Supreme People’s Court’s Ongoing Contribution to the Revision of the Arbitration Law

Justice Tao Kaiyuan, speaking at the Beijing Arbitration Commission

Among the many issues that I am discussing in my “neverending article” is the role of the Supreme People’s Court (SPC) in the complicated process of drafting new legislation and amending existing legislation, as is sometimes revealed in the “Services and Safeguards Opinions” about which I write often.  The role of the SPC is for the most part unseen and unnoticed.   Because the Arbitration Law is so critically important to dispute resolution between Chinese and non-Chinese parties,  this blogpost highlights the SPC’s role in the unfinished process of revising the Arbitration Law and includes some of my own comments on the positions taken by the SPC. I flag one particular issue that in my view would benefit from discussion and analysis by those with international arbitration law expertise. 

Justice Tao Kaiyuan participated in a meeting of the Chinese People’s Political Consultative Conference (CPPCC)’s Committee on Social and Legal Affairs on 30 May on the Arbitration Law draft revision (link is to the Chinese original) and provided a summary of some of the work of the SPC and lower courts in “pushing forward the progress of amending the Arbitration Law. ”  (Mao Xiaofei of the Chinese Academy of Social Sciences, International Law Institute has kindly shared her translation into English of the Arbitration Law revision, which includes a comparison with the current text.)

The 2020 document Guiding Opinions of the Supreme People’s Court on the People’s Courts Serving and Guaranteeing the Further Opening Up to the Outside World (最高人民法院关于人民法院服务保障进一步扩大对外开放的指导意见) about which I previously wrote, contains the phrase “push forward the progress of amending the Arbitration Law (and several other laws) (推动仲裁法、海商法、海事诉讼特别程序法等国内商事海事法律的修法进程).  Additionally, the Annual Report on Judicial Review of Commercial Arbitration (2019), edited by the SPC’s #4 Civil Division (I had a cameo role in improving the English version) also mentions the SPC will support the amendment of the Arbitration Law. Persons whose eyes glaze over when reading official documents would miss this curious phrase. Few persons outside of China have access to the Annual Report.   

Xu Liquan, one of the deputy heads of the CPPCC,  also spoke at the 30 May meeting discussing the Arbitration Law draft and revealed arbitration statistics I had not previously seen–that Chinese foreign-related enterprises have a dispute rate of up to 10% ( 涉外企业纠纷发生率高达10%) in cross-border transactions, over 90% select arbitration as the dispute resolution method, but a large majority select arbitration outside of China.   Mr. Xu did not mention the source of these statistics, but I understand them to be derived from a report by the China Arbitration Institute of the China University of Political Science and Law (CUPL).   The report summarizes the China Arbitration Institute’s survey of more than 100 foreign-related enterprises recommended by the State-Owned Assets Supervision and Administration Commission (SASAC).  The full report has not yet been made public.

From these statistics, it can be seen that if China wants to be considered a more attractive destination for commercial dispute resolution, improving the Arbitration Law is crucial.

A translation  (amended machine translation) of Justice Tao’s remarks (I surmise they are a summary) follows below, along with some of my own comments in italics

Some background on her remarks, for those who need it: The Ministry of Justice, as the regulator of arbitration institutions, is the institution charged with providing draft amendments to the Arbitration Law to be forwarded to the National People’s Congress Standing Committee.  (I myself had the good fortune to be involved in a cameo role in this process as a consultant to the Great Britain China Centre (GBCC) before and during the pandemic. )

The Supreme People’s Court has been actively participating in this work, and supports the revision of an arbitration law that is based on China’s national conditions, draws on international practices, and takes into account the development stage of our country’s arbitration industry.

Justice Tao signals the SPC’s very active involvement in providing input to the Ministry of Justice. It appears from her summary that views from several different divisions and offices of the SPC are reflected in what she said, including the #4 civil division (responsible for international arbitration matters), #3 civil division (intellectual property and anti-monopoly), and the enforcement bureau. I surmise that it will actively involve itself in commenting on the draft of the Arbitration Law when it is considered by the National People’s Congress Standing Committee. 

“Drawing on international practices” is a broad term, including the UNCITRAL Model Law and “international practices” of leading courts on arbitration-related issues.  On China’s national conditions, although most foreign practitioners are aware of the top 3-5 Chinese arbitration institutions, the vast majority are funded by local governments. The local arbitration institutions have appointed arbitrators sometimes more for their official position than their knowledge of arbitration, and have management and staff with varying levels of competency. Local lawyers prefer the courts, where an appeal is possible if the initial decision is unfavorable.

Regarding further opening up of the domestic arbitration market and allowing overseas arbitration institutions to conduct business in the Mainland. In recent years, the Supreme People’s Court has successively issued a number of judicial documents to support the introduction of foreign arbitration institutions to set up branches to carry out arbitration business in the construction of Lingang New Area of ​​China (Shanghai) Pilot Free Trade Zone, Hainan Free Trade Port and Beijing “two zones” [pilot free trade zone and  service trade zone]. In the next step, we will support the opening of the arbitration market in other pilot free trade zones.

I wrote a report on this almost two years ago. There are many practical issues to be ironed out, and Zero Covid plus the unamended Arbitration Law makes it even less likely that a major foreign arbitration institution will agree to commit to opening an office in China that handles cases.  

Regarding the reasonable expansion of the scope of arbitration cases. We agree with the suggestion that intellectual property, sports, and anti-monopoly disputes be included in the scope of arbitration, but it depends on the type [of dispute], and only civil and commercial disputes should be submitted to arbitration.

There has been a great deal of discussion in China about the arbitrability of intellectual property, sports, and anti-monopoly disputes, with cases having been heard in the courts.   See this detailed discussion of the sports law issues here in an earlier volume of the Beijing Arbitration Commission’s annual volume Commercial Dispute Resolution In China: An Annual Review And Preview by Guo Cai and Jeffrey Benz. On intellectual property issues, a search in Chinese or English will turn up many articles–this one by Baker & McKenzie and this one by the intellectual property firm SIPS are two of many.  The arbitrability of antimonopoly disputes in China has been discussed by both practitioners and academics.  Another highly disputed issue is the scope of the disputes that are arbitrable, linked to the definition of “civil and commercial” disputes in the areas of intellectual property and anti-monopoly law.

However, we suggest further research on whether the international investment arbitration between the host country and the investor should be regulated by the Arbitration Law. First, international investment arbitration is different from commercial arbitration, and it is suggested to retain the provision that commercial arbitration applies to civil and commercial disputes between equal parties. Second, the investment protection agreement signed by my country provides different solutions to international investment disputes. According to the commercial reservation statement made when our country joined the “Convention on the Recognition and Enforcement of Foreign Arbitral Awards”, the recognition and enforcement of arbitration awards disputed between the host country and investors, the Convention does not apply.

Some of the Belt & Road “Services and Safeguards Opinions” have flagged investment arbitration as an issue of concern. Enabling investment arbitration in China involves a number of interlinked issues. I recommend Professor Chi Manjiao’s recent article on the many complicated issues related to improving Chinese law on investment arbitration. 

Regarding the boundary between confidentiality and disclosure of information in the process of judicial review of arbitration. We agree with the suggestion that the advantage of arbitration confidentiality should be maintained in arbitration judicial review cases.  It is difficult to make specific provisions in the Arbitration Law drawing the line between confidentiality and transparency, and it is suggested that it can be resolved through judicial interpretation. In judicial practice, judges do not involve facts irrelevant to arbitration judicial review when writing documents. The parties may also request the people’s court not to disclose the judgment documents on the grounds that the case involves personal privacy and commercial secrets. In the future, it may be considered to establish clearer rules to further balance the relationship between arbitration confidentiality and judicial openness.

Drawing the line between confidentiality and transparency is an issue worldwide, so it makes sense to leave this matter to the SPC to provide more detailed rules through a judicial interpretation.

On the protection of the rights and interests of third parties (案外人). The Arbitration Law should protect the legitimate rights and interests of third parties, but the current draft amendment to the Arbitration Law [Article 84] stipulates that the prerequisite for a third party to challenge the subject matter of enforcement is that the enforcement has not yet been completed, and even if the grounds are valid and the People’s Court decides to terminate the enforcement, it still cannot negate the validity of the arbitral award that has harmed his or her legitimate rights and interests, and this situation is particularly prominent when the parties to an arbitration case apply for arbitration in bad faith or sham arbitration. Therefore, it is necessary to introduce a system of application for setting aside an arbitral award by a third party, so as to fundamentally solve the problem that the current system of remedies for third parties in the draft amendment is insufficient to adequately protect their lawful rights and interests.  

This is the section that I hope will attract discussion by those highly knowledgeable about arbitration law.  Article 84 of the consultation draft of the Arbitration Law gives third parties in [domestic] arbitration enforcement proceedings the right to challenge the subject matter of the enforcement. Justice Tao is taking the view that the remedies for third parties in the draft are insufficient, and third parties should have the right to apply to a court to set aside the arbitral award at the enforcement stage.  It appears that Justice Tao was persuaded by the views of the SPC’s Enforcement Bureau, as set forth in an article published a year ago by Judge Shao Changmao, head of one of its offices. Silence by other divisions does not necessarily signal agreement.

In my view, incorporating such a provision in the Arbitration Law could lead to even more challenges to arbitral awards and appears to signal a return to earlier law, in which courts could set aside domestic arbitral awards.  It likely reflects the SPC’s concern with stopping sham dispute resolution, whether it is sham litigation (subject to criminal penalties) sham mediation (about which I have written earlier), or sham arbitration. However, it could lead to the “cure being worse than the disease.”  The Chinese arbitration community is likely to take the view that this will not be helpful in making China become a more attractive destination for cross-border arbitration. 

I surmise that incorporating this provision would make major international arbitration institutions more reluctant to establish case management offices in China. It would mean that Chinese courts could set aside their awards, which they could not do if the award was considered to have been made outside the mainland.  I look forward to further discussion by the international arbitration community on the appropriateness of incorporating such a  provision in the Arbitration Law.

Finally, amending the Arbitration Law, from my own brief involvement in the process and discussions with persons involved, is more complex that it appears but is a crucially important matter for the future of Chinese and China-related dispute resolution. Once the law is finalized, the process deserves a study of its own.  The final version of the amended Arbitration Law will be an indication of the balance between internationalization (harmonization with international practice) and Chinese characteristics.

_________________________

Many thanks to three anonymous peer reviewers for their comments on earlier drafts of this blogpost.

My apologies to the patient followers of this blog for the long gap between blogposts.

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