China's Lin-gang Free Trade Zone in Shanghai Opens to Foreign Arbitration Institutions from 2020

On 8 November 2019, the Shanghai Municipal Bureau of Justice publically announced the "Administrative Measures for Business Offices Established by Overseas Arbitration Institutions in Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone" (Administrative Measures) (dated 21 October 2019) at the Shanghai International Arbitration Summit, as one of the events in the 2019 China International Import Expo. The Administrative Measures are a further elaboration on the specific rules governing the operation of foreign arbitration institutions in the Lin-gang Free Trade Zone (Lin-gang FTZ) following the publication of the "Overall Plan for Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone" (Overall Plan), which we blogged on 9 August 2019 (here). These measures will come into force on 1 January 2020.

The Administrative Measures consist of 25 articles in respect of the establishment requirements, application and registration procedures, scope of business, management and legal liability of the operating offices. Significantly, it confirms, further to the Overall Plan, that foreign arbitration institutions can administer foreign-related arbitrations in the Lin-gang FTZ. Prior to that, the representative offices set up by foreign arbitration institutions in mainland China cannot administer arbitrations. The key articles of the Administrative Measures are summarised below.

Requirements for establishing an operating office

Article 3 of the Administrative Measures provides that the term "overseas arbitration institution" means any non-profit arbitration institution legally established in foreign countries, Hong Kong, Macau or Taiwan, as well as arbitration institutions established by international organisations that China has joined. Pursuant to Article 6, an overseas arbitration institution can apply to establish an operating office in the Lin-gang FTZ if it meets the following conditions:

• it is duly established and has existed for more than five years;
• it has substantial arbitration operations overseas and has received a good reputation internationally; and
• the principal of the institution has not committed any criminal offense.

Scope of business

According to Article 14 of the Administrative Measures, a foreign arbitration institution can administer in areas including international commerce, maritime, and investment. Article 14 expressly provides that the Lin-gang FTZ based operating offices of foreign arbitration institutions can administer and provide services to arbitration cases involving foreign-related disputes. This is a notable expansion of their existing functions, which are limited to addressing enquiries, providing trainings, attending and organising conferences and engaging in promotional activities. Article 18 emphasises that these foreign arbitration institutions shall not administer arbitration involving non-foreign-related disputes.

The Administrative Measures contain no restrictions on the parties who submit their disputes to arbitration by the foreign arbitration institution in the Lin-gang FTZ. In particular, there is no requirement that one or more parties have to be companies registered in the Lin-gang FTZ. As long as the parties expressly agree, they can have their foreign-related disputes decided by an arbitration administered by a foreign arbitration institution in the Lin-gang FTZ.

Annual work report

The Shanghai Municipal Bureau of Justice will supervise the activities of the operating offices of the foreign arbitration institutions in the Lin-gang FTZ through the annual work reporting mechanism. The operating offices shall submit an annual work report which should include overview of its operating activities, audited financial reports, changes in the list of panel of arbitrators or recommended panel of arbitrators, its staff and business address, as well as any circumstance under which its arbitral awards are revoked or not enforced or recognised and enforced by a court.

While the Administrative Measures provide clarifications on the procedures and requirements for the foreign institutions to establish their operation in the Lin-gang FTZ, they do not deal with a number of legal issues which are commonly known to foreign institutions administering arbitrations in China. For example, they do not clarify whether arbitrations administered by foreign institutions in the Lin-gang FTZ will be considered as arbitration seated in China. Nor does it clarify that the awards rendered by these arbitrations will be considered "foreign awards" under the New York Convention or foreign-related awards like the ones rendered by Chinese institutions.

In addition, the Administrative Measures do not mention the "application and enforcement of interim measures by Chinese and foreign parties before and during the arbitration proceedings such as asset, evidence and action preservation" as provided in Article 4 of the Overall Plan. These issues will have to be clarified by the judiciary or legislation process once foreign institutions start their operation in the Lin-gang FTZ.

If you have any questions or would like to discuss any aspect of this post, please contact Helen Tang, Stella Hu, or your usual Herbert Smith Freehills contacts.