Changes to keep all players onside, write Stuart Dutson, partner, and Zhao Yang, solicitor at Eversheds.

The China International Economic and Trade Arbitration Commission (CIETAC) is the leading arbitration institution in China. CIETAC adopted new rules on 3 February 2012 (the 2012 Rules) which will come into force on 1 May 2012, modernising the version that has been in force since 11 January 2005 (the 2005 Rules).

The 2012 Rules include a number of new provisions allowing for more flexibility and transparency in CIETAC arbitration, and granting further powers to arbitral tribunals. There are some major changes with the new rules, not the least being improved flexibility.

Flexible exchanges

Previously, the 2005 Rules required that arbitration documents be filed directly with the CIETAC secretariat, which then forwarded them to the parties. This requirement could in practice delay arbitral proceedings. According to Article 18(2) of the 2012 Rules the parties can agree, with the consent of the tribunal, or the tribunal can otherwise decide that all arbitration documents be directly exchanged among the parties and the tribunal, in addition to being submitted to the CIETAC secretariat or the relevant sub-commission administering the case.

The combination of arbitration and conciliation is also an important feature of CIETAC arbitration. Article 40 of the 2005 Rules provides that the arbitral tribunal can conciliate the dispute during the arbitration with the consent of the parties. However, parties may be reluctant to engage in open discussions when the conciliation is conducted by the tribunal.

One of the concerns is that any weakness in their case revealed during the conciliation process may influence the tribunal, and hence the outcome of the arbitration, if conciliation is unsuccessful. To address this, Article 45(8) of the 2012 Rules provides that parties may request CIETAC, instead of the tribunal, to conciliate their disputes.

Where to arbitrate

Location was also problematic at times under the 2005 Rules. The parties may agree on the place of arbitration, but If they fail to agree, the place of arbitration will be the domicile of CIETAC (Beijing) or the relevant sub-commission (Shanghai, Shenzhen, Tianjin and Chongqing) that administers the case (Article 31). According to Article 7(2) of the 2012 Rules, in the absence of an express choice, in addition to a place where CIETAC or the relevant sub-commission is located, CIETAC may select another location as the seat of arbitration (including outside China) taking into account the circumstances of the case.

This is a significant improvement in the CIETAC Rules, in that CIETAC is now free to select a neutral seat for the parties if they have failed to do so in the arbitration agreement. This development brings the CIETAC Rules in line with the practice of other major institutions.

The issue of language has also been addressed. Article 67 of the 2005 Rules requires that the default language for any arbitration proceedings be Chinese. This lack of flexibility in terms of the language of arbitration may result in extra translation costs, which can be substantial if the majority of the documentary evidence or key witness evidence has to be provided in a foreign language. This has been remedied and Article 71(1) of the 2012 Rules provides that, in the absence of an agreement between the parties, CIETAC can decide the language of the arbitration according to the circumstances of the case – and that this is not necessarily Chinese.

More power

Under Article 17 of the 2012 Rules, CIETAC tribunals are now empowered to decide, with the agreement of all the parties, to consolidate related arbitrations, including those issued under the same arbitration agreement, between the same parties, or referred to the same arbitrator or tribunal.

Article 17 of the 2012 Rules allows CIETAC to exercise its discretion in considering these factors before deciding on consolidation.

This rather broad approach adopted in the 2012 Rules may offer greater power to the tribunal and increase the flexibility of CIETAC arbitral proceedings (compared, for example, with the more formulaic approach included in the new 2012 ICC rules [Article 10]). However, this flexibility may come at the expense of certainty as to when, and in what circumstances, a consolidation can be reasonably expected.

Article 21(2) of the 2012 Rules for the first time allows the tribunal, by issuing a procedural order or an interlocutory award, to grant interim measures it conosiders proper, and to require the requesting party to provide security in connection with such measures.

This is an important innovation in terms of Chinese arbitration practice and a significant step forward for CIETAC. Interestingly, Chinese law currently only provides for three types of interim measures, which can only be ordered by the courts (under Chinese law, arbitral tribunals have no power to order interim measures): protection of evidence; preservation of property; and advance execution (Article 28 and 46 of the Chinese Arbitration Law, and Article 97 of the Chinese Civil Procedure Law).

Chinese law does not recognise other types of interim measures such as freezing injunctions and anti-suit injunctions, which are widely used in many Western jurisdictions.

If a party applies for conservatory measures of protection pursuant to Chinese law in a CIETAC arbitration, regardless of where the arbitration is seated, the application should normally be made to the CIETAC secretariat, or relevant sub-commission concerned, who will then submit it to the People’s Court on behalf of the party.

Articles 17 and 18 of the 2005 Rules (now Article 21(1) of the 2012 Rules) reflect this Chinese law position in respect of preservation of evidence and property. The new Article 21(2) of the 2012 Rules may therefore only be useful for the parties and the tribunal in circumstances where the interim measures requested are not subject to Chinese law, in other words, enforcement in China is not required.

Suspending proceedings

The tribunal, or CIETAC before the formation of the tribunal, has the power at the request of a party, or on its own initiative, to suspend or resume arbitration proceedings in accordance with Article 43 of the 2012 Rules. This new power is expected to be used only in unusual circumstances, for example where court proceedings have been issued in respect of a preliminary issue, in which case the tribunal may suspend the arbitral proceedings pending the court’s decision.

Article 47(2) of the 2012 Rules also provides that in the absence of an express choice of the law governing the merits of the case by the parties, the tribunal has discretion to determine the applicable law. This new article brings the CIETAC Rules in line with international arbitration practice.

Greater clarity

Article 28 of the 2012 Rules expressly sets out the factors that the chairman of CIETAC needs to take into consideration when appointing arbitrators. Those factors include the applicable law, the seat and language of the arbitration, the nationalities of the parties and other factors that the chairman thinks may be appropriate.

In addition, Article 8(4) clarifies that the periods of time specified in the Rules will begin on the day following the day when the party receives, or is deemed to have received, the arbitration documents in accordance with the Rules.

Not addressed

There are other areas where the revision of the 2005 Rules would have been desirable. It is notable that the 2012 Rules do not include any provisions dealing with the requirements of the disclosure or production of documents by the parties, other than merely stating that each party bears the burden of proving the facts on which it relies (Article 39). In the absence of express provisions in the Rules, our experience with CIETAC arbitration suggests that in international cases parties may need to resort to other publicly available but non-mandatory rules, such as the relevant IBA guidelines, for assistance.

However, this will inevitably rely on a further agreement being reached between the parties, which may not be easily achievable, especially if one of the parties is reluctant to co-operate in the production of evidence. Although Article 41 of the 2012 Rules provides arbitrators with the right to collect evidence on their own initiative, it is unclear what powers CIETAC arbitrators would have with regard to dealing with document production by the parties. Therefore, it may be sensible to provide the tribunal with certain discretionary powers in the Rules, with respect to disclosure or requests for documents.

In summary, the changes to the CIETAC Rules show that CIETAC is committed to improving its flexibility and transparency, and slowly ensuring that the Rules conform with international arbitration standards. Those changes are likely to be welcomed by both business and arbitration communities. This will help it establish its position as one of the major arbitration centres in Asia.