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Latest Development of Chinese Arbitration Judicial Review Regime

On December 26, 2017, the PRC Supreme People's Court ("SPC") released the Provisions on Certain Issues Related to the Trial of Arbitration Judicial Review Cases ("Trial Provisions") and the Provisions on Certain Issues Related to the Reporting and Approving in Arbitration Judicial Review Cases ("Reporting and Approving Provisions"), both effective from January 1, 2018. These two judicial interpretations are the most important ones to change the landscape of the Chinese arbitration judicial review regime.  In recent years, thank to globalization of Chinese economy and boom of domestic arbitration, many issues emerged in arbitration and some of them have become long outstanding since the last judicial interpretation known as the Interpretation on Certain Issues Applying the PRC Arbitration Law which is back to thirteen years ago.

1、A Lenient Standard on the Validity of Arbitration Agreement

In the Trial Provisions, the SPC clarifies the procedure to determine if the arbitration clause/agreement in foreign-related arbitration is valid or not: if parties have chosen applicable law as to the validity of the arbitration clause/agreement, such laws should apply; if parties have not chosen applicable law for the arbitration clause/agreement, and if law at the place of the arbitration institution and law at the place of arbitration lead to different results, the Chinese court should apply the law that supports the validity of the arbitration clause/agreement.  This takes one step ahead than the PRC Law on the Laws Applicable to Foreign-related Civil Relations (2010) which stipulates that law at the place of the arbitration institution or law at the place of arbitration should be applied as to validity of arbitration clause/agreement.

The PRC Arbitration Law (1994) does not provide for the nationality of arbitration, and an award as a product of arbitration administered by a foreign arbitral institution in China was unimaginable in 1990s.  Arbitrations were simply divided into these conducted by the Chinese arbitral institutions and these conducted by foreign arbitral institutions.  In Zublin (2004), the earliest publicly reported case involving arbitration conducted in China administered by a foreign arbitral institution, the SPC invalidated an arbitration clause which provided for arbitration to be conducted in Shanghai pursuant to the ICC arbitration rules, invoking the famous provision of the PRC Arbitration Law that the designation of the name of an arbitral institution is a requisite.  In Longlide (2013), the SPC maintained the validity of an arbitration clause providing for the seat of arbitration in Shanghai to be administered by ICC International Court of Arbitration.  This case inspired foreign arbitral institutions for more China-related arbitration cases.  HKIAC, ICC and SIAC opened representative offices in Shanghai with a view to administering arbitration in China.  However, it remains unclear the legal ground to recognize and enforce an arbitral award resulted from an arbitration conducted in China administered by a foreign arbitral institution due to the lack of concept of nationality of an arbitral award under the Chinese law, and there is no schedule when the PRC Arbitration Law will be amended to adopt that concept.  

If we could not solve the nationality issue, we should at least put weight on the validity of arbitration agreement.  This time, the SPC employs a lenient standard to determine the validity of an arbitration agreement, i.e., the law supports the validity of the arbitration agreement should be applied between the law of the place of arbitration and the law of the arbitration institution.  This provision doubtless reveals the SPC's pro-arbitration attitude, and the risk of invalidation of arbitration agreement in judicial review by a Chinese court is significantly lowered in foreign-related arbitration administered by foreign arbitration institutions in China.  Together with other provisions of these two judicial interpretations, the SPC will control the situation, and China is becoming a more and more popular seat for international arbitration.

2、Strengthening the Centralization of Judicial Review

Before these two judicial interpretations, China adopted a dual-track approach to judicial review of arbitral awards, not only in terms of different criteria, but also the procedure.  A local court should report to its appellate court, and the appellate court should finally report to the SPC and get the SPC's approval if they are to invalidate an arbitration agreement or to set aside an arbitral award in foreign or foreign-related arbitrations,.  No such procedural requirement is placed on domestic arbitration.  This time, the Reporting and Approving Provisions keep the procedural requirement as to the foreign and foreign-related arbitration, and set up a new regime of reporting and approving for domestic arbitration.  A local court should report to the high court at a provincial level and to get its approval if it is to invalidate an arbitration agreement, to set aside an arbitral award or to refuse to enforce the arbitral award in a domestic arbitration.  Interestingly, if in such a domestic arbitration judicial review case, the parties' domiciles are trans-provincial, or the case involves public interests so that the local court is to set aside or refuse to enforce the arbitral award, the high court should report to the SPC and to get approval from SPC.  These provisions are meaningful to unify the application of laws national wide, and more importantly, the strengthened centralization can reduce appealable incorrect rulings in arbitration judicial review cases.  

However, the Reporting and Approving Provisions do not provide that an arbitration judicial review case should be reported to the SPC involving a court to deal with none enforcement application in one province, and a court to deal with setting aside application in another province.  We think such a case needs the SPC's review, like the case where only the parties are from different provinces.  However, by the new provisions, two high courts of two provinces will review the different applications in such a case, and  they are anyway closer to the SPC than the two local intermediate courts.

3、Recognition of a Foreign Award Related to Chinese Litigation or Arbitration

Sometimes a Chinese domestic litigation or arbitration case is related to a foreign award, no matter because of forum shopping by different parties, or the determination of the Chinese litigation or arbitration case depends on the foreign award in a related case.  The foreign award could only have the legal binding force in China after it is recognized by a competent Chinese court.  The Trial Provisions clarifies that if respondent's domicile or the place of the respondent's property is not in China, the Chinese intermediate court trying the related case, the intermediate court if the trial court is a primary court, or the intermediate court of the place where the Chinese arbitration institution is located administering the related Chinese arbitration should have the jurisdiction as to the recognition of the foreign award.  This provision will help parties to predict result of domestic litigation or arbitration case by evaluating possible outcome of recognition of the related foreign arbitral award.  In Chinese litigation and arbitration practice, an effective arbitral award is good evidence to prove the facts and legal relationship unless there is clear and convincing rebuttal evidence.

4、Appellate Procedure against First Instance Arbitration Judicial Review Rulings 

According to the Trial Provisions, either party can appeal against three kinds of rulings in arbitration judicial review cases: non-acceptance of application, application dismissal, and objection to jurisdiction.  Previously, no laws or regulations stipulated clearly if parties could or could not appeal in such situations.  All other rulings in arbitration judicial review procedure, which are to deal with the substantive issues in arbitration judicial review, are not appealable, and even are beyond the scope of judicial supervision.