PRC Arbitration/CIETAC

In transactions with a connection to mainland China, arbitration with a seat in that jurisdiction may well need to be considered. In particular:

• Where all the parties to a dispute are PRC parties, and the subject matter of the dispute is in mainland China, dispute resolution (arbitration or litigation) in the PRC is compulsory under PRC law and therefore will have to be chosen if the dispute resolution forum is to be in mainland China, or the resultant award or judgment is to be enforced there. In relation to this requirement further points not to overlook (especially in a transaction involving non-PRC parties) include:
  • - In multi-party contracts involving both PRC and non-PRC parties, consider whether disputes are likely to arise amongst the PRC parties only since, if they do, the above requirement would be activated; and
  • - also keep in mind that, under PRC law, “wholly foreign owned enterprises” (a common form of PRC based investment vehicle wholly owned by overseas investors, without the involvement of a PRC investor) are regarded as PRC parties.
• Under PRC arbitration law, interim relief against a PRC party or assets located in the PRC is available from PRC courts and is much easier to obtain where the arbitration is also seated in the PRC as recently expanded measures are not available for arbitration seated outside of the PRC . Accordingly, if urgent relief against a PRC party in the PRC is likely to be important (e.g. for breach of confidentiality) PRC seated arbitration may be appropriate.

In the event that a mainland China seated arbitration is required, or otherwise desired, the rules of a domestic arbitration institution must be chosen (PRC law does not recognise ad hoc arbitrations, and the status of PRC seated arbitrations administered by foreign arbitration institutions is unclear under PRC law). In such circumstances, we recommend the China International Economic and Trade Arbitration Commission (“CIETAC”) as the first choice.

CIETAC, which was set up in 1956, is the largest and best known of the arbitral institutions established in mainland China. CIETAC is also known as the Arbitration Institute of the China Chamber of International Commerce.

The current iteration of CIETAC's Arbitration Rules entered into force on 1 January 2015 and incorporate many of the features of the rules of other leading Asian arbitration institutions such as the HKIAC and SIAC. The quality of the institution is improving and parties may opt to use arbitrators outside of CIETAC’s panel (an option our CIETAC clauses provide for).

Note that due to disagreements over an earlier edition of the CIETAC rules, CIETAC’s Shanghai and Shenzhen/South China sub-commissions have split from CIETAC. As a result, appropriate local advice should be taken if faced with a CIETAC arbitration clause which purports to refer disputes to any of the former sub-commissions. Its likely efficacy would need to be checked in light of this controversy. In order to avoid any issues, our CIETAC Clauses refer to arbitration administered by the Beijing headquarters of CIETAC.

If using the CIETAC Rules, they give the tribunal a general discretion to obtain evidence. Our CIETAC clauses exclude the tribunal’s power to order general discovery (on the grounds that the saving in time and cost makes up for the few cases where general discovery might have changed the outcome). Consider whether this will be appropriate in your case before including these words