Breakthrough in interim measures of Shanghai FTZ’s arbitration system

On 8 April 2014, the Shanghai International Economic and Trade Arbitration Commission formally issued the Arbitration Rules of the China (Shanghai) Pilot Free Trade Zone (FTZ). Previously, the commission had established the China (Shanghai) Pilot Free Trade Zone Court of Arbitration, at the end of 2013. With this, the FTZ arbitration system not only has a specialised institution, but also its own new rules. The court and its new rules sketch an outline of the newest face of reform of China’s arbitration system, which will surely place it in a leading position in arbitration in China for a long time to come.

The innovations made in the court’s new rules in terms of interim measures, emergency arbitration tribunals, panel of arbitrators, consolidation of arbitration, third parties to arbitration, arbitration evidence, mediation in the course of arbitration, amiable arbitration and small claims arbitration have recently been the subject of a steady stream of reports in the industry. In particular, the new system of arbitration interim measures reflects the desire of pursuing international standards for China’s arbitration sector, as well as the numerous frustrations within China’s current arbitration system. Its significance is difficult to overstate.

Current Chinese law

As distinct from common practice in international arbitration, arbitration tribunals under current Chinese law do not have the power to directly take interim measures such as property preservation, evidence preservation, act preservation, etc. A party to arbitration with such a need is required to first bring it before the arbitration tribunal, which will then forward it to the competent people’s court for enforcement.

Consequently, in an arbitration interim measure procedure, the arbitration tribunal is not the decider, but merely plays the role of “setter”. Such a system design not only results in low efficiency of arbitration interim measures at the enforcement stage, but also causes the influence of the court to permeate ongoing arbitration cases, thereby diluting the purity of the arbitration procedure.

Looked at from a deeper level, an arbitration tribunal’s impotence to decide on interim measures at its own discretion in truth signifies that, in China’s judicial regime, arbitration has yet to secure full confidence. A deficiency in authorisation inevitably and imperceptibly reduces the authoritativeness of the arbitration mechanism in the parties’ minds.

Notwithstanding the fact that the most recent amendments to the Civil Procedure Law, on 31 August 2012, widen the scope of the interim measures, they still do not bestow upon arbitration tribunals the authority to decide on such measures. Considering the pace at which the Civil Procedure Law is amended, there is little hope of a legislative breakthrough on this issue for several years yet.

Innovative move in FTZ

In the face of the constraints imposed by current legislation, the court has seized, with great acuity, some breakthrough space in the cracks. Considering that most countries and regions other than China recognise the decisions on interim measures rendered by arbitration tribunals, articles 18 and 20 of the court’s new rules specify that where the laws of the country or region where the place of enforcement of the interim measures is located allow, the arbitration tribunal may directly decide to take interim measures; and where the laws of the country or region where the place of enforcement of the interim measures is located do not allow, the arbitration tribunal will assist the concerned party in submitting an application to the competent court.

If a case before the court lacks a foreign element, particularly if the interim measures lack a connection with another jurisdiction, the place of enforcement of the interim measures would not go beyond China, denying the above-mentioned new rules any new significance.

However, it is precisely because the cases in the FTZ are increasingly international that the new rules truly have room to show their worth. As an example, if the interim measures that a party applies for in a certain case need to be enforced in Hong Kong, based on the recognition of Hong Kong laws, the arbitration tribunal could directly render a decision in this regard.

Assessment of the new rules

The innovative move of the court in respect of interim measures uses international thinking to harmonise with international trends. Through the reasonable utilisation of cutting edge legislation in other countries and regions, arbitration tribunals in China have secured the authority to decide on interim measures for the first time. Notwithstanding the fact that this authority to decide is dependent on the place of enforcement, it nonetheless has significance as a milestone in the developmental history of arbitration in China.

Additionally, the back of this reforming move also reveals bitterness and frustration. If China’s legislators had followed the trend by bestowing the authority to decide on interim measures on arbitration tribunals, the laurels for this breakthrough achievement would not rest with the court.

Furthermore, that the reform of China’s arbitration system not only cannot be driven from the inside, but has to seek “growth dividends” from the legislation of other countries and regions, is an embarrassment for the entire arbitration sector in China.

Wait and see

The author feels compelled to point out that we still need to wait and see whether the new regulations of the court will ultimately be transformed from rules on paper to results in practice. As Chinese law does not recognise arbitration tribunals deciding on interim measures, Chinese courts generally will not offer any assurance or support for relevant decisions of foreign arbitration tribunals.

Under such a circumstance, whether the decisions on interim measures rendered by arbitration tribunals of the court will obtain the necessary assistance of the courts of other countries and regions becomes a key question. If the courts of other countries and regions refuse to provide assurance for the enforcement of interim measures on the grounds of reciprocity, the decisions of arbitration tribunals will ultimately be no better than blank sheets of paper.

Vincent Mu is a senior associate at Martin Hu & Partners