative agreements, which specify the validity of arbitration agreements related to administrative agreements; and

(4)   the Minutes of the National Conference for the Work of Courts in the Trial of Civil and Commercial Cases, which specify that the arbitration agreement reached between the insured and a third party is binding on the insurer who exercises its insurance subrogation right.

The Beijing No. 4 Intermediate People’s Court and the High People’s Court of Jiangxi Province (hereinafter referred to as Jiangxi High Court) have issued regulations concerning the judicial review of arbitration.

The High People’s Court of Guangdong Province (hereinafter referred to as Guangdong High Court) and the High People’s Court of Henan Province (hereinafter referred to as Henan High Court) have issued judicial documents concerning the application of strict scrutiny of the enforcement of arbitral awards related to online lending.

These proactive actions of SPC and local people’s courts at various levels promoting the growth of arbitration on the legislative level have enhanced the inclusiveness and transparency of laws of arbitration.

1. 5 With Respect to Arbitration Practices and Innovation, the Arbitration Institutions in China Have Performed Outstandingly

The Optional Appellate Arbitration Procedure was first introduced by the Arbitration Rules of Shenzhen Court of International Arbitration, effective as of 21 February 2019. This Procedure draws much attention, and gives the parties room to agree on self-help remedy.

The Beijing Arbitration Commission/Beijing International Arbitration Center International Investment Arbitration Rules effective as of 1 October 2019 make ad hoc arbitration compatible with institutional arbitration. It also introduces the appellate mechanism of international investment arbitration for the first time.

In addition, the China Maritime Arbitration Commission (hereinafter referred to as CMAC) and the Qingdao Arbitration Commission (hereinafter referred to as QAC) have issued arbitration rules for conducting online proceedings, responding to the new demands of the development of information technology in the era of Internet Plus.

In 2019, the number of accepted cases and the amount in dispute of arbitration institutions in China have reached a new height. Take China International Economic and Trade Arbitration Commission (CIETAC) and BAC/BIAC as examples.

In 2019, CIETAC accepted a total number of 3,333 cases (a year-on-year growth of 12.53%), including 2,716 domestic cases (a year-on-year growth of 11.31%), 617 foreign-related cases (a year-on-year growth of 18.20%), with the amount in dispute reaching RMB 122.043 billion (a year-on-year growth of 20.13%), and the involved parties from 72 countries and regions (an increase of twelve new countries and regions compared with last year, a year-on-year growth of 20%).⁶

In 2019, BAC/BIAC accepted 6,732 cases, with the total amount in dispute amounting to RMB 94.804 billion. Among the accepted domestic cases, there were 4,452 cases involving one party or both parties from areas outside of Beijing, accounting for 66.13% of the total domestic cases, increasing by 1,510 cases, with a year-on-year growth rate of 51.33%; 1,606 cases involving both parties from areas outside Beijing, accounting for 23.86% of the total domestic cases, increasing by 796 cases, with a year-on-year growth rate of 98.27%. The number and the amount in dispute of foreign-related cases accepted by BAC/BIAC in 2019 increased significantly to 163 cases and RMB 6.952 billion, respectively.⁷

1. 6 With Respect to the Practice of Judicial Review of Arbitration, SPC and Local Courts at Various Levels Strive to Create a More Friendly Judicial Environment

The court applies great prudence in setting aside and non-enforcement of arbitral awards cases, steadily improving the credibility of arbitration. In 2019, the China International Commercial Court (hereinafter referred to as CICC) successfully concluded the first batch of five cases of judicial review of arbitration cases. CICC rendered thought-out judgments with detailed reasoning on difficult issues, such as the severability of an arbitration agreement and the consequences of circumventing arbitration by litigation, resolving some long-term doubts arising from these issues in the judicial and arbitration practice, and aligning the guiding principles and standards of adjudicating these cases. CICC demonstrates its capability of adjudicating major, complex cases and serving for the development of the Belt and Road Initiative. According to the Big Data Research Report on Arbitration Judicial Review Cases jointly issued by Beijing No. 4 Intermediate People’s Court and the China Arbitration Institute (CAI) of China University of Political Science and Law, the local courts represented by Beijing No. 4 Intermediate People’s Court have accurately understood the principles proposed by SPC, i.e, the arbitration agreements should be held valid to the greatest extent and arbitration shall be treated friendly in judicial reviews. A high proportion of the arbitration agreements have been held valid, and the percentage of awards being set aside is low.⁸ The judicial review cases selected and reported in this article also demonstrate the capability of the people’s courts to deliver judicial judgment pragmatically and skillfully when dealing with hot issues and difficult cases.

1. 7 New Developments Have Taken Place in the Dispute Resolution Mechanism of the Belt and Road Initiative

From 25 to 27 April 2019, at the second Belt and Road Initiative International Cooperation Forum, the China Council for the Promotion of International Trade/China Chamber of International Commerce and chambers of commerce and legal service agencies from over 30 countries and regions jointly established the Organization for the Prevention and Settlement of International Commercial Disputes.

From 6 to 7 November 2019, the Belt and Road Initiative Arbitration Institutions Round Table Forum was held in Beijing, during which 30 international arbitration institutions and thirteen domestic arbitration institutions reached the Beijing Joint Declaration for "Belt and Road Initiative" Arbitration Institutions, with the initiative to build a closer cooperation mechanism for Belt and Road Initiative arbitration institutions.

On 27 December 2019, SPC promulgated the Opinions on Further Providing Judicial Services and Safeguards for the Belt and Road Initiative by People’s Courts, in which Arts 28, 33, and 34 support the arbitration of China to thrive internationally.

1. 8 China Continues to Actively Participate in the Development of International Dispute Settlement Mechanisms

On 18 July 2019, the Chinese government submitted the Possible Reform of Investor–State Dispute Settlement to the working group for the 38th session of the Working Group III of the United Nations Commission on International Trade Law (hereinafter referred to as the UNCITRAL), listing out the issues that China believes require attention, considerations, and proposing recommendations.

On 7 August 2019, 46 countries, including China, attended the Singapore Convention Signing Ceremony and Conference in Singapore and signed the United Nations Convention on International Settlement Agreements Resulting from Mediation (hereinafter referred to as Singapore Convention on Mediation), which aims to facilitate the cross-border enforcement of settlement agreements reached in international commercial mediation, hopefully to open a new prospect in the settlement of international commercial disputes.

From 23 to 27 September 2019, the 70th session of Working Group II (Dispute Settlement) of UNCITRAL was held at the Vienna International Centre in Austria. The invited delegation of BAC/BIAC participated in the discussions throughout the session and introduced China’s practical experience involving the draft of expedite arbitration, sharing the Chinese wisdom on expedite arbitration.

1. 9 Depth and Breadth of Arbitration Theory Research, Practical Training, And International Communication Have Been Further Enhanced, Especially in the Area of Harnessing Talent and Education

In recent years, arbitration institutions have done a lot of effective work and achieved fruitful result in cooperation with government departments, lawyers, and higher education institutions. The annual arbitration week in Beijing and Shanghai and other areas, the arbitration moot hearings, and the practitioner gatherings held by BAC/BIAC in North America have effectively promoted the recognition and dissemination of features of Chinese arbitration, offering a forum for the Chinese and international arbitration practitioners to learn from each other.

PART 2. THE MAJOR UPDATES OF LAWS AND REGULATIONS AND OTHER NORMATIVE DOCUMENTS

2. 1 New Laws, Regulations, and Normative Documents

2. 1. 1 Central Government Documents, Laws, Regulations, and Departmental Rules Relating to Arbitration

(1) Several Opinions on Improving the Arbitration System to Strengthen Creditab ility of Arb itration

On 31 December 2018, the General Office of CCCPC and the General Office of the State Council issued the Several Opinions on Improving the Arbitration System to Strengthen Creditability of Arbitration, in which many reform strategies on improving the arbitration mechanism have received positive response from Chinese local arbitration commissions in 2019. The Several Opinions explicitly provide that the arbitration institutions in China shall be non-profit legal persons which provide public services. This is critical for the Chinese arbitration institutions to position themselves accurately and to deepen reform on arbitration system.

(2) Development Plan for Guangdong-Hong Kong-Macao Greater Bay Area

On 18 February 2019, CCCPC and the State Council promulgated the Development Plan for Guangdong-Hong Kong-Macao Greater Bay Area, envisioning a short-term plan till 2022 and long-term till 2035.⁹ Chapter 9 specifies the goal of improving the international commercial dispute resolution mechanism; building an international arbitration centre; supporting the exchange and cooperation of arbitration and mediation institutions among Guangdong, Hong Kong, and Macao; and providing arbitration and mediation services for the economic trade among Guangdong, Hong Kong, and Macao, which is of far-reaching significance for the development of arbitration in Guangdong, Hong Kong, and Macao.

(3) Overall Plan for China (Shanghai) Pilot Free Trade Zone New Lin-gang Area

On 27 July 2019, the State Council promulgated the Overall Plan for China (Shanghai) Pilot Free Trade Zone New Lin-gang Area. Article 4 puts forward the plan of permitting renowned international arbitration and dispute resolution institutions to establish operation offices in New Lin-gang Area after going through the registration with the judicial administrative department of the Shanghai municipal government and filing with the judicial administrative department of the State Council. This provides strong policy support to accelerate building Shanghai as a globally oriented Asia-Pacific arbitration hub.

(4) Administrative Measures for the Registration of Arbitration Commissions (Draft for Comment)

On 12 September 2019, the Ministry of Justice promulgated the Administrative Measures for the Registration of Arbitration Commissions (Draft for Comment), which specify the circumstances where the registration would be rejected, the procedure of registering branch offices, and the supervising power of the registration and/or administration over the arbitration institutions. The Measures also introduce the review process of succession of office; a credit establishment system; the rules for registering CIETAC, CMAC, the Arbitration Centre Across the Straits; and their branch offices. The Measures also apply to registration of the branch/representative offices of the international arbitration institutes.¹⁰

2. 1. 2 Judicial Interpretations and Judicial Documents Relating to Arbitration

(1) Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong SAR¹¹

On 2 April 2019, SPC and the Department of Justice of Hong Kong SAR entered into the Arrangement between the Mainland and Hong Kong SAR on Mutual Assistance in Aid of Arbitral Proceedings by the Courts of the Mainland and of Hong Kong SAR on behalf of the Mainland China and Hong Kong SAR, respectively. The Arrangement sets out, inter alia, detailed provisions on:

(a)   the scope of interim measures,

(b)   definition of arbitration procedures in Hong Kong SAR,

(c)   time limit for applying for interim measures,

(d)   competent courts,

(e)   submission and forwarding of preservation applications, and

(f)   handling of interim measures’ applications.

On 26 September 2019, SPC published the understanding and application of the Arrangement, which provides guidelines for the application of the Arrangement by mainland courts.

On 11 November and 20 December 2019, ICC International Court of Arbitration and the Hong Kong International Arbitration Centre (HKIAC) issued practical guidelines for the application of the Arrangements, respectively.

The above-mentioned documents encourage the parties to arbitrate in Hong Kong SAR and Mainland China, especially in Hong Kong SAR.

(2) Article 7 of the Provisions of the Supreme People’s Court on Several Issues concerning the Application of the Enterprise Bankruptcy Law of the People’s Republic of China (III)

On 25 February 2019, the Judicial Committee of SPC adopted the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Enterprise Bankruptcy Law of the People’s Republic of China (III) (hereinafter referred to as "Judicial Interpretation of the Bankruptcy Law (III)"). Article 7 provides that where a bankruptcy administrator has evidence to prove that the creditor and the debtor have fabricated false claims and debts through arbitration, the bankruptcy administrator may apply to the people’s court that accepted the bankruptcy application for setting aside or non-enforcement of the arbitral award. The bankruptcy administrator is an outsider and non-party to the award vis-a-vis the parties to the award. In fact, Art 9 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Cases by People’s Courts to Enforce Arbitral Awards (effective from 1 March 2018) has established the mechanism under which a non-party may apply for non-enforcement of an arbitral award to protect its legitimate rights and interests from being infringed by sham arbitration. The Judicial Interpretation of the Bankruptcy Law (III) further stipulates that bankruptcy administrators may apply to set aside arbitral awards, which is a new measure for people’s courts to restrain sham arbitration by way of judicial review.

(3) Several Provisions of the Supreme People’s Court on Evidence in Civil Proceedings

On 14 October 2019, the Judicial Committee of SPC adopted the amended Several Provisions on Evidence in Civil Proceedings, effective from 1 May 2020. The Several Provisions on Evidence in Civil Proceedings consist of 100 articles in six chapters, namely:

(a)   Production of Evidence by the Parties,

(b)   Investigation, Collection and Preservation of Evidence,

(c)   Time Period for Producing Evidence and the Exchange of Evidence,

(d)   Examination of Evidence,

(e)   Verification and Affirmation of Evidence, and

(f)   Miscellaneous Provisions.

It provides comprehensive rules. The 2019 amendment includes:

(a) The chapter Production of Evidence by the Parties further supplements on the relevant rules on self-confession. Article 3 of this chapter expands the interpretation on the circumstances where the self-confession is applicable and provides that any statement disadvantageous to a party concerned made by that party in the course of evidence exchange, inquiry, or investigation or in written pleadings (such as the statement of claim, statement of defence, or statement of attorney) may also be treated as self-confession.

(b) In the chapter Investigation, Collection and Preservation of Evidence, the provisions on judicial authentication are supplemented, by adding the provisions on the penalty against false authentication made by judicial authenticators.

(c) The chapter Order on the Submission of Documentary Evidence is added, specifying the application conditions and examination procedures and expanding the scope of application to the audio-visual materials and electronic data under this rule.

(d) In the chapter Time Period for Producing Evidence and the Exchange of Evidence, the operating rules on the time limit for furnishing evidence are improved.

(e) In the chapter Examination of Evidence, the procedures and requirements for parties’ statements and witnesses’ testimony are improved and supplemented. It also imposes penalty upon parties and witnesses who make intentional false statements.

(f) In the chapter Verification and Affirmation of Evidence, the rules on the verification and acceptance of electronic data are improved.¹²

With respect to arbitration proceedings in China, if there are no corresponding provisions in the relevant arbitration rules governing specific rules of evidence, the Provisions on Evidence in Civil Proceedings may be applied as a reference of the lex arbitri. It is expected that the Provisions on Evidence in Civil Proceedings will have a significant impact in the civil and commercial dispute resolution and arbitration practice in China.

(4) Article 98 of Minutes of the National Conference for the Work of Courts in the Trial of Civil and Commercial Cases

On 14 November 2019, SPC promulgated the Minutes of the National Conference for the Work of Courts in the Trial of Civil and Commercial Cases. Section 98 provides that [t]he insurance subrogation right is a statutory assignment of the creditor’s rights. After the insurer makes insurance indemnities to the insured, it has the right to exercise the right of the insured to claim compensation from a third party. The arbitration agreement reached between the insured and the third party before the occurrence of an insurance accident is binding on the insurer. Meanwhile, considering the application of laws governing the arbitration agreement in foreign-related cases is guided by rules of conflict of laws, section 98 of the Minutes treats domestic cases differently from foreign-related cases, which means the handling of such issues in civil and commercial disputes with foreign elements is not included in the scope of section 98.

As such, for domestic cases, the Minutes specify that the insurance subrogation right is different from the assignment of all or part of the creditor’s rights and debtors’ debts as mentioned in Art 9 of the Interpretation of the Supreme People’s Court Concerning Some Issues on Application of the Arbitration Law of the People’s Republic of China, and is also different from the creditor’s right of subrogation as prescribed in Art 73 of the Contract Law of the People’s Republic of China (hereinafter referred to as the Contract Law). In view of the nature of the insurance subrogation right as the statutory assignment of the creditor’s rights, an arbitration agreement between the insured and a third party is still binding on the insurer even if the insurer did not sign an arbitration agreement. This can prevent the insurer from arbitrarily amending dispute resolution clause already agreed upon by the insured and the third party or cherry-picking jurisdiction while obtaining the subrogation right. Such approach, however, is a deviation from SPC’s previous judicial practice.¹³

(5) Opinions on Providing Judicial Services and Guarantee by People’s Courts for the Construction of China (Shanghai) Pilot Free Trade Zone New Lin-gang Area

On 27 December 2019, SPC promulgated the Opinions on Providing Judicial Services and Guarantee by People’s Courts for the Construction of China (Shanghai) Pilot Free Trade Zone New Lin-gang Area. The Opinions is an important measure for SPC to actively provide effective judicial services and guarantee for institutional innovation in New Lin-gang Area after the State Council issued the New Lin-gang Area Plan on 27 July 2019.

2. 1. 3 Local Normative Documents Facilitating Arbitration

(1) Action Plan to Create Shanghai Arbitration Service Brand (2019-2021)

On 27 May 2019, the Shanghai Bureau of Justice issued the Action Plan to Create "Shanghai Arbitration" Service Brand (2019-2021), proposing to spare no efforts to develop the Shanghai Arbitration model so as to build Shanghai Arbitration into a high end legal service brand with great influence both domestically and globally.

(2) Administrative Provisions on Arbitration Institutions Successively Promulgated in Shenzhen and Hainan

On 11 February 2019, the Administrative Measures for Hainan International Arbitration Court (hereinafter referred to as HIAC Administrative Measures) was deliberated and adopted at the fifth meeting of the Commission for Comprehensively Deepening Reforms of Hainan Province. The HIAC Administrative Measures follow the Administrative Regulations of Shenzhen Court of International Arbitration (Trial) (hereafter referred to as SCIA Administrative Regulations) (Order No. 245 of the Shenzhen municipal people’s government) issued by Shenzhen municipal people’s government in November 2012. The HIAC Administrative Measures are in the form of local legislation and it fully embodies the new requirements for the construction of pilot free trade zones and free trade ports with Chinese characteristics in Hainan Province. The HIAC Administrative Measures specify that HIAC shall adopt a corporate governance mechanism with the Council being its core. HIAC becomes the second arbitration institution in China to implement the corporate governance mechanism after SCIA. It is noteworthy that Art 28 of the HIAC Administrative Measures stipulates that HIAC shall publish on its website the annual work report and financial forecast (statement) report approved by the Council and other information subject to public inquiry and social supervision. HIAC’s move to increase financial transparency sets a good example in China.¹⁴

The amended SCIA Administrative Regulations took effect on 1 June 2019, making three notable improvements:

It further improves the corporate governance mechanism of SCIA, by stipulating that the Shenzhen municipal government shall employ professionals from legal, commercial, and other related sectors from China and abroad as Council members who are in charge of making decisions on major issues in SCIA. At least one third of the Council members shall come from Hong Kong SAR, Macao SAR, or other jurisdictions outside mainland China, which exemplifies the strength of the policy of developing the Guangdong-Hong Kong-Macao Greater Bay Area.

It further promotes the administrative mechanism reform of SCIA, specifying that SCIA shall establish and improve a financial assets management mechanism and a market-oriented employment system that are suitable for its independent legal person status as a public institution in China.

It further specifies globalization measures, providing that at least one third of the arbitrators on the penal of arbitrators shall be from Hong Kong SAR, Macao SAR, and other overseas regions or countries.¹⁵

The above measures taken by Hainan and Shenzhen are conducive to promoting the innovative development of commercial arbitration and are meaningful explorations to further bring China’s arbitration in line with the international standards.

(3) Administrative Measures for Overseas Arbitration Institutions to Establish Operation Offices in New Lin-gang Area of the China (Shanghai) Pilot Free Trade Zone and Guidelines on Application for Establishment of Business Organisations by Overseas Arbitration Institutions in New Lingang Area

The Shanghai Bureau of Justice issued the Guidelines on Application for Establishment of Business Organisations by Overseas Arbitration Institutions in New Lin-gang Area accompanying Administrative Measures for Lingang Institutions to provide specific guidelines on the scope of applicants, conditions for application, application materials, and approval procedures.

(4) Guideline Documents Issued by Jiangxi High Court and Beijing No. 4 Intermediate People’s Court on Judicial Review of Arbitration

On 13 July 2019, the Jiangxi High Court promulgated the Guidelines of the Jiangxi Province Higher People’s Court for the Hearing of Cases Involving Judicial Review of Arbitration, which not only specifies the scope of judicial review of arbitration, competent courts, responsible departments, and review procedures, but also provides detailed standard of review.

On 10 December 2019, the Beijing No. 4 Intermediate People’s Court promulgated the Guidelines on Standards for Judicial Review of Arbitration, which consist of the following three chapters with a total of 41 articles:

(a) Acceptance of Cases Involving Judicial Review of Arbitral Awards,

(b) Standards for Cases Involving Declaration of the Validity of an Arbitral Agreement, and

(c) Standards for Cases Involving Application for Setting Aside of Arbitral Awards.

The Guidelines also provide sixteen typical cases of the judicial review of arbitration. The above-mentioned normative documents concerning the judicial review of arbitration provide meaningful guidance for the courts to unify and standardize the judicial review of arbitration within their jurisdiction, which are worthy of experimentation by courts in other regions.

(5) Notice of Guangdong High Court and Henan High Court on Regulating the Enforcement of Arbitral Awards on Online Lending Dispute

On 21 November 2019, the Guangdong High Court promulgated the Notice of the Guangdong High Court on Regulating the Enforcement of Online Lending Arbitral Awards (hereinafter referred to as Guangdong High Court Notice). The Guangdong High Court Notice shall apply to two types of disputes:

the P2P online lending dispute arising from the direct lending between individuals through online platform, and

the dispute arising from the online lending carried out by small-sum loan companies.

The main purpose of the Guangdong High Court Notice is to prevent sham arbitration and the abuse of arbitration that are prone to happen in these two types of cases. It imposes stricter review measures and tightens the standard of judicial review for the enforcement of related arbitral awards. The Guangdong High Court Notice is not only conducive to maintaining fair and impartial arbitration, but also to preventing and resolving financial risks and maintaining social harmony and stability.

On 13 December 2019, the Henan High Court issued a notice very similar to the Guangdong High Court Notice.

2. 2 New Trends and New Arbitration Rules of Arbitration Institutions

2. 2. 1 Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC/BIAC) Amends its Arbitration Rules

The new version of the Beijing Arbitration Commission Arbitration Rules (hereinafter referred to as 2019 BAC Rules) had been deliberated and adopted on 15 July 2019, and takes effect as of 1 September 2019. The 2019 version has made many modifications to the former 2015 version.

The most eye-catching revision is BAC/BIAC’s significant reform in the existing arbitration fees mechanism by separating the arbitrator’s fees from the institutional administrative fees in the main text of the 2019 BAC Rules and its Annex I: Beijing Arbitration Commission Schedule of Arbitration Fees. The fee system applies the same to both domestic arbitration cases and foreign-related arbitration cases. The parties may also agree on an hourly basis on the arbitrator’s fees, which provides diversity in the arrangements of arbitrator’s fees.

In addition, the 2019 BAC Rules raise the bar of the maximum amount in disputes in cases subject to the expedited procedure to RMB 5 million. It also improves the procedures for emergency arbitrators, clarifying what shall be included in an application for interim measures, to provide the parties concerned with clearer guidelines.

2. 2. 2 BAC/BIAC Issues Rules for International Investment Arbitration

In recent years, the demand for the settlement of investment disputes between investors and the host country through arbitration has increased significantly, which resulted in the conception of the BAC/BIAC Investment Arbitration Rules. The BAC/BIAC Investment Arbitration Rules, consisting of the main text (six chapters with a total of 54 articles) and six appendices, came into force as of 1 October 2019. The six appendices are on the schedule of fees, suggested timetable, expedited procedure, emergency arbitrator procedure, rules of appeal procedure, and procedural guidelines for the application of UNCITRAL Arbitration Rules.

The BAC/BIAC Investment Arbitration Rules are innovative in the following aspects:

(1) Institutional arbitration and ad hoc arbitration are compatible. The main body of the BAC/BIAC Investment Arbitration Rules is institutional arbitration, meaning that BAC/BIAC as an arbitration institution accepts international investment disputes submitted for arbitration pursuant to investment treaties, investment agreements, and other relevant documents. Meanwhile, Art 2 and Appendix VI lay out procedural guidelines for the acceptance of arbitration under the UNCITRAL Arbitration Rules and the provision of assistance in ad hoc arbitration under the UNCITRAL Arbitration Rules by BAC/BIAC.

(2) The appeal and other corrective mechanisms are introduced to enhance the correctness and consistency of the ruling. It has been observed that investment agreements concluded between EU and other countries in recent years have been subject to the appeal mechanism. Also, the issue of reforming the investment dispute settlement mechanism is currently being deliberated by UNCITRAL. Prior to the establishment of the BAC/BIAC Investment Arbitration Rules, there was no specific investment arbitration rule that explicitly provides for the appeal mechanism. The BAC/BIAC Investment Arbitration Rules introduce for the first time an appeal mechanism and explore ways for the inclusion of the appeal mechanism in international investment arbitration.¹⁶

2. 2. 3 SCIA Amends Arbitration Rules to Introduce Optional Appellate Arbitration Procedure

On 21 February 2019, the amended SCIA Arbitration Rules (hereafter referred to as 2019 SCIA Rules) took effect. The 2019 SCIA Rules consist of 72 articles, among which the most notable provision is Art 68 Optional Appellate Arbitration Procedure and the SCIA Guidelines for the Optional Appellate Arbitration. According to the optional appellate arbitration procedure adopted by SCIA, the parties may agree with any party to file an application with SCIA for appellate arbitration procedure in accordance with Chapter VIII of the 2019 SCIA Rules. Such agreement shall prevail provided that the procedure is not prohibited by the law of the place of arbitration. The countries or regions that currently allow or do not prohibit appellate arbitration procedure include the United States, France, United Kingdom, Singapore, Hong Kong, etc. In addition, cases to which the expedited procedure is applied shall not be subject to the appellate arbitration procedure. The principle of finality is the basic principle of the Arbitration Law. Although the appellate arbitration procedure is not applicable to the arbitration conducted in the mainland China, this innovative attempt has exemplary value for the amendment of the Arbitration Law.¹⁷

2. 2. 4 Domestic Arbitration Institutions Promulgated Arbitration Rules to Promote Online Arbitration

On 8 August 2019, the Internet Arbitration Rules of the Qingdao Arbitration Commission came into force. In order to promote the deep integration of arbitration and Internet economy, QAC has been cooperating with domestic Internet technology enterprises, using technologies such as artificial intelligence and block chain to build an Internet arbitration case-handling platform and first domestic electronic evidence platform utilizing the network slicing technology in 5G.¹⁸

On 27 December 2019, the China Maritime Arbitration Commission Online Arbitration Rules (hereinafter referred to as the "CMAC Online Arbitration Rules") was officially promulgated and took effect as of 1 January 2020. Four highlights of the CMAC Online Arbitration Rules are noteworthy:

(1) The concept of online arbitration is clarified Article 1 of the CMAC Online Arbitration Rules provides that the scope of cases accepted for online arbitration includes online disputes in which the execution and/or performance of the contract is completed online (in whole or in part). Currently, the academia and arbitration practice have various interpretations of the definition of online arbitration, CMAC has provided clear definition on the concept and scope of online arbitration, which is of practical significance.

(2) The CMAC Online Arbitration Rules have a specific chapter on expedited procedure to highlight the efficiency of online arbitration. Expedited procedure is twice as fast as ordinary online arbitration proceedings.

(3) The transmitting and examination of electronic evidence is facilitated with block chains and other technologies.

(4) Article 29 of the CMAC Online Arbitration Rules allows switching between the online and the traditional procedures, giving the parties the option to switch procedures. Under several circumstances, the arbitral tribunal or CMAC has the power to switch an online arbitration proceeding to a traditional proceeding, which is to ensure that the parties concerned have access to procedural justice in the online environment.¹⁹

2. 2. 5 Establishment of Beihai Asian International Arbitration Centre

On 8 August 2019, the second day after the Singapore Convention on Mediation was opened for signature, the Beihai Asian International Arbitration Centre (hereinafter referred to as BAIAC) was officially established by China’s Beihai Arbitration Commission in Singapore BAIAC mainly accepts disputes arising from the specific implementation of the Belt and Road Initiative and disputes between Chinese parties and Association of Southeast Asian Nations (ASEAN) parties, and provides participants of the Belt and Road Initiative with diversified dispute resolution services. The services provided by BAIAC are mainly international commercial arbitration services, supplemented by international investment arbitration and commercial mediation. The Rules of BAIAC are formulated based on the UNCITRAL Arbitration Rules and are incorporated with the small claim procedure (expedited procedure). This is a vivid example of domestic arbitration institutions represented by the Beihai Arbitration Commission, learning concepts and practices from overseas arbitration institutions, and strengthening cooperation and exchange in arbitration between China and foreign countries.²⁰

PART 3. STATISTICAL ANALYSIS OF REPRESENTATIVE JUDICIAL REVIEW CASES OF ARBITRATION AND CASE STUDIES

3. 1 Statistical Analysis of Judicial Review Cases of Arbitration

3. 1. 1 Statistical Analysis of Cases Concerning Recognition of the Validity of an Arbitration Agreement and Setting Aside of an Arbitral Award in Beijing

On 10 December 2019, Beijing No. 4 Intermediate People’s Court and CAI promulgated the Big Data Research Report on Judicial Review Cases of Arbitration, releasing statistics of the judicial review cases over commercial arbitration under the exclusive jurisdiction of Beijing No. 4 Intermediate People’s Court from 8 February 2018 to 1 September 2019.²¹

(1) Overall Status of Judicial Review Case of Arbitration by Beijing No. 4 Intermediate People’s Court

The Big Data Research Report provides statistics on three types of cases, namely,

cases concerning the confirmation of the validity of an arbitration agreement (hereinafter referred to as Confirmation of Validity Cases),

cases concerning the setting aside of an arbitral award (hereinafter referred to as Setting Aside Cases), and

cases concerning the recognition and enforcement of a foreign arbitral award (hereinafter referred to as Recognition and Enforcement Cases).

During the period from 8 February 2018 to 1 September 2019, the Beijing No. 4 Intermediate People’s Court concluded 968 cases of these three types.

(2) Analysis of Validity Cases

The statistical analysis of the judgment on Confirmation of Validity Cases is shown in the following table.

Overall, among the 254 Confirmation of Validity Cases in which Beijing No. 4 Intermediate People’s Court made determinations on the validity/invalidity of the arbitration agreements, in only two cases, Beijing No. 4 Intermediate People’s Court denied the validity of the arbitration agreements. The proportion of rulings in support of the validity of arbitration agreements reached 99.21%, which is consistent with the principle of allowing [the arbitration agreements] to be as valid as possible embodied in SPC’s judicial normative guidance and the pro-arbitration policy adopted by most jurisdictions. It also demonstrates that Beijing No. 4 Intermediate People’s Court has accurately grasped the aforesaid spirit in practice.

The grounds for application in the Confirmation of Validity Cases are shown in the following table:

From the above classification and data, it comes to the conclusion that, in practice, the challenge to the validity of an arbitration agreement involves many aspects and is not limited to the circumstances stipulated in Arts 16 – 18 of the Arbitration Law. The further study and analysis of these reasons not only have reference value to the contract management and compliance review for enterprises, but also pose new challenges to the procedural management of arbitration. It is a new issue which is worthy of attention in arbitration practice.

(3) Analysis of Setting Aside Cases

The statistical analysis of the judgment on Annulment Cases is shown in the following table:

Among the 597 Setting Aside Cases in which Beijing No. 4 Intermediate People’s Court has made judgments, in only three cases, the court set aside the arbitral awards and only in two cases, the court ruled for re-arbitration. As a result, 99.16% of the application for setting aside of arbitral awards have been rejected. In general, the overall annulment rate in Beijing is very low, which in part shows that arbitral awards in Beijing are of very high quality and the arbitration procedures are well managed. On the other hand, it shows that Beijing No. 4 Intermediate People’s Court is extremely cautious about setting aside of arbitral awards which is the most serious consequence that a supervising court may impose on arbitral awards. The statistics shows that the Beijing No. 4 Intermediate People’s Court has effectively maintained the finality and credibility of arbitral awards.

The grounds for application in Setting Aside Cases (domestic arbitral awards) are shown in the following table:

In the Setting Aside Cases, the applicants put forward up to 42.02% grounds falling out of the scope of review of the court (No. 3 in the table), and the grounds can be further divided as follows:

The grounds for application in foreign-related Setting Aside Cases are shown in the following table:

Seen from the foregoing Other grounds falling out of the scope of review of the court, such grounds for setting aside of an arbitral award generally fall under the categories of fact findings and application of law, despite that it would be illegal for the court to make judgment on those grounds. The percentage of grounds falling out of the scope of review of the court reached 42.05% in domestic cases and up to 73.91% in foreign-related cases. On the one hand, it shows that the parties are not guided by professional lawyers when filing application for setting aside awards, or the parties have unrealistic belief that extrajudicial grounds exist. On the other hand, it also shows that the Beijing No. 4 Intermediate People’s Court strictly adheres to the review according to law in dealing with the judicial review cases. The court would unequivocally exclude and deny the grounds which fall outside of law and draw a clear legal boundary for the parties. This judicial attitude of not absent, not offside regarding judicial review cases is the solid foundation to protect the long-term and stable development of arbitration.

3. 1. 2 Statistical Analysis of Application for Provisional Measures in Arbitration Proceedings

(1) Statistical Analysis of Requests for Provisional Measures in Domestic Arbitration

The decisions rendered from 1 January 2019 to 31 December 2019 on Application for Preservation of Assets in Arbitration Proceedings are screened on the website of China Judgements Online. A total of 3,011 documents are shown on the website,²³ among which 63 of the documents were selected for the sample study.²⁴

As shown from the 63 decisions in respect of provisional measures randomly selected by the authors, when the applicant provides corresponding property guarantee (property preservation insurance is the most popular form of guarantee), the courts would allow almost all provisional measures requests in arbitration procedures. According to our review, 31 decisions were made within 30 days since the date of application accounting for 80.56% of the total decisions, while the remaining seven decisions took a longer time to issue (the longest is 180 days). Overall, the courts are able to rule on the application for provisional measures within 30 days.

(2) Statistical Analysis of Cases Regarding Application under the Arrangement for Interim Measures in Arbitral Proceedings between Mainland and Hong Kong SAR

Since the Arrangement between the Mainland and Hong Kong SAR on Mutual Assistance in Aid of Arbitral Proceedings took effect on 1 October 2019, HKIAC has accepted thirteen unilateral applications for provisional measures, with the amount of assets applied to be preserved around RMB 5.5 billion.²⁵ All of the applications are filed during the arbitration proceedings. Ten of the thirteen applications are for property preservation and one is for evidence preservation. By 24 December 2019, at least four applications for provisional measures have been approved by the people’s courts in mainland China, with the total amount of preservation for approximately RMB 1.7 billion.²⁶

3. 1. 3 Statistical Analysis on the Recognition and Enforcement of Foreign Arbitral Awards and Arbitral Awards of Hong Kong SAR, Macao SAR, and Taiwan

(1) Statistical Analysis of Applications for the Recognition and Enforcement of Foreign Arbitral Awards Filed in 2019 in Accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention")

The above table shows the results how the Chinese courts dealt with sixteen applications recognition and enforcement of foreign arbitral awards in 2019, according to the information available to the public. Among them, two applications were ruled by the Chinese courts to be withdrawn, four applications were recognized, seven applications were recognized and enforced, one application was denied recognition and enforcement in and was denied recognition and enforcement in part, application was denied recognition and enforcement. Overall, the overwhelming amount of applications for recognition and enforcement were approved. As consistently shown in the figure below,²⁷ the grounds provided in Items (b), (c), and (d) of Art 5 of the New York Convention for refusal of recognition or enforcement remain the defense most frequently invoked by the respondents.

(2) Recognition and Enforcement Cases Invoking Arrangements on the Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region ("Arrangement") in 2019

The above table shows the results of how the Chinese courts dealt with thirteen applications for recognition and enforcement of Hong Kong arbitral awards in 2019, according to the information available to the public. Among them, seven applications were ruled by the Chinese courts to be withdrawn, one application was recognized and enforced, two applications were denied recognition and enforcement due to their violations of the social and public interests of mainland China (see the comments in Case 7), and three applications were rejected in the enforcement objection proceedings and enforcement review proceedings. It is worth noting that the people’s courts of mainland China still have different understandings on whether an application for recognition must be a prerequisite requirement for an application for enforcement of a Hong Kong arbitral award.

3. 2 Case Studies

Case 1

The Severability of an Arbitration Agreement is Applicable to Issue of Whether the Arbitration Agreement is Formed and Effective²⁸

Facts

On 29 March 2017, the 100% equity in Newpower Enterprises Inc. held by Luck Treat Ltd (LTL) was listed on the China Beijing Equity Exchange (CBEX) for sale.

.

LTL sent the standard form of the Equity Transfer Contract provided by CBEX to Zhong Yuan Cheng Commercial Investment Holdings Co., Ltd. (ZYC) on 9 May 2017. Article 16.2 of the Equity Transfer Contract provides that if such negotiation fails, the dispute shall be submitted to BAC/BIAC for arbitration. ZYC returned the revised version of the contract on 10 May 2017 in which the dispute resolution institution in Art 16.2 was revised to failure to settle any dispute by negotiation, any party may submit for arbitration at [SCIA] .

On 11 May 2017, the parties had another round of revision of the contract but nothing further on Art 16.2. ZYC stamped on the Equity Transfer Contract (draft) and delivered the same to LTL. On 17 May 2017, LTL sent back Equity Transfer Contract (to-be-signed version) to ZYC in which the arbitration agreement remained the same. The parties had a dispute ever since and had never formally executed the Equity Transfer Contract.

In April 2018, ZYC applied to SCIA for arbitration according to Art 16.2 of the Equity Transfer Contract (draft). LTL then applied for confirmation that the arbitration agreement was not in existence. SPC ruled that the case should be reviewed by CICC.

Issue in Dispute

Has the arbitration clause been formed?

Court’s Opinion

The collegial panel considered as follows:

(1) An application to confirm the non-existence of an arbitration agreement between the parties is an objection to the validity of an arbitration agreement in a broad sense.

(2) When determining the validity of an arbitration agreement, including whether or not an arbitration clause exists, the validity of the arbitration clause itself could be determined first.

In this case, the arbitration clause in the draft sent by LTL was an offer and the act of stamping and delivery taken by ZYC constitutes as an acceptance. The arbitration clause in the Equity Transfer Contract is deemed formed on 11 May 2017, according to Arts 25 and 26 of the Contract Law. Since LTL did not claim that the arbitration clause is invalid on the statutory basis, a valid arbitration clause should be deemed to exist between the parties.

Our observations

This case is one of the first batch of judicial review cases issued by CICC