February 2007
Recent Interpretation on the Application of the PRC Arbitration Law
The recent interpretation of arbitration law by the Supreme People’s Court consolidated previous judicial interpretations and focused on three key issues in arbitration, namely, (i) the validity of arbitration agreements, (ii) applications for setting aside arbitral awards and (iii) the enforcement of arbitral awards.
Validity of an arbitration agreement
Two major issues frequently come to the attention of the People’s Courts in relation to arbitration disputes; namely, the standard that should be applied when deciding the validity of an arbitration agreement and the appropriate procedures to be applied when disputes arise.
The Interpretation has reconfirmed that the genuine intention of the parties shall be recognised; i.e. as long as the arbitration agreement is sufficiently clear and enforceable, in most situations the arbitration agreement should be considered valid. For example in Article 4 of the Interpretation, it is said that even if the name of the Arbitration Commission specified in the arbitration agreement is not accurate, the arbitration agreement will still be valid if the Commission is ascertainable. However, the Interpretation confirms that in situations where more than one Arbitration Commission is named, unless the parties can agree on one, the arbitration agreement will be invalid.
In respect of the appropriate procedure, the Interpretation clarifies that in a case involving the validity of an arbitration agreement in a maritime dispute, the maritime court of the place where: (i) the arbitration institution specified in the arbitration agreement is located, (ii) the arbitration agreement was executed, or (iii) where the applicant or the respondent is domiciled, shall have jurisdiction. If none of these locations has a maritime court, then the most proximate maritime court shall have jurisdiction.
Further, it is interesting to note that as a supplement to the PRC Arbitration Law, Article 13 of the Interpretation states that if the parties do not dispute the validity of the arbitration agreement during the first hearing, any subsequent application made to the People’s Court regarding the validity of the arbitration agreement and/or setting aside an arbitration award by relying on the invalidity of the arbitration agreement (Article 27 of the Interpretation), shall not be entertained.
Application for setting aside/appeal against arbitral awards
Article 19 clarifies that the People’s Court may set aside only the part of an arbitral award which lies beyond the scope of the arbitration agreement. This mirrors the position under the New York Convention 1958.
Article 21 of the Interpretation confirms that the People’s Court, by applying the PRC Arbitration Law, has the power to order the Arbitration Commission to rehear a dispute (upon application of appeal) if one party can show that the evidence submitted to the arbitration was forged or the other party had covered up material evidence that, if disclosed, would have had a substantial impact on the arbitration decision. Either party is entitled to re-appeal to the People’s Court within 6 months of the appeal hearing under Article 23 of the Interpretation. However, it is unclear how many times parties are allowed to file application for appeal and which court has the final authority. Still, the adoption of a similar approach to that used under the common law system, where appeal of an arbitration award can be made to the Courts, amounts to a significant step forward for the legal process.
Article 25 covers the situation where the losing party files an application for appeal and, on the other hand, the winning party files an application for enforcing the arbitration award. If the People’s Court accepts the application for appeal, then the Court shall make an order for stay of execution of the arbitration award. However, the wording is unclear as to whether the stay of execution is automatic upon appeal or whether the appellant has to make a specific application to the Court.
Enforcement of arbitral awards
Application for execution of an arbitral award shall be made to the Intermediate People’s Court in the place where the winning party is domiciled or where the assets are located (Article 29 of the Interpretation).
Comments
Even though the drafting of the PRC Arbitration Law was influenced by the UNCITRAL Model Law it is different from the UNCITRAL Model Law in many important respects, including the following:
Application – Whilst the UNCITRAL Model Law applies to international commercial arbitrations only, the PRC Arbitration Law applies to both international and domestic arbitrations.
Jurisdictional challenge – the UNCITRAL Model Law permits the arbitral tribunal to rule on its own jurisdiction, including any objection with respect to the existence or validity of the arbitration agreement. Under the PRC Arbitration Law, the Arbitration Commission may rule on the validity of the arbitration agreement only if the parties agree; otherwise, such power is vested in the Court.
The Interpretation represents a concerted effort by the Chinese Judiciary to bringing their Arbitration Law and practice closer in line with international practice and to remove existing ambiguities. However, foreign practitioners/entities may feel dissatisfied with the fact that the Interpretation has not clarified the status of foreign arbitration bodies (such as ICC) in China; it is unclear whether the ICC or other foreign arbitration bodies can conduct arbitrations in China.
