By Meg Utterback, Daisy Mallett, Holly Blackwell, James McKenzie, Josephine Lao, and Ma Xiao.
China has been at the forefront of a number of recent developments in the dispute resolution space. One notable development is the announcement by the China International Economic and Trade Arbitration Commission (CIETAC) of its new rules governing the arbitration of international investment disputes (Rules) and the CIETAC Investment Dispute Resolution Centre in Beijing (CIETAC IDRC), the default centre to administer those Rules. According to CIETAC’s Secretary-General, the Rules seek to “fill the gap” in the area of Chinese international investment arbitration and develop and promote the international investment arbitration practice in China.
The Rules are intended to support Chinese companies “going out” in furtherance of China’s Belt and Road initiative and to support the independent and impartial resolution of international investment disputes between investors and host countries. The Rules are also intended to provide an alternative for Chinese investors who may be concerned about potential bias against them in offshore forums due to a lack of understanding of Chinese law and practice. The Rules retain traditional arbitration characteristics such as flexibility, efficiency, and economy but incorporate elements of both Chinese and international arbitration law and practice.
How the Rules will be adopted in practice, however, remains to be seen. The Rules could be included in investment contracts between Chinese investors and host country governments. They could also be incorporated into China’s investment treaty regime. Currently, China has more than 130 bilateral and multilateral investment treaties in place, including 56 bilateral investment treaties with countries on the Belt and Road. Many of these treaties were negotiated at a time when China’s role was largely that of host country to foreign investment and provide limited options for investor recourse to arbitration. In many treaties, only claims for compensation for expropriation can be referred to arbitration, and the majority of China’s earlier investment treaties only provide for ad hoc arbitration. Applicable procedural rules vary by treaty and many treaties allow the tribunal the discretion to determine its own procedural rules.
The Rules will be a unique addition to China’s choice of potential procedural rules, should it decide to pursue more expansive protections in either negotiating new investment treaties, or renegotiating old ones. In the nearer term, the Rules are an option (subject to party consent and/or tribunal discretion) in ad hoc arbitrations if disputes arise under China’s existing treaties. The Rules may also provide an alternative for non-Chinese investors and host countries attracted to international arbitration with Chinese or civil law characteristics.
The Rules became effective on Chinese National Day, 1 October 2017. The Rules are designated as subject to “trial implementation”. According to Chinese practice, this means that the Rules are effective but may yet be revised.
A Chinese version of the Rules is available on CIETAC’s website. For an English version of the Rules, please contact us.
A summary of the Rules and their features:
The Rules may apply where one party is an investor and the other is a state, intergovernmental organisation, or any institution, department, or other entity whose conduct is authorised by or attributable to the state (Article 2). Parties can choose to apply the Rules by specifying them in a contract, treaty, applicable law or regulation, or other type of document.
Application and Jurisdiction
The Rules apply if the parties to an international investment dispute agree to have their dispute referred to arbitration under the Rules or if they agree to resolve their disputes by arbitration administered by CIETAC (Article 3). The Rules expressly state that their application does not preclude the application of mandatory legal norms.
Administration of the Rules
The Rules may be administered by CIETAC IDRC or the CIETAC Hong Kong Arbitration Centre (CIETAC HK). Under Article 4, CIETAC IDRC is the default centre and will administer the Rules where the parties have agreed to arbitration under the Rules or to arbitration administered by CIETAC. CIETAC HK will administer the Rules where the parties have agreed as such or where the parties have agreed that the place of arbitration is Hong Kong. If the parties’ agreement on the applicable centre is not clear, then CIETAC IDRC will administer the Rules. If the parties cannot agree, then they can apply to CIETAC to determine the appropriate centre to administer the Rules.
Panel of Arbitrators
CIETAC will establish a new panel of arbitrators to hear investment disputes under the Rules. The panel should be comprised of “ethical” and “independent” arbitrators who are “acknowledged in the wider public for their expertise in fields including law and investment” (Article 11). By default, the parties are required to appoint arbitrators from the panel. However, the parties are free to nominate arbitrators outside of the panel provided that they satisfy the same ethical and competence standards and are approved by the Chairman of CIETAC. The panel has not yet been announced.
Formation of the Tribunal
The tribunal will be made up of three arbitrators unless the parties agree otherwise (Article 10). Where the tribunal is made up of three arbitrators, the presiding arbitrator should be jointly appointed by the parties or, absent their agreement, by the Chairman of CIETAC. The sole, or the presiding arbitrator (if there is a panel of three arbitrators), should not be the same nationality as a party to the proceedings, unless the parties agree otherwise.
Under Article 25 the Rules, the tribunal has the power to determine jurisdictional objections, including objections to the existence or validity of the arbitration agreement and the applicability of the Rules.
The Rules incorporate a mechanism for the early dismissal of claims, including counterclaims, that are manifestly without legal basis or beyond the jurisdiction of the tribunal. The summary dismissal procedures are set out in Article 26. The tribunal, after consultation with the parties, has the power to determine whether to accept an application for summary dismissal. The tribunal must make a ruling within 90 days from the date of the application and must issue a reasoned ruling, unless the deadline is extended by the President of the Arbitration Court of CIETAC at the request of the tribunal.
Third Party Funding
The Rules expressly permit third party funding. Article 27 requires a funded party to notify the other party, the tribunal, and the centre administering the dispute immediately after a funding agreement has been signed. The funded party has a duty to disclose the fact and nature of the funding as well as the name and address of the funding third party. The tribunal has the power to compel disclosure of this information and may take this information and a party’s compliance with its disclosure obligations into account when ruling on the costs of the arbitration.
Place of Arbitration
Article 28 of the Rules provides that the place of arbitration will be the place agreed by the parties or, in the absence of their agreement, the place where CIETAC IDRC or CIETAC HK is located (ie, Beijing or Hong Kong). The tribunal also has the authority to determine the place of arbitration, provided that the location determined to be the place of arbitration is within a country that is a signatory to the New York Convention.
Public Hearings and Transparency
In response to more recent concerns about the legitimacy of investor-state arbitration, the Rules provide for a measure of transparency to the resolution of international investment disputes. This is an interesting element of the Rules given that China has not adopted the UN Convention on Transparency in Treaty-based Investor-State Arbitration (Mauritius Convention). The Rules give primacy to party consent and permit the parties to determine whether the proceedings are confidential or public and so do not adopt the same standard of transparency as the Mauritius Convention.
Under the Rules, all hearings are to be open to the public unless the parties agree or the tribunal decides otherwise (Article 32). Information relating to the arbitration (excluding confidential and other “protected information” of the parties) may also be publicly disclosed by CIETAC unless the parties agree otherwise (Article 55). Information which may be disclosed pursuant to Article 55 includes the request for arbitration, answer to the request, counterclaims, parties’ and non-parties’ written submissions, transcripts, as well as rulings and awards. Where part or all of the proceedings remain confidential, Article 32 imposes confidentiality obligations on the parties, the tribunal, and others participants in the arbitration.
Emergency Arbitration Procedures and Interim Relief
The Rules also provide a mechanism for emergency and interim relief (Article 40 and Appendix II). Where applicable law permits or where the parties have agreed, an emergency arbitrator may order “necessary or proper” emergency interim measures. An emergency arbitrator’s decision is binding on the parties unless, upon application of parties, the emergency arbitrator or the tribunal modify, suspend, or overrule the decision.
The emergency arbitration procedures do not preclude either party’s right to seek interim relief from a competent court. Article 40 also provides that the tribunal, once formed, has the authority to order “necessary and proper” interim relief where applicable law permits or where the parties have agreed as such.
Under the Rules, both an emergency arbitrator and the tribunal have authority to order a party to provide security in connection with the relief sought.
Consistent with current Chinese commercial arbitration rules and practice, the Rules incorporate a combination of arbitration and directed mediation. The tribunal may conduct directed mediation if both parties are willing to mediate or if one party is willing to mediate and the other party does not object (Article 43).
Third Party Briefing
The Rules permit third party participation (eg, permit non-profit or public interest organisations or third party governments to file submissions) (Article 44). A non-disputing treaty party may submit a written opinion on the interpretation of the investment treaty provisions relevant to the dispute or other relevant matters before the tribunal. A third party other than a non-disputing treaty party does not have an express right to comment on the interpretation of treaty provisions at issue but may submit a written opinion on “other relevant matters before the tribunal”. The tribunal may also hear oral submissions by a non-disputing treaty party or other third party. The tribunal has the discretion to grant a non-disputing treaty party or other third party access to documents relevant to the arbitration.
Timing and Review of the Final Award
The Rules incorporate a mechanism to ensure final awards are granted expeditiously. The tribunal must issue the final award within six months from the conclusion of the hearing, unless extended by the President of the Arbitration Court of CIETAC at the request of the tribunal (Article 45).
The final award is subject to CIETAC review. Article 49 allows CIETAC to raise questions in relation to the award as long as this does not affect the independence of the tribunal.
The Rules are intended to provide an efficient and lower cost alternative for international investment arbitration. The Rules adopt a fee structure commensurate with Chinese commercial arbitration rules and practice. The registration fee for disputes administered under the Rules is RMB 25,000 (approximately USD$3,800). Institution and arbitrator fees are calculated using a fee scale based on the amount in dispute. Estimated institution and arbitrator fees based on the following amounts in dispute are as follows:
Estimated CIETAC Fees
|Amount in Dispute
Arbitrator Fee (per arbitrator)
RMB￥11,500 – 102,500
(USD$1,735 – USD$15,463)
RMB￥88,500 – 389,500
(USD$13,351 – USD$58,759)
RMB￥201,500 – 809,500
(USD$30,398 – USD$122,119)
The parties may agree to pay arbitrator fees at a price higher than the upper limit or to pay arbitrator fees billed at an hourly rate. Costs may be paid in foreign currencies equivalent to the RMB amount.
The International Centre for Settlement of Investment Disputes (ICSID), on the other hand, charges a non-refundable fee of USD $25,000 at the time the request for arbitration is lodged and USD$ 42,000 at the time a request for arbitration is registered. Members of the tribunal are entitled to a fee in the sum of USD $3,000 per meeting day or 8-hour day of other work.
To date, there have been few China-related investor-state arbitrations, as historically these types of disputes have been resolved diplomatically or by settlement between the parties. This is likely to change, with growing outbound Chinese investment and increased Chinese investor awareness of investment treaty rights. Like other recent developments in arbitration in China, the intent behind the Rules is to provide dispute resolution options that may be more even-handed toward Chinese parties.
The Rules presage China taking its own, distinct role in the resolution of international investment disputes, particularly those involving Chinese investors; a role that has historically been assumed by foreign arbitration institutions and ad hoc tribunals. However, it remains to be seen what gap exactly the Rules will fill. Matters arising on Belt and Road projects may provide opportunities to observe how the Rules might play a role in China-related investor-state arbitrations. In the meanwhile, the Rules are a welcome addition to Chinese international arbitration practice.
 See “CIETAC Released China International Economic and Trade Arbitration Commission Arbitration Rules on International Investment Disputes and Annual Report on International Commercial Arbitration in China (2016)” (CIETAC Commentary), available at http://www.cietac.org/index.php?m=Article&a=show&id=14473&l=en; “Interview with Wang Chengjie Regarding Investment Arbitration Rules (22 September 2017)”, available at https://mp.weixin.qq.com/s/MsuIiJB9JAkIvy5aCGe3Pg (stating that most Belt and Road countries do not have an investment dispute resolution forum thus the CIETAC Rules are necessary for Chinese companies “going out”).
 For additional KWM commentary on dispute resolution along the Belt and Road, see “Belt and Road Practical Guide: How to Resolve Disputes on the Belt and Road”, available at http://www.kwm.com/en/knowledge/downloads/how-to-resolve-disputes-on-the-belt-and-road-20170927.
 See id (“In order to adapt to the implementation of the Belt and Road Initiative…CIETAC organized the investment arbitration experts to coordinate to establish the research group, which formulated the Investment Arbitration Rules…”); see also “Interview with Wang Chengjie Regarding Investment Arbitration Rules (22 September 2017)”, available at https://mp.weixin.qq.com/s/MsuIiJB9JAkIvy5aCGe3Pg (stating that most of Belt and Road countries do not have an investment dispute resolution forum thus the CIETAC Rules are necessary for Chinese companies “going out”).
 See CIETAC Commentary, note 1; see also “China launches first Investment Arbitration Rules to defend rights”, available at http://english.gov.cn/news/video/2017/09/20/content_281475871634494.htm; “Publication of Investment Dispute Arbitration Rules Gives more Comfort to Chinese Companies ‘Going Out’”) (20 September 2017), available at http://finance.cnr.cn/jjgd/20170920/t20170920_523956778.shtml (“We are not saying other international arbitration institutes are unfair (towards Chinese companies), but there are circumstances where those institutes do not know well about Chinese law and practice and that lack of knowledge imposes hardship upon Chinese companies in arbitrations.” (quoting Wang Chengjie)).
 See CIETAC Commentary, note 1.
 By contrast, under the current CIETAC commercial arbitration rules, the authority to determine jurisdictional objections is vested exclusively with CIETAC or, in certain circumstances, Chinese courts, unless CIETAC delegates this power to the tribunal. This is consistent with the Chinese Arbitration Law, which delegates this power to the arbitration commission or Chinese courts. It is unclear how Article 25 will operate in arbitrations administered in accordance with the current Chinese Arbitration Law.
 This is an interesting requirement given that China made a commercial reservation when it signed the New York Convention, affirming its agreement to enforce only foreign awards concerning civil and commercial disputes. The Chinese Supreme Court has confirmed that investor-state disputes do not constitute commercial disputes. A number of other countries have made similar reservations when signing the New York Convention. A more in-depth discussion on this issue is beyond the scope of this article.
 Note that under current Chinese law, only Chinese courts have the power to order conservatory measures such as asset or evidence preservation. An emergency arbitrator or tribunal seated in mainland China would not be likely to have the legal authority to order interim relief in the form of conservatory measures. Whether a tribunal would have the authority to order other types of interim relief (eg, an injunction) is unclear. The prevailing view is that a tribunal seated in mainland China does not have this authority, as current Chinese law does not expressly convey this authority to tribunals in China.
 See note 8.
 USD amounts are based on a currency conversion of 1 USD to RMB 6.6288.