(Ph.D. candidate at Tsinghua University, School of Law)

I. Introduction

With the flourishing of arbitration in the resolution of commercial disputes, arbitrators have emerged as the pivotal elements in the arbitration process, garnering attention within the ambit of arbitration law. This is reflected, on the one hand, in the recent legislative reforms of arbitration laws in various countries, which emphasize the regulation of arbitrators’ conduct. Noteworthy examples include the reforms implemented in the Italian Code of Civil Procedure.[1] On the other hand, the significance of arbitrators is underscored by judicial precedents that delineate the evolving landscape concerning arbitrator conduct and its impact on arbitration proceedings (challenges to arbitrators during the constitution of arbitral tribunals) and arbitration awards (annulment, refusal of recognition and enforcement). An illustrative instance is the elucidation provided by the German Federal Court of Justice regarding disclosure, challenge of arbitrators, and the enforceability of arbitral awards.[2] Similarly, China has also seized upon this trend, as evidenced by the introduction of the “Draft of the Amendment to the Arbitration Law of the People’s Republic of China” (hereinafter referred to as the “Amendment Draft”) in 2021.[3] The “Amendment Draft” introduced Article 52, marking the first incorporation of the concept of “independence and impartiality” into Chinese arbitration legislation, aiming at ensuring a fair trial.

Impartiality and independence of arbitrators are pillars of arbitration, around which four procedural mechanisms orbit. Firstly, an arbitrator, recognizing relevant circumstances that may impede their independence or impartiality, is enjoined to decline appointment or resign. Secondly, subsequent to accepting an appointment, an arbitrator shall disclose situations that could cast doubt on his or her independence or impartiality. Thirdly, when evaluating an arbitrator’s suitability as a decision-maker or contemplating their removal, the criterion pivot once more on the bedrock principles of independence and impartiality. Fourthly, upon scrutinizing the enforceability of an award, the examination of arbitrators’ independence and impartiality resurfaces. This article embarks on an exploration grounded in current Chinese arbitration law, intricately weaving it with judicial practices. It endeavors to unravel the intricate relationship between the duty of disclosure, challenge of arbitrators, and the enforceability of awards, all while also appraising the potential impact of the “Amendment Draft”.

 II. Duty of Disclosure and Challenge of Arbitrators

In examining the Chinese arbitration law system, it becomes imperative to focus concurrently on both arbitration laws and arbitration rules. This necessity arises from the fact that ad hoc arbitrations are not generally allowed in China,[4]and arbitral proceedings predominantly unfold within established arbitral institutions in accordance with relevant arbitral institution rules.[5] The issues of disclosure and the challenge of arbitrators serve as prominent exemplifications of this feature.

In the current Chinese arbitration legislation, there exists no explicit provision imposing a duty on arbitrators to disclose. However, the arbitral rules adopted by the majority of Chinese arbitration institutions stipulate disclosure as a fundamental duty for arbitrators.[6] In terms of the standards for disclosure, these arbitration rules align, to a certain extent, with the provisions of the IBA Guidelines,[7] embracing a “reasonable subjective standard”.[8] This entails an approach from the “eyes of the parties”, focusing on the subjective perspectives of the parties involved. If relevant facts or circumstances may raise justifiable doubts about the arbitrator’s impartiality or independence from the parties’ viewpoint, the arbitrator is obligated to make a disclosure.

As to the challenge of arbitrators, the arbitration legislation lacks a general standard;[9] instead, it explicitly enumerates four specific situations under which an arbitrator must withdraw and the parties also have the right to file a challenge. These enumerated situations draw parallels with the standards for judges’ recusal under Chinese law, encompassing scenarios where: (i) the arbitrator is a party involved in the case or is a blood relation or relative of the parties or their legal representatives; (ii) the arbitrator holds personal interests in the case; (iii) the arbitrator maintains other relations with the parties or their legal representatives involved in the case that may impact the fair ruling of the case; (iv) the arbitrator engages in private meetings with the parties or their legal representatives, or has accepted gifts or to attend banquets hosted by the parties or their legal representatives.[10]

Chinese academia expresses concern over the potential limitation of parties’ right to challenge arbitrators due to the adoption of an exhaustive list.[11] However, this apprehension could be alleviated through a nuanced interpretation of the text. The four enumerated situations are categorized as instances where an arbitrator “must” be removed. Conversely, the absence of these situations does not automatically imply that the arbitrator is exempt from being disqualified. Particularly given that, the arbitral rules of most Chinese arbitral institutions do not treat the enumerated situations as a prerequisite for parties to exercise their right to seek removal. Instead, these arbitral rules still adhere to a “reasonable subjective standard”, allowing parties to initiate a challenge whenever justifiable doubts arise.[12]

The authority to decide the success of a challenge against an arbitrator is delegated to arbitration institutions by the Arbitration Law,[13] and courts refrain from intervening in arbitrator removal matters during the pre-award stage of arbitral proceedings. Analyzing the criteria and standards employed by arbitration institutions to determine whether an arbitrator should withdraw proves challenging due to the confidentiality characteristics of these decisions. However, potential challenges raised by parties after the arbitral award is rendered, citing non-disclosure or failure to withdraw as grounds, may prompt courts to annul or deny the enforceability of the arbitral award. Consequently, recent case law has shed light on the nexus between arbitrator disclosure and disqualification. According to recent court rulings, it was acknowledged that arbitrator disclosure should adhere to a “reasonable subjective standard”, with the determination of the necessity of disclosure considered from the perspective of the involved parties.[14] Simultaneously, it was further implied that the mere act of non-disclosure by the arbitrator, or the content of the disclosure itself, does not “directly” lead to the arbitrator's removal.[15] Instead, such decisions required case-by-case evaluation, with the assessment criteria generally revolving around the four enumerated situations that mandate withdrawal.[16]

III. Non-Disclosure, Disqualification, and Enforceability of Arbitral Awards

Under Chinese law, the concept of “violation of party-agreed or law-prescribed procedure”, denoting instances in which the composition of the arbitral authority or the arbitral procedure deviates from the arbitral rules or legal requirements, constitutes a ground for both the annulment and the refusal to enforce arbitral awards.[17] As a result, the inquiry into whether a failure to disclose information or the retention of arbitrators without removal constitutes a “violation of party-agreed or law-prescribed procedure” and, consequently, impacts the enforceability of the award remains within the purview of the courts for adjudication.

In regard to the connection between arbitrator disqualification and the enforceability of arbitral awards, the Supreme People’s Court addressed this issue in a 2019 judicial interpretation. Article 14 of the “Provisions of the Supreme People's Court on Several Issues Concerning the Handling of Cases by People’s Courts to Enforce Arbitral Award” further elucidated the concept of “violation of party-agreed or law-prescribed procedure”. Specifically, paragraph 2 states that, “should a party claim that ... an arbitrator should have withdrawn himself/herself according to the provisions of the Arbitration Law or arbitration rules but failed to do so, thereby posing a potential impact on a fair decision, and subsequent scrutiny verifies the veracity of such claim, the judiciary shall endorse it.” This provision underscores two critical points: firstly, the right of a party to file a challenge against an arbitrator extends beyond the statutorily enumerated situations to include “reasonable subjective standards” contained in arbitration rules; and secondly, it introduces an “effect test”, signifying that the non-removal of the arbitrator must indeed impact the fairness of the award for enforceability concerns to be triggered.

Recent judicial practice, nevertheless, demonstrates that the presumption of an impact on the award arises when a challenge to an arbitrator should have succeeded, thereby meeting the criteria of the “effect test” and resulting in the annulment or refusal of enforcement of the award. Illustrated by the case of “Shanghai Shunshun Investment Development Co., Ltd. v. Shanxi Nengtou International Trade Co., Ltd.”, the Shanghai Second Intermediate People’s Court declined to enforce an arbitral award due to a prior failure to remove an arbitrator, although it is crucial to note that the situations in this case align with the four statutorily mandated circumstances.[18] In contrast, in the case of “Beijing Dashenquan Culture Technology Co., Ltd. v. Beijing Lexuan Interactive Culture Communication Co., Ltd., et al.” wherein the party contended that the arbitrator rendering the award should have withdrawn, the Beijing Second Intermediate People's Court concluded that the circumstances raised by the party did not fall under the statutory situations mandating the arbitrator’s removal, consequently warranting the enforcement of the arbitral award.[19]

Concerning the impact of non-disclosure on the enforceability of arbitral awards, Chinese legislation and judicial interpretations issued by the Supreme People’s Court currently lack specific provisions. Nonetheless, recent court rulings highlight a differentiation between non-disclosure facts and non-disclosure actions, employing distinct evaluation methods for each category.

In cases of non-disclosure facts, the courts opined that if the undisclosed fact itself could have led to the removal of an arbitrator, the award should not be recognized and enforced.[20] This standpoint aligns with the aforementioned opinion that a challenge of an arbitrator, which should have been successful, is regarded as inherently generating an impact on the enforceability of the award.

In the context of non-disclosure actions, a notable precedent intimates that the failure to disclose may lead to the annulment of the award. This is discernible in the adjudication of the case “Shenzhen Guande Petrochemical Co., Ltd. v. Yanchang Shell Petroleum Co., Ltd.”, where the Guangzhou Intermediate People’s Court noted that the circumstances involved would cast reasonable doubts upon the independence and impartiality of the arbitrator, mandating disclosure. However, “the appointed arbitrator failed to disclose these facts subsequent to his appointment. The non-disclosure resulted in Guande’s inability to make a timely determination within the stipulated period regarding whether to file a challenge against the arbitrator based on the aforementioned facts necessitating disclosure, which objectively impeded the exercise of the procedural right of the party to petition for the arbitrator’s challenge. Consequently, the arbitral award shall be set aside, as the arbitral procedure was not in accordance with the law.”[21] A meticulous scrutiny of this rationale underscores that the court construed the “violation of party-agreed or law-prescribed procedure” not as an isolated non-disclosure action but as an obstruction impinging on the party’s procedural right to institute a challenge against an arbitrator.[22] The acceptance of this reasoning in forthcoming judicial practices remains contingent upon future developments.

IV. Preliminary Remarks of the “Draft Amendment”

The proposed amendment under consideration primarily focuses on the duty of disclosure for arbitrators. The newly added Article 52 in the draft includes three main provisions. Firstly, it introduces the concept of “independence and impartiality”, mandating arbitrators to sign a declaration ensuring an independent and impartial arbitration. Secondly, it establishes a legal obligation for arbitrators to disclose information and defines the standard for disclosure as a “reasonable subjective standard”. Thirdly, it provides regulations for the procedural connection between arbitrator disclosure and a party’s application to challenge.

Should Article 52 of the Draft Amendment be ultimately ratified as a provision in the Arbitration Law, it is anticipated to have at least two significant implications. First, the adoption of the “reasonable subjective standard” for arbitrator disclosure renders any party-agreed or institution-made lower standards for disclosure in both domestic and international commercial arbitrations with a seat in China null and void for contravening the mandatory provisions of Chinese Arbitration Law. Second, in international commercial arbitration cases where the seat is in China or seeks enforcement of the award within China, arbitrators would be obligated to adhere to the disclosure requirement mandated by the “reasonable subjective standard”, failing which could pose the risk of potential adverse consequences, including the annulment or non-enforcement of the award.

Footnotes

[1] Refer to Legislative Decree No 149/2022, available at  https://www.gazzettaufficiale.it/eli/id/2022/10/17/22G00158/sg, for further details.

[2] See Bundesgerichtshof’s Decision of 31 January 2019, I ZB 46/18, at https://juris.bundesgerichtshof.de/cgi-bin/rechtsprechung/document.py?Gericht=bgh&Art=en&sid=50484b16c847b40adb4481f8652ca360&nr=94215&pos=4&anz=13 for additional information.

[3] Draft of the Amendment to the Arbitration Law of the People’s Republic of China, 30 July 2021.

[4] Note that ad hoc arbitration in Shanghai has been permitted since 1 December 2023; see article 20 of the Regulations of Shanghai Municipality on Promoting Construction of International Commercial Arbitration Center.

[5] Controversies exist in international commercial arbitration regarding the application of foreign arbitration rules within Chinese arbitration institutions.

[6] For example, see article 31 of the CIETAC Rules (2015), article 22 of the BAC Rules (2022), article 25 of the SHIAC Rules (2015), article 32 of the SCIA Rules (2020).

[7] IBA Guidelines on Conflict of Interest in International Arbitration, Part I: General Standard, (3) Disclosure by the Arbitrator. However, a slight difference could be ascertained, as the IBA Guidelines do not require the doubts to be justifiable.

[8] On a detailed discussion of different standards, see Anne K. Hoffmann, “Duty of Disclosure and Challenge of Arbitrators: The Standard Applicable Under the New IBA Guidelines on Conflict of Interest and the German Approach”, Arbitration International, Volume 21 Number 3, pp. 427-436.

[9] In comparison to arbitration laws represented by the model law, a general standard is still established around the independence and impartiality of arbitrators; see article 12(2) of the UNCITRAL Model Law on International Commercial Arbitration.

[10] Article 34 of the Arbitration Law of PRC. Similar grounds apply to judicial officers under article 57 of the Civil Procedure Law of PRC.

[11] See Xiaokai, “Observing the Conduct and Responsibility of Arbitrators from the Fuji Shile Arbitration Case”, Law Science, Issue 10, 2006, pp.28-38.

[12] For example, see article 32 of the CIETAC Rules (2015), article 23 of the BAC Rules (2022), article 26 of the SHIAC Rules (2015), article 33 of the SCIA Rules (2020).

[13] Article 36 of the Arbitration Law of PRC.

[14] (2015) Hui Zhong Fa Zhong Shen Zi Di 50 Hao.

[15] (2019) Xiang Zhi Jian 1521 Hao.

[16] (2017) Jing 01 Zhi Yi 288 Hao.

[17] See article 58 of the Arbitration Law of PRC (annulment), article 248, 291 of the Civil Procedure Law of the PRC (refusal of enforcement), and article V of the New York Convention (entered into Chinese law system on 22 April 1987).

[18] (2019) Hu 02 Zhi Yi 156 Hao.

[19] (2018) Jing 02 Zhi Yi 653 Hao.

[20] (2018) Yue 03 Min Te 601 Hao.

[21] (2015) Hui Zhong Fa Zhong Shen Zi Di Hao 50 Hao.

[22] The conclusion remains open to debate, particularly regarding considerations of various factors, such as whether the arbitrator's undisclosed intentions need to be taken into account.