On July 31, 2024, the State Council Standing Committee approved the Draft Amendment to the Arbitration Law of the People’s Republic of China (hereinafter referred to as the “Draft Amendment”). This Draft Amendment introduces multiple revisions to the existing Arbitration Law of the People’s Republic of China (hereinafter referred to as the “Current Arbitration Law”). These revisions reflect the trend of aligning China’s legal system with international standards and demonstrate the country’s efforts to modernize its arbitration system. This article provides a detailed analysis of the key points of the Draft Amendment, referencing specific legal provisions.
1. Clarifying the Effectiveness of Arbitration Agreements Despite Ambiguity in “Selected Arbitration Commission”
Article 16 of the Current Arbitration Law stipulates that an arbitration agreement must include an “expression of intent to arbitrate, the matters to be arbitrated, and the selected arbitration commission.” Additionally, Article 18 states that “if the arbitration agreement does not specify the matters to be arbitrated or the arbitration commission, or if the specification is unclear, the parties may reach a supplementary agreement; if no supplementary agreement can be reached, the arbitration agreement is invalid.” Consequently, if the arbitration agreement fails to specify the arbitration commission or if the specification is unclear and no supplementary agreement is reached, the arbitration agreement becomes invalid, leaving litigation as the only recourse.
The Draft Amendment removes the requirement to specify an arbitration commission in the arbitration agreement and provides a mechanism for handling situations where the arbitration institution is not specified or is unclear. This revision resolves issues of invalid arbitration agreements due to ambiguity, emphasizing respect for party autonomy and offering greater flexibility, thereby making arbitration more adaptable to the diversity and complexity of modern commercial transactions.
2. Validity of Arbitration Clauses in Main Contracts Prevails Over Subordinate Contracts
For the first time, the Draft Amendment addresses the issue of arbitration agreements in main and subordinate contracts. The newly added Article 24 states, “If a dispute involves both a main contract and a subordinate contract, and the arbitration agreements in the main and subordinate contracts are inconsistent, the arbitration agreement in the main contract shall prevail. If the subordinate contract does not include an arbitration agreement, the arbitration agreement in the main contract shall be effective for the parties to the subordinate contract.”
Article 21, paragraph 1 of the “Interpretation of the Supreme People’s Court on the Application of the Civil Code of the People’s Republic of China Regarding the Guarantee System” states, “If the main contract or the guarantee contract contains an arbitration clause, the people’s court does not have jurisdiction over disputes between the parties who have agreed to the arbitration clause.” Under the Current Arbitration Law, this provision respects the independence of main and subordinate contracts. However, under Article 24 of the Draft Amendment, as long as the main contract includes an arbitration clause, the court will no longer have jurisdiction over both the main and guarantee contracts, regardless of whether the guarantee contract includes an arbitration clause.
3. Binding Effect of Arbitration Agreements Between Companies or Partnerships and Third Parties on Shareholders or Partners
The issue of whether an arbitration agreement signed between a company or partnership and a third party binds the shareholders or partners has long been unclear. To address this ambiguity in judicial practice, Article 25 of the Draft Amendment states, “If shareholders of a company or limited partners of a partnership, in accordance with the law, assert rights against the counterparty in their own name on behalf of the company or partnership, the arbitration agreement signed between the company or partnership and the counterparty shall be effective against them.”
4. Definition of “Arbitration Seat”
The Draft Amendment introduces the concept of the “arbitration seat” in the newly added Article 27. According to this provision, parties may agree on the arbitration seat in their arbitration agreement. If the parties do not specify the arbitration seat or the specification is unclear, the location of the arbitration institution handling the case shall be deemed the arbitration seat. The arbitration award is considered to be made at the arbitration seat. Furthermore, the determination of the arbitration seat does not prevent the parties or the arbitral tribunal from conducting deliberations, hearings, or other arbitration activities at a different suitable location.
Article 27 acknowledges the concept of the “arbitration seat” and explicitly allows parties to specify the arbitration seat in their arbitration agreement. Additionally, it clarifies that even if the arbitration seat is agreed upon, the parties may still choose a different location for arbitration activities. This revision reflects the influence of international arbitration standards concerning the arbitration seat.
5. Preliminary Examination of Arbitration Agreement Validity by the Arbitral Tribunal
Under the Current Arbitration Law, Article 20 addresses the issue of disputes over the validity of the arbitration agreement. It allows parties to request a decision from the arbitration commission or a ruling from the people’s court. If one party requests a decision from the arbitration commission and the other party requests a ruling from the people’s court, the court’s ruling is final, and the parties have no right to appeal.
The Draft Amendment, in line with international commercial arbitration practices, clarifies that the arbitral tribunal has the preliminary authority to examine the validity of the arbitration agreement and its jurisdiction. Moreover, the tribunal’s preliminary examination is a prerequisite for confirming the invalidity of an arbitration agreement.
Besides, the Draft Amendment also changes the finality of the court’s ruling under the Current Arbitration Law by granting parties the right to apply for reconsideration by a higher court. Article 28 of the Draft Amendment specifically provides, “If a party disputes the existence, validity, or other aspects of an arbitration agreement or the jurisdiction of an arbitration case, the party must raise the objection within the time limit for submitting a defense as stipulated in the arbitration rules. The arbitral tribunal shall make a decision. Before the tribunal is constituted, the arbitration institution may decide, based on prima facie evidence, whether to continue the arbitration proceedings. If a party directly raises an objection to the people’s court without following the procedure stipulated in the preceding paragraph, the court shall not accept it. If a party objects to the validity of the arbitration agreement or the jurisdiction decision, the party may, within ten days of receiving the decision, apply to the intermediate people’s court at the arbitration seat for review. If dissatisfied with the ruling that the arbitration agreement is invalid or the arbitration case has no jurisdiction, the party may, within ten days of receiving the ruling, apply for reconsideration by a higher court. The people’s court shall make a ruling within one month of accepting the reconsideration application.”
This provision confirms the arbitral tribunal’s preliminary examination authority over the validity of the arbitration agreement, thereby expanding the tribunal’s jurisdictional powers.
6. Unified Review Standards for Domestic and Foreign-Related Arbitration
The Current Arbitration Law, in Articles 69 to 73, prescribes different review standards for domestic and foreign-related arbitration. The Draft Amendment deletes these provisions, which pertain to the execution and annulment of foreign-related arbitration awards, thereby eliminating the dual-track system and unifying the review standards for domestic and foreign-related arbitration.
Additionally, the Draft Amendment introduces provisions to enhance the recognition of the validity of foreign-related arbitration, such as: 1) The newly added Article 90, which acknowledges the parties’ autonomy in choosing the applicable law for the arbitration agreement: “The validity of a foreign-related arbitration agreement shall be determined by the law chosen by the parties; if the parties have not chosen the applicable law for the foreign-related arbitration agreement, the law of the arbitration seat shall apply; if the applicable law and arbitration seat are not agreed upon or are unclear, the people’s court may apply the law of the People’s Republic of China to determine the validity of the arbitration agreement.”2) The newly added Article 91, which clearly recognizes the parties’ right to choose an arbitration institution or to establish a special arbitral tribunal: “Parties to a commercial dispute with foreign elements may agree to arbitrate through an arbitration institution or may directly agree to arbitrate through a special arbitral tribunal. The arbitration proceedings of a special arbitral tribunal shall commence from the date the respondent receives the arbitration application. If the arbitration seat is not agreed upon or is unclear, the arbitral tribunal shall determine the arbitration seat based on the circumstances of the case.”3) The newly added Article 92, which clarifies the people’s court’s power to assist the parties in handling procedural matters in special arbitral tribunal arbitration, thereby promoting the arbitration by a special arbitral tribunal: “In cases of special arbitral tribunal arbitration, if the tribunal cannot be promptly constituted or there is a need to decide on matters of recusal, the parties may agree to entrust an arbitration institution to assist in the constitution of the tribunal or in deciding on matters of recusal. If the parties fail to reach an agreement, the intermediate people’s court at the arbitration seat, the location of the parties, or a place closely related to the dispute shall designate an arbitration institution to assist in the determination. When designating an arbitration institution and selecting arbitrators, consideration should be given to the arbitrator qualifications agreed upon by the parties, as well as the arbitrators’ nationality, arbitration seat, and other factors that ensure the independence, impartiality, and efficiency of the arbitration. The court’s designation ruling is final.”
7. Expanded Power of the Arbitral Tribunal to Grant Interim Measures
Article 43 of the Draft Amendment provides, “Before or during the arbitration proceedings, a party may request the people’s court or the arbitral tribunal to take temporary or urgent measures related to the subject matter of the dispute in order to ensure the conduct of the arbitration proceedings, ascertain the facts in dispute, or enforce the award. Temporary measures include property preservation, evidence preservation, conduct preservation, and other short-term measures deemed necessary by the arbitral tribunal.”
These interim measures facilitate the expedited conduct of arbitration proceedings, safeguard the winning party’s rights, and enhance the efficiency of dispute resolution.
8. Greater Flexibility in the Selection of Arbitrators Outside the Roster
In current practice, Chinese arbitration institutions primarily enforce a mandatory roster system for arbitrator selection, with only a few institutions allowing the selection of arbitrators outside the roster. The Draft Amendment changes this practice by removing the mandatory roster system. Article 50 stipulates, “Parties may select arbitrators from the recommended roster or choose arbitrators outside the roster. Arbitrators selected outside the roster must meet the conditions stipulated by this Law.” This change significantly relaxes the restrictions on arbitrator selection by the parties.
[Comment]
The revisions to the Arbitration Law of the People’s Republic of China reflect China’s efforts to adapt its arbitration system to the needs of the new era. Through an analysis of specific legal provisions, it is clear that these revisions make significant contributions to enhancing the effectiveness of arbitration agreements, expanding the authority of arbitral tribunals and arbitration agreements, optimizing award enforcement and remedies, and improving the competitiveness of international arbitration. These changes will not only enhance the effectiveness and fairness of arbitration in resolving commercial disputes but will also further promote the internationalization of China’s legal system.
1. Clarifying the Effectiveness of Arbitration Agreements Despite Ambiguity in “Selected Arbitration Commission”
Article 16 of the Current Arbitration Law stipulates that an arbitration agreement must include an “expression of intent to arbitrate, the matters to be arbitrated, and the selected arbitration commission.” Additionally, Article 18 states that “if the arbitration agreement does not specify the matters to be arbitrated or the arbitration commission, or if the specification is unclear, the parties may reach a supplementary agreement; if no supplementary agreement can be reached, the arbitration agreement is invalid.” Consequently, if the arbitration agreement fails to specify the arbitration commission or if the specification is unclear and no supplementary agreement is reached, the arbitration agreement becomes invalid, leaving litigation as the only recourse.
The Draft Amendment removes the requirement to specify an arbitration commission in the arbitration agreement and provides a mechanism for handling situations where the arbitration institution is not specified or is unclear. This revision resolves issues of invalid arbitration agreements due to ambiguity, emphasizing respect for party autonomy and offering greater flexibility, thereby making arbitration more adaptable to the diversity and complexity of modern commercial transactions.
2. Validity of Arbitration Clauses in Main Contracts Prevails Over Subordinate Contracts
For the first time, the Draft Amendment addresses the issue of arbitration agreements in main and subordinate contracts. The newly added Article 24 states, “If a dispute involves both a main contract and a subordinate contract, and the arbitration agreements in the main and subordinate contracts are inconsistent, the arbitration agreement in the main contract shall prevail. If the subordinate contract does not include an arbitration agreement, the arbitration agreement in the main contract shall be effective for the parties to the subordinate contract.”
Article 21, paragraph 1 of the “Interpretation of the Supreme People’s Court on the Application of the Civil Code of the People’s Republic of China Regarding the Guarantee System” states, “If the main contract or the guarantee contract contains an arbitration clause, the people’s court does not have jurisdiction over disputes between the parties who have agreed to the arbitration clause.” Under the Current Arbitration Law, this provision respects the independence of main and subordinate contracts. However, under Article 24 of the Draft Amendment, as long as the main contract includes an arbitration clause, the court will no longer have jurisdiction over both the main and guarantee contracts, regardless of whether the guarantee contract includes an arbitration clause.
3. Binding Effect of Arbitration Agreements Between Companies or Partnerships and Third Parties on Shareholders or Partners
The issue of whether an arbitration agreement signed between a company or partnership and a third party binds the shareholders or partners has long been unclear. To address this ambiguity in judicial practice, Article 25 of the Draft Amendment states, “If shareholders of a company or limited partners of a partnership, in accordance with the law, assert rights against the counterparty in their own name on behalf of the company or partnership, the arbitration agreement signed between the company or partnership and the counterparty shall be effective against them.”
4. Definition of “Arbitration Seat”
The Draft Amendment introduces the concept of the “arbitration seat” in the newly added Article 27. According to this provision, parties may agree on the arbitration seat in their arbitration agreement. If the parties do not specify the arbitration seat or the specification is unclear, the location of the arbitration institution handling the case shall be deemed the arbitration seat. The arbitration award is considered to be made at the arbitration seat. Furthermore, the determination of the arbitration seat does not prevent the parties or the arbitral tribunal from conducting deliberations, hearings, or other arbitration activities at a different suitable location.
Article 27 acknowledges the concept of the “arbitration seat” and explicitly allows parties to specify the arbitration seat in their arbitration agreement. Additionally, it clarifies that even if the arbitration seat is agreed upon, the parties may still choose a different location for arbitration activities. This revision reflects the influence of international arbitration standards concerning the arbitration seat.
5. Preliminary Examination of Arbitration Agreement Validity by the Arbitral Tribunal
Under the Current Arbitration Law, Article 20 addresses the issue of disputes over the validity of the arbitration agreement. It allows parties to request a decision from the arbitration commission or a ruling from the people’s court. If one party requests a decision from the arbitration commission and the other party requests a ruling from the people’s court, the court’s ruling is final, and the parties have no right to appeal.
The Draft Amendment, in line with international commercial arbitration practices, clarifies that the arbitral tribunal has the preliminary authority to examine the validity of the arbitration agreement and its jurisdiction. Moreover, the tribunal’s preliminary examination is a prerequisite for confirming the invalidity of an arbitration agreement.
Besides, the Draft Amendment also changes the finality of the court’s ruling under the Current Arbitration Law by granting parties the right to apply for reconsideration by a higher court. Article 28 of the Draft Amendment specifically provides, “If a party disputes the existence, validity, or other aspects of an arbitration agreement or the jurisdiction of an arbitration case, the party must raise the objection within the time limit for submitting a defense as stipulated in the arbitration rules. The arbitral tribunal shall make a decision. Before the tribunal is constituted, the arbitration institution may decide, based on prima facie evidence, whether to continue the arbitration proceedings. If a party directly raises an objection to the people’s court without following the procedure stipulated in the preceding paragraph, the court shall not accept it. If a party objects to the validity of the arbitration agreement or the jurisdiction decision, the party may, within ten days of receiving the decision, apply to the intermediate people’s court at the arbitration seat for review. If dissatisfied with the ruling that the arbitration agreement is invalid or the arbitration case has no jurisdiction, the party may, within ten days of receiving the ruling, apply for reconsideration by a higher court. The people’s court shall make a ruling within one month of accepting the reconsideration application.”
This provision confirms the arbitral tribunal’s preliminary examination authority over the validity of the arbitration agreement, thereby expanding the tribunal’s jurisdictional powers.
6. Unified Review Standards for Domestic and Foreign-Related Arbitration
The Current Arbitration Law, in Articles 69 to 73, prescribes different review standards for domestic and foreign-related arbitration. The Draft Amendment deletes these provisions, which pertain to the execution and annulment of foreign-related arbitration awards, thereby eliminating the dual-track system and unifying the review standards for domestic and foreign-related arbitration.
Additionally, the Draft Amendment introduces provisions to enhance the recognition of the validity of foreign-related arbitration, such as: 1) The newly added Article 90, which acknowledges the parties’ autonomy in choosing the applicable law for the arbitration agreement: “The validity of a foreign-related arbitration agreement shall be determined by the law chosen by the parties; if the parties have not chosen the applicable law for the foreign-related arbitration agreement, the law of the arbitration seat shall apply; if the applicable law and arbitration seat are not agreed upon or are unclear, the people’s court may apply the law of the People’s Republic of China to determine the validity of the arbitration agreement.”2) The newly added Article 91, which clearly recognizes the parties’ right to choose an arbitration institution or to establish a special arbitral tribunal: “Parties to a commercial dispute with foreign elements may agree to arbitrate through an arbitration institution or may directly agree to arbitrate through a special arbitral tribunal. The arbitration proceedings of a special arbitral tribunal shall commence from the date the respondent receives the arbitration application. If the arbitration seat is not agreed upon or is unclear, the arbitral tribunal shall determine the arbitration seat based on the circumstances of the case.”3) The newly added Article 92, which clarifies the people’s court’s power to assist the parties in handling procedural matters in special arbitral tribunal arbitration, thereby promoting the arbitration by a special arbitral tribunal: “In cases of special arbitral tribunal arbitration, if the tribunal cannot be promptly constituted or there is a need to decide on matters of recusal, the parties may agree to entrust an arbitration institution to assist in the constitution of the tribunal or in deciding on matters of recusal. If the parties fail to reach an agreement, the intermediate people’s court at the arbitration seat, the location of the parties, or a place closely related to the dispute shall designate an arbitration institution to assist in the determination. When designating an arbitration institution and selecting arbitrators, consideration should be given to the arbitrator qualifications agreed upon by the parties, as well as the arbitrators’ nationality, arbitration seat, and other factors that ensure the independence, impartiality, and efficiency of the arbitration. The court’s designation ruling is final.”
7. Expanded Power of the Arbitral Tribunal to Grant Interim Measures
Article 43 of the Draft Amendment provides, “Before or during the arbitration proceedings, a party may request the people’s court or the arbitral tribunal to take temporary or urgent measures related to the subject matter of the dispute in order to ensure the conduct of the arbitration proceedings, ascertain the facts in dispute, or enforce the award. Temporary measures include property preservation, evidence preservation, conduct preservation, and other short-term measures deemed necessary by the arbitral tribunal.”
These interim measures facilitate the expedited conduct of arbitration proceedings, safeguard the winning party’s rights, and enhance the efficiency of dispute resolution.
8. Greater Flexibility in the Selection of Arbitrators Outside the Roster
In current practice, Chinese arbitration institutions primarily enforce a mandatory roster system for arbitrator selection, with only a few institutions allowing the selection of arbitrators outside the roster. The Draft Amendment changes this practice by removing the mandatory roster system. Article 50 stipulates, “Parties may select arbitrators from the recommended roster or choose arbitrators outside the roster. Arbitrators selected outside the roster must meet the conditions stipulated by this Law.” This change significantly relaxes the restrictions on arbitrator selection by the parties.
[Comment]
The revisions to the Arbitration Law of the People’s Republic of China reflect China’s efforts to adapt its arbitration system to the needs of the new era. Through an analysis of specific legal provisions, it is clear that these revisions make significant contributions to enhancing the effectiveness of arbitration agreements, expanding the authority of arbitral tribunals and arbitration agreements, optimizing award enforcement and remedies, and improving the competitiveness of international arbitration. These changes will not only enhance the effectiveness and fairness of arbitration in resolving commercial disputes but will also further promote the internationalization of China’s legal system.