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China – 2012 CIETAC Rules Change: A Great Leap Forward?

5 March, 2013

 

Legal News & Analysis – Asia Pacific – China – Dispute Resolution


INTRODUCTION


China International Economic and Trade Arbitration Commission (“CIETAC”) recently revised its Arbitration Rules which came into force on 1 May 2012 (“2012 Rules”). This article outlines the key changes to the 2012 Rules, which bring CIETAC arbitrations more in line with international arbitration practice. These recent changes, though clearly welcome, still leave some scope for further revision before the Rules acquire a fully international flavour. 


KEY CHANGES TO THE CIETAC RULES 


Seat of arbitration may be outside China Where parties have not agreed on the place of arbitration, or if the agreement is “ambiguous” on this, CIETAC can now rule that the seat of the arbitration is to be the domicile of CIETAC (or its relevant sub-commission) or some other place, having “regard to the circumstances of the case”. The 2005 CIETAC Rules (“2005 Rules”) provided that where parties have not agreed on the seat of the arbitration, it is deemed to be the city where CIETAC or any of its sub-commissions is located. This excluded CIETAC arbitrations from having a seat outside mainland China. 


This change brings the CIETAC Rules in line with the practices of other major international arbitral centers such as the Singapore International Arbitration Centre (“SIAC”) and the International Chamber of Commerce (“ICC”). 


 

CIETAC may administer arbitrations under other arbitration rules 


 

Art 4.3 of the 2012 Rules provides that where the parties agree to refer their dispute to CIETAC for arbitration but have agreed on the application of other arbitration rules, CIETAC “shall perform the relevant administrative duties”. CIETAC may therefore administer proceedings commenced under the Rules of other arbitral institutions. 


This parallels the controversial position taken by the Singapore Court of Appeal in Insigma Technology Co Ltd v Alstom Technology Ltd[2009] 3 SLR(R) 936, where it was held that the SIAC may administer arbitrations under the ICC Rules. 

This decision in Insigma appears to be frowned upon by the ICC. ICC amended its Rules to provide that only the ICC Court may administer arbitrations under the ICC Rules. In addition, the chairman of the ICC Court stated that in keeping with these amendments, the ICC would refuse to administer arbitrations under the arbitral rules of any other institution and that the ICC hopes that other arbitral institutions would do likewise. Accordingly, the ICC will not administer arbitrations under the rules of another arbitral institution. 


 

Despite the ICC’s disapproval of the Singapore court’s approach to such “hybrid clauses”, the court’s philosophy in Insigma is not without merit—it gives effect to parties’ clear intention to arbitrate and to the principle of party autonomy. Art 4.3 of the 2012 Rules can therefore be viewed, depending on which side of the argument one stands, as a rather progressive step taken by CIETAC. 


Language of the arbitration 


In the absence of agreement on the language of the arbitration, the 2012 Rules provide for the arbitration to be conducted in Chinese or “any other language…having regard to the circumstances of the case”. This generally aligns CIETAC arbitrations with other popular international arbitral institutions, such as the ICC, where the arbitral tribunal may determine the language of the arbitration having regard to “all relevant circumstances.” Previously, CIETAC arbitrations could only be conducted in Chinese in the absence of party agreement. 


Limited scope for interim measures 


The 2012 Rules provide that the arbitral tribunal may order any interim measure it deems necessary or proper in accordance with the applicable law. This amendment brings the 2012 Rules closer to the arbitration practice of global arbitration hubs such as London, Hong Kong and Singapore, where arbitral tribunals have broad powers to grant interim measures and relief. 

Some observers, however, have expressed doubt as to whether tribunals will, in practice, grant more extensive interim measures for arbitrations seated in China, potentially hindering parties from obtaining urgent legal relief in CIETAC arbitrations. This may be attributed to a lack of clarity in the Civil Procedure Law of the People’s Republic of China as to whether the recently expanded powers to grant interim relief by the Chinese national courts under the Civil Procedure Law apply equally to arbitrations.


Conservatory measures, which include measures for the preservation of property or the protection of evidence, continue to be dealt with by the Chinese national courts under the 2012 Rules. The involvement of the Chinese national courts in property preservation processes remains at odds with international practice. 

 

Conciliation and arbitration 


The 2005 Rules allowed the arbitral tribunal to “conciliate” the dispute in the course of arbitral proceedings. This practice has been criticised for undermining the fairness and impartiality of the arbitral hearing given the differing roles of mediators and arbitrators. 


Under the 2012 Rules, parties may now agree to “conciliate” their dispute in the course of arbitral proceedings without involving the arbitral tribunal. Such a provision will hopefully enhance the integrity of arbitral proceedings while allowing parties to enjoy the advantages of “arb-med” in CIETAC arbitrations. 


Increased threshold for CIETAC’s summary procedure


 

Parties to CIETAC arbitrations may now apply for a “summary procedure” if the amount in dispute falls below RMB 2 million (previously RMB 500,000) under the 2012 Rules.


If the amount in dispute later exceeds the threshold because of, for example, amendments to claims or counterclaims, the summary procedure will continue to apply unless otherwise agreed by the parties. 


CONCLUDING REMARKS


There have been progressive amendments to the CIETAC Rules. However, a significant obstacle to CIETAC’s progress lies in the practical conduct of its arbitrations. For instance, significantly lower remuneration of CIETAC arbitrators raises concerns over the quality of awards handed down as top arbitrators may be discouraged from accepting CIETAC arbitrations. Users of the system may also need to overcome perceptions of disadvantage to foreigners who are used to sophisticated interlocutory processes especially those involving interim injunctive relief and discovery. 

 

The 2012 Rules certainly increase the attractiveness of CIETAC arbitrations for international commercial parties. However, as alluded to above, whether the 2012 Rules will truly be a great leap forward for CIETAC arbitrations will be very much driven by whether, in practice, to the extent CIETAC and its arbitrators adhere to and advance the present trends of international arbitral practice.

 

 
For further information, please contact: 
 
Randolph Khoo, Director, Drew & Napier
randolph.khoo@drewnapier.com
 
Hoon Shu Mei , Drew & Napier
shumei.hoon@drewnapier.com

 

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