Arbitration in the Far East

Brujula HK

 

Along with China’s steady economic growth and expanding relationship with the outside world, commercial disputes inevitably occur as the by-products of international trade.

Arbitration is an increasingly popular form of alternative dispute resolution (ADR) which has numerous advantages over court litigation, such as –relative- lower prices, speed (it is not unusual for a dispute to languish in court for years), flexibility, neutrality, confidentiality (no public hearings, no public records), and bespoke solutions, brought about by the specialization and technical competence of the members of the arbitration panels.

Either institutional arbitration (in which a specialized institution, with its own set of rules[1], intervenes and takes on the role of administering the process) or ad hoc arbitration (where the parties determine all aspects of the arbitration by themselves, a.e., number and appointment of arbitrators, applicable rules[2], etc.) are suitable options; there are notable differences, though.

Flexibility may be questionable in institutional arbitration, where the institution effectively acquires the parties’ powers to make decisions and can impose their will upon them, which seems against the spirit of arbitration. Although ad hoc arbitration may seem preferable in today’s modern and commercially complex world, it is really only suitable for smaller claims involving less affluent parties in domestic arbitrations. In the context of international commercial disputes, institutional arbitrations may be safer, despite being more expensive, time consuming and rigid, because of their up to date arbitration rules, support, and monitoring of the arbitration (strengthening the awards’ credibility).

Bearing in mind that the choice of seat determines the law of the arbitration procedure and the process and rights relating to enforcement of the arbitration award, let’s examine briefly the Asian arbitration scenario:

China International Economic and Trade Arbitration Commission (CIETAC), established in 1956 (although its current name and structure dates back to 1988), is the regnant arbitration center in Mainland China. It is based in Beijing and, in addition to the Shanghai and South China sub-commissions, the latter of which is based in Shenzhen, it also has offices in Chongqing and Tianjin. It also opened a branch office in Hong Kong. Since 2012, however, a schism has taken place between CIETAC/Beijing and both CIETAC/Shanghai and CIETAC/Shenzhen.

CIETAC announced in 2012 that it was suspending with immediate effect the authorization of the Shanghai and Shenzhen sub-commissions to accept and administer arbitrations. These sub-commissions retorted that they are independent arbitration institutions established with the approval of their respective local governments. Furthermore, the South China sub-commission has set itself up as the Shenzhen Court of International Arbitration and South China International Economic and Trade Arbitration Commission, and has dropped all references to being a CIETAC sub-commission.

Whereas for several years CIETAC has played a dominant role in handling foreign-related arbitration cases, the truth is that there are already more than 200 arbitration commissions located in major municipalities in Mainland China, although they primarily deal with domestic cases.

Apart from CIETAC, over the past 10 years, Wuhan Arbitration Commission (WHAC) has accepted the greatest number of arbitration cases in Mainland China. Other arbitration commissions that handle large volume of arbitration cases include the Guangzhou Arbitration Commission, the Xiamen Arbitration Commission, the Qingdao Arbitration Commission, the Harbin Arbitration Commission, the Chengdu Arbitration Commission, the Changsha Arbitration Commission, the Zhengzhou Arbitration Commission and the Xian Arbitration Commission.

In order to meet the demands of future growth trends in the area, international arbitration centres have also been set up at Qianhai Zone, in Shenzhen; in Nansha, in Guangzhou; and, more recently, in August 2014, the International Court of Arbitration of the Hengqin New Area was established, under the patronage of Zhuhai Arbitration Comission.

But even though China’s arbitration institutions are moving forward to focus on strategic expansion and the improvement of service quality, they generally receive a smaller number of foreign-related cases.

Besides, given the current situation within CIETAC, and the fact that the arbitration agreement must be valid in accordance with the requirements of the PRC Arbitration Law, it is indeed safer for the parties entering into a contractual relationship to refer their disputes for arbitration by other well renown venues, such as the Hong Kong International Arbitration Centre (HKIAC), and adopt other rules, such as the Rules of Arbitration issued by the HKIAC itself (HKIAC Administered Arbitration Rules, 2013). This is indeed more feasible when doing business with Chinese counterparts, who wouldn’t accept to submit the case to Paris.

Although Singapore has experienced a meteoric rise in the world of ADR (SIAC, Singapore International Arbitration Centre, 1991) Hong Kong maintains the advantage of being the pre-eminent place of arbitration for PRC parties not arbitrating on the mainland.

Indeed, Hong Kong has long been recognized as an independent and neutral forum. It would be a mistake to assume that Hong Kong suffers from a lack of judiciary independence due to its political connection with Beijing. Not only the concept “one country, two systems” was defined in the Sino-British Joint Declaration of 1984; the subsequent Basic Law[3] defines (Article 19) that the HKSAR is “vested with independent power, including that of final adjudication”[4].

It thus has been highlighted in the World Economic Forum ‘Global Competitiveness Report 2013-2014’ which ranked Hong Kong 4th out of 148 countries in respect of judicial independence.

Another key benefit of choosing Hong Kong as a seat is its arbitration law. The Arbitration Ordinance, updated in 2011, is based on the most recent version of the UNCITRAL Model Law and it places more emphasis on party autonomy and non-interference by Hong Kong Courts.

As a territory covered by the New York Convention (1958), awards rendered in Hong Kong are enforceable in more than 150 countries. On the other hand, China and Hong Kong entered into an agreement concerning mutual enforcement of arbitral awards, in 1999.

Furthermore, Hong Kong’s liberal visa policy allows nationals of more than 170 countries to visit Hong Kong visa-free. This makes it an extremely convenient arbitral seat for travel purposes.

 



[1] The Rules of Arbitration of the International Chamber of Commerce (Paris), for instance.

[2] Rules drawn up by themselves or, alternatively, the UNCITRAL Arbitration Rules.

[3] Hong Kong constitutional rule passed by the Chinese government.

[4] The power of final adjudication rests with the Court of Final Appeal in Hong Kong.

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