Our Voices

China Introduces Its First Investment Dispute Arbitration Rules as ICSID Alternative

By Michael James Maloney, Jeffrey A. Rinde, Jing Li, Megan J. Penick & Joy Xiao

On September 19, by press release from the China Council for the Promotion of International Trade (“CCPIT”)1, China’s first investment dispute arbitration rules (the “Rules”) were announced. The Rules are set to come into effect on October 1, 2017.

According to CCPIT, in light of China’s increased presence in international investment, and concerns over the lack of comprehensive investment legal systems in those countries covered by the Belt and Road Initiative, China invested much effort involving multiple agencies to research on and draft the Rules providing for an investment dispute resolution mechanism for the region.

CKR has obtained a copy of the new Rules.  Based on our review, we have identified the below unique features:

1. CIETAC as the Administrating Institution

The Rules are administered by the China International Economic and Trade Arbitration Commission (“CIETAC”). An Investment Dispute Resolution Center will be established under CIETAC for resolution of investment disputes under the Rules.  If the parties so choose, CIETAC’s Hong Kong Arbitration Center may handle investment dispute arbitration cases brought under the Rules.

2. Mechanism of Appointing Arbitrators

Parties to a dispute subject to the Rules should, by default, appoint arbitrator(s) selected from the panel of arbitrators prepared by CIETAC specifically for investment disputes, and according to CCPIT, candidates for appointment to the panel must meet requirements of high standards.  If parties agree on appointing arbitrators outside of this penal, such appointment requires the approval of the Chairman of CIETAC.  In comparison, the Arbitration Rules of the International Centre for Settlement of Investment Disputes (“ICSID”) provide that parties are not required to select arbitrators from the ICSID panel of arbitrators.

3. Third Party Funding

The Rules expressly recognize “third party funding,”2 and provide that such fact as well as details of the funding shall be disclosed without delay to the other parties, the tribunal and CIETAC (or its Hong Kong Arbitration Center), and the tribunal is authorized to request further information and disclosure. Additionally,  when deciding on arbitration fees and other costs, the arbitral tribunal may consider that the arbitration is funded by a third party. This section leaves (and arguably, intentionally) to the arbitrators a lot of room for discretion with respect to parties funded by a third-party, such as ensuring no conflicts of interest exist, or who may or may not be permitted to fund a party’s case. It remains to be seen how this section will be implemented and arbitral tribunals will likely look to previous decisions from other arbitration institutions such as ICSID for guidance.

4. Scrutiny of Arbitral Awards by CIETAC

The Rules require CIETAC’s approval of the draft of a tribunal’s award before it is issued. While this practice is followed by some arbitration institutions3, ICSID, a well-known investment arbitration institution and now competitor of CIETAC, does not require such scrutiny. Such scrutiny might lead to unintended outcomes.  For example, pre-issuance review of an award could potentially influence the tribunal’s decision-making.  It may also result in a less speedy process and higher costs to the parties.

5. Publication of the Arbitration

Although arbitration is traditionally considered confidential, by default the Rules provide for the public disclosure of certain information concerning arbitrations brought under the Rules.  Unless the parties agree otherwise, information regarding the commencement of arbitration, the memoranda of claimant and respondent, written statements of the parties, minutes of the proceedings, and orders, decisions and awards of a tribunal will become public information.  The reverse is true for arbitrations brought under the ICSID rules, where arbitral awards and the minutes and records of proceedings are not made public without the consent of the parties.

Our View

With China’s Belt and Road Initiative up and running in full force, the implementation of the Rules is an example of one more measure of China’s efforts to increase and maintain its position as a regional leader. As CCPIT commented and as illustrated above, these Rules are, or at least the drafters attempted to make them, a combination of “western” practices with Chinese characteristics.  By implementation of the Rules, China will have created an alternative to ICSID as a forum for the arbitration of investment disputes.  Whether this new forum will ultimately become a major destination for such proceedings remains to be seen.

Should you have any questions or desire further insight, feel free to contact our New York-based China Law team, including Partners Michael James Maloney (mmaloney@ckrlaw.com), Jeffrey A. Rinde (jrinde@ckrlaw.com), Jing Li (jli@ckrlaw.com), Megan J. Penick (mpenick@ckrlaw.com), and Associate Joy Xiao (jxiao@ckrlaw.com), at (212) 259-7300.

DISCLAIMER: This article is not intended to provide legal or tax advice, and no legal, tax, or business decision should be made based on its contents.  Attorney advertising.  Prior results do not guarantee a similar outcome.

2Article 27 of the Rules provides that “For the purposes of these Rules, ‘Third Party Funding’ means the situation when an individual or entity that is not a party to an arbitration agrees to partially or fully fund one of the parties to such arbitration.”

3For example, see Article 34 of the Arbitration Rules of the International Chamber of Commerce (available at: https://cdn.iccwbo.org/content/uploads/sites/3/2017/01/ICC-2017-Arbitration-and-2014-Mediation-Rules-english-version.pdf.pdf).