A new Chinese arbitration option

The China (Shanghai) Pilot Free Trade Zone Arbitration Rules (the SFTZ Rules) published by the Shanghai International Economic and Trade Arbitration Commission (SHIAC).

SHIAC (also known as the Shanghai International Arbitration Centre) was previously the Shanghai subcommission of CIETAC, the most well-known of the Chinese arbitration commissions. However, as reported in issue 1, it recently broke away from CIETAC following the publication of new CIETAC arbitration rules in 2012. The issue of the SFTZ Rules, which took effect on May 1, 2014, therefore reinforce SHIAC’s new independence from CIETAC.

Highlights of the SFTZ Rules include

• Application of the Rules: The SFTZ Rules apply where parties agree to their application. They also apply if parties agree to refer disputes to SHIAC to be conducted in the Shanghai Free Trade Zone. SHIAC has established the China (Shanghai) Pilot Free Trade Zone Court of Arbitration to administer arbitrations.
• Appointment of arbitrators/language of arbitration: Parties can only appoint arbitrators from the SHIAC list of arbitrators with the confirmation of SHIAC. Absent agreement, SHIAC retains the authority to appoint the chairman of a tribunal also. It remains to be seen how SHIAC shall exercise this discretion, which may effectively reduce the possible pool of candidates.

It is also disappointing that, in the absence of party agreement, the default language of proceedings is Chinese.

• Interim measures and emergency tribunal: Parties can directly apply for interim measures in the manner prescribed in the jurisdiction where such measures are enforceable prior to the commencement of the arbitration. Once the arbitration has commenced, they must direct their application through SHIAC. This introduces an additional administrative obstacle for a party seeking urgent interim relief.

Parties can also apply to SHIAC to constitute an emergency tribunal (of one arbitrator appointed by SHIAC from its list) during the period between the acceptance of a case and the constitution of the tribunal.

• Consolidation and joinder: The SFTZ Rules also include detailed provisions on consolidation of proceedings and joinder of other parties.
• Med-arb: The mixed process of mediation/arbitration (so called med-arb) is provided at the further agreement of the parties. If the mediation process fails, the arbitrator is thereby authorised to adjudicate the dispute and render an award.

This process may not be very familiar to readers outside of Asia, but it is commonly employed in China, in particular for small-value claims.