Updated Draft Arbitration Law Submitted for Legislative Review

On 4 November 2024, an updated draft revised Arbitration Law[1] (Updated Draft) was submitted to an ongoing session of the Standing Committee of the National People's Congress for first review and subsequently released for public review. The Updated Draft proposes revisions to the current Arbitration Law, which came into effect in 1995 and was modestly revised in 2009 and 2017. 

The Updated Draft follows an earlier draft revised Arbitration Law[2] released for public comment in 2021 (2021 Draft). The 2021 Draft proposed extensive revisions and generated significant public discussion. The Updated Draft is more conservative than the 2021 Draft.

The Updated Draft encompasses eight chapters with revisions to introduce competence-competence, the seat of arbitration, and ad-hoc arbitration as well as proposed revisions on the validity of arbitration agreements, the availability of interim measures, and the scope of foreign-related arbitration cases, among others. 

According to the PRC Ministry of Justice, the Updated Draft aims to address key issues in the Chinese arbitration system and improve the legal framework to feature Chinese characteristics and align with international practice.

We discuss key features of the Updated Draft below.

Under the current Arbitration Law, a valid arbitration agreement must be in writing and contain the following three elements: (i) an expression of intention to apply for arbitration; (ii) an indication of the matters to be resolved by arbitration; (iii) and a designated arbitration commission (Article 16). 

The 2021 Draft proposed to remove the second and third elements, requiring only an express intention to apply for arbitration (Article 21). 

Article 24 of the Updated Draft retains the three elements in the current Arbitration Law. 

Additionally, Article 24 requires challenges to the validity of an arbitration agreement to be raised before the first hearing; otherwise a valid arbitration agreement is deemed to exist. This revision expands language in the current Arbitration Law (see Article 20) and would incorporate into law a provision on implied validity already featured in some PRC arbitration commission rules (see, e.g., BAC Rules, Article 6; SCIA Rules, Article 10). The proposed language in Article 24 however requires the arbitral tribunal to raise and record of the validity issue before a valid arbitration agreement will be deemed to exist.  

If other revisions in the Updated Draft are adopted, further revisions to Article 24 or other provisions may be necessary. 

For example, as we discuss below, Article 79 of the Updated Draft permits ad-hoc arbitration in certain foreign-related cases. An agreement to submit disputes to ad-hoc arbitration would not include a "designated arbitration commission" and would not satisfy the third element required for a valid arbitration agreement. 

Similarly, Article 83 of the Update Draft permits foreign arbitration institutions to conduct foreign-related arbitration activities in pilot free trade zones. A foreign arbitration institution does not qualify as an "arbitration commission" under current or proposed law. 

The 2021 Draft contained revisions that would have addressed these issues, but those revisions are not in the Updated Draft (see, e.g., 2021 Draft, Articles 12 and 15). 

If these provisions in the Updated Draft are adopted, legislative clarity is expected to ensure the validity of agreements to submit disputes for ad-hoc arbitration and for administration by an approved foreign arbitration institution seated in Chinese Mainland. 

Under the current Arbitration Law, questions over the "validity of an arbitration agreement" may be determined by the arbitral commission or a PRC court, with deference to the PRC court's decision if applications are made to both (Article 20). 

Article 28 of the Updated Draft retains this language and deference to the PRC court’s decision but extends the authority to determine questions over the validity of an arbitration agreement to the arbitral tribunal once formed.  

The current Arbitration Law and the Updated Draft do not address the authority to determine questions over "jurisdiction", other than those concerning the validity of an arbitration agreement. 

The 2021 Draft proposed allowing the arbitration institution and the arbitral tribunal once formed to determine questions over "jurisdiction" and the "existence and validity of an arbitration agreement", with court involvement only if a party was dissatisfied and promptly applied for court review (Article 28). The Updated Draft does not include these revisions.

Many PRC arbitration commissions include provisions in their rules to enable them to determine jurisdictional questions and have creatively updated their rules to incorporate competence-competence. 

For example, Article 6 of the CIETAC Rules provides that CIETAC has the authority to determine questions over "jurisdiction" and the "existence and validity of an arbitration agreement". In 2024, CIETAC updated Article 6 to delegate this authority to the arbitral tribunal once formed. BAC, SCIA, and SHIAC also incorporated similar provisions into their rules (see BAC Rules, Article 6; SCIA Rules, Article 10; SHIAC Rules, Article 6). 

The practical effect of these provisions is that arbitration commissions, and by extension arbitral tribunals once formed, have the authority to determine jurisdictional questions. Decisions on "jurisdiction" are generally not subject to PRC court review until an award is rendered. At that time, a party may apply to a PRC court to set aside the award if it exceeds the arbitration commission's authority (see current Arbitration Law, Article 58(2); Updated Draft, Article 68(2)). Questions over "validity of an arbitration agreement" may be subject to PRC court consideration at the onset of the arbitration. The Updated Draft does not change this position. 

Under the current Arbitration Law, asset and evidence preservation are available in support of arbitration proceedings seated in Chinese Mainland (Articles 28 and 46). 

Article 36 of the Updated Draft extends this interim relief to also include conduct preservation (i.e., injunctive relief).

This revision aligns with the PRC Civil Procedure Law, which provides for asset, evidence, and conduct preservation in support of PRC court proceedings, and the 2019 Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of Hong Kong SAR, which provides for asset, evidence, and conduct preservation in support of most Hong Kong-seated arbitrations.

While conduct preservation is less commonly sought or granted in Chinese Mainland, the revision is important for parties to arbitrations involving intellectual property, shareholder, investment and other types of disputes where injunctive relief may be necessary to protect rights and interests.

The current Arbitration Law and Updated Draft include a special chapter with provisions for foreign-related arbitration cases, reflecting the international nature of these cases and incorporating more flexibility to align with international arbitration practice. 

The current Arbitration Law defines foreign-related cases as "disputes arising from economic, trade, transportation, or maritime activities involving a foreign element" (Article 65). 

Article 75 of the Update Draft expands this scope and broadly includes "disputes involving a foreign element". 

This revision aligns with other PRC laws and interpretations that address foreign-related matters (see, e.g., Interpretation of the Supreme People's Court of the PRC Civil Procedure Law, Article 522). What constitutes a foreign-element is not exclusively defined in PRC law, but may include where a contracting party is a foreign national or resident, the contractual subject matter or performance is offshore, or the contract was signed or terminated offshore.

The revision expands the scope of foreign-related cases to which the revisions on seat of arbitration, ad hoc arbitration, and foreign arbitration institutions may apply.

The current Arbitration Law does not address the seat of arbitration. The seat, usually a city and nation or region, determines the law applicable to the arbitral procedure, the nationality of the arbitration award, and the courts that have judicial oversight over the arbitral procedure and the power to review arbitral awards. 

Article 78 of the Updated Draft introduces the seat concept and provides that parties may agree on the seat of arbitration and that the law of the seat will apply to the arbitral procedure and determine "the competent court". If the parties do not agree on a seat or their agreement is unclear, the seat will be the place provided by the applicable arbitration rules; if the applicable rules do not address the seat, the arbitral tribunal will determine the seat "in accordance with the principle of facilitating dispute resolution".

Article 78 is contained in the chapter on foreign-related cases and applies only to cases involving a foreign element. Domestic cases are generally subject to arbitration in Chinese Mainland. Key PRC arbitration commission rules address the seat and provide that absent party agreement, the seat is the place where the commission or its sub-commission is located, subject to the commission’s discretion to determine otherwise (see, e.g., CIETAC Rules, Article 7; BAC Rules, Article 27; SCIA Rules, Article 4; SHIAC Rules, Article 7).

Article 78 is a welcome revision aligned with international practice, though it is unclear how this provision will interact with other provisions of the Updated Draft. 

One key question will be how Article 78 interacts with Article 68 of the Updated Draft, which is contained in the chapter on set aside applications and provides that the court where the arbitration commission is located has jurisdiction to review set aside applications. This provision appears to conflict with Article 78 when parties to a foreign-related dispute agree to a seat other than the location of the arbitration commission or with Article 79 where parties agree to ad-hoc arbitration and no arbitration commission is involved. Additional clarity is expected if these provisions are adopted. 

Finally, Article 84 of the Updated Draft "encourages" parties to foreign-related cases to select Chinese Mainland as the seat of their arbitration and PRC arbitration commissions when agreeing to arbitration. It is unclear if this provision will be adopted and what impact it may have on foreign-related transactions involving PRC parties.

Under the current Arbitration Law, ad-hoc arbitration is not permitted, except for special exceptions in certain free trade zones. 

Article 79 of the Updated Draft allows ad-hoc arbitration in two types of foreign-related cases: (i) disputes arising from foreign-related maritime matters; and (ii) foreign-related disputes among enterprises registered in pilot free trade zones. 

This is a narrower revision than proposed in the 2021 Draft, which would have permitted ad-hoc arbitration in all foreign-related disputes, but is a notable change in the legal framework. 

If adopted, further revisions may be needed to, for example, clarify the requirements for a valid ad-hoc arbitration agreement and the competent court to review set aside applications from ad-hoc arbitrations (see Updated Draft, Articles 24, 68, and 78 discussed above).

For the past decade, the PRC central and local governments have issued plans, policies, and regulations to enable foreign arbitration institutions to conduct business in Chinese Mainland. 

Article 83 of the Updated Draft would allow approved foreign arbitration institutions to establish business enterprises in pilot free trade zones to conduct "foreign-related arbitration activities", subject to the needs of economic and social development and reform and opening-up. While "arbitration activities" is not defined, we understand permitted activities would likely cover case administration. 

The validity of an arbitration agreement that provides for arbitration seated in Chinese Mainland administered by a foreign arbitration institution and the nationality of the ensuing award have long been a contentious issue. In a series of cases, PRC courts have upheld the validity of those agreements and more recently have treated arbitral awards rendered pursuant to those agreements as foreign-related, which means the arbitration becomes subject to the supervisory jurisdiction of PRC courts and enforcement of the award in Chinese Mainland is pursuant to the PRC Civil Procedure Law, not the New York Convention. 

In 2023, the PRC Civil Procedure Law was amended to provide a legal basis to enforce an arbitral award issued by a foreign arbitration institution seated in Chinese Mainland. The amendments, outlined in Articles 297 and Article 304, recognize that the nationality of an award is determined by the seat of the arbitration rather than the location of the foreign arbitration institution. Nevertheless, these amendments to the PRC Civil Procedure Law only address the enforcement of arbitral awards; it remains open for parties to challenge the validity of an agreement providing for arbitration administered by a foreign arbitration institution seated in Chinese Mainland.

If adopted, Article 83 would provide more certainty for disputes administered by approved arbitration institutions in Chinese Mainland, but does not address the uncertainty that remains for disputes administered by unapproved arbitration institutions (presumably offshore) seated in Chinese Mainland.

In recent years there has been a push to equip PRC arbitration commissions with the ability to administer international investment disputes. 

Some PRC arbitration commissions published their own investment arbitration rules, starting with CIETAC in 2017 and BAC in 2019. Others, such as SCIA and SHIAC, introduced provisions to allow the administration of arbitrations over international investment disputes (see, e.g., SCIA Rules, Articles 2 and 3; SHIAC Rules, Article 3).

Consistent with these developments, Article 89 of the Updated Draft authorizes as a matter of law arbitration commissions and arbitral tribunals to conduct international investment arbitrations pursuant to the applicable international investment treaty or agreement and the agreed arbitration rules.

The Updated Draft contains additional proposed revisions to improve the legal framework for arbitration and align with international practice. These include clarifying the legal effect of conducting arbitration online (Article 11), expanding the selection process for the presiding arbitrator to respect party autonomy (Article 40), and shortening the period to apply to set aside an award from six to three months (Article 69).

Footnotes：

[1] https://www.pkulaw.com/protocol/2895a248d06fb7958c584d1131e93891bdfb.html?way=listView

[2] https://www.pkulaw.com/protocol/adac9772500dd008dc3c1ea98f88f621bdfb.html?keyword=%E4%BB%B2%E8%A3%81%E6%B3%95&way=listView

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封面图源：景中景·Tillian Reeves 2020