On January 1, 2024, China International Economic and Trade Arbitration Commission’s (CIETAC) newly amended arbitration rules (the 2024 Rules) have taken effect. As compared with the previous version which had been implemented for more than 8 years (the 2015 Rules), the 2024 Rules have introduced a significant number of new rules. These revisions reflect the development of China’s arbitration practice in the past years, and feature CIEAC’s efforts in aligning with the international standards.
1. Party Orientated Rule Improvements
Preservation application to the non-PRC court
In the past, CIETAC would only accept and forward party’s application for preservation measures (e.g., asset preservation) to the PRC court. However, according to the new Art. 23 of the 2024 Rules, CIETAC can also accept and forward the application to a designated court out of Mainland China, provided that such court is willing to take preservation measures in aid of CIETAC arbitration. This amendment could provide more option to parties to secure future enforcement.
Further, the second paragraph of Art. 23(1) explicitly allows CIETAC to withhold serving arbitration notice upon Respondent until the Claimant’s preservation application is submitted to the court, which can to certain extent prevent the Respondent from dissipating its assets or taking other measures to frustrate the preservation after it is made aware of the arbitration proceedings.
Nomination of the presiding arbitrator
Nomination of the presiding arbitrator. Art. 27 of the 2024 Rules has been expanded to provide more mechanisms for the parties to nominate the presiding arbitrator. Although under the 2015 Rules, the parties have the option to each recommend 5 candidates and choose the presiding arbitrator from the overlapping names, this mechanism has rarely been used, because by the time the arbitration is commenced, it is often difficult for the parties to reach consensus in nominating the presiding arbitrator. In most of the cases, CIETAC would designate the presiding arbitrator directly.
Under the 2024 Rules, two more mechanisms have been introduced, namely: i) the parties may agree that the party-nominated arbitrators shall jointly nominate the presiding arbitrator; and ii) the parties may agree in arbitration clause or jointly request CIETAC to provide a three-candidate list, each party could then exclude one or more candidates from the list, and CIETAC will choose the common candidate(s) among the remaining list to be the presiding arbitrator. The new rules give the parties more opportunities to participate in the selection of the presiding arbitrator, which is also consistent with the international arbitration practice.
Expert and forensic report examination
According to the updated Art. 44 of the 2024 Rules, the Tribunal’s approval is no longer required for an expert or forensic appraiser to attend hearing and explain their report. They shall appear and be cross-examined in the hearing upon one party’s application.
2. Emphasis on Efficiency and Flexibility
Admissibility by multi-layer dispute resolution agreement
It has long been questioned whether one party could file arbitration without undertaking the pre-arbitration procedures as agreed in the dispute resolution clause, such as negotiation and mediation; and whether it would affect the validity of the arbitral award if the pre-arbitration procedures were not carried out. Recently both in the UK and Hong Kong there are court precedence clarifying that non-compliance with the pre-arbitration negotiation and mediation procedures does not affect the arbitration tribunal’s jurisdiction, but only concerns the “admissibility” of the case, i.e. the legal appropriateness of the Tribunal to exercise its jurisdiction. With the Tribunal’s authority and power to hear the case not affected, the validity of the arbitral award shall not be affected, even though it may not be appropriate for the Tribunal to hear the case directly. In the PRC, the mainstream view from the judicial practice is also inclined to uphold the validity of the arbitration award, even if the agreement on pre-arbitration procedures is not followed.
The newly added section (2) of Art. 12 of the 2024 Rules expressly provides that “failure to negotiate or mediate shall neither prevent the Claimant from applying for arbitration nor prevent the Arbitration Court from accepting the case, unless the applicable law to the arbitral proceedings or the arbitration agreement expressly provides otherwise.” This new provision would encourage the parties to file arbitration without having to be concerned of potential enforcement uncertainty, and could also to certain extent avoid or minimize potential malicious intent of one party to delay the commencement of the arbitration by dragging the parties into negotiation and/or mediation for which it has no sincerity.
Single arbitration for multiple contracts
The previous rules for filing one single case concerning disputes arising out of multiple contracts were relatively rigid. For example, one requirement was that the multiple contracts shall 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. In practice, CIETAC was very restrict in determining whether the multiple contracts constitute principal-ancillary contracts. As a result, it was quite common to see in practice that commercially strongly connected contracts were not able to be consolidated into single arbitration because the parties to these contracts were not exactly the same, causing waste in costs and time of the parties. Although CIETAC would usually try to arrange the same Tribunal members for all the related cases, this cannot prevent one party from nominating different co-arbitrators in different cases, which would not only cause complexity but may also lead to inconsistency in the arbitral awards.
Under the revised Art. 14, the above mentioned requirement is relaxed by allowing contracts involving related subject matters to be filed under a single arbitration basis even if the contracting parties are not identical (provided that other conditions are satisfied).
Digitalization
The 2024 Rules feature digitalization and flexibility in a variety of ways. It is expressly provided that the arbitration documents can be served in the electronic form, and electronic service should be prioritized (Art. 8). It is also provided that the parties can submit documents in electronic form, and again this is specified as a preferred means (Art. 21). Online case filing which has been practiced for years due to the pandemic of COVID 19 is now officially included in the 2024 New Rules (Art. 11). It is also clarified that the electronic signature of the arbitrators on the arbitral award has the same effect of his/her handwritten signature, and the arbitral award can be served in electronic form upon agreement of the parties or when CIETAC considers necessary (Art. 52(7)(10)).
In addition to the above, it is also provided in the updated Art. 37 that the Tribunal may decide to hold a virtual hearing at its own discretion after soliciting parties’ opinion. In light of this provision, parties who wish to present their case to the tribunal in person should clearly express its desire of having an in-person hearing to the tribunal.
3. Aligning towards the international standard
Third party funding
The 2024 Rules requires the party receiving a third-party funding shall, without delay, disclose relevant information to CIETAC including the third party’s name and residence, as well as its factual and economic interest in funding the case. CIETAC will forward such information to the relevant parties and the Tribunal. When making decisions on the fees, the Tribunal shall take into consideration of the third-party funding and the compliance with the disclosure requirement.
In fact, third party funding is relatively new and controversial in the PRC. It is interesting to note that the 2024 Rules do not expressly recognize or define third-party funding. Currently, the PRC laws are silent on the validity of third-party funding in litigation and arbitration proceedings. The judicial practice itself is also inconsistent. For example, Beijing 4th Intermediate Court upheld the validity of a CIETAC award to which one party was funded by a third party ((2022) Jing 04 Min Te 368), whilst the Shanghai 2nd Intermediate Court invalidated a third party funding contract for litigation proceedings on the ground that such arrangement is in violation of public order and good morals ((2021) Hu 02 Min Zhong 10224).
Despite the controversy of third-party funding in China, it is commonly recognized that sufficient disclosure of the third-party funding should be ensured to keep the arbitration transparent and to maintain the arbitrators’ independence and impartiality from potential influence of any third parties seemingly irrelevant to the case.
Interim award
Art. 49 of the 2024 Rules provides that the tribunal may render an interim award on any issue, when it deems necessary, or where a party requests and the arbitral tribunal approves. Such award is not final, but to deal with issues that may affect subsequent proceedings, such as the governing law and the arbitration language. This is in alignment with the common international arbitration practice.
Early dismissal
According to the newly added Art. 50 of the 2024 Rules, the arbitral tribunal is now empowered, upon request by one party, to dismiss the whole or part of the claims/counterclaims, on the ground that the claim or counterclaim is manifestly without legal merit, or is manifestly outside the jurisdiction of the arbitral tribunal. Such request should be submitted no later than the submission of the Statement of Defense or the Reply to the Counterclaim, and the tribunal shall have a 60 day time limit to make a decision, which can be extended by the president of CIETAC if he/she deems necessary.
Ad hoc arbitration
One section is added to Art. 2 in the 2024 Rules setting out the services that CIETAC can provide to ad hoc arbitration. It is worth noting that to date ad hoc arbitration is not allowed in China and in recent years there has been efforts to remove such restriction. For example, the draft amendment of the PRC Arbitration Law has adopted the position to allow ad hoc arbitration for the foreign related disputes. Against such backdrop, CIETAC has made a reservation in its new rules that the provision of any service to ad hoc arbitration shall not contradict the applicable laws governing the arbitration proceedings.
Exemption of liability
Art. 86 of the 2024 Rules are also a newly added provision to exempt potential civil liabilities of CIETAC, its employees, arbitrators and other relevant personnel engaged by the tribunal for the conduct of the arbitration proceeding, including any of their negligence, acts or omissions. It is not specified in the new rules whether any intentional or even malicious behavior would fall outside the scope of the exemption, but according to the judicial practice, liabilities due to intentional or malicious behavior will not be exempted.
Application of CIETAC Guidance on Evidence
The “CIETAC Guidance on Evidence” has been implemented from March 1, 2015, but has not been commonly applied in the practice. Many of CIETAC’s evidence rules are consistent with the IBA Rules on Taking of Evidence in International Commercial Arbitrations. Art. 41 of the 2024 Rules is expanded to allow the tribunal to decide whether to apply the whole or part of CIETAC Guidance on Evidence to hear the case, unless the parties have agreed otherwise. That said, as most of the arbitrators on CIETAC’s panel are with a PRC law background and hence more familiar with the PRC Civil Procedure Law than the IBA Rules. It remains to be observed whether and how CIETAC Guidance on Evidence will be applied in the near future.
Conclusion
The 2024 Rules aim to keep up with the development of the international arbitration practice, and take into consideration of arbitration-users’ demand in practice by boosting efficiency and flexibility of arbitration. Many of the above-mentioned updates are for the first time expressly provided in the institutional arbitration rules, which have aroused wide discussion in the PRC legal society. As the other arbitration institutions would also have interest to keep up the trend, the 2024 Rules may lead to a reformation wave in the PRC. Even though it remains to be observed whether the newly introduced rules could be applied fully in the PRC, we would expect to see more indigenized practice experience to be generated in the PRC.
