Ad hoc Optimism

Arbitration will likely stay in state's hands for the near-term

By Chen Jian

At present, the PRC Arbitration Law doesn't recognize ad hoc arbitration conducted in China. Article 16 of the law expressly states that an arbitration agreement must designate an arbitration commission. Some people take this to mean that ad hoc arbitration is prohibited in China, but this inference is not accurate. Prohibition and recognition are different. Merchants and other parties may certainly have their disputes resolved by domestic ad hoc arbitration organized by themselves and implement the award themselves if they want ad hoc arbitration and have confidence in it. The laws concerning ad hoc arbitration will likely shift, but not in the immediate future.

A number of scholars and practitioners have called for the legislative authority to accept domestic ad hoc arbitration when amending the PRC Arbitration Law. In the short term, it's unlikely that this amendment will be carried out. The crucial reason: The authority to decide on commercial disputes can't be willingly given up and transferred to ad hoc arbitrators by state power. Traditionally in China, public power is the only effective source and form of authority to adjudicate commercial disputes between private parties.

At the same time, the confidence and trust in the individual experts to act as ad hoc arbitrators hasn't been widely established in Chinese society. Even judges aren't entirely trusted. This can be discerned by looking at the great number of civil disputes being referred to the administrative departments and even further to the departments of the Chinese Communist Party at all levels in the form of Chinese petitions after judgments have been made by the judicial system. Concerned parties fear a chaotic situation may ensue once ad hoc arbitration becomes legally recognized.

In the long run, nobody doubts that ad hoc arbitration will be recognized by the legislature someday. The question is when.

Optimistic signals are emerging. Legal entities in the market are empowered with increasing autonomy, and the speed of this empowerment seems to be accelerating along with the founding of the Shanghai Free-Trade Zone last year and the three new free-trade zones established in Guangdong, Fujian and Tianjin this year.

Additionally, the pool of experts, including distinguished professors, lawyers and in-house counsels, has grown, and their capabilities to act as competent arbitrators has enhanced. These practitioners and experts are now voicing their desire for official recognition.

Chen Jian is Director of International Case Management at China International Economic and Trade Arbitration Commission. He contributed this article at the invitation of the legal research corporation LexisNexis.