By Adolf Peter - Attorney-at-Law, Graf & Pitkowitz Rechtsanwälte GmbH, Vienna, Austria
I. The Opening of the CIETAC European Arbitration Centre
On 28 September 2018 the China International Economic and Trade Arbitration Commission (“CIETAC”) opened its first office in Europe in Vienna, Austria: the CIETAC European Arbitration Centre.
CIETAC’s choice to open its office in Vienna is a strategic decision as Austria provides a very arbitration-friendly lex arbitri and Vienna is situated close to the members of the so-called 17+1 Initiative.
The 17+1 format is an initiative by the People’s Republic of China (“1” stands for China) and plays a significant role for China’s most ambitious and promising project, the Belt & Road Initiative (“BRI”). The 17+1 Initiative was launched in 2012. It is aimed at intensifying and expanding cooperation with 12 EU member states (Bulgaria, Croatia, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia) and 5 Balkan nations (Albania, Bosnia and Herzegovina, Montenegro, Serbia and Macedonia) in the fields of investments, transport, finance, science, education, and culture. The three priority areas of the 17+1 Initiative are infrastructure, high technologies and green technologies.
A major increase in disputes arising out of these projects is to be expected which will have to be settled preferably by arbitration.
Although CIETAC opened its office in Vienna in order to administrate Vienna-seated CIETAC arbitrations, it is crucial to note that Chinese law does not allow foreign-seated arbitrations for cases which are not foreign-related.
The fact that a China-seated foreign-invested enterprise is one of the parties in an arbitration may be insufficient for qualifying the case as “foreign-related” as Chinese courts consider foreign-invested enterprises and even wholly foreign-owned enterprises as domestic due to being registered in China. The question if a case is foreign-related is decided on a case-by-case basis based on criteria developed by China’s Supreme People’s Court.
As a consequence, CIETAC arbitrations seated in Vienna may only be recommended for cases where there can be no doubt about the case to be qualified as foreign-related. Thus, to be safe and to avoid a potential invalid arbitration clause, a Vienna-seated CIETAC arbitration should only be chosen in cases where at least one of the parties is seated outside of China. In cases related to the BRI in connection with the 17+1 Initiative most of the contracts will be between China-seated and European-seated enterprises. As a result, a Vienna-seated CIETAC arbitration might be the ideal compromise between the contractual parties. The European parties would get an arbitration seated in Europe with the advantage of a well-developed Austrian lex arbitri and for the Chinese party it would be advantageous that the arbitration would be administered by a Chinese arbitration institution.
II. Vienna-Seated CIETAC Arbitrations – Selected Issues
A Vienna-seated CIETAC arbitration, of course, raises the question of what are the legal implications of having Austrian lex arbitri applied in a CIETAC arbitration. This article focuses on the following four issues:
(i) Setting aside of an arbitration award
(ii) Conservatory & interim measures
(iii) Challenges to arbitrators
(iv) Decisions on jurisdiction
A) Setting Aside of an Arbitration Award
As a result of the seat of the arbitration in Vienna, the Austrian Supreme Court is the competent court for setting aside an arbitration award. No other court instances are involved in setting aside proceedings. As a result, the proceedings are quick (there are no appeals), efficient and the keeping of a high standard is guaranteed.
It has to be noted that the Austrian Supreme Court has already produced a wealth of case law in arbitration matters and is considered to be arbitration-friendly. The grounds for setting aside an arbitration award in Austria are of course based on Article V of the New York Convention. The action for setting aside must be made within three months after the claimant received the arbitration award.
B) Conservatory & Interim Measures
Interim measures ordered by arbitral tribunals or courts seated outside of China are not enforceable in China as there is a lack of an express legal basis for Chinese courts to grant interim measures in support of arbitrations seated outside of China.
Pursuant to Articles 28, 46 and 68 of the Chinese Arbitration Law a party’s application for the preservation of property or evidence shall be submitted by the arbitration commission to the competent Chinese people’s court.
It should be emphasized that Chinese Civil Procedure Law (Article 272) sets forth that where a party applies for a preservation measure, the international arbitral institution of the People’s Republic of China shall submit the party’s application to the competent Chinese courts.
This approach has been confirmed by the Shanghai First Intermediate People’s Court decision in a Civil Procedure Preservation Ruling regarding the Dongwon F&B Arbitral Procedure:1 The Shanghai First Intermediate People’s Court refused an application for property preservation relating to an arbitration administered by the Korean Commercial Arbitration Board (KCAB). The court’s reasoning was based on the fact that the arbitration was not commenced in China.
It should be mentioned that this legal situation even applied in the case of Hong Kong until recent development. On 2 April 2019, a bilateral agreement between Mainland China and Hong Kong was concluded pursuant to which Chinese courts are empowered to grant interim measures in support of arbitration which are seated in Hong Kong. The date on which this agreement will enter into force is still to be announced.
Thus, it seems that the only way for contractual parties to be able to apply for interim measures in Mainland China is the conclusion of an arbitration agreement which sets forth the seat of arbitration either in Mainland China or Hong Kong. As the application for interim measures can be crucial in certain situations this legal situation has to be kept in mind when concluding an arbitration agreement with Chinese parties.
What does this mean for a Vienna-seated CIETAC arbitration? Article 23 para. 1 of the CIETAC Arbitration Rules specifies that CIETAC shall forward a party’s application for interim measures to the competent Chinese courts.
In the author’s opinion the CIETAC European Arbitration Centre will have to be qualified as a CIETAC sub-commission. Consequently, there are good arguments that Chinese courts are provided with a sufficient legal basis for the granting of interim measures relating to Vienna-seated CIETAC arbitrations: The application for interim measures would be forwarded to the respective intermediate people’s court by a Chinese arbitration commission, namely CIETAC’s branch, the CIETAC European Arbitration Centre (a CIETAC sub-commission). Even if the forwarding of such applications by the CIETAC European Arbitration Centre is not accepted by Chinese courts, parties’ applications for interim measures could first be forwarded by the CIETAC European Arbitration Centre to CIETAC Beijing which could then forward these applications to the competent Chinese intermediate people’s court.
It will certainly be interesting to see how Chinese courts will handle applications forwarded by the CIETAC European Arbitration Centre. As the competition between arbitration institutions for BRI-related disputes is tough, it would of course be a major advantage for Vienna-seated CIETAC arbitrations if these applications are accepted by Chinese courts.
In any event, due to the lack of a legal basis in Chinese law it will not be possible to enforce in China interim measures ordered directly by Austrian courts or arbitral tribunals of a Vienna-seated CIETAC arbitration as (see above) interim measures may only be ordered by a Chinese people’s court upon a party’s application for interim measures which has to be submitted to the competent Chinese people’s court by a Chinese arbitration commission (e.g. CIETAC or CIETAC’s sub-commission, the CIETAC European Arbitration Centre).
C) Challenge to Arbitrators
Pursuant to Article 36 of the Chinese Arbitration Law the decision as to whether or not an arbitrator should withdraw shall be made by the chairman of the arbitration commission.
Article 32 of the CIETAC Arbitration Rules sets forth the rules for challenges to arbitrators: A party having justifiable doubts as to the impartiality or independence of an arbitrator may challenge that arbitrator in writing within 15 days from the date it receives the notice of formation of the tribunal or within 15 days after becoming aware of a reason for a challenge. The chairman of CIETAC shall make a final decision on the challenge with or without stating the reasons.
In a Vienna-seated CIETAC arbitration an unsuccessful challenge of an arbitrator can be brought to the Austrian Supreme Court: Section 589 para. 3 in connection with section 615 of the Austrian Code of Civil Procedure provide that such a challenge has to be brought within four weeks after having received the decision rejecting the challenge. The Austrian Supreme Court’s decision is final and subject to no appeal.
In light of the fact that the chairman of CIETAC does not have to state a reason for rejecting a challenge to arbitrators it should be mentioned that the review by the Austrian Supreme Court is mandatory lex arbitri. Consequently, a final decision stating detailed reasons is guaranteed due to the applicability of Austrian lex arbitri.
D) Decision on Jurisdiction
Article 20 of the Chinese Arbitration Law determines that in the event a party challenges the validity of the arbitration agreement, it may request the arbitration commission to make a decision or apply to the people’s court for a ruling.
Such a provision is quite unique in international arbitration as the Chinese Arbitration Law does not authorize the arbitral tribunals to decide on their own jurisdiction. The principle of competence-competence is the standard in international arbitration.
Pursuant to Article 6 of the CIETAC Arbitration Rules CIETAC may delegate the power to render a jurisdictional decision to the arbitral tribunal.
Austrian arbitration law authorizes arbitral tribunals to rule on their own jurisdiction. The authorization is provided in section 592 para. 1 of the Austrian Civil Code of Procedure which is a mandatory provision as well. This means that in a CIETAC arbitration seated in Vienna the arbitral tribunal has the power to decide on its own jurisdiction.
Pursuant to section 592 para. 2 of the Austrian Code of Civil Procedure a plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the first pleading in the matter. Consequently, in a CIETAC arbitration seated in Vienna a respondent will have to include its jurisdictional objection at the latest in its statement of defense pursuant to Article 15 of the CIETAC Arbitration Rules.
It should not remain unmentioned that Article 20 of the Chinese Arbitration Law further provides that 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 give the ruling. As in a Vienna-seated CIETAC arbitration Austrian law (and not Chinese law) is the lex arbitri, any Chinese people’s court should accept that legal fact and reject a party’s application for a jurisdictional ruling based on the applicability of the Austrian lex arbitri which mandatorily authorizes the arbitral tribunal to rule on its own jurisdiction. Even in the event that a Chinese people’s court does not reject such application, Chinese court decisions are not enforceable in Austria due to a lack of reciprocity. Thus, a Chinese ruling on the jurisdiction would not be binding upon the arbitral tribunal, but a certain risk remains that in such scenario the final award would not be recognized and enforced in China.
III. Should Other Asian Arbitration Institutions Open an Office in Europe as well?
Based on CIETAC’s move to Europe the question arises if other Asian arbitration institutions should follow suit CIETAC’s approach and establish their own offices in Europe in order to attract BRI-related disputes involving European parties.
In Asia there are two dominant and extremely professional arbitration institutions: the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC). Both institutions have a strong focus on common law. Although the yearly case load of these institutions is very impressive, the opening of SIAC and HKIAC offices in Europe would highly likely have the consequence of being able to attract even more arbitrations along the BRI.
Lesser known arbitration institutions in the region will have to increase their visibility and have to attract attention in order to get international arbitration cases (especially BRI-related arbitration cases). How to do that? They have to be innovative and introduce provisions in their arbitration rules which are not offered by their competition. Most importantly, they should focus on civil law as many countries along the BRI (including members of the 17+1 Initiative) are civil law countries.
Going abroad and opening a foreign-seated office has the consequence of the application of a different and maybe more arbitration-friendly lex arbitri which might be more attractive especially for European parties.
The development of a foreign office will of course take several years. The first step would be the opening of a representative office in order to create awareness and for marketing purposes. Eventually, a full case administration team will have to be installed. In the case of CIETAC in Hong Kong this process took between two and three years.
[1] Civil Procedure Preservation Ruling regarding the F&B Arbitral Procedure, Shanghai First Intermediate People’s Court (2014) Hu Yi Zhong Shou Chu Zi No. 2.