Limited application of ad hoc arbitration in China

Ad hoc arbitration has a long history, compared with institutional arbitration, which has a history of only 125 years. International arbitration circles are familiar with both forms. In China, Article 16 of the Arbitration Law promulgated and implemented in 1995 specifies that an arbitration agreement requires the selection of an arbitration commission. The Interpretations of Several Issues Concerning the Application of the Arbitration Law of the People’s Republic of China issued by the Supreme People’s Court in 2006 also specify that the determination of an arbitration institution is one of the important conditions for an arbitration agreement to be valid. From this it can be seen that the Arbitration Law and its judicial interpretations have determined the principles for institutional arbitration in China, but are silent on ad hoc arbitration. The latter has not been accorded recognition.

This has created a paradoxical situation. As a contracting state to the New York Convention, China is required to comply with paragraph 2 of Article 1 of the Convention: “The term ‘arbitral awards’ shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submitted”. Accordingly, the foreign arbitral awards specified by the New York Convention include the arbitral awards rendered by permanent arbitration institutions and ad hoc arbitration tribunals, so ad hoc arbitral awards rendered in foreign countries, and even in Hong Kong and Macau, can be recognized and enforced in mainland China. However, the failure of the laws of mainland China to recognize ad hoc arbitration leads to such unfavourable results as limiting Chinese parties’ options in terms of arbitration, and courts being likely to find arbitration agreements to be invalid due to such issues as the lack of a defined arbitration institution. Such an outcome actually runs counter to the original intent of allowing parties to select arbitration to resolve disputes. It is also inimical to Chinese parties and arbitrators comprehensively understanding the state of arbitration in the West and the philosophy of international arbitration, and is also unfavourable to their developing the capabilities to participate in, manage and control arbitration procedures.

Tony Zhang and Grace Zheng are senior partners at Co-effort Law Firm