Enforceability of ad hoc arbitration agreements in China

Abstract

Today arbitration is the dominant method for resolving international commercial disputes. The international commercial arbitration system based on the New York Convention effectively facilitates resolution of cross-border disputes and contributes to the world’s continuing economic development. Ad hoc arbitration has many advantages over institutional arbitration that make it a preferred way to resolve commercial disputes in many contexts. China, an emerging economic superpower, is also an active player in the field of arbitration. The People’s Republic of China Arbitration Law (Law), however, requires that parties appoint an arbitration institution in their arbitration agreement. Otherwise, their ad hoc arbitration agreement is invalid. Interestingly, this strict requirement does not mean Chinese courts will never enforce an ad hoc arbitration agreement. Given arbitration’s “international” nature, parties can freely agree to arbitrate outside China where ad hoc arbitration is accepted and/or choose a different law to govern their arbitration agreement’s validity when arbitrating inside China. The Supreme People’s Court of China respects such contractual freedom and adopts a choice-of-law rule that enables Chinese courts to enforce many ad hoc arbitration agreements. A comparative study of arbitration’s history in China as well as China’s social and economic structures at the time of the Law’s promulgation reveals the true reasons behind the Law’s hostility towards ad hoc arbitration. As China participates more fully in globalization, this bizarre requirement will need to change. A systematic analysis shows this change would require a whole-scale rewriting of the Law and revision to many other relevant Chinese laws.