‘Seat’ should be clarified for PRC arbitration

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Of the major news in Chinese arbitration circles in 2016, at least two items involved “seat of arbitration”. The first is the Procedural Guidelines for the Application of the UNCITRAL Arbitration Rules, issued by the Shenzhen Court of International Arbitration (SCIA), and the second is the recognition by a Nanjing court of an award rendered by the China International Economic and Trade Arbitration Commission Hong Kong Arbitration Centre (CIETAC HK).

The “seat of arbitration” determines the nationality of an arbitration award, concerns the governing law and validity of an arbitration agreement, and decides the governing law for an arbitration procedure. It also serves as the geographical basis to set aside an award and a precondition for application of the New York Convention. Accordingly, the seat of arbitration is a fundamental concept peculiar to arbitration law.

孟霆 TIM MENG 金阙律师事务所执行合伙人 Managing Partner GoldenGate Lawyers
孟霆
TIM MENG
金阙律师事务所执行合伙人
Managing Partner
GoldenGate Lawyers

The 1996 UK Arbitration Ordinance defines the seat of arbitration as the juridical seat, demonstrating a major development on this issue in international arbitration theory. Seat of arbitration is no longer simply a geographical concept, but is rather a legal connection that links an arbitration award to the arbitration procedure.

There is a close relationship between the “seat of arbitration” and the place where the arbitration institution is located, but the place where the arbitration institution is located is not necessarily the seat of arbitration. Usually, there is an even tighter relationship, in legal terms, between the actual place where an award is rendered and the award.

In international arbitration practice, where the parties have not provided for the seat of arbitration, some rules (e.g., the arbitration rules of UNCITRAL and International Chamber of Commerce [ICC]) specify that the seat of arbitration is to be determined by the tribunal. Other rules, such as those of London Court of International Arbitration (LCIA), Hong Kong International Arbitration Centre (HKIAC) and Singapore International Arbitration Centre (SIAC), still specify that the place where the arbitration institution is located is the “seat of arbitration”.

The PRC Arbitration Law has yet to give a clear definition of “seat of arbitration”. However, based on article 238 of the Civil Procedure Law (amended in 2017), and the structure of the Arbitration Law, we can see that, on the whole, in China the nationality of an arbitration award is determined based on the place where the arbitration institution is located. This explains why all of the arbitration rules of the main arbitration institutions in China define the place where the arbitration institution is located as the “seat of arbitration”.

However, it is worth noting that the Supreme People’s Court’s (SPC) Arrangement on Mutual Enforcement of Arbitration Awards between the Mainland and the HKSAR in 2000, the SPC’s Notice on Issues Relevant to the Enforcement on the Mainland of Hong Kong Arbitration Awards in 2009, and the SPC’s reply in the DMT case in 2010, all essentially take the geographical location where an award is rendered, rather than the place where the relevant arbitration institution is located, as the criterion for defining the nationality of the award. This is consistent with the New York Convention and China’s decision on acceding to the convention.

Among the many sets of domestic arbitration rules, the Procedural Guidelines for the Application of the UNCITRAL Arbitration Rules, issued by the SCIA, stand as an exception. They specify that, “if the parties have provided for the seat of arbitration, such provision shall be complied with; if they have not so provided, the seat of arbitration shall be Hong Kong, unless otherwise decided by the tribunal”. This signifies that, where the parties have not provided for the seat of arbitration, so long as the UNCITRAL Arbitration Rules apply, the arbitration is managed by the SCIA and there is a high probability that the arbitration award will be rendered in Shenzhen, and its nationality will implicitly be Hong Kong.

But what role can Hong Kong play in the formation of such an award? Although Shenzhen and Hong Kong are connected geographically, and the SCIA and Hong Kong’s arbitration circles maintain close exchanges, can these constitute a sufficient legal connection? Also, the UNCITRAL Arbitration Rules specify that where the parties have not provided for the seat of arbitration, the seat of arbitration is to be determined by the tribunal, not the place implicitly recognized by the arbitration rules.

A court judgment last year is also worth mentioning. In that case, Ennead Architects International applied to the Nanjing Municipal Intermediate People’s Court for the enforcement of an arbitration award rendered by CIETAC HK in November 2015, the respondent being R&F Real Estate Development Nanjing. This was an ideal opportunity for a Chinese court to construe the concept of “seat of arbitration”, but the Nanjing court galloped directly to its conclusion after determining the basic facts of the case: “Following review, this court has determined that the award in question does not violate the public interest in the mainland, accordingly, pursuant to articles 1 and 7 of the [SPC Arrangement] …”

The Nanjing court document is extremely brief, completely ignoring the special provisions on Hong Kong arbitration of the 2015 version of the CIETAC Arbitration Rules, Hong Kong’s Arbitration Ordinance, the SPC notice and the SPC’s replies in the DMT case. The judgment completely skirts the precondition for application of the SPC arrangement and completely avoids an extensive discussion of the issue of the nationality of the CIETAC HK’s award, though its conclusions are correct.

In short, the lack of a definition of “seat of arbitration” will not only affect the soundness, professionalism and credibility of the judgments of Chinese courts, but may even go as far as creating some confusion. Accordingly, for Chinese arbitration to go international, the concept of seat of arbitration must be further clarified at the level of legislation or Supreme Court judicial interpretation.

Tim Meng is the managing partner of GoldenGate Lawyers. He can be contacted on +86 10 5870 2028 or by e-mail at tmeng@goldengatelawyers.com