Wording in arbitration agreements deserves greater care

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A written arbitration agreement is not only the reflection of the parties’ consent of resorting to a commercial arbitration as a dispute resolution, but also the statutory requirement for an arbitral institution to gain its jurisdiction over contract disputes or other property rights disputes in mainland China. The accurate, lawful and careful wording of an arbitral institution in a contract is the key to a valid arbitration agreement. It ensures an efficient arbitration proceeding and minimizes the risk of unnecessary delays caused by jurisdictional challenges.

In practice, inaccurate, illicit and careless wording in agreements is not rare. When parties stipulate a Chinese arbitration commission in their arbitration agreement, a common mistake is the misuse of a redundant word “city” (市). For example, Beijing Arbitration Commission (北京仲裁委员会, or BAC) is often mistaken as Beijing “City” Arbitration Commission (北京 “市” 仲裁委员会).

In terms of determining such errors, the BAC, courts in Beijing and some courts in other regions of mainland China have reached a consensus that the validity of such an arbitration agreement should always be confirmed. On 13 March 2016, by overruling the improper holding made by Henan Anyang Intermediate People’s Court on an invalidity issue, the Supreme People’s Court (SPC) issued a ruling [(2016) SPC Civil Supervision No. 106] and ordered a retrial in Zhongse Twelve Metallurgy Construction Company v Anyang Yingde Gas Company. The contested arbitration agreement under the “Bilateral Settlement and Payment Agreement” mistakenly used the word “city” (市) when stipulating BAC as the arbitral institution. The SPC’s ruling is deemed as affirmation of the consensus that holds this miswording does not invalidate the arbitration agreement.

In the author’s opinion, this miswording does not invalidate the arbitration agreement because first, in the Interpretation of the Supreme People’s Court Concerning Some Issues on Application of the Arbitration Law of the People’s Republic of China, article 3 prescribes: “Where the name of an arbitration institution as stipulated in the agreement for arbitration is inaccurate, but the specific arbitration institution can be determined, it must be ascertained that the arbitration institution has been selected.” Although the miswording of “city” (市) differentiates the textual reading of Beijing Arbitration Commission, such reading does not necessarily link to other arbitral institutions. Therefore, without evidence proving the existence of other consensuses, the parties’ designation of BAC could be ascertained in the wrongly worded arbitration agreement. Subsequently, this arbitration agreement has met the statutory requirements.

Second, in the case the original text of the arbitration agreement is: “If this agreement cannot be fulfilled, the two parties agree to be arbitrated by Beijing City Arbitration Commission.” No grounds could be found under article 6 of the above-mentioned judicial review, nor do articles 17 and 18 of the Arbitration Law of the People’s Republic of China state the applicable invalidation grounds for this arbitration agreement.

To a certain extent, the SPC’s ruling not only clarifies the validity of the miswording in the arbitration agreement, but also indicates respect and consideration to the parties’ true intent when interpreting an arbitration agreement. It manifests the courts’ lasting support and encouragement of ADR mechanisms and creates a more arbitration-friendly judicial environment, which is the key to the prosperity of the Chinese arbitration industry.

The arbitration agreement was held valid in this case, but a lesson should be drawn from its miswording of “city” (市). The jurisdictional challenge, the courts’ litigations of the validity issues, and other troublesome procedural matters all increase an unnecessary risk that causes major delays in the arbitral proceedings, and thus impose an excessive burden on parties who claim their rights.

When drafting an arbitration agreement, one must pay attention to the accuracy and legitimacy of the wording of an arbitral institution, and avoid the miswording of “city” (市). An easier way is to use the model arbitration clause directly. Take BAC as an example. Since its revision of arbitration rules, which introduced a concurrent name, “Beijing International Arbitration Centre”, on 1 April 2015, the model arbitration clause is: “All disputes arising from, or in connection with, this contract must be submitted to Beijing Arbitration Commission/Beijing International Arbitration Centre for arbitration in accordance with its rules of arbitration in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties”.

Wang Xiaoxi is a case manager at Beijing Arbitration Commission/Beijing International Arbitration Centre