CEAC’s 10th anniversary celebration
China’s Belt and Road Initiative
In 2018 (the Chinese Year of the Dog), the Chinese European Arbitration Centre (CEAC) celebrated its 10th anniversary with an international arbitration conference at its seat in Hamburg, Germany. For two days, 130 participants from 24 nations and five continents united to discuss the conference topic ‘China’s Belt and Road Initiative – Opportunities and Challenges for International Dispute Resolution and Contracting’. The conference was supported by 26 associations and arbitration organisations, and the faculty was equally diverse and reputable.
China’s Belt and Road Initiative (BRI) was a topic of general interest, which was discussed from both an arbitration law and a substantive law perspective. It was discussed in panels, among other things, ‘What do arbitration institutions offer to BRI-arbitrations?’; ‘Common Law and Civil Law Perspective of the UNIDROIT Principles of International Commercial Contracts’ (ie, soft law explicitly referred to in article 35 of the CEAC Hamburg Arbitration Rules (the CEAC Rules)); ‘What can arbitrators do to bridge between common and civil law in arbitration proceedings?’; and ‘Interaction between the CISG and the UNIDROIT Principles – a hot topic for China-related contracts’.
This kind of gathering is a sign of the vivid international arbitration community, which jointly, with all its diversity, provides a ‘backbone for business’ (being a leitmotif of the CEAC’s commitment to arbitration). In the end, there exist over 1,000 arbitration institutions around the globe for business people and companies to choose from. There is no ‘one size fits all’ arbitration solution. The arbitration world has become diverse with arbitration institutions of various kinds and specialisations. And it remains without saying that there are situations where an arbitration clause choosing the arbitration rules of the CEAC may be the best choice.
What is the CEAC? What is special about it?
Established in 2008, the CEAC is an international dispute resolution institute in Hamburg, Germany, focusing on China-related disputes worldwide. It provides a tailor-made solution for international disputes in China-related matters. This applies, most importantly, to international contracts with Chinese parties, to joint venture agreements with Chinese or Chinese-controlled companies, or to contracts with subsidiaries of Chinese companies in other countries (eg, in Europe, North or South America, or in Africa).
A key feature of the CEAC Rules is the special focus on neutrality and a multicultural approach. The CEAC Rules are based on and are loosely identical to the neutral UNCITRAL Arbitration Rules (2010). The composition of the appointing authority is particularly neutral (it appoints the arbitrator if the parties do not agree on a sole arbitrator, or the chair of an arbitration panel if the two party-appointed arbitrators cannot agree on a chair; and it decides in case of a challenge of an arbitrator). Each chamber is composed of one Chinese and one European arbitration expert as well as one from another part of the world (eg, Indonesia, Lebanon). The CEAC Rules are based on the neutral and universally accepted UNCITRAL Arbitration Rules. Regarding the applicable law, the CEAC Rules explicitly refer, on an optional basis, to neutral rules of law (ie, the Convention on Contracts for the International Sale of Goods (CISG) or the UNIDROIT Principles of International Commercial Contracts (the UNIDROIT Principles)). In options offered in its arbitration clause, the CEAC invites parties to consider combining a seat in Europe (Hamburg) with a hearing place outside Europe (eg, at hearing rooms of one of its befriended arbitration centres). The German national arbitration law – which can become relevant if the parties provide for an arbitration seat in Germany – is based on the neutral UNCITRAL Model Law on Arbitration.
The CEAC is seated in Hamburg, Germany, at the Hamburg Chamber of Commerce, which also operates the Beijing-Hamburg Conciliation Centre.
Have there been cases yet?
Yes. Since 2012, the CEAC has handled 15 cases from seven jurisdictions: Canada, China (Mainland and Hong Kong), Germany, Israel, Italy and Spain. The arbitration agreements of past and present cases show that several large companies – for example, in the solar industry – have integrated CEAC arbitration clauses in their general terms and conditions, in some cases for all their Asia-related contracts concluded out of Europe. One of the cases has been coping with more than 100 contracts, all concluded on the basis of a CEAC arbitration agreement. In one case, the CEAC arbitration clause was part of a settlement agreement between a European and a Chinese party. The total amount in dispute amounted to an aggregate amount of over €60 million. Arbitrator fees in total incurred in these proceedings have so far amounted to more than €500,000.
What is the importance of arbitration in China-related trade and investments?
International commercial arbitration plays an important role in China-related trade and investments. As China increases its import and export trade rapidly, there is a rising number of Chinese, European and other companies worldwide involved in contracts for China-related trade and investments. This leads to a need for dispute resolution mechanisms to support such contracts.
International arbitration provides the backbone, securing access to justice for market participants in China-related transactions. Chinese state court judgments are not recognised and enforceable in many countries, in particular in Europe, because of a lack of reciprocity, and foreign judgments are often impossible to enforce in China. There is no functioning system of international treaties securing the enforcement of national state judgments in China and vice versa. In contrast, China is a party to the 1958 New York Convention on Recognition and Enforcement of International Arbitral Awards, which is in force in 160 states worldwide, including all EU countries and the United States. Therefore, international arbitral awards can be enforced in China (whereby, from a Chinese perspective, the ‘nationality’ of an arbitration award made under the rules of an institutional organisation is determined in light of the seat of the administration of the arbitration institute). Under these circumstances, recourse to arbitration is an important alternative to dispute resolution by ordinary courts. Arbitration gives the parties the best chance of getting a final judgment that is enforceable.
In addition, arbitration is preferable to proceedings before ordinary state courts because it can be faster than court proceedings and, in most cases, be cheaper (this is true, at least, when comparing arbitration to fully fledged litigation in more than one instance). For example, there is no need for the translation of documents if the parties agree on English or any other language as a common language and present their documents and submissions in the chosen language to arbitrators who speak such a language.
Arbitration, further, is an important tool for dispute resolution in contracts related to China, if the parties wish to agree on strict confidentiality.
Cornerstones of the CEAC Rules
How is the CEAC adapted to the needs of China-related business?
The CEAC Rules reflect particular needs of China-related trade.
Most importantly, the CEAC Rules ensure that judgments based on an arbitration clause referring to the CEAC in any way are recognisable and enforceable in China. To this end, the Rules explicitly clarify that any reference to the CEAC Rules, however drafted (the list of possible inconsistencies in the wording is long, as witnessed in practice), there can be no doubt that the dispute is referred to an arbitration institution rather than to ad hoc arbitration and that the dispute shall be administered by the CEAC. This correlates to the importance of institutional arbitration from a Chinese perspective (article 16(3) of the People’s Republic of China Arbitration Law requires the mentioning of ‘the arbitration commission chosen’). In this respect, article 1(1a) of the Rules and the CEAC arbitration clause (which is contained in an annex to the CEAC Rules) differ from various standard clauses used by other arbitration institutions.
Further, the integration of Chinese experts from the beginning of the dialogue on whether to establish the CEAC, and now in the appointing authority, at the management level and on the advisory board, renders the CEAC also acceptable in China. In 2010, the official publication of the China International Economic and Trade Arbitration Commission (the CIETAC), Arbitration and Law, published a long article about the CEAC in Chinese (volume 116 (2010), pages 104 to 130). Ever since, the CEAC has organised multiple joint Chinese–European events, both integrating the CIETAC and the Beijing Arbitration Commission, for example, in 2012 on China Arbitration Day in Munich with more than 130 participants from all over the world.
What is the freedom provided for by the model arbitration clause?
The model arbitration clause proposed by the CEAC is available in various languages and will assist the parties to a China-related contract as early as the stage of contract drafting. At present, the model arbitration clause is available in English, German and Mandarin. It reads:
Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by institutional arbitration administered by the CEAC in Hamburg (Germany) in accordance with the CEAC (Hamburg) Arbitration Rules.
In addition, the model arbitration clause provides options dealing with the number of arbitrators, the place for hearings, languages to be used in the arbitral proceedings, confidentiality and the applicability of the Rules as in force at the moment of commencement of arbitration proceedings or at the time of conclusion of the contract in dispute.
Is it sensible to combine the CEAC arbitration clause in China-related contracts with a mediation or conciliation clause?
Mediation and conciliation have a long history in China, as Chinese parties often want face-saving solutions with their business partners. European and other foreign companies are also keen to avoid long-lasting disputes with regard to their business activities in Asia. Therefore, it is sometimes wise to combine a CEAC arbitration clause with a mediation or conciliation clause. For example, the parties might like to provide for conciliation under the Beijing–Hamburg Conciliation Rules (which have been in force since 1987) or other alternative dispute resolution rules. Article 1 of the CEAC Rules explicitly provides for the possibility of initiating any such mediation or conciliation within 21 days after receipt of the notice of arbitration by the respondent, which, upon consent by the other party, will suspend the arbitral proceedings, including all deadlines for up to three months or until the termination of the conciliation or mediation, whichever is earlier.
If the mediation is not finished within the three-month period, a further suspension of the arbitral proceedings requires the mutual written consent of all parties, which may be contained in separate documents.
Why does the model choice of law clause refer to the CISG and the UNIDROIT Principles on an optional basis?
As a result of the international discussion, it became obvious that the majority of experts favoured a pragmatic approach. Therefore, the CEAC Rules integrate a CEAC choice of law clause, as stated in article 35. It was based on input from both UNCITRAL and UNIDROIT experts.
The model clause provides for a number of possible and non-mandatory options. It thereby reminds contracting parties of the fact that a choice of the rules of law applicable to the substance of the dispute is of vital importance. Often, parties from different jurisdictions wish to agree on a neutral law or set of rules. The model clause, therefore, offers the choices of (i) simply choosing the law of a certain jurisdiction, (ii) referring to the CISG, which will often be common ground for both the Chinese and the non-Chinese party, or (iii) opting for the application of the UNIDROIT Principles, which are globally known and increasingly used in China, Europe and many other jurisdictions. China is a signatory state to the CISG and a member of the inter-governmental organisation UNIDROIT, which issued in 2016 the fourth edition of the UNIDROIT Principles. They provide a robust system of default rules (‘background law’, Bonell, chair of the Working Group of the UNIDROIT Principles) and cover, with an international perspective bridging between different national perspectives around the globe, basically the same issues as any general contract law, plus some specific international topics like foreign currency set-off or time zone management (thereby, they cover more topics than the CISG). As discussed at CEAC’s 10th anniversary conference, the choice of the CISG or the UNIDROIT Principles is particularly smart and attractive in contracts with Chinese parties, because the CISG and the UNIDROIT Principles have influenced Chinese legislature (Chinese contract law changes in 1999 and 2016).
The model choice of law clause reads:
The arbitral tribunal shall apply the law or rules of law designated by the parties as applicable to the substance of the dispute. The parties may wish to consider the use of this model clause with the following option by marking one of the following boxes:
This contract shall be governed by
a) the law of the jurisdiction of ___________ [country to be inserted], or
b) the United Nations Convention on Contracts for the International Sale of Goods of 1980 (CISG) without regard to any national reservation, supplemented for matters which are not governed by the CISG, by the UNIDROIT Principles of International Commercial Contracts and these supplemented by the otherwise applicable national law, or
c) the UNIDROIT Principles of International Commercial Contracts supplemented by the otherwise applicable law.
In the absence of any such agreement, the arbitral tribunal shall apply the rules of law which it determines to be appropriate.
A quite specific, notable adaptation to China-related contracts is contained in the reference to the CISG ‘without regard to any national reservation’. The clause thereby seeks to avoid the application of the national reservations to the CISG such as the one made by China in accordance with articles 11 and 96 of the CISG at the time of the ratification (which, however, was later withdrawn with effect from 1 July 2013). It concerned the requirement of written form whereas the Chinese contract law of 1999 does not require written form. This CEAC rule was based on the experience of a confusion between the ‘Chinese’ and the ‘international’ CISG in a German–Chinese arbitration in which the Chinese party tried to avoid the application of the then outdated Chinese reservation.
In a 2017 and 2018 CEAC arbitration, the parties, acting upon proposal of a German respondent, agreed on the choice of the UNIDROIT Principles during an ongoing arbitration in order to jointly avoid to establish Chinese contract law to the non-Chinese arbitration tribunal.
Who controls the CEAC Rules?
The advisory board of the CEAC is responsible for amendments to the CEAC Rules. It also advises the CEAC management on matters concerning the administration of arbitration proceedings and other issues of importance. In view of this important function of the advisory board, the principle of tripartite division of powers between representatives of China, Europe and the other regions of the world applies to the advisory board of the CEAC, which at the moment includes experts from mainland China, Hong Kong, Germany, Italy, Switzerland and the United Kingdom. Members include experts with experience in large arbitration institutions, for example, a former president of the Chartered Institute of Arbitrators, Hew R Dundas, who is the chair of the advisory board, and the former secretary general of the Hong Kong International Arbitration Centre, Christopher To. The advisory board also generally assists the CEAC’s management with considerable international arbitration know-how.
Why is party autonomy so important for the CEAC?
Party autonomy enables the parties to make the arbitration proceedings suitable, as far as possible, to the case in question.
The CEAC Rules allow the parties to choose freely among arbitrators from around the world and to decide on the appointment of such arbitrators by themselves without approval of the CEAC. The appointing authority only steps in if the parties do not reach an agreement by themselves. Further, the parties are free to decide on the languages to be used in the arbitral proceedings and the places for oral hearings or meetings of the arbitrators. The CEAC does not intervene in the arbitration procedure itself, which is left to the parties and the appointed arbitrators.
This strict adherence to the principle of party autonomy guarantees the highest level of influence of both parties in the arbitral proceedings.
In what respect do the CEAC Rules deviate from the UNCITRAL Arbitration Rules?
Since the amendment of both the UNCITRAL Rules and, therefore, the CEAC Rules in 2010 and 2012, there remain very few differences. Many issues that are state-of-the art for a modern international arbitration centre (eg, multiparty arbitration) are now covered directly in the UNCITRAL Rules. In such cases, the CEAC Advisory Board, in 2010, deleted initial special provisions in the CEAC Rules on these issues and replaced them with the universally accepted UNCITRAL Rules in order to ensure maximum correlation between the CEAC Rules and the UNCITRAL Rules.
Special CEAC rules concern only a few topics:
- the scope of application, including the combination of arbitration and conciliation or mediation (article 1(4));
- introduction of institutional arbitration (article 3) and a respective model arbitration clause;
- the exclusion of liability of the CEAC and its officers (article 16);
- Hamburg as the default standard seat of arbitration, with the express possibility of deviating to other venues for the hearings (article 18);
- a time limit for the award (article 31a);
- the choice of law clause (article 35); and
- costs and fees (articles 40, 41 and 43).
What are the costs of arbitral proceedings under the CEAC Rules?
Costs for CEAC arbitral proceedings are determined in accordance with the CEAC fee schedule and its annex, which contains a table of fees related to the amount in dispute. Fees for arbitrators and administrative fees for the CEAC are generally based on the amount in dispute. However, this rule is supplemented by a special rule for cases with heavy workload for the arbitrators. Costs for CEAC arbitration proceedings are reasonable and comparable to the schedules of costs of other renowned international arbitration institutions.
How long will the arbitral proceedings take?
Another provision aiming to boost the efficiency of CEAC arbitration proceedings is article 31a of the CEAC Rules, which provides that the arbitral tribunal shall render a final award within nine months after constitution of the arbitral tribunal, unless an extension is agreed by the parties or granted.
The CEAC division for young practitioners (below the age of 45) is Young CEAC. Founded in 2008, it organised its first events in Germany, often attracting participants from several European countries. In June 2010, Young CEAC Beijing was founded in the presence of the president of the Beijing Bar Association.
In November and December 2010, Young CEAC hosted arbitration events in both China (Beijing and Shanghai) and in Germany (together with the division of young practitioners of the German Institution of Arbitration (DIS) in Frankfurt). In 2011, Young CEAC, jointly with Young Austrian Arbitration Practitioners, hosted a coffeehouse debate about cultural specifics of arbitration in China and Europe at the 2011 Vis Moot in Vienna. Young CEAC Taipei was founded in March 2012 and the Young CEAC community grows continuously. The year 2016 saw the relaunch with the second generation of Young CEAC experts. In November 2016, Young CEAC organised an event on ‘Arbitration in China’ jointly with the German DIS arbitration organisation. In 2017, Young CEAC assisted in the relaunch of the CEAC website. In 2018, it was involved in the preparation of the conference to mark the occasion of CEAC’s 10th anniversary.
Who owns the CEAC?
The CEAC was initially established by the German non-profit organisation Chinese European Legal Association (CELA) with about 250 members from more than 30 nations. The founding members of the CELA include the Hamburg Bar Organisation and the Hamburg Chamber of Commerce. However, to gain more freedom for the development of the CEAC on a global basis, and irrespective of German tax law restrictions for expenditures abroad (eg, in the context of the CEAC’s regular arbitration breakfasts during the annual meeting of the International Bar Association), the ownership was transferred with economic effect from 1 January 2018 to the Chinese European Arbitration Association (CEAA). Its sole purpose is to promote arbitration and other out-of-court dispute resolution methods in European–Chinese legal relations and in worldwide legal relations with China – in particular, the CEAC.
Although it has received official support from the state of Hamburg, the CEAC is, through the CELA and the CEAA, a product of the self-regulation and innovation of lawyers. The official support by the state of Hamburg is limited to patronage of the CEAC project by the Hamburg Senator of Justice, and a remarkable change of Hamburg court rules to permit parties to CEAC arbitrations to use the official letter box of the Hamburg Court of First Instance to submit documents to the CEAC’s administration. This is helpful when a party wishes to meet a deadline after office hours or on a weekend or a holiday.
The CELA has long supported the Vis Moot Court in Vienna (2009–2018) and Hong Kong, and the Düsseldorf Arbitration School. In 2012–2013, the problem of the 20th Vis Moot Court competition in Vienna and the 10th in Hong Kong was based on the CEAC Rules. The CELA and the CEAC have jointly organised a pre-moot in Düsseldorf with about 300 participants from many jurisdictions. The CEAC’s chair of the advisory board and a CEAC managing director chaired the finals in Hong Kong and Vienna. An ‘award’ of that competition has been published in Australia. In 2010, the CELA became an official supporter of the China–EU School of Law. It also supports conferences and events organised by the CEAC and Young CEAC. The CEAA will continue that tradition.
Eckart Brödermann (Brödermann Jahn) is a managing director of the CEAC. Elke Umbeck (partner at Heuking Kühn Lüer Wojtek) is vice president of the CEAC’s new shareholder, the CEAA. Both are practising attorneys specialising in international arbitration acting as counsel and as arbitrators in their professional practices.