Singapore Overview of arbitrations involving Chinese parties
The SIAC Experience
SIAC has an increasing caseload of disputes involving Chinese companies, and with our ability to run arbitrations in English and/or Chinese, increasing outbound investment by Chinese companies, we are looking at administering more China-related cases in future. In our first column, which will appear in two parts, we share our experience with administering China-related cases, and where appropriate, offer suggestions to corporate counsel and disputes counsel.
Issues particular to Chinese disputes
Chinese companies like to enter into contracts that have English and Chinese versions, and disputes arise sometimes needlessly where there are discrepancies between the two. A not uncommon scenario is that the English version says the administering arbitration centre is the SIAC, and the Chinese version points to another arbitration centre. A further provision says that both language versions have equal effect. So you could end up with a situation where it is unclear which arbitral centre has jurisdiction. There could then be an argument that as the arbitration agreement is invalid, jurisdiction would then be with the courts (of the country with the most significant connecting factors), defeating parties’ original intention to arbitrate. As such, as a preliminary matter, we urge parties to ensure that there is consistency in their English and Chinese provisions, especially with the dispute resolution clause.
To our knowledge, there is an express requirement under Chinese law that there is an express indication of submission to a nominated arbitral centre in the arbitration agreement. Sometimes the language of the arbitration agreement is not clear enough as to whether there is express submission; in order to avoid problems with enforcement in future, if this is the case, counsel should address the tribunal on this and ensure that it is recorded in the final award, that both parties have indicated assent to submit the dispute to the arbitration centre. We also have a suggested clause for Chinese deals, where we include express reference to SIAC as the administering centre.
We often get questions from lawyers who want to have the arbitration heard in a Chinese city, in order to save costs. This is permissible under SIAC rules. What happens, however, is that the drafting does not express this clearly; and the intended venue of the hearing comes across as the “place” (or seat). To our knowledge, under Chinese law, arbitrations seated in China may not be administered by a foreign arbitral centre. There was a case in Ningbo in the last couple of years which suggested that it can, however the current advice of legal practitioners is that the Ningbo case is the exception, rather than the rule. So care has to be taken to express the Chinese city in which parties intend for the hearing to take place as the “venue”, and to go further and provide that the seat is Singapore, or the place where the administering arbitration centre is.
Chinese companies as parties
There is no one uniform behaviour, as different factors at play, such as the sophistication of advice available, the quality of counsel they engage, as well as commercial objectives, determine the conduct of Chinese companies. However we can share some experiences that give a flavour of what Chinese companies are like as parties.
By and large, Chinese companies in international arbitrations tend to take much care ensuring that they comply with the substantive and procedural requirements of the arbitration.
Sophisticated Chinese companies study the rules and processes of an arbitral institute very carefully in order to gain maximum tactical advantage, which we have observed. For example, some use the inherent flexibility of SIAC rules regarding the appointment of the presiding arbitrator in a three-arbitrator tribunal to maximum advantage, by suggesting to or agreeing with their opponents for the presiding arbitrator to be appointed only at the close of pleadings, so that they can then have a clearer sense of the other side's case before deciding whether to continue with the arbitration and the appointment of the presiding arbitrator, saving on fees of the third arbitrator if both sides choose to settle after the close of pleadings. Care has to be taken when being tactical, as all factors of an arbitration have to be taken into account. A Chinese company told us that they put in "expedited procedure" clauses when doing deals with counterparties from jurisdictions where dispute resolution processes are slower, so that they have a credible threat of quick resolution to force the other party to observe the terms of the contract. While this may confer ex ante benefits to the Chinese company, if a dispute arises, es post it may cause problems for the same company. In an expedited case, the claimant still bears the onus of proof to establish each and every element of its case, and a claimant, especially in a complex case, that has locked itself into an expedited procedure via prior agreement may face much stress trying to assemble the necessary documents and getting its witnesses together within a six-month timeframe to establish its case.
It is a fallacy to think that Chinese as a rule do not voluntarily comply with an award (as some foreign parties and lawyers may perceive to be the case); as they are commercially savvy, they would know in such a case that it would not be to their advantage to play hardball at an interim stage, and affect their perception as a reasonable party in the main arbitration. For example, we know of at least one emergency arbitrator award where a Chinese party voluntarily complied with the terms of the emergency award. This was so despite the lack of certainty about whether an emergency award constitutes an award that is enforceable under the New York Convention. In one case, where an Indonesian party put in an application for emergency arbitration on the eve of Chinese New Year in 2011 for an order to release perishable cargo that was held by a Chinese party, so that the Indonesian party could sell the cargo and put the proceeds in escrow pending resolution of the main dispute, the emergency arbitrator made such an award within 72 hours. The Chinese side voluntarily complied with it.
Challenges to China Companies
Chinese companies may sometimes not be familiar with the practices of international arbitration centres. The default number of arbitrators, for example, is provided by ICC and LCIA Rules to be one where the arbitration agreement is silent. SIAC's practice is the same in this regard. However, the default number is 3 in Chinese arbitral commissions. So sometimes parties leave this out, and find that they subsequently cannot have 3 arbitrators, and hence their nominee, as it is very rarely the case that they can get the other side to vary the arbitration agreement when the dispute has started and relations have broken down. So we suggest that Chinese parties get the benefit of advice from practitioners who are experienced in international arbitrations before commencing one.
This leads to another point - because of lack of familiarity with international arbitration procedure, Chinese companies and their counsel may not know how to exploit procedural rules to the fullest. For example, we at SIAC give party autonomy great practical effect. If you take a look at our Rule 8.3, parties have great latitude in the appointment of the third and presiding arbitrator. Companies that want to save costs, and which are advised by counsel well-versed in international arbitrations, could use that to provide that the third arbitrator is appointed only at the close of pleadings, and successfully negotiate with opposing Counsel to do so, so that both sides would have a good sense of the other's case, and know whether to progress further with the arbitration. Companies that are not so well-advised may not know of how the flexibility inherent in international arbitration procedure may work in their favour.
Tips for Corporate Counsel Facing Chinese Disputes
Firstly, even before the dispute occurs, do a stock-check of the dispute resolution clauses in your transactional documents. Apart from parity in English and Chinese versions, also ensure that dispute resolution clauses in separate but related contracts, which your internal client expects to be resolved in the same way should disputes occur, have consistency to them. One problem we sometimes see is objections to arbitration because a related contract has a litigation clause.
Secondly, work out the costs of arbitration, and be familiar with the fee collection model, in order to advise your internal clients more comprehensively on their cashflow issues. For example, Chinese arbitral centres ask the Claimant to pay the arbitration costs in full at the start of the arbitration; the SIAC however works on a different model where the total costs of arbitration are collected in three tranches, in order to ease cashflow pressures that parties may have. Many arbitral centres publish their rates. We have a fee calculator on our website that gives an indicative cost of arbitration. With the importance that General Counsel are gaining as fellow business decision-makers alongside the CEO, CFO, COO, it helps for GCs to have familiarity with this. Call the arbitration centres to ask about their charging model and deposit collection model.
Thirdly, know how to negotiate on language. One big deal breaker sometimes is the language of arbitration. Chinese principals may, because of unfamiliarity with English, be uncomfortable with having the arbitration conducted in anything other than Chinese. Know the processes of the arbitration hearing so that you can offer constructive suggestions that get you past the "English or Chinese" dichotomy. For example, transcription services offered by professional transcribers offer the possibility of a same-day transcript. The transcript is what the arbitral tribunal relies on. Many Chinese principals insist on Chinese so that they do not get misrepresented when they give evidence. The Chinese principal can sit down with Counsel, who are familiar with English, to review the transcript, and correct errors in reporting which can then be reflected to the Tribunal. Most Tribunals are willing to entertain applications to amend the transcript. That way the arbitration can be conducted in English, while the Chinese principals can also ensure that they are accurately recorded. In any event, parties can agree for the arbitration to be conducted in both English and Chinese, or just Chinese, at the SIAC.
Future Trends in Chinese Litigation and Arbitration
More Chinese companies accept arbitration as preferred method to resolve disputes when they doing business with foreign parties. International arbitrations involving Chinese parties are increasing. This could be due to both supply-side and demand-side factors. With the rising sophistication of Chinese legal services, more General Counsel and Chinese law firms can provide advice on international arbitration, and many international arbitral institutes (such as the SIAC) allow for representation by such legal professionals.
Chinese legislation tries to bring China’s domestic and foreign related arbitration regimes into line with international practice. The latest amended Civil Procedure Law of China (CPL), which came into force on 1 January 2013, is to this effect. Take, for example, arbitrations involving Chinese parties, and a party requires preservation of assets. The amended CPL give parties of both domestic arbitration and foreign related arbitration seated in China the rights to apply directly to a court for evidence and asset preservation before the commencement of arbitration. Such rights have only been given to parties in litigation before the amendment.
On the demand side, one very interesting phenomenon we are observing is that with increasing Chinese outbound investment volume, Chinese companies are increasingly choosing to arbitrate outside China. Largely, this could be due to the fact that in an outbound transaction, the Chinese side needs the deal more than the foreign counterparty, and hence is more willing to accommodate requests by the foreign counterparty to arbitrate outside China.
It is no secret that the authorities in Singapore aim to be consciously responsive to developments and needs in the international arbitral process. The IA(A) Bill, in particular with its provisions on judicial review of negative jurisdictional rulings and the emergency arbitrator procedure, represents a further evolution of its arbitration regime, that in turn will serve to maintain Singapore's position as a leading arbitral jurisdiction.
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