Friday, 18 May 2012

New Arbitration Rules in China

New Arbitration Rules in China

            Several much-needed revisions to the China International Economic and Trade Arbitration Commission(“CIETAC”) Arbitration Rules came into effect this month, giving CIETAC and CIETAC arbitrators more of the powers already held by such institutions as the International Chamber of Commerce, the London Court of International Arbitration, and the Hong Kong International Arbitration Centre.  These revisions are especially welcome because in the People’s Republic of China (“PRC”) enforcement of foreign judgments is highly restricted.  This post highlights the key changes.   

Interim Measures  An arbitral tribunal may now grant interim measures, and also appropriate security.  The new rule does not specify the scope of interim measures, but they might include orders to restrain infringement of a patent.  It does not include conservatory measures (e.g. orders to protect evidence).  As before, a party seeking conservatory measures submits a request to CEITAC, which then forwards the request to a PRC court.

  Unfortunately, the tribunal does not have power to enforce its interim measures, nor do the courts of the PRC.  However, the PRC is currently revising its Civil Procedure Law, and so there is some prospect that the courts will gain such enforcement powers.  

Conciliation  One new rule provides new safeguards of natural justice for parties in situations where, as often happens in the PRC, conciliation occurs during the arbitration process. Up until now, the arbitral tribunal itself would conduct the conciliation.  Parties were concerned that, in the event the conciliation failed and arbitration resumed, the tribunal when making its award might consider information disclosed off the record in the course of the conciliation.  As well, information that one party has provided to the tribunal in a private conciliation meeting might not be disclosed to the other side.  The new rule gives the parties the option to have CIETAC, instead of the tribunal, undertake the conciliation.

Summary Procedure  The fast-track, three-month  summary procedure is now available for cases up to RMB2,000,000 (about US$316,000), up from the old limit of RMB500,000.

Evidence  The rules now permit parties to use oral evidence as well as documentary evidence.  Traditionally,  mainly documentary evidence is used in arbitrations in the PRC.

Selection of Arbitrator  Parties are no longer required to select their arbitrator(s) from the CEITAC Registry of arbitrators.   Also, the rules now provide guidance to the CEITAC in situations where it appoints the arbitrator:  CEITAC must consider the applicable law for the arbitration, the place and language of the arbitration, and the nationalities of the parties.  However, there is no requirement that arbitrators be of different nationalities, as some had hoped.    No longer can an arbitrator unilaterally withdraw; he/she must seek leave to withdraw from CEITAC.

Selection of Place and Language   In the absence of an agreement between the parties, CEITAC now has power to designate the language of the arbitration, which need not be Chinese, and the location of the arbitration, which need not be in the PRC.

Consolidation CEITAC now has power to consolidate two or more arbitrations, if both sides agree.

Wednesday, 9 May 2012

Service of Claims on Defendants in Totalitarian Countries

A recent Ontario Superior Court of Justice decision will complicate, if not stymie, service of a statement of claim abroad,  despite the Hague Convention on the Service of Abroad of Judicial and Extra-Judicial Documents in Civil or Commercial Matters, in countries where political interference in legal proceedings occurs.

In Khan Resources v Atomredmetzoloto JSC, the plaintiff attempted to serve its claim on two Russian defendants under the Hague Convention by way of Russia's Central Authority.   That Central Authority refused to serve the claims, offering no explanation other than to cite Article 13 of that Convention, which allows for refusal to serve a claim if to do so "would infringe its sovereignty or security".  An review and appeal of the Central Authority’s refusal in a Russian court would cost about $100,000 and take a year.  A Russian lawyer with Baker and McKenzie in Moscow said success would be unlikely because the Russian government owns 80% of the defendant companies and would likely interfere in the proceeding.  Russia does not permit any form of service other than through its Central Authority.  The plaintiffs then brought a motion in Ontario for substituted service or an order validating service, on notice to the Russian defendants.  The motions court, having found that the plaintiffs had no practical alternative for service and having found that the defendants had ample notice of the claims, validated the service.    The court observed that "the purpose of the Convention, similar to that of [the rule regarding substituted or validated service], is to facilitate the service of legal documents..., not to enable foreign states to immunize their own subsidiary corporations by arbitrarily refusing to effect service." 

However, on appeal, a judge has recently ruled that where service is to be effected under the Hague Convention, the court has no power to order substituted service or to validate service.  Mr. Justice B.P. O'Marra, observing that when interpreting the court rules, as with any legislation, the court must presume that the rules are intended to conform to Canada's treaty obligations, held that service must be done only by the means permitted by the Hague Convention.  The Court ruled that Article 13, although not referred to in the rules of court (or in any other legislation), has been implemented in Ontario law and thus has the force of law.   

O'Marra J.'s  ruling is under appeal to the Ontario Court of Appeal.