Update on judicial interpretation of arbitration - issues in China

12 July 2007

Darren FitzGerald, Luke Ryan

In September 2006, a new “interpretation” of the PRC Arbitration Law issued by the Supreme People’s Court came into effect (the “Interpretation”).

The Interpretation has made some important clarifications. For instance, if the validity of an arbitration agreement falls to be determined under PRC law, such agreement may be deemed invalid if it fails to designate an arbitration commission at all or with sufficient accuracy. The Interpretation deals with a number of difficulties which have arisen from this requirement, in particular:

  1. An arbitration agreement will still be valid if the institution can be ascertained from the arbitration clause - even if it is not described accurately;

  2. The mere choice of a set of arbitration rules in an arbitration agreement is not sufficient - unless the rules concerned provide that, by selecting them, the parties will be taken to have nominated a particular commission;

  3. Unless the parties can agree on which institution will assume jurisdiction, nominations of two or more institutions will render an arbitration agreement invalid.

The Interpretation also gives the parties an opportunity to rectify a defective choice of institution through subsequent agreement.

Law governing the arbitration agreement

The Interpretation makes it clear that, in determining the validity of foreign-related arbitration agreements, the People’s Court should not automatically apply PRC law. The People’s Court will determine the validity of such agreements by reference to:

  1. the applicable law agreed upon by the parties;

  2. failing agreement on the applicable law, the law of the place of arbitration; or

  3. if the parties have not agreed the applicable law or the place of arbitration, the arbitration agreement will be governed by the law of the place where the People’s Court is located.

Challenging arbitral awards

Under PRC arbitration law, parties can challenge the validity of an arbitration agreement before the arbitration institution or the competent People’s Court. Where an application is made to both the arbitration commission and to the People’s Court, the People’s Court shall decide the matter (unless the tribunal has already rendered a decision).