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On December 30, 2016, the Supreme People's Court ("SPC") issued Opinions on Providing Judicial Protection for the Construction of Pilot Free Trade Zones ("FTZ") ("Opinions") [1]. As the SPC judge puts it, the Opinions are designed to facilitate institutional innovation in the FTZ [2] to accord with the fundamental rules of international investment and trade. In furtherance of this guidance, paragraph 3, Article 9 of the Opinions provides that the arbitration agreements concluded between the enterprises registered in the FTZ, whereby the relevant disputes are referred to arbitration by specified persons in accordance with specified arbitration rules in specified venues in mainland China, may be deemed valid. Courts are to hold such arbitration agreements invalid should submit to the next higher level courts to review. The next higher level courts which would agree with the lower courts should report to the SPC and make decisions following the SPC's replies. To great extent, the Opinions incorporate ad hoc arbitration in China, which is more of a breakthrough to the current arbitration framework than strengthening of pro-arbitration stance.


In contrast to the institutional arbitration, ad hoc arbitration is a form of arbitration where the parties devise the arbitral process independently without involvement of an arbitral institution.  Ad hoc arbitration agreements may set forth the arbitrator or arbitrators that the parties choose, and may select applicable arbitral rules. In light of such differing features of two forms of arbitration, ad hoc arbitrations are traditionally regarded as more flexible, faster and cheaper than institutional arbitrations. A particular advantage of ad hoc arbitration is that it can be tailored to the specific needs of the parties and the nature of the dispute on a case-by-case basis.


Despite that ad hoc arbitration is not uncommon around the world, agreements of such arbitration are invalid under China's legal regime. According to the PRC Arbitration Law ("Arbitration Law"), one threshold requirement for validity of an arbitration agreement is that parties appoint an arbitration institution. Up to 2015, there are 244 arbitral institutions in mainland China. [3]


Notably, with the suspension of certain laws and regulations governing foreign investments in the FTZ authorized by the Standing Committee of the National People's Congress, the SPC needs to adjust judicial norms to fit the changes.  The introduction of ad hoc arbitration is one of such adjustments. The availability of institutional arbitration and ad hoc arbitration is consistent with the consensual nature of arbitration and the international practice. 


It is not surprising to see that under the Opinionsad hoc arbitration may only be conducted between enterprises registered within the FTZ, as it stands for a limited exception to the provisions of the Arbitration Law and an experiment in the FTZ aimed at replicating nationally. And to conduct such arbitration needs more operational regime. For example, who will be the appointing authority absent parties' specific agreement on arbitrator selection; who will have authority to decide challenges of arbitrators; how to handle the provisional measures between the arbitral tribunal and court. 


It is worth noting that by the same provision of the Opinions, arbitration administered by foreign international arbitration institutions may be operative for arbitration cases between enterprises registered in the FTZ. HKIAC, ICC and SIAC all opened their representative offices in Shanghai in recently years and are positive in introducing their arbitration practices to the Chinese legal market.


While it is difficult to predict at this point with any degree of certainty the full impact the new Opinions will have, there can be no dispute that it underpins the arbitration with the growing integration of the international tendency. We plan to watch closely how the Opinions play out in practice as 2017 unfolds and to see how it will affect the expected new judicial interpretation on the application of the Arbitration Law and consequently the framework of China's arbitration. 




[1] Fa Fa [2016] No. 34

[2] The FTZ has been set up in Shanghai, Guangdong, Fujian, Tianjin and other seven provinces.

[3] The Annual Report on China International Commercial Arbitration 2015, see:


January 11, 2017