30 Apr 2019
On December 30, 2016, the Supreme People's Court ("SPC") as a result of the Fa Fa [2016] No. 34 case, issued the Opinions on Providing Judicial Protection for the Construction of Pilot Free Trade Zones. Both the Chinese and International legal community have considered this as widening the pro-arbitration stand taken by the Chinese Courts.
“It can be deemed as a valid arbitration agreement if it is agreed among the companies registered in the Pilot Free Trade Zone that the disputes shall be arbitrated in a specific place in the mainland China, in accordance with the specific arbitration rules, and by specific persons. If the People’s Court believes the arbitration agreement to be void, it shall report to the upper level of Court for examination. If the upper Court agrees with the lower Court, it shall report its examination opinions to the Supreme Court level by level and make a ruling after the Supreme Court makes a reply.”
How would this relate to the premise that Malaysian lawyers could venture their markets beyond their territorial limits? To answer this, one must understand that ad hoc arbitration is not allowed in China. All arbitration in China must be conducted vis-à-vis an institution. Currently, there are more than 200 arbitration institutions in China.
The SPC judge has found that the Opinions issued are to facilitate institutional innovation in the Free Trade Zone. This is to promote international investment and trade, especially foreign direct investment in China. This is evidenced in Paragraph 3, Article 9 of the Opinions which provided that the ad hoc arbitration agreements made between the company registered in the Free Trade Zone to be arbitrated in mainland China, may be deemed valid. This seems to suggest that the Chinese court has allowed a foreign arbitration to be conducted on an ad hoc basis in China, breaking the traditional monopoly of the arbitration industries limited to the Chinese arbitral institution only.
A particular advantage of ad hoc arbitration is that it can be tailored made to the agreement and needs of the parties on a case-by-case basis, choosing the expertise and neutrality of the arbitrator they want. This is indeed a welcome breakthrough to the current arbitration market and strengthening of the pro-arbitration stand taken by the Chinese.
However, this would be limited to activities which lay in the Free Trade Zone in China. Drafting and negotiating such an arbitration clause should pay more attention to operational cause and effect. Such as the appointing authority in the absence of specific agreement on arbitrator selection and mapping put the challenge procedure. This would entail unavoidable cooperation with local Chinese lawyers on the strategy and enforcement.
HKIAC, ICC and SIAC have all opened their representative offices in Shanghai in recent years and are viciously promoting their product to the Chinese legal market. AIAC has yet to set their presence in the Chinese legal market.
While it is difficult to predict at this point with any degree of certainty the full impact the new Opinions will have, but it is definitely an opportunity for the Malaysian lawyers or arbitrators to venture into the Chinese market as the use of English law has been more commonly used in the Belt & Road Investment. This would be the Malaysian legal fraternity cup of tea and widely sought after set of skills and knowledge.
With the vast investment by the Chinese company in Malaysia in recent years, it is indisputable that cross border legal works are growing and waiting for Malaysian lawyers to set their foot beyond their comfort zone. What are you still waiting for?
Dato Ricky Tan MCIArb
President of China-Asean Legal Cooperation Center (Malaysia), Arbitrator & Adjudicator