China – Overseas Arbitration Institutions Able To Administer Foreign-Related Arbitrations In Shanghai Lin-Gang Pilot Free Trade Zone From January 2020.

From 1 January 2020, pursuant to the “Administrative Measures for Business Offices Established by Overseas Arbitration Institutions in Lin-Gang Pilot Free Trade Zone” (the “Measures”) issued by the Shanghai Municipal Bureau of Justice, qualifying foreign arbitration institutions will be allowed to set up operating offices in the Shanghai Lin-Gang Pilot Free Trade Zone (the “SH FTZ”) to administer civil and commercial foreign-related arbitrations in certain areas. The Measures will be initially valid for three years until 31 December 2023.

This is a significant step forward – in the past, foreign arbitration institutions have been limited to conducting marketing and promotion activities in mainland China and were not allowed to administer arbitrations.

Overseas arbitration institutions meeting the eligibility requirements set out in Article 3 of the Measures, including 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, can apply to establish an operating office in the SH FTZ if they meet specified conditions (set out in Article 6), namely:

• It has substantial arbitration operations overseas, and has an established international reputation; and

The applications are expected to be processed within two months (Article 8).

Once an operating office has been set up by the overseas arbitration institution under the Measures (the “SH FTZ Office”), it will be able to administer proceedings which arise from civil and commercial foreign-related disputes in the international commercial, maritime, and investment sectors. Whilst there is no restriction that the dispute need involve one or more companies registered in the SH FTZ, the dispute must be “foreign-related” as defined under the PRC law: this includes disputes, inter alia, where the subject matter is located overseas, or where the facts that lead to the establishment, change or termination of the relationship happened overseas.

It is noted however that certain aspects of the arrangement remain unclear, including a central issue of whether the SH FTZ Office would be regarded as an “arbitration commission” under the PRC Arbitration Law. This in turn would impact enforcement of any awards rendered as either “domestic” or “foreign” awards. Whilst the Measures are a welcome step towards the opening of the legal market for foreign arbitration institutions in mainland China, it is expected that further clarification is likely to be necessary before parties can be confident in using a SH FTZ Office for their disputes.