Ad Hoc Arbitration in China

Tietie Zhang

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351185813
• Edition: 1
• Topic: Diritto
• Subtopic: Procedure civili

Arbitration is the dominant method in the world for resolving international commercial disputes. As compared with institutional arbitration, ad hoc arbitration has many advantages that make it a preferred way to resolve commercial disputes on many occasions. The Arbitration Law of the People's Republic of China, however, requires that parties appoint an arbitration institution in their arbitration agreement; otherwise an ad hoc arbitration agreement is invalid. This rule seems to preclude ad hoc arbitration under Chinese law and threatens the validity of many arbitration agreements that are imperfectly drafted. Fortunately, however, this does not mean Chinese courts will never enforce an ad hoc arbitration agreement or an ad hoc arbitration award. This book informs parties and practitioners of potential pitfalls related to ad hoc arbitration in China and offers practical guidance. It also conducts a comparative study of the history of arbitration in the Western world and in China, to identify the reasons for this hostility to ad hoc arbitration and calls for changes to this requirement under Chinese law.

1 Introduction

I Overview and significance

This is the first book length study of ad hoc arbitration in China in either English or Chinese. This topic is of paramount importance. On the one hand, arbitration is the most favored dispute resolution mechanism for international business disputes.¹ On the other, China’s economic power and influence are both fast increasing on the global stage. As a result, it is likely that the world will see more and more international arbitration cases in which at least one party is Chinese or where the parties want the arbitration to take place in China. Consequently, knowledge of Chinese arbitration law is essential for business entities and legal practitioners involved in international transactions.

Unfortunately, however, Chinese law is hostile towards ad hoc arbitration, despite its many advantages and popularity in most of the world. More precisely, the Arbitration Law of the People’s Republic of China (the PRC Arbitration Law) appears to preclude ad hoc arbitration altogether by providing that an arbitration agreement is invalid unless it appoints an arbitration institution.² Furthermore, this hostility towards ad hoc arbitration is embedded at the very the heart of the Chinese arbitration legal framework. It defines many salient features of the Chinese legal system related to arbitration and reflects how Chinese lawmakers and legal elites understand arbitration fundamentally as a legal institution. Therefore, a thorough understanding of this central aspect of Chinese arbitration law is crucial to the successful resolution of existing disputes with a Chinese party or to any sufficient preparations for a business deal involving China.

Using ad hoc arbitration in China as an example, this book also brings forward a proactive and globally oriented Chinese judiciary waiting to be rediscovered by the West. Despite Chinese law’s clear prohibition of ad hoc arbitration, the Supreme People’s Court of China (the SPC) has done its best to minimize the prohibitive effect of the relevant legislation. It has taken a highly pro-arbitration stance and, directly or indirectly, via giving clear instructions to lower level Chinese courts, enforced many ad hoc arbitration agreements and awards. Among other things, the SPC has clearly aimed at ensuring that China meets its international obligations under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). This runs contrary to the lazy caricature that is still too often used in Western discussions of the Chinese courts ignoring international legal norms. This picture is also frequently tied to the more general exploration of the existence, or non-existence, of rule-of-law in China, under which the Chinese judiciary is often depicted as politically subservient rather than independent. This book does not intend to resolve fully the myth of whether there is rule-of-law in China. This is not least because the scope of this book forbids it to encompass the otherwise necessary studies that would require a sophisticated analysis of, among other things, the nuanced and intricate definition of “rule-of-law” as well as the Chinese legal tradition and its role in Chinese society.³ However, it does contribute to the existing literature on the subject by presenting a clear example of a Chinese judiciary that is tirelessly bending national legislative provisions to respect and comply with international norms. Therefore, this book does add valuable insights into that discourse.

This book also contributes to the discussions of Chinese arbitration law by providing historical and comparative perspectives, neither of which is frequently seen in the current literature. This book argues that the legislative preclusion of ad hoc arbitration must be understood as a product of Chinese legal history. Situated in a special historical stage of contemporary China, which includes the unfolding of Western legal imperialism, ad hoc arbitration’s fate in China was closely connected with Chinese legal elites’ struggle to revolutionize and modernize China. It was clearly a conscious legal transplant process. Understood against this background, the efforts that China devoted to establishing a modern arbitration system were evidently extraordinary and far removed from the story of passive legal reforms imposed by the West, as often portrayed in the English language literature. This historical account still has practical significance today. Through a comparative study with arbitration’s historical development path in the West, this book is the first to show that the historical context in China directly shaped the conception, or misconception, of arbitration as a legal institution among Chinese lawmakers and legal elites. This historical context also has a deep impact on the Chinese legal system that has lasted to the present day. As a result, one can only have a complete and thorough understanding of the Chinese arbitration legal framework after familiarizing oneself with this historical background. Equally, any attempts to improve the Chinese arbitration system can only succeed after China overcomes and corrects this misconception.

Moreover, this book is also the first to analyze Chinese arbitration law from the perspective of legal transplant theories. It demonstrates that arbitration’s history in China is a story of legal transplant. This undoubtedly provides another lens through which to review and reflect on the current Chinese arbitration legal framework. By presenting the legal borrowing of arbitration in China as an example, this book first presents another successful example of legal transplants to endorse the relevant theories. It then enriches the existing literature by demonstrating that legal transplants can take place in different stages as a result of conscious choices made by legal elites in the receiving country. The incremental theory of legal transplant proposed by this book means that China can put the last piece into the puzzle when the time is right. China needs to complete the final stage in this legal transplant process by fully incorporating ad hoc arbitration into its legal system. This is also consistent with the doctrinal analyses that this book conducts simultaneously.

Supported by a series of doctrinal and historical analyses, this book takes the position that ad hoc arbitration is desirable and that China should now take necessary steps to end its hostility towards ad hoc arbitration. Ideally, Chinese lawmakers will amend and liberalize relevant Chinese laws to legitimize ad hoc arbitration completely. However, relevant groups, including most importantly the Chinese arbitration bar, need to mobilize enough political forces to push for the legislative move. Before this happens (hopefully in the near future), this book has carefully designed some useful and special drafting strategies for parties to adopt in practice so that they can take advantage of the pro-arbitration stance taken by the Chinese judiciary. In this way, the parties can successfully resolve their disputes in the way that they deem most suitable for their own cases.

This book is structured as follows. The rest of Chapter 1 will introduce the background to this book’s main arguments. It will first discuss arbitration’s advantages, particularly as compared with litigation, which explains its popularity as the preferred dispute resolution mechanism for international commercial disputes. It will also, in contrast to institutional arbitration, consider ad hoc arbitration’s unique features that make it a welcome method to resolve certain disputes in arbitration practice. Chapter 1 will then bring forward the issues related to ad hoc arbitration under Chinese law. It will further point out that the ad hoc problem lies at the center of the Chinese arbitration legal framework and reflects many of its fundamental aspects. Chapter 2 will present a historical account of arbitration’s development in China, in comparison with that in the West. This historical context directly shaped Chinese law’s hostility towards ad hoc arbitration, and in many aspects still impacts on the current Chinese legal system today. Moreover, Chapter 2 will examine legal transplant theories and argue that the legal transplant of arbitration in China validates many of them and enriches this body of literature. Chapters 3, 4, and 5 will conduct a sophisticated doctrinal analysis of exactly how Chinese law’s preclusion of ad hoc arbitration operates in practice, with a special focus on how it interacts with the international arbitration legal framework based upon the New York Convention. These chapters will look at how Chinese courts enforce ad hoc arbitration agreements and awards, and will provide useful and practical advice to parties in practice regarding what they should do if they want to resolve their disputes in China via ad hoc arbitration. Building on both the doctrinal analysis and the historical study, Chapters 6 and 7 will try to project a way forward for arbitration legislation and judicial practice in China in the future. These chapters will carry out a cost-benefit analysis and argue that China should fully legitimize ad hoc arbitration. Chapter 8 will summarize the book’s main arguments and reach a conclusion.

II Background

A Arbitration vs. litigation

Arbitration is the most popular dispute resolution mechanism for international commercial disputes in today’s world.⁴ Businesses all over the world prefer using arbitration to resolve their disputes rather than resorting to litigation, ...