Introduction
China has become a global hub for resolving international commercial disputes, with prominent institutions such as the China International Economic and Trade Arbitration Commission (CIETAC), the Beijing Arbitration Commission/Beijing International Arbitration Center (BAC/BIAC), and the Shanghai International Arbitration Center (SHIAC) playing pivotal roles. These institutions offer structured yet flexible mechanisms to resolve disputes efficiently.
However, the validity of the arbitration clause is crucial to leverage these institutions’ capabilities. This article explores the essential elements of valid arbitration clauses, common pitfalls, and practical implications, concluding with template clauses from leading arbitration institutions.
Key Elements of Valid Arbitration Clauses
A valid arbitration clause ensures enforceability and minimizes disputes over jurisdiction. To achieve this, parties must include the following elements:
1. Clear Arbitration Institution
Specify the full and correct name of the chosen arbitration institution. Avoid vague terms like “arbitration in China,” which can lead to jurisdictional disputes. For example, use “China International Economic and Trade Arbitration Commission (CIETAC)” instead of ambiguous descriptions.
2. Language
State the arbitration’s language, especially for cross-border agreements. For instance, “The arbitration shall be conducted in English.”
3. Governing Law
Identify the substantive law governing the contract. If necessary, also specify the procedural law governing the arbitration. For example, “The governing law shall be the substantive laws of the People’s Republic of China.”
4. Definitive Agreement
Avoid clauses that leave room for multiple interpretations or contradictory obligations. The clause should bind parties exclusively to arbitration and provide clarity on the terms.
Common Issues with Invalid Clauses
Even minor drafting errors can render an arbitration clause invalid, leading to delays or litigation. Common issues include:
1. Ambiguity in Institution Names
Errors such as “China Trade Arbitration Center” instead of “China International Economic and Trade Arbitration Commission (CIETAC)” may result in prolonged litigation over jurisdiction.
2. Optional Arbitration or Litigation Clauses (“或诉或裁”)
Chinese courts typically invalidate clauses offering parties a choice between arbitration or litigation, as they lack the requisite certainty. For instance, “Disputes may be resolved either by arbitration or litigation” creates jurisdictional ambiguity.
3. Conflict with Mandatory Laws
Clauses that fail to comply with China’s Arbitration Law, such as omitting the arbitration institution, are unenforceable.
4. Unclear Procedural Rules
Omitting procedural rules or relying on non-existent rules complicates the enforcement and implementation of the clause.
Model Arbitration Clauses
To help parties draft enforceable arbitration clauses, here are templates from leading Chinese arbitration institutions:
1. CIETAC Model Clause
“Any dispute arising from or in connection with this Contract shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC) for arbitration which shall be conducted in accordance with the CIETAC's arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.”
2. BAC/BIAC Model Clause
“Any dispute arising out of or in connection with this contract shall be submitted to the Beijing Arbitration Commission for arbitration in accordance with its arbitration rules. The arbitral award shall be final and binding on both parties.”
3. SHIAC Model Clause
“Any dispute arising from or in connection with this Contract shall be submitted to Shanghai International Economic and Trade Arbitration Commission/Shanghai International Arbitration Center for arbitration.”
Conclusion
Drafting a valid arbitration clause is critical to ensuring enforceability and avoiding procedural delays. By clearly specifying key elements such as the arbitration institution, seat, language, and governing law, and avoiding pitfalls like ambiguous terms or optional clauses, parties can secure a robust dispute resolution mechanism. Leading Chinese arbitration institutions such as CIETAC, BAC/BIAC, and SHIAC offer well-established frameworks to resolve disputes effectively, making them ideal choices for international arbitration in China.
If you have further questions about drafting arbitration clauses or resolving disputes in China, feel free to reach out for professional assistance.