Singapore view of arbitrations involving Chinese parties

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The SIAC experience

The Singapore International Arbitration Centre (SIAC) has an increasing caseload of disputes involving Chinese companies, and with our ability to run arbitrations in English and/or Chinese, increasing outbound investment by Chinese companies, we are looking at administering more China-related cases in future. In our first column, which will appear in two parts, we share our experience with administering China-related cases, and where appropriate, offer suggestions to corporate counsel and disputes counsel.civilprocedure

Particular to Chinese disputes

Chinese companies like to enter into contracts that have English and Chinese versions, and disputes arise sometimes needlessly where there are discrepancies between the two. A scenario is that the English version says the administering arbitration centre is the SIAC, and the Chinese version points to another arbitration centre. A further provision says that both language versions have equal effect. So you could end up with a situation where it is unclear which arbitral centre has jurisdiction. There could then be an argument that as the arbitration agreement is invalid, jurisdiction would then be with the courts (of the country with the most significant connecting factors), defeating parties’ original intention to arbitrate. As such, as a preliminary matter, we urge parties to ensure that there is consistency in their English and Chinese provisions, especially with the dispute resolution clause.

To our knowledge, there is an express requirement under Chinese law that there is an express indication of submission to a nominated arbitral centre in the arbitration agreement. Sometimes the language of the arbitration agreement is not clear enough as to whether there is express submission; in order to avoid problems with enforcement in future, if this is the case, counsel should address the tribunal on this and apply to the tribunal to have it recorded in the final award that both parties have indicated assent to submit the dispute to the arbitration centre. We also have a suggested clause for Chinese deals where we include express reference to SIAC as the administering centre.

We often get questions from lawyers who want to have the arbitration heard in a Chinese city, in order to save costs. This is permissible under SIAC rules. What happens, however, is that the drafting does not express this clearly; and the intended venue of the hearing comes across as the “place” (or seat). To our knowledge, under Chinese law, arbitrations seated in China may not be administered by a foreign arbitral centre. There was a case in Ningbo in the last couple of years which suggested that it can, however the current advice of legal practitioners is that the Ningbo case is the exception, rather than the rule. So care has to be taken to express the Chinese city in which parties intend for the hearing to take place as the “venue”, and to go further and provide that the seat is Singapore, or the place where the administering arbitration centre is.

Chinese companies as parties

There is no one uniform behaviour, as different factors at play, such as the sophistication of advice available, the quality of counsel they engage, as well as commercial objectives, determine the conduct of Chinese companies. However we can share some experiences that give a flavour of what Chinese companies are like as parties.

By and large, Chinese companies in international arbitrations tend to take much care ensuring that they comply with the substantive and procedural requirements of the arbitration.

Sophisticated Chinese companies study the rules and processes of an arbitral institute very carefully in order to gain maximum tactical advantage, which we have observed. For example, some use the inherent flexibility in SIAC rules regarding the appointment of the presiding arbitrator in a three-arbitrator tribunal to maximum advantage, by suggesting to or agreeing with their opponents for the presiding arbitrator to be appointed only at the close of pleadings, so that they can then have a clearer sense of the other side’s case before deciding whether to continue with the arbitration and the appointment of the presiding arbitrator, saving on fees of the third arbitrator if both sides choose to settle after the close of pleadings. Care has to be taken when being tactical, as all factors of an arbitration have to be taken into account. One Chinese company told us that they put in “expedited procedure” clauses when doing deals with counterparties from jurisdictions where dispute resolution processes are slower, so that they have a credible threat of quick resolution to force the other party to observe the terms of the contract. While this may confer ex ante benefits to the Chinese company, if a dispute arises, ex post it may cause problems for the same company. In an expedited case, the claimant still bears the onus of proof to establish each and every element of its case, and a claimant, especially in a complex case, that has locked itself into an expedited procedure via prior agreement may face much stress trying to assemble the necessary documents and getting its witnesses together within a six-month timeframe to establish its case.

It is a fallacy to think that Chinese as a rule do not voluntarily comply with an award (as some foreign parties and lawyers may perceive to be the case); as they are commercially savvy, they would know in such a case that it would not be to their advantage to play hardball at an interim stage, and affect their perception as a reasonable party in the main arbitration. For example, we know of at least one “emergency arbitrator” award where a Chinese party voluntarily complied with the terms of the emergency award. This was so despite the lack of certainty about whether an emergency award constitutes an award that is enforceable under the New York Convention. This was in a case where an Indonesian party put in an application for emergency arbitration on the eve of Chinese New Year in 2011, for an order to release perishable cargo that was held by a Chinese party, so that the Indonesian party could sell the cargo and put the proceeds in escrow pending resolution of the main dispute, the emergency arbitrator made such an award within 72 hours. The Chinese side voluntarily complied with it.

In the next issue of China Business Law Journal, part two of this article will discuss some of the challenges to Chinese companies, tips for corporate counsel facing Chinese disputes, and future trends in Chinese arbitration.

Arvin Lee, the author, is deputy head (China) and counsel, Singapore International Arbitration Centre