Arbitrating Under SHIAC's New China (Shanghai) Pilot Free Trade Zone Arbitration Rules

6월 16, 2014



Following the establishment of the China (Shanghai) Pilot Free Trade Zone (“FTZ”) in August last year, the Shanghai International Economic Trade Arbitration Commission (SHIAC) (the former Shanghai Sub-Commission of CIETAC) formed the China (Shanghai) Pilot Free Trade Zone Court of Arbitration in October 2013 and more recently launched its China (Shanghai) Pilot Free Trade Zone Arbitration Rules (“FTZ Rules”). The FTZ Rules, which cater to the resolution of disputes in connection with the FTZ, came into effect on 1 May 2014. In an attempt to distinguish itself from other domestic arbitration institutions and align its rules with those from leading arbitral institutions such as the HKIAC, SIAC and ICC, the FTZ Rules have introduced a number of bold and innovative features.

In parallel with these developments, the Shanghai Second Intermediate People Court (“2IPC”) was designated by the Supreme People’s Court of the PRC as the court responsible for dealing with court applications and appeals arising out of arbitrations administered by the SHIAC under the FTZ Rules. To further facilitate the development of arbitration within the FTZ, the 2IPC, in accordance with the PRC Arbitration Law and Civil Procedure Law, published the Certain Opinions Regarding the Application of the China (Shanghai) Pilot Free Trade Zone Arbitration Rules (关于适用《中国(上海)自由贸易试验区仲裁规则》仲裁案件司法审查和执行的若干意见) (“Certain Opinions”) on 5 May 2014. The Certain Opinions provide legal support for the innovative features under the FTZ Rules (to the extent compliant with PRC laws) and also set out the relevant court procedures, guidelines and timelines for the conduct of enforcement and other ancillary court applications arising from arbitrations under the FTZ Rules.

The following section will highlight some of the key features under the FTZ Rules.

Features under the FTZ Rules

Scope of Application

The FTZ Rules apply where (i) parties have agreed to refer their disputes to SHIAC, and (ii) either (a) opted to apply the FTZ Rules (or for the arbitration to be conducted at or administered by the China (Shanghai) Pilot Free Trade Zone Court of Arbitration) or (b) where the parties, subject matter of the dispute or the legal facts that lead to the establishment, change or termination of civil and commercial relationships are in connection with the FTZ (Article 3).

Interim Measures and Emergency Arbitrator

The FTZ Rules offer a comprehensive suite of interim relief measures under Article 18, which provides for mandatory injunctions in addition to the preservation orders (of property and evidence) traditionally available under PRC law. The FTZ Rules also offer pre-arbitration interim measures (Article 19), interim measures after the constitution of the tribunal (Article 20) and the opportunity to apply for interim measures before an emergency arbitrator (“EA”) during the period between the acceptance of a case and the constitution of a tribunal (Article 21). The references to pre-arbitration interim measures and mandatory injunctions acknowledge and respond to changes in the relatively new PRC Civil Procedure Law (2013) which now allows applications for property and evidence preservation as well as mandatory injunctions even before the commencement of arbitration.

More importantly, although the same types of interim relief are also available to parties arbitrating under other arbitration institutions in the PRC (such as CIETAC), an application for interim relief in an arbitration under the FTZ Rules would be determined by the 2IPC on a fast track basis compared to the timing requirements under the Civil Procedure Law. Pursuant to Article 6 of the Certain Opinions, the 2IPC is committed to issuing a decision on an application for conservatory measure(s) within 24 hours of acceptance. This is half the time stipulated under Article 101 of the Civil Procedure Law which requires the relevant court to issue a decision within 48 hours of accepting the application.

The FTZ Rules are the first set of arbitration rules in Mainland China to introduce the EA regime, which would allow parties to seek urgent interim relief without recourse to the courts. While this would appear at first blush to revolutionize PRC arbitration, a closer examination of the FTZ Rules reveal inherent limitations which would likely damper expectations.

The first of these limitations is set out at Article 22 which states that the emergency tribunal shall only render its decision “in accordance with the relevant laws in the jurisdiction where the interim measure(s) is sought”. Accordingly, the EA regime only applies to arbitrations seated outside the PRC as the Civil Procedure Law still requires any application for interim measures within the PRC to be made through the courts. As such, until changes are made to the Civil Procedure Law, the EA regime is likely to be of assistance only to parties seeking enforcement of emergency relief outside the PRC and in jurisdictions that recognize such relief.

Secondly, there may be difficulties in ensuring a swift constitution of the emergency tribunal under the FTZ Rules. Under Article 21 of the FTZ Rules, a party can only apply for emergency relief after its case has been “accepted” by the SHIAC. Following such acceptance, it is only upon receipt of a party’s application to appoint an emergency arbitrator and “within 3 days of completion of all formalities” that the Chairman of the SHIAC shall appoint an emergency arbitrator from its Panel of Arbitrators. By contrast, the time periods for the appointment of an emergency arbitrator under the SIAC, HKIAC and the ICC Rules would likely take less time. The ICC Rules allow for an application for emergency relief to be made even before the submission of a request for arbitration while the SIAC and the HKIAC Rules contemplate that such an application may be made concurrent with or following the filing of a notice of arbitration. These offshore arbitration rules further contemplate the formation of an emergency tribunal between 1 and 2 days upon receipt of the application for emergency relief.

Evidential Rules

PRC arbitrations tend to follow an inquisitorial (rather than adversarial) approach to the conduct of proceedings as Chinese arbitrators will generally rely on or make reference to the procedures set out in the Civil Procedure Law. Article 44(4) of the FTZ rules provides that “where the parties have agreed on matters or rules relating to evidence, the parties’ agreement shall prevail except where such agreement is inoperative”. The introduction of Article 44(4) therefore allows parties to an arbitration under the FTZ Rules the autonomy to adopt other internationally recognized evidential rules, e.g. the IBA Rules on the Taking of Evidence (which are commonly adopted in international arbitration). This will likely appeal to foreign parties and their counsel who are less familiar with the evidential rules and approach employed in a typical PRC arbitration.

The 2IPC’s recognition of parties’ agreement to adopt other internationally recognized evidential rules is also set out in Article 12 of the Certain Opinions which states that as long as they are provided for and permitted under the FTZ Rules and PRC law, the tribunal’s orders for collection of evidence, pre-hearing conference and/or expert evidence will be upheld by the 2IPC.

Pre-arbitration Mediation

Consistent with the long-standing culture of mediation in the PRC, Article 50 of the FTZ Rules sets out a separate mediation procedure available before the composition of the arbitral tribunal. Under this procedure, if both parties agree to mediate, the mediator will be appointed by the Chairman of SHIAC from its Panel of Mediators, a new panel constituted by the SHIAC in conjunction with the introduction of the FTZ Rules. Furthermore, to avoid bias or the appearance of bias which may arise from acting in dual roles as mediator and arbitrator, a mediator shall not act as arbitrator in the subsequent arbitration proceedings unless parties otherwise agree in writing. This prohibition is consistent with the approach adopted by the 2014 ICC Mediation Rules (Article 10(3)).

Consolidation and Joinder

Another innovative aspect of the FTZ Rules is that they also provide for joinder of additional parties and consolidation of multiple proceedings.

Article 36 of the FTZ Rules states that the tribunal may, on the application of any party and with the consent of all other parties concerned, order the consolidation of related arbitrations or arbitrations involving the same or similar subject matter. Joinder of a third party in an arbitral proceeding, both before and after constitution of the tribunal, is permitted under Article 37 of the FTZ Rules. These bring the FTZ Rules closer to other international arbitration rules, such as those of the ICC and HKIAC, although there are certain notable differences.

In respect of consolidation, the tribunal’s power under the FTZ Rules is limited to circumstances where the consent of all other parties concerned have been obtained and where the arbitrations are related or if they involve the same or similar subject matter (Article 36.1). By contrast, the HKIAC and the ICC enjoy more expansive powers of consolidation under the applicable rules although such powers are exercised by the institutions rather than the tribunal itself. The HKIAC Rules provide that even in the absence of parties’ agreement, such powers can also be exercised where all the claims are made under the same arbitration agreement; or if all the claims are not made under the same arbitration agreement: (i) a common question of law or facts arises in both or all of the arbitrations; (ii) the rights to relief claimed are in respect of, or arise out of, the same transaction or series of transactions; and (iii) the HKIAC finds the arbitration agreements to be compatible. Under the ICC Rules, where the claims arise out of separate arbitration agreements, two or more arbitrations may be consolidated where the parties are the same, the disputes in the arbitrations arise from the same legal relationship and the ICC Court finds the arbitration agreements to be compatible.

In relation to joinder, such powers of joinder could be exercised both before and after the constitution of the tribunal provided that the party to be joined is also party to the same arbitration agreement. Where the joinder takes place after the constitution of the tribunal, the tribunal may permit the joinder provided that the party being joined waives its right to re-appoint an arbitrator and submits to the proceedings (Article 37(2)).

Again, there are some differences in the powers of joinder. Under the FTZ Rules, the powers may be exercised prior to constitution of the tribunal even if any party has already appointed its arbitrator. The ICC Rules do not allow for joinder once any arbitrator has been confirmed unless all parties agree otherwise. On the other hand, the HKIAC Rules provide for more expansive powers of joinder, allowing the HKIAC to revoke the appointment of any arbitrator already confirmed and deeming all parties to the arbitration as waiving their rights to designate an arbitrator in circumstances where an additional party has been joined pending the constitution of the tribunal. Surprisingly, the SIAC Rules do not allow the SIAC to exercise any powers of joinder prior to the constitution of the tribunal, such powers being exercisable only by the tribunal provided the joined party so consents to be joined.

So what is the competitive edge of the FTZ Rules?

There is no doubt that the FTZ Rules represent a positive step towards the development of arbitration in the PRC and provide an attractive alternative to the rules of other PRC arbitration commissions. Having said so, the jury remains out over whether they will be considered as a viable alternative to offshore arbitral institutions such as the SIAC, HKIAC and the ICC in the eyes of foreign parties. Without doubt, certain features (such as the powers of joinder and changes to the evidentiary rules) are more comparable to those available internationally. However, other provisions, such as the EA regime and the powers of consolidation are, upon closer examination, less compelling.

More importantly, arbitrating in the FTZ does not eliminate foreign users’ fundamental concerns of subjecting themselves and their disputes to the supervisory jurisdiction of the PRC courts. It also remains to be seen how the SHIAC will exercise some of these new powers conferred upon it under the FTZ Rules. Only time will tell if the FTZ arbitration regime will be able to compete effectively with other regional arbitration centres.

To some degree, the limitations are more a reflection of the SHIAC and the FTZ Rules having to operate within the existing framework of the PRC laws than a lack of ambition. It may therefore be necessary to contemplate more wholesale changes to the existing PRC (or at least the FTZ) legal framework on arbitration before the SHIAC (or any other PRC arbitral institution for that matter) would be able to present itself as an attractive alternative to offshore arbitral institutions.

O'Melveny & Myers LLP is a foreign law firm registered with the Ministry of Justice of the People's Republic of China. Under current Chinese regulations, we are allowed to provide information concerning the effects of the Chinese legal environment, but we are not authorized to practice Chinese law or to render legal opinions in respect of Chinese law. We work in cooperation with a number of Chinese law firms. Should you require a legal opinion in respect of any Chinese law matter, we would be happy to assist you in obtaining one from a Chinese firm.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Friven Yoeh, an O'Melveny partner licensed to practice law in Hong Kong, England and Wales, and Victoria, Australia, Desmond Ang, an O'Melveny counsel licensed to practice law in Hong Kong, Singapore, and England and Wales, and Patricia Lam, an O'Melveny associate licensed to practice law in Hong Kong, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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