Authored by Arthur Dong
On April 8, 2014, the China (Shanghai) Pilot Free Trade Zone Arbitration Rules (the “New Rules”), which will take effect on May 1, 2014, was unveiled to the public. It is the first arbitration rules for a China’s Free Trade Zone (“FTZ”) with the purpose of speeding up commercial arbitrations to those at the international level. This article aims to discuss several unique characteristics of the New Rules.
I. Applicability of the Rules
Article 3.1 provides that the Pilot Free Trade Zone Arbitration Rules shall apply if: 1) the parties have agreed to select SHIAC (“Shanghai International Arbitration Center” or “Shanghai International Economic and Trade Arbitration Commission”) as the forum for arbitration without stipulating the arbitration rules; and 2) any of the following connections exists, including 1) the parties, 2) the subject matter to a dispute, or 3) the legal facts that lead to the establishment, change, and termination of a civil and commercial relationship.
II. Selection of the Arbitrators
Most international arbitration commissions have an already selected Panel of Arbitrators and list their expertise, residence, and language to the public. Arbitration institutions in the PRC usually do not accept parties’ appointments of arbitrators that are not on the institution’s Panel of Arbitrators. Under Article 27(2) of the New Rules, it has been stipulated that now, ‘any party may recommend person(s) from outside the Panel of Arbitrators as an arbitrator [and] parties may also reach an agreement on jointly recommending a person from outside the Panel of Arbitrators as the presiding / sole arbitrator.” This measure conforms to the international arbitration practice, which respects parties’ autonomy by allowing international arbitration experts to serve as a neutral.
III. Recognition of Emergency Arbitrators in Arbitration
In line with the development of international commercial arbitration practice, the New Rules is the first set of arbitration rules in PRC to establish the emergency arbitration proceedings (Article 21). The New Rules give to the emergency arbitration tribunal the power to issue temporary restraining orders and injunctions.
The conflict prevention rules also apply to emergency arbitration provisions. For example, in the absence of parties’ consensus, the emergency arbitrators could not serve as arbitrator in the later proceedings. Interim orders or awards issued by emergency arbitral tribunal may be amended, suspended, or reversed, and the rules on impartiality of the arbitrator shall also apply to the arbitrator in emergency arbitration proceedings.
IV. Expansive Interim Measures
The purpose of interim relief in arbitration is to preserve evidence, prevent irreversible damages, and prevent the respondent from transferring assets
Given that the final protection measure will be decided by the court where the execution was conducted, the new rules requests that the parties’ application of interim relief be “in accordance with the laws of the jurisdiction where the interim measure(s) is sought” to avoid conflicts between the court and the arbitral tribunal concerning the grant of interim relief.
V. Mediation in Arbitration Proceeding
Med-Arb is a controversial but popular approach of dispute resolution in PRC. Article 55 states that ‘during the arbitration procedure, mediation may be launched by independent mediators before the constitution of tribunals. The parties may also apply to suspend the constitution of tribunals for mediation purpose.’ Therefore, the new rules encourage parties to resolve their dispute through free-standing mediation.
VI. Consolidation of Arbitration Cases
Inspired by the court’s consolidation of litigations and some arbitration institution such as ICC, HKIAC and SCC, which allows the tribunal to consolidate two or more pending arbitrations into a single case, Article 37 and 38 of the New Rules provide that “if agreed by the parties, and the arbitrator in multiple related cases are identical, the arbitrator may consolidate multiple related arbitration cases with similar facts and evidence into one case.” This rule aims to achieve a uniform, efficient, and cost-effective arbitration proceeding for multiple related cases.
VII. Joinder of Third Parties
Considering parties autonomy in arbitration, New Rules also include the procedure for a third party joinder. One of the major concerns in international arbitration regarding the addition of third parties is the maintenance of confidentiality, in addition to privacy, of contract. There are two points that the parties should be aware of when applying New Rules. First, if the arbitration tribunal has not constituted yet, the addition of a third party shall be approved by the Secretary General of the Arbitration Commission. Secondly, if the arbitral tribunal has been constituted and the arbitration proceeding has already commenced, the decision on whether to add third parties shall be decided on by the arbitral tribunal.
VIII. Improvement of Evidence Rules
Flexibility and feasibility are the thrust of these provisions. Article 44(4) empowers the parties with full control over matters or rules relating to evidence so long as it is operative, which has also been the trend in recent years elsewhere.
The New Rules also demonstrate the flexibility of the evidentiary requirement in international arbitration. For example, under Article 35(4), “unless otherwise agreed to by the parties, the tribunal may, if it considers it necessary, issue procedural directions and lists of questions, hold pre-hearing meetings and preliminary hearings, and produce terms of reference and may also make an arrangement for the exchange and / or examination of evidence.” This is a popular approach used in common law jurisdiction, but it is rarely stipulated by arbitration institutions in China. To set a comprehensive requirement for discovery would enhance the power of the arbitral tribunal and would also help prevent possible challenges by the parties when the award is enforced.
IX．Introduce Amicable Arbitration Procedure
Article 56 stipulates that “if the parties have so agreed in the arbitration agreement, or have made a written application upon agreement consensus during the arbitration proceedings, the tribunal may render the award ex ae quo et bono (based on amicable arbitration) under the condition that such an award shall not violate any mandatory provisions of laws and public policies.” The option for parties to arbitrate amicably is an extension to the principle of parties’ autonomy.
However, arbitration based on amicable arbitration procedure bears a greater degree of uncertainty and bias. Therefore, the agreement to undertake amicable arbitration proceeding is not unlimited. For example, Article 56 adds that the award shall not violate public policy, which shall be determined by the court.
X. Create a Procedure for Small Claims
The New Rules set up special procedures for domestic disputes under the amount of RMB 100, 000. (Chapter 9). The reasons for a special procedure for small claims include: 1) smaller disputed amounts; 2) single arbitrator is sufficient; and 3) lower fees. It is noteworthy that the registration fee for small claims is only RMB 100 and the handling fee is RMB 1, 250 per case, far less than other institutions.
As FTZ gives more freedom from government regulations, it is important to have an established channel for dispute resolution. Therefore, the small claim procedure would foster a cost-effective and expeditious resolution of the disputes.
The Arbitration Rules of China’s Free Trade Zone is regarded as a remarkable new development for international commercial arbitration in mainland China, and we will pay close attention to see how it works in practice.