A Simple Guide to Arbitration in Hong Kong and Mainland China

Search

Advanced

Knowledge

Author: Cheung Kwok KitService Area: Construction & ArbitrationDate: April 2007Country: Hong Kong

A Simple Guide to Arbitration in Hong Kong andMainland China

SUMMARY OF CONTENTS

HONG KONG

IntroductionLitigation or Arbitration?Commencement of ArbitrationProcedures for ArbitrationEnforcement of the Arbitration AwardEnforcement in Mainland ChinaCosts and ExpensesAlternative Dispute ResolutionModel Hong Kong and International Arbitration Clauses

MAINLAND CHINA

IntroductionThe Arbitration AgreementCIETACApplication for ArbitrationAppointment of ArbitratorsProcedures for ArbitrationProcedures for Domestic ArbitrationEnforcement of the Arbitration AwardEnforcement in Hong KongCosts and ExpensesModel CIETAC Arbitration Clauses

HONG KONG

INTRODUCTION

Arbitration is a method for resolving disputes between parties in privateas an alternative to litigation in the courts. It may be agreed by theparties before or after the dispute arises. The arbitration agreement isusually incorporated as part of the contract from which the dispute arose.However, even when there is no arbitration clause in the contract indispute, an arbitration agreement can also be made after a dispute hasarisen if the parties prefer not to go to Court. If there is no arbitrationagreement, mutual agreement is necessary, as one cannot force anotherparty to "arbitrate" a dispute if there is no arbitration clause.

Back to Top

LITIGATION OR ARBITRATION?

Parties to a contract usually refer their disputes to arbitration simplybecause there is an arbitration clause in the contract.

A Simple Guide to Arbitration in Hong Kong and Mainland China http://www.deaconslaw.com/eng/knowledge/knowledge_42.htm#PFA(A)

1 of 15 9/24/2012 4:38 PM

In the context of private sector building contracts, the arbitrationagreement is commonly found in clause 35 of the standard form ofbuilding contract jointly drawn by the Hong Kong Institute of Architects,the Royal Institution of Chartered Surveyors (Hong Kong Branch) and theSociety of Builders, Hong Kong (commonly known as the "HKIA" or"RICS" form). For subcontracts, the arbitration agreement is found inclause 22 of the standard form of subcontract for use where thesubcontractor is nominated pursuant to the HKIA or RICS forms(commonly known as "the Green Form").

If parties have agreed to go to arbitration, with limited exceptions statedbelow, they cannot repudiate the agreement by going to Court unlessboth parties agree. Under the Arbitration Ordinance, if one party to anarbitration agreement commences legal proceedings in any Court againstthe other party, the latter may insist on arbitration and apply to thatCourt to stay the proceedings commenced. The Hong Kong Court will only refuse to stay the proceedings in one ofthe following situations:

The defendant has submitted its first statement on the substance ofthe dispute (acknowledgement of service and application forextension of time for filing the defence not included).

The arbitration agreement is ineffective, e.g. it is not in writing,null and void, inoperative or incapable of being performed.

Before the Arbitration (Amendment) Ordinance in 1997, plaintiffssometimes argued that the defendant had no genuine defence to theplaintiff’s claims as a ground to ask the court not to stay the proceedingsto arbitration. In the context of construction disputes, plaintiffsubcontractors sometimes argued that there was no genuine defence tothe obligation of the main contractor to pay the subcontractor, the maincontractor having received the amount due under an architect’scertificate from the employer. Therefore the subcontractor would contendthat the Court proceedings commenced were proper. The defendant wouldhowever insist that there was a dispute between the parties which had tobe resolved by arbitration. In such circumstances, the plaintiffsubcontractor would usually cross-apply for summary judgment to bedealt with by the Court at the same time as the defendant’s applicationfor stay of proceedings. The application for summary judgment, ifsuccessful, would enable the plaintiff to be paid without the need to waitfor a full trial which might not take place for many months.

However, after the Arbitration (Amendment) Ordinance came intooperation, this argument is bound to fail, since the Court now no longerhas the discretion to refuse a stay when there is an arbitrationagreement. Some subcontractors believe that they might still havecertain tactical advantage in suing the main contractor despite thearbitration agreement. Subcontractors who wish to litigate as opposed toarbitration in a similar situation should seek legal advice first beforemaking that decision.

Back to Top

COMMENCEMENT OF ARBITRATION

The procedures to be followed to commence arbitration are frequentlyembodied in the arbitration agreement. Usually a written notice to theother party specifying the general nature of the dispute is sufficient. Ifthe rules of arbitration have been chosen in the arbitration agreement,they must be followed. Unlike litigation, no special procedure is necessaryfor overseas service of the notice of arbitration on a foreign party.Simplicity and informality are two distinct advantages of using arbitrationas a means to resolve disputes. It can cost considerable money and timeto effect service of a Writ overseas. For arbitration proceedings, it issufficient to fax the notice unless the arbitration agreement providesotherwise.

For example, in construction disputes, the Green Form provides thatwhere there is a dispute arising under the subcontract between the main


2 of 15 9/24/2012 4:38 PM

contractor and the subcontractor, the following procedures shall beundertaken:

The party who wishes to refer the dispute to arbitration should givea written notice to the other party that the dispute shall be referredto arbitration in accordance with clause 22 of the subcontract. Thenotice of the dispute will become the terms of reference of thearbitration. Care must be taken to make sure that the dispute isdescribed in a sufficiently wide manner in the notice to enable thearbitrator to deal with all issues in dispute between the parties.

The Claimant should also propose his own choice of arbitrator tothe Respondent for his agreement either in the notice of arbitrationor by a separate notice to concur on the appointment of arbitrator.

The Respondent may counter-propose his own arbitrator. If theparties fail to reach an agreement on who to appoint or theRespondent fails to respond to the notice to concur in theappointment of arbitrator, the Claimant may request the appointingauthority (i.e. the President or Vice-President for the time being ofThe Hong Kong Institute of Architects and the President orVice-President for the time being of the Hong Kong Institute ofSurveyors) to appoint an arbitrator for the parties. In the outdatededition of the Green Form, the appointing authority is named as theRICS (Hong Kong Branch), which was dissolved in 1997. In suchcase, it is submitted that the application for appointment ofarbitrator should be made to the Hong Kong InternationalArbitration Centre (HKIAC) pursuant to section 12 of theArbitration Ordinance. In our experience, the appointment maytake one to two months.

Unless the required qualifications and/or experience of the arbitrator arespecified in the arbitration agreement, it is possible to appoint anyone(i.e. not necessarily a lawyer) as arbitrator, though a person who hastraining and experience as an arbitrator or experience in the issues indispute is usually preferred. If an appointment is made jointly by theHong Kong Institute of Architects and the Hong Kong Institute ofSurveyors, a surveyor who has the appropriate experience andqualifications will usually be appointed as the arbitrator. One of ourpartners is also on the list of arbitrators of the Hong Kong Institute ofSurveyors.

The number of arbitrators (normally one or three) is decided by suchmatters as the arbitration agreement, whether it is a domestic orinternational arbitration, and the procedural rules adopted.

Back to Top

PROCEDURES FOR ARBITRATION

There are no fixed procedures for the conduct of arbitration proceedings.Procedural rules should be informal. The arbitrator generally has controlover the procedures. If the arbitration agreement sets out the applicablerules, the arbitrator must follow them. If none have been agreed, he maypropose a well recognised set of rules to be followed by the parties. Fordomestic arbitrations, we generally recommend that parties adopt theDomestic Arbitration Rules of the HKIAC.

There is also no particular venue prescribed for the hearing of thearbitration. The parties can agree to meet at any convenient place, suchas the office of the lawyers for either party. The HKIAC (at 38/F, TwoExchange Square, 8 Connaught Place, Hong Kong) also provides goodfacilities for arbitration hearings at reasonable charges.

The usual procedures are as follows:

The Claimant will ask the arbitrator to hold a preliminary meetingwith the parties. During the preliminary meeting, the arbitrator willdecide the rules to be used for the arbitration (if none have beenagreed), his fee structure (if this has not already been agreed) andmost importantly, the timetable for service of pleadings, exchange


3 of 15 9/24/2012 4:38 PM

of lists of documents and exchange of witness statements.

The preparation of pleadings is similar to that in court, except thatthe style can be less formal and in many cases, supportingdocuments will be annexed to the pleadings to assist each party tounderstand the other’s case. That will also save considerable timeby dispensing with the need for formal discovery.

The exchange of lists of documents can be limited to certain typesof documents or completely dispensed with, especially where theparties have annexed all supporting documents to their pleadings.We normally recommend dispensing with the exercise ofexchanging lists of documents to reduce the time and cost ofresolving the dispute.

Either party may ask the arbitrator to fix a date for the mainhearing at any time. It may be fixed at the directions hearingbefore the arbitrator. Usually, the main hearing will be fixed afterthe completion of documents submission or whenever the partiesare ready for it. It is also possible to agree on a “documents-onlyarbitration” for which no hearing is required. This may beappropriate where only the law, rather than the facts, is in dispute.

It is usual in most arbitrations for evidence (both factual andexpert) to be exchanged in advance of the hearing. The arbitratormay direct that the experts meet to see if there is common ground,or if facts can be agreed. Opening submissions of the parties mayalso be exchanged in advance of the hearing. These measures canfrequently reduce the time required in the actual arbitrationhearing with possible cost savings.

After considering the evidence and the parties’ submissions, thearbitrator will make an award, which may be provided with orwithout reasons, depending on the prior request of the parties. Thearbitrator will also deal with the question of the costs of thearbitration after submissions from both parties. Typically the losingparty will have to bear the costs reasonably incurred by thewinning party and the arbitrator’s fees. The arbitrator will take intoaccount whether the losing party has made any offer ofsettlement.

The arbitrator’s award is final and binding, subject to a limited rightof appeal to the Court under section 23 of the ArbitrationOrdinance for domestic arbitration. Successful appeal of anarbitrator’s award is rare. The legal costs awarded by the arbitratorare subject to taxation either by the arbitrator or the Court.Taxation is a process used in litigation by which the Court assessesa fair amount of legal costs to be paid by the losing party. As a ruleof thumb, the “taxed costs” will be about two-thirds of the actualcosts spent by the winning party in the arbitration.

The parties will however have to note that unlike Court proceedings,where the Court does not charge the parties for the service of the judgesor the provision of the courtroom, arbitrators require the parties to pay,usually on an hourly basis. Leading arbitrators in Hong Kong can chargeHK$5,000 per hour or more and the average that we have seen isbetween HK$3,000 and HK$4,000. Until an award on costs, both partiesnormally bear half of the interim bills for the arbitrator’s fees.

Back to Top

ENFORCEMENT OF THE ARBITRATION AWARD

Section 2GG of the Arbitration Ordinance states that an arbitration awardmay, except in very limited circumstances, be enforced in the samemanner as a judgment of the High Court.

As Hong Kong is a party to the "1958 New York Convention on theRecognition and Enforcement of Foreign Arbitral Awards" by virtue ofChina's accession to that treaty, an award obtained in Hong Kong isenforceable in other countries that are signatories to the New York


4 of 15 9/24/2012 4:38 PM

Convention.

After 14 June 2000, even if the award is given in a country which is not aparty to the New York Convention, the winning party may apply to theHong Kong Court for enforcement pursuant to section 2GG. However, it isnot clear whether such award will be dealt with in the same way as a NewYork Convention Award.

If the losing party has no assets in Hong Kong but does in anotherjurisdiction, an arbitration award may be more valuable than a judgmentof the Court if the foreign state where the assets of the losing party aresituated has no reciprocal judgment enforcement arrangement with HongKong but is a signatory to the New York Convention. Notably such statesinclude the United Kingdom, the United States of America and Japan, thethree major trading partners of Hong Kong. If one happens to be doingbusiness with entities in these three countries, arbitration as a means toresolve disputes that may arise can be chosen rather than going to Courtin Hong Kong.

Back to Top

ENFORCEMENT IN MAINLAND CHINA

Since 1 July 1997 when sovereignty of Hong Kong returned to China,Hong Kong awards have become domestic awards for the purposes ofenforcement within China. We understand that applications forenforcement of Hong Kong awards in Mainland China had been held uppending the signing of an agreement for mutual recognition of arbitrationawards between Hong Kong and Mainland China (the Agreement) andmaking of the appropriate changes to the arbitration law to reflect thecontents of the Agreement.

The Agreement was signed on 21 June 1999 and reflects the provisions inthe New York Convention in addition to restoring enforcement proceduresin place prior to the handover.

Pursuant to the Agreement, there are only limited grounds for refusing toenforce a Hong Kong award, which mirror the grounds for refusal in theNew York Convention. The most controversial of these is that an awardwill not be enforced if the enforcement would be contrary to the publicpolicy or interests of China. If the losing party is a state-owned company,such a defence may be raised. However, a defendant could just as easilyraise the defence of state immunity in Court, so it is a problem that mayhave to be faced in litigation or arbitration.

Applications for the recognition and enforcement of foreign arbitralawards should be filed with the Intermediate People's Court in the placewhere the Respondent is domiciled or has property. If the place where theRespondent is domiciled or the place where the Respondent has propertyfalls within the jurisdiction of different Intermediate People’s Courts, theapplicant may apply to any People’s Court but is not permitted not applyto more than one People’s Court.

One major limitation under the Agreement which is not found in the NewYork Convention is that the applicant is not entitled to file applications inboth Hong Kong and Mainland China at the same time. Only when theresult of the enforcement of the award by the court of one place isinsufficient to satisfy the liabilities may the applicant apply to the court inanother place for enforcement of the outstanding liabilities. Thisrestriction may pose difficulties to an applicant when choosing thejurisdiction in which it should first file the application.

The time limits for enforcement of arbitration awards under the Chineselaw are one year for claims by individuals and six months for companiesor legal persons. In view of such relatively short time limits, it may besafer to file an application for enforcement of the Hong Kong award inMainland China first before doing the same in Hong Kong.

Parties to cases which the Mainland Court had, between 1 July 1997 andthe coming into force of the Agreement (21 June 1999), refused tohandle or to enforce the award, will be allowed to make a fresh


5 of 15 9/24/2012 4:38 PM

application for enforcement. The Supreme People’s Court issued a noticeon 24 January 2000 to give effect to the Agreement commencing from 1February 2000. We understand from our clients that their pendingapplications for enforcement of Hong Kong Award were approved shortlyafter the issue of the notice. It should be noted that if one has notapplied for enforcement of the award from 1 July 1997 to 1 February2000, application for enforcement must have been made within sixmonths and one year after 1 February 2000 for legal and natural personsrespectively. This requirement is not found in the Arbitration Ordinanceof Hong Kong giving effect to the Agreement.

Back to Top

COSTS AND EXPENSES

Although legal representation is not required in arbitration, parties oftenretain lawyers to represent them, especially in complicated disputes.Sometimes, lawyers will be involved when interlocutory matters arise,which have to be dealt with by the Construction and Arbitration divisionof the High Court of Hong Kong.

As with litigation, we charge on an hourly basis. While the costs ofarbitration depend on how strenuously the claim is resisted by the otherparty, we are flexible in our fee arrangements. In appropriate cases, wecan agree to charge a fixed amount up to a particular stage of theproceedings, regardless of the actual time spent, so that clients can havea definite budget for the proceedings.

Arbitrators usually charge on an hourly basis as well, though during ahearing it may be on a daily basis. As discussed above, their ratesnormally range from HK$3,000 to HK$4,000 per hour depending onexperience and expertise. Some arbitrators also charge a lump sum feefor initial appointment which is not refundable even if the dispute is latersettled, without involving the arbitrator.

If the appointing authorities are involved, they will charge a nominationfee. The HKIAC’s current nomination fee is HK$4,000.

Some lawyers argue that arbitration is not necessarily cheaper thanlitigation, bearing in mind that the Court does not charge substantialfees, but the arbitrator may. While we agree to a certain extent, oneshould note that the progress of an arbitration can be faster than Courtproceedings because the arbitrator’s directions can be obtained morequickly than the Court’s directions. Applications for interlocutory matterscan frequently be dealt with by correspondence, and an earlier hearingdate can usually be obtained with an arbitrator. These savings in timeeventually mean savings in money, and we believe arbitration isgenerally more cost-effective than traditional Court proceedings. Also ofparticular importance, especially for technical disputes, is the fact thatthe parties are free to select their arbitrator(s), with qualifications andexperience to match the dispute. One cannot, however, choose his ownjudge in the Court.

Back to Top

ALTERNATIVE DISPUTE RESOLUTION

In recent years, other methods of dispute resolution such as mediationand adjudication have been developed as an alternative to litigation andarbitration.

Mediation is used in the contract conditions for Hong Kong Governmentconstruction projects and the Airport Core Programme. It is a non-bindingprocess in which an independent person (the mediator) assists bothparties to reach a negotiated settlement. A characteristic of mediation isthat the approach is not confrontational, and thus parties who wish tomaintain their commercial relationship may elect to enter mediation.With the assistance of the mediator, parties can reach a settlement byexploring different options which may not be available in litigation orarbitration.


6 of 15 9/24/2012 4:38 PM

Adjudication was adopted by the Airport Authority for resolving disputesunder its contracts when building Hong Kong’s new international airport.A Dispute Review Panel consisting of internationally-recognised expertsfrom various disciplines was appointed for resolving disputes. The Panelmet quarterly and was briefed on the progress of the new airport. Whendisputes arose, parties were free to nominate one or more experts fromthe Panel to act as adjudicator(s) to resolve the problem(s). Thedifference between adjudication and mediation is that the adjudicatorissues a binding decision that may only be challenged in arbitration aftercompletion of the works, whereas the recommendation of a mediator isnot binding. The adjudication process has the advantage that the processis relatively quick and the parties need not divert too many resourcesfrom the project, which could affect its progress.

Back to Top

MODEL HONG KONG AND INTERNATIONAL ARBITRATIONCLAUSES

Before compelling the other side to go to arbitration, one needs to havean arbitration clause in the contract. Below are some model clauses forparties to adopt in their contracts. Our experience is that much time andmoney will be wasted if one does not have a proper arbitration clause.Therefore, it is very important to get the arbitration clause right at thebeginning. These clauses are recommended for Hong Kong parties andhave been drafted with to maximise the benefits of arbitrationproceedings in terms of speed and expense savings.

Arbitration clause for domestic arbitration"Any dispute, difference or claim arising out of or in connectionwith this contract, shall be referred to and determined byarbitration in Hong Kong using the law of the Hong Kong SpecialAdministrative Region as the governing law and in accordance withthe Domestic Arbitration Rules of the Hong Kong InternationalArbitration Centre."

Arbitration clause for international arbitration "Any dispute, difference or claim arising out of or in connectionwith this contract, shall be referred to and determined byarbitration in Hong Kong using the law of the Hong Kong SpecialAdministrative Region as the governing law. The DomesticArbitration Rules of Hong Kong International Arbitration Centreshall apply to the arbitration proceedings. The place of arbitrationshall be in Hong Kong. There shall be only one arbitrator. Thelanguage of the arbitration shall be [English/Chinese] [deletewhichever is inappropriate]."

Back to Top

MAINLAND CHINA

INTRODUCTION

Contracts related to foreign investments in China usually provide thatany disputes arising between the parties should be settled by friendlynegotiation, failing which the disputes should be referred to arbitration.Resolution of disputes by arbitration is also recognised in foreign relatedlaws of China. Foreign related arbitrations in the People’s Republic ofChina are now mainly administered by China International Economic andTrade Arbitration Commission (CIETAC).

As the volume of international trade grows in China, arbitration isbecoming more and more frequent. The China International Economicand Trade Arbitration Commission (CIETAC) handled 850 cases in 2004and 979 cases in 2005. Out of the cases it handled in 2004, 462 wereforeign related. It is commonly believed that CIETAC is now the busiestarbitration institution in the world.

Back to Top


7 of 15 9/24/2012 4:38 PM

THE ARBITRATION AGREEMENT

According to the Arbitration Law of China, the arbitration agreement(which is usually set out as one of the clauses in the contract) must be inwriting and contain the following particulars:

an indication of the intention to apply for arbitration;

the arbitral matters; and

the selected arbitration commission.

In drafting the arbitration agreement, the naming of the arbitrationcommission is very important. If the arbitration commission is not namedor named improperly, the parties must reach a supplementary agreementon the proper arbitration forum, failing which the arbitration agreementis void.

For foreign economic contracts, the parties are generally free to choosewhether to arbitrate their disputes in China or elsewhere. Chinese partiesare now more willing to accept arbitration in foreign countries. In 1996,the State Council clarified that domestic arbitration commissionestablished under the Arbitration Law can also deal with foreign relatedarbitration if both parties to the dispute agree. However, we recommendthat arbitration in China which is foreign related should still be referredto CIETAC or in case of maritime related disputes, to Chinese MaritimeArbitration Commission (CMAC). Companies or individuals from HongKong and Macau are regarded as foreign parties for this purpose.

Back to Top

CIETAC

The CIETAC has been known by several names. Established in 1956 asthe Foreign Trade Arbitration Commission of the China Council for thePromotion of International Trade, and later renamed as the ForeignEconomic and Trade Arbitration Commission of the China Council forPromotion of International Trade, the CIETAC settled on its currentmoniker in 1988. Since 2000, the CIETAC has also used the Court ofArbitration of the China Chamber of International Commerce as its name.

While in the past, the CIETAC only accepted cases involving internationalor foreign-related disputes, the 2000 Arbitration Rules of the CIETACextended the jurisdiction of the CIETAC to include disputes related toHong Kong, Macau and Taiwan as well as domestic disputes.

At present, the headquarters of the CIETAC are located in Beijing, withsub-commissions in Shanghai and Shenzhen. There are also nineteenliaison offices located throughout China.

The parties may choose the place of arbitration and specify such in theirarbitration agreement. If the arbitration agreement does not specify theplace of arbitration, the CIETAC will decide for the parties.

Although Mandarin is the official language of CIETAC, if the parties haveagreed otherwise to use a different language, their agreement shallprevail. In our experience, CIETAC is perfectly capable of communicatingwith all parties in English. If necessary, CIETAC may also provideinterpretation services.

Back to Top

APPLICATION FOR ARBITRATION

The procedures for arbitration are laid down in the CIETAC ArbitrationRules (the current edition is effective from 1 May 2005). The processshould begin with an arbitration application. The arbitration applicationshould be submitted to CIETAC with the following:


8 of 15 9/24/2012 4:38 PM

An arbitration application signed by the Claimant or its attorneyspecifying:

(a) the relevant contact information of the Claimant and theRespondent;

(b) reference to the arbitration agreement involved;

(c) the facts of the case and the main issues in dispute; and

(d) the claim and the facts and evidence on which its claim isbased.

Relevant documentary evidence in support of the claim (i.e. noexchange of lists of documents will be required).

The arbitration fee calculated according to the CIETACArbitration Fee Schedule.

A Power of Attorney, if a lawyer or representative is appointed bythe Claimant.

Upon review of the above documents, the CIETAC will decide whether toaccept the application. If the CIETAC chooses to accept the application, aNotice of Arbitration together with the CIETAC Arbitration Rules (2005), aList of the Panel of Arbitrators and the Arbitration Fee Schedule will besent to the Claimant and Respondent. The arbitration application and itssupporting documents as submitted by the Claimant will also be sent tothe Respondent.

Within 45 days of receiving the Notice of Arbitration, the Respondentshould file:

1. A written Statement of Defence signed by the Respondent or itsattorney, including the following:

the relevant contact information of the Respondent;

the defence to the arbitration application, complete with thefacts and grounds serving as basis for the defence; and

evidence supporting the defence.

2. Any counterclaim(s), in writing, along with supporting documents;and

3. A Power of Attorney, if a lawyer or representative is appointed bythe Respondent.

Upon approval, the CIETAC will submit the counterclaim(s) andsupporting documents to the Claimant, who will have 30 days from thedate of receipt to submit a Statement of Defence. If either theRespondent or the Claimant fails to submit a Statement of Defence, thearbitration will proceed as normal.

The main feature of CIETAC arbitrations is that they are “administered”by CIETAC. Practically, that means all correspondence must provide theCIETAC with five copies of the above documents and statements fordistribution to the three arbitrators in the tribunal, the other party andfor filing with CIETAC. If the Claimant and Respondent agree to have onlyone arbitrator in the arbitral tribunal, only three copies of the abovedocuments need to be provided.

Back to Top

APPOINTMENT OF ARBITRATORS

The tribunal will have three arbitrators (two co-arbitrators and onepresiding arbitrator) unless the parties agree that only one arbitratorshould hear the case. Each party should appoint an arbitrator orauthorise the Chairman of the CIETAC to appoint one on its behalf within15 days of receiving the Notice of Arbitration. If the parties have agreedto appoint outside arbitrators, the arbitrators appointed or nominated


9 of 15 9/24/2012 4:38 PM

may serve as co-arbitrator, presiding arbitrator or sole arbitrator per theconfirmation of the Chairman of the CIETAC. If either party fails to do so,CIETAC will appoint the arbitrator for it. The parties should then jointlynominate or ask the Chairman of the CIETAC to nominate the thirdarbitrator within 15 days from the receipt of the notice of arbitration bythe Respondent.

The List of Panel of Arbitrators of CIETAC consists of arbitrators fromMainland, Hong Kong (including one of our partners), Macau, Taiwan andvarious other countries. Since 1 May 2005, specialist panels have beenset up according to the nature of dispute. Currently, there are 7 panels:

international (foreign related)

domestic

financial

construction and property

food

Chinese/Australian/New Zealand standard contracts for wooltrading

leather

Back to Top

PROCEDURES FOR ARBITRATION

After exchanging documents and appointing arbitrators, the CIETAC willfix a hearing date. In some cases, the parties may elect to conduct theproceedings on a documents-only basis and dispense with the oralhearing. It can be done subject to the agreement of both parties and thetribunal. Documents-only arbitration is suitable for cases where there isno substantial dispute on matters of facts.

The three arbitrators will make an award after the hearing. If thearbitrators cannot reach a unanimous decision, it will be decided bysimple majority. The Arbitration Rules provide that the tribunal shallrender an award within six months after the tribunal is formed, althoughthis time limit can be extended by the CIETAC. Delays are not unusual inpractice, bearing in mind the fact that the three arbitrators involved mayreside in different jurisdictions, and the award must be reviewed andapproved by the CIETAC before it is issued. The award comes into legaleffect the date on which it is made. If no time limit is specified in theaward, the parties must automatically take it into effect; otherwise, theymust execute the award within the time limit specified.

The tribunal has the power to decide in the award the arbitration feesand expenses to be paid by the parties to the CIETAC as well as anycompensation for expenses occurred to be paid to the winning party.

If any claims or counterclaims were omitted from the award, either partyhas 30 days from the receipt of the arbitral award to request in writingan additional award. If the tribunal finds that such an omittance exists,they have 30 days from the receipt of the request to make an additionalaward. Similarly, the tribunal can on its own initiative make an additionalaward within a "reasonable period of time" following the arbitral award.

At any time before the final award is made, a partial award may be madeon any issue, provided that it is considered necessary by the tribunal orthat the parties request an award and the tribunal accepts. Failure toperform the award will not affect the continuation of proceedings norprevent the tribunal from making a final award.

The Arbitration Rules also provide for a summary procedure to befollowed where either parties with a disputed amount below RMB 500,000or parties with a disputed amount above RMB 500,000 but who agree, inwriting, to a summary procedure. Upon accepting the application for the


10 of 15 9/24/2012 4:38 PM

summary procedure, the CIETAC shall issue a Notice of Arbitration. Onlyone arbitrator, who should be appointed by the parties by agreementwithin 15 days after receipt of the Notice, will preside over the summaryprocedure, failing which the Chairman of the CIETAC will appoint anarbitrator for the parties. Either oral hearing or a document-onlyarbitration may be adopted, as the CIETAC deems fit.

The time limits for filing of documents and publication of award under thesummary procedures are shorter than those under normal procedures.The Respondent should file the defence and counterclaim within 20 daysafter the receipt of the Notice of Arbitration. The award shall be givenwithin three months from the date that the tribunal was formed.

Back to Top

PROCEDURES FOR DOMESTIC ARBITRATION

Special provisions apply for arbitration for the following disputes:

disputes between the enterprises with foreign investment anddisputes between an enterprise with foreign investment andanother Chinese legal person, physical person and/or economicorganisation;

disputes arising from project financing, an invitation for tender,bidding, construction and other activities conducted by Chineselegal persons, physical persons and/or other economicorganisations through utilising the capital, technology or servicefrom foreign countries, international organisations or from HongKong, Macau and Taiwan;

disputes that may be taken cognizance of by CIETAC in accordancewith special provisions of or upon special authorisation from the lawor administrative regulations of the People’s Republic of China; or

other domestic disputes which the parties have agreed to refer toCIETAC for arbitration.

The procedures for arbitrating the above categories of disputes arebasically the same as the procedures described in the previous threesections of this booklet, except that the time limits are generally shorterfor domestic arbitration. The following is a comparison of the time limits:

OrdinaryProcedures

DomesticArbitrationProcedures

Appointment of theparties’ arbitrator

15 days from the date ofreceipt of the arbitrationnotice from CIETAC

15 days

Filing of Defence 30 days from the date ofreceipt of the arbitrationnotice from CIETAC

20 days

Filing of Counterclaim 45 days from the date ofreceipt of the arbitrationnotice from CIETAC

20 days

Notice of the 1st hearing 20 days before the date of1st hearing

15 days

Award 6 months from theformation of the arbitrationtribunal

4 months

Back to Top

ENFORCEMENT OF THE ARBITRATION AWARD

CIETAC has no power to enforce awards. If one party fails to comply withthe award, the other party may apply to the Intermediate People’s Courtin the place where the Respondent has its residence or where its propertyis situated for enforcement of the award pursuant to Chinese law.Conversely, the successful Chinese party can apply to the competentforeign court for enforcement of a CIETAC award pursuant to the 1958


11 of 15 9/24/2012 4:38 PM

New York Convention on the Recognition and Enforcement of ForeignArbitral Awards in the country where the foreign party is situated.

According to a circular concerning the handling of issues regardingforeign-related arbitration and foreign arbitration matters by the People’sCourts issued in 1995, if an Intermediate People’s Court intends to turndown an application for enforcing an award of a PRC foreign relatedarbitration commission or a foreign arbitration award, it must refer theapplication to the Higher Court for review before making the decision. Ifthe Higher Court is of the same view as the Intermediate People’s Court,it must further refer the application to the Supreme Court at Beijing andno decision should be made until the view of the Supreme Court issought. This practice assists to alleviate the concern of some foreignparties that awards may not be enforced in China due to localprotectionism, especially if the losing party is a state-owned enterprise.

Back to Top

ENFORCEMENT IN HONG KONG

Before the resumption of sovereignty of Hong Kong by China,enforcement of Chinese arbitration awards was carried out pursuant tothe New York Convention as both Hong Kong (through the UnitedKingdom) and China were member states to the New York Convention.After 1997, it is generally accepted that the New York Convention is nolonger applicable as Hong Kong is a part of China.

As discussed above in “Enforcement in Mainland China”, in order tofacilitate the reciprocal enforcement of arbitral awards in Hong Kong andMainland China after the Handover, an agreement was signed on thereciprocal enforcement of arbitral awards between Hong Kong andMainland China on 21 June 1999 (the Agreement). Under the Agreement,the procedures for enforcement of a Mainland award before 1 July 1997is basically preserved. The following are the major features of theAgreement for enforcement of Mainland awards in Hong Kong:

Applications for enforcement of the award should be made to theHong Kong High Court.

The applicant cannot file the application in both the Mainland andHong Kong at the same time.

If the applicant has applied for enforcement in Mainland China, onlywhen the result of the enforcement in Mainland China is insufficientto satisfy the award may the applicant apply to the High Court forenforcement.

The time limit for the application shall be governed by the law onlimitation period in Hong Kong i.e. six years from the date when theother party fails to fulfil its obligation under the award.

The grounds for refusing to enforce the award are similar to thoseunder the New York Convention.

The Arbitration Ordinance was amended to implement the Agreementwhich came into operation on 1 February 2000. Under the amendedArbitration Ordinance, awards given by recognised arbitrationcommissions in Mainland China (148 as at 1 February 2000) may besummarily enforced in Hong Kong. In our experience, application forenforcement of Mainland awards is simple and will normally be approvedby the Court in about two weeks.

Back to Top

COSTS AND EXPENSES

The arbitration fee to be accompanied by an application for arbitration ora counterclaim is calculated according to the following schedule (as of 1May 2005):

Claim (RMB) Fee (RMB)


12 of 15 9/24/2012 4:38 PM

1 million or less 3.5% of the claimed amount, minimum 10,000

1 million to 5 million 35,000 plus 2.5% of the excess over 1 million


10 million to 50million

210,000 plus 1% of the excess over 10 million

50 million or more 610,000 plus 0.5% of the excess over 50 million

In addition to this fee, RMB10,000 will also be charged as registration feein each case to cover the expenses for examining the application forarbitration, accepting the case, computerising management and filingdocuments.

For domestic arbitrations handled by CIETAC, the following fees arepayable which generally tally with the fees charged by domesticarbitration commissions in China:

(1) Registration Fee


1,000 or less minimum 100

1,001 to 50,000 100 plus 5% of the excess over 1,000

50,001 to 100,000 2,550 plus 4% of the excess over 50,000



500,001 to1,000,000

13,550 plus 1% of the excess over 500,000

1,000,001 or more 18,550 plus 0.5% of the excess over 1 million

(2) Case Handling Fee


50,000 or less not less than 1,250

50,000 to 200,000 1,250 plus 2.5% of the excess over 50,000


500,000 to 1 million 11,000 plus 1.5% of the excess over 500,000


3 million to 6 million 28,500 plus 0.45% of the excess over 3million




40 million or more 128,000 plus 0.15% of the excess over 40 million

For both foreign related and domestic cases, where the amount of theclaim is not ascertained at the time when the application for arbitration ishanded in, the amount of arbitration fee shall be determined by theSecretariat of the CIETAC. If a party does not want to be subject to an


13 of 15 9/24/2012 4:38 PM

arbitrary decision by the Secretariat on this issue, it may choose toquantify part of its claim and leave the balance as damages to beassessed by the arbitration tribunal. A fee can then be calculated byreference to the liquidated claim.

Apart from charging the arbitration fee according to the above schedulesand the standard registration fee, the CIETAC may collect other extra,reasonable and actual expenses such as the arbitrator’s expenses fortravelling and accommodation. The CIETAC will notify the Claimant of theexact amount payable at the appropriate time.

The arbitration fees charged by the CIETAC include the arbitrator’s fees,and CIETAC arbitrators therefore do not charge the parties separately onan hourly basis. This is arguably an advantage of CIETAC arbitrations inChina.

Again, like Hong Kong arbitrations, parties in CIETAC arbitrations usuallyinstruct lawyers, although this is not mandatory. There is also norequirement to retain Chinese lawyers in CIETAC arbitration proceedings.We often conduct cases for clients from Hong Kong and if the situationrequires, with the assistance of our offices in Mainland.

As with Hong Kong arbitrations, we also charge on an hourly basis forCIETAC arbitrations. CIETAC arbitrations may be cheaper thanarbitrations in Hong Kong since the process of discovery and exchange ofwitness statements are usually not required. Hearings also tend to beshorter as the arbitration tribunal adopts an inquisitorial approach.

Claimants should note that according to the Arbitration Rules, thetribunal can award the expenses reasonably incurred by the winningparty in dealing with the case.

Back to Top

MODEL CIETAC ARBITRATION CLAUSES

The following model arbitration clause has been recommended bythe CIETAC:"Any dispute arising from or in connection with this Contract shallbe submitted to China International Economic and Trade ArbitrationCommission for arbitration which shall be conducted in accordancewith the Commission’s arbitration rules in effect at the time ofapplying for arbitration. The arbitral award is final and binding uponboth parties."

We recommend the following version to Hong Kong parties. Thisclause has been drafted to maximise the benefits of arbitrationproceedings in terms of speed and saving expenses:"All disputes or differences arising from or in connection with thiscontact shall be submitted to the China International Economic andTrade Arbitration Commission (CIETAC) for arbitration which shallbe conducted by the Commission at Beijing in accordance with itslatest arbitration rules and using the law of the Hong Kong SpecialAdministrative Region as the governing law. There shall be onearbitrator to be chosen by the parties by mutual agreement within20 days after the Respondent has received the Notice of Arbitrationfailing such agreement or if the chosen arbitrator is removed fromoffice or is otherwise unable to perform as an arbitrator in thearbitration, the Chairman of the CIETAC shall choose a foreignarbitrator (non-Chinese) from the CIETAC Panel of Arbitrators toact as the sole Arbitrator for the parties. English shall be used inthe arbitration throughout and as a separate covenant, each partyhereto hereby agrees to indemnify the other party against all legalcosts incurred in the arbitration if it is ordered to pay the legalcosts of the other party at the conclusion of the arbitration. Theparties also hereby specifically agree to keep all matters related toor arising out of the arbitration confidential during and after thearbitration save for enforcing the arbitration award or complyingwith an order for disclosure made by a competent Court, agovernment body or any competent regulatory authority."


14 of 15 9/24/2012 4:38 PM

Back to Top

Whilst every effort has been made to ensure the accuracy ofthis publication, it is intended to provide general guidance and notdefinitive legal advice.

Terms of Use | Disclaimer | Privacy Policy | Personal Information Collection Statement |Deacons InternationalCopyright©, Deacons All rights reserved.


15 of 15 9/24/2012 4:38 PM