Can Foreign Arbitral Institutions Administer Arbitrations Seated In China?

In December 2019, in BNA v BNB  and another [2019] SGCA 84 [R1] the Singapore Court of Appeal (“SGCA“) discussed the interpretation of an arbitration agreement that provided for disputes to be submitted to the Singapore International Arbitration Centre (“SIAC”) for an ‘arbitration in Shanghai’. The SGCA ruled that ‘arbitration in Shanghai’ referred to the arbitral seat and concluded that People’s Republic of China (“PRC”) law governed the arbitration agreement. The SGCA however did not decide whether the arbitration agreement was valid under PRC law.  

Technically, PRC Arbitration Law has been widely interpreted by the courts to effectively to mean that foreign arbitral institutions must not administer arbitrations seated in China. Following the above SGCA’s ruling, it is uncertain whether under PRC law, an arbitration agreement involving foreign-related disputes is valid if it provides for arbitration in China administered by a foreign arbitral institution.  

In January 2020, the claimant brought the case to the Shanghai No. 1 Intermediate People’s Court (“Shanghai Court“), asking it to decide on the validity of the arbitration agreement under PRC law.  

The Shanghai Court affirmed the validity of the arbitration agreement and held as follows:  

• The argument that foreign institutions could not administer arbitrations seated in China lacked the support of any express prohibition under PRC law and went against the general trend in international commercial arbitration.
  
  
• At the time the PRC Arbitration Law was enacted, the legislature may have lacked an international perspective. This resulted in a disconnection between PRC Arbitration Law and the general trends in international commercial arbitration. The judiciary and the legislature should complement each other; the Supreme People’s Court ‘s (“SPC”) ruling in the case of Anhui Longlide Packing and Printing Co., Ltd. v.s. BP Agnati S.R.L. had filled the gap which the legislature had left open.
  
  
• In Anhui Longlide, the SPC held that an arbitration agreement that provided for arbitration administered by the International Chamber of Commerce in Shanghai was valid. The SPC held that the arbitration agreement contained all of the following elements required by Article 16 of the PRC Arbitration Law for an arbitration agreement to be valid:  

Anhui Longlide has spearheaded the more liberal view that foreign arbitral institutions may administer arbitrations of foreign-related disputes in China. The Shanghai Court’s recent decision in BNA v BNB is another strong indication that Chinese courts are inclined to align China’s international arbitration rules with prevailing standards in other leading international arbitration hubs.