Chinese walls?

 MARKET VIEW – ARBITRATION 

Following a high-profile internal squabble, the CIETAC is going global. Yu Jianlong, the institution’s secretary general, tells Clyde & Co partner Patrick Zheng why Hong Kong was its first port of call

Patrick Zheng, Clyde & Co: With a growing number of arbitral institutions around the world, why should a party use the China International Economic and Trade Arbitration Commission (CIETAC)?

Yu Jianlong, CIETAC: Founded in 1956, CIETAC is the oldest international arbitration institution in China. With more than half a century’s development, it is also among the busiest arbitral centres in the world. We recommend that a party uses CIETAC arbitration due to the fact that it offers a number of advantages. Firstly, the CIETAC rules are similar to those of all the major arbitration institutions, thereby offering parties the most autonomy possible. In addition, we have over 300 foreign arbitrators from more than 40 jurisdictions; in international or foreign-related cases, parties may agree on the nationality of the arbitrators. Secondly, CIETAC is independent of any government agencies in China, and CIETAC arbitrators do not represent any parties. Thirdly, most CIETAC cases are concluded within six months after the tribunal is constituted, meaning that our arbitration fees are relatively low compared to other major international arbitration institutions. Finally, CIETAC offers the unique combination of arbitration with mediation – a combination which not only resolves disputes, but also renews positive business and personal relations between parties.

 

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Chinese culture has for centuries emphasised the desirability of resolving conflicts amicably, with the Confucian concept of Li – in which disputes are settled by adhering to a system of ritual and manners rather than legal argument – influencing practice to this day. Indeed, CIETAC’s med-arb provisions, described previously by the institution as representing the ‘oriental experience’, speak to the willingness of some Chinese arbitrators to facilitate a settlement before turning to the adjudicative function as understood in the international context.

 

That approach, whose benefits include time- and cost-efficiency, as well as the ability to diffuse tensions before they boil over in a bitterly-fought hearing, is seen by some Western parties as devaluing both processes. Most worryingly, they say, information divulged in confidence to the arbitrator during the mediation may influence their view of the parties should settlement attempts break down at a later stage. Such concerns were highlighted in Gao Haiyan v Keeneye, a 2011 decision of the – usually arbitration-friendly – Hong Kong High Court. Refusing on public policy grounds to enforce an arbitral award made by a Chinese med-arb tribunal, the court cited a private meeting in which one of the arbitrators suggested that a Keeneye representative ‘work on’ his employers to pay RMB250m to settle the dispute as creating the impression of bias on the part of the tribunal. That decision was overturned the following year, however – a decision based partly on the unwillingness of the Hong Kong Court of Appeal to criticise the domestic application of a sovereign state’s dispute resolution framework.

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Patrick Zheng: What have you done during the last 12 months to quicken arbitration while maintaining quality?

‘Efficiency and quality are two vital elements for arbitration and are the aspects of the process that we value the most.’ Yu Jianlong, CIETAC

Yu Jianlong: Efficiency and quality are two vital elements for arbitration and, as such, are the aspects of the process that we value the most. For example, the CIETAC arbitration rules provide explicit timelines for the conduct of arbitration. An arbitral award is required to be made within six months of the constitution of a tribunal in foreign-related cases, within four months for domestic cases and within three months for cases that apply the summary procedure. Bearing this in mind, tribunals are highly motivated to expedite the procedure. Quality control is also strictly implemented throughout the proceedings. A CIETAC case manager is designated to every case. The manager, who can be reached around the clock, closely follows the proceedings and assists the tribunal whenever necessary.

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Unlike institutions which employ a strict demarcation between tribunal and secretariat, the CIETAC model includes a more involved administering body. As one example, any communications made between the parties and the tribunal must be sent through the CIETAC secretariat. Its case managers play a similarly hands-on role in the scrutiny of awards – a provision the institution adopted in the mid-1990s, making it something of a pioneer in this regard. (For its part, SIAC introduced a form of award scrutiny in its 2007 rule revisions.) The usual practice at CIETAC is for at least three experienced counsel to review each award, which may be passed higher up the chain if the issues at stake are especially complex or controversial. In seeking to uphold tribunals’ autonomy, however, the secretariat’s recommendations can be rejected outright, whether the award is rendered unanimously or by majority.

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Patrick Zheng: What are some of the benefits of the scrutiny process as it is applied at CIETAC?

Yu Jianlong: The scrutiny process helps ensure the quality of awards by reminding tribunals of the issues to be addressed in their awards. Without compromising the independence of the tribunal, the secretariat will bring to its attention any possible issues contained in the award so that the tribunal gets another chance to go through those issues before rendering its award. As arbitrators play a key role in deciding the outcome of a dispute, CIETAC is extremely careful with the selection and appointment of arbitrators. The institution renews its panel of arbitrators every three years, and takes various factors into consideration when making appointments in specific cases. Article 28 of the CIETAC arbitration rules provides that when appointing arbitrators, the applicable law, the place of arbitration, the arbitration language and the nationalities of parties will be taken into consideration.

Patrick Zheng: Does CIETAC ever blacklist arbitrators for poor performance?

Yu Jianlong: Our institution is extremely careful when it comes to the selection of arbitrators. Accordingly, we trust every arbitrator on our panel, both in the professional and moral sense. Once an arbitrator is found to be disqualified, they will be removed from the panel.

Sibling rivalry

Much of the focus on arbitration in China has in recent years centred on Hong Kong, whose arbitral institution – the HKIAC – has been hugely influential in offering non-European parties an alternative to London, Paris, Geneva and Stockholm. Yet the mainland is proving equally attractive to the cadre of white shoe and City of London law firms that once descended en masse upon the Central District, with the likes of Davis Polk & Wardwell, Covington & Burling and Kilpatrick Townsend & Stockton having recently set up shop in the country’s legal hubs, Beijing and Shanghai. Zheng’s move from Clifford Chance to Clyde & Co, made in July, is further evidence of the wave of Chinese partner-level recruitment that is being driven by a willingness among Chinese businesses to arbitrate their disputes – and to insist on CIETAC as the appointing authority when doing so.

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Patrick Zheng: International arbitration is sometimes perceived as being dominated by English and US law firms. Do you agree? What impact does that have on the wider industry?

Yu Jianlong: I would rather say that international arbitration was dominated by English and US law firms. In recent years, we have witnessed increasing involvement by Chinese law firms in international arbitration. I believe this momentum will continue as Chinese lawyers are getting more experience in arbitration, including international arbitration.

Patrick Zheng: What can CIETAC do to promote international arbitration in developing countries? Do you have upcoming expansion plans?

‘Chinese and foreign parties alike have expressed comfort arbitrating in Hong Kong, whose arbitration framework includes ultra-modern provisions.’

Yu Jianlong: Although we understand that most international arbitration cases take place in developed countries, we believe that developing countries are also making their voices heard in this regard. CIETAC is the largest and most influential arbitration institution in developing countries, and we are dedicated to the promotion of arbitration by establishing and keeping contact with arbitration institutions, law firms and other legal stakeholders within those jurisdictions. We do not yet have foreign expansion plans. At the moment, we are focusing on further developing and improving our existing branches, including sub-commissions, centres and liaison offices.

In 2012, CIETAC faced down unauthorised declarations of independence by its Shanghai and Shenzhen sub-commissions, a move inspired by a stipulation in the institution’s 2012 rules that all cases submitted to CIETAC would thereafter be administered in Beijing. By refusing to adopt the rules’ ‘illegal provisions’, which they described as ‘substantively ineffective and gravely harmful’, the sub-commissions engendered both confusion and concerns as to the smooth application of their ongoing and future cases.

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Such fears were realised in May 2013, when the Suzhou Intermediate People’s Court refused to enforce an award rendered by CIETAC Shanghai – which had the previous month been rebranded as the Shanghai International Arbitration Centre – on account of the fact that the true will of the parties had been to submit disputes to CIETAC rather than its independent offshoot. That conclusion contrasted with a decision of the Shenzhen Intermediate People’s Court rendered six months earlier in which it found that an arbitration clause stipulating CIETAC Shenzhen, latterly known as the South China International Economic and Trade Arbitration Commission, was indeed binding on the parties, despite the institution’s independent status.

A matter of months after the initial split, in September 2012, CIETAC launched in Hong Kong. The move was a laudable attempt to internationalise its approach; unless a dispute has a cross-border element, for example, Chinese law requires the seat of arbitration to be China. Moreover, by striking a pact with Hong Kong’s justice department, the institution neatly assuaged concerns among some foreign businesses as to the perceived lack of neutrality exhibited by mainland tribunals. The tie-up thus has unique appeal. Indeed, Chinese and foreign parties alike have expressed comfort arbitrating in Hong Kong, whose arbitration framework includes ultra-modern provisions such as those relating to emergency arbitration.

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Yu Jianlong: CIETAC doesn’t currently have a mechanism for emergency arbitrators. We do however recognise that this mechanism has been proved effective and efficient under certain circumstances, and could serve as a supplement to interim measures made by the court. This is particularly the case in the Chinese context, given that CIETAC has established its Hong Kong arbitration centre and, pursuant to the Hong Kong arbitration ordinance, the emergency relief granted by an emergency arbitrator is enforceable in the same manner as an order or direction of the court. Accordingly, CIETAC is contemplating adding an emergency arbitrator mechanism when revising its arbitration rules later this year.