Potential Chances & Challenges of China's Ad hoc Arbitration

 

On 3rd November, Mr. Yuan Peihao, the partner of JunZeJun Law Offices participated in the first forum on the topic “Dispute Resolution and Ad hoc Arbitration in Free Trade Area” , which was sponsored by China University of Political Science and Law, and made a speech on “Potential Opportunity and Challenges of Ad hoc arbitration in China”. The major contents of his speech are compiled as follows:

 

1.   “Three specials” in ad hoc arbitration

To begin with, we should define the nature of the relevant regulation in <Advice on Providing Judicial Safeguard In Free Trade Area> (“the Advice”) proposed by the Supreme Court. This regulation permits the application of ad hoc arbitration under three special conditions. In my opinion, instead of a concrete and specific regulation, it is a special regulation differing from other common regulations on arbitration. Thus, it is more suitable to use the term “special” than “specific”, such translation also conforms with the Supreme Court’s intention to adopt the special rule to cultivate ad hoc arbitration, which has not been officially permitted in any other existing legislations.

 

(1)  The “special place”

The “special place”, referring to those Free Trade Areas(“FTA”) in China, covers the area of current 11 Pilot Free Trade Zones in Shanghai, Tianjin,  Chongqing, Guangdong, and some other provinces. The so-called “special place” chosen by parties will determine which court would have jurisdictions on application of provisional measures and judicial review. Above-mentioned 11 FTAs are of varied levels, some are of municipal levels, such as Shanghai, Tianjin and Chongqing, some are of provincial levels, such as Guangdong. In the event that, an arbitration agreement does not specify the city where the ad hoc arbitration would be proceeded, confusion on jurisdiction of courts may occur.

 

FTAs in China cover a wide area of diverse cities and regions, so it may accordingly be a challenge for lawyers to draft arbitration agreements. The smallest court level of judicial assistance and supervision regulated in the Arbitration Law is district level, I therefore strongly recommend lawyers to clearly define the arbitration place and to specify the district in FTAs.

 

(2) The “special arbitration rule”

As far as I am concerned, the “special arbitration rule” in Advice is definitely not those arbitration rules of our domestic arbitration institutions, it must be those that could be adopted in ad hoc arbitrations, such as <UNCITRAL arbitration rules >, which is applicable in both civil law and common law countries, as well as <LMAA arbitration rules>.

 

(3) The “special person”

The “special person” in the Advice refers to arbitrators. In many states, arbitrators in ad hoc arbitration can be a court of the chosen arbitration place, an arbitration institution, a trade association, or even a natural person. Ad hoc arbitration remains to be a new thing in China, there are still no relevant and detailed regulations on proceedings of ad hoc arbitration in existing legislations and rules. Hence, I suggested that parties should choose arbitration institutions in FTAs to appoint arbitrators for following two reasons: Firstly, arbitration institutions have rich experience on appointing arbitrators so that they can usually appoint the most qualified and experienced arbitrators for dealing with disputes of different areas; In addition, arbitration institutions are familiar with the existing arbitration law and rules, thus the legitimacy of the arbitrators can be guaranteed.

 

When ad hoc arbitration develops to appropriate degree, parties can absolutely appoint those who they trust and are familiar with. Also, courts and trade associations are certainly and properly appointing institutions as above.

 

 

2. Ad hoc arbitration in China

 It is important to meet the market demands and to increase production efficiency for a fresh thing to develop and blossom in the present market-oriented economy. In the information era, we have to solve at least following problems so as to facilitate the landing of ad hoc arbitration in China.

 

(1)  Arbitration Costs in China

According to the statistics provided, in 2008, ad hoc arbitration only occupies 14% among all arbitrations, the decrease of application of ad hoc arbitration may to a large extent attributes to high fees and expenses.

 

But the problem of cost may not become a problem in China. There is an interesting phenomenon called “Chinization of global economy”. Any product, if produced in China and its core technology been mastered by the Chinese, its cost will decrease by at least 50%.

 

There are many typical examples: planes, high-speed trains, nuclear power and e-commerce market.

 

So we can accordingly believe that ad hoc arbitration costs in China are also lower than those of other countries. That is because after 30 years’ development, we have numerous professional and skilled arbitrations and along with the growth of arbitration in trade associations, the costs can possibly reduce to zero. Take an instance to explain, banks in FTAs can establish their own bank associations to appoint arbitrators, an arbitrator from the Bank of China may be appointed to resolve a case involving China Construction Bank(“CCB”). Next time an arbitrator from CCB can resolve a case involving the Bank of China without taking any fees out of moral principle.

 

(2) Provisional Measures in Ad hoc Arbitration

In order to promote the development of ad hoc arbitration, the implement of property preservation and evidence preservation must be insured by the court, so rules on provisional measures with respect to three specials should be published as soon as possible.