There is no essential difference between spam arbitration and false litigation. However, since the arbitration tribunal/arbitration institution lacks the investigative and disciplinary powers of the court, it is not uncommon for some to attempt to take advantage of the arbitration procedures to achieve a specific purpose. There is no clear definition of “spam arbitration” in China’s laws. It is generally believed that “spam arbitration” is not a legal term, but a generalization of a phenomenon.
Readers may refer to article 307 of the Criminal Law, articles 112 and 123 of the Civil Procedure Law, article 1.3 of the Interpretation of Several Issues Concerning the Application of Law in Criminal Cases of False Litigation, and article 19 of the Provisions on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases.
The Supreme People’s Court’s Guiding Opinions on Prevention and Sanction of False Litigation summarizes the elements of false litigation, including: (1) with the purpose of circumventing laws, regulations or national policies for illegal interests; (2) malicious collusion between the parties; (3) fictional facts; (4) use of legal civil procedures; (5) infringement of national interests, social public interests, or the legitimate rights and interests of outsiders.
To fight against spam arbitration is not easy. Article 58 of the Arbitration Law and article 237 of the Civil Procedure Law do not grant the interested parties the right to object to the arbitration procedure, the right to revoke the arbitral award or the right to apply for non-enforcement, nor do they grant the national authorities the right to examine, investigate and deal with spam arbitration.
Article 9.1 of the Supreme People’s Court’s Provisions on Several Issues Concerning the Implementation of Arbitral Awards by the People’s Court came into force on 1 March 2018. It first put forward that if an outsider applies to the People’s Court for non-enforcement of the arbitral award or arbitration mediation agreement, he/she shall submit an application and evidentiary materials proving the validity of his/her claim. Outsiders must also meet the requirement of “having evidence to prove that the parties to an arbitration case have maliciously applied for arbitration or spam arbitration to damage his/her legitimate rights and interests”.
The provisions establish a system of application for non-enforcement of arbitral awards or mediation agreement by an outsider.
Identifying spam arbitration is not as simple as imagined. The facts and evidence in spam arbitration are often a mixture of true, false, fake and reality. For example, in one case, the two parties were affiliated companies, working in the same office building, one as the manufacturer and the other as the distributor. Distributed products are common electronic components, with prices ranging from about RMB10 to several hundred yuan. The manufacturer filed an arbitration case against the distributor, claiming that several years ago, the distributor owed tens of millions of yuan over a period of about three years.
The manufacturer’s proof was detailed. In addition to contracts, order statistics, settlement agreements and lawyer’s letters, it also provided thousands of pages of dispatch bills and invoices. However, the manufacturer did not make statistical descriptions in these thousands of pages of documents, nor even mark the page numbers, but the distributor confirmed their authenticity. At the first hearing, the distributor did not even hire a lawyer.
The arbitration tribunal faced the following situation: for thousands of transactions that occurred over the years, both parties claimed that no orders were signed (despite order statistics), no inventory was taken, and no settlement was made; and the manufacturer had never held the distributor accountable in writing before reaching a settlement agreement. Moreover, both parties refused to provide payment vouchers and payment statistics. In the absence of evidence, the two parties reached a settlement agreement and determined the amount of compensation.
In addition, the parties had repeatedly reached settlement agreements after the commencement of the arbitration procedure and after the first hearing. Their intention to determine the amount of compensation through the arbitration procedure is obvious. Moreover, the distributor did not even raise such a simple defence as the limitation of action. Faced with such a case, any responsible arbitration tribunal may doubt the true purpose of the two parties.
Similar situations are not uncommon in practice. Usually, when a case has several of the following factors at the same time, it is probably a spam arbitration case: (1) there is a close affiliated relationship between the parties; (2) the transaction is contrary to common sense and seriously violates commercial rationality, which is the most essential feature of spam arbitration; (3) although there is a vague chain of evidence, there is a lack of key substantiation, and there is no echo between the evidence and corroboration; (4) the two parties are eager to reach a settlement; and (5) there is no substantive confrontation between the two parties, only a symbolic reply.
In international arbitration, similar requests are often rejected on the grounds of a lack of “substantive disputes” and “substantive confrontation”. For its source, the New York Convention (article 2.1) and the UNCITRAL Model Law on International Commercial Arbitration (article 7.2) all require that “disputes” or “differences” be the prerequisite for initiating arbitration procedures and the significance of the existence of arbitration procedures.
These clauses are more of a clarifying role than a restrictive role, but they also reveal that the purpose of arbitration procedures is to resolve the substantive disputes between the parties, rather than simply to witness an agreement between them.
Fortunately, Chinese courts have also taken “substantial confrontation” between the two parties as the basis for their judgments in a number of arbitration cases, instead of sticking to “insufficient evidence” as the reason for revoking arbitral awards.