Case Law on Chinese Arbitration: A Topic worth Giving Emphasis
SONG Lianbin, WANG Jun (Wuhan University Institute of International Law)

It was 15 years ago when the Arbitration Law 1994, the first specific arbitration law in China was enforced. As lawmaking itself is inherently hysteretic and is not exhaustive, the application of Arbitration Law is undoubtedly not sufficient for numerous and complicated arbitration cases. The Supreme People’s Court from time to time promulgated some 30 judicial interpretations on arbitration, and integrated them into the 2006 Interpretation of the Supreme People’s Court concerning Some Issues on Application of the Arbitration Law of the People’s Republic of China (Judicial interpretation No. [2006]7) (Hereinafter referred to as the “Interpretation”). However, the Interpretation proves far from exhaustive in many aspects given rapid evolution of arbitration cases. Therefore, the role of cases becomes extremely important in plugging the loophole and drawback and meeting the demand in practice.

1. Source of Chinese arbitration cases

China is a country which traditionally adopts statute law. But, these years, the role of cases is given more and more importance. The great move of establishing case-reference system, which was brought forward by The Supreme People’s Law in the 2nd Five-Year Reform Outline introduces Chinese case-reference system with case law characteristics in judicial proceedings, and affirms the value and role of precedents. Generally speaking, judicial precedents in China mainly have two sources: cases published in Communique of Supreme People’s Court of People’s Republic of China (hereinafter referred to as the “Communique”) and decisions and rulings made by Supreme People’s Court. These cases can be guiding for relevant cases. And another source is the replies of Supreme People’s Court in response to requests of lower courts in respect of significant cases, which are undoubtedly precedents of similar cases.

As to arbitration in China, sources of cases have specific characteristics. As arbitration case accounts for a small portion of civil and commercial cases, there are a few arbitration cases published on the Communique since 1995. According to the “Reporting system” established by series of documents of the Supreme People’s Court, lower courts that decide foreign-related arbitration agreement, cancel or not to enforce foreign-related awards, or refuse to recognize or enforce foreign arbitral award must submit the review opinion to the Supreme People’s Court. The Supreme People’s Court will make reply on the review opinion, which will be periodically published on Guide On Foreign-related Commercial And Maritime Trial(before 2004, named Guide and Study on China Foreign-related Commercial and Maritime Trial). Besides, Guide On Foreign-related Commercial And Maritime Trial will regularly publish replies of the Supreme People’s Court on request on significant and difficult cases involved in foreign-related commercial and maritime cases proceedings. The above-mentioned replies are not only decisive to cases concerned, but also significantly guiding for similar ones. Therefore, these replies are the important source of Chinese arbitration.

2. Guiding role of Chinese arbitration cases

Although Chinese arbitration cases are rare and mainly foreign related, its significance as typical cases and guiding role in terms of some important must not be neglected while studying disputable subjects in arbitration theory and practice in China.

(1) Arbitrability of tort, separability of the arbitration agreement, and the third party in arbitration
In Textile & Other Light Industries Co. Ltd. of the Commodities Group (Jiangsu Province) vs. Topcapital Holdings Ltd. (Hong Kong) and Prince Development Ltd. (Canada) for Dispute of Liabilities of Tort (Case of Appeal) , the Supreme People’s Court held that arbitration commission may accept tort disputes, and that the claim that tort fall outside the arbitration scope goes against Arbitration Law; the arbitration clause under a contract is not invalid due to tort of concerned parties when performing contract; in case arbitration tribunal can’t make the third party held responsible, interested parties may bring a suit with the third party as defendant, and legal right of concerned party is thus protected. In this case, the Supreme People’s Court affirmed the arbitrability of tort and the separability of arbitration agreement, and objected third party in arbitration. In the case of disputes concerning assets transfer contract among Suzhou Dongbao Property Co., Ltd, Suzhou Jincheng Guarantee Co., Ltd., and Suzhou Dongbao Metals Co., Ltd. ([2006] M.E.Z.Zi.No.2), the Supreme People’s Court decided that arbitration agreement is legally valid only for parties entered into the arbitration agreement. In this case, the Supreme People’s Court stressed the relativity of arbitration agreement, and reiterated that in China’s arbitration law, there is no rule on third party in arbitration proceedings.

(2) Voluntary transfer of arbitration clause and extension of arbitration agreement
In the appellate case of dispute concerning creditor’s rights transfer agreement ([2000]J.Z.Zi. No.48), China National Nonferrous Metal Import & Export. Henan Corp, the Supreme People’s Court held that concerned parties accepting creditor’s right transfer agreement means accepting the arbitration clause under the original contract arising out of the creditor’s right, and disputes on rights and obligations between transferee and creditor shall be settled through arbitration. The opinion of the Supreme People’s Court on voluntary transfer of arbitration clause was explicitly confirmed in Article 9 of the Interpretation of 2006. However, not all expansions of validity of arbitration agreement are accepted by courts in China, the objection to arbitration clause under bill of lading is an example. In the reply ([2007]M.S.T.Zi. No.14) to appellate case of jurisdictional objection of transport contract between Beijing Alison Import and Export Co., Ltd. and (Japan) Sun Sail Trade Co., Ltd. (defendant), (Singapore) Songjia Shipping Co., Ltd., the Supreme People’s Court held that the arbitration clause under the bill of lading concerned is declaration of will of carrier only, and is not binding to Beijing Alison Import and Export Co., Ltd. that hold the bill of lading. In this case, the Supreme People’s Court objected the binding force of bill of lading on holder of bill of lading who didn’t sign it.

(3) Determination of nationality of foreign-related arbitral award, and the enforcement of such award; enforcement of regional arbitration award
In Arbitration Law of the People's Republic of China, there is no explicit provision on determination of nationality of arbitral award, which resulted in many difficulties in practice. For example, the arbitral award and enforcement of which by foreign arbitration commission made in mainland and Hong Kong. In reply ([2004]M.S.T. Zi. No. 6) on refuse to enforce of final award (10334/AMW/BWD/TE) made by International Court of Arbitration of the ICC, award made by International Court of Arbitration of the ICC was recognized and enforced by applying to New York Convention, which was decided as awards in French on the basis of place of headquarters of International Court of Arbitration of the ICC. This case was questioned once awarded in that the standard in determining the nationality of arbitral award goes against the general legislation and practice of international commercial arbitration. Fortunately, the Supreme People’s Court had become aware of this problem, and corrected the above opinion in the Notice on Issues on Enforcement in Mainland of Arbitral Award of Hong Kong (F.[2009]415), and gave explicit direction on cases of this kind. Arbitral award made in Hong Kong by foreign arbitration commission shall be examined by people’s court in accordance with the Arrangement on Mutual Enforcement of Arbitral Award between Hong Kong and Mainland, and enforced if approved. Correction of this case by the Supreme People’s Court shows the attempt of courts in China to apply the standard of the seat of arbitration to determine the nationality of foreign-related arbitral award.

(4) refusal of recognition and enforcement foreign arbitral award on the grounds of public policy
As there is no definite determination of public policy in New York Convention and China’s law, the definition of function of safety valve depends on the understanding and explanation of court in individual case. In reply ([2003] M.S.T. Zi. No.3) to the request of ED&F Man (Hong Kong) Co., Ltd for recognition and enforcement of arbitration award made by the Sugar Association of London, the Supreme People’s Court pointed out that violation of compulsory provisions including administrative and departmental regulations no necessarily constitutes violation of public policy. In reply ([2008]M.S.T. Zi. No. 48) to the request of GRD Minproc Limited for recognition and enforcement of arbitral award of Arbitration Institute of the Stockholm Chamber of Commerce , the Supreme People’s Court held that fairness of arbitral award shall not be taken as a standard in determining where or not public policy is violated. The above precedents indicate that in dealing with the request for recognition and enforcement of foreign arbitral award, China’s courts are prudent by refraining from seeking public policy as reasons for refusal. In Reply to Request to Refuse Recognizing nor Enforcing Arbitral Award of International Court of Arbitration of the ICC ([2008] M.S.T.Zi. No.11), the Supreme People’s Court held that International Court of Arbitration of the ICC accepting and awarding disputes award of which had been made by China’s court is an infringement of China’s judicial supremacy and jurisdiction of China’s courts, and a violation of China’s public policy. Although in this case, China’s court refused for the first time to recognize and enforce foreign arbitral award on the grounds of public policy, in this case, the matters of the award are beyond the extent of the arbitration agreement is another reason for the objection. Therefore, China’s courts should still be prudent in determining whether or not to seek public policy.

3. Issues to be considered in improving China’s Case Law on Commercial Arbitration

A survey of the cases above mentioned indicates that the replies of the Supreme People’s Court to significant and complicated arbitration cases serve as precedent for arbitration legislation, clarify the connotation of indefinite regulations, and help to formulate practical rules and trend of practice. The role of these cases in strengthening support from China’s courts and improving supervision over arbitration is positive. Meanwhile, it should be observed that there are still some problems to be considered and solved in the formulation and performance of case law on Chinese arbitration.

First, stick to the concept of giving support to arbitration, and keep in step with arbitration practice of internationally recognized. In practice, some cases involving decision of validity of foreign-related arbitration agreement don’t thoroughly comply with the policy of supporting arbitration. Another example, the standard for determining nationality of arbitral award, which was used in cases above mentioned don’t comply with internationally recognized practices. Therefore, in consideration of possible significant effect therefrom, before promulgating guiding cases, careful comparative study and discussion shall be conducted to ensure good outcome.

Second, importance should be attached to methods of judge in judicial supervision cases of arbitration, and strengthen the arguing and analysis of precedent of arbitration. We can say the process of awarding is the process of the judge arguing by legal interpretation, loophole plugging, and value supplementation. However, foreign-related arbitration cases require high awarding skill of judge due to these cases concern characterization, and ascertainment of foreign laws, and other issues on conflict of law. The directing significance of arbitration cases lies more in the process of analogy of law and arguing by using awarding method than the award itself. Therefore, improving the awarding skill and method of China’s judges is vital for advancing the formulation of case law on arbitration.

Third, the directing significance of commercial arbitration cases shall be considered dialectically, and unsuitable precedents be eliminated in time. For judgment by lower courts, although precedents may be instructive to similar cases, precedents can not be directly taken as the judgment of these similar cases. This is because, such case law in a metaphoric sense is not a source of law in China, which is different to a certain extent from judicial interpretation. This requires judges to be active and initiative in eliminating out-dated and unsuitable precedents by differentiating facts and identifying change of application condition of laws when dealing with similar cases. Besides, the Supreme People’s Court shall supersede inadequate precedents in time by promulgating judicial interpretation, etc.

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