CIETAC arbitration rules revised

11 May 2005

Edward Alder, Rosamund Cresswell

In light of China’s accession to the World Trade Organisation and with greater globalisation, a growing number of international transactions now feature a Chinese party. As such, the need to resolve disputes by Chinese arbitration is becoming increasingly important.

The China International Economic and Trade Arbitration Commission (CIETAC), China’s biggest and most influential arbitration institution, has recently revised its arbitration rules. The new rules come into effect in May 2005. The changes bring CIETAC procedures closer to those of other international arbitration commissions in several respects. This is to be welcomed by foreign parties doing business in China.

Arbitrators of any nationality

One of the most significant changes under the new rules is that parties, by mutual agreement, may now select arbitrators outside CIETAC’s Panel of Arbitrators. This will enhance the pool from which potential arbitrators may be chosen - currently it consists predominantly of Chinese nationals - and hopefully will result in arbitrators with a greater breadth of knowledge and experience being selected to hear cases.

Notwithstanding this, CIETAC will continue to maintain some control over the selection process in that any arbitrator chosen outside of the panel must be approved by the Chairman of CIETAC. Further, if parties can not agree on a presiding arbitrator CIETAC ultimately will make the appointment from its panel.

Seat of the arbitration

The new rules allow for CIETAC arbitration to be conducted with the ‘seat’ outside China for the first time. This means that for the first time CIETAC arbitrators may be governed by the procedural arbitration law of other jurisdictions. In common law jurisdictions the place at which the award is signed establishes the origin of the award. However, the new rules provide that any award will be deemed to be issued from the seat of the arbitration. This is significant as it may assist to avoid unexpected enforcement problems under the common law rule.

Disclosure of potential conflicts

The new rules have enhanced the requirements placed on arbitrators to disclose potential conflicts of interest. It is hoped that this change will lead to greater transparency and reduce the possibility of decisions being tainted by bias.

Choice of other arbitral rules / procedural flexibility

These new rules confer a greater degree of autonomy on both foreign and local parties.

Parties now have the right to adopt and incorporate other arbitration rules into the CIETAC rules. It is hoped that this will result in more stringent standards.

A further change is that arbitrators will no longer be constrained by rigid court-style procedure. They will be permitted to conduct common law style or “adversarial” proceedings in which the parties alone elect what evidence is placed before the arbitrator. The new flexibility will allow cross-examination of witnesses, pre-hearing conferences, the issuing of directions and establish the framing of terms of reference.

New time deadlines

The new rules have reduced the time period in which cases may be conducted. The new time limits allow 6 months for foreign-related cases, 4 months for domestic cases and 3 months for summary procedures. It is hoped that this will lead to greater efficiency and cost savings.

Costs

Under the old rules the recovery of a winning party’s costs was limited to 10% of any damages awarded. The new rules are a significant improvement in that they eliminate this restriction. This may assist in making smaller claims economically viable.

Jurisdiction

The new rules have clarified the scope of CIETAC’s jurisdiction in that they now list solely the categories of cases which CIETAC will hear. Previously both the categories that it would and would not hear were listed which often led to confusion. Any case that is not included in the new list will automatically be out of CIETAC’s jurisdiction.

Conclusion

The changes represent a great leap forward in bringing CIETAC’s practices in line with those of its international counterparts.

While CIETAC has introduced reforms in response to Chinese and foreign criticism, several issues still remain largely unresolved. Examples of this include CIETAC’s failure to address arbitrators’ low remuneration packages and the high fees charged for big-ticket cases.

It remains important for CIETAC to embrace continuing change in order to establish itself as a leading modern arbitral body.