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Changes to the New CIET AC Rules Effective 1 May 2005


The China International Economic and Trade Arbitration Commission (CIETAC) recently introduced a new set of arbitration rules, replacing the old CIETAC Rules (the "Old Rules") which have been in force since 1 October 2000. The new CIETAC Rules, which comprise of six chapters and seventy one Articles, came into effect as of 1 May this year, (the "New Rules"). The New Rules reflect greater party autonomy through flexibility in the choice of Rules, and accord wider powers to the arbitral tribunal. They also seek to encourage transparency, promote efficiencies in the arbitral process, and to address criticisms levied at the old Rules.

Key changes are:

  • Parties can now appoint arbitrators outside CIETAC's panel. Parties must provide for this in their contract, if they wish to exercise this right.
  • Parties may agree to CIETAC arbitration outside China. The New Rules now make a distinction between the "place of arbitration", more commonly known as the seat, and the "place of oral hearing", being the venue of the hearing. This allows parties more flexibility when negotiating their arbitration agreement. A Chinese party may insist on using CIETAC Rules or that the venue of the hearing should be in Beijing, but may compromise on the place of arbitration. It is of course the place of arbitration that is critical since this determines which courts will have supervisory powers over the arbitration proceeding and jurisdiction over any challenges made to the Award. Parties should note that the choice of place of arbitration is only relevant in the context of foreign related contracts, since any arbitration agreement that provides for arbitration outside China, without a "foreign element", under PRC laws is void. Particular care should therefore be taken with respect to contracts between locally incorporated foreign investment enterprises and Chinese parties, since these contracts may be regarded as contracts with no foreign element.
  • Parties can modify the CIETAC Rules, and/or incorporate other Institutional Rules. Previously, this was only allowed with CIETAC's consent. The New Rules provide that agreement by parties on the application of other institutional arbitration rules, or modification of the New Rules, is permissible. This flexibility allows parties to deal with matters not addressed by the New Rules. However, the arbitration agreement must not be in conflict with any mandatory provision of the laws of the place of arbitration. In this respect, where the place of arbitration is China it is important to note that PRC laws permit only "foreign related" contracts to provide for arbitration by foreign arbitral institutions. However, in the context of foreign related contracts, it remains unclear whether PRC laws allow arbitrations conducted in China to be administered by foreign arbitral institutions (e.g. the ICC). In addition, PRC laws do not recognise ad hoc arbitrations conducted in China. The PRC Courts, in support, issued "Draft Provisions" (akin to draft procedural regulations) in December 2003, which provide that an arbitration agreement is invalid unless all the parties to the agreement are nationals of states which are parties to the New York Convention and whose laws permit ad hoc arbitration. In effect, if any assistance is required from PRC courts on enforcement, or otherwise, it is important to take care not to adopt ad hoc arbitration rules (the most common, being the UNCITRAL Rules) when contracting with a Chinese party. Finally, where the place of arbitration is outside China, particular care must be taken when incorporating foreign arbitral institutional rules, with CIETAC as the administering body, since this is not feasible under most foreign arbitral institutional rules (for example the ICC Rules).
  • Parties' obligation to proceed with the arbitration in bona fide cooperation. This obligation suggests that a party must act in good faith when progressing the arbitration. Issues may arise as to whether tactical delays will be viewed as a breach of the obligation.
  • Scope for arbitral tribunal to rule on objection to jurisdiction. The Old Rules provided that CIETAC has this power. The New Rules now provide that CIETAC can delegate this power to the arbitral tribunal, although it remains unclear as to when, and in what circumstances, CIETAC will do so.
  • Arbitrators may adopt either the adversarial or the inquisitorial method. In the context of international arbitrations, this distinction is not critical, since arbitrators generally adopt a mixture of both methods. If this is important to the parties, they should provide for this in their arbitration agreement.
  • Arbitrators must render an award within a 6-month timeframe. This timeline has been reduced from the 9-month limit in the Old Rules, but is still subject to extension where appropriate.
  • Minority opinion by the Tribunal. The Old Rules provided that the minority opinion may be recorded and filed, but made no provision for its disclosure to parties. The New Rules provide that the minority opinion must be filed and importantly, may be attached to the Award, although it will not form part of the Award. The circumstances when it may be attached to the Award are unclear. A written dissenting opinion may be useful during challenges made to the Award, or when resisting enforcement.
  • Removal of restriction on recovery of costs. The restriction previously imposed by the Old Rules that the recoverable expenses incurred by the winning party should not exceed 10% of the total amount awarded is now removed.
  • Some other additions. There are provisions in the New Rules requiring arbitrators to disclose facts that may give rise to doubts as to their impartiality; and dealing with the appointment of arbitrators in the case of multiparty arbitrations; confidentiality of proceedings; the power the of tribunal to extend time limits for filing of defences; the power of the tribunal to set a time limit for parties to execute the Award and to impose sanctions, for failing to do so.

CIETAC has made some innovative changes to its Rules and is to be commended for them. For a full text version of the New Rules, visit http://www.cietac.org.cn/english/rules.htm

Herbert Smith E-Bulletin
13 May 2005

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