By Sun Jin(Marlow), Chinese attorney at Law, Zhang Jiaying (Sally), trainee lawyer, Zhejiang Xinmu Law Firm, All rights reserved, republishing this article please indicate author and source of this article. Sep. 27, 2013

It is a common choice to submit an application for arbitration when a dispute occurs between parties, especially between parties from different countries. As parties of different countries have different cultural and legal background, and it’s a great burden for one party to overcome the distance to bring a case to court in the country of the counter party, ICC, CIETAC, or SCC, such kind of International Arbitration thus be the best remedy for them for its advantage of neutrality, finality, enforceability, procedural flexibility and so on.

However, parties concerned need to be very cautious when choose the seat of ICC Arbitration in Mainland China.

The validity of the arbitration agreement in Mainland China.

There shall be an arbitration agreement to meet the requirement of Arbitration Law of People's Republic of China (“Arbitration Law”) for arbitration before submitting the application.

In accordance with Article 18 of the “Law of the Application of Law for Foreign-related Civil Relations of the People’s Republic of China”, the parties concerned may choose the laws applicable to arbitral agreement by agreement. If the parties do not choose, the laws at the locality of the arbitral authority or of the arbitration shall apply.

Besides, in accordance with Article 16 of the “Interpretation of the Supreme People's Court concerning Several Matters on Application of the Arbitration Law of the People's Republic of China”, The laws agreed upon between the interested parties shall apply to the examination of the validity of an arbitration agreement involving foreign interests; if the interested parties did not agree upon the applicable laws but did agree upon the seat of arbitration, the laws of the seat of arbitration shall be applied; if both parties of arbitration neither agreed upon the applicable laws nor agreed upon the seat of arbitration or the seat of arbitration is not obviously agreed upon, the laws of the seat of the court shall apply.

In judicial practice, when both parties of arbitration do not choose the law applicable to arbitral agreement, the laws of the seat of arbitration will always apply. Thus, when the place of arbitration is in Mainland China, and according to the PRC Arbitration Law, an arbitration agreement must have the following contents:

(1) An express intent to request arbitration; and

(2) Disputes for arbitration; and

(3) The chosen arbitration commission

For instance, in regard to the validity of arbitration clause, ”Arbitration: 15.3 ICC Rules, Shanghai shall apply” between Züblin arbitration International GmbH, Germany and Wuxi Woco-Tongyong Rubber Engineering Co., Ltd., the Wuxi Intermediate Court finally judged this arbitration agreement to be invalid for the reason of not choosing an arbitration commission/institution. Hence, it is of great importance to include an explicit reference to the arbitration commission such as “ICC International Court of Arbitration”.

The recognition and enforcement of the ICC arbitration in Mainland China

According to the reservation when China ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitration Awards (“New York Convention”), China only allow the recognition and enforcement of arbitration awards which is made in the territory of a state other than the state where the recognition and enforcement of such awards are sought. That means, arbitral awards made in Mainland China but not considered as domestic awards here, which we call the “non-domestic” awards, may not be recognized and enforced from Chinese court.

So what’s the “nationality” of the arbitration awards made by ICC Court of Arbitration in Mainland China?

Article 283 of Civil Procedure Law of the People’s Republic of China provides that, “If an award made by a foreign arbitral organization requires the recognition and enforcement by the people’s court of the People's Republic of China, the party concerned shall directly apply to the intermediate people's court in the place where the party subjected to enforcement has his domicile or where his property is located.” That means, the nationality of the arbitration award is decided by the nationality of the arbitration commission/Institution. Hence, the ICC arbitration award made by the French arbitration institution in Mainland China shall be considered as the foreign arbitration awards and shall get the recognition and enforcement. However, it also conforms to the concept of “non-domestic” awards in accordance with the “New York Convention” which would usually be rejected for its application of recognition and enforcement by Chinese Court. It is a huge confusion.

In Judicial Practice, Chinese courts now are not insisting on the domestic standard of the nationality of arbitration. For instance, In the Ningbo Arts and Crafts I/E Co. Ltd. Case, the Ningbo Intermediate Court judged the ICC Arbitration in China as a “non-domestic” award, hence recognized and enforced it.

However, some problems may occur according to the judgment of Ningbo Intermediate Court.

For instance, The Article 58 of the Arbitration Law provides that, “If one litigant produces evidence to prove a ruling has one of the following, he may request that the intermediate people's court of the place where the arbitration commission is located repeal the ruling: “. However, the court of the located place of arbitration commission, which refers to the ICC court of arbitration headquartered in France here, has no jurisdiction over the request for repeal as the arbitration award is made in China, which will be considered as a Chinese domestic arbitration according to ICC Rules.

Therefore, considering the current Chinese laws and regulations over arbitration conflict with the International arbitration laws, parties concerned have to be cautious when choose Mainland China as the seat of ICC Arbitration or other International Arbitration organization. The application for recognition and enforcement of ICC arbitration is very likely to be rejected by the court for China’s reservation of New York Convention. To reduce the risks, for now, Hong Kong might be the best place for ICC arbitration in China.