The new Arbitration Rules of the China International Economic and Trade Arbitration Commission entered into force on 1 January 2015
The China International Economic and Trade Arbitration Commission – better known as CIETAC1 – is one of the major arbitration institutions. In 2013, CIETAC accepted 1,256 cases, out of which, 375 were foreign-related.2 As the leading arbitration institution in China, CIETAC has for some time been making efforts to reflect worldwide developments in international arbitration practice. This process culminated in the adoption of its new Arbitration Rules, which entered into force on 1 January 2015 (the 2015 Rules).
The 2015 Rules apply to arbitrations commenced on or after 1 January 2015 and may also be applied to arbitrations commenced prior to that date, where all the parties agree.
The key changes brought about in the 2015 Rules can broadly be divided into three categories:
• Innovative rules: wholly new, or heavily amended, rules, introduced to reflect best practice in the field of international arbitration, including: multiple contracts; joinder of additional parties; consolidation of arbitrations; and emergency arbitrator procedures.
• Amended rules: amendments to existing rules made with a view to increasing efficiency, including amendments to rules covering: the presiding arbitrator’s power to decide procedural matters; use of stenographers to provide records of proceedings to the parties; and the threshold for the summary procedure.
• Institutional reform: changes to the institutional organisation of CIETAC, made to ensure the more efficient and user-focused running of the institution, including: the establishment of the Arbitration Court; changes in the operation of the CIETAC Hong Kong Arbitration Centre; and amendments in respect of fees.
Set out below is a brief analysis of these major amendments and their implications.
The innovative rules - the ‘internationalisation’ of CIETAC
The 2015 Rules include four new and innovative rules, that were either wholly absent from the 2012 CIETAC Arbitration Rules (the 2012 Rules), or which required significant amendment.
Multiple contracts.
Art. 14 allows the claimant to initiate a single arbitration arising out of, or in connection with, multiple contracts, provided that:
i. the contracts consist of a principal contract and its ancillary contract(s), or such contracts involve the same parties, as well as legal relationships of the same nature;
ii. the disputes arise out of the same transaction or the same series of transactions; and
iii. the arbitration agreements in such contracts are identical or compatible.
Although no examples of when this rule might come into play are provided by CIETAC, possible scenarios include:
• The claimant may commence a single arbitration, where the dispute arises out of a loan agreement and an equity pledge agreement in the same transaction, because the equity pledge agreement is ancillary in nature to the principal contract – the loan agreement; or
• The claimant may trigger Art.14 if it is a party in a merger transaction that has entered into multiple contracts, such as a master agreement and a merger agreement with the same parties.
Joinder of additional parties.
Art. 18 of the 2015 Rules provides that any party to CIETAC-administered arbitration proceedings may apply to join an additional party to the proceedings at any stage of the arbitration by filing a Request for Joinder. The arbitration agreement invoked to join the additional party, together with the facts and reasons supporting joinder, must be set out in the Request. CIETAC may decide to join the additional party unless that party is prima facie not bound by the arbitration agreement invoked in the arbitration, or other circumstances exist that make joinder inappropriate. The party to be joined to the proceedings has a right to raise a jurisdictional objection to the arbitral tribunal. In the event that the party is joined before the constitution of the arbitral tribunal, it is entitled to participate in the arbitrator nomination process. Even if the Tribunal is already established, the newly-joined party may request the re-nomination of the arbitrators.
Consolidation of arbitrations.
Under the 2012 Rules, consolidation of multiple arbitrations was only available when all parties give their consent to CIETAC. The revised Art. 19 of the 2015 Rules, however, introduces three more grounds under which multiple arbitrations may be consolidated, namely, where:
i. all claims in the arbitrations are made under the same arbitration agreement;
ii. the claims in the arbitrations are made upon multiple arbitration agreements that are identical or compatible and the arbitrations involve the same parties as well as legal relationships of the same nature; or
iii. the claims in the arbitrations are made under multiple arbitration agreements that are identical or compatible and the multiple contracts involved consist of a principal contract and its ancillary contract(s).
Unless the parties agree otherwise, the proceedings must be consolidated into the arbitration commenced first in time. Examples of circumstances in which multiple arbitrations might be suitable for consolidation under the 2015 Rules include:
• Under a long-term supply contract, purchase orders (PO) are placed and goods are delivered between the seller and the buyer for years. Either party may commence arbitration arising out of different PO transactions. CIETAC may consolidate arbitrations upon the request of a party, provided that the arbitrations are commenced in terms of the same arbitration clause.
• Three charterparties are entered into between a shipowner and a charterer for different cargos. Disputes arising from the three charterparties between the same parties are referred to multiple arbitration proceedings. These proceedings may be consolidated, so long as the arbitration clause in each charterparty is identical or at least compatible.
• Disputes arise from a loan agreement (the principal agreement) and an equity pledge agreement (the ancillary agreement) and the arbitration clause in each legal document is identical or compatible.
No guidance has been provided by CIETAC as to the circumstances in which it might consider two or more arbitration agreements to be ‘compatible’ and, as such, this will be decided on a case by case basis.
Emergency arbitrator procedures.
Under Art. 23 and Appendix 3 of the 2015 Rules, a party seeking the appointment of an emergency arbitrator shall make an application to the Arbitration Court of CIETAC (or the arbitration court of the relevant sub commission/arbitration centre of CIETAC), which shall appoint an emergency arbitrator within 1 day of receipt of the relevant fees. The appointed emergency arbitrator will give a declaration to the Arbitration Court. Any party may challenge the emergency arbitrator on the basis that there are grounds to believe he lacks independence or impartiality within 2 days of (i) receipt of the declaration, (ii) notification of case acceptance, or (iii) becoming aware of any circumstances, based on which, such a challenge is justified. If no challenge is made, or such a challenge is unsuccessful, the emergency arbitrator shall provide a procedural timetable within 2 days, and render a decision within 15 days of his appointment. The emergency arbitrator may ask the applicant to provide security. The emergency arbitrator’s decision is binding upon parties and can be enforced in national courts of various jurisdictions in accordance with local laws.
Art. 23(2) states that the emergency arbitrator’s decision may take the form of an order or award. As in the London Court of International Arbitration’s 2014 Rules, this is presumably designed as a means of addressing concerns that interim “decisions” may not be enforceable under the New York Convention, but it is unclear whether national courts will regard emergency arbitrator “awards” as such in a New York Convention sense.
Three observations may be made on the “innovative” rules:
• Counterparts of the four “innovative” rules set out above can be found in the rules of other leading arbitration institutions. For example, the latest ICC and HKIAC rules include provisions regarding a single arbitration under multiple contracts, joinder of additional parties, and consolidation of arbitrations3, and ICC, HKIAC and SIAC have emergency arbitrator procedures.4 By incorporating these procedural rules into the 2015 Rules, CIETAC has demonstrated its ambition to further internationalise and remain at the forefront of developments in global arbitration.
• The procedural aspects of these rules expand CIETAC’s powers and responsibilities. When dealing with applications under Arts 14, 18 and 19, CIETAC or its associated Arbitration Court shall decide on parties’ submissions including facts and legal reasons. Thus, CIETAC is not only an institution administering arbitration proceedings, but also a decision maker in relation to these procedural matters, which may be very significant for the parties’ interests. On the face of the 2015 Rules, it appears unclear, however, whether CIETAC is obliged to state the reasons for its decisions.
• There is also a question mark over whether, and if so how, a decision of an emergency arbitrator appointed under the 2015 Rules can be enforced in China. Under the PRC Civil Procedural Code, it is the courts that are empowered to grant interim measures, including property or evidence preservation orders or injunctions. Although parties in arbitration proceedings can apply for interim measures, their application will be forwarded by an arbitration institution to a court of competent jurisdiction. In this regard, however, the emergency arbitrator procedures under the 2015 Rules appear to have developed faster than reform in Chinese national arbitration law. Nevertheless, it is meaningful to incorporate the emergency arbitrator rules by CIETAC, as such a decision should be available in arbitrations administered by its Hong Kong Arbitration Centre, and may be enforced by courts in a pro-arbitration jurisdiction such as Hong Kong or Singapore according to local laws.
The amended rules –procedural changes aiming at increasing efficiency
The extent of the amendments to other rules is more minor in nature but it is expected the changes will lead to more efficient arbitration proceedings.
• Presiding arbitrator’s power to decide procedural matters. Under Art. 35, the presiding arbitrator may decide on procedural arrangements for arbitration proceedings at his/her own discretion if he/she is authorised by the other members of the Tribunal.
• Use of stenographer. Under Art. 40, the Arbitration Court may have regard to specific circumstances of the arbitration and decide to engage a stenographer to make hearing records upon the request of a party. Under the 2012 Rules, written records, minutes and/or audio-visual records of the proceedings could be prepared by CIETAC for the Tribunal only, not for the parties.
• The threshold for the summary procedure. Under Art. 56, the threshold for commencing a summary procedure is amended from less than RMB 2 million to not exceeding RMB 5 million and the arbitration tribunal shall render an arbitral award within 3 months of its constitution.
Institutional reform – roles and functions of CIETAC and of its associates
In the 2015 Rules, certain amendments relate to institutional reform by CIETAC. These rules clarify the functions of CIETAC and its Hong Kong Arbitration Centre, as well as the schedule of fees.
• Establishment of the Arbitration Court (Art. 2). Having established the Arbitration Court, CIETAC removes its case management duty from the Secretariat to the Arbitration Court, which performs its functions in accordance with the 2015 Rules under the direction of the authorised Vice Chairman and the President of the Arbitration Court.
• Operation of the CIETAC Hong Kong Arbitration Centre (Arts 73 – 80). In Chapter 6 of the 2015 Rules, special rules are provided for arbitrations administered by the CIETAC Hong Kong Arbitration Centre that has been established since September 2012. Any arbitration referred to the Hong Kong Centre is seated in Hong Kong, the arbitration procedures are governed by the Hong Kong Arbitration Ordinance (Cap. 609) and an arbitral award rendered therefrom is an award of Hong Kong. That the arbitral tribunal shall have the power to determine the existence and availability of the arbitration agreement and its jurisdiction over the arbitration case demonstrates that CIETAC recognises the differences between arbitrations seated on the Mainland and in Hong Kong.
• Fees (Art. 82, Appendix 2). In Mainland China, arbitration fees are generally charged on an ad valorem basis, though special fees may be given to arbitrators who adjudicate disputes on the Mainland, provided that the Arbitration Court has consulted with relevant arbitrators and parties and give such fees in light of the Schedule of Fees (III) under Appendix 2. In the Hong Kong Arbitration Centre, arbitration fees can be charged in terms of the Schedule (III), under which the minimum and maximum arbitrator fees are set forth, and special fees may be given to exceed the upper limit set forth therein. In the event that parties agree in writing to pay arbitrator fees on an hourly rate basis, such agreement shall be respected. The arbitrator’s hourly rate cannot exceed the upper limit publicised in the website of the Hong Kong Arbitration Centre, save under some circumstances. The more flexible fee arrangements demonstrate that CIETAC is keen to attract first class arbitrators to work on Mainland China and in Hong Kong.
Conclusion
Having closely observed new developments in international arbitration practice, CIETAC has now followed its peers in the region, including the HKIAC and SIAC, as well as further afield by promulgating its 2015 Rules. Although the 2015 Rules demonstrate CIETAC’s efforts to grow to a major international arbitration institution, the key to their success lies in whether CIETAC can establish its reputation of implementing the 2015 Rules in a transparent and predictable manner, attract world class arbitrators to sit in CIETAC, and whether the Rules can flourish notwithstanding the unchanged China arbitration regime.
1 CIETAC may be referenced by a number of different names, which, if used, shall be deemed to be a submission to CIETAC arbitration (see CIETAC Arbitration Rules 2015, Art. 1).
2 In other words, where the dispute involves at least one foreign party or the subject matter of the dispute is foreign (see Art. 304 of the Opinions of the Supreme People’s Court on Certain Issues Concerning the Application of the Civil Procedure Law of the PRC).
3Arts 7, 9 and 10 of the ICC Arbitration Rules (2012) and Arts 27 to 29 of the HKIAC Administered Arbitration Rules (2013).
4Appendix V of the ICC Rules, Schedule 4 of the HKIAC Rules and Schedule 1 of the SIAC Arbitration Rules (2013).
