Reforms in Arbitration Rules in China

International parties seeking to enforce contracts in the PRC have long been wary of what they often see as unfamiliar and restrictive China-seated arbitration procedures. Recently, in an important and novel development for the jurisdiction, various reforms have provided greater clarity and acceptance of international best-practice protections for parties undertaking arbitration in Mainland China. Foreign parties, however, will continue to exercise caution.

Emergence and Reform

China is the busiest arbitral venue in the Asia Pacific region by virtue of its size.  The PRC’s most prominent arbitral institution, the China International Economic and Trade Arbitration Commission (“CIETAC”), is the world’s largest international arbitration institution in terms of caseload and has reported further growth in recent years.

Recently, in a bid to further build upon CIETAC’s growth, and ensure its procedures better reflect international best practice, the Commission updated its arbitration rules and opened a sub-commission in Hong Kong, its first outside of Mainland China.  Another of the PRC’s leading arbitration commissions, the Beijing Arbitration Commission (“BAC”), is likewise planning to issue new rules in the course of 2013. While China’s Arbitration Law was last amended in 1995,  the country’s lawmakers this year introduced several “pro-arbitration”  changes to the Civil Procedure Law (the “CPL”) intended to increase the certainty of the arbitration process and expand the range of assistance which the courts can offer to arbitral proceedings.


Considerations for Foreign Parties

Despite the growing popularity of CIETAC, and other Chinese arbitration commissions, non-Chinese parties may be reluctant to submit themselves to arbitration in China, a process which can be restrictive and inflexible.

Arbitrations seated in China, by contrast with other more arbitration-friendly jurisdictions, are subject to the wide-ranging  jurisdiction of the local courts, which actively supervise (and also intervene in) China-seated arbitrations. For example, under Chinese law, applications for interim relief are ultimately dealt with by the Chinese courts, rather than by the arbitrators themselves, as is permitted in other jurisdictions. Moreover, such interim measures are limited in their scope to only two categories; the preservation of property and evidence. Chinese law does not allow for pre-arbitration relief such as security for costs.

Chinese arbitration procedures, as exercised by mainland Chinese arbitrators, can also be alien to western traditions. International arbitrations typically have a strong adversarial component — for instance, arguments are led by the parties’ submissions —whereas Chinese arbitrators tend to play down these adversarial aspects and employ an inquisitorial procedure led by the tribunal’s questioning. In addition, PRC arbitration often incorporates little in the way of witness evidence and documentary production. While this may often lead to a quicker and cheaper dispute resolution process, many Western practitioners and parties fear that it jeopardizes the opportunities for a fair outcome.

Many arbitrations involve an element of mediation, a hybrid procedure referred to as ‘med-arb’, whereby arbitrators move between an “adjudicative” role in which they reach findings based only upon the facts and the law and a “facilitative” role in which they assist the parties to reach a commercial settlement based on their respective bargaining positions. This med-arb procedure has received a mixed reception from Western commentators.  Critics consider that such procedures have a negative impact on the integrity of the arbitral process as confidential information disclosed to the arbitrators in the facilitative stage might prejudice their adjudicative role, leading them to stray away from a straight consideration of the presented facts and the applicable law.

Offshore Resolution or Modified Procedure?

For the above reasons, foreign parties have historically preferred to seat their arbitrations in neutral venues such as Hong Kong and Singapore, where this can be agreed with the Chinese party. This has the important additional benefit that the resulting award is treated as a foreign award for the purposes of enforcement in China, and is therefore subject to a stronger, and more effective, enforcement mechanism than are domestic awards.

China signed and ratified the New York Convention in 1987. Since the late 1990s the PRC has implemented a special procedure for the enforcement of foreign arbitral awards under the New York Convention.  This requires the approval of the Supreme People’s Court of any decision by a lower court not to enforce a foreign award under the New York Convention.  The system is imperfect and has attracted criticism for its lack of transparency and insufficient involvement or notification of the parties. Nevertheless, it has been credited with creating an increasingly pro-enforcement culture for the enforcement of foreign arbitral awards in mainland China. This culture has arguably been bolstered by China’s growing foreign direct investment and the resulting interest that China has in supporting the New York Convention regime for the enforcement of arbitral awards.

Notwithstanding the usual preference of foreign parties to arbitrate outside of China, they will sometimes have no choice but to pursue arbitration proceedings in mainland China. For instance, parties may be restricted from pursuing offshore arbitration by the Chinese law  requirement that only “foreign related” disputes may be resolved outside  of the PRC.  Importantly, this provision often captures not only disputes between Chinese businesses and state owned enterprises (“SOEs”) but also locally-incorporated subsidiaries of foreign companies which, as they are considered domestic parties for the purposes of Chinese law, may have no choice but to seat their arbitrations in mainland China.

Where parties have no choice but to submit any dispute to China-seated arbitration, they would be advised to negotiate modifications to their arbitration clauses in order to render the arbitral procedure more in line with international practice. Such modifications may include providing for an English language, adversarial, arbitration procedure, administered by a tribunal of experienced international arbitrators.

However, the parties are also limited in their freedom to agree modifications to the procedure of a China-seated arbitration. For instance, PRC law generally prohibits the parties from agreeing foreign arbitral institution, such as the ICC or HKIAC, as the administering authority for a China-seated arbitration. Ad hoc arbitration seated in China is also not recognized.


2012 CIETAC Rules

CIETAC brought into effect a number of amendments to its rules on 1 May 2012. The new provisions contain numerous amendments aimed at addressing the concerns of parties, including foreign parties, and bringing CIETAC’s rules further into line with those of leading international arbitration institutions.

For example, under the old rules, the default language of arbitration was Chinese, meaning that parties which failed in their arbitration clauses to explicitly specify another applicable language had no choice but to proceed with Chinese-language proceedings. This would be the case even in circumstances where all previous business relations between the parties were conducted in English. The new rules remedy this issue by providing CIETAC with the discretion to designate the appropriate language for the proceedings, taking into account the circumstances of the case.

The 2012 Rules also provide the tribunal with greater flexibility in  relation to interim measures, although these provisions are explicitly  stated to apply only in circumstances where the domestic law of the  dispute allows, meaning they remain subject to the restrictions of  Chinese law where the arbitration in question is seated in the PRC.

The new provisions also update CIETAC’s procedure for resolving impasses between claimants and respondents in cases where multiple claimants or respondents make joint arbitral appointments.  In addition, the 2012 Rules increase the threshold for CIETAC’s fast-track summary procedure from RMB 500,000 to RMB 2 million, reflecting  the increased value of claims brought before CIETAC.

One objective of the new Rules is to internationalize CIETAC’s role.  While the previous rules provided that arbitral proceedings shall take place in mainland China unless the parties agree otherwise,  this requirement is removed in the new rules. Now, under the revised  rules, in the absence of party agreement, CIETAC has the flexibility to  choose a foreign arbitral seat if the circumstances of the case suggest that this is appropriate.  CIETAC arbitrations may therefore be seated outside China, provided doing so does not conflict with the restrictions of Chinese law.

The new rules also make explicit CIETAC’s ability to administer arbitrations conducted in accordance with the arbitration rules of other arbitration institutions.

Remaining Questions

The above reforms are clearly welcome. However international parties will continue to be wary, notably when it comes to the parties’ ability  to select an arbitral panel of appropriate international experience and  outlook. Under CIETAC’s Rules, unless otherwise agreed by the parties, arbitral appointments will be made from CIETAC’s own Panel of Arbitrators (approximately 75 percent of which are domestic Chinese arbitrators) and in accordance with CIETAC’s schedule of fees, which is considered low by international standards. Moreover, unlike the rules of many other international arbitration institutions such as the HKIAC or the ICC, the CIETAC Rules do not provide that the sole or presiding arbitrator shall be of a nationality other than those of the parties.

To improve the possibility of a satisfactory arbitral tribunal, parties may choose to negotiate an arbitration clause that provides that they may appoint arbitrators outside of the CIETAC Panel of Arbitrators and that the arbitrators’ remuneration may be set without reference to CIETAC’s fee schedule. They may also specify that the sole or presiding arbitrator shall be of a nationality other than that of the Parties.

Division and multiplication: CIETAC’s mainland sub-commissions

While 2012 saw much good news for the Commission it also saw a highly public spat between CIETAC and two of its mainland sub-commissions.  In response to CIETAC’s 2012 rules coming into effect, its Shanghai sub-commission announced that it had split from CIETAC Beijing and was declaring itself an independent arbitral institution with its own rules and panel of arbitrators.  CIETAC’s Shenzhen/South China sub-commission likewise declared independence. Following three months of announcements and counter-announcements, CIETAC Beijing suspended and then terminated its authorization of both commissions.

The key driver behind the split appears to have been a new requirement in the 2012 rules which, according to most commentators, has the effect of increasing the role of CIETAC Beijing at the expense of its sub-commissions. The new rules provide that, absent specific nomination by the parties of a named sub-commission, the Secretariat of CIETAC in Beijing shall accept the arbitration application and administer the case.  In the past, any arbitration application where the parties made only general reference to “CIETAC arbitration” would be allocated to one or other sub-commission based on considerations of party convenience. By contrast, under the new rules these cases will by default be referred to CIETAC Beijing.

The split does CIETAC reputational damage but, more seriously, it may also adversely affect the certainty and finality of CIETAC proceedings in the region. With CIETAC Beijing having established new arbitration sub-commissions in Shenzhen and Shanghai, there now exist rival “CIETAC” sub-commissions in those locations, each claiming legitimacy and the support of different judicial bodies. Nomination of either entity by a party whose arbitration clause specifies CIETAC arbitration in Shanghai or Shenzhen runs the risk of a challenge in the courts by the respondent party.

These considerations arguably provide foreign parties with a further reason, where possible, to refer disputes to offshore arbitration rather than to “CIETAC Shanghai” or “CIETAC Shenzhen”. Alternatively they may choose to have the dispute administered by another local entity or else by CIETAC Beijing, notwithstanding that the location of any hearings shall be Shanghai or Shenzhen.

Legislative Reforms

Even as CIETAC’s internal divisions attract public attention, the PRC introduced low-key, but significant, legislative changes which will affect arbitration in China. These include two key changes to the amended Civil Procedure Law (CPL) which came into force on 1 January 2013.

First, new provisions have been introduced to facilitate interim relief. While they do not overturn the Chinese law prohibition against tribunal-ordered interim measures, the new provisions allow for a more flexible system when it comes to protecting assets before the commencement of arbitral proceedings.

Secondly, the amended CPL reduces the scope for the setting aside of domestic arbitration awards in China. Previously such a challenge could  be brought on the grounds that the arbitration tribunal had made errors  of fact or law in making their determination. Under the revised CPL both grounds for challenge are removed and  replaced with far narrower grounds that evidence in the arbitral  proceedings had been forged or withheld.  This amendment is a welcome development which will potentially increase the certainty of arbitral proceedings and reduce the potential for additional cost and delay in China-seated arbitrations.


Recent reforms, such the above amendments to the CIETAC Rules, give some comfort to international parties looking to enforce contracts by PRC-seated arbitration proceedings. Taken together and applied with the benefit of a well-drafted arbitration clause, they offer parties the potential for a CIETAC-administered arbitral procedure incorporating many if not all of the elements of international arbitral best practices. Such a clause would provide for an adversarial procedure incorporating an appropriate measure of document production and, importantly, the appointment of an internationally experienced panel, reflecting the nationalities of the parties.

The international arbitration community is eagerly awaiting further reform and liberalization of China’s arbitration infrastructure. Two such measures would allow non-Chinese arbitration commissions to administer China-seated arbitrations, and the ceding of greater powers  to domestic arbitration tribunals. Until such reforms are implemented international parties will remain wary of referring their disputes to arbitration seated in China.

Source: LAWIN


Published by admin on April 18th, 2014 tagged Uncategorized | Comment now »

Invitation from Who’s Who Legal: Trademarks 2014

Lehman, Lee & Xu China lawyers is proud to announce the recognition of Managing Director Edward Lehman, as a pre-eminent Trademark Litigator by Who’s Who Legal. Mr. Lehman has been invited to be included in the Who’s Who Legal: Trademarks 2014 publication. Who’s Who Legal: Trademarks seeks to identify and recognize private practice lawyers with proven experience in representing and advising companies from a broad range of industries.

Mr. Lehman has over 27 years experience “On the ground” in China, protecting the Intellectual Property of diverse clients from around the world. He was the first foreign lawyer to work in China with a local Chinese law firm and is the longest serving Managing Director of any law firm (Chinese or Foreign) in the People’s Republic of China (22+ years consecutively).

The selection process for this invitation focused specifically on Trademark litigation, not simply trademark applications. Lehman, Lee & Xu believes this invitation is an important acknowledgement of Mr. Lehman’s significant accomplishments in bringing two separate trademark litigations before the China Supreme Court over the past year. These cases were both cases of “first instance” before the court examining whether a mark should be “canceled” if found to be registered in bad faith.

Mr. Lehman is an expert in China Trademark and intellectual property protection, and often works and advises on a range of proceedings including civil litigation and Trademark Office hearings. Mr. Kenan Jiang, a Lehman, Lee & Xu attorney and former People’s Court Judge points out that Mr. Lehman has been invited to the legal program on CCTV several times to talk about intellectual property law and other Chinese laws. He, “Provides exceptional guidance to Chinese local lawyers in many ways with his broad knowledge and experience.”

The invitation process began with nominations from Mr. Lehman’s peers working in international Trademarks. Those names which were most often mentioned were researched by Who’s Who Legal: Trademarks to identify those with real professional experience and accomplishments. Mr. Lehman is pleased and humbled to be nominated by his professional peers, and grateful to Who’s Who Legal for their thoughtful research.

Published by admin on April 15th, 2014 tagged Uncategorized | Comment now »

Court Abused Discretion by Not Considering Sanctions Request

District courts should exercise their discretion to impose 28 U.S.C. § 1927 sanctions or at least consider them even if not formally requested by separate motion, according to the U.S. Court of Appeals for the Sixth Circuit. In Meathe v. Ret, the Sixth Circuit expounded on a district court’s obligation to consider sanctions under Section 1927, but only briefly addressed the “vexatious” conduct required for the imposition of such sanctions, choosing instead to remand the case.

Sanctions Request in Response to a Motion to Amend
In Meathe, the plaintiffs filed a shareholder suit alleging breach of contract and breach of fiduciary duty, which the defendants promptly sought to dismiss via summary judgment. The plaintiffs immediately moved for leave to amend their complaint. The amended complaint, according to the U.S. District Court for the Eastern District of Michigan, made no substantive additions to the pleading. As part of their response to the plaintiffs’ motion to amend, the defendants requested sanctions under 28 U.S.C. § 1927, arguing that the plaintiffs unreasonably sought to obstruct and delay the litigation. The defendants did not file a separate sanctions motion.

28 U.S.C. § 1927 Sanctions
Section 1927 states, in relevant part, that “[a]ny attorney . . . who so multiples the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” As the language of the statute indicates, Section 1927 sanctions are only available against lawyers—not litigants. According to the Sixth Circuit, “[t]he proper inquiry is not whether an attorney acted in bad faith; rather, a court should consider whether an attorney knows or reasonably should know that a claim pursued is frivolous.”

Sixth Circuit Affirms Dismissal but Remands on Sanctions Issue
The district court dismissed the case by denying the plaintiffs’ motion to amend and granting the defendants’ motion for summary judgment, but the court failed to address or even mention the defendants’ request for sanctions. The Sixth Circuit affirmed what it referred to as the district court’s “well-reasoned opinion” dismissing the case, but on the defendants’ cross-appeal, remanded the case for consideration of the defendants’ request for sanctions under 28 U.S.C. § 1927.

Due to the district court’s “espoused skepticism of the meritoriousness and propriety of the case,” the Sixth Circuit found that the court “should have exercised its discretion and at least briefly considered the defendants’ request for sanctions.” The Sixth Circuit noted that the issue of sanctions was squarely before the court (albeit without a motion), and was “close enough to warrant at least some discussion.”

“The appellate court’s problem with the district court’s action is that it failed to address the issue at all after expressing skepticism over the behavior,” according to Eileen M. Letts, Chicago, IL, cochair of the ABA Section of Litigation’s Ethics and Professionalism Committee. “The court should have delved into the behavior not only for the decision but to provide lawyers with some guidance concerning sanctionable behavior,” says Letts.

Vexatious Conduct
The interpretation of the word “vexatious” in the statute varies among the different judicial circuits. For example, “the Seventh Circuit adheres to a more objective/subjective standard,” according to Letts. The Seventh Circuit requires a great deal for a lawyer to be sanctioned under Section 1927, including repeatedly filing baseless claims; repeatedly making frivolous arguments; needlessly delaying litigation procedures or court proceedings; recklessly disregarding case law, statutes, rules, or court orders; and/or continuing a course of conduct after repeated warnings by the court.

“This case can serve as a jumping off point for a discussion about the implementation of Section 1927 sanctions,” opines Barry E. Cohen, Washington, DC, chair of the Multi-Jurisdictional Practice Subcommittee of the Section of Litigation’s Ethics and Professionalism Committee. “Some situations are easy—the lawyer who pleads an important fact allegation without any reasonable belief that it is true or any reason to believe that discovery will support it. Or the assertion of a legal theory that has been rejected by the highest court in the jurisdiction and where the lawyer can offer no reasonable argument for changing the law,” says Cohen. “The other end of the spectrum is also easy to identify,” explains Cohen, “but the middle is hard to describe.”

“To avoid chilling zealous advocacy, courts will usually decide close questions against the imposition of sanctions. In these sanctions proceedings, which are often highly fact-specific, there usually is no bright line dividing the middle area between clearly sanctionable and clearly proper,” according to Cohen.

“As a young attorney, I would make sure that I move for sanctions with clean hands,” remarks Kathryn Heidrichs, Chicago, IL, editor of the Section’s Ethics and Professionalism Committee’s newsletter. “This decision will not have a significant impact on the practice of law, but it could be the beginning of the establishment of a protocol in close cases where courts must be clear on what is permissible behavior,” Letts believes.



Published by admin on April 14th, 2014 tagged Uncategorized | Comment now »

Chicago Law Firm Launches Litigation in Malaysia Airlines Jet Disappearance

The father of a passenger on the missing Malaysia Airlines Flight 370 has begun a multi-million dollar litigation process against the airline and plane manufacturer in the United States, an aviation law firm said today.

A petition for discovery filed today in Circuit Court of Cook County, Ill., names Malaysia Airlines and Boeing, the manufacturer of the missing 777 airplane, as the initial defendants, Monica Kelly, head of Global Aviation Litigation at Ribbeck Law, told ABC News. The law firm is based in Chicago.

A record of the filing did not immediately appear in search results on the Cook County Circuit Court website. Malaysia Airlines and Boeing did not immediately respond to requests for comment.

The statement came a day after Malaysia’s prime minister concluded that the plane plunged into a remote part of the Indian Ocean with no survivors.

Missing Malaysia Airlines Plane: What We Know Now

Kelly said more potential defendants could be named in the next few days, including designers and manufacturers of the aircraft parts she said could have failed.

The firm also appears to be calibrating the human cost as well. William Wang, an attorney for Ribbeck, told ABC News in Beijing last week that he had surmised from talking to families that one-third of the Chinese passengers on the plane were the only child their parents had.

“At least 50 parents lost their only one child,” he said. “For them it is a disaster.”

The petition was filed on behalf of Dr. Januari Siregar, whose son was on board the flight from Kuala Lumpur to Beijing when it disappeared on March 8.

Among the requests listed in the petition for discovery are demands that Boeing identify a person or company who has “evidence of findings of corrosion and fractures in the fuselage of the Boeing 777 fleet that could lead to catastrophic fatal depressurization of the cockpit,” Kelly said.

The petition seeks details on elements of the plane’s construction ranging from the makers of batteries on the plane to the person in charge of its operating manuals, Kelly said.

One section asked a judge to order the companies “to provide the identity of the person or company who is in possession of information pertaining to the training of the crew for catastrophic incidents including fire in the cockpit and sudden depressurization; the identity of the person or company who is in possession of the security practices of Malaysia Airlines; the identity of the person or company who provided training to the crew with regards to safety of the aircraft; the identity of the person or company who is in possession of the documents pertaining to Malaysia Airlines physical and psychological evaluations of the crew.”

The legal documents also request that U.S. based experts be included in the search for the wreckage and bodies.

Kelly said a particular request was also made for the Woods Hole Oceanographic Institution, which has worked in the search for previous aviation and maritime disasters, to join the search with its underwater sonar vehicle. The nonprofit said on its website it has offered its expertise to the authorities responsible for the search in the southern Indian Ocean.

Malaysian Prime Minister Najib Razak announced Wednesday, after a maddening 17 days of searching, that Flight 370 “ended” its journey in a “remote location” of the southern Indian Ocean with no hope of survivors. The plane was carrying 239 people.

Weeks of searches that spanned the South China Sea, Gulf of Thailand, Strait of Malacca, the Bay of Bengal and finally the south Indian Ocean off of Australia turned up no new leads as authorities tried to figure out what happened to the plane.

Source:abc NEWS


Published by admin on April 11th, 2014 tagged Uncategorized | Comment now »

China summons Manila envoy over South China Sea legal case

China summoned the Philippines ambassador on Monday to lodge a strong complaint over Manila’s seeking of international arbitration in a festering territorial dispute over the South China Sea.

The Philippines filed the case against China on Sunday at an arbitration tribunal in The Hague, subjecting Beijing to international legal scrutiny over the waters for the first time.

The United States, a treaty ally of the Philippines, said on Sunday that the right of any state to use dispute resolution mechanisms under the Convention on the Law of the Sea should be respected.

On Monday, the U.S. State Department accused China’s coastguard of “harassment” of Philippine vessels and called its attempt on Saturday to block a Philippine resupply mission to the Second Thomas Shoal, a disputed atoll, “a provocative and destabilizing action.”

Chinese Deputy Foreign Minister Liu Zhenmin told the Philippines’ ambassador that Beijing was “extremely dissatisfied and resolutely opposed” to the case Manila had brought to The Hague, repeating that China did not accept it and would not participate.

“The Philippines forcing of international arbitration is not conducive towards resolving the Sino-Philippine dispute over the South China Sea,” the Foreign Ministry cited Liu as saying.

The case would not shake China’s resolve to protect its sovereignty and territorial integrity, Liu added.

The only way to address the issue was through bilateral talks, he said, repeating another of China’s standard lines.


At the weekend, a Philippine vessel delivered food, water and troops to the Second Thomas Shoal, evading two Chinese coastguard ships trying to block its path.

Liu expressed anger at that too, especially as the Philippines took reporters along to what China calls Ren’ai Reef. “China will not tolerate the Philippines’ occupation of Ren’ai Reef in any form,” he said, calling on the Philippines to stop its “provocative behavior”.

Philippine President Benigno Aquino, speaking to reporters earlier on Monday, said he was not seeking confrontation.

“We are not here to challenge China, to provoke them into any action, but I do believe that they should recognize we have the right to defend our own interests,” he said.

State Department spokeswoman Marie Harf said the Philippines was permitted, under the principles of the 2002 Declaration on the Conduct of Parties in the South China Sea, to maintain previously established outposts without interference.

“As a treaty ally of the Republic of the Philippines, the United States urges China to refrain from further provocative behavior by allowing the Philippines to continue to maintain its presence at Second Thomas Shoal,” she told a regular news briefing in Washington.

“We urge China to manage disputes peacefully, to clarify its ambiguous claim in accordance with international law, and to accelerate negotiations with ASEAN on a meaningful code of conduct,” she said, referring to the 10-member Association of Southeast Asian Nations.

The latest developments in the dispute come ahead of a visit next month by U.S. President Barack Obama to Asia, including the Philippines. Obama is expected to offer reassurances to regional allies in the face of increasingly assertive Chinese territorial claims.

Chinese Foreign Ministry spokesman Hong Lei said the United States was not a party to the dispute and had said many times it would not take a position.

“We demand that the United States be as good as their word, and do more to benefit peace and stability in the South China Sea, not the opposite,” Hong said.

“The Philippine side will certainly face consequences for its provocative actions,” he added, without elaborating.

China displays its claims to the South China Sea on official maps with a so-called nine-dash line that stretches deep into the maritime heart of Southeast Asia.

Vietnam, Malaysia, Brunei and Taiwan also have claims to parts of the potentially energy-rich waters.

Source :Reuters


Published by admin on April 11th, 2014 tagged Uncategorized | Comment now »

China: Arbitration clauses in Bills of Lading under Chinese legal practice

Successful incorporation of a charterparty arbitration clause into the bills of lading is not a straight forward matter under China jurisprudence and recently a Chinese maritime court dismissed the owners’ motion to refer the case to arbitration, because it was held that the C/P arbitration clause incorporated into the B/L was not effective. Details of the matter are as follows. Key points following the legal decision are:

Although the said B/L recorded on the front page that it was: “to be used with charterparty”, there was no express statement in the bill terms for incorporating the arbitration clause from the C/P.

The standard incorporation clause in the back page of the B/L could not constitute a valid incorporation of the arbitration clause under Chinese law and practice.

If any C/P terms are to be recognised as incorporated then they would be those of the voyage charter to which the cargo receiver was a party – not the head time C/P. This is because the time C/P is in the nature of being primarily a leasing contract .
Facts of this case

The vessel owners concluded a time C/P as with a charterer. One of the rider clauses provided that English law shall be applicable, and a further clause provided that any dispute arising from the C/P shall be submitted to arbitration at the LMAA.

As part of her charter employment, the vessel carried a cargo of iron ore fines from South America to China. According to the B/L, the shipper South American and the receiver was a Chinese Steel Mill.

While on route the vessel was involved in collision with another vessel. The owners appointed salvors to conduct salvage, and concluded a LOF contract. General average was declared. The salvage was successful, and the Chinese Steel Mill (through its insurers) had to provide general average security to the vessel.

The general average apportionment of salvage costs to cargo was significant, and the Chinese Steel Mill commenced proceedings in China for an indemnity against the ship-owner. The owners raised objection to jurisdiction on the basis that the provisions of the time C/P, including the arbitration clause had been incorporated into the B/L, and thus was binding upon the Steel Mill. The expert opinion of English lawyers was put forward to confirm that the terms of the C/P were successfully incorporated in to the bills of lading, including the arbitration clause.

First instance trial before the Chinese Maritime Court

The Maritime Court dismissed the objection to jurisdiction for the following reasons:

The case was about compensation of ship collision / general average salvage rewards. Hence, the case fell into the scope of the contract of the carriage of goods by sea.

Although the said B/L recorded on the front page that: “to be used with charterparty”, there was no express statement in the bill terms for incorporating the arbitration clause in the C/P. The standard incorporation clause in the back page of the B/L cannot constitute valid incorporation.

Meanwhile, the C/P which the owner claimed was to be incorporated into the B/L was a time C/P between the owner and the charterer only. The C/P arbitration clause was only there for resolving the disputes arising from the leasing of the vessel. It was not an arbitration clause for purpose of carriage of goods by sea under the voyage C/P.

The local Maritime Court, as the nearest court at the port of the destination of the said carriage contract, should have jurisdiction over this case.

Appeal judgment High People’s Court

The owners then appealed to the High People’s Court and the appeal court dismissed the objection to jurisdiction for reason that:

Although it is stated on the face of the involved B/L that the said B/L should be used with the C/P, the said C/P to be used with B/L shall be the voyage C/P and not the time C/P to which the owner was a party.

However, the C/P provided by the owners was a time C/P and there was also no record on the face of the B/L regarding the specific C/P concerned and no express acceptance to have the C/P arbitration clause incorporated.

Observation on this case and comment

Chinese courts hold a stringent view concerning the issue of incorporating the C/P arbitration clause into the B/L. In this case, a key issued appeared to be that the C/P terms sought to be incorporated came from the time C/P, instead of a voyage C/P.

It should also be noted that in 2004 the Qingdao Maritime Court also held that a time C/P is primarily a vessel leasing contract, and although it also has some clauses regarding transportation of cargo it is still primary a leasing contract which is very different from voyage C/P.

The Qingdao Maritime Court continued to say that the B/L relationship is different to the time C/P legal relationship, and because of the rooted difference in this respect, the time C/P arbitration clause cannot be incorporated into the B/L.

Although China is not a case law country, the reasoning of Chinese courts in this regard should be paid attention to for handling of other similar cases.

Source :Carbon positive

Published by admin on April 10th, 2014 tagged Uncategorized | Comment now »

2014 China Corporate Commercial Law Firm of the Year

Lehman, Lee & Xu is pleased to be recognized as 2014 China Corporate Commercial Law firm of the Year by InterContinental Finance Magazine (ICFM). This is a highly sought after award and Lehman, Lee & Xu is honored to be selected. We are very grateful to our clients, who spoken positively about our firm to ICFM, and who consistently recommend us to their own respected friends and business partners.

Receiving the ICFM Law China Law firm of the Year award is the culmination of a long and demanding process of nominations and careful research by the ICFM. The award is intended to recognize firms which have excelled and flourished due to high quality advice, strong customer service, and important business acumen. As we accept this accolade, Lehman, Lee & Xu is proud to recommit itself to these qualities and to the success of every one of our valued clients.

Mr. Kenan Jiang, a Lehman, Lee & Xu attorney and former People’s Court judge said the firm is “Very pleased” at the award and sees it as a “recognition of the hard work and excellent legal services” provided to the firm’s clients over more than 22 years assisting international clients in China. “The law firm continues to move and grow from strength to strength.”

Published by admin on April 10th, 2014 tagged Uncategorized | Comment now »

INTA Annual Meeting China Table Topic Registration

Hosted by LEHMAN, LEE & XU China Lawyers

China Related Table Topics

Leading China Lawyers will present 12 different moderated discussions at the Annual INTA Meeting for groups of approximately 6 people each. Talks will be on a variety of timely and important Greater China related issues. This is a great opportunity to network with your colleagues, learn about China law and legal practice, and enjoy a relaxing beverage in the process. Participation in the conversation is encouraged and we hope you will plan on joining the discussion.

Date Topics
Sunday, May 11 14:00 PM
  • Legal Risks in Trademark Transfers, Licensing and Related Tax Efficiency
15:00 PM
  • Tips for Trademark Registration in China
  • Franchise Law and IP

May 12

10:20 AM
  • New Chinese Trademark Law, Effective on May 1 of 2014
  • New Company Law
11:20 AM
  • Chinese IP rights Customs Recrodal System
14:00 PM
  • Franchise Law and IP
  • The Brief Introduction of Chinese Patent Application for Utility Models.
15:00 PM
  • Asset Investment of IP Rights to an Enterprise in China
  • Tips for Trademark Protection in Hong Kong

May 13

10:20 AM
  • Registration of Domain Names in Hong Kong and Macau
  • Hot Trademark Cases in 2013
11:20 AM
  • New Chinese Trademark Law, Effective on May 1 of 2014
  • Patent Prosecution Highway Pilot Program Between the SIPO and the USPTO, the JPO, the DPMA, the ROSPATENT, the NBPR, the DKPTO, the IMPI, the APO, the KIPO, the CIPO, the IPOS, the INPI, the SPTO, etc.
14:00 PM
  • Franchise Law and IP
  • Legal Risks in Trademark Transfers, Licensing and Related Tax Efficiency
15:00 PM
  • Asset Investment of IP Rights to an Enterprise in China
  • Registration of Domain Names in Hong Kong and Macau

Given the strong demand, pre-registration for these events is encouraged. Tickets for these China Table Topics are free.

Any remaining Table Topics tickets will be distributed at the LEHMAN, LEE & XU China Lawyers Booth No. 315

Published by admin on April 8th, 2014 tagged Uncategorized | Comment now »

Shanghai to pilot China’s legal market liberalisation measures

A Shanghai Bureau of Justice official has hinted that the Shanghai Pilot Free Trade Zone’s (FTZ) experiment on allowing associations between Chinese and foreign firms will lead to further opening up of the country’s legal services sector.

The FTZ was launched in September 2013 to test-run an opening up of China’s financial system, easing restrictions in foreign and private investment and loosening controls on its currency.

It also outlines 18 different service sectors to be opened up to foreign investment, including the legal services sector. The FTZ promises to explore cooperative mechanisms between Chinese and foreign law firms and its proposal has recently been approved by the Ministry of Justice (MoJ).

The Shanghai Bureau of Justice is currently in the process of drafting the detailed procedures and implementation measures for the pilot scheme. The process is expected to complete at the end of this month.

In essence, the policy will allow deeper collaborations between Chinese and foreign firms in two main ways.

If a foreign firm has a representative office in the FTZ, it is allowed to enter into an agreement with a Chinese firm to second lawyers to each other’s offices. PRC lawyers working in the foreign firms’ FTZ representative office can provide PRC legal advice, while foreign counsel working in Chinese firms can provide legal advice on foreign law. However, they remain employed by their respective firms.

Secondly, within the FTZ, foreign firms and Chinese firms are allowed to enter into an association on a contractual basis. In this way, the two firms remain financially independent and separate entities, but can join force to provide legal services to clients. PRC legal advice can only be provided by the Chinese firm in the association.

In an interview with the FTZ Post earlier this week, Shanghai Bureau of Justice official Ma Yi provided an interpretation of the new policy and its approval by the MoJ.

Ma indicated that the ultimate goal of the FTZ experiment is to lead to a MoJ decision to allow foreign and domestic firms to set up joint ventures, through which they can provide one-stop international and local legal services under one brand.

“We’ve studied the opening-up measures taken by countries such as Singapore, Japan and South Korea. They all have the same approach which is to liberalise the market gradually and step by step,” Ma told the local press. “If we open the market all at once, it’ll have an adverse impact on the domestic legal industry, which is only 30 years old.”

He also added that firms have to set up offices in the FTZ before they are eligible to benefit from the new policy, and firms in association can share the same office premises inside the FTZ.

In terms of the scope of business for the associate firms, Ma noted that generally, associated firms would not be able to advise on administrative or criminal law, but should be able to advise on commercial, corporate and dispute resolution matters, including matters that occurred outside of the FTZ.

He also confirmed that there is already interest from local firms which have expressed their interest in setting up offices in the special zone.

China currently allows Hong Kong firms with mainland representative offices to enter into association with domestic firms under the Mainland and Hong Kong Closer Economic Partnership Arrangement. The FTZ is to broaden the policy to cover foreign law firms within its boundary.



Published by jyin on March 19th, 2014 tagged Uncategorized | Comment now »

U.S. Supreme Court Reaffirms Enforceability of Class Arbitration Waivers

On June 20, 2013, in American Express Corp. v. Italian Colors Restaurant, (No. 12-133), the United States Supreme Court held that a party cannot escape individual, non-class arbitration by asserting that class action procedures are necessary to effectively prosecute the claim.  That is true even if the economics of a non-class arbitration are not viable:  ”[The FAA's] command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low-value claims.”  (Slip op. at 9 n.5.)  The Court’s decision forecloses recent attempts to evade AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which “rejected the argument that class arbitration was necessary to prosecute claims ‘that might otherwise slip through the legal system’” (id. at 9 (citation omitted)), and is the latest in a string of decisions vindicating the ability of businesses to arbitrate consumer disputes.

The Court’s Decision

American Express had a winding road to the Supreme Court, obtaining certiorari in November 2012 only after several rounds in the Second Circuit, including two separate opinions refusing to enforce the class waiver in the wake of Stolt-Nielsen S.A. v. Animal Feeds International Corp., 130 S. Ct. 1758 (2010), and Concepcion.

In reversing the Second Circuit’s most recent decision, the Supreme Court reaffirmed the principles of Concepcion; namely, that courts must “‘rigorously enforce’ arbitration agreements according to their terms,” including terms that specify “‘with whom the parties choose to arbitrate their disputes.’”  (Slip op. at 3 (citation omitted).)  And they must do so regardless of “public policy” objections.  (Id. (citation omitted).)  That is true even for federal statutory claims, “unless the FAA’s mandate has been ‘overridden by a contrary congressional command.’”  (Id. at 4 (citation omitted).)

There was no such congressional mandate under the federal Sherman and Clayton Acts:  ”[T]he antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.”  (Id. at 4.)  In fact, explained the Court, the class-action waiver “no more eliminates those parties’ right to pursue their statutory remedy than did federal law before its adoption of the class action for legal relief in 1938.”  (Id. at 7.)  The Court suggested that the same is true of the federal employment statutes:  ”In Gilmer [v. Interstate/Johnson Lane Corp., 500 U. S. 20, 28 (1991)], we had no qualms in enforcing a class waiver in an arbitration agreement, even though the federal statute at issue, the [ADEA], expressly permitted collective actions.”  (Slip op. at 8.)

Its decision also distinguished between arbitration provisions that serve as “as a prospective waiver of a party’s right to pursue statutory remedies,’” and those that simply make the claim more difficult to prove:  ”[T]he fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”  ( 6–7 (citations omitted).)

Justice Kagan’s dissenting opinion (joined by Justices Ginsburg and Breyer; Justice Sotomayor recused herself) sharply criticized the majority and suggested that the Court was driven by hostility to class proceedings:  ”To a hammer, everything looks like a nail. And to a Court bent on diminishing the usefulness of Rule 23, everything looks like a class action, ready to be dismantled.”  (Id. at 14 (Kagan, J., dissenting).)

Potential Implications

American Express represents the latest in a string of recent precedent involving class arbitration issues.  Following Concepcion, the Court issued several decisions rejecting state and federal court attempts to circumvent that ruling.  See Marmet Health Care Ctr., Inc. v. Brown, 132 S. Ct. 1201 (2012) (per curiam); CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012); Nitro-Lift Techs., L.L.C. v. Howard, 133 S. Ct. 500 (2012) (per curiam); KPMG LLP v. Cocchi, 132 S. Ct. 23 (2011) (per curiam).  Notably, in all of these cases except Sutter v. Oxford Health Plans LLC, No. 12-135, 2013 WL 2459522 (June 10, 2013), the Court enforced individual over classwide arbitration.  (And Oxford Health was a very narrow ruling that focused on the very limited standard of review available under the Federal Arbitration Act.)

Although American Express involved a federal antitrust claim, it will have far-reaching implications for a variety of state and federal claims where such claims are subject to an arbitration agreement and class waiver.  It will also, no-doubt, result in further litigation in the lower courts over the breadth of the Court’s decision, including in the following areas:

1.  Continuing Attacks Under the Banner of “Prospective Waiver.” Despite its broad holding, the American Express decision suggested that arbitration provisions that serve as a “prospective waiver of a party’s right to pursue statutory remedies” remain vulnerable.  (Slip op. at 6–7.)  It noted, for example, that a court “perhaps” may reject “filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable.”  (Id. at 6.)  Such a provision may make it “impossible” to bring the claim, “not just as a class action but even as an individual[.]“  (Id. at 7 n.3.)  On the other hand, the Court expressly held that arbitration provisions that do not foreclose access to the forum, but merely make the claim more difficult to prove, will not qualify as a “prospective waiver.”  (Id. at 6–7.)  Where the courts draw that line remains to be seen and lower courts will undoubtedly be forced to grapple with the Court’s “prospective waiver” analysis in future cases

2.  Impact on Employment Claims. In the wake of American Express, plaintiffs in employment cases may reframe their existing attacks on arbitration agreements as “prospective waivers” in their continuing effort to salvage pre-Concepcion case law and to otherwise escape the principles set forth in Concepcion.  For example, plaintiffs have argued that representative actions under the California Private Attorney General Act (PAGA) can only be brought on a representative basis, and therefore, a class waiver would foreclose all relief under the statute and serve as a “prospective waiver” of rights.  Cf. Brown v. Superior Court, No. H037271, — Cal. App. —-, 2013 WL 2449501, at *9 (Cal. Ct. App. June 4, 2013); but see Iskanian v. CLS Trans. Los Angeles, LLC, 206 Cal.App.4th 949 (2012) (holding that the FAA preempts the PAGA exemption), review granted, 286 P.3d 147 (Cal. 2012).  Particularly in states like California—the birthplace of the rule invalidated in Concepcion—the viability of these arguments remains to be seen.

Some plaintiffs may also seek to escape American Express by distinguishing it as an antitrust case—one that did not attempt to reconcile the FAA with federal employment statutes that expressly authorize the use of collective actions, such as the federal Fair Labor Standards Act, which arguably raises questions as to whether “the FAA’s mandate has been ‘overridden by a contrary congressional command.’”  (Slip op. at 4 (citation omitted).)

3.  California Unfair Competition Law / Public Injunctive Relief Claims. American Expressshould end attempts to use “public policy” arguments to exempt certain consumer protection claims from arbitration.  One important and far-reaching context is in claims for injunctive relief under California’s notoriously broad Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA).  In two frequently cited decisions, the Supreme Court of California exempted “public injunctive relief” claims under these statutes from arbitration.  See Broughton v. Cigna Healthplans of Cal., 21 Cal. 4th 1066, 1079–85 (1999); Cruz v. PacifiCare Health Systems, Inc., 30 Cal. 4th 303, 317–20 (2003).  But American Express “specifically rejected” the assertion that arbitration may be discriminated against when necessary to “vindicate the policies” of an underlying law.  (Slip op. at 5.)

Although the Court spoke in the context of an underlying federal law (i.e., the Sherman Act), the rule that public policy cannot serve as a reason for discriminating against arbitration is even stronger in the context where an underlying state law is concerned.  Indeed, as Justice Kagan explained in her dissent, the Court “has no earthly interest (quite the contrary) in vindicating” a state law that discriminates against arbitration.  (Slip op. at 14 (Kagan, J., dissenting).)  A Ninth Circuit panel applied Concepcion to abrogate the Broughton-Cruz rule inKilgore v. Keybank, Nat’l Ass’n, 673 F.3d 947, 962 (9th Cir. 2012).  But on en banc rehearing, the Ninth Circuit ruled in the defendant’s favor on other grounds and side-stepped the continued vitality of this rule.  See Kilgore v. Keybank, Nat’l Ass’n, Nos. 09-16703, 10-15934, — F.3d —-, 2013 WL 1458876 (9th Cir. April 11, 2013) (en banc).

Finally, American Express, coupled with the decision earlier this term in Oxford Health, also strongly counsels in favor of reassessing existing arbitration agreements in consumer and employment contracts to maximize the enforceability of these provisions.



Published by jyin on March 18th, 2014 tagged Uncategorized | Comment now »