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China’s Largest Arbitration Institution Adopts its First Investment Arbitration Rules

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By Joe Zhang, September 28, 2017

The China International Economic and Trade Arbitration Commission (CIETAC), the largest arbitration institution in China, last week adopted its own arbitration rules on International Investment Disputes.

Interestingly, the official press release by the State Council quoted the Secretary General of CIETAC saying that one of the reasons for adopting such rules was the impression that China “was treated unfairly” by tribunals established under other rules due to “a lack of understanding in Chinese laws and practices.” It was also reported that the CIETAC rules “will not only help protect Chinese firms’ overseas interests, but also benefit the Belt and Road projects as its foreign investment grows.”

This development comes at a time when other countries and regions—such as Africa and Latin America—are reasserting their own options for investment dispute settlement.

In Latin America, the Union of South American Nations (UNASUR) is developing its own regional dispute settlement mechanism, and the negotiations are well advanced. The negotiations on the creation the UNASUR Centre for the Settlement of Investment Disputes was first submitted by Ecuador in 2010, after it denounced the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).

This trend is also reflected in the 2008 Ecuadorian constitution, which allows only for national or regional resolution of investment disputes. Bolivia has also developed its own national mechanism for investment disputes through the passing of its new arbitration act in 2015.

This development comes at a time when other countries and regions—such as Africa and Latin America—are reasserting their own options for investment dispute settlement.

These developments come from a similar sentiment, in that these countries and regions do not trust existing arbitration rules and institutions, such as ICSID or the Permanent Court of Arbitration. The question will be how to reconcile the different regional or national approaches. The fairest option would probably be to apply the mechanism of the region where the investment is taking place.

China’s new rules for investment arbitration are not yet publicly available in English. IISD has, however, obtained an advanced draft of the rules. From a first glimpse, despite some innovations in comparison to the CIETAC Arbitration Rules (2015) applicable to commercial disputes, the CIETAC Investment Arbitration Rules seem to fall short of what is expected from a new generation of investment arbitration rules in some respects. For example, although the rules in general allow for public hearings and third-party participation under certain circumstances, if the disputing parties agree, the whole process can still be kept secret from the general public.

A summary of the draft rules is below.

 

Summary of CIETAC Investment Arbitration Rules (2017)


Subject matter jurisdiction: International investment disputes. (Art. 2)

Personal jurisdiction: Consent-based jurisdiction between disputing parties. Investors on one side, and on the other side, government, intergovernmental organizations or any other agencies, organs, entities carrying out state duties. (Art. 2) Consent is obtained either by agreements between the disputing parties, or if the responding party has already submitted written consent in legal instruments, the other disputing parties can submit its consent by directly initiating the arbitration. (Art. 2) The tribunal is competent to decide its own competence. (Art. 25)

Institutions: CIETAC Investment arbitrations can be administered by two institutions - newly established CIETAC Investment Dispute Settlement Centre (in Beijing), and the CIETAC Hong Kong Arbitration Centre (in Hong Kong). The rest of the Rules do not seem to distinguish the proceedings taking place at the two institutions. Unless the disputing parties agrees otherwise, Beijing Centre will be the default institution. (Art. 4)

General Principal: The arbitration proceeding is conducted under the general principle of good faith. (Art. 6)

Composition of Arbitrators: The tribunal can be composed of sole arbitrator, three arbitrators (by default), or more than three arbitrators. Arbitrators are by default roster-based—a newly established Roster of CIETAC Int’l Investment Arbitration Arbitrators. Parties can also appoint arbitrators outside of the roster, subject to approval of the Secretary General of CIETAC. (Arts. 11-14)

Multiple parties: The Rules allow two or more claimants to jointly initiate a proceeding against multiple respondents. But the only difference between one-to-one dispute is in the composition of the tribunal—if disputing parties request a panel composed of more than three arbitrators, they will have to agree on all the arbitrators within 30 days, otherwise all of the arbitrators will be appointed by the Secretary General of CIETAC. (Art. 15)

Ethics and qualification of arbitrators: No specific qualification required other than the general requirement of “high morality, with publicly acknowledged competence in legal and investment area, good at independent judgment.” The Rules also prohibit the Sole arbitrator, president of the tribunal, or the majority of the panel from having the same nationality as either of the parties. 

Counterclaim: The Rules allow for counterclaims filed within the specified time limit. (Art. 23)

Summary dismissal: Upon a disputing party’s request, the Rules allow the tribunal to consider the summary dismissal of claims or counterclaims manifestly lacking legal basis or beyond the jurisdiction. (Art. 26)

Third-party funding: The Rules allow third-party funding, requires prompt disclosure of relevant information to the tribunal and parties. The tribunal may take third-party funding into consideration when making decisions on awards and expenses. (Art. 27)

Seat of arbitration: Unless parties agree otherwise, the seat will be Beijing or Hong Kong or other places where the proceedings are carried out, but in general should be within a country that is a party to the NY Convention. (Art. 28)

Consolidation of proceedings: The Rules allow the parties to request, subject to the tribunal’s discretion, to consolidate two or more of the ongoing proceedings based on common facts or law if they were all initiated under the CIETAC Investment Arbitration Rules. (Art. 31)

Public hearing: Unless the disputing parties otherwise agree, the tribunals shall hear the claims in public. Disputing parties shall notify the tribunal in advance for any confidential information to be disclosed during the proceeding, and the tribunal shall take reasonable measures to protect that information. (Art. 32)

Temporary relief: The Rules allow for either disputing party to apply for temporary relief to the arbitration centre following an emergent arbitration proceeding. (Art. 40, Annex II)

In-proceeding Mediation: Arbitral tribunal may conduct in-proceeding mediation should it find the disputing parties so intent or one of the disputing parties so requests. (Art. 43)

Third-party submission: A non-disputing treaty party may submit to the tribunal the interpretation of treaty provisions relevant to the dispute. A non-disputing treaty party or other third parties may submit written opinions on issues relating to the dispute. The non-disputing treaty party or the third party shall notify the disputing parties in advance of their submissions. The tribunal may invite a non-disputing treaty party or a third party to make written submission if deemed necessary. When making decisions, the tribunal has the discretion whether to take into consideration the submissions by a non-disputing treaty party or a third party. Upon either disputing party’s request, or if the tribunal deems so necessary, it may hear oral arguments by a non-disputing treaty party or a third party. If necessary, tribunal may decide to grant access to proceeding-related documents to a non-disputing treaty party or a third party. (Art. 44)

Review of the draft award: Tribunal shall submit the draft award to CIETAC for review. Without prejudice to the independence of the tribunal, CIETAC may raise attention to the tribunal on issues of concern. (Art. 49)

Transparency: Unless disputing parties otherwise agree, by submitting to the jurisdiction of CIETAC under the Rules of Investment Arbitrations, parties are deemed to agree to allow CIETAC to disclose certain dispute-related information—subject to redaction of confidential information, including (1) Notice of Arbitration, (2) Reply to the Notice of Arbitration, (3) Application for Arbitration, (4) Counter Claim Request, (5) Pleadings, (6) Written statements of the disputing parties, (7) written statements of non-disputing treaty parties or third parties, (8) transcript, if available, and (9) orders, decisions, and awards of tribunal. (Art. 55)

Annex I - Fee Schedules

Case registration fee - Non-refundable RMB 25,000 (USD 3,776)/case (Art. 1)

Institutional administrative fee - A progressive schedule, with a minimum of RMB 24,000(USD 3,624)/case for any cases with disputed amount less than RMB 500,000 (USD 75,500), up to a maximum of RMB 420,900 (USD 63,500)/case for any cases with disputed amount more than RMB 400,000,001 (USD 60.4 million). (Art. 2)

Arbitrators fee - The Rules provide a scaled range of arbitrator fees based on the disputed amount. For example, for any cases with disputed amount less than RMB 500,000 (USD 75,500), the range is from RMB 15,000 (USD 2,265) to RMB 60,000 (USD 9,060); for any cases with disputed amount more than RMB 2 billion (USD 302 million), the range is from RMB 536,500 (USD 81,000) to RMB 10 million (USD 1.5 million). Parties may agree to go beyond the upper limit. Parties may also agree to pay an hourly-based fee. The suggested fee schedule will be published by the Arbitration Centres, parties may agree to go beyond the upper limit. (Art. 3)