competence-competence doctrine in China ..... Continued

-Because of the Competence-competence rule in China,  CIETAC the arbitration institution  tried to overcome the drawbacks of it. CIETAC designates it power to the arbitral tribunals to decide on their own jurisdiction. See Article 6(1) of CIETAC's 2005 RULES.

Therefore, in practice, arbitral tribunal will submit its opinion to the arbitration institution if the respondant challenges the jurisdiction of the arbitral tribunal. The arbitration institution will make the final decision. Generally, arbitration institution will respect arbitral tribunal's view.

competence-competence doctrine in China

The competence-competence doctrine, i.e., the arbitral tribunal has the power to decide on its own jurisdiction actually does not establised in China. According to the article 20 of the Arbitration Law of China, the jurisdiction of the Chinese Court prevails when one party goes to arbitration institution and the other party goes to court to chanllenge the validity of the arbitration agreement or arbitration clause and the opinions of the two are different.  In China, It is not the arbitral tribunal to decide the jurisdiction but the arbitration institution. Furthermore, the Chinese court can directly judge the jurisdiction. It is not consistent with the international trend of the arbitration. It causes the concern of the foreign investors.

The Validity of the Arbitration clause in a Chinese domestic contract

In the sales agreement/distributorship agreement entered into by two Chinese companies, there is an arbitration clause. Except for the fact that one of the contract parties is a wholly foreign owned company, there are no foreign factors involved. However, the company is established in accordance with Chinese law and it is definitely a Chinese company.

The arbitration clause is as follows: “The construction and legal validity of this Agreement shall be governed by the laws of Singapore. Any and all disputes arising from this Agreement or transactions under this Agreement shall be settled by arbitration to be held in Singapore, under the rules of Commercial Arbitration of the Singapore Commercial Arbitration Association. ”Here, the two parties agreed that the applicable law would be the Singapore law and that the particular arbitration institution would be the Singapore Commercial Arbitration Association which in reality doesn’t exist.

Is this a valid arbitration clause? What law should be applied to decide the validity of the arbitration clause? Which court has the power to decide the validity of the arbitration clause, the Chinese court or the Singapore court or should an arbitration institution decide the validity? How about the non-existing arbitration institution, does this invalidate the arbitration clause?

In accordance with the Chinese Arbitration Law, article 20: Where a party raises an objection to the validity of an arbitration agreement, it may request the arbitration commission to make a decision, or request a people’s court to make a ruling. Where one party requests an arbitration commission to make a decision and the other party requests a people’s court to make a ruling, the peoples’ court shall make the ruling. Therefore, the jurisdiction of the validity of the arbitration clause finally belongs to the Peoples’ court.

One party filed a lawsuit to the competent Chinese court and asked for the court to decide that the arbitration clause is invalid. The court’s decision was: According to the arbitration clause, the governing law for the construction and legal validity of the agreement should be the Singapore law. In accordance with the article 3 of the Singapore International Arbitration Act, the UNCITRAL Model Law on International Commercial Arbitration shall have the force of law in Singapore. In accordance with the UNCITRAL Model Law on International Commercial Arbitration article 7,        “Definition and Form of Arbitration Agreement  (1) ‘Arbitration agreement’ is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (2) The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defense in which the existence of an agreement is alleged by one party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract. ” Therefore, there are no specific arbitration institution or arbitration rules required. In accordance with the Singapore law, the wrong or not specific agreement for the arbitration institution or arbitration rules in the arbitration clause would not result in the invalidation of the arbitration clause. In this case, the two parties signed the written contract and because they exercised their “free will” to arbitrate, it should be valid.

In this case, the Chinese court dismissed the applicant’s petition.  

However, there is a rule “Answers to Foreign Commercial Maritime Trail Practice Questions” [1]promulgated by the 4^th Civil Division of the Supreme People's Court of China on April 8^th, 2004. In accordance with article 83 of the rule: “Question: If the domestic parties submit the disputes concerning the contract or the property interest in which there are no foreign factors involved to the overseas arbitration institution to arbitration, is the arbitration agreement valid? Answer: According to article 255 [2]of the Civil Procedure Law of the People's Republic of China and article 65 of the Arbitration Law of the People's Republic of China[3], with regard to a dispute arising in connection with economic trade, transportation, and maritime activities involving foreign elements, parties can submit the dispute to domestic or other arbitration institutions to arbitration based on the arbitration clause in the contract or the written arbitration agreement thereupon entered into by the parties. However, the law does not permit the parties to submit the dispute which does not have foreign elements involved to an overseas arbitration institution. Therefore, if the domestic parties agree to submit the contract or property interest dispute which does not have foreign elements involved to an overseas arbitration institution or overseas ad hoc arbitration to arbitration, the Chinese court shall hold that the arbitration agreement is invalid.” [4]

Which opinion is more correct? The following arguments can be made in support of the court’s decision.

1.      Arbitration is a private, non-state process, with a large degree of autonomy and self-sufficiency.

2.      Whether the dispute is arbitrable? The New York Convention impliedly and expressly acknowledges that nonarbitrability may defeat an arbitration agreement or prevent enforcement of an award: Article II (1): Each Contracting Sate shall recognize an agreement in writing [to submit disputes to arbitration]*** concerning a subject matter capable of settlement by arbitration. Article II(3): The court of a Contracting State,***,shall,***,refer the parties to arbitration, unless it finds that the said agreement [to submit disputes to arbitration] is null and void, inoperative or incapable of being performed. However, the New York Convention does not attempt to define the concept, leaving it to the discretion of national legal systems. In China, there is no law which says that the sales agreement/distributorship agreement cannot be submitted to arbitration. The basic principle of jurisprudence is that if there are no laws forbidding the activity then the people are free to do it. Therefore the opinion of the 4^th Civil Division of the Supreme People's Court of China is, in my opinion, not correct and thus, the parties are free to choose the applicable laws and the arbitration institution.

3.      Traditionally, countries have been reluctant to allow arbitration in spheres where there is a strong public interest at stake. In both civil-law and common-law courts disputes in the following areas have sometimes been found nonarbitrable: antitrust, securities law, intellectual property, damage from unilateral termination of exclusive distributorship agreement, political embargoes, damage to cargo carried under a bill of lading (COGSA claims), bankruptcy, and administrative contracts.[5] In accordance with article 3 of the Arbitration Law of the People's Republic of China: “The following disputes are non-arbitrable: (1) Disputes on marriage, adoption, guardianship, alimony, and succession; and (2) Administrative disputes that shall be handled by the administrative authorities in accordance with the law.” And the Article 258 of the Civil Procedure Law of the People's Republic of China: “When the respondent produces evidence showing that an award made by an arbitration institution involving foreign elements of the People's Republic of China involves any of the following circumstances, a people's court shall, upon examination and verification by a collegiate panel, make a decision not to enforce the award:*** (4) The arbitrated matters are beyond the scope of the arbitration agreement or the authority of the arbitration institution. A people's court shall make a decision not to enforce an arbitration award if it believes that the enforcement of the award shall violate social public interest. ” We can infer from this article that the courts will consider the social public interest when determining the arbitrability of a case. Therefore, in this case, we can determine that the dispute does not fall within these non-arbitrable categories.

4.      The modern trend is to expand the boundaries of arbitrability and China should follow this international trend.

Therefore, following the logic of the above mentioned arguments, it is my opinion that the Chinese court’s holding that the arbitration clause is valid is correct. The only argument which favors the invalidity of the arbitration clause is that the contract is an exclusive distributorship agreement and the damage from unilateral termination of the exclusive distributorship agreements is not arbitrable due to the public policy concern over unequal bargaining power between the distributor and the manufacturer.

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[1] 涉外商事海事审判实务问题解答（一）

[2] Article 255 With regard to a dispute arising in connection with economic trade, transportation, and maritime activities involving foreign elements, if the parties concerned include an arbitration clause in their contract or reach a written arbitration agreement subsequently for submitting the dispute to an arbitration institution involving foreign elements of the People's Republic of China or any other

arbitration institution for arbitration, no party concerned may file an action with a people's court. If the parties concerned fail to include an arbitration clause in their contract or fail to reach a written arbitration agreement subsequently, either of them may file an action with a people's court.

第二百五十五条涉外经济贸易、运输和海事中发生的纠纷，当事人在合同中订有仲裁条款或者事后达成书面仲裁协议，提交中华人民共和国涉外仲裁机构或者其他仲裁机构仲裁的，当事人不得向人民法院起诉。

当事人在合同中没有订有仲裁条款或者事后没有达成书面仲裁协议的，可以向人民法院起诉。

[3] Article 65 The provisions in this Chapter shall apply to the arbitration of disputes arising from

economic, trade, transportation and maritime activities involving foreign elements. If no applicable

provisions are available in this Chapter, other relevant provisions of this Law shall apply.

第六十五条涉外经济贸易、运输和海事中发生的纠纷的仲裁，适用本章规定。本章没有规定的，

适用本法其他有关规定。

[4] 83、国内当事人将其不具有涉外因素的合同或者财产权益纠纷约定提请外国仲裁的，仲裁协议是否有效？ 答：根据《中华人民共和国民事诉讼法》第257条(authors’ note: it is article 255 now because the update of the law)和《中华人民共和国仲裁法》第65条的规定，涉外经济贸易、运输、海事中发生的纠纷，当事人可以通过订立合同中的仲裁条款或者事后达成的书面仲裁协议，提交我国仲裁机构或者其他仲裁机构仲裁。但法律并未允许国内当事人将其不具有涉外因素的争议提请外国仲裁。因此，如果国内当事人将其不具有涉外因素的合同或者财产权益纠纷约定提请外国仲裁机构仲裁或者在外国进行临时仲裁的，人民法院应认定有关仲裁协议无效。

[5] Tibor Varady John J. Barcelo III ect., International Commercial Arbitration, 3^rd edition, Thomson/West, 2006

Compel Nonsignatory to arbitrate

According to common law practice, there are five circumstances under which the nonsignatory party may be bound to arbitrate. They are incorporation by reference, assumption, veil-piercing/alter ego, estoppel and agency.

Position of Non-signatory of the arbitration agreement

The most basic principle of arbitration is dependence on party agreement and willingness is a condition to become a party in arbitration proceedings, therefore, it seems it is very hard to bind the non-signatory party in the arbitration proceedings.

Is there any possibility to enforce the non-signatory party to arbitrate in a disupte absent an agreement to do so?

Information regarding the viedo conferences in international arbitration from linkedin

Here at the IDRC in London, we have seen a large increase in the use of Videoconferencing for direct and cross-examination in International Arbitrations.
The principles set out by Stephanie are generally followed although a video recording is very rarely used.
If you require any further information then please contact Mike Jenkins (mike@idrc.co.uk) who has managed well over 500 videoconferences for International Arbitrations.