The China International Economic and Trade Arbitration Commission (CIETAC), China's leading arbitration body, has introduced a new arbitration scheme to deal with financial disputes. The new scheme is set out in the Financial Disputes Arbitration Rules (Financial Arbitration Rules), which came into effect on 8 May 2003. The Financial Arbitration Rules are an adjunct to the CIETAC Arbitration Rules of 2000.
However, they promise a faster and cheaper means for resolving disputes in China's growing financial markets. Where the new Rules are unclear or contain no specific provision, the CIETAC Rules will apply. CIETAC remains the administrative body for both ordinary disputes arbitrated under the CIETAC Rules and for cases brought under the new Financial Arbitration Rules.
Scope of the Rules
The Financial Arbitration Rules apply to disputes arising from a broad range of financial transactions arising (a) between financial institutions or (b) between financial institutions and other natural or legal persons in the currency, capital, foreign exchange, gold and insurance markets.
The jurisdiction of the new Rules extends to disputes involving loans, deposit certificates, guarantees, letters of credit, negotiable instruments, fund transactions and fund trusts, bonds, collection and remittance of foreign currencies, and factoring and reimbursement agreements between banks. Also included are disputes arising in relation to financial instruments and documents denominated in both domestic and foreign currencies, including securities.
The Financial Arbitration Rules cover both domestic and international financial transactions. However, they will apply only where the parties have agreed to arbitration under the Rules in a contract provision or in a separate agreement entered into after a dispute has arisen.
Faster
One of the key aims of the Financial Arbitration Rules is to provide a dispute settlement mechanism which deals with financial disputes more quickly than would be the case if they were dealt with under the current CIETAC Arbitration Rules or by a People's Court.
After a case has been commenced by the claimant under the Financial Arbitration Rules, CIETAC will serve the respondent with a formal notice of arbitration. The arbitral tribunal will be constituted within 7 days from the date of receipt of the notice of arbitration. The respondent is required to submit its defence or counterclaim within 15 days of the date of the notice. Unless the parties agree otherwise, the arbitral tribunal must render its final award within 45 days after it has been established. By contrast, in a normal CIETAC proceeding, the deadlines are considerably longer and the period for issuance of the award is nine months. Court proceedings can take even longer.
To ensure that disputes conducted under the Rules are handled expeditiously, broad powers is given to both CIETAC and the arbitral tribunal unless otherwise agreed by the parties. For example, CIETAC has the power to decide whether a case shall be decided by a sole arbitrator or by a three-arbitrator tribunal. The arbitral tribunal is given the power to reject evidence presented beyond the deadline set in the proceedings and to decide whether to hold oral hearings or to decide the dispute on a "documents only" basis.
Cheaper
Unlike the CIETAC Arbitration Rules under which CIETAC imposes different fees depending upon whether the dispute is domestic or international in nature, the Financial Arbitration Rules do not contain any such distinction. Administrative fees charged by CIETAC are the same regardless of whether the parties are domestic or foreign.
Moreover, CIETAC charges much less for handling cases brought under the Financial Arbitration Rules than under the CIETAC Rules. For example, in a domestic dispute involving US$10 million brought under the CIETAC Arbitration Rules, CIETAC's fee would be approximately US$74,945. If it were an international case, the CIETAC's fee would be about US$93,902. By comparison, if the case had been arbitrated under the new Financial Arbitration Rules, CIETAC's charges would be only US$67,378. Court fees would be comparable to the charges levied by CIETAC in a domestic case.
Financial Expertise
To provide for greater expertise in handling financial disputes under the new Rules, CIETAC has also established a Panel of Financial Arbitrators. The panel lists 89 Chinese financial experts. Most of them are not in the CIETAC Panel of Arbitrators, and many of them are from Chinese financial institutions.
No foreigners are listed in the Panel of Financial Arbitrators. However, the Panel of Financial Arbitrators is not exclusive. A foreign party is free to select an arbitrator from the CIETAC Panel of Arbitrators. The panel includes 174 foreigners. Unless the parties have otherwise agreed, CIETAC is free to select the presiding arbitrator (when the parties fail to do so jointly) from among the CIETAC Panel of Arbitrators.
Conclusion
Disputes involving financial transactions often involve large amounts of money and specialized issues, but they are not always legally or factually complex. By providing a mechanism for the expeditious, economical and expert resolution of financial disputes, CIETAC offers both domestic and international financial institutions -- and their counterparties in financial transactions -- a viable alternative to expensive foreign proceedings as well as litigation in the People's Courts.
