A new beginning for arbitration in mainland China: HKIAC opens in Shanghai

On 20 November 2015, the Hong Kong International Arbitration Centre (HKIAC) announced the opening of a representative office in Shanghai.

The HKIAC's on-the-ground presence in Shanghai is an important milestone for China-related arbitration, as it is the first time that an offshore institution has set up in the mainland. It is clear from the HKIAC's announcement that its ambitions in Shanghai are broad, including working with mainland arbitration commissions to promote international best practices and facilitating the development of PRC arbitration law. In connection with its office in Shanghai, the HKIAC also announced plans to work closely with courts and judges to enhance the understanding of arbitration in mainland China, and to provide professional training to Chinese arbitrators and practitioners. HKIAC's Shanghai office will also provide logistical support for arbitration hearings taking place in the mainland.

In a press release, HKIAC made clear that its Shanghai office does not provide case administration services, which will continue to be provided by the HKIAC Secretariat in Hong Kong. HKIAC's opening in Shanghai comes at a time of uncertainty around the administration of foreign-related arbitrations seated in mainland China by offshore arbitration institutions. The prevailing view, until recently, was that an agreement to arbitrate a foreign-related dispute in mainland China under the administration of an arbitral institution that is not a registered mainland arbitration commission – for example, the ICC or HKIAC – was invalid under Chinese law. However, in 2014, it was revealed that the Supreme People's Court decided in the "Longlide" case (covered by HSF Arbitration Notes here) that an arbitration clause providing for arbitration of a foreign-related dispute in Shanghai under the ICC Rules was valid.

As we reported at the time, we continue to recommend against providing for arbitration of foreign-related disputes seated in mainland China administered by a foreign arbitration institution. The Longlide case may provide persuasive authority and indicate the direction in which Chinese arbitration law is moving, but considerable risks remain. Perhaps most importantly, Longlide does not settle whether a Chinese court would recognize and enforce an award made in such an arbitration.

Predictability is critical to international commerce, and the pitfalls around structuring agreements to arbitrate China-related disputes are a frustration to many users of arbitration services. It remains important to take specific legal advice about dispute resolution options for China-related contracts. The HKIAC's announcement that its Shanghai office will not provide case administration services is consistent with the uncertainty that persists following Longlide.

It is too early to predict what will happen next. However, the HKIAC's move into Shanghai, and the revelation that the ICC is also looking to open a presence in mainland China, are encouraging signs for the development of certainty and the elimination of complexity, all of which would be welcome for users of China-related arbitration services.

For further information, please contact Justin D'Agostino, Partner, Brenda Horrigan, Partner, Timothy Hughes, Senior Associate and Briana Young, Professional Support Lawyer or your usual Herbert Smith Freehills contact.