It is preferable to settle most disputes in China by arbitration rather than by litigation. China's Civil Procedure Lou prohibits parties from submitting certain disputes to foreign courts. But, even if a foreign court judgement were obtained successfully, China is party to few treaties for the enforcement of civil judgements given by non-Chinese courts.
The Civil Procedure Lao' allows for a choice of arbitration venues. This choice should be addressed in the joint venture or other appropriate contract. China is a party to the New York Convention on the Enforcement of Arbitral Awards. Although practice may be less than perfect, China has passed legislation recognising and seeking to uphold the principle that the Chinese courts should give effect to foreign arbitral awards covered by the convention.
Arbitration need.not take place in mainland China, but if it does, the China International Economic and Trade Arbitration Commission (CIETAC) remains the most favourable option.. It has experience in foreign-related arbitration. and a reputation for impartiality and technical ability surpassing that of domestic – arbitration commissions. The Arbitration Rules for CIETAC were first adopted in September 1988 and were revised in September 1995. On .May 6, 1998 the China Chamber of' International Commerce revised them again. effective on May 10.
Mmost welcome improvement is clarification of CIETAC's jurisdiction over disputes involving foreign investment enterprises (FIEs)' which include joint. ventures and wholly foreign-owned enterprises. They are categorised as Chinese legal. persons. Previously the CIETAC Arbitration Rules required that disputes referred to CIETAC must be `inter-national – or foreign related'. Case law has shown that partial foreign ownership of a Clrinese legal person did not automatically make the matter 'international' or `foreign related'.
The new arbitration rules list five types of dispute under CIETAC jurisdiction, which specifically include disputes between two FIEs or between any foreign investment enterprise and a Chinese legal person..Additionally,. the list includes disputes arising
from project financing, invitations for ten-der, bidding, construction and other activities conducted by Chinese legal persons which use capital, technology or services originating from foreign countries, in addition to Hong Kong, Macau and Taiwan.
It remains unclear whether CIETAC arbitral decisions between two Chinese legal persons would be subject to review on their merits by Chinese courts and risk being refused enforcement. Although the provision for enforcing CIETAC awards does not provide for review, the enforcement regime for domestic awards does.
Probably corresponding to the extension of CIETAC's jurisdiction to FlEs is the changes in the property preservation measures. Formerly, CIETAC applications for property preservation measures had to be submitted to intermediate people's courts, as all foreign-related disputes must under the Civil Procedure Law. The new arbitration rules delete the reference to intermediate courts and requires applications to be made at people's courts in the locale of the disputed property or the party against whom the preservation measures are sought. reinforcing CIET.AC's commitment to FIEs as Chinese legal persons. However, this change may make FIEs more vulnerable to the partiality of local courts.
Utilising at least some non-CIETAC rules during arbitration is now theoretically possible under the amended rules.
Under the 1995 arbitration rules, once the disputing parties had agreed to submit their case to CIETAC, the parties were automatically deemed to accept arbitration under CIETAC arbitration rules. Even if parties tried to make amendments to the rules, CIETAC could outright refuse to apply the amendments or there could be problems in enforcement of the arbitral award.
The new arbitration rules provide that parties can include other rules in their arbitration agreement ?although amendments are still subject to CIETAC approval, and CIETAC is unlikely to adopt a whole set of foreign arbitration rules. Nonetheless, this is an improvement that may permit parties to introduce some foreign arbitration rules todeal with matters not covered by CIETAC's rules. It may even be possible to replace some CIETAC rules with their own.
The 1998 arbitration rules also allow more flexibility over the place of arbitration. Previously CIETAC arbitrations could only be held in Beijing. Shanghai or Shenzhen, unless CIETAC agreed otherwise. The new rules allow hearings to be heard where the parties have agreed. It is now possible for hearings to be held in other cities in fact, a CIETAC arbitration has taken place in Hong Kong but whether one can take place outside China is unclear.
In a development separate from the changes in the arbitration rules. CIETAC has added more foreigners to its panel of arbitrators. This expansion presents greater options to foreign investors worried about neutrality. In a tribunal of three arbitrators, each disputing party may appoint one arbitrator.
It should be noted, however, the presiding arbitrator will be appointed by CIETAC if the parties cannot jointly agree upon one. The arbitration rules do not stipulate that presiding or sole arbitrators must come from a neutral jurisdiction, though it is possible to ensure neutrality in the arbitration clauses of con-tracts with Chinese parties.
Other issues remain problematic. `Split clauses' in contracts governed by Chinese law, where only one party is given the right to refer disputes to an arbitration institution, may not be recognised by CIETAC or the Chinese courts. This is a loss of flexibility to foreign investors. It is also unclear whether arbitral decisions made in Hong Kong will be enforced in the mainland, and vice versa. The New York Convention requires the enforcement of arbitral awards in other convention countries without review, but the sovereignty of China over Hong Kong makes it unclear whether the two are separate convention countries.
it is hoped that either legislative changes will be made to confirm that awards made in China (or llong Kong) are New York Convention awards for the purpose of enforcement or that the Hong Kong Court of Appeal makes a formal ruling to this effect.
Freshfields is an international law film. Most of its offices throughout Asia, Europe and North America include China specialists. For further details, contact Matthew Cosans through its offices in Hong Kong (tel: +852 2846 3400) or Beijing (tel: +8610 6410 6338) or by e-mail (firstname.lastname@example.org).