Progress and Conservatism in the Development of International Arbitration in China – the 2024 Draft Amendment to the PRC Arbitration Law

Current PRC Arbitration Law

 2024 Draft

Likely Impact

Supervisory powers of the State (Articles 2 and 23)

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(Article 2) Arbitration activities shall uphold the leadership of the Communist Party of China, implement the guidelines, principles, policies, and decisions of the Party and the State, serve national strategies for opening-up and development, and contribute to the resolution of social conflicts and disputes

There is uncertainty as to what is meant by the phrases "[a]rbitration activities" and "arbitration work" (which are not defined). One potential interpretation is that Article 2 is directed towards policy-making and promotional activities to encourage the conduct of arbitration in China, while Article 23 is directed towards the supervision of arbitration commissions based in China. An alternative interpretation is that the references to "[a]rbitration activities" and "arbitration work" are intended to encompass the conduct of arbitration proceedings by parties, tribunals and institutions, such that parties choosing to arbitrate in China would be required to adhere to China’s guidelines, principles, policies and decisions. It should be noted that provisions similar to Article 2 are a common feature in recent legislation promulgated in the PRC, such as Article 3 of the PRC Anti-Money Laundering Law (amended in November 2024), and are not unique to the PRC Arbitration Law. This tends to suggest that the former interpretation is more likely than the latter.

(Article 23) The judicial administrative department of the State Council shall, in accordance with the law, guide and supervise arbitration work nationwide, improve the supervisory and regulatory system, and organize and plan the development of arbitration.
The judicial administrative departments of the people's governments of provinces, autonomous regions, and municipalities directly under the Central Government shall, in accordance with the law, guide and supervise arbitration work within their respective administrative areas, and shall, regarding arbitration commissions and their constituent members and staff members who violate this Law, order corrections, and depending on the circumstances of the violation, impose penalties such as warnings, circulars of reprimand, fines of more than 1% but less than 10% of the previous year's fee income, confiscation of illegal gains, suspension of arbitration activities for a specified period, or revocation of registration certificates.

Validity of online arbitration proceedings (Article 11)

(Article 11) With the consent of the parties, arbitration activities may be conducted online through an information network platform.
Arbitration activities conducted online through an information network platform shall have the same legal effect as offline arbitration activities.

This provision expressly confirms the validity of arbitration proceedings conducted online. Conducting arbitration online can significantly reduce costs associated with travel, accommodation, and venue hire. It also allows for more flexible scheduling, potentially speeding up the resolution process. Online (or at least hybrid) proceedings have become the 'norm' in international arbitration post COVID-19. By aligning with international practices, this amendment can foster a more competitive and modern arbitration environment.

Arbitration agreements – separability and tribunal powers (Articles 27 and 28)

(Article 19) An arbitration agreement shall exist independently. The amendment, rescission, termination or invalidity of a contract shall not affect the validity of the arbitration agreement.

The arbitral tribunal shall have the authority to affirm the validity of a contract.

(Article 1927) An arbitration agreement shall exist independently. Whether a contract is formed, as well as any amendment, rescission, non-effectiveness, termination, revocation, or invalidity of a contract, shall not affect the validity of the arbitration agreement.
The arbitral tribunal shall have the authority to affirm the validity of a contract.

The 2024 Draft reinforces the principle of separability of the arbitration agreement in Article 27 by providing that the arbitration agreement will not be regarded as invalid because the underlying contract has not been formed, has been revoked, or is considered non-effective. It also empowers the arbitral tribunal to determine the validity of arbitration agreements in Article 28, which reduces the need for parties to seek court intervention to resolve issues of validity, thereby streamlining the arbitration process and making it more efficient. That said, where the parties are in disagreement as to who has jurisdiction, Article 28 provides that the people's court shall render the ruling.

(Article 20) If a party challenges the validity of the arbitration agreement, the party may request the arbitration commission to make a decision, or apply to the people's court for a ruling. If one party requests the arbitration commission to make a decision, and the other party applies to the people's court for a ruling, the people's court shall render the ruling.

A challenge to the validity of the arbitration agreement by a party shall be raised before the arbitral tribunal's first hearing.

(Article 2028) If a party challenges the validity of the arbitration agreement, the party may request the arbitration commission or the arbitral tribunal to make a decision, or apply to the people's court for a ruling. If one party requests the arbitration commission or the arbitral tribunal to make a decision, and the other party applies to the people's court for a ruling, the people's court shall render the ruling.

A challenge to the validity of the arbitration agreement by a party shall be raised before the arbitral tribunal's first hearing.

Time limit for setting aside (Article 69)

(Article 59) A party that wishes to apply for setting aside the arbitral award shall submit such application within six months from the date of receipt of the award.

(Article 5969)A party that wishes to apply for setting aside the arbitral award shall submit such application within sixthree months from the date of receipt of the award.

This provision shortens the time limit for applications to set aside arbitration awards from six months to three months from the date of receipt of the award. This requires parties to act promptly in respect of any challenge to the arbitral award and will likely lead to the quicker resolution of the enforcement process.

Significance of seat (Article 78)

(Article 78) Parties may agree in writing on the seat of arbitration, which shall serve as the basis for determining the applicable governing law and the court of jurisdiction for the arbitration proceedings. The arbitral award shall be deemed to have been rendered at the seat of arbitration.

If the parties have not agreed on the seat of arbitration or their agreement is unclear, the seat of arbitration shall be the place specified in the rules of arbitration; if the rules of arbitration do not specify a place, the arbitral tribunal shall determine the seat of arbitration based on the principle of facilitating dispute resolution.

This provision confirms the significance of the parties' choice of the "seat of arbitration" under PRC law, aligning the law with international arbitration practice. In international arbitration, the seat is crucial for determining the procedural law governing the arbitration process, including rules on how the arbitration is conducted, the powers of the arbitration tribunal, and the procedures for challenging and enforcing awards, etc. The draft wording also provides that the seat of the arbitration would determine the nationality of the arbitral award, and in turn determine whether the award will be deemed to satisfy the requirement of reciprocity, which is a precondition to enforcement of a foreign award in China.

Permitting specific types of ad hoc arbitration (Article 79)

(Article 79) For disputes arising from foreign-related maritime affairs or disputes involving foreign elements between enterprises registered in pilot free trade zones established by approval of the State Council, if the parties have agreed in writing to arbitration, they may choose to have the arbitration conducted by an arbitration commission; alternatively, they may opt for an arbitral tribunal formed by individuals meeting the conditions specified in Article 20 of this Law, to conduct the arbitration at an agreed location within the territory of the People's Republic of China in accordance with the agreed rules of arbitration. The arbitral tribunal shall, within three working days after its formation, file the names of the parties, the agreed place of arbitration, the formation of the arbitral tribunal, and the rules of arbitration with the arbitration association.

This prohibition relaxes the existing requirement that arbitration proceedings seated in Mainland China have to be conducted under institutional rules, permitting ad hoc arbitration in relation to two categories of foreign-related disputes:

(1) disputes arising from foreign-related maritime affairs; and

(2) disputes involving foreign elements between enterprises registered in pilot free trade zones established by approval of the State Council.

This provides parties with greater autonomy when arbitrating in China, granting them a greater range of options beyond institutional arbitration.