CHINA ARBITRATION LAW AND CIETAC RULES FACING UNCITRAL MODEL LAW AND ICC RULES

RADU VALENTIN SORA LEGAL MASTER STUDENT  

INTERNATIONAL ARBITRATION MASTER PROGRAM 2014 – 2015

UNIVERSITY OF BUCHAREST Faculty of Law

COMPARATIVE INTERNATIONAL ARBITRATION PROF. DR. CRENGUTA LEAUA

COMPARATIVE ESSAY 1. CHINA ARBITRATION LAW AND CIETAC RULES FACING UNCITRAL MODEL LAW AND ICC RULES 1.1. CHINA Arbitration Law vs. UNCITRAL Model Law 1.2.

CIETAC arbitration rules vs. ICC arbitration rules

2. WHAT TO KNOW ABOUT CHINESE CUSTOMS BEFORE GOING TO ARBITRATION IN CHINA

   

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1. CHINA ARBITRATION LAW AND CIETAC RULES FACING UNCITRAL MODEL LAW AND ICC RULES 1.1. CHINA Arbitration Law vs. UNCITRAL Model Law 1. Arbitration Law in China was adopted in 1994 and entered in force on September 1995. UNCITRAL Model Law was adopted in 1985 and modified and updated on 2006. Arbitrability 2. China Arbitration Law (hereinafter named as CAL) has a very clear provision about which kind of disputes may not be subject to arbitration, which are: administrative, marital, adoption, guardianship, support and succession disputes (Art. 3 of CAL). In this respect, such disputes are subject only to the resolution of the national courts of China. 3. UNCITRAL Model Law (hereinafter named as UML) defines as arbitrable any international commercial dispute, where the term “commercial” has a very wide interpretation as to cover matters arising from all relationships of a commercial nature, whether contractual or not. On this interpretation of commercial we deem that even the commercial part of administrative matters can be solved by way of arbitration (art. 1 para. 1 of UML). Arbitration Agreement 4. China Arbitration Law provides that the Arbitration Agreement should be in written form and must contain (1) an expression of intention to apply for arbitration; (2) matters for arbitration; and (3) a designated arbitration commission (art. 16 of CAL). 5. UNCITRAL Model Law provides an updated and thus modern definition of what means “in writing”, the area of the accepted arbitration agreement being enlarged with electronic communication, transmitted as data message via EDI, email, etc. and even with orally concluded agreements if recorded in any way (art. 7 of UML). Jurisdiction. Competence - Competence principle 6. On UNCITRAL Model Law the Arbitral Tribunal may rule on its own jurisdiction (Competence Competence principle) and if a party is dissatisfied of the ruling may request to the national court to decide on the matter (Art. 16. para. 1 of UML). An important fact is that, during the time the

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national court is deciding on the Arbitral Tribunal competence, the Arbitral Tribunal may continue the arbitration. 7. According to China Arbitration Law the Arbitral Tribunal may decide on the validity of the arbitration agreement and through this on its own competence, but if a party is asking the national court to decide on the matter, the national courts will have priority and will decide on the matter. So, in this case, the competence of the Arbitral Tribunal to decide on its own competence will be overthrown by the national courts (art. 20 of CAL). Interim measures 8. While the UNCITRAL Model Law dedicated an entire chapter (Chapter IV A) that enables the Arbitral Tribunal to order interim measures, China Arbitration Law does not deal with this subject specifically, but it has some provisions that enables the Arbitral Tribunal, upon a party request, to ask the national Courts to order interim measures in the domain of property preservation/freeze (art. 28 of the CAL) or evidence preservation (art. 46 of the CAL). So, in the UNCITRAL case the interim measures can be ordered by the Arbitral Tribunal itself while China Arbitration Law does not put this power in the hands of the arbitrators. This is because, on one hand, China is not an arbitration friendly environment and, on another hand, China Arbitration Law entered in force in 1995 and was not amended while the UNCITRAL Model Law was updated on 2006. Composition of Arbitration Tribunal. Nomination of Arbitrators 9. The only notable difference between the provisions of UNCITRAL Model Law and China Arbitration Law is that UNCITRAL Model Law provides that if the parties fail to agree on the arbitrator’s number, this number will be three, while the China Arbitration Law is silent on the matter. Both regulations allow freedom to the parties in choosing the arbitrators. In case the parties fail to nominate the sole arbitrator or the presiding arbitrator, the decision will be taken by an entrusted third party in both legal provisions. Only that, in case of China Arbitration Law this entrusted party is expressly provided as the Chairman of the Arbitration Institution, which is normal, as long the UNCITRAL provision is only a model law and not a law in itself. Challenge of arbitrators 10. A party may challenge the arbitrators according to UNCITRAL Model Law on grounds of justifiable doubts as to his impartiality or independence.

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11. China Arbitration Law expressly provides four cases where an arbitrator can be challenged. But basically, China Arbitration Law considers that a challenge against an arbitrator can be made when the impartiality or independence of an arbitrator is affected. However, from this cases the most interesting situation is when “The arbitrator has privately met with a party or agent or accepted an invitation to entertainment or gift from a party or agent (of a party).” So, in China, even there is no doubt on the impartiality of independence of an arbitrator, any kind of private meeting of an arbitrator with a party is treated as a very serious matter which is considered in itself as a challenge or withdrawal reason. Arbitral Award 12. UNCITRAL Model Law provides that, in cases with more than one arbitrator, the decision may be made by a majority of arbitrators, as a general rule, and only question of procedure can be made by the Presiding Arbitrator if so authorized by the parties or by all the members of the Arbitral Tribunal (art. 29 of UML). 13. In the same cases, China Arbitration Law enables the Presiding arbitrator to made the arbitral award even there is no majority opinion or prior authorization of the parties or the other arbitrators (art. 53 of CAL). This rule can be deemed, on one hand, as an exit from a blockage situation when every arbitrator has a different opinion on the solution to be given in a certain arbitration, but also as an exception from he general rule that only a majority can decide when it comes to an award given in arbitration.

1.2. CIETAC arbitration rules vs. ICC arbitration rules 14. We took into consideration the China International Economic and Trade Arbitration Commission (CIETAC) arbitration rules revised and adopted by the China Council for Promotion of International Trade/China Chamber of International Commerce on February 3, 2012, in force from May 1, 2012. 15. As for the International Chamber of Commerce arbitration rules, we took into consideration the ICC Rules applicable from January 1, 2012. Type of cases 16. Based on an agreement of the parties, CIETAC accept cases involving economic, trade and other disputes of a contractual or non-contractual nature, including domestic disputes, international or foreign related disputes and also a special kind of disputes described as disputes related to Hong

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Kong Special Administrative Region, the Macao Special Administrative Region and the Taiwan Region. 17. ICC accepts cases from parties involved in international business transactions, which seek a neutral framework for the resolution of their disputes. Commencing Arbitration 18. To start an ICC arbitration a Claimant must file a Request for Arbitration with the Secretariat of the International Court of Arbitration. This action may be undertaken with any of ICC Secretariat offices, the principal office being located in Paris and the secondary office in Hong Kong, or if the case may be, in cases related to North America, the Request may be also submitted to SICANA Inc. in New York. 19. In order to commence arbitration under CIETAC arbitration rules, one may commence an arbitral procedure addressing a request on the CIETAC principal office from Beijing or to the CIETAC branches/centers from Shenzhen, Shanghai, Tianjin and Chongqing. Place and language of arbitration 20. Under CIETAC rules, (art. 7 and 71) if the parties have not agreed on the language or the seat of arbitration or the agreement is ambiguous, the place of arbitration shall be the domicile of CIETAC or its sub-commissions and the language of arbitration will be Chinese or any other language designated by CIETAC, but if the parties clearly stated the language and place of arbitration then it is possible to have a CIETAC arbitration even outside China and in any language chosen by the parties. Also, even art. 71 of CIETAC rules do not expressly provide the possibility to have more languages of arbitration, according to art. 72.4 of the same rules, we can easily draw the conclusion that this is possible. However, in practice, if there is no clear provision on the language or place of arbitration the language of arbitration will be Chinese and the place of arbitration will be CIETAC Beijing. 21. According to ICC rules (art. 18 and 20), the principle is that place and language of arbitration are established by the parties. If such determination was not made, the Arbitral Tribunal after consultation with the parties will fix the place of arbitration and the same Arbitral Tribunal will decide on the language or languages of the arbitration, “due regard being given to all relevant circumstances, including the language of the contract”. So, under ICC rules there is an express provision on the possibility of several languages to be accepted as languages of arbitration, and

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such situation occurs in practice, while in case of CIETAC arbitration the majority of arbitrations are using mostly only one language, which is usually the Chinese language. 22. In the end, we must notice that, in case the parties did not agree on the matters above, the decisions are taken by the CIETAC administration, while in case of ICC arbitration, the decisions are taken by the Arbitral Tribunal, which is preferable as long the Arbitral Tribunal is usually the choice of the parties. Validity and Form of Arbitration agreement 23. CIETAC Arbitration rules (art. 5) provides the modern definition of what means “in writing” in the same sense as UNCITRAL Model Law, with the exception of the orally concluded agreements if recorded in anyway, but accepting the agreement if it is contained in the tangible form of a document such as a contract, letter, telegram, telex, fax, EDI or email. Also, in the same sense as the UNCITRAL Model Law, according to CIETAC Arbitration rules an arbitration agreement will be considered that exists where its existence is asserted by one party and not denied by the other during the exchange of the Request for Arbitration and the Statement of Defense. The autonomy principle of the arbitration agreement is expressly recognized in the CIETAC Arbitration Rules “The validity of an arbitration clause or arbitration agreement shall not be affected

by

any

modification,

cancellation,

termination,

transfer,

expiry,

invalidity,

ineffectiveness, rescission or non-existence of the contract”. 24. ICC Arbitration Rules does not provide the form of the arbitration agreement and that is because of the International feature of ICC arbitration which tends to be flexible and adapt to the law on arbitration of every country which may be the place of arbitration in order to assess if the arbitration agreement is valid or not. However, on the ICC website one can find a recommendation that “In principle, parties should also always ensure that the arbitration agreement is in writing and carefully and clearly drafted”. 25. So, in order to avoid unnecessary conflicts with the arbitration laws from some jurisdictions, the parties should ensure that the arbitration agreement is “in writing”. On the other hand, the arbitration agreement should be clear in order to avoid confusions with other arbitral institution which can claim their competence to administer the case. In this respect, on the same ICC website you can find models of “standard ICC clauses” and also examples of jurisdictions like

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Mainland China where the parties must be prudent and are advised “…to include in their arbitration clause an explicit reference to the ICC International Court of Arbitration”. Number of Arbitrators 26. In case the parties did not agree on the number of arbitrators, under ICC rules, the case will be solved by a sole arbitrator as a principle, or three arbitrators, if the case is more complex (art. 12). 27. Under CIETAC rules, if the parties did not agree on the number of arbitrators, the case will be given to a panel of three arbitrators (art. 23.2). Truncated tribunal 28. In case of CIETAC arbitration, if an arbitrator on a three members panel is not available anymore after the conclusion of the last hearing, being replaced for any reason, there is a possibility that a truncated tribunal consisting of only two members, if the Chairman of CIETAC and parties approve, continue the arbitration proceedings and make decisions or render the award (art. 32). 29. When the International Court of Arbitration considers appropriate, and after hearing the views of the remaining arbitrators and of the parties, art. 12.5 from ICC arbitration rules allows a truncated tribunal to render a decision, if subsequent to the closing of the proceedings, an arbitrator was replaced or died. 30. So, while according to ICC rules the parties have only a consulting role, in the CIETAC rules the parties have to approve such a continuation of arbitration with a truncated tribunal, which is preferable as long arbitration should is based on the parties consent principle. Arbitral Tribunal award 31. Under both ICC rules (art. 33) and CIETAC rules (art. 49), the arbitrators, before signing the award, shall submit its draft award to the secretariat of the institution that administers the case. 32. After the scrutiny is made and the arbitrators have signed the award, specific only to CIETAC arbitration rules is that the seal of CIETAC shall be affixed on the arbitral award. 33. This obligation is bringing the result of arbitration much closer to the solemnity shown by the National Courts, which use stamps and different formalities as a way of expressing the State power, rather than the acknowledgement of the parties mutual consent, which is the base of arbitration.

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2. WHAT TO KNOW ABOUT CHINESE CUSTOMS BEFORE GOING TO ARBITRATION IN CHINA How to dress 34. The main feature is „conservative”. Business attire should be conservative dress for both women and men. 35. The clothes wear by men should be brown or dark blue plain suits. 36. Women must not wear revealing clothing, which is not appreciated in China and also they must pay attention to their shoes, which must have no heels. How to salute 37. If you are in a group you must remember that Chinese enter in a room in the order of importance, so you should mirror this and to give priority to your most senior member of the group. It is expected that this person will lead the discussions. 38. Applauses are common when Chinese are greeting someone, you must be expected to applaud together with them. Business cards 39. Do not hand items with one hand. Especially if we are talking about business card or a gift. Both hands should be on the business card when you are offering it to a Chinese, the Chinese recipient will take the card with the same gesture. 40. Be careful with what you do after receiving a business card. Place it on the table on the entire meeting this will be appreciated but you should never place a card in your back pocket of your pants, as this would be considered equivalent to “sitting on someone's face”. Business negotiation 41. In business negotiation you have to avoid saying No. Usually, the first proposal is the opening bid. Compromise is recommended and a positive thinking and open mind to different alternatives is advisable. Chinese do not usually use the word „No”. Expressions as „there is a small issue” or „we will think about it”, show only some ways to say „No” in a polite way. In this respect, one must use the same tactics.

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42. The tone of voice must be temperate and losing your temper will cause loss of respect or loss of face. In China, one can “gain face, lose face or save face”, which is related to respect notion, where you can have respect of the others, to lose it or to maintain it. Point to someone 43. Do not point with the index finger. If there is a need to point to something, one must use the open palm instead. Call someone 44. Do not call someone using the index finger, with a finger snap or whistling, this is considered rude, also. If you must use a gesture in order to call someone you must use the entire hand as in an up and down waving gesture. Dining 45. On almost every meal in China there will be chopsticks. A dropped chopstick means bad luck so it is better to be careful how you handle them. When you are finished eating, chopsticks should be placed across your bowl, or neatly on the table. 46. Do not place chopsticks in the rice standing up. This symbolizes death. 47. Tipping is not common in China. Service staff of restaurants, bars or hotels does not expect tips.

These are a few of the China customs that one should know before going to arbitration in this great country. However, it is possible that some of them will have slight variations depending on the region where you will arrive in China. You have to keep in mind that arbitration can be administered in 5 regions in China without counting the fact the parties can choose even a different place of arbitration. In the end, no matter where you will be in China, remember that a temperate behaviour and a conservative way of thinking and acting will be appreciated there. ## # I conclude here my essay, hoping that I succeeded to respond to all requirements set out for the Comparative International Arbitration exam. Radu Sora 22.12.2014

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