Determining the validity of ad hoc arbitration agreements in China: past, present, and future

• Author: Determining the validity of ad hoc arbitration agreements in China: past, present, and future
• Pages: 115-140

FRONTIERS OF LAW IN CHINA

VOL. 14 MARCH 2019 NO. 1

DOI 10.3868/s050-008-019-0006-5

ARTICLE

DETERMINING THE VALIDITY OF AD HOC ARBITRATION AGREEMENTS IN CHINA:

PAST, PRESENT, AND FUTURE

LIU Lu∗, QI Qi∗∗

Abstract This paper explores the law in China determining the validity of ad hoc

arbitration agreements. It first points out the particularity of China’s attitude toward ad

hoc arbitration through a textual analysis of key provisions in Chinese laws and the

comparison between Chinese law and the law of other jurisdictions. The authors then

adopt an empirical approach to analyze Chinese courts’ practice in the application of

Chinese arbitration laws and conclude that, despite the clear wording employed by the

Chinese Arbitration Law, Chinese courts could use two ways to save the ad hoc

arbitration agreements without disobeying the statutory law. The paper then moves to

analyze the Opinion of Supreme People’s Court on Providing Judicial Guarantee for the

Construction of Free Trade Pilot Zone (hereinafter referred to as “SPC Opinion”) issued

in December 2016, which is viewed as a tipping point toward a supporting regime of ad

hoc arbitration. By implementing this SPC Opinion, for the first time, China regionally

embraces ad hoc arbitration. On the basis of the analysis of this new development, the

authors suggest possible facilitations to the SPC Opinion and predict the future reform of

ad hoc arbitration.

Keywords ad hoc arbitration, arbitration agreement, Chinese Arbitration Law

INTRODUCTION .....................................................................................................................116

I. AD HOC ARBITRATION: HOW IS CHINA DIFFERENT AND WHY?...............................117

A. Chinese Arbitration Law and the Unusual Treatment of Ad Hoc

Arbitration ........................................................................................................ 117

B. Reasons behind China’s Unusual Treatment of Ad Hoc Arbitration ................. 118

II. ANTI–AD HOC ARBITRATION: ARTICLES 16 AND 18 OF THE CHINESE ARBITRATION

LAW ........................................................................................................................ 120

∗ (󱅥) Ph.D. candidate in Law, School of Law, University of International Business and Economics,

Beijing 100029, China. Contact: uiberachel@163.com

∗∗ (󳰥󱃿) Ph.D. candidate in Law, School of Law, University of International Business and Economics,

Beijing 100029, China. Contact: qiqi_tjfsu@163.com

The authors are grateful to Professor Patricia Shaughnessy for her guidance and support and thank

Professor Christina Ramberg for her comments and encouragement. The authors also thank the anonymous

reviewers for their advice.

116 FRONTIERS OF LAW IN CHINA [Vol. 14: 115

III. SAVING THE VALIDITY OF AD HOC AGREEMENTS VIA JUDICIAL

INTERPRETATIONS .................................................................................................. 122

A. Ad Hoc Arbitration Agreements Containing Arbitration Rules......................... 122

B. Beijing Arbitration Clause ................................................................................124

C. Wrongly Named Institution or Involvement of Two Arbitration Institutions ..... 126

IV. SAVING THE VALIDITY OF AD HOC AGREEMENTS VIA CHOICE OF LAW RULES .... 127

A. “Foreign Elements” and Choice of Law Rule in China...................................128

B. The Law Determining the Validity of the Arbitration Agreement ..................... 130

1. Samsung C&T v. Shanghai Golden Bund Real Estate Co., Ltd. ..................132

2. PANALPINA World Transport (PRC) Co., Ltd. v. Shanghai Morongbao

International Logistics Co., Ltd.................................................................... 132

3. COFCO Wines & Spirits Co., Ltd. v. Gloria Vino (2014)............................ 132

4. Ruifeng Grain v. SKE (2015)....................................................................... 133

5. Guangzhou Yupinxuan Trading Co., Ltd. v. TEKSENG Rice Mill Co.,

Ltd. (2010).................................................................................................... 133

6. PENG v. White Tiger (Huizhou) Outdoor Co., Ltd. (2012) ......................... 133

7. CNPC Bohai Drilling v. Far East Energy (2015) ......................................... 134

V. A S TEP FORWARD FOR AD HOC ARBITRATION PERMISSION: THE 2017 SPC

OPINION.................................................................................................................. 135

A. Interpretation of the 2017 SPC Opinion............................................................136

B. Facilitation and Implementation of the 2017 SPC Opinion.............................. 137

1. Foreign Experiences on Application of Ad Hoc Arbitration ........................ 137

2. A Tailor-Made Landing Regulation for Ad Hoc Arbitration in Chinese

PFTZs ........................................................................................................... 138

C. Ad Hoc Arbitration in China: What Comes Next?............................................ 139

CONCLUSION........................................................................................................................ 140

INTRODUCTION

Ad hoc arbitration, one of the oldest and most flexible dispute-resolution methods, is

widely accepted in various jurisdictions. Compared to institutional arbitration, ad hoc

arbitration keeps its advantage of flexibility, low cost, arguably efficiency, and expertise

in history. However, not every country takes the same attitude toward ad hoc arbitration,

and China is one of the most noticeable examples. The Chinese Arbitration Law is drafted

centering on arbitration commissions (i.e. arbitration institutions), and it is explicitly

provided in Articles 16 and 18 of the Chinese Arbitration Law that a “designated

arbitration commission” is one of the mandatory requirements for a valid arbitration

agreement. In this regard, China seems to be alone in its negative attitude toward ad hoc

arbitration.

A historical study of Chinese arbitration reveals the reasons behind this restriction:

Arbitration in China was not initiated by merchants but created and supported by the

Chinese government through legal transplantation. Given the top-down tradition of the