PRC companies are restricted from choosing a seat of arbitration outside the PRC except when the contract is ‘foreign-related’(*). Moreover, as per the Arbitration Law of PRC, parties are under an obligation to refer the disputes to an “arbitration commission”(**). Such “arbitration commission” must be registered with the judicial administrative departments in PRC (***). Consequently, it is generally assumed that only PRC arbitration institutions can qualify as “arbitration commissions” for the purpose of the Arbitration Law of PRC and can administration PRC arbitral proceedings.

(*)Article 128, Contract Law of the People’s Republic of China

(**)Article 16, Arbitration Law of the People’s Republic of China

(***)Article 10, Arbitration Law of the People’s Republic of China

Legal position in Daesung Industrial Gases Co Ltd v Praxair (China) Investment Co Ltd

In Daesung Industrial Gases Co Ltd v Praxair (China) Investment Co Ltd (*), an arbitration agreement came up for review by the Shanghai No. 1 Intermediate People’s Court. The agreement provided that all disputes must be submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai, and the arbitration shall be conducted following SIAC Rules.

According to the respondent, the agreement was invalid since SIAC is a foreign arbitration institution precluded from conducting arbitration proceedings in PRC. However, the Shanghai No. 1 Intermediate People’s Court ruled that the parties were allowed to have the dispute resolved by SIAC.  As per the court, it was still debatable if the arbitration commission as per Article 16 of the Arbitration Law of PRC only meant a PRC arbitration institution.

According to the court, prohibiting the foreign arbitral institutions from conducting arbitrations in PRC goes against recent trends in international commercial arbitration.

(*)(2020) Hu 01 Min Te No. 83

What's next?

In 2013, the Supreme People’s Court previously ruled that a foreign arbitration institution could conduct a “foreign-related” arbitration(*) in PRC. The decision rendered in the Daesung Industrial Gases case also considered that the arbitration agreement was considered “foreign related”. Not only the decision rendered by the Shanghai No. 1 Intermediate People’s Court is not binding on other PRC courts, but it also remains to be seen whether the decision would have been the same in case the arbitration agreement was considered “domestic”.

(*) Supreme People’s Court’s letter dated 25 March 2013 in re: Anhui Province Long Li De Packaging and Printing Co Ltd v BP Agnati S.R.L. No. 13 (2013) Min Si Ta Zi No. 13.

Concluding remarks

The decision in Daesung Industrial Gases is definitely a move towards providing foreign arbitral institutions better access to the arbitration market in PRC. For the past year, Beijing and free trade zones in Shanghai have witnessed foreign arbitral institutions carrying out “foreign-related” arbitrations. Furthermore, since October 2019, parties to arbitrations in Hong Kong are allowed to seek interim relief from PRC courts for such arbitrations(*).

However, PRC parties continue to remain restricted from opting for arbitrations outside PRC to resolve their disputes or choosing any law apart from PRC law as the governing law, except for foreign-related contracts. It still remains to be seen if these limitations will be relaxed in the future.

(*) The Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and the Hong Kong Special Administrative Region

About Matthieu Bonnici

Founder of the firm, Matthieu Bonnici is an international lawyer with over 15 years of legal experience at top US and UK law firms advising a diverse range of clients on investing and operating in China, Hong Kong and Southeast Asia.
His core practice covers mergers and acquisitions, reorganizations, and general corporate matters in multiple industries, with a focus on businesses driven by technology. In addition, Matthieu has large experience in China-related disputes, especially with respect to commercial contracts, employment and foreign direct investments.
Matthieu is also a frequent advisor and mentor to entrepreneurs and startups in connection with their setup, structuring, operations and fundraising. He is also the author of various publications on Chinese law.