Legal Uncertainty Remains in International Arbitration for Chinese-Foreign Disputes

Zhouyuan Diana Duan
Vol. 37 Executive Editor
Vol. 36 Associate Editor

Introduction

The question of whether a foreign arbitral institution can administer an arbitration seated in Mainland China has been discussed for many decades and still remains unresolved till this day. Until 2009, two leading cases established two different perspectives on this issue. In 2006, the Supreme People’s Court in Züblin International GmbH v. Wuxi Woke General Engineering Rubber Co., Ltd. (“Züblin”) ruled that the award rendered by an ICC tribunal seated in Shanghai was invalid.[1] In contrast, in Duferco S.A. v. Ningbo Arts & Crafts Import and Export Co., Ltd. (2009) (“Duferco”), the Ningbo Intermediate People’s Court of Zhejiang Province upheld an award rendered by an ICC tribunal seated in Beijing.[2]

At first, it may seem that the Züblin case and the Duferco case contradict each other. A closer look at the holdings, however, reveal that neither courts truly addressed the issue of whether a foreign arbitral institution can administer an arbitration seated in the Mainland. The Züblin court did not recognize the ICC award because the arbitration clause “failed to expressly designate an arbitral institution,” as required under Chinese law.[3] Likewise, the Duferco court recognized the award because the party had “failed to object to the validity of the arbitration agreement before the arbitration hearing” and therefore missed the opportunity to bring this challenge at court.[4]

The Insigma Case of 2009

For a while, it was thought that Insigma Technology Co. Ltd. v. Alstom Technology Ltd. (2009) (“Insigma”) opened up the “possibility that Chinese arbitral institution could perhaps administer arbitrations under the ICC Rules.”[5] Insigma involved a hybrid arbitration agreement where the Singapore International Arbitration Center (“SIAC”) arbitration administered under the International Chamber of Commerce rules (“ICC”) rules and was the first time that courts examined the validity of a hybrid clause in an international arbitration agreement.[6] The Singapore Court of Appeal eventually upheld the validity of the hybrid clause.[7] Hence, it follows that an arbitral institution other than the ICC could administer an arbitration under the ICC Rules.[8]

The possibility aroused by Insigma, however, was soon put to rest by the ICC amendment in 2012. Disturbed by the Insigma holding, the 2012 ICC rules require parties to use the ICC rules if they choose the ICC to administer their arbitration.[9] Essentially, the ICC is concerned about quality control – allowing hybrid clauses might degrade the quality of the ICC, as parties agreeing to an ICC-governed arbitration might not receive the full benefits of the ICC rules if a different institution is administering.[10]

New Decision from the Supreme People’s Court

In 2013, Longlide Packaging Co Ltd v BP Agnati SRL (“Longlide) held that a China-seated ICC arbitration clause was valid.[11] The Longlide case answered the “long-standing question as to the validity of an arbitration clause that names a foreign institution but calls for a China seat.” [12] Nevertheless, upon a closer look, there are three problems with this holding and the future of a Mainland China-seated ICC arbitration remain uncertain.[13]

First, the SPC only examined whether the arbitration clause complied with Article 16  of the PRC Arbitration Law – it did not consider the validity of the clause under Article 10.[14] In fact, the clause does not meet the requirements of Article 10. Article 10 requires the ICC International Court of Arbitration to be registered with the judicial administrative departments of provinces, autonomous regions, and municipalities.[15] Here, the ICC has not been registered in the required way. In other words, the SPC decision is not in accord with the PRC Arbitration Law because it is against Article 10. The validity of this holding is questionable.

Second, even if the SPC holding complies with the PRC Arbitration Law, it lacks authority because it is not binding. In the Longlide case, the SPC’s holding is in its Reply, which is not binding on the SPC. Hence, it is uncertain as to whether a future case would be ruled in the same way by the SPC.[16]

Finally, even supposing that the SPC holding was both valid and binding, the case only answers the question of whether an arbitration clause that names a foreign institution but calls for a China seat is valid; it does not address the more important question as to whether China would recognize and enforce an award so made.[17] Going back to the Insigma case, notwithstanding the fact that the Singapore Court of Appeal upheld the hybrid clause, the arbitral award was not recognized in Mainland China.[18] There is no practical use of validating an arbitration clause but not enforcing the arbitral award.


 

[1] 3-12 ABA, 2.

[2] Id.

[3] Id.

[4] 3-21 ABA, 2.

[5] 3-12 ABA, 2.

[6] http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/free-law/court-of-appeal-judgments/13850-insigma-technology-co-ltd-v-alstom-technology-ltd-2009-3-slr-936-2009-sgca-24

[7] https://www.ensafrica.com/news/the-revised-ICC-Rules-of-Arbitration?Id=589&STitle=construction%20ENSight

[8] 3-12 ABA, 2.

[9] http://legalref.judiciary.gov.hk/lrs/common/ju/ju_frame.jsp?DIS=95265&currpage=T

[10] Supra, note 7.

[11] http://www.conventuslaw.com/china-prc-arbitration-by-a-foreign-arbitral-tribunal-in-china-a-case-summary-on-longlide-packaging-co-ltd-v-bp-agnati-srl-spc-2013-min-ta-zi-no-13/

[12] http://hsfnotes.com/arbitration/2014/07/24/the-longlide-case-and-its-impact-or-non-impact-on-sino-foreign-arbitration-clause-drafting/

[13] Supra, note 11.

[14] Id.

[15] Id.

[16] Id.

[17] http://hsfnotes.com/arbitration/2014/07/24/the-longlide-case-and-its-impact-or-non-impact-on-sino-foreign-arbitration-clause-drafting/

[18] http://www.duanduan.com/cn/page.php?id=1309