A Simple Guide To Arbitration in Hong Kong and Mainland China

A Simple Guide to Arbitration in Hong Kong and Mainland China
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Author: Cheung Kwok Kit Service Area: Construction & Arbitration Date: April 2007 Hong Kong Country:

SUMMARY OF CONTENTS HONG KONG Introduction Litigation or Arbitration? Commencement of Arbitration Procedures for Arbitration Enforcement of the Arbitration Award Enforcement in Mainland China Costs and Expenses Alternative Dispute Resolution Model Hong Kong and International Arbitration Clauses MAINLAND CHINA Introduction The Arbitration Agreement CIETAC Application for Arbitration Appointment of Arbitrators Procedures for Arbitration Procedures for Domestic Arbitration Enforcement of the Arbitration Award Enforcement in Hong Kong Costs and Expenses Model CIETAC Arbitration Clauses
HONG KONG INTRODUCTION Arbitration is a method for resolving disputes between parties in private as an alternative to litigation in the courts. It may be agreed by the parties before or after the dispute arises. The arbitration agreement is usually incorporated as part of the contract from which the dispute arose. However, even when there is no arbitration clause in the contract in dispute, an arbitration agreement can also be made after a dispute has arisen if the parties prefer not to go to Court. If there is no arbitration agreement, mutual agreement is necessary, as one cannot force another party to "arbitrate" a dispute if there is no arbitration clause.
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LITIGATION OR ARBITRATION? Parties to a contract usually refer their disputes to arbitration simply because there is an arbitration clause in the contract.
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In the context of private sector building contracts, the arbitration agreement is commonly found in clause 35 of the standard form of building contract jointly drawn by the Hong Kong Institute of Architects, the Royal Institution of Chartered Surveyors (Hong Kong Branch) and the Society of Builders, Hong Kong (commonly known as the "HKIA" or "RICS" form). For subcontracts, the arbitration agreement is found in clause 22 of the standard form of subcontract for use where the subcontractor is nominated pursuant to the HKIA or RICS forms (commonly known as "the Green Form"). If parties have agreed to go to arbitration, with limited exceptions stated below, they cannot repudiate the agreement by going to Court unless both parties agree. Under the Arbitration Ordinance, if one party to an arbitration agreement commences legal proceedings in any Court against the other party, the latter may insist on arbitration and apply to that Court to stay the proceedings commenced. The Hong Kong Court will only refuse to stay the proceedings in one of the following situations: The defendant has submitted its first statement on the substance of the dispute (acknowledgement of service and application for extension of time for filing the defence not included). The arbitration agreement is ineffective, e.g. it is not in writing, null and void, inoperative or incapable of being performed. Before the Arbitration (Amendment) Ordinance in 1997, plaintiffs sometimes argued that the defendant had no genuine defence to the plaintiffs claims as a ground to ask the court not to stay the proceedings to arbitration. In the context of construction disputes, plaintiff subcontractors sometimes argued that there was no genuine defence to the obligation of the main contractor to pay the subcontractor, the main contractor having received the amount due under an architects certificate from the employer. Therefore the subcontractor would contend that the Court proceedings commenced were proper. The defendant would however insist that there was a dispute between the parties which had to be resolved by arbitration. In such circumstances, the plaintiff subcontractor would usually cross-apply for summary judgment to be dealt with by the Court at the same time as the defendants application for stay of proceedings. The application for summary judgment, if successful, would enable the plaintiff to be paid without the need to wait for a full trial which might not take place for many months. However, after the Arbitration (Amendment) Ordinance came into operation, this argument is bound to fail, since the Court now no longer has the discretion to refuse a stay when there is an arbitration agreement. Some subcontractors believe that they might still have certain tactical advantage in suing the main contractor despite the arbitration agreement. Subcontractors who wish to litigate as opposed to arbitration in a similar situation should seek legal advice first before making that decision.
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COMMENCEMENT OF ARBITRATION The procedures to be followed to commence arbitration are frequently embodied in the arbitration agreement. Usually a written notice to the other party specifying the general nature of the dispute is sufficient. If the rules of arbitration have been chosen in the arbitration agreement, they must be followed. Unlike litigation, no special procedure is necessary for overseas service of the notice of arbitration on a foreign party. Simplicity and informality are two distinct advantages of using arbitration as a means to resolve disputes. It can cost considerable money and time to effect service of a Writ overseas. For arbitration proceedings, it is sufficient to fax the notice unless the arbitration agreement provides otherwise. For example, in construction disputes, the Green Form provides that where there is a dispute arising under the subcontract between the main
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contractor and the subcontractor, the following procedures shall be undertaken: The party who wishes to refer the dispute to arbitration should give a written notice to the other party that the dispute shall be referred to arbitration in accordance with clause 22 of the subcontract. The notice of the dispute will become the terms of reference of the arbitration. Care must be taken to make sure that the dispute is described in a sufficiently wide manner in the notice to enable the arbitrator to deal with all issues in dispute between the parties. The Claimant should also propose his own choice of arbitrator to the Respondent for his agreement either in the notice of arbitration or by a separate notice to concur on the appointment of arbitrator. The Respondent may counter-propose his own arbitrator. If the parties fail to reach an agreement on who to appoint or the Respondent fails to respond to the notice to concur in the appointment of arbitrator, the Claimant may request the appointing authority (i.e. the President or Vice-President for the time being of The Hong Kong Institute of Architects and the President or Vice-President for the time being of the Hong Kong Institute of Surveyors) to appoint an arbitrator for the parties. In the outdated edition of the Green Form, the appointing authority is named as the RICS (Hong Kong Branch), which was dissolved in 1997. In such case, it is submitted that the application for appointment of arbitrator should be made to the Hong Kong International Arbitration Centre (HKIAC) pursuant to section 12 of the Arbitration Ordinance. In our experience, the appointment may take one to two months. Unless the required qualifications and/or experience of the arbitrator are specified in the arbitration agreement, it is possible to appoint anyone (i.e. not necessarily a lawyer) as arbitrator, though a person who has training and experience as an arbitrator or experience in the issues in dispute is usually preferred. If an appointment is made jointly by the Hong Kong Institute of Architects and the Hong Kong Institute of Surveyors, a surveyor who has the appropriate experience and qualifications will usually be appointed as the arbitrator. One of our partners is also on the list of arbitrators of the Hong Kong Institute of Surveyors. The number of arbitrators (normally one or three) is decided by such matters as the arbitration agreement, whether it is a domestic or international arbitration, and the procedural rules adopted.
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PROCEDURES FOR ARBITRATION There are no fixed procedures for the conduct of arbitration proceedings. Procedural rules should be informal. The arbitrator generally has control over the procedures. If the arbitration agreement sets out the applicable rules, the arbitrator must follow them. If none have been agreed, he may propose a well recognised set of rules to be followed by the parties. For domestic arbitrations, we generally recommend that parties adopt the Domestic Arbitration Rules of the HKIAC. There is also no particular venue prescribed for the hearing of the arbitration. The parties can agree to meet at any convenient place, such as the office of the lawyers for either party. The HKIAC (at 38/F, Two Exchange Square, 8 Connaught Place, Hong Kong) also provides good facilities for arbitration hearings at reasonable charges. The usual procedures are as follows: The Claimant will ask the arbitrator to hold a preliminary meeting with the parties. During the preliminary meeting, the arbitrator will decide the rules to be used for the arbitration (if none have been agreed), his fee structure (if this has not already been agreed) and most importantly, the timetable for service of pleadings, exchange
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of lists of documents and exchange of witness statements. The preparation of pleadings is similar to that in court, except that the style can be less formal and in many cases, supporting documents will be annexed to the pleadings to assist each party to understand the others case. That will also save considerable time by dispensing with the need for formal discovery. The exchange of lists of documents can be limited to certain types of documents or completely dispensed with, especially where the parties have annexed all supporting documents to their pleadings. We normally recommend dispensing with the exercise of exchanging lists of documents to reduce the time and cost of resolving the dispute. Either party may ask the arbitrator to fix a date for the main hearing at any time. It may be fixed at the directions hearing before the arbitrator. Usually, the main hearing will be fixed after the completion of documents submission or whenever the parties are ready for it. It is also possible to agree on a documents-only arbitration for which no hearing is required. This may be appropriate where only the law, rather than the facts, is in dispute. It is usual in most arbitrations for evidence (both factual and expert) to be exchanged in advance of the hearing. The arbitrator may direct that the experts meet to see if there is common ground, or if facts can be agreed. Opening submissions of the parties may also be exchanged in advance of the hearing. These measures can frequently reduce the time required in the actual arbitration hearing with possible cost savings. After considering the evidence and the parties submissions, the arbitrator will make an award, which may be provided with or without reasons, depending on the prior request of the parties. The arbitrator will also deal with the question of the costs of the arbitration after submissions from both parties. Typically the losing party will have to bear the costs reasonably incurred by the winning party and the arbitrators fees. The arbitrator will take into account whether the losing party has made any offer of settlement. The arbitrators award is final and binding, subject to a limited right of appeal to the Court under section 23 of the Arbitration Ordinance for domestic arbitration. Successful appeal of an arbitrators award is rare. The legal costs awarded by the arbitrator are subject to taxation either by the arbitrator or the Court. Taxation is a process used in litigation by which the Court assesses a fair amount of legal costs to be paid by the losing party. As a rule of thumb, the taxed costs will be about two-thirds of the actual costs spent by the winning party in the arbitration. The parties will however have to note that unlike Court proceedings, where the Court does not charge the parties for the service of the judges or the provision of the courtroom, arbitrators require the parties to pay, usually on an hourly basis. Leading arbitrators in Hong Kong can charge HK$5,000 per hour or more and the average that we have seen is between HK$3,000 and HK$4,000. Until an award on costs, both parties normally bear half of the interim bills for the arbitrators fees.
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ENFORCEMENT OF THE ARBITRATION AWARD Section 2GG of the Arbitration Ordinance states that an arbitration award may, except in very limited circumstances, be enforced in the same manner as a judgment of the High Court. As Hong Kong is a party to the "1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards" by virtue of China's accession to that treaty, an award obtained in Hong Kong is enforceable in other countries that are signatories to the New York
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Convention. After 14 June 2000, even if the award is given in a country which is not a party to the New York Convention, the winning party may apply to the Hong Kong Court for enforcement pursuant to section 2GG. However, it is not clear whether such award will be dealt with in the same way as a New York Convention Award. If the losing party has no assets in Hong Kong but does in another jurisdiction, an arbitration award may be more valuable than a judgment of the Court if the foreign state where the assets of the losing party are situated has no reciprocal judgment enforcement arrangement with Hong Kong but is a signatory to the New York Convention. Notably such states include the United Kingdom, the United States of America and Japan, the three major trading partners of Hong Kong. If one happens to be doing business with entities in these three countries, arbitration as a means to resolve disputes that may arise can be chosen rather than going to Court in Hong Kong.
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ENFORCEMENT IN MAINLAND CHINA Since 1 July 1997 when sovereignty of Hong Kong returned to China, Hong Kong awards have become domestic awards for the purposes of enforcement within China. We understand that applications for enforcement of Hong Kong awards in Mainland China had been held up pending the signing of an agreement for mutual recognition of arbitration awards between Hong Kong and Mainland China (the Agreement) and making of the appropriate changes to the arbitration law to reflect the contents of the Agreement. The Agreement was signed on 21 June 1999 and reflects the provisions in the New York Convention in addition to restoring enforcement procedures in place prior to the handover. Pursuant to the Agreement, there are only limited grounds for refusing to enforce a Hong Kong award, which mirror the grounds for refusal in the New York Convention. The most controversial of these is that an award will not be enforced if the enforcement would be contrary to the public policy or interests of China. If the losing party is a state-owned company, such a defence may be raised. However, a defendant could just as easily raise the defence of state immunity in Court, so it is a problem that may have to be faced in litigation or arbitration. Applications for the recognition and enforcement of foreign arbitral awards should be filed with the Intermediate People's Court in the place where the Respondent is domiciled or has property. If the place where the Respondent is domiciled or the place where the Respondent has property falls within the jurisdiction of different Intermediate Peoples Courts, the applicant may apply to any Peoples Court but is not permitted not apply to more than one Peoples Court. One major limitation under the Agreement which is not found in the New York Convention is that the applicant is not entitled to file applications in both Hong Kong and Mainland China at the same time. Only when the result of the enforcement of the award by the court of one place is insufficient to satisfy the liabilities may the applicant apply to the court in another place for enforcement of the outstanding liabilities. This restriction may pose difficulties to an applicant when choosing the jurisdiction in which it should first file the application. The time limits for enforcement of arbitration awards under the Chinese law are one year for claims by individuals and six months for companies or legal persons. In view of such relatively short time limits, it may be safer to file an application for enforcement of the Hong Kong award in Mainland China first before doing the same in Hong Kong. Parties to cases which the Mainland Court had, between 1 July 1997 and the coming into force of the Agreement (21 June 1999), refused to handle or to enforce the award, will be allowed to make a fresh
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application for enforcement. The Supreme Peoples Court issued a notice on 24 January 2000 to give effect to the Agreement commencing from 1 February 2000. We understand from our clients that their pending applications for enforcement of Hong Kong Award were approved shortly after the issue of the notice. It should be noted that if one has not applied for enforcement of the award from 1 July 1997 to 1 February 2000, application for enforcement must have been made within six months and one year after 1 February 2000 for legal and natural persons respectively. This requirement is not found in the Arbitration Ordinance of Hong Kong giving effect to the Agreement.
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COSTS AND EXPENSES Although legal representation is not required in arbitration, parties often retain lawyers to represent them, especially in complicated disputes. Sometimes, lawyers will be involved when interlocutory matters arise, which have to be dealt with by the Construction and Arbitration division of the High Court of Hong Kong. As with litigation, we charge on an hourly basis. While the costs of arbitration depend on how strenuously the claim is resisted by the other party, we are flexible in our fee arrangements. In appropriate cases, we can agree to charge a fixed amount up to a particular stage of the proceedings, regardless of the actual time spent, so that clients can have a definite budget for the proceedings. Arbitrators usually charge on an hourly basis as well, though during a hearing it may be on a daily basis. As discussed above, their rates normally range from HK$3,000 to HK$4,000 per hour depending on experience and expertise. Some arbitrators also charge a lump sum fee for initial appointment which is not refundable even if the dispute is later settled, without involving the arbitrator. If the appointing authorities are involved, they will charge a nomination fee. The HKIACs current nomination fee is HK$4,000. Some lawyers argue that arbitration is not necessarily cheaper than litigation, bearing in mind that the Court does not charge substantial fees, but the arbitrator may. While we agree to a certain extent, one should note that the progress of an arbitration can be faster than Court proceedings because the arbitrators directions can be obtained more quickly than the Courts directions. Applications for interlocutory matters can frequently be dealt with by correspondence, and an earlier hearing date can usually be obtained with an arbitrator. These savings in time eventually mean savings in money, and we believe arbitration is generally more cost-effective than traditional Court proceedings. Also of particular importance, especially for technical disputes, is the fact that the parties are free to select their arbitrator(s), with qualifications and experience to match the dispute. One cannot, however, choose his own judge in the Court.
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ALTERNATIVE DISPUTE RESOLUTION In recent years, other methods of dispute resolution such as mediation and adjudication have been developed as an alternative to litigation and arbitration. Mediation is used in the contract conditions for Hong Kong Government construction projects and the Airport Core Programme. It is a non-binding process in which an independent person (the mediator) assists both parties to reach a negotiated settlement. A characteristic of mediation is that the approach is not confrontational, and thus parties who wish to maintain their commercial relationship may elect to enter mediation. With the assistance of the mediator, parties can reach a settlement by exploring different options which may not be available in litigation or arbitration.
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Adjudication was adopted by the Airport Authority for resolving disputes under its contracts when building Hong Kongs new international airport. A Dispute Review Panel consisting of internationally-recognised experts from various disciplines was appointed for resolving disputes. The Panel met quarterly and was briefed on the progress of the new airport. When disputes arose, parties were free to nominate one or more experts from the Panel to act as adjudicator(s) to resolve the problem(s). The difference between adjudication and mediation is that the adjudicator issues a binding decision that may only be challenged in arbitration after completion of the works, whereas the recommendation of a mediator is not binding. The adjudication process has the advantage that the process is relatively quick and the parties need not divert too many resources from the project, which could affect its progress.
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MODEL HONG CLAUSES
KONG
AND
INTERNATIONAL
ARBITRATION
Before compelling the other side to go to arbitration, one needs to have an arbitration clause in the contract. Below are some model clauses for parties to adopt in their contracts. Our experience is that much time and money will be wasted if one does not have a proper arbitration clause. Therefore, it is very important to get the arbitration clause right at the beginning. These clauses are recommended for Hong Kong parties and have been drafted with to maximise the benefits of arbitration proceedings in terms of speed and expense savings. Arbitration clause for domestic arbitration "Any dispute, difference or claim arising out of or in connection with this contract, shall be referred to and determined by arbitration in Hong Kong using the law of the Hong Kong Special Administrative Region as the governing law and in accordance with the Domestic Arbitration Rules of the Hong Kong International Arbitration Centre." Arbitration clause for international arbitration "Any dispute, difference or claim arising out of or in connection with this contract, shall be referred to and determined by arbitration in Hong Kong using the law of the Hong Kong Special Administrative Region as the governing law. The Domestic Arbitration Rules of Hong Kong International Arbitration Centre shall apply to the arbitration proceedings. The place of arbitration shall be in Hong Kong. There shall be only one arbitrator. The language of the arbitration shall be [English/Chinese] [delete whichever is inappropriate]."
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MAINLAND CHINA INTRODUCTION Contracts related to foreign investments in China usually provide that any disputes arising between the parties should be settled by friendly negotiation, failing which the disputes should be referred to arbitration. Resolution of disputes by arbitration is also recognised in foreign related laws of China. Foreign related arbitrations in the Peoples Republic of China are now mainly administered by China International Economic and Trade Arbitration Commission (CIETAC). As the volume of international trade grows in China, arbitration is becoming more and more frequent. The China International Economic and Trade Arbitration Commission (CIETAC) handled 850 cases in 2004 and 979 cases in 2005. Out of the cases it handled in 2004, 462 were foreign related. It is commonly believed that CIETAC is now the busiest arbitration institution in the world.
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THE ARBITRATION AGREEMENT According to the Arbitration Law of China, the arbitration agreement (which is usually set out as one of the clauses in the contract) must be in writing and contain the following particulars: an indication of the intention to apply for arbitration; the arbitral matters; and the selected arbitration commission. In drafting the arbitration agreement, the naming of the commission is very important. If the arbitration commission is or named improperly, the parties must reach a supplementary on the proper arbitration forum, failing which the arbitration is void. arbitration not named agreement agreement
For foreign economic contracts, the parties are generally free to choose whether to arbitrate their disputes in China or elsewhere. Chinese parties are now more willing to accept arbitration in foreign countries. In 1996, the State Council clarified that domestic arbitration commission established under the Arbitration Law can also deal with foreign related arbitration if both parties to the dispute agree. However, we recommend that arbitration in China which is foreign related should still be referred to CIETAC or in case of maritime related disputes, to Chinese Maritime Arbitration Commission (CMAC). Companies or individuals from Hong Kong and Macau are regarded as foreign parties for this purpose.
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CIETAC The CIETAC has been known by several names. Established in 1956 as the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade, and later renamed as the Foreign Economic and Trade Arbitration Commission of the China Council for Promotion of International Trade, the CIETAC settled on its current moniker in 1988. Since 2000, the CIETAC has also used the Court of Arbitration of the China Chamber of International Commerce as its name. While in the past, the CIETAC only accepted cases involving international or foreign-related disputes, the 2000 Arbitration Rules of the CIETAC extended the jurisdiction of the CIETAC to include disputes related to Hong Kong, Macau and Taiwan as well as domestic disputes. At present, the headquarters of the CIETAC are located in Beijing, with sub-commissions in Shanghai and Shenzhen. There are also nineteen liaison offices located throughout China. The parties may choose the place of arbitration and specify such in their arbitration agreement. If the arbitration agreement does not specify the place of arbitration, the CIETAC will decide for the parties. Although Mandarin is the official language of CIETAC, if the parties have agreed otherwise to use a different language, their agreement shall prevail. In our experience, CIETAC is perfectly capable of communicating with all parties in English. If necessary, CIETAC may also provide interpretation services.
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APPLICATION FOR ARBITRATION The procedures for arbitration are laid down in the CIETAC Arbitration Rules (the current edition is effective from 1 May 2005). The process should begin with an arbitration application. The arbitration application should be submitted to CIETAC with the following:
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An arbitration application signed by the Claimant or its attorney specifying: (a) (b) (c) (d) the relevant contact information of the Claimant and the Respondent; reference to the arbitration agreement involved; the facts of the case and the main issues in dispute; and the claim and the facts and evidence on which its claim is based.
Relevant documentary evidence in support of the claim (i.e. no exchange of lists of documents will be required). The arbitration fee calculated according to the CIETAC Arbitration Fee Schedule. A Power of Attorney, if a lawyer or representative is appointed by the Claimant. Upon review of the above documents, the CIETAC will decide whether to accept the application. If the CIETAC chooses to accept the application, a Notice of Arbitration together with the CIETAC Arbitration Rules (2005), a List of the Panel of Arbitrators and the Arbitration Fee Schedule will be sent to the Claimant and Respondent. The arbitration application and its supporting documents as submitted by the Claimant will also be sent to the Respondent. Within 45 days of receiving the Notice of Arbitration, the Respondent should file: 1. A written Statement of Defence signed by the Respondent or its attorney, including the following: the relevant contact information of the Respondent; the defence to the arbitration application, complete with the facts and grounds serving as basis for the defence; and evidence supporting the defence. 2. 3. Any counterclaim(s), in writing, along with supporting documents; and A Power of Attorney, if a lawyer or representative is appointed by the Respondent.
Upon approval, the CIETAC will submit the counterclaim(s) and supporting documents to the Claimant, who will have 30 days from the date of receipt to submit a Statement of Defence. If either the Respondent or the Claimant fails to submit a Statement of Defence, the arbitration will proceed as normal. The main feature of CIETAC arbitrations is that they are administered by CIETAC. Practically, that means all correspondence must provide the CIETAC with five copies of the above documents and statements for distribution to the three arbitrators in the tribunal, the other party and for filing with CIETAC. If the Claimant and Respondent agree to have only one arbitrator in the arbitral tribunal, only three copies of the above documents need to be provided.
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APPOINTMENT OF ARBITRATORS The tribunal will have three arbitrators (two co-arbitrators and one presiding arbitrator) unless the parties agree that only one arbitrator should hear the case. Each party should appoint an arbitrator or authorise the Chairman of the CIETAC to appoint one on its behalf within 15 days of receiving the Notice of Arbitration. If the parties have agreed to appoint outside arbitrators, the arbitrators appointed or nominated
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may serve as co-arbitrator, presiding arbitrator or sole arbitrator per the confirmation of the Chairman of the CIETAC. If either party fails to do so, CIETAC will appoint the arbitrator for it. The parties should then jointly nominate or ask the Chairman of the CIETAC to nominate the third arbitrator within 15 days from the receipt of the notice of arbitration by the Respondent. The List of Panel of Arbitrators of CIETAC consists of arbitrators from Mainland, Hong Kong (including one of our partners), Macau, Taiwan and various other countries. Since 1 May 2005, specialist panels have been set up according to the nature of dispute. Currently, there are 7 panels: international (foreign related) domestic financial construction and property food Chinese/Australian/New trading leather
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Zealand
standard
contracts
for
wool
PROCEDURES FOR ARBITRATION After exchanging documents and appointing arbitrators, the CIETAC will fix a hearing date. In some cases, the parties may elect to conduct the proceedings on a documents-only basis and dispense with the oral hearing. It can be done subject to the agreement of both parties and the tribunal. Documents-only arbitration is suitable for cases where there is no substantial dispute on matters of facts. The three arbitrators will make an award after the hearing. If the arbitrators cannot reach a unanimous decision, it will be decided by simple majority. The Arbitration Rules provide that the tribunal shall render an award within six months after the tribunal is formed, although this time limit can be extended by the CIETAC. Delays are not unusual in practice, bearing in mind the fact that the three arbitrators involved may reside in different jurisdictions, and the award must be reviewed and approved by the CIETAC before it is issued. The award comes into legal effect the date on which it is made. If no time limit is specified in the award, the parties must automatically take it into effect; otherwise, they must execute the award within the time limit specified. The tribunal has the power to decide in the award the arbitration fees and expenses to be paid by the parties to the CIETAC as well as any compensation for expenses occurred to be paid to the winning party. If any claims or counterclaims were omitted from the award, either party has 30 days from the receipt of the arbitral award to request in writing an additional award. If the tribunal finds that such an omittance exists, they have 30 days from the receipt of the request to make an additional award. Similarly, the tribunal can on its own initiative make an additional award within a "reasonable period of time" following the arbitral award. At any time before the final award is made, a partial award may be made on any issue, provided that it is considered necessary by the tribunal or that the parties request an award and the tribunal accepts. Failure to perform the award will not affect the continuation of proceedings nor prevent the tribunal from making a final award. The Arbitration Rules also provide for a summary procedure to be followed where either parties with a disputed amount below RMB 500,000 or parties with a disputed amount above RMB 500,000 but who agree, in writing, to a summary procedure. Upon accepting the application for the
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summary procedure, the CIETAC shall issue a Notice of Arbitration. Only one arbitrator, who should be appointed by the parties by agreement within 15 days after receipt of the Notice, will preside over the summary procedure, failing which the Chairman of the CIETAC will appoint an arbitrator for the parties. Either oral hearing or a document-only arbitration may be adopted, as the CIETAC deems fit. The time limits for filing of documents and publication of award under the summary procedures are shorter than those under normal procedures. The Respondent should file the defence and counterclaim within 20 days after the receipt of the Notice of Arbitration. The award shall be given within three months from the date that the tribunal was formed.
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PROCEDURES FOR DOMESTIC ARBITRATION Special provisions apply for arbitration for the following disputes: disputes between the enterprises with foreign investment and disputes between an enterprise with foreign investment and another Chinese legal person, physical person and/or economic organisation; disputes arising from project financing, an invitation for tender, bidding, construction and other activities conducted by Chinese legal persons, physical persons and/or other economic organisations through utilising the capital, technology or service from foreign countries, international organisations or from Hong Kong, Macau and Taiwan; disputes that may be taken cognizance of by CIETAC in accordance with special provisions of or upon special authorisation from the law or administrative regulations of the Peoples Republic of China; or other domestic disputes which the parties have agreed to refer to CIETAC for arbitration. The procedures for arbitrating the above categories of disputes are basically the same as the procedures described in the previous three sections of this booklet, except that the time limits are generally shorter for domestic arbitration. The following is a comparison of the time limits: Ordinary Procedures Appointment of the parties arbitrator Filing of Defence 15 days from the date of receipt of the arbitration notice from CIETAC 30 days from the date of receipt of the arbitration notice from CIETAC 45 days from the date of receipt of the arbitration notice from CIETAC 20 days before the date of 1st hearing 6 months from the formation of the arbitration tribunal Domestic Arbitration Procedures 15 days
20 days
Filing of Counterclaim
20 days
Notice of the 1st hearing Award
15 days 4 months
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ENFORCEMENT OF THE ARBITRATION AWARD CIETAC has no power to enforce awards. If one party fails to comply with the award, the other party may apply to the Intermediate Peoples Court in the place where the Respondent has its residence or where its property is situated for enforcement of the award pursuant to Chinese law. Conversely, the successful Chinese party can apply to the competent foreign court for enforcement of a CIETAC award pursuant to the 1958
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New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in the country where the foreign party is situated. According to a circular concerning the handling of issues regarding foreign-related arbitration and foreign arbitration matters by the Peoples Courts issued in 1995, if an Intermediate Peoples Court intends to turn down an application for enforcing an award of a PRC foreign related arbitration commission or a foreign arbitration award, it must refer the application to the Higher Court for review before making the decision. If the Higher Court is of the same view as the Intermediate Peoples Court, it must further refer the application to the Supreme Court at Beijing and no decision should be made until the view of the Supreme Court is sought. This practice assists to alleviate the concern of some foreign parties that awards may not be enforced in China due to local protectionism, especially if the losing party is a state-owned enterprise.
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ENFORCEMENT IN HONG KONG Before the resumption of sovereignty of Hong Kong by China, enforcement of Chinese arbitration awards was carried out pursuant to the New York Convention as both Hong Kong (through the United Kingdom) and China were member states to the New York Convention. After 1997, it is generally accepted that the New York Convention is no longer applicable as Hong Kong is a part of China. As discussed above in Enforcement in Mainland China, in order to facilitate the reciprocal enforcement of arbitral awards in Hong Kong and Mainland China after the Handover, an agreement was signed on the reciprocal enforcement of arbitral awards between Hong Kong and Mainland China on 21 June 1999 (the Agreement). Under the Agreement, the procedures for enforcement of a Mainland award before 1 July 1997 is basically preserved. The following are the major features of the Agreement for enforcement of Mainland awards in Hong Kong: Applications for enforcement of the award should be made to the Hong Kong High Court. The applicant cannot file the application in both the Mainland and Hong Kong at the same time. If the applicant has applied for enforcement in Mainland China, only when the result of the enforcement in Mainland China is insufficient to satisfy the award may the applicant apply to the High Court for enforcement. The time limit for the application shall be governed by the law on limitation period in Hong Kong i.e. six years from the date when the other party fails to fulfil its obligation under the award. The grounds for refusing to enforce the award are similar to those under the New York Convention. The Arbitration Ordinance was amended to implement the Agreement which came into operation on 1 February 2000. Under the amended Arbitration Ordinance, awards given by recognised arbitration commissions in Mainland China (148 as at 1 February 2000) may be summarily enforced in Hong Kong. In our experience, application for enforcement of Mainland awards is simple and will normally be approved by the Court in about two weeks.
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COSTS AND EXPENSES The arbitration fee to be accompanied by an application for arbitration or a counterclaim is calculated according to the following schedule (as of 1 May 2005): Claim (RMB) Fee (RMB)
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1 million or less 1 million to 5 million
3.5% of the claimed amount, minimum 10,000 35,000 plus 2.5% of the excess over 1 million
5 million to 10 million 135,000 plus 1.5% of the excess over 5 million 10 million to 50 million 50 million or more 210,000 plus 1% of the excess over 10 million 610,000 plus 0.5% of the excess over 50 million
In addition to this fee, RMB10,000 will also be charged as registration fee in each case to cover the expenses for examining the application for arbitration, accepting the case, computerising management and filing documents. For domestic arbitrations handled by CIETAC, the following fees are payable which generally tally with the fees charged by domestic arbitration commissions in China: (1) Registration Fee Claim (RMB) 1,000 or less 1,001 to 50,000 50,001 to 100,000 100,001 to 200,000 200,001 to 500,000 500,001 to 1,000,000 1,000,001 or more Fee (RMB) minimum 100 100 plus 5% of the excess over 1,000 2,550 plus 4% of the excess over 50,000 4,550 plus 3% of the excess over 100,000 7,550 plus 2% of the excess over 200,000 13,550 plus 1% of the excess over 500,000 18,550 plus 0.5% of the excess over 1 million
(2) Case Handling Fee Claim (RMB) 50,000 or less 50,000 to 200,000 200,000 to 500,000 500,000 to 1 million 1 million to 3 million 3 million to 6 million 6 million to 10 million 10 million to 20 million 20 million to 40 million 40 million or more Fee (RMB) not less than 1,250 1,250 plus 2.5% of the excess over 50,000 5,000 plus 2% of the excess over 200,000 11,000 plus 1.5% of the excess over 500,000 18,500 plus 0.5% of the excess over 1 million 28,500 plus 0.45% of the excess over 3 million 42,000 plus 0.4% of the excess over 6 million 58,000 plus 0.3% of the excess over 10 million 88,000 plus 0.2% of the excess over 20 million 128,000 plus 0.15% of the excess over 40 million
For both foreign related and domestic cases, where the amount of the claim is not ascertained at the time when the application for arbitration is handed in, the amount of arbitration fee shall be determined by the Secretariat of the CIETAC. If a party does not want to be subject to an
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arbitrary decision by the Secretariat on this issue, it may choose to quantify part of its claim and leave the balance as damages to be assessed by the arbitration tribunal. A fee can then be calculated by reference to the liquidated claim. Apart from charging the arbitration fee according to the above schedules and the standard registration fee, the CIETAC may collect other extra, reasonable and actual expenses such as the arbitrators expenses for travelling and accommodation. The CIETAC will notify the Claimant of the exact amount payable at the appropriate time. The arbitration fees charged by the CIETAC include the arbitrators fees, and CIETAC arbitrators therefore do not charge the parties separately on an hourly basis. This is arguably an advantage of CIETAC arbitrations in China. Again, like Hong Kong arbitrations, parties in CIETAC arbitrations usually instruct lawyers, although this is not mandatory. There is also no requirement to retain Chinese lawyers in CIETAC arbitration proceedings. We often conduct cases for clients from Hong Kong and if the situation requires, with the assistance of our offices in Mainland. As with Hong Kong arbitrations, we also charge on an hourly basis for CIETAC arbitrations. CIETAC arbitrations may be cheaper than arbitrations in Hong Kong since the process of discovery and exchange of witness statements are usually not required. Hearings also tend to be shorter as the arbitration tribunal adopts an inquisitorial approach. Claimants should note that according to the Arbitration Rules, the tribunal can award the expenses reasonably incurred by the winning party in dealing with the case.
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MODEL CIETAC ARBITRATION CLAUSES The following model arbitration clause has been recommended by the CIETAC: "Any dispute arising from or in connection with this Contract shall be submitted to China International Economic and Trade Arbitration Commission for arbitration which shall be conducted in accordance with the Commissions arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties." We recommend the following version to Hong Kong parties. This clause has been drafted to maximise the benefits of arbitration proceedings in terms of speed and saving expenses: "All disputes or differences arising from or in connection with this contact shall be submitted to the China International Economic and Trade Arbitration Commission (CIETAC) for arbitration which shall be conducted by the Commission at Beijing in accordance with its latest arbitration rules and using the law of the Hong Kong Special Administrative Region as the governing law. There shall be one arbitrator to be chosen by the parties by mutual agreement within 20 days after the Respondent has received the Notice of Arbitration failing such agreement or if the chosen arbitrator is removed from office or is otherwise unable to perform as an arbitrator in the arbitration, the Chairman of the CIETAC shall choose a foreign arbitrator (non-Chinese) from the CIETAC Panel of Arbitrators to act as the sole Arbitrator for the parties. English shall be used in the arbitration throughout and as a separate covenant, each party hereto hereby agrees to indemnify the other party against all legal costs incurred in the arbitration if it is ordered to pay the legal costs of the other party at the conclusion of the arbitration. The parties also hereby specifically agree to keep all matters related to or arising out of the arbitration confidential during and after the arbitration save for enforcing the arbitration award or complying with an order for disclosure made by a competent Court, a government body or any competent regulatory authority."
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Whilst every effort has been made to ensure the accuracy of this publication, it is intended to provide general guidance and not definitive legal advice.
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A Simple Guide To Arbitration in Hong Kong and Mainland China

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A Simple Guide to Arbitration in Hong Kong and Mainland China