Guide to CIETAC Arbitration in China

CIETAC, in 2006, handled 981 (nearly double that of the ICC) arbitrations, making it the busiest arbitration tribunal in the world. Though many foreign companies prefer to arbitrate disputes outside of China in jurisdictions and arbitral commissions more familiar, there is an obvious preference by Chinese businesses for CIETAC arbitration. As a result, in this article, we discuss the salient features of arbitration with CIETAC, rather than comment on its strengths or, rather, deficiencies, which we leave for other commentators.

I. Introduction and Development of CIETAC

CIETAC was established in 1954 as the Foreign Trade Arbitration Commission, and was renamed in 1989 to its current name. It currently operates under China Council for the Promotion of International Trade (CCPIT) and, due to this fact, has been stated as having close political connections to current economic/political interests.

Arbitration in China is currently governed by the Arbitration Law of the PRC (1994) (the “Arbitration Law”) on which China’s Supreme Court recently issued an Interpretation of the Arbitration Law of the PRC (2005) (“Interpretation”). Arbitration under CIETAC is governed by the CIETAC Rules (“Rules”).

II. Selecting CIETAC in Contracts

Based on the Arbitration Law and the Rules, in order for CIETAC to arbitrate a matter, the following factors must all have been met (Art. 16, the Arbitration Law):

i) there is a written agreement expressing intention of parties to arbitrate;
ii) the matter for which arbitration is to take place falls within the scope of arbitrable matters under the agreement; and
iii) designation of the arbitration tribunal with jurisdiction to hear the dispute.

Further, the above factors are supplemented by the Interpretation, which relevantly states as follows:

i) the written agreement may take a wide variety of forms, including email and other forms of correspondence, while the intention to arbitrate is limited only to those contracts which provide expressly for arbitration and not election of arbitration or litigation; and
ii) while previously there was strong preference for specific designation of a particular arbitral tribunal, if the name of the arbitral commission is incorrect or unclear, if it can be determined which arbitral commission is ascertainable.

All of those drafting principles are clearly laid out in the model arbitration clause set out previously. In order to modify any terms of arbitration, it is necessary to specify the preference in the arbitration agreement, if contrary to the default Rules.

III. CIETAC Procedures

The procedures of a typical CIETAC arbitration are set out below:

i) Request for Arbitration is filed with the CIETAC in Beijing or one of its sub-commissions, along with documents to support its claim and relevant fees, as determined by quantum of claim;
ii) If the Request meets the formal requirements, CIETAC will issue a Notice of Arbitration to both parties;
iii) Within 15 days of receipt of the Notice of Arbitration, the parties must nominate one arbitrator from CIETAC’s approved panel (of both foreign and Chinese arbitrators) and jointly nominate the third presiding arbitrator; if the parties are unable to do so within the time limit, CIETAC will nominate the arbitrator(s);
iv) Within 45 days of its receipt of the Notice of Arbitration, the defendant must file its Statement of Defense and counter-claim, if any;
v) Based on consultation with CIETAC the tribunal will hold oral hearings on a minimum of 20 days’ notice for the initial hearing only to the parties;
vi) After conclusion of oral hearings, the tribunal will render an award, not to exceed 6 months after the arbitration panel is formed.

NOTE: The above dates and times are as set out in the Rules, and may be extended based on particularities of the matter.

IV. Interim Relief, Awards, and Enforcement

An arbitration award is made on the majority decision of all arbitrators; if a majority cannot be reached, the decision of the presiding arbitrator shall govern. The arbitral award is to be made independently and impartially based on the facts, in accordance with the law and terms of contract and international practices. An award must be writing, and must specify the facts of the case, the reasoning for the award, the award, and a division of arbitration costs, which will often include a portion of legal fees incurred by winning party.

At any time after commencement of arbitral proceedings (or prior to if such measures are excluded from arbitration in the agreement), a party may apply to CIETAC for preservation of property and evidence, and CIETAC will then make an application to the intermediate people’s court, which if accepted, the applicant must then put a bond in respect of the property to be preserved.

CIETAC rules provide that all arbitration awards will be final and binding on the parties, and may not be appealed except on grounds set out in the Arbitration Law:

i) There is no arbitration agreement between the parties;
ii) The matters of the award are beyond the scope of the arbitration agreement or not within the jurisdiction of the arbitration commission;
iii) The composition of the arbitration tribunal or the arbitration procedure was 1contrary to legal procedure;
iv) The evidence on which the award is based was falsified;
v) The other party has concealed evidence which is sufficient to affect the impartiality of the award; or
vi) The arbitrator(s) has (have) demanded or accepted bribes, committed graft or perverted the law in making the arbitral award.

According to the Civil Procedure Code, an arbitration award must be filed for enforcement within one year with the appropriate intermediate people’s court, where the losing party is domiciled or location of assets.

China acceded to the New York Convention on April 22, 2007, and as such, will enforce all commercial arbitral awards issued by arbitration commissions in contracting states. However, while domestically-arbitrated awards are subject to cancellation under those factors stated in the previous paragraph, foreign awards will be not enforced, if it can be demonstrated that (Art. 260, Civil Procedure Code):

i) The parties did not enter in an arbitration agreement;
ii) The party against whom the award was not notified of the arbitral proceeding or was unable to state its position to the arbitral panel, through no fault of its own;
iii) The composition of the panel or the proceedings violated the tribunal’s rules; or
iv) The matter under dispute was outside the scope of the arbitration clause or the institution had no authority to hear the matter.

For domestic awards, courts may refuse to enforce on the grounds set out previously for cancellation, in addition to the following:

- insufficient evidence for findings;
- error in application of law; and
- arbitrator misconduct.

ABOUT THE AUTHOR: Gregory M. Sy
Gregory M. Sy is a partner / foreign counsel with Grandall Legal Group. His practice includes general business advisory for SME businesses in China, particularly in the areas of international corporate structuring and transactions. Representative clients include the Consulate of the United States of America in China, Embassy of Brazil, various publicly listed companies (NYSE, LSE, DAX), along with numerous other SME’s operating in a wide range of industries. Mr. Sy obtained an LL.B. from the University of Victoria, and is admitted to the New York bar. Gregory publishes extensively on a variety of China legal issues for international and local publications, and has recently acted as chief editor for Martindale’s China Law Digest and regularly contributed to Lexis-Nexis.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.