June 17, 2021

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PRC Corporations in Intercontinental Arbitration (Sequence 1): Introduction and History | Dorsey & Whitney LLP

Introduction to the series

With the fast enhancement of China’s national financial state, much more and far more PRC corporations will enter occasional disputes with international companions in global business enterprise dealings. Based on their bargaining positions all through the system of agreement negotiations, the get-togethers might pick out to arbitrate in Hong Kong as dispute resolution provision. On the 1 hand, Hong Kong, as component of China, is desirable to PRC businesses owing to its geographical benefit and being familiar with of socio-cultural relations with the Mainland on the other hand, overseas enterprises discover Hong Kong’s lawful system mature and its use of widespread legislation preferable. This is also a reason why arbitration proceedings in Hong Kong have associated a lot more PRC firms in convert.

In this collection, we intend to tackle some popular inquiries and misunderstandings PRC companies may perhaps face when going through arbitration proceedings in Hong Kong, and set ahead some possible methods for thing to consider.  Subjects will include 

(i) Quick Qualifications about Intercontinental Arbitration

(ii) Arrangement on Interim Measures between Hong Kong and PRC

(iii) Prices in arbitration

(iv) 3rd-party Funding

(v) Expenditures order in arbitration

(vi) Collection of arbitrators and

(vii) How to enforce arbitral awards.

What is intercontinental arbitration?

 In modern-day commerce, PRC Businesses frequently have to have to enter into sale and purchase agreements, as well as various kinds of funding and joint enterprise agreements with foreign counterparts. The two events may perhaps decide on to integrate arbitration provisions that stipulate all contract-linked disputes need to be settled by means of arbitration. Exactly where these types of provisions stipulate the appointed arbitration establishment to be in a jurisdiction outdoors mainland China, this kind of arbitration is outlined as intercontinental arbitration.

Arbitration is a dispute resolution system in area of litigation, whereby contracting get-togethers provide their dispute to an arbitration tribunal for determination. Arbitral tribunal would make its decision primarily based on proof submitted by the events in dispute and the undertaking of arbitration methods. The tribunal would then declare the judgment in the sort of awards, which is equivalent to judgments in standard litigation. An arbitration tribunal’s awards are last,1 with equivalent binding electric power as that of a courtroom. Nonetheless, in contrast to a court docket judgment, enforcing an arbitral award in a overseas jurisdiction has come to be a lot less complicated, as most countries are signatories to the United Nations Conference on the Recognition and Enforcement of Overseas Arbitral Awards (the “New York Convention”). At the similar time, the full arbitration process is private.

Down below are some fundamental characteristics of international arbitration, with the pretext of a regular arbitration carried out in Hong Kong.

Can PRC companies ask for to engage in arbitration in Hong Kong?

 Yes, as long as the arbitration provisions in a deal listing Hong Kong as the selected “arbitration venue”. Of program, even if a contract does not have arbitration provisions, contracting functions may well concur to interact in arbitration to resolve their dispute soon after-the-point. 

Hong Kong is usually noticed as an interesting hub for international arbitration for a selection of good reasons. For starters, Hong Kong is the door to Mainland China, and is the industrial hub that connects to all of East Asia, South East Asia, Australia-South Pacific and even the relaxation of the world. Secondly, Hong Kong has a powerful, experienced, and arbitration-welcoming legal technique, with a substantial variety of arbitrators and other legal staff to help present arbitration infrastructure. Ultimately, arbitration awards produced in Hong Kong are quickly enforced in all main jurisdictions, which includes in mainland China.

What are the variations in arbitration proceedings in Hong Kong and those in mainland China?

The big difference involving arbitration in Mainland China and that in Hong Kong is effectively the big difference amongst PRC regulation and Hong Kong law. Centered on our expertise, we take note the subsequent prevalent worries that PRC companies could face when dealing with arbitration proceedings in Hong Kong:

1. Common Regulation is seen as “case produced law”, and just about every circumstance can be distinguished from one more thanks to its one of a kind factual matrix. A distinct wording adopted in a contractual expression, an email among the events, a Wechat message, or a phone dialogue may possibly enjoy a critical purpose in a dispute. These things may well also build excellent bargains of uncertainty to every situation.

2. Arbitration demands a higher degree of celebration participation, from instructing solicitors at the outset, to strategic arranging with solicitors, to even testifying in entrance of the arbitration tribunal. In small, consumers and solicitors will have to be joint participants. While in mainland China, consumer would normally hand the situation around to the lawyers, and thus the degree of participation is substantially reduced.

3. Arbitration in Hong Kong typically usually takes additional time, and hence incurs bigger bills.

4. Arbitration awards in Hong Kong are much far more recognized internationally.

How is an arbitration tribunal fashioned?

 First of all, the selection of arbitrators must be confirmed, it might be a sole arbitrator or a three-man or woman tribunal, which is usually specified in the deal. If there is no these kinds of provision, or contracting parties can’t appear to an arrangement about how a lot of arbitrators there need to be, the range of arbitrators will be established by the relevant rules and procedures.

If the deal stipulates for a sole arbitrator, the alternative of arbitrator will be decided by the techniques established out in the contract, or by an impartial third get together nominated below the deal. If the contract provisions stipulate for three arbitrators, then normally each contracting occasion will nominate an arbitrator, with a 3rd arbitrator (the Chair) nominated by the two social gathering nominated arbitrators. Where by get-togethers cannot come to an arrangement over arbitrators, or their contract does not make these kinds of provisions, any celebration may well ask for the Hong Kong Worldwide Arbitration Centre (HKIAC) to make a ruling.

In arbitration, parties can freely pick out the arbitration tribunal, whereas in litigation, the presiding judge is chosen by the court. This is also an gain that arbitration has in excess of standard litigation. Nominating arbitrators can be an crucial tactic in arbitration: the best nominee must be professional and is very well highly regarded. A fantastic arbitrator need to be ready to correctly command arbitration proceedings, so that the dispute can be solved as properly as doable. Criteria that events ought to acquire into account when deciding on a acceptable arbitrator will be explored in later posts. 

What disputes can be solved via arbitration?

Arbitration can take care of all sorts of civil and business disputes, apart from in disputes exactly where the courtroom has special jurisdiction. For illustration, beneath Hong Kong legislation, disputes above employment and employment wages, prison cases, and divorces are unable to be arbitrated.

What regulations are applicable in arbitral disputes?

 Most contracts include a governing legislation provision. Arbitration tribunals will consequently abide by these provisions in arbitrating the disputes in between contracting functions.

At the exact time, arbitration will be subject matter to procedural legislation,2 which themselves are identified by the area of arbitration, which in switch is identified in the appropriate arbitration settlement(s). For instance, if a deal stipulates that Hong Kong is to be the venue of arbitration, then the Hong Kong Arbitration Ordinance (Cap 609) will serve as the procedural regulation governing the arbitration proceedings. Equally, if Beijing or Shanghai was selected as the arbitration venue, then the Arbitration Regulation of the People’s Republic of China will govern arbitration proceedings.3

Dorsey & Whitney LLP has loaded expertise in dealing with complex arbitration situations in, and arbitral disputes beneath both of those mainland China and Hong Kong.

In what language is arbitration held?

In principle, both arbitrating parties can freely agree to the language of arbitration. When selecting on a language, the two functions really should think about their indigenous language as well as the language employed in relevant contracts and proof. Generally, arbitration agreements will have previously stipulated the language of use in arbitration.

If appropriate contracts use more than a single language, then usually, when get-togethers are in conflict, a person of the various languages applied should really be produced the “priority use” language. This also applies to the arbitration continuing alone, as a dual-lingual or multi-lingual arbitration continuing is not the suitable remedy.


1 Only in quite confined conditions, a party may be ready to appeal towards an arbitral award.
These procedural guidelines stipulate the fundamental legal framework of arbitration, as well as the connection involving courts and arbitration proceedings, these as the enforcement, recognition and invalidation of arbitral awards.
3 As promulgated by the Buy of the President of the People’s Republic of China (No. 31) on August 31, 1994.