STATE COUNCIL OF CHINA ANNOUNCED GROUND-BREAKING POLICY TO ALLOW FOREIGN ARBITRATION INSTITUTIONS TO SET UP BUSINESSES IN SHANGHAI FREE TRADE ZONE TO ADMINISTER CASES IN MAINLAND CHINA

On 6 August 2019, the State Council of China published the "General Planning of the New Area of ​​the China (Shanghai) Pilot Free Trade Zone Program" ("General Planning").  Under Article 4 of the General Planning,  reputable overseas arbitration and dispute resolution institutions will be allowed to “set up business organisations in the new area [of the China (Shanghai Pilot Free Trade Zone)] and conduct arbitration businesses in relation to civil and commercial disputes arising in the areas of international commerce, maritime affairs, investment, etc." and the relevant bodies will "support and assure the application and enforcement of interim measures by Chinese and foreign parties before and during the arbitration proceedings, such as asset preservation, evidence preservation and action preservation."

A number of international arbitration institutions including the International Chamber of Commerce, the Hong Kong International Arbitration Center and the Singapore International Arbitration Center have set up representative offices in the Shanghai Free Trade Zone.  However, currently the representative offices are for liaison and marketing purposes only and do not administer cases in mainland China.  Article 4 of the General Planning now appears to have given a green light for foreign arbitration institutions to administer arbitration cases seated in mainland China in the future.

Article 4 of the General Planning also states that the relevant bodies in China will support and assure the application and enforcement of interim measures by Chinese and foreign parties before and during arbitration proceedings.  Under the current Arbitration Law in China, it is generally difficult for parties in arbitrations administered by overseas arbitration institutions to seek interim measures in aid of arbitration from mainland Chinese courts. In April of this year, the Chinese Supreme People's Court and the Department of Justice of the Hong Kong Special Administrative Region ("HKSAR") signed the "Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of Mainland China and of the Hong Kong Special Administrative Region", which, for the first time, provide parties to arbitrations seated outside mainland China (in this case, seated in the HKSAR) the possibility of applying for preservation measures from mainland Chinese courts.  In this sense, Article 4 of the General Planning will serve to further extend the availability of interim measures to arbitration cases administered by overseas arbitration institutions in mainland China.

Perhaps not unexpectedly as part of a policy document, Article 4 of the General Planning is expressed in very general terms. It is likely that judicial interpretations and detailed implementation rules will be enacted in the future to give guidance and clarity to realize the policy objectives in the General Planning.

We see Article 4 of the General Planning as a significant, positive, step forward in the development of commercial arbitration practice in mainland China involving foreign arbitration institutions.  Currently, under the Arbitration Law, foreign arbitration institutions are not expressly permitted to administer arbitration cases seated in mainland China.  In addition, the typical arbitration rules and case management procedure of major foreign arbitration institutions are also not be fully aligned with the arbitration practice as envisaged under the Arbitration Law.  We are cautiously hopeful that the General Planning will signal further policy relaxation in the field of arbitration in mainland China, and that detailed implementation guidance in that direction will be issued in due course.

If you have any questions or would like discuss any aspect of this post, please contact Michelle Li, Partner, Stella Hu, Of Counsel, or Weina Ye, Senior Associate, of Herbert Smith Freehills, or Jean Zhu of Kewei Law Firm, or your usual Herbert Smith Freehills contact.