Mainland China's leading arbitration institution, the China International Economic and Trade Arbitration Commission (CIETAC), has recently published new arbitration rules intended to usher in a new international era for the commission.

A global role
In terms of caseload, CIETAC is arguably the world's largest international arbitration institution. However, the majority of cases heard by CIETAC are domestic and the commission is seen as a uniquely Chinese institution, different in nature and practice to the traditional international arbitration institutions in Europe and elsewhere in Asia.

The New Rules, which come into effect on 1 May 2012, replacing the 2005 rules (the Existing Rules), address this perception by bringing CIETAC arbitration practice further into line with international best practice. The New Rules, which explicitly allow CIETAC to administer arbitrations outside of China and/or under the arbitration rules of other arbitration institutions, are intended to increase CIETAC's presence on the world arbitration stage.

Seat of arbitration. The Existing Rules require that arbitral proceedings must take place in mainland China unless the parties have agreed otherwise (Article 31). A very small number of CIETAC arbitrations have, to date, been held outside of mainland China. The New Rules aim to increase that number by empowering CIETAC, in the absence of party agreement, to determine the seat of arbitration at its discretion. CIETAC has the power to nominate a seat in mainland China or abroad if the circumstances of the case suggest that is appropriate, and may also nominate a PRC location where neither CIETAC nor one of its subcommissions are based (Article 7(2)). The award shall be deemed to be made at the seat of arbitration (Article 7(3)).

In conjunction with this amendment, CIETAC has also announced plans to open a subcommission office for the administration of CIETAC arbitrations in Hong Kong. (As a special administrative region, legally distinct from mainland China, the territory has its own arbitration laws. Hong Kong is therefore a distinct seat of arbitration and arbitrations seated in Hong Kong are not subject to Chinese law.)

However, Chinese law restricts parties from selecting the seat of the arbitration and requires parties to arbitrate in China, before a domestic arbitral institution, unless the contract is foreign-related. Importantly, a wholly foreign-owned but locally incorporated subsidiary will be considered a domestic party for under PRC law. Where both parties to a contract are Chinese incorporated entities, it is recommended to arbitrate in China if there is any connection between the performance of the contract and China. If not, the resulting award risks being refused enforcement in China.

Applicable arbitration rules. The Existing Rules currently allow parties to modify the CIETAC rules when drafting arbitration clauses. The New Rules not only maintain this flexibility but Article 4(3) makes explicit the power of CIETAC to administer arbitrations conducted in accordance with the arbitration rules of other arbitration institutions.

The assumption by one arbitration institution of the power to administer an arbitration under the rules of another institution is controversial. This is reflected by the ICC's recent decision to amend its rules to clarify that only the ICC is authorised to administer arbitration proceedings conducted under the ICC rules. Before agreeing to such an arrangement, parties should therefore think carefully about whether any procedural advantage is to be gained. In practice, it is anticipated that few sophisticated parties will ever exercise this option.

Flexibility and innovation
Language of the arbitration. Under the Existing Rules, without party agreement specifying the language of the arbitration, the default language of CIETAC proceedings is Chinese (Article 67). This regularly leads to the undesirable situation in which Chinese incorporated but wholly foreign-owned companies, for whom Chinese is not the most convenient language, have agreed to CIETAC arbitration without specifying the language of the arbitration. In these cases, parties are left to arbitrate their dispute in Chinese, thereby incurring a significant administrative burden and limiting their ability to nominate arbitrators with suitable experience and language skills.

The New Rules give CIETAC the discretion to designate the appropriate language of proceedings taking into account the circumstances of the case (Article 71).

Arbitrator appointment. The New Rules also introduce a new measure for arbitrator appointment in cases involving multiple parties. In these circumstances, negotiation between the claimant or respondent may lead to delay and even deadlock. Under Article 27 of the New Rules, the Chairman of CIETAC may break this deadlock by appointing the whole tribunal, thereby ensuring party equality in the appointment process.

Previously, CIETAC would only appoint the arbitrator for the parties in default, giving rise to potential challenges on the basis that the parties were not afforded equal opportunity in the process. This amendment mirrors international best practice (see Article 10 of the ICC Rules).

Article 28 of the New Rules allows CIETAC to take into account any factors considered relevant when appointing arbitrators, including specifically the nationalities of the parties. However, the New Rules do not require that the presiding or sole arbitrator be of a different nationality to the parties.

Stay of proceedings. For the first time, the New Rules also explicitly allow for a stay of proceedings (Article 43). Any such stay may be ordered by the tribunal or, if the tribunal has yet to be formed, the Secretary General of CIETAC. Proceedings may be stayed either at the request of a party or if there are circumstances warranting a stay.

Med-Arb
Mixed mediation/arbitration. Med-arb style procedures, where arbitrators act both as conciliator and adjudicator, are rooted in the history, culture and philosophy of many parts of East Asia, including China. These traditions have led to a modern system of court and arbitration related conciliation provided for in the PRC Civil Procedure and Arbitration Laws and the CIETAC arbitration rules (Article 40 of the Existing Rules and Article 45 of the New Rules).

Med-arb requires the same individual to switch between adjudicative and facilitative roles during the course of proceedings. This risks the med-arbitrator becoming privy, during the mediation phase, to confidential information relevant to the parties' respective cases and bargaining positions. Even if this information is irrelevant to the legal or factual merits of the case, it may colour the med-arbitrator's judgment should proceedings revert back to an arbitration phase.

CIETAC have sought to address this criticism by the introduction of Article 45.8 of the New Rules. It provides that instead of the arbitral tribunal conducting any mediation, CIETAC may, with the parties' agreement, step in to "assist the parties to conciliate the dispute in a manner and procedure it considers appropriate".

Remaining questions
Consolidation of parallel proceedings. It is not yet clear how some of the powers contained in the New Rules will be exercised in practice. One example is the mechanism for the consensual consolidation of parallel proceedings under the CIETAC Rules (Article 17.1).

Under the New Rules, with the parties' consent, CIETAC has the discretionary power to consolidate proceedings if, taking into account any factors it considers relevant, it considers it appropriate to do so (Article 17.2). Although Article 17.2 goes on to provide some guidance for the exercise of CIETAC's discretion, it will be interesting to see how this mechanism is implemented in practice.

Interim measures. It will be interesting to see how the exercise of new powers in relation to interim measures develops, as these measures outstrip the domestic PRC law provisions. The PRC Arbitration and Civil Procedure Laws provide that the Chinese courts alone can order interim measures and that, in the case of arbitration proceedings, these measures are to be conservatory only (that is, relating to the preservation of property or protection of evidence). Articles 17 and 18 of the Existing Rules therefore require CIETAC to forward any application for the preservation of property or the protection of evidence to the competent Chinese Court.

The New Rules maintain this position in Article 21.1. However, Article 21.2 also allows the tribunal to order any interim measures it deems necessary or proper in accordance with the applicable law. This allows CIETAC tribunals sitting outside of mainland China to make interim orders (including orders for specific performance and orders in relation to the provision of security) where permitted under local law.

However, the enforceability of interim orders in China is questionable. Unlike, for example, the English courts (see section 42 of the English Arbitration Act), the Chinese courts do not have the power to compel compliance with orders of a tribunal. It is hoped that revision to the PRC Civil Procedure Law may eventually rectify this anomaly.

Conclusion
The New Rules are to be welcomed for modernising CIETAC procedures and bringing them more into line with best international practice. It is hoped that this will provide greater certainty of process. While commentators will be interested to see what further practical steps CIETAC takes in order to internationalize itself. A truly international organization, providing a viable arbitration alternative, acceptable to both Chinese and non-Chinese parties, is a pleasing addition to the international arbitration landscape.

However, parties involved in China-related trade and commerce should have regard to some of the idiosyncratic features of Chinese arbitration procedure, which is traditionally inquisitorial in nature, short form and offers little opportunity to hear from witnesses. Parties should also consider that Chinese arbitrators are also inclined towards mixing arbitration and conciliation. Care should therefore always be taken in drafting China-related arbitration agreements if parties wish to ensure that a suitable tribunal will be appointed and a procedure adopted which is consistent with the adversarial procedure normally followed in arbitrations seated outside of China.

By James Rogers and Matthew Townsend