By: Susanna Chehata

As arbitration has vastly expanded across the globe in the recent decades, each county has developed its own attitude and laws concerning the enforceability of arbitration agreements.  And while some countries like the United States favor enforceability, other countries have more stringent standards for arbitration agreements and procedures.  The People’s Republic of China (“PRC”) has seen an increase in commercial litigation in the past few years, and courts can be called on to enforce or vacate the award.

In June 2016 in the People’s Republic of China (“PRC”), the Taizhou Intermediate People’s Court refused to enforce an International Chamber of Commerce (“ICC”) award on public policy grounds. The arbitration clause stated that the arbitration would be conducted pursuant to the ICC Rules, but did not specify the seat of the arbitration. Rather, it stated that if one party commenced arbitration, the other party would select the seat. The court held that the arbitration clause was invalid for failure to designate an arbitral institution, and such a result could have been avoided if the parties had specified an arbitral seat in the arbitration clause.

Additionally, in a September 2016 article published on Global Arbitration News titled “Improper Service Poses Risk for Enforcement of Award,” authors Peng Shen and Hailin Cui address how improper service in arbitration proceedings is a ground that PRC courts use to set aside or refuse to enforce arbitral awards made either in China or overseas. Some examples of improper service of process include:  defective process (which could include negligible typographical errors), no reasonable second attempt to serve the other party, intentionally hiding the valid address of the other party, and the receipt of the arbitration papers by a third-party.  One of the authors’ recommendations to avoid this ruling is to draft a highly specific arbitration clause to include specific requirements for service of process.

These incidents demonstrate that the PRC courts strongly prefer highly particular and specific arbitration clauses that fully outline the details of the arbitration. In some respects, it may be advantageous to have such a specific arbitration clause.  For example, specifying the seat of arbitration at the outset may be important, as this factor may have a profound impact on the proceedings. However, in other instances, having such a specific clause may not be necessary to serve the purpose of arbitration, in which parties have the flexibility to determine how to proceed. The goal of arbitration is to provide a form of alternate dispute resolution outside of the confines of ordinary litigation. If courts require such specificity that such that it begins to mirror the specificity of the filings requirements of litigation, the goal of arbitration may become overridden and arbitration may begin to adopt a court-like appearance.

Other resources:

http://globalarbitrationnews.com/improper-service-poses-risk-enforcement-awards/

http://globalarbitrationnews.com/failure-specify-arbitral-seat-arbitration-clause-may-result-unenforceable-award/