Arbitration Reform – A Perspective from the People’s Republic of China

Clyde & Co’s Young Arbitration Group provides a unique insight into international arbitration issues through the lens of young international arbitration practitioners working across different jurisdictions. In this series with Daily Jus, Clyde & Co explores the evolving landscape of arbitration reforms, analysing recent developments, legislative changes, and their impact on dispute resolution worldwide.

Introduction

On 4th November 2024, the Draft Amendment to the Arbitration Law of the People's Republic of China (“PRC”) (“the Draft Amendment”) was submitted for its first review at the Chinese National People's Congress (“NPC”), following the publication of the Draft Amendments to the Arbitration Law for Comments (“the Draft for Comments”) in 2021. This amendment marks a significant revision to the current Arbitration Law, which took effect in 1995.

Responding to the new challenges in both domestic and international arbitration, the Draft Amendment aims to resolve prominent issues in arbitration mechanisms, improving and refining the arbitration legal system that embodies Chinese characteristics as well as aligning with international practice. This article highlights the key proposals of the Draft Amendment.

Key Proposals of the Draft Amendment

For those engaged in or considering participation in arbitration proceedings in the PRC, the Draft Amendment introduces several notable changes as follows:

1. Online Arbitration (Article 11)

Article 11 of the Draft Amendment allows for arbitration to be conducted online with the consent of the parties. It also provides that online arbitration proceedings shall have the same legal effect as those conducted in traditional in-person proceedings. This provision adapts PRC arbitration procedures to the modern digital landscape, facilitating more accessible and efficient dispute resolution on an international scale.

2. The Existence of the Arbitration Agreement (Article 24)

In 2021, the Draft for Comments proposed to expand the scope of arbitration agreements to include all agreements with a manifestation of intention to arbitrate. However, in Article 24 of the Draft Amendment, the elements required in the current Arbitration Law (i.e., a written form, a manifestation of intent to arbitrate, specification of the subject matter, and a choice of arbitral institution) remain unchanged.

Article 24 also stipulates that, if the respondent does not challenge the existence of the arbitral agreement before the first hearing, it shall be deemed that an arbitration agreement exists between the parties. This amendment introduces the doctrine of implied consent, which is currently found in the rules of multiple arbitration institutions, into PRC Arbitration Law.

3. Separability Doctrine (Article 27)

Article 19 of the current Arbitration Law provides that the modification, rescission, termination, or invalidity of the underlying contract shall not affect the validity of the arbitration agreement. Article 27 of the Draft Amendment goes further to reinforce the principle of separability of the arbitration agreement by extending the existing Article 19’s list of contractual scenarios to include, i.e., formation, ineffectiveness and revocation.

4. Competence-Competence (Article 28)

Under the current Arbitration Law, a dispute regarding the validity of the arbitration agreement can be decided by the Arbitral Commission or by a PRC’s Court. In contrast, in international arbitration, the arbitral tribunal has the power to rule on issues concerning its own jurisdiction, including the validity of the arbitration agreement (which is known as the doctrine of competence-competence). Article 28 of the Draft Amendment expands the current Arbitration Law to allow the parties to refer to the arbitral tribunal to determine the validity of the arbitration agreement. This expansion makes the arbitration process more efficient by reducing the need to involve the local courts.

5. Injunctive Relief (Article 36)

Article 28 of the current Arbitration Law enables the parties to apply for property preservation in support of arbitration proceedings seated in the PRC. Article 36 of the Draft Amendment makes an important addition to the system of interim measures by allowing the parties to apply for injunctions. This addition aligns with the PRC Civil Procedure Law. The primary purpose of this change is to offer parties more comprehensive legal protection during arbitration proceedings. Enabling parties to obtain injunctive relief could prevent the other party from taking specific action that might undermine the arbitration proceedings, such as transferring assets abroad or breaching confidentiality.

6. Shortened Statute of Limitations for Annulment (Article 69)

Under the current Arbitration Law, an application to set aside the arbitral award shall be made within six months from the date of receiving the award. Article 69 of the Draft Amendment shortens the limitation to three months. This amendment could assist in expediting the enforcement process.

7. Expanded Scope of Foreign-Related Disputes (Article 75)

The current Arbitration Law defines the scope of foreign-related arbitration as "arbitration of disputes arising from foreign-related economic and trade, transportation, and maritime matters." Article 75 of the Draft Amendment expands the scope of foreign-related arbitration cases, by using the broader language of "arbitration of disputes with foreign-related factors".

8. Seat of Arbitration (Article 78)

The seat of arbitration refers to the legal location or jurisdiction under which the arbitration is conducted. Article 78 of the Draft Amendment introduces this concept into the Arbitration Law, stipulating that if parties have not agreed on the seat of arbitration or if the agreement is unclear, the seat of arbitration shall be determined by the arbitration rules. If the arbitration rules do not specify a location, the arbitration tribunal shall determine the seat of arbitration that facilitates the resolution of the dispute. However, it is worth noting that this rule only applies to foreign-related cases.

9. Ad Hoc Arbitration (Article 79)

For the first time, Article 79 of the Draft Amendments introduces the concept of “ad hoc” arbitration into the Arbitration Law. The new rule allows parties to resort to ad hoc arbitration in disputes arising from foreign-related maritime matters, or in disputes with foreign-related factors between enterprises registered in pilot free trade zones. Ad hoc arbitration features more flexible and efficient proceedings, fewer administrative overheads and more respect to party autonomy. This amendment provides more options for parties involved in foreign-related arbitration.

10. Foreign Arbitration Institutions (Article 83)

Article 83 allows foreign arbitration institutions to set up offices within approved Pilot Free Trade Zones (“Pilot FTZs”) in the PRC, enabling them to conduct foreign-related arbitration in accordance with national regulations. This change is aligned with the PRC’s economic and social development goals and the broader political push for the opening of the PRC as a forum for international dispute resolution.

11. Investment Arbitration (Article 89)

Article 89 of the Draft Amendment allows arbitration institutions to handle international investment cases, aligning with the recent trend of an increase in investment arbitration cases in the PRC.

Impacts of the Draft Amendments

The Draft Amendments bring significant changes for both domestic and international arbitration. The introduction of provisions such as online arbitration, applications for injunctions, and the expanded scope of foreign-related disputes enhance the flexibility, accessibility, and overall effectiveness of arbitration in the PRC. These changes not only align the PRC’s arbitration system with internationally accepted practices but also create opportunities for more efficient dispute resolution. For non-PRC entities, the ability to engage with foreign arbitration institutions within Pilot FTZs and the introduction of ad hoc arbitration offer greater autonomy and streamlined processes. For local PRC entities, the amendments provide a clearer and more predictable framework for resolving disputes, especially with the strengthened provisions on arbitrability and jurisdiction. Given the evolving nature of the PRC’s arbitration law, seeking counsel from experienced arbitration lawyers becomes crucial to navigating these complexities. Their expertise will help ensure compliance with the new provisions and provide strategic guidance on the best methods for resolving disputes, whether domestically or internationally.

About the author

Christian Liu is a Legal Director in Clyde & Co’s Shanghai Office. He represents both local and international clients and advises on a wide range of insurance and shipping-related disputes. He also has experience in handling disputes relating to road and air carriage, affreightment and international trade. Christian is a Member of the Chartered Insurance Institute and holds the Diploma in Insurance issued by the Chartered Insurance Institute.

This article was originally published on Daily Jus on Friday 17th January, with thanks to Jus Mundi & Jus Connect.