SIAC procedure gets cold shoulder in China

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The First Intermediate People’s Court of Shanghai Municipality, on 11 August 2017, refused to recognize and enforce an arbitral award rendered by the Singapore International Arbitration Centre (SIAC) on the grounds that it violated article 5(1)(d) of the New York Convention and, “the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties”. This ruling by the Chinese court triggered a hubbub in international arbitration circles for a time.

贾红卫 JIA HONGWEI 隆安律师事务所高级合伙人及深圳分所主任 Senior Partner, Head of Shenzhen Office Longan Law Firm
贾红卫
JIA HONGWEI
隆安律师事务所高级合伙人及深圳分所主任
Senior Partner, Head of Shenzhen Office
Longan Law Firm

The applicant in this case was Noble Resources International, and the respondent Shanghai Good Credit International Trade. The arbitral award in question is award No. 005 of 2015, rendered by the SIAC. The core of the case lies in the parties originally having specified in their arbitration agreement that the tribunal was to be composed of three arbitrators, whereas SIAC, pursuant to its rules for an expedited arbitration procedure, had its president designate a sole arbitrator to form the tribunal to hear the case and render the award.

With respect to this, the Shanghai court held that party autonomy is the cornerstone of operation of the arbitration system and the method of constitution of the tribunal is a fundamental procedural rule of arbitration. The phrase “unless the president determines otherwise”, in article 5.2(b) of the 2013 version of the SIAC arbitration rules, should not be construed as granting the SIAC president discretion on the method of constitution of the tribunal. On the contrary, in exercising his or her decision authority, he or she should fully respect the parties’ agreement on the method of constitution of the tribunal so as to ensure party autonomy. In other words, the arbitration rules formulated by an arbitration institution should not be too loose, and the decision of its chairman should not take precedence over the express provisions of the arbitration agreement between the parties.

Coincidentally, the Supreme Court of Singapore takes an entirely different stance on this issue. A judge of the Singapore court held that the parties chose the arbitration rules to govern the arbitration and they accepted the rules, including the expedited procedure, so the hearing of a case by a sole arbitrator pursuant to the rules of the expedited procedure is also a manifestation of party autonomy. It may be otherwise if the parties had stipulated that there shall be three arbitrators, even if the proceedings were under the expedited procedure (see W Company v Dutch Company and Dutch Holding Company [2012] 1SAA 97).

Furthermore, “a commercially sensible approach to interpreting the parties’ arbitration agreement would be to recognize that the SIAC president does have the discretion to appoint a sole arbitrator. Otherwise, regardless of the complexity of the dispute or the quantum involved, a sole arbitrator can never be appointed to hear the dispute, notwithstanding the incorporation of the applicable arbitration rules, which provide for the tribunal to be constituted by a sole arbitrator when the expedited procedure is invoked. That would be an odd outcome …” (See AQZ v ARA [2015] SGHC 49.)

In short, the arbitration rules selected by the parties are an entire concept, which includes acquiescence to the authority of the SIAC president to form a tribunal constituted of a sole arbitrator, unless this is expressly obviated in the arbitration agreement. Otherwise the sole arbitrator system under the expedited procedure loses its reason for being.

It should be acknowledged that, with the objective of enhancing arbitration efficiency and reducing the cost burden on parties, the exploration that the SIAC, as a junction blending Eastern and Western cultures and arbitration fields, has conducted on the rules for an expedited arbitration procedure has a certain progressive significance. Generally speaking, once parties have preliminarily selected a set of rules, they should comply with the constraints placed on party autonomy by the rules.

The Singapore court, as the court of the place where the SIAC is located, has endorsed its exploration of the relevant rules. This demonstrates a consistency in the spirit and conception of the rule of law in the arbitration and judicial fields in Singapore. It would seem that the SIAC more strongly emphasizes the gravity of the selection of the applicable rules based on party autonomy. However, when an application for recognition and enforcement of an arbitral award rendered under the guidance of such a spirit and concept is made in another jurisdiction around the world (such as China), it is given the cold shoulder and refused. This is because this is seen as a subversion of the basic principles determined in the New York Convention and derogation from the principle of party autonomy.

Objectively speaking, the difference in stance between the Singapore court and Chinese court on the issue in question can be attributed to producing different decisions based on different value judgments. Party autonomy is the cornerstone of the arbitration system, but the constraints placed on party autonomy by arbitration rules are not completely uncalled for.

The question is where is the line to be drawn on the constraints on party autonomy that arbitration rules impose? And how can arbitration efficiency be enhanced, and the provisions freely agreed upon by the parties be respected simultaneously, while maintaining a balance between the two? These are questions that demand sober consideration, and this is precisely where the unique fascination for international arbitration lies for people involved in the law in countries around the world.

Fortunately, in this respect, the New York Convention provides means and rules for jurisdictions and countries with different value judgments to resolve differences of opinion, and the New York Convention itself is the congealing of a common understanding of the basic value of international arbitration of countries and regions around the world. The author is confident that, through the joint efforts of all countries, the beneficial debate triggered by the SIAC’s rules for the expedited arbitration procedure will ultimately have an important and positive catalyzing effect on the development of international arbitration around the globe.

Jia Hongwei is a senior partner at Longan Law Firm and head of the firm’s Shenzhen office. He can be contacted on +86 136 0256 7671 or +86 755 8828 6044, or by email at jiahongwei@longanlaw.com