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New alternative for dispute resolution in China – Shanghai Free-Trade Zone Arbitration

Terence Wong

14 July 2014
While Chinese and foreign companies may be familiar with mediation and arbitration and other forms of alternative dispute resolution ("ADR") in China, the concept of arbitration with a flavour of Free-Trade Zone ("FTZ") may be something new.

Nonetheless, the Shanghai international Arbitration Centre ("SHIAC"), formerly known as the Shanghai Sub-commission of CIETAC (which stands for the China International Economic and Trade Arbitration Commission) recently offered this alternative for the Shanghai FTZ, which alternative is also expressly backed up by the Courts in Shanghai.

For those doing business in China and/or with Chinese companies, given the features set out below, this is an alternative which should be carefully explored.


The China (Shanghai) Pilot Free-Trade Zone中国(上海)自由贸易试验区 ("Shanghai FTZ") was launched on 29 September 2013, covering an area of about area of 29 km² and integrating four existing zones in the district of Pudong, Shanghai.  The Shanghai FTZ is being used as a testing ground for a number of economic and social reforms.

In this connection, SHIAC promulgated the China (Shanghai) Pilot Free-Trade Zone Arbitration Rules ("the FTZ Arbitration Rules") which became effective as from 1 May 2014.  Three days later, on 4 May 2014, the Shanghai No. 2 Intermediate People's Court promulgated Several Opinions ("the Opinions") regarding Judicial Review and Enforcement applicable to the FTZ Arbitration Rules.

Both the FTZ Arbitration Rules as well as the Opinions contain features aiming to resolve disputes in a more costs effective manner.  However, there are also aspects which await further clarification.

Features of the FTZ Arbitration Rules

The FTZ Arbitration Rules shall apply where (1) the parties agreed to refer their disputes to SHIAC, and (2) the subject matter of the dispute or the relationship between the parties is connected with the Shanghai FTZ.  Accordingly, if a company's registered address is in the Shanghai FTZ, the FTZ Arbitration Rules are applicable to arbitration agreements entered into by that company referring disputes to SHIAC, even though the parties did not expressly refer to the FTZ Arbitration Rules.  This is a feature which should be noted by both non-Shanghai FTZ companies as well as Shanghai FTZ companies.

The FTZ Arbitration Rules allow parties to "recommend person(s) from outside the Panel of Arbitrators as the arbitrator", without any confirmation by SHIAC's Chairman (which confirmation is otherwise required under SHIAC's conventional arbitration rules).  However, the issue whether recommending persons on the one hand, is equivalent to appointment of arbitrators on the other hand, remains to be clarified.

There is a whole Chapter in the FTZ Arbitration Rules containing seven Articles devoted to Interim Measures.  In particular, Article 21 of the FTZ Arbitration Rules allowed parties to apply for an Emergency Arbitral Tribunal.  Such features are clearly designed to resolve disputes in a costs effective manner.  In comparison, there is only one article in SHIAC's conventional arbitration rules under the heading "Preservation Measures", and there is no reference to Emergency Arbitral Tribunal.  However, given that under the PRC Civil Procedural Law only empowers the PRC Courts to grant interim measures, it will be interesting to see how such provisions will be applied in practice.

There are too many other features to be examined under this short article, which features include (1) mediation by mediators (alongside with mediation by the Arbitral Tribunal), (2) procedures for small claims under RMB 100,000 (compared with RMB 1,000,000 under SHIAC's conventional arbitration rules), and (3) an express reference to rendering arbitral award ex aequo et bono (which is a Latin phrase for "according to the right and good" or "from equity and conscience", translated by SHIAC as 友好仲裁, or "friendly arbitration").

Features of the Opinions from the Shanghai No. 2 Intermediate People's Court

The Opinions covers various areas including preservation measures (such as property and/or evidence), judicial review, as well as enforcement of arbitral awards.

Regarding preservation measures, the Opinions expressly stipulated that the Courts should deal with emergency cases within 24 hours, and may require the applicant to provide cash security (usually at least 30% of the amount in question) or other forms of security from third party financial institutions.

For judicial review of applications to confirm validity of an arbitration agreement, or to set aside an arbitral award, the Opinion expressly stipulated that a hearing should usually be held within 10 days, and a decision be rendered within 20 days.

The Opinion stipulated that the Courts should usually decide on the same day whether to levy execution on an arbitral award, and if so should within 24 hours initiate procedure to trace assets which are clearly identifiable.

As can be seen above, the Opinion has set out a clear timetable for various steps to be taken.

Furthermore, the Shanghai Courts have in the Opinion implicitly confirmed that arbitral awards from SHIAC are enforceable, despite protest by CIETAC's Headquarters in Beijing that it was "unlawful" for SHIAC to change its name and that SHIAC's authority to render any arbitral awards has been revoked.  See our Newsflash entitled "Shanghai International Arbitration Centre - A New Chapter" for more details.  It will be interesting to how the Courts in Beijing and in other parts of China and in other countries deal with this issue.

Terence Wong

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