Can disputes without a foreign element be arbitrated outside china?

The phrase “dispute without a foreign element” means a dispute in which the subject, object and legal relationship all lack a foreign connection. In the past, when faced with the question of whether such disputes could be arbitrated outside of China, the typical reaction was not “whether it is possible”, but rather “whether it is necessary”. However, with the increasing complexity of civil and commercial law relationships, a new type of dispute has gradually evolved that, although not satisfying the three statutory conditions, nonetheless has an immediate connection with offshore interests.

For example, under a typical variable interest entity (VIE) framework, a dispute may arise between the foreign-invested enterprise established in China by a foreign investor and the wholly Chinese-owned licensed operator. Because the foreign-invested enterprise does not have the status of a foreign legal person, its dispute with the wholly Chinese-owned licensed operator is very likely to be deemed a domestic case. However, we understand that a significant number of VIE agreements have opted for foreign arbitration as the method of dispute resolution.

With the appearance of such new types of disputes, the arbitration abroad of disputes without a foreign element has become a very real need. In 2009, the Shanghai Pudong New Area People’s Court announced that among the cases that it had recently accepted, there were four involving the selection of foreign arbitration for disputes without a foreign element, and called upon the relevant authorities to clarify the adjudication yardstick in such cases.