Reducing the risk of sham arbitrations

By Beijing Arbitration Commission/Beijing International Arbitration Centre
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Credibility is crucial for the existence and development of commercial arbitration institutions. It is also the guarantee for a healthy environment within arbitration practice.

The existence of fraud litigation is a serious concern and has led to the amendment and judicial interpretation of the Civil Procedure Law and Criminal Law. In terms of arbitration, although debated, the concept of sham arbitration has incurred equal attention in both laws.

In practice, the author has rarely experienced a sham arbitration, but the concern of its adverse effect definitely hurts the credibility of arbitration. Therefore, a comprehensive consideration seems necessary.

Arbitral institutions and tribunals would welcome a mechanism to prevent arbitral proceedings from being manipulated to harm the legitimate rights and interests of users of the system. Such a mechanism would need to identify shams scientifically and effectively, so preventing risk. This article explores how to prevent the risk of sham arbitration within each stage of the arbitration proceeding.

At the case acceptance stage: Reminders and risk alerts. In mainland China arbitration practice, the case-filing or case acceptance department of an arbitration institution conducts formal reviews of matters such as double-checking the capacity of the parties, arbitration clauses and claims, etc.

When doing so, institutional personnel should keep an eye on whether the claims are specific and clear, what the background is to the dispute, and in general be sensitive to any abnormal reaction or attitude from the parties concerned. Reminders and risk alerts could be given to make sure the parties are acting on the good faith principal. A letter of commitment, if necessary, could be required. Meanwhile, the case-filing department may mark risky material, or make a note for colleagues who will later manage the arbitration proceedings.

Before the hearing: Making full preparations. For arbitration cases in which sham arbitration risks may exist, continual attention is necessary before the hearing. Case managers could communicate with the arbitration tribunal in a timely manner and give more details when concerned that a sham arbitration may occur, such as in cases of “hand-in-hand” arbitrations. When making preparations for the hearings of such cases, the tribunal is recommended to pay more attention on the risk points when preparing case notes or hearing outlines.

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