Greater Bay arbitration centers growing

Merging the three different legal systems of the GBA will be no easy task, but it must be done before the two SARs end their terms, in 2047 and 2049. Progress is being made in this regard by cooperation among various entities in special International Arbiration Centers.

It could be said that the Greater Bay Area’s most formidable challenge lies in integrating its three vastly different legal systems. Macau’s is based on Portuguese civil law; Hong Kong’s on British common law; and the mainland’s on a unique “socialist legal system”. This not only makes the drafting of legislation and regulations difficult if they are to be applied in cases affecting people and companies from all three jurisdictions; it also makes it tough to resolve commercial disputes among entities doing cross-border business.

As a step in this process, mainland legal experts and judicial officials have been working on ways to set up arbitration centers for commercial disputes run along internationally accepted principles and codes of conduct. Hong Kong and Macau already have well-established centers, but now Guangdong is pushing hard to catch up.

The most prominent and advanced of these is based in Qianhai, Shenzhen’s special zone, while two others, in Zhuhai’s Hengqin and Guangzhou’s Nansha, are being given attention and resources in an effort to catch up.

In the beginning …

Arbitration centers have existed in China since the founding of the republic in 1949, yet those handling disputes for foreign entities have always been run separately from those handling domestic disputes. The first of these, the China International Economic and Trade Arbitration Commission (CIETAC), was set up in 1956, with a branch in Shanghai. It was a signatory to the New York Convention, which in principle allows for arbitration awards to be recognized by 148 participating countries. Shenzhen established its own in 1983, just four years after the special economic zone was founded, known as the CIETAC South China Sub-commission.

Shenzhen’s arbitration center changed its name in 2012, when it was moved into the Qianhai special economic zone, becoming the Shenzhen Court of International Arbitration (SCIA). Its founding members included the Central Government’s Liaison office in Hong Kong and the Guangdong Provincial Justice Department. A year later, it took the bold step of hiving off from the CIETAC system.

In December 2017, the SCIA took another unprecedented decision to merge with the Shenzhen Arbitration Commission, which focuses on domestic arbitration cases. It began adopting its own arbitration rules and selecting its own arbitrators. It acquired a legal person governance model established by legislation, unique among Chinese arbitration institutions.

The objective was obvious: to make SCIA’s awards binding not only for mainland arbitration cases but also cases from Hong Kong, Macau and foreign countries. This was all part of the plan to make Qianhai a better business environment for global companies.

Nansha and Hengqin do not have histories quite as convoluted. Yet what they lack in experience they are making up for with innovative potential.

Hengqin: Sino-Portuguese platform

The International Court of Arbitration of the Hengqin New Area in Zhuhai was established in 2014. It aims to solve cross-border disputes and to build a better business environment for the free trade zone. Unlike Shenzhen, however, it remains under the umbrella of the Zhuhai Arbitration Commission.

Yet it does have the ability to “refer to” arbitration rules from well-established international arbitration centers, such as those of Hong Kong, Singapore, and Stockholm.

The Zhuhai Arbitration Commission has also launched a series of legal innovation measures, including the first “provisional arbitration rules” in China, based on the policies allowed under the Hengqin New Area framework. As a national-level New Area, Hengqin is able to pioneer certain reforms in conjunction with the direct approval of the State Council.

The Hengqin center does certain things independently as well. It has selected its own arbitrators, and now has 30 from Hong Kong, Macau, Taiwan, and various other countries, nearly half of its total. They can handle cases in Portuguese, French, German, Japanese, Korean, Russian and several other languages.

In five years since it was established, the Zhuhai International Arbitration Center has handled 300 cases on-site and 3,000 cases online, including 144 cases which referred to international arbitration rules.

Nansha: Up and coming

The Nansha International Arbitration Center (NSICA) is the youngest among the three. Established in October 2018, NSICA is a branch of the Guangzhou Arbitration Commission. However, Nansha’s status as a national-level New Area, like Hengqin, allows it much greater leeway in setting its own rules.

The options for choosing arbitrators at NSICA are much wider than Hengqin’s. Without a fixed list of arbitrators, it has adopted the approach that all are welcome according to certain criteria: 1) Those on the Guangzhou Arbitration Commission’s list; 2) Professionals who meet the requirements of Hong Kong or Macau arbitration laws and have arbitrator qualifications; 3) Arbitrators on the list of other arbitration institutions in the mainland; 4) Professionals with specific expertise in accordance with the Arbitration Law of the People’s Republic of China. This opens it to participation by thousands of potential arbitrators.

Another unique advance in Nansha is that it offers three models to choose from: Guangzhou, Macau or Hong Kong. Clients can pick either three arbitrators or one arbitrator, from anywhere within the Greater Bay Area, and the processes (any of the three) they wish to follow.

“This originates from the inception of the NSIAC which was formed by the joint efforts of the arbitration stakeholders and practitioners from Hong Kong, Macau and Guangzhou.” said Gary Soo, a Hong Kong practising barrister and also the former vice-president of NSIAC.

Soo, who has severed as a mediator in several arbitration centers in the GBA, says he sees Nansha’s approach as being practical.

“As an arbitration practitioner and user, I find that such added autonomy or flexibility is attractive to business entities. Most would prefer to resolve their disputes by the standards they are accustomed to, be it the Hong Kong common law style of arbitration, or the Macau or Guangzhou civil law style of arbitration.”

Soo says he has had feedback that parties do find such an approach as being “user-friendly”, which is “exactly what is looked for by a wide variety of parties and businesses.”

It is not all plain sailing for these centers, of course. Like in any indeavor, they need time to build up a track record, and they have a long way to go in gaining trust from international companies and even domestic firms. Nansha and Hengqin, in particular, are essentially competing with their well-established domestic arbitration centers, while Macau and Hong Kong are still preferred by international law firms representing clients in their mainland operations.

“We will recommend the World Trade Center Macau (WTC Macau) or the Macau Lawyers Association (AAM) to our clients to resolve their disputes in Macau,” said Silvia Lou, a lawyer from Lou Sio Fong & Associates, a law firm based in Macau. “They are professional arbitration institutions with registered arbitrators coming from different regions, including HK, China and Macau.”

Hong Kong is also seen as a more trustworthy place to handle disputes involving mainland companies. “If there are cases related to mainland China, I will recommend the Hong Kong Arbitration Center,” Lou added. “I believe there are many experienced arbitrators in HK who can handle cases related to mainland China.”

Other lawyers say the same challenge exists for Nansha. “Shenzhen is preferred as a dispute settlement body,” said Marco Förster, an associate from Dezan Shira & Associates’ Shenzhen office.

Future is bright

Still, the outlook is improving for the young arbitration centers.

 “With the established foothold in Nansha and the GBA region, I have been advising and working with the NSIAC Secretariat to showcase its user-friendly one-stop approach to regional and international users who may be coming to operate in the GBA,” says Soo. “Continuously strengthening its presence in the international arbitral communities is important to develop the NSIAC further.

The Greater Bay Area Arbitration Alliance was launched in 2018, with a view to integrating and supporting the region’s mutual growth. It includes the nine arbitration institutions of the Guangdong members of the GBA, plus the two arbitration institutions of Macau and Hong Kong.

“I believe the arbitration commissions here have further gained trust on an international level since the GBA arbitration integration initiative was kicked off,” said Förster.

These changes and innovations are being driven faster by the priority given to arbitration under the GBA Masterplan, released in February, which encourages the region “to refine the mechanism for international commercial dispute resolution, develop an international arbitration center, support exchanges and cooperation among arbitration and mediation organizations in Guangdong, Hong Kong and Macau, and provide arbitration and mediation services to the economic and trade activities in Guangdong, Hong Kong and Macau.”

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