Ten Issues Needing Attention in Concluding Arbitration Clauses(Part One)
Wang Ze ^*

    Since the Arbitration Law of the People’s Republic of China (hereinafter referred to as the Arbitration Law) was implemented in 1995, arbitration serving as an alternative dispute resolution has been developed fast. In accordance with the data published by the Legislative Affairs Office of the State Council, in 1999, 152 arbitration commissions nationwide accepted 7,394 cases in total with an amount in dispute of 16.7 billion Yuan (RMB, similarly hereinafter), while in 2012, 219 arbitration commissions nationwide accepted 96,378 cases in total with an amount in dispute of 131.5 billion Yuan, among which Beijing Arbitration Commission (hereinafter referred to as BAC) accepted 328 cases with an amount in dispute of 1.7 billion Yuan in 1999. Since 2004, BAC has accepted an average of 1,500 cases every year, and the amount in dispute in 2013 even reached 12 billion Yuan. By contrast with the courts nationwide, which, in accordance with the data published by the Supreme People’s Court, accepted as many as 3,776,137 contractual cases at the first instance and up to 7,316,463 civil and commercial cases in 2012, arbitration commissions accepted obviously far less cases than the people’s courts. However, there can be no denying that more and more parties in commercial activities turn to be aware of, understand and be willing to refer their disputes to arbitration, which they used to be not aware of, not understand and not refer their disputes to. In the practice of law, arbitration earns more and more attention, as well as a large quantity of professional arbitration practical lawyers emerge; in universities and colleges, arbitration-related courses are developed, researches go deeper and students of law schools are offered more opportunities to understand arbitration; in the international field, Chinese arbitration institutions step onto the international stage to show the world the development of Chinese arbitration systems, arbitration institutions and arbitration professionals.

    Meanwhile, we are also encountered with some issues in practice, which may raise barriers against the parties to refer their disputes to arbitration and affect the results of arbitration in resolving disputes. It is listed in the text ten angles to introduce the issues needing attention in concluding arbitration clauses, which are expected to help arbitration users.

I. To what disputes may arbitration apply?

    The Arbitration Law stipulates in positive and negative angles the scope of arbitration to be applied. Article 2 provides in the positive angle that “Contractual disputes and other disputes arising from property rights and interests between citizens, legal persons and other organizations of equal status in law may be submitted for arbitration”, while Article 3 and Article 77 provide otherwise. Article 3 provides that “The following disputes shall not be submitted for arbitration: (I) disputes over marriage, adoption, guardianship, child maintenance and inheritance; (II) administrative disputes falling within the jurisdiction of the relevant administrative organs according to law”. Article 77 has provided two kinds of disputes to which the Arbitration Law is not applied: Arbitration of labor disputes and disputes over contracts for undertaking agricultural projects within agricultural collective economic organizations shall be separately stipulated. Meanwhile, in accordance with the provision of Article 17 of the Arbitration Law, an arbitration agreement shall be invalid where matters agreed upon for arbitration are beyond the scope of arbitration prescribed by law.

II. In what disputes are arbitration suitable?

    Where the parties to a dispute have determined that the dispute may be submitted for arbitration, they shall consider whether the case is suitable to be resolved through arbitration. Fees stand first on the list to be considered. BAC receives relatively higher arbitration fees in cases where the amounts in dispute are smaller, while arbitration fees are lower than legal costs in cases where the amounts in dispute are relatively larger. BAC receives a minimum of 5,100 Yuan, i.e. even if the amount in dispute is 1 Yuan, the parties have to pay the arbitration fee of 5,100 Yuan in advance. But if the amount in dispute exceeds 1,600,000 Yuan, the arbitration fee will be less than the total legal costs at the first and second instances. Where the amount in dispute exceeds 45,000,000 Yuan, the arbitration fee will be even less than the legal costs at the first instance. In addition, the characteristics of the arbitration system come second on the list. By contrast with the system of the judgment of the second instance as final, the arbitration award shall be final and binding, which is much faster. Meanwhile, arbitrators are specialists of all industries and are more authoritative in dealing with professional issues. Therefore, cases involving such professional areas as international trade, finance, investment, construction and intellectual property are more suitable to be decided through arbitration.

III. The expression of the parties’ wish to submit to arbitration

    Article 16 of the Arbitration Law provides that an arbitration agreement shall have three contents, one of which is the expression of the parties’ wish to submit to arbitration. In addition, Article 7 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Arbitration Law of the People’s Republic of China (hereinafter referred to as the Interpretation on the Arbitration Law) provides that “Where concerned parties agree that they may either apply to the arbitration organ for arbitration or bring a lawsuit to the people’s court for settlement of disputes, the arbitration agreement shall become valid, except where, after one party applies to the arbitration organ for arbitration, the other party fails to propose any objection within the period prescribed in Paragraph 2 of the Article 20 of the Arbitration Law.” In combination with Article 18 (Where an arbitration agreement does not specify or clearly specify the matters for arbitration or an arbitration commission, the parties may reach a supplementary agreement. Where they fail to reach a supplementary agreement, the arbitration agreement shall be deemed invalid) and Paragraph 2 of Article 20 of the Arbitration Law (Where a party has objection to the validity of the arbitration agreement, he shall propose the objection before the arbitration tribunal starts the first hearing of the case), the provision of the Interpretation on the Arbitration Law indicates that where the parties agree that they may either apply to the arbitration organ for arbitration or bring a lawsuit to the people’s court for settlement of disputes, they lack the expression of the parties’ wish to submit to arbitration, the arbitration agreement become invalid therefor in principle. As the objection shall be proposed before the arbitration tribunal starts the first hearing of the case, where a party fails to propose an objection within the prescribed period, the arbitration agreement will be deemed valid.

    The parties may sometimes put forward the question that where it is agreed in the arbitration clause that “the dispute may be submitted to arbitration” rather than “shall” or “must”, does it indicate that it is lack of the expression of the parties’ wish to submit to arbitration. In practice, it is generally thought that the agreement has showed that there is a declaration of intention between the parties to refer the dispute to arbitration, which excludes the possibility of resolving disputes through litigation and therefor satisfies the condition of “the expression of the parties’ wish to submit to arbitration”.

IV. Matters to be arbitrated

    Matters to be arbitrated are the second content that an arbitration agreement shall have provided in Article 16 of the Arbitration Law. First, it is discussed in the first issue that “an arbitration agreement shall be invalid where the matters for arbitration agreed upon are beyond the scope of arbitration as prescribed by law”. Second, Article 2 of the Interpretation on the Arbitration Law provides that “Where concerned parties synoptically agree that the matters to be arbitrated are contractual disputes, the disputes arising out of the formation, effectiveness, modification, assignment, performance, liabilities for breach, interpretation, rescission, etc. of the contract may all be determined matters for arbitration”. Therefore, if not specially specified, matters to be arbitrated agreed in the arbitration clauses of contracts generally include aforementioned contractual disputes. In practice, it is specially agreed in some arbitration clauses that some contractual disputes will be resolved through arbitration, while others through litigation. For example, issues related to the affirmation of the effectiveness, rescission and revocation of contracts will be resolved through arbitration, while the consequences and responsibilities thereof will be resolved through litigation. The parties need to successively refer corresponding disputes to arbitration and litigation for settlement, which will increase the time and economic costs for resolving disputes, as well as prejudice efficient and thorough settlement of disputes. Besides, matters to be arbitrated are not limited to one contract. Those of several inter-related contracts may be agreed in one arbitration agreement, which enables several related disputes to be thoroughly resolved through one arbitration case.

V. Arbitration commission

    Selecting the arbitration commission is the final content that an arbitration agreement shall have provided in Article 16 of the Arbitration Law, which is provided with more details in Articles 3, 4, 5 and 6 of the Interpretation on the Arbitration Law. A practical issue is that the name of the arbitration commission is not accurately agreed sometimes. For example, the accurate name of BAC shall be “Beijing Arbitration Commission”, which is sometimes agreed by the parties as “Beijing Municipal Arbitration Commission”. In accordance with the provision of Article 3 of the Interpretation on the Arbitration Law, the aforementioned agreement will not affect the effectiveness of the arbitration agreement. The provision has been implemented relatively well in judicial practice. A lot of judgments of courts in confirming the effectiveness of arbitration agreements hold a positive attitude to the effectiveness of such arbitration agreements. How can the parties choose among more than 200 arbitration commissions nationwide? The following aspects shall be considered: first, arbitration rules, i.e. whether high efficiency can be indicated from the provisions of the arbitration rules on relevant time limit and whether relevant system design is complete. Second, arbitration fees. Different arbitration commissions charge arbitration fees on different basis and low price is not necessarily equal to an advantage. Third, panel of arbitrators, i.e. whether there are adequate experts available who are willing to deal with cases. Fourth, the implementation of arbitration procedures, which requires arbitration institutions and secretaries to be professional and experienced, as well as provide high-quality service to resolve disputes for the parties. Fifth, judicial environment. Arbitral awards are encountered with judicial review as to whether to revoke and refuse to implement them. Whether local courts are familiar with arbitration affects to some extent the development of local arbitration level.

(To be continued)