Arbitration in China: Administrated by Foreign Arbitration Institutions

On 16 January 2024, the Supreme People’s Court of China (“SPC”) published ten typical court cases on judicial review of arbitration. Case 3 recognized the validity of an arbitration agreement on arbitration in China administrated by a foreign arbitration institution. Previously, another court case published by the SPC in 2022 had already determined that an arbitral award rendered by a foreign arbitration institution in China should be regarded as a foreign-related arbitral award of China (i.e. a Chinese domestic award) rather than a foreign arbitral award. Although the above typical court cases are not legally binding precedents in China, they represent the current stance of the SPC and have clarified long-standing confusion and debate in practice.

Valid Arbitration Agreement

The above-mentioned Case 3 published by the SPC in 2024 originated in Shanghai (Shanghai No. 1 Intermediate People’s Court (2020) Hu 01 Min Te No. 83). In the underlying case, both parties to a foreign-related contract had agreed within the contract to subject their disputes to arbitration in Shanghai administered by the Singapore International Arbitration Centre (“SIAC”) in accordance with its arbitration rules. During the SIAC arbitration proceedings, however, one party challenged the jurisdiction of the arbitral tribunal.

The arbitral tribunal decided in favor of its jurisdiction as the majority opinion of the tribunal held that:

• The arbitration clause provided that the venue of the hearing was Shanghai, China;
• The place of arbitration was Singapore, and the governing law of the arbitration agreement was Singapore law;
• The arbitration clause was valid under Singapore law; and
• The arbitral tribunal had jurisdiction over the disputes in the case.

The party challenging the jurisdiction then sought a judicial review in Singapore. The Appellate Division of the Supreme Court of Singapore finally rendered a judgment of second instance, finding that the agreement to “arbitration in Shanghai” indicated that the agreed place of arbitration (i.e. not the venue of the hearing) was Shanghai, not Singapore. The court did not decide on other disputed issues, such as whether the arbitral tribunal had jurisdiction over the dispute.

Following this, the arbitral tribunal of the SIAC suspended the arbitral proceedings pending the Chinese court’s decision on the validity of the arbitration clause in question.

In the end, the Shanghai No. 1 Intermediate People’s Court confirmed that the arbitration clause was in line with Article 16 of the Chinese Arbitration Law and was therefore valid. This decision was based on the following grounds:

• The dispute resolution clause agreed upon by the parties was the true expression of the parties’ intention and was contractually binding on both parties;
• According to the context of the arbitration clause and the interpretation and analysis of both parties, the place of arbitration was Shanghai, China;
• Both parties also confirmed that the governing law of the arbitration agreement was Chinese law; and
• Both parties chose a clear and specific arbitration institution, i.e., SIAC.

This case resolved the controversial issue of the validity of an arbitration clause where the parties voluntarily agree to submit a foreign-related dispute to arbitration by a foreign arbitration institution while agreeing that the place of arbitration would be Mainland China. The Chinese Arbitration Law does not have any explicit provision in this regard.

From the practice of international commercial arbitration, the place of arbitration, as a place in the legal sense, has no necessary connection with the place of hearing of the arbitral tribunal, the place of deliberation, the place of investigation and collection of evidence, etc. Its function is mainly to determine the nationality of the arbitral award, the competent court having the right to exercise judicial supervision, the law applicable to the arbitration procedure and the arbitration agreement, etc.

In this case, the parties agreed that the place of arbitration was Shanghai. Therefore, the Appellate Division of the Supreme Court of Singapore ruled that it was appropriate for the court at the place of arbitration, i.e., the Chinese court in Shanghai, to determine the validity of the arbitration clause (i.e. the arbitration agreement) in question. Since Chinese law does not prohibit such an arbitration clause, the Shanghai No. 1 Intermediate People’s Court ruled that the clause under which the parties agreed to submit the dispute to arbitration by a foreign arbitration institution in Mainland China was valid.

Domestic Award

In the Guangzhou case published by the SPC in 2022 (Guangzhou Intermediate People’s Court (2015) Sui Zhong Fa Min Si Chu No. 62), the parties had agreed that “any disputes arising out of or in connection with this contract shall be resolved by both parties through friendly consultation. If the dispute cannot be resolved through consultation, it shall be submitted to the International Court of Arbitration of the International Chamber of Commerce (“ICC”) for arbitration at the location of the project in accordance with international practice”. The parties had subsequently agreed that the location of the project was Guangzhou, China.

A dispute then arose over the performance of the contract, and a final award was rendered by an ICC sole arbitrator in Guangzhou. Following this, the claimant applied for recognition and enforcement of the arbitral award based on the 1958 New York Convention or the Arrangement on Reciprocal Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region.

In the proceedings for the recognition and enforcement of the arbitral award, the Guangzhou Intermediate People’s Court held that the award in question was an arbitral award rendered by a foreign arbitral institution in Mainland China, which should be regarded as a Chinese foreign-related arbitral award, i.e., a Chinese domestic award. If the respondent failed to fulfill the award, the claimant may directly apply to the Intermediate People’s Court at the place of the respondent’s domicile or property for enforcement of such arbitral award pursuant to the Chinese Civil Procedure Law. The claimant’s application for recognition and enforcement of the arbitral award based on the 1958 New York Convention or the Arrangement on Reciprocal Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region was wrong in its legal basis.

This case, as approved and reported by the SPC, clarified for the first time the rules for determining the nationality of arbitral awards rendered by foreign arbitration institutions in China. Such awards are regarded as Chinese foreign-related arbitral awards (i.e., Chinese domestic awards) rather than foreign awards. Upon due application according to the Chinese Civil Procedure Law, they may be directly enforced by a competent court in Mainland China without the need to first apply for recognition by a competent Chinese court in accordance with the 1958 New York Convention.

Conclusion

In combination, these two court cases could provide a constructive solution to certain deadlock situations in practice. In Sino-foreign transactions, the foreign parties would often prefer an international arbitration institution to a Chinese one, and the Chinese side would usually insist on a home game in China for potential arbitral proceedings. In such cases, a written arbitration agreement on arbitration administrated by a foreign arbitration institution in China could serve as a suitable middle ground, as it could be validly concluded under Chinese law (please also refer to: Arbitration Agreement under Chinese Law).

Moreover, given that an award rendered by such foreign arbitration institution in China would be considered as a Chinese domestic award instead of a foreign award, the arbitral award could be directly enforced by the competent Chinese court without first having to be recognized by a court in China.