Add on 14.09.2016
International arbitration in Shanghai remains one of the most popular ways to solve business disputes in China. There are many reasons for this, the top ones being confidentiality and the enhanced control of the process that arbitration affords to the participants. While litigation is a public, predefined process, arbitration allows the parties to decide on the rules to used, the composition of the arbitral tribunal and the language of the proceedings. Additionally, an arbitral award is usually easily enforceable, where a judgment may not be. These factors come together to make arbitration a very popular choice for resolving high-value disputes.
How do disputes get to arbitration?
The disputing parties should agree to submit the dispute to arbitration. Normally, a contractual clause will be included indicating that the parties agree on arbitration and specifying the place of the arbitration, venue of hearing, working language, governing law, nationality of arbitrators, constitution of the arbitral tribunal and other relevant details. Alternatively, the parties can opt to use the default procedure established by the arbitral commission.
What is a dispute resolution clause?
A dispute resolution clause is the part of a contract specifying how disputes between the parties are to be resolved. Commonly these clauses will specify negotiation as the first-line mechanism and then refer all unresolved issues to either litigation in a local court or arbitration.
Here are sample arbitration clauses from SHIAC:
Model Arbitration Clause I
Any dispute arising from or in connection with this Contract shall be submitted to Shanghai International Economic and Trade Arbitration Commission for arbitration.
Model Arbitration Clause II
Any dispute arising from or in connection with this Contract shall be submitted to Shanghai International Arbitration Center for arbitration.
Model Arbitration Clause for FTZ
Any dispute arising from or in connection with this Contract shall be submitted to Shanghai International Economic and Trade Arbitration Commission/Shanghai International Arbitration Center for arbitration. The arbitration shall be held in The China (Shanghai) Pilot Free Trade Zone Court of Arbitration.
Used verbatim these clauses will use the default arbitration procedures in place at SHIAC at the time the dispute is submitted. It is highly recommended to specify, at the very least, the working language and governing law.
Step-by-Step Guide to Arbitration at SHIAC:
Application for Arbitration
You or your Chinese lawyer will need to submit the agreement to arbitration (a separate agreement or the dispute resolution clause in a contract), an Application for Arbitration, a Statement of Claim, and the relevant evidence. You will also have the pay all the arbitration fees.
While the dispute is being settled, it is often wise to apply to have property and other assets frozen so they are not disposed of by the other party until an arbitral award has been made. An arbitral tribunal does not have the legal power to issue this type of order, so all requests for property preservation are forwarded to a Chinese court for a ruling.
Defense and Counter-Claim
The respondent will be sent a copy of the claim your lawyer submitted to SHIAC along with instructions for filling a defense and counter-claim. The respondent will then have a certain amount of time in which to respond.
Constitution of the Tribunal
By default disputes valued at less than one million CNY will be handled by a Summary Procedure in which the case will be examined and heard by a sole arbitrator. Cases over 1 million CNY are heard by a panel of three arbitrators. One should recall, though, that parties have a great deal of flexibility over the constitution of an arbitral tribunal and, if they agree, can alter the default composition.
For the Summary Procedure, each party may propose a number of candidates, and when there is agreement, that candidate is selected as the sole arbitrator. When there is no agreement, the Chairman of SHIAC selects the arbitrator. When the tribunal is composed of a panel of three arbitrators, each party may select one panelist with the presiding arbitrator selected by agreement or by the Chairman of SHIAC.
An oral hearing may or may not be held, at the option of the parties. If a hearing is held, it is generally a closed hearing and the participants are not permitted to disclose substantive or procedural matters to third parties.
The burden of proof rests with the party who raises claims, defenses or counter-claims and the standard of proof is a balance of probability.
A SHIAC arbitral award is decided by the majority of the tribunal and is final and binding upon both parties. Neither party may bring suit before an ordinary court of law or make a request to any other organization for the revision of the award.
A few words about Flora
Flora Huang is a leading Chinese lawyer specializing in corporate and commercial law, international family law and expat divorce. A pioneer in many aspects of transnational legal practice, Flora has served as a China legal commentator in both local and international media and acted as an expert witness in countless international legal proceedings.
Fluent in English and familiar with most major legal systems, Ms. Huang has built-up an enviable network of contacts around the world to ensure that business decisions, litigation, and transactions are informed by up-to-date advice from experienced practitioners wherever the client is or wants to be.
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