Commercial Dispute Resolution in China: An Annual Review and Preview 2019

Annual Review on Commercial Arbitration in China (2019)

Xuehua WANG, Jing LIU, Yuan XING

¹

1. OVERVIEW

Since implementation of the Arbitration Law of the People’s Republic of China (hereinafter referred to as the Arbitration Law), and notably implementation of the Interpretation of the Supreme People’s Court on Several Issues Concerning on the Application of Arbitration Law of the People’s Republic of China (hereinafter referred to as the Judicial Interpretation of Arbitration Law ), arbitration in China has made significant achievements. According to the Ministry of Justice, in 2017, 253 Chinese arbitration commissions dealt with 239, 360 cases, 30, 815 cases more than in 2016, reflecting 15% growth; the total disputed amount reached RMB 533. 8 billion, RMB 64. 3 million more than in 2016, reflecting 14% growth. ² In 2018, 255 arbitration commissions handled approximately 540, 000 cases, over 300, 000 more cases than in 2017, reflecting a 127% increase; the total disputed amount reached nearly RMB 700 billion, RMB 160 billion more than in 2017, reflecting a 30% increase. As reported by the Ministry of Justice, arbitration institutions across China have been improving the quality of case processing, with more than 60% of cases either resolved in a speedy manner, or by voluntary conciliation or mediation. Over 50% of arbitration awards were voluntarily executed, while no more than 1% of awards were set aside or not enforced by the courts. ³ In general, a dramatic increase can be seen in recent years in the total number of registered cases and the total amounts in dispute. The rate of cases settled by mediation and conciliation, and the rate of cases where the awards were voluntarily executed are at the high end, while the proportion of cases where awards were set aside or ruled not to be enforced is extremely low. In 2018, an amendment to the Arbitration Law was formally listed in the legislative plan of the Standing Committee of National People’s Congress. The amendment is expected to promote a higher level of standardization and professionalism of arbitration practice in China.

On the whole, during 2018, steady developments were made to arbitration in China through laws and regulations, procedural developments, practical application, and theoretical research.

First, arbitration-related laws and regulations were further improved and widely applied in judicial practice. In 2017, the Supreme People’s Court (hereinafter referred to as SPC) successively promulgated a series of judicial interpretations and documents, creating a system of centralized handling and a system of reporting and approving of cases involving judicial review of arbitration. These interpretations and documents, to some extent, made up for deficiencies of the Arbitration Law and the 2005 Judicial Interpretation of Arbitration Law. In 2018, SPC further issued a new judicial interpretation on the enforcement of awards, clarifying the review criteria for non-enforcement of awards and creating another system whereby of non - parties could apply for non - enforcement of the award. These provisions have been widely applied in 2018 and have played an important role in guiding and regulating judicial practice.

Second, there were many innovations in dispute resolution procedures. For example, China explored a one-stop dispute resolution platform, aiming to provide Chinese and foreign parties with just, efficient, convenient, quick, and cost - effective dispute resolution services. In addition, in the field of department law, it was explicitly stipulated that e-commerce disputes can be resolved through arbitration, which further promotes the development of online arbitration; furthermore, the State Intellectual Property Office (hereinafter referred to as the SIPO ) undertook improvements in intellectual property arbitration and mediation, which is of great significance in the development of intellectual property arbitration.

Third, in terms of arbitration practice, SPC and local courts at all levels aimed to create a more friendly judicial environment, generally adopting a conservative approach to setting -aside and the non - enforcement of awards, which will enhance the credibility of arbitration. On the other hand, the courts actively engaged in judicial review and called a halt to pre-dispute arbitration, guiding the practice of arbitration. New practices have been seen in 2018. For example, the emergency arbitrator mechanism under certain arbitration rules took place in real practice, and China’s first Bitcoin - related case also received extensive coverage. Facing new problems and new types of cases, the courts and arbitration institutions have proposed solutions within the framework of the existing legal system, in order to lead arbitration in China in mature, healthy and standardized direction.

Fourth, the developmentof arbitration in China is closely connected to the international community. The depth and breadth of research further improved. In 2018, taking the Belt and Road Initiative and the 60th anniversary of the implementation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter referred to as the New York Convention) as an opportunity, China’s arbitration community carried out a number of fruitful discussions focusing on how to correctly interpret and apply the New York Convention and apply the New York Convention in the Belt and Road Initiative to the greatest extent. The expected amendment to the Arbitration Law also encourages many in - depth discussions. Various conferences were held around the themes of foreign advanced legislative practices, such as the UNCITRAL Model Law on International and Commercial Arbitration of the United Nations Commission on Trade Law (hereinafter referred to as the Model Law). The directions and models of future amendments have been widely discussed.

2. MAJOR UPDATES OF LAWS AND REGULATIONS AND OTHER NORMATIVE DOCUMENTS

2. 1 Implementation of the New Arbitration-related Rules Promulgated in 2017 and Auxiliary Provisions in 2018

Since SPC issued the Judicial Interpretation of Arbitration Law in 2005, China’s arbitration system in 2017 has ushered in impressive development. As noted in the Annual Review on Commercial Arbitration in China (2018), ⁴ since May 2017, SPC has issued the Notice on Issues Concerning Centralized Handling of Cases Involving Judicial Review of Arbitration (Fa [2017] No. 152, hereinafter referred to as the Notice on Centralized Handling), the Provisions on Issues Relating to the Report and Approval of Judicial Review of Arbitration Cases (Fa Shi [2017] No. 21, hereinafter referred to as the Provisions on Report and Approval) and the Provisions of the Supreme People’s Court on Several Issues Relating to the Conduct of Judicial Review of Arbitration Cases (Fa Shi [2017] No. 22, hereinafter referred to as the Provisions on Judicial Review), which regulated and improved judicial review of arbitration in China in many aspects.

With respect to procedures, the Notice on Centralized Handling provides that judicial review of foreign - related commercial arbitration cases shall be handled by the specialized trial division that responsible 60c handling foreign - related commercial cases; ⁵ the Provisions on Report and Approval⁶ upgrades the Internal Report System ⁷ originally applicable to foreign-related judicial review cases and judicial review cases involving Hong Kong, Macao and Taiwan into the Report and Approval System. By virtue of the Report and Approval System, procedures for foreign-related and non-foreign-related judicial review are unified to some extent⁸, and on the other hand, the Internal Report System formerly used as an internal management tool is externalized, with increasing openness, transparency and standardization of judicial review cases.

With regard to specific rules on judicial review, the Provisions on Judicial Revie w provides for jurisdiction over cases involving judicial review of arbitration (Arts 2-4), the finality of rulings on judicial review of arbitration (Art 20) and circumstances under which an appeal may be made (Arts 7 - 10), the applicable law for foreign - related arbitration agreements (Arts 12 - 16), the basis for judicial review of arbitration (Arts 17 - 18) and other issues, unifying the criteria of adjudication for cases involving judicial review of arbitration to a certain extent. ⁹

In 2018, the above provisions were in judicial practice, and played a significant guiding and regulating role. A search in the Wolters Kluwer Law Database, found 33 cases invoking the Provisions on Report and Approval as the basis for judgment from 1 January 2018 to 31 December 2018, including 10 cases of higher People’s courts, and 23 cases of intermediate People’s courts. In those cases, the most frequently cited clauses were Art 2 (21 cited), ¹⁰ followed by Art 3 (10 cited) ¹¹ and Art 7(3 cited).¹² There are 578 cases invoking the Provisions on Judicial Review as the basis for judgment, among which, nine cases were tried by higher People’s courts, 568 cases by Intermediate People’s courts, and one case by grassroots People’s courts. In those cases, the most frequently cited clauses are Art 18 (353 cited), ¹³ followed by Art 19 (65 cited) ¹⁴ and Art 20 (25 cited). ¹⁵

It is noteworthy that, the Provisions on Judicial Review centralized the jurisdiction of judicial review cases in certain provinces, where all the judicial review cases shall be handled by special courts, regardless of the type and foreign - related elements. In Beijing Municipality, for example, in accordance with the Provisions on the Jurisdiction of Beijing No. 4 Intermediate People’s Court over Cases (Revised in 2018) issued by the Beijing Higher People’s Court on 5 February 2018, applications for recognizing the validity of an arbitration agreement, applications for setting aside an award, applications for recognition and enforcement of a foreign award, and applications for recognition and enforcement of an award made in Hong Kong, Macao or Taiwan are all under the jurisdiction of Beijing No. 4 Intermediate People’s Court. ¹⁶The Provisions on the Jurisdiction of Shanghai Financial Court over Cases, issued by SPC on 7 August 2018, make significant adjustments to the jurisdiction of cases involving judicial review of arbitration cases concerning civil and commercial disputes in the field of finance within the jurisdiction of Shanghai Municipality. Under the Provisions, judicial review cases of arbitration decisions regarding civil and commercial financial disputes in Shanghai would be under the jurisdiction of the Shanghai Financial Court, rather than the former competent courts, namely the Shanghai No. 1 Intermediate People’s Court and the Shanghai No. 2 Intermediate People’s Court.¹⁷

2. 2 New Arbitration-related Rules Promulgated in 2018 and Implementation Thereof

2. 2. 1 Provisions of the Supreme People’s Court on Several Issues Relevant to the Enforcement of Arbitral Award

On 23 February 2018, SPC issued the Provisions of the Supreme People’s Court on Several Issues Relevant to the Enforcement of Arbitral Award (hereinafter referred to as the Provisions on Enforcement ). The Provisions on Enforcement, comprising 24 articles, clarify jurisdiction matters of the enforcement, identification criterion and handling methods if the arbitral award is deemed ambiguous, the scope of subjects who can apply for non - enforcement, the review criterion for non - enforcement cases, the procedural connection between the setting aside cases and non-enforcement cases.

The Provisions on Enforcement were widely applied in 2018. A review of the Wolters Kluwer Law Database found that by the end of 2018, 2, 124 cases invoked the Provisions on Enforcement as the ground for a specific ruling The articles that are invoked most frequently are Art 3 (610 cited), ¹⁸ followed by Art 9 (563 cited) ¹⁹ and Art 22 (562 cited).²⁰

The Provisions on Enforcement clarifies several issues no tidentified in the Arbitration Law, the Judicial Interpretation of the Arbitration Law and the Provisions on Judicial Review, which, however, exist in arbitration practice There are two issues of the greatest concern First, the Provisions on Enforcement specifies the criteria for non-enforcement of an arbitration award, that is to say, it provides the standards for identifying unauthorized arbitration, violations of due process, evidence falsification, and concealment of evidence In addition, the grounds laid in the Provisions on Enforcement may also apply to set aside cases. ²¹ Second, with regard to sham arbitrations that have arisen frequently in recent years and have generated concern and discussion, Art 9 and Art 18 of the Provisions on the Enforcement create a procedure by which a non - party is entitled to apply for non -enforcement of an award.

Creation of this procedure plays an important role in cracking down on sham arbitration and protecting rights and interests. However, as specified in the Annual Review on Commercial Arbitration in China (2018), since there is no restriction who is a non-party, clarification is needed. Because courts have discretion over whom to treat as a non-party, this may lead to inconsistency in judgments. In addition, some improper non-parties may seek to obstruct enforcement, which may reduce the efficiency of enforcement and waste judicial resources. ²² Therefore, the effect of the Provisions on Enforcement needs to be further tested in practice.

2. 2. 2 Arbitration-related Issues in Latest Promulgated Provisions of the SPC on the International Commercial Court

On 23 January 2018, the second session of the Central Leading Group for Comprehensively Deepening Reforms deliberated on and adopted the Opinions on Establishing the Belt and Road Dispute Resolution Mechanism and Institutions, stating that the SPC will establish an international commercial court to facilitate the establishment of a diversified dispute settlement mechanism that effectively connects litigation, mediation, and arbitration. ²³ After that, on 25 June 2018, the Judicial Committee of SPC adopted the Provisions on Several Issues Concerning the Establishment of the China International Commercial Court (Fa Shi [2018] No. 11, hereinafter referred to as the "Provisions on the Establishment of an International Commercial Court"), ²⁴ setting out various rules for the international commercial court for the first time.

In accordance with the Provisions on the Establishment of an International Commercial Court, the International Commercial Cour thas followed the experiences of foreign international commercial courts, closely centering on the needs of international commercial exchanges and reflecting a number of innovations. ²⁵ Among them, the innovation measure related to arbitration is the establishment of a one-stop dispute resolution platform.

Article 11²⁶ of the Provisions on the Establishment of an International Commercial Court stipulates that the SPC will select qualified international commercial mediation institutions and international commercial arbitration institutions to cooperate with international commercial courts in building a dispute resolution platform that organically connects mediation, arbitration and litigation and supports the parties concerned to select the appropriate method to resolve international commercial disputes. Article 14²⁷ stipulates that where the parties concerned agree to select an international commercial arbitration institution for arbitration in accordance with the first paragraph of Art 11 thereof, they may, prior to the filing of the application for arbitration or after the arbitration procedures have commenced, apply to the International Commercial Court for preservation of relevant evidence, property or behaviors Where the parties appeal to the International Commercial Court to set aside or enforce of an award rendered by an international commercial arbitration institution, the court shall conduct a review in accordance with the Civil Procedure Law and applicable legal provisions.

After the promulgation of the Provisions on the Establishment of an International Commercial Court, on 29 June 2018, the First International Commercial Court and the Second International Commercial Court of the SPC were unveiled in Shenzhen and Xi'an, respectively. ²⁸ On 3 July 2018, SPC appointed eight judges to the International Commercial Court. ²⁹ On 7 December 2018, with an increasing workload, SPC appointed another seven judges to the International Commercial Court. ³⁰ On 24 August 2018, SPC issued the Decision of the Supreme People’s Court on Engaging the First Batch of Expert Members of the International Commercial Expert Committee (Fa [2018] No. 225), engaging 32 Chinese and foreign experts as the first group of expert members of the international commercial expert committee. ³¹

On 5 December 2018, SPC officially issued three normative documents, namely, the Circular of the General Office of the Supreme People’s Court on the Determination of the First Batch of International Commercial Arbitration and Mediation Institutions Included in the " One -stop" Mechanism for the Diversified Resolution of International Commercial Disputes (the Circular on the Determination of Arbitration and Mediation Institutions), the Rules of the Supreme People’s Court for the Procedure of International Commercial Courts (Trial) (the Procedure Rules) and the Work Rules of the International Commercial Expert Committee of the Supreme People’s Court (Trial). ³² So far, the International Commercial Court has officially accepted a number of international commercial dispute cases. ³³

It is notable that the Circular on Determining the Arbitration and Mediation Institutions specifies that the China International Economic and Trade Arbitration Commission (hereinafter referred to as CIETAC), the Shanghai International Economic and Trade Arbitration Commission, the Shenzhen Court of International Arbitration (hereinafter referred to as SCIA), the Beijing Arbitration Commission/Beijing International Arbitration Center (hereinafter referred to as BAC), the China Maritime Arbitration Commission, the China Council for the Promotion of International Trade Mediation Center and the Shanghai Economic, Trade and Commercial Mediation Center are the first group of arbitration and mediation institutions included in the one-stop approach for the diversified settlement of international commercial disputes Here also, the parties may apply to the International Commercial Court for preservation of evidence, property or behaviors in accordance with the Provisions on the Establishment of an International Commercial Court and Rules of Procedure; or apply for the setting aside or enforcement of arbitral awards.

According to Arts 34 and 35 of the Rules of Procedure, an application may be made to the International Commercial Court for preservation, revocation or enforcement of an international commercial case with the amount of subject matter of not less than RMB 300 million or other international business cases with significant influence.

An effective infrastructure to resolve international commercial disputes is key to the smoxoth operation of international trade and commerce and is also essential to the smooth development of the Belt and Road Initiative. Therefore, it is the appropriate and favorable time for China to establish the International Commercial Court. Creation of the one-stop dispute resolution platform will provide Chinese and foreign parties with fair, efficient, convenient, fast, and cost-effective dispute resolution services.

2. 2. 3 Reply of the Supreme People’s Court on the Application of Laws to Case Filing and Enforcement of Pre - dispute Arbitration Awards or Conciliation Statements Rendered by Arbitration Institutions

On 28 May 2018, SPC issued the Reply of the Supreme People’s Court to the Application of Laws to Case Filing and Enforcement of " Pre - dispute Arbitration" Awards or Conciliation statements Rendered by Arbitration Institutions (hereinafter referred to as the Reply) (Fa Shi [2018] No. 10), which came into force on 12 June 2018. ³⁴ The Reply aims to address issues regarding the application of law on the case filings and enforcement of pre-dispute arbitration awards or conciliation statements.

Pre-dispute arbitration refers to a practice that has arisen in recent years. A party can arbitrate their contractual performance at the time of executing or performing a contract award or conciliation statement and seek enforcement immediately of what has not been performed by the other party at the time the dispute arises. ³⁵

Before the promulgation of the Reply, courts in different regions adopted different attitudes concerning the enforcement of awards or conciliation statements rendered in pre-dispute arbitration by arbitration institutions. Some of the pre-dispute arbitration awards were enforced by the court, while others were rendered unenforceable on the grounds that the amount subject to enforcement and the calculation thereof were unclear,³⁶ or that the composition of the arbitration tribunal or the arbitration procedure was in violation of the law, ³⁷ or that the arbitral award violated public interest, ³⁸ or the conduct of arbitration was in violation of the Civil Procedure Law. ³⁹

Article 2 of the Arbitration Law provides that an arbitration institution may arbitrate contractual disputes and other disputes over rights and interests in property which have already arisen between the parties. Accordingly, the Reply holds that where a party gains an award or a conciliation statement through pre - dispute arbitration mechanism, court proceedings cannot be available for the enforcement. The People’s court shall not accept such applications for enforcement. Where the application has already been accepted before the Reply, the People’s court shall dismiss these proceedings.

In addition, since pre-dispute arbitration allows an arbitration institute to render an award or a conciliation statement in accordance with the conciliation or settlement agreement signed by the parties before the occurrence of the dispute rather than requires the arbitral tribunal to hear the dispute or preside over the mediation in accordance with the procedures prescribed in the Arbitration Law, thus the basic procedural rights of the parties concerned, such as the right to challenge an arbitrator, to provide evidence or to defense, are not guaranteed. For this reason, the Reply stipulates that pre-dispute arbitration falls under the circumstance that " the composition of the arbitration tribunal or the arbitration procedure violates the procedure prescribed by the law" set out in para 2 (3) of Art 237 of the Civil Procedure Law, and the People’s court shall dismiss such application on this ground.

Overall, the Reply not only denied the legitimacy of pre - dispute arbitration, but also explicitly identified the two circumstances in pre - dispute arbitration that make it unenforceable according to law. The implementation of the Reply will play an important role in guiding and regulating the sound development of arbitration, unifying the criterion for judicial review of arbitration and promoting the settlement of relevant enforcement cases. ⁴⁰

2. 2. 4 Other Arbitration - related Laws and Regulations and Other Nominative Documents

2. 2. 4. 1 E —commerce Law of the People’s Republic of China

On 31 August 2018, the E - commerce Law of the People’s Republic of China (hereinafter referred to the E-commerce Law) was adopted at the Fifth Session of the Standing Committee of the 13th National People’s Congress and took effect 1 January 2019. ⁴¹ This is the first comprehensive law in the field of e-commerce in China, which had brought new opportunities and challenges to the present arbitration system in our country.

There are two notable aspects to this law First, it makes clear that e-commerce disputes can be resolved through arbitration. ⁴² Second, pursuant to the E - commerce Law, e -commerce platform operators may establish an online dispute resolution mechanism to resolve disputes between the parties. However, whether this online settlement mechanism includes online arbitration and, if so, how it will be conducted, need further clarification in practice. ⁴³

2. 2. 4. 2 Arrangement on Mutual Recognition and Enforcement of Judgments in Civil and Commercial Cases by the Courts of the Mainland and the Hong Kong Special Administrative Region

On 18 January 2019, the Supreme People’s Court and the Department of Justice of the Hong Kong Special Administrative Region (hereinafter referred to the HKSAR) jointly issued the Arrangement on Mutual Recognition and Enforcement of Judgments in Civil and Commercial Cases by the Courts of the Mainland and the Hong Kong Special Administrative Region (hereinafter referred to the Arrangement ), which is the sixth arrangement regarding judicial assistance between the Mainland and Hong Kong since Hong Kong’s return to China with the broadest range of matters and greatest significance. The arrangement symbolizes almost a full coverage of judicial assistance in civil and commercial affairs between Hong Kong and the Mainland China. ⁴⁴

Article 3 provides that the Arrangement does not apply to the judgments in certain cases, including cases involving confirmation of the validity of arbitration agreements, setting aside of awards, as well as cases involving recognition and enforcement of rulings and awards of other countries and regions. Article 4 of the Arrangement provides that: " For the purpose of this Arrangement, a ' judgment', in the case of the Mainland, includes any judgment, ruling, conciliation statement and order of payment excluding order of preservation; in the case of the HKSAR, includes any judgment, order, decree , and cost - assessment certificates for litigation, excluding any injunction and interim relief. " The provision manifests that judgments related to arbitration (including decisions confirming the validity of arbitration, preservation orders issued prior to and during arbitration, and decisions on the revocation of an award), except those on non-enforcement of the arbitral award, are expressly excluded from the Arrangement. Procedures for recognition and enforcement of awards, which shall be subject to the Arrangement of the Supreme People’s Court on Mutual Enforcement of Arbitral awards between the Mainland and the Hong Kong Special Administrative Region (hereinafter referred to the Enforcement Arrangement). Therefore, rulings on non - enforcement of awards cannot be mutually recognized and enforced between Hong Kong and Mainland China in accordance with the Arrangement, and applications for non-enforcement shall be reviewed by competent courts in accordance with Art 7 of the Enforcement Arrangement.

Article 12 of the Arrangement prescribes that: " Where the evidence provided by the respondent proves that the application for recognition and enforcement of a judgment falls under any of the following circumstances , the court of the requested party shall, after examination and verification, refuse to recognize and enforce the judgment … (vi) The requested party has rendered an arbitral award in respect of the same dispute or has recognized the arbitral award rendered in any other country or region in respect of the same dispute. " This provision confirms the res judicata of an award, where a judgment has been made in the jurisdiction of one party, and an award has been rendered in the jurisdiction of the other party, the party where the award was rendered may refuse to enforce the judgment made in the jurisdiction of the other party. Article 13 of the Arrangement provides that: " Regarding the application for recognition and enforcement of a judgment, if the evidence provided by the respondent proves that the litigation conducted in the court of original trial violates the effective arbitration agreement or jurisdiction agreement entered into by the parties concerned in respect of the same dispute, the court of the requested party may refuse to recognize and enforce the judgment after examination and verification. " This provision confirms that the arbitration agreement is binding upon the court. More precisely, if the judgement is in breach of a valid arbitration agreement, the court of the other party may refuse to recognize and enforce such judgment However, it may increase the possibility that the respondent abuses this provision to apply for non-enforcement.

2. 2. 4. 3 Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases on Sham Litigation

To deter sham litigation, safeguard judiciary resources and protect the legitimate rights and interests of citizens, corporations and other organizations, the Supreme People’s Court and the Supreme People’s General Prosecutor’s Office issued the Interpretations on Several Issues Concerning the Application of Law in Handling Criminal Cases on Sham Litigation (hereinafter referred to the Interpretations) on 26 September 2018, with an effective date of 1 October 2018. Pursuant to Article 1 of the Interpretations, Whoever files an application to the People’s court for enforcing an arbitration award or notarized instrument on creditors' rights rendered based on fabricated facts, raises objection to object of enforcement or applies to participate in the distribution of the property subject to enforcement based on fabricated facts during the civil enforcement shall be deemed as bringing a civil lawsuit based on fabricated facts prescribed in Para 1 of Art 307a of the Criminal Law, constituting a criminal offence; where the circumstances are serious, the applicant may be imprisoned for up to seven years and be subjected to a fine The Interpretations define the act of applying for enforcement of an arbitration award made based on fabricated facts as sham litigation, which is conducive to regulating the civil enforcement procedures, solving the difficulties of enforcement in practice to some extent, reducing the occurrence of malicious arbitration cases, and maintaining the credibility of arbitration.

2. 2. 4. 4 Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Review of Cases Involving Behavior Preservation in Intellectual Property Right Disputes

On 26 November 2018, SPC issued the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Review of Cases Involving Behavior Preservation in Intellectual Property Right Disputes (Fa Shi [2018] No. 21) (hereinafter referred to the Provisions on Behavior Preservation), effective as of 1 January 2019. The Provisions on Behavior Preservation clarifies relevant preservation procedures of application prior to and during the arbitration, and at the eve of the effective arbitral awards.

2. 2. 4. 5 Notice of the General Office of the State Intellectual Property Office on Capability Building of Intellectual Property Arbitration and Mediation Institutes

On 15 March 2018, SIPO issued the Notice of the General Office of the State Intellectual Property Office on Capability Building of Intellectual Property Arbitration and Mediation Institutions (Guo Zhi Ban Fa Xie Zi [2018] No. 7) (hereinafter referred to as the Notice). The Notice states that the SIPO will invest resources in 20 to 30 intellectual property arbitration institutions and mediation institutions each year, so as to develop about 100 institutions specializing in intellectual property arbitration and mediation. ⁴⁵ This measure contributes to the SIPO’s work in cultivating a number of professional arbitration institutions at a high level, so as to promote the development of intellectual property arbitration in China.

3. CASE STUDIES

3. 1 Where the Parties Fail to Agree upon the Applicable Law, the Law of the Place Where the Arbitration Institution Is Located or Where the Arbitration Is Conducted Shall Prevail to Determine the Validity of the Arbitration Clause

Facts

The Zhongqing Sanlian International Trade Co., Ltd. (hereinafter referred to as Zhongqing Sanlian) and Tianjin Magnetus International Trade Co., Ltd. (hereinafter referred to as Tianjin Magnetus) entered into the Agreement on Commissioned Export, and Tianjin Magnetus entrusts Zhongqing Sanlian to receive orders on their behalf.

In March 2015, Zhongqing Sanlian signed a sales contract with Tata International Metal (Asia) Co, Ltd (hereinafter referred to as Tata Company), in which Art 17 provided any dispute arising from the performance of the contract or in connection with the contract shall be settled by both parties through negotiation In circumstances where no settlement can be reached through negotiation, the dispute would be submitted to the Singapore International Trade Arbitration Commission for arbitration in accordance with U. S. Arbitration Rules. The award would be final and binding on both parties

In accordance with the above - mentioned arbitration clause, in August 2016, Tata Company submitted a dispute to the Singapore International Arbitration Centre for arbitration. In May 2017, Zhongqing Sanlian submitted an application to the Beijing Fourth Intermediate People’s Court (hereinafter referred to as Beijing Fourth Court), seeking for a ruling that the arbitration clause was invalid.

On 14 December 2018, the Beijing Fourth Court held that the arbitration clause was valid under the laws of Singapore and dismissed the application of Zhongqing Sanlian.

Issue

One of the issuesin dispute was the choice of applicable law to this case. Whether the law of Singapore or China would be applied to determine the validity of the arbitration clause.

Zhongqing Sanlian argued that Chinese law should be applied to determine the validity of the arbitration clause Neither the applicable law nor the place of arbitration was agreed upon in the arbitration clause, and the agreed arbitration institution could not be confirmed due to the error in its name. Therefore, Zhongqing Sanlian alleged, according to Art 14 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Law of the People’s Republic of China on Foreign — Related Civil Relations (I) (hereinafter referred to as the Judicial Interpretation (I) ), ⁴⁶ the validity of the arbitration clause involved in this case should be determined by applying Chinese law Tata Company argued the opposite.

Tata Company held that Singaporean law shall be applied to determine the validity of the arbitration clause for the following reasons:

First, the place where the arbitration institution was located was Singapore The arbitration institution agreed in the arbitration clause was Singapore International Trade Arbitration Commission, and even though Zhongqing Sanlian argued that there was an error in the name, it reasonably believed that there was an arbitration institution similar to CIETAC or subordinate to CIETAC, under the name of Singapore International Economic and Trade Arbitration Commission Obviously, the parties had a clear concept that the nationality of the agreed arbitration institution was Singapore Therefore, the parties had already agreed that the place where the arbitration institution was located shall be Singapore.

Second, in this case, the place of arbitration was Singapore. Given that both parties had agreed that the place where the arbitration institution was located was Singapore but failed to agree that the arbitration shall be conducted in a country or region other than Singapore. Therefore, the place of arbitration shall be Singapore.

Third, in accordance with Art 18 of the Law of the People’s Republic of China on the Application of Laws to Foreign—related Civil Relations (hereinafter referred to as the Law on the Application of Laws to Foreign— related Civil Relations) ⁴⁷ and Art 14 of the Judicial Interpretation (I), where the parties fail to choose the law applicable to arbitration clause, if the People s court can determine the place where an arbitration institution is located or the seat of arbitration, the law of the place where the arbitration institution is located or the law of the seat of arbitration shall be applied to determine the validity of the arbitration clause.

Reasoning

Beijing Fourth Court held that as the parties did not agree upon the law applicable to the arbitration clause, the law of the place where the arbitration institution was located or the law of the place of arbitration shall be applied.

Although the Singapore International Trade Arbitration Commission was not the specific name of any Singapore arbitration institution, the court found that the parties had the express intention to choose arbitration, and it could be presumed that the parties intended that arbitration take place within the legal framework of Singapore law. On this basis, Beijing Fourth Court held that the place of arbitration would be Singapore and the law of that country would apply to determine the validity of the arbitration clause.

Beijing Fourth Court further pointed out that the arbitration clause involved was valid in accordance with the law of Singapore.

Observation

Based on the principle of trying the utmost to rule the arbitration valid, where the parties fail to choose the law applicable to the arbitration clause, the court shall apply the law under which the arbitration clause can be construed as valid. Under this principle, the court will interpret the arbitration clause as having a full legal effect on the basis of factors such as the parties ' initial intention to choose arbitration, the principle of good faith, and the reasonable expectation of arbitration.

In this case, the parties had not made any agreement on the applicable law and place of arbitration, and the identity of the agreed arbitration institution was unclear. Under such circumstances, both Chinese law and the law of Singapore is likely to be applied to the arbitration clause concerned. Should Chinese law be applied, the arbitration clause may be found to be invalid according to Art 18 of the Arbitration Law. ⁴⁸ On the contrary, under the law of Singapore, identification of an arbitration institution is not an essential element of arbitration clause, and the arbitration clause shall be valid as long as it has expressed a definite intention for arbitration. Based on the fact that the parties had agreed on the Singapore International Trade Arbitration Commission, Beijing Fourth Court held that the parties had made a clear choice in favor of arbitration and anticipated arbitration within Singapore’s legal framework, and had identified Singapore as the place of arbitration in this case. Furthermore, Beijing Fourth Court found that the arbitration clause would be governed by the law of Singapore law in accordance with Chinese conflict of laws rules, and further held that the arbitration clause was valid under the law of Singapore.

The principle of trying the utmost to rule the arbitration clause valid reflects the attitude of the courts to respect the parties' intention to choose arbitration as the way to settle their disputes, which is beneficial to the development of arbitration and has become a new trend in international commercial arbitration practice The determination of Beijing Fourth Court not only embodies the goal of supporting and encouraging judicial review of arbitration but also fits with the trend of international commercial arbitration, which is beneficial for establishing a sound legal environment for the development of international commercial arbitration.

3. 2 Before the Termination of the Setting Aside Proceedings Conducted by Court in the Country Where the Arbitration Was Conducted, the Enforcement Court Is Not Bound to Suspend the Judicial Review of the Recognition and Enforcement of the Arbitral Award Concerned

Facts

On 11 September 2007, Hong Kong Spring Co., Ltd. (hereinafter referred to as HK Spring Company) and Hongbai Household Electrical Appliances (Shenzhen) Co., Ltd. (hereinafter referred to as Hongbai Shenzhen Company) entered into a Manufacture and Supply Agreement, in which Art 21. 10 provided " … any disputes between the Parties regarding rights and obligations herein, shall be resolved by informal negotiation at first. If necessary and appropriate, the Parties shall refer the Dispute to arbitration. Arbitration would be commenced upon receipt of notice in writing from one Party to the other, and arbitration proceedings shall be conducted in accordance with the arbitration rules and procedures of the American Arbitration Association … ".

On 11 November 2014, in accordance with the arbitration clause set out above, HK Spring Company commenced arbitration beforethe American Arbitration Association against Hongbai Industrial Co, Ltd (hereinafter referred to as Hongbai Taiwan Company) and Hongbai Shenzhen Company regarding a dispute arising out of the performance of the Manufacture and Supply Agreement. On 14 October 2015, American Arbitration Association rendered a final award. On 15 March 2016, HK Spring Company applied for recognition and enforcement of the award before Shenzhen Intermediate People’s Court of Guangdong Province (hereinafter referred to as the Shenzhen Intermediate Court).

In April 2016, HK Spring Company filed suit in the Superior Court of Los Angeles County, California (hereinafter referred to as the Superior Court), seeking confirmation of the award, with Hongbai Taiwan Company and Hongbai Shenzhen Company as the defendants. On 10 May 2016, Hongbai Taiwan Company filed suit in the Superior Court, requesting the court to declare the arbitral award invalid and unenforceable, with HK Spring Company as the respondent. On 23 December 2016, the Superior Court upheld the award. Hongbai Taiwan Company refused to accept the decision and appealed. As of the time when Shenzhen Intermediate Court made the ruling, the appeal was still being heard.

On 15 May 2017, Hongbai Shenzhen Company applied to Shenzhen Intermediate Court to suspend its review of the case on the grounds that Hongbai Taiwan Company had filed suit in the US court. On 26 March 2018, HK Spring Company petitioned the Shenzhen Intermediate Court to order Hongbai Shenzhen Company to provide security for its application to suspend judicial review.

On 21 May 2018, Shenzhen Intermediate Court announced that it had recognized and would enforce the award.

Issue

One of the issues is whether the application of Hongbai Shenzhen Company for suspension of judicial review should be granted, before the US court making the final decision on the claim of Hongbai Taiwan Company for declaring the arbitral award invalid and unenforceable.

On 15 May 2017, Hongbai Shenzhen Company submitted the Application for Not Recognizing and Enforcing the Foreign Arbitral Award or Suspending the Trial of the Case to Shenzhen Intermediate Court, applying for suspending the recognition and enforcement judicial review procedure of the arbitral award at issue on the ground that Hongbai Taiwan Company had applied to a U. S. court for declaring the arbitral award invalid and non -enforceable.

On 26 March 2018, HK Spring Company submitted the Application to the Shenzhen Intermediate Court, requesting to order Hongbai Shenzhen Company to provide security for its application for suspension of recognition and enforcement of the arbitral award.

In accordance with Art 6⁴⁹ of the New York Convention, Shenzhen Intermediate Court ordered Hongbai Shenzhen Company to provide security However, Hongbai Shenzhen Company failed to provide security within the time limit specified by Shenzhen Intermediate Court.

Reasoning

Shenzhen Intermediate Court held that the arbitral award had not been set aside or held to be unenforceable in the jurisdiction where the award was rendered, and Hongbai Shenzhen Company’s application for suspension of judicial the review should be rejected.

First, the Superior Court had upheld the award, while the appeal of Hongbai Taiwan Company and its request for non - enforcement of the award was rejected Second, as mentioned above, it was Hongbai Taiwan Company that had requested US court to declare the award invalid while Hongbai Shenzhen Company had never made such request The obligations of the two companies under the award are separate and distinct Third, Hongbai Shenzhen Company had not provided any security for its suspension application nor had it provided sufficient evidence to show that the award would be set aside by the US court.

Observations

If a party seeks to set aside an arbitration award in the jurisdiction where it is rendered, should the court of the jurisdiction where the award is to be enforced stay its recognition and enforcement proceeding? In this regard, Art 6 of the New York Convention provides that the court of the country where the award is applied to be enforced can make the decision at its discretion The court could stay its decision on enforcement of the award and may also, upon application of the party requesting for enforcement of the award, order the other party to provide appropriate security. UNCITRAL Secretariat Guide on the Convention on the Recognition and Enforcement ofForeign Arbitral Award points out that, this provision permits the court to stay any decision, where it believes that the application to set aside the award in the country where it is rendered was filed for justifiable reasons; likewise, for the purpose of precluding the losing party from delaying or obstructing the enforcement of the award, the court has the authority to enforce the award immediately, or stay enforcement only if security is provided.

In this case, Hongbai Taiwan Company requested the US court to declare the arbitral award invalid and unenforceable Hongbai Shenzhen Company did not participate in that proceeding Besides, Hongbai Taiwan Company s requests were not supported by the court in the first instance, and there exists great uncertainty regarding whether its appeal will be successful in the appellate court These facts generated reasonable doubt that whether Hongbai Taiwan Company s claim for declaring the arbitral award invalid and unenforceable can be ultimately supported, and whether it is appropriate to stay the recognition and enforcement proceeding of the arbitral award In particular, Hongbai Shenzhen Company failed to provide security to the court within the time limit specified by the court Shenzhen Intermediate Court ultimately did not uphold Hongbai Shenzhen Company s application for stay of the proceeding Such decision has solid and sufficient factual and legal basis and is in conformity with Article 6 of the New York Convention.

This case has great practical significance, for it is the first case in mainland China that a court refused to stay the recognition and enforcement proceeding according to Art 6 of the New York Convention This case reflects the judicial principle that Chinese courts always support and promote the development of arbitration, providing answers for future similar cases involving recognition and enforcement of foreign arbitral awards Besides, this case also manifests that the business environment in Shenzhen and even in China are splendid, and the legal environment for international commercial arbitration is friendly.

3. 3 Where the Parties concerned in an Arbitration Fabricated Debt, upon Application of a Non - party, the People’s Court Ruled That the Concerned Arbitral Conciliation Statement shall Not Be Enforced

Facts

Hunan Wanbo New Materials Co., Ltd. (hereinafter referred to as Wanbo Company) and Hunan Shengshi Financial City Real Estate Co., Ltd. (hereinafter referred to as Shengshi Company) had an arbitration case of their loan contract The two pieces of evidence involved were the Agreement signed by both parties and the transfer voucher, supporting the fact that RMB 76, 370, 000. 00 had been transferred from Wanbo Company to Shengshi Company In light of that fact, the Changsha Arbitration Commission issued an arbitral conciliation statement (Chang Zhong Tiao Zi [2015] No. 258) upon the parties ' negotiation on 22 April 2015, confirming that Shengshi Company shall return the principal of RMB 76, 370, 000. 00 to Wanbo Company and pay the fund occupancy costs.

Shengshi Company failed to perform, and Wanbo Company applied for enforcement of the arbitral conciliation statement on 12 June 2015 before the Intermediate People' s Court of Changsha City, Hunan Province (hereinafter referred to as Changsha Intermediate Court)

A non-partyto the case, Hunan Zhongsen United Investment Co., Ltd. (hereinafter referred to as Zhongsen Company), held that the loan principal of RMB 76, 370, 000 00 owed by Shengshi Company was a fabrication and the arbitration was a sham. Therefore, Zhongsen Company sought non-enforcement of the conciliation statement.

Changsha Intermediate Court held that Wanbo Company and Shengshi Company fabricated the debt and the arbitration was sham, which infringed upon the legitimate rights and interests of the non-party Zhongsen Company Therefore, Changsha Intermediate Court ruled that the arbitral conciliation statement shall not be enforced.

Issues

The core issue in this case was whether the conciliation statement infringed upon the legitimate rights and interests of the non-party.

The non-party, Zhongsen Company held that the loan principal of RMB 76, 370, 000 00 and the fund occupation costs payable to Wanbo Company by Shengshi Company as confirmed by the arbitral conciliation statement are fabricated debts, and this arbitration is a sham arbitration, infringing upon the legitimate rights and interests of Zhongsen Company.

Reasoning

Changsha Intermediate Courtfound that the judgement rendered before the conciliation statement had ascertained the fact that Wanbo Company remitted RMB 76, 370, 000 00 Yuan to the bank account of Shengshi Company in accordance with the Cooperation Agreement signed between Hunan Honghua Real Estate Development Co., Ltd. and Shengshi Company. Wanbo Company had never signed any debt instrument with Shengshi Company, nor formed any debtor-creditor relationship with Shengshi Company Wanbo Company and Shengshi Company made up a fictitious claim and conducted a sham arbitration, damaging the legitimate rights and interests of the non-party, Zhongsen Company; therefore, the conciliation statement resulting from the sham arbitration was held to be unenforceable.

Observations

As for the protection of the interests of a non-party, a relatively mature system has been established in the civil litigation proceedings. However, in arbitration, the lack of such system is one of the factors that diminish the credibility of arbitration. This matter has not been addressed by the Arbitration Law, the Judicial Interpretation of