The most important thing about arbitration clauses is to have one in the first place. Without it, Chinese law prevents an arbitration commission from accepting applications from single parties (Clause 4, Arbitration Law of China). Needless to say, you do not want to have to seek approval from a potentially hostile contractual party to resolve your dispute before an arbitration commission. However, deciding to have an arbitration clause is easy, designing one is slightly harder. Whilst there are plenty of common characteristics all arbitration clauses should have, specific requirements apply when contracting with Chinese parties.
Applicable law
Chinese Courts have, in the past, had a reputation for retaining jurisdiction over arbitration clauses, despite what the parties may have agreed in the contract, and would use any excuse to do so. As such, naming an applicable law used to be largely irrelevant. InSinotrans Shipping Agency Ltd v Lu Qin Co Ltd, however, the Shanghai People’s High Court upheld an arbitration clause specifying a foreign applicable law, despite the fact it did not specify which tribunal would be used. Clearly then, the Chinese Courts are now willing to recognise foreign arbitrations. Obviously, it is highly recommended that the parties also name which tribunal will be used in the event of conflict, but Sinotranssuggests this is not compulsory for Chinese contracts.
Choice of Language
The choice of language is a concern in both the arbitration itself, and the actual clause. Ideally, a contract should exist in only one language, so as to prevent confusion arising over multiple interpretations. Whilst there are signs the culture is changing, given the Chinese Courts inclination towards retaining jurisdiction, there is no reason to dangle an opportunity before them. As such, it should be unequivocally clear which language has contractual authority.
When it comes to the arbitration itself, the parties should agree in the contract what the language of arbitration will be. Confusion and argument may well arise if both parties arrive at the table speaking different language.
Sufficient Coverage
China will refuse to enforce a foreign arbitration to the extent “the matter under dispute was outside the scope of the arbitration clause, or the institution had no authority to hear the matter” (Art 260, Law of Civil Procedure). As such, the contract should grant a wide scope for parties to take potential disputes to arbitration.
Simplicity
Ultimately, simplicity is often the key as it avoids pitfalls that only arise when there is already trouble between the parties. It also prevents Chinese courts from finding loopholes to avoid recognising foreign judgements. The China International Economic and Trade Arbitration Commission, for instance, offers this as their model clause:
Any dispute arising from or in connection with this Contract shall be submitted to CIETEC for arbitration which shall be conducted in accordance with the Commission’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.”
Whilst it is missing explicit clarification on the choice of law and language to be used, it is a perfect example of simplicity offering a wide applicability, naming the arbitration panel, specifying the rules to be used, and ensuring the decision is final. Thus, just because designing an arbitration clause should involve a considerable amount of thought and analysis, does not mean that a similar degree of effort should be involved in interpreting it.
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