Chinese Supreme People’s Court releases revised rules of evidence in civil proceedings and further policy paper on Shanghai’s Lin-gang Free Trade Zone

The Chinese Supreme People’s Court (SPC) issued a series of judicial interpretations and opinions in December 2019 in relation to the rules of evidence in civil proceedings and further liberalisation of litigation and arbitration practice concerning the Ling-gang Special Area of the Shanghai Pilot Free Trade Zone. In this post, we will share our thoughts on the key highlights of those judicial interpretations and opinions.

Revised rules of evidence in civil proceedings

The SPC released the revised Provisions on Evidence in Civil Proceedings (Fa Shi [2019] No.19) (New Rules) on 25 December 2019. The New Rules will come into force on 1 May 2020, replacing the old rules which have been in effect since 2002. Significant changes in the New Rules include among others the following:

Electronic data evidence

The Chinese Civil Procedure Law has recognised electronic data as a type of evidence in civil proceedings since 2012. Electronic information such as WeChat messages and online transaction records have been widely accepted by PRC courts as evidence in judicial practice.

The New Rules now formally define the scope of electronic data evidence. According to the New Rules, electronic data evidence includes a wide range of electronic information, including webpages, blogs, microblogs, text messages, instant messages, emails, user registration and authentication information, electronic transaction records, and any other types of documents and information stored, processed or transmitted in digital forms.

The courts may take into account a range of factors in determining the veracity of electronic data, including the hardware and software environment of the relevant computer system, its operating condition, and the methods that the data was stored, transmitted and extracted. There are certain situations where the courts will assume the veracity of electronic data information unless there is evidence to the contrary, including (i) where the data information was kept or submitted by a party to whom the contents of the information were unfavourable; (ii) where the data was provided or verified by an independent third party platform which stores such data; (iii) where the data was stored by way of official archive; (iv) where the data was generated during normal business operations; (v) where the data was stored, transmitted or extracted by methods agreed by the parties; and (vi) where the content of the data has been notarised by a notary public.

Disclosure of documents

Document disclosure requests traditionally were not allowed in civil proceedings in mainland China. In 2015, the SPC published the Interpretation on the Implementation of the Civil Procedure Law (2015 Interpretation) which, in Article 112, for the first time allowed parties to apply for disclosure of documents in civil proceedings as a matter of principle. However, the 2015 Interpretation does not provide detailed guidance for the parties and the courts to follow; therefore, in judicial practice, parties seldom rely on Article 112 of 2015 Interpretation to request evidence from counterparty.

The New Rules now set out detailed rules for parties and courts to follow in practice. Pursuant to the New Rules, where a party in possession of a document relied on that document in the proceedings, or created that document in favour of the other party, that document should be disclosed. Any documents that the other party is legally entitled to review or obtain, as well as any accounting books and vouchers, should also be disclosed. Where a request is not specific or is irrelevant or immaterial to the outcome of the case, or where the document requested is not within control of the other party, the court should not allow the request. The court should hear both parties’ opinions in deciding whether to grant a document request. Where a party refuses to disclose a document without justifiable reasons in breach of a court order, the court is entitled to draw adverse inferences against that party. Finally, under the New Rules, parties are entitled to request disclosure of electronic data evidence, and the rules applicable to disclosure of documentary evidence apply equally to electronic data evidence.

Factual and expert witnesses

The New Rules also made certain changes to the rules on the presentation of factual witness evidence and expert witness evidence in civil proceedings. For example, under the New Rules factual witnesses are now generally required to provide a statement of truth, both orally and in writing, to the courts. Expert witnesses (who are mostly appointed by the courts in Chinese civil proceedings) are also required to provide an undertaking to the courts that they will act objectively and impartially when accepting the appointment.

Further internationalisation of Chinese litigation and arbitration practice

In December 2019, the SPC and the Shanghai High People’s Court issued two policy papers on the Ling-gang Special Area of the Shanghai Pilot Free Trade Zone (Lin-gang FTZ) – the “Opinion on People’s Courts’ Provision of Judicial Services and Safeguard to the Development of China (Shanghai) Pilot Free Trade Zone Lin-gang Special Area” published by the SPC on 13 December 2019 (SPC Opinion) and the “Implementing Opinion on Shanghai Courts’ Judicial Services to Safeguard the Development of China (Shanghai) Pilot Free Trade Zone Lin-gang Special Area” published by the Shanghai High People’s Court on 30 December 2019 (Shanghai Courts Opinion).

We reported in August 2019 and November 2019 on the Chinese government’s plan on the Ling-gang FTZ and the impact on the arbitration practice. The SPC Opinion and the Shanghai Courts Opinion set out the actions to be taken by the courts to implement the plan. Although the provisions contained therein are still expressed in general terms, a number of the provisions signal further policy liberalisation or internationalisation of the litigation and arbitration practice in China. In particular, the SPC Opinion and the Shanghai Courts Opinion confirm that:

  • Registered foreign arbitration institutions will be allowed to set up businesses in Lin-gang FTZ and to “conduct arbitration businesses in relation to civil and commercial disputes arising in the areas of international commerce, maritime affairs, investment, etc.“. This has been understood to be a green light for foreign arbitration institutions to administer arbitration cases seated in mainland China. (Article 6 of the SPC Opinion and Article 9 of the Shanghai Courts Opinion)
  • Enterprises registered in Lin-gang FTZ are encouraged to submit their disputes to arbitration “in a specified location, pursuant to specified arbitration rules and by specified arbitrators“. Such wording has been understood to be an endorsement for ad hoc arbitration seated in mainland China under certain circumstances, as we reported previously. As encouraging as it might seem, the provision is still very vague and how it will apply in practice still remains to be seen. (Article 6 of the SPC Opinion)
  • Chinese courts may, upon the relevant parties’ consent, allow foreign parties to use English when participating in court proceedings concerning international commercial disputes in relation to the Lin-gang FTZ. (Article 17 of the Shanghai Courts Opinion)
  • Chinese courts will explore the possibility of hearing cases which do not have any “nexus” to mainland China and which were submitted to the Chinese courts’ jurisdiction solely based on parties’ agreement. (Article 12 of the Shanghai Courts Opinion)

 

If you have any questions or would like to discuss any aspect of this post, please contact Cathy Liu, Helen Tang, Weina Ye or your usual Herbert Smith Freehills contacts.

Cathy Liu
Cathy Liu
Partner, Kewei, Mainland China
+86 21 2322 2158
Helen Tang
Helen Tang
Partner, Mainland China
+86 21 2322 2160
Weina Ye
Weina Ye
Senior Associate, Mainland China
+86 21 2322 2132

 

 

SINGAPORE COURT OF APPEAL CONFIRMS THAT THE PARTIES’ INTENTION TO ARBITRATE SHOULD NOT BE GIVEN EFFECT “AT ALL COSTS”

  1. Introduction

In BNA v BNB and Anor [2019] SGCA 84, the Singapore Court of Appeal (the “COA“) confirmed that the phrase “arbitration in Shanghai” meant that Shanghai was the seat of arbitration, reversing the position taken by the arbitral tribunal and the High Court. The COA made this finding notwithstanding the fact that the arbitration agreement would, according to BNA, be invalid under PRC law.  This decision highlights that while the Singapore courts maintain a pro-arbitration approach in principle, the Singapore courts will not give effect to parties’ intention to arbitrate at all costs.

  1. Background

In 2012, BNA entered into an agreement with BNB (the “Contract“). Subsequently in 2013, the rights and obligations of BNB under the agreement were fully transferred to BNC by an addendum to the Contract.

The Contract contained the following arbitration agreement:

14.1 This Agreement shall be governed by the laws of the People’s Republic of China.

14.2 With respect to any and all disputes arising out of or relating to this Agreement, the parties shall initially attempt in good faith to resolve all disputes amicably between themselves. If such negotiations fail, it is agreed by both parties that such disputes shall be finally submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai, which will be conducted in accordance with its Arbitration Rules. The arbitration award shall be final and binding on both parties. (emphasis added)(the “Arbitration Agreement“)

In 2016, BNB and BNC filed a notice of arbitration.  BNA challenged the jurisdiction of the Tribunal.  BNA’s success in the jurisdictional phase hinged on whether the proper law of the Arbitration Agreement was Singapore law or PRC law.  If PRC law was the proper law, it would invalidate the arbitration agreement as PRC law does not permit a foreign arbitral institution such as the SIAC to administer a PRC-seated arbitration or a purely domestic PRC related dispute.

The majority of the Tribunal found that Singapore was the seat and that it thus did have jurisdiction (the “Jurisdictional Decision“).  BNA then applied to the Singapore High Court, under s 10(3) of the International Arbitration Act (the “IAA“), to challenge the Tribunal’s decision.  The High Court of Singapore (the “HC“) reached the same conclusion as the majority of the Tribunal, although it did not agree with the majority of the Tribunal’s reasoning.

  1. COA reverses High Court’s decision

In a decision dated 27 December 2019, the COA reversed the decision of the High Court. In so doing, the COA found that the seat of the arbitration was Shanghai, and that the arbitration agreement was governed by PRC law. The COA confirmed that the approach set out in BCY v BCZ [2017] 2 SLR 357 (“BCY“) (which is consistent with the English position per Sulamérica Cia Nacional de Seguros SA and others v Enesa Engelharia SA and others [2013] 1 WLR 102) must be applied.  BCY provides the appropriate choice-of-law framework under Singapore law.

The COA applied the three-step test from BCY as follows:

First limb: Did the parties expressly choose the proper law of the Arbitration Agreement?

If the Arbitration Agreement expressly stated which law should be applied to determine its validity, the enquiry would end there.  In this case the Contract did not stipulate expressly which law governs the Arbitration Agreement. The COA considered that the wording of clause 14.1 (see above) was not sufficiently specific.

Second limb: Did the parties make an implied choice of the proper law governing the Arbitration Agreement?

Given the finding on the first limb, the starting point for the COA was that there is a presumption that the law otherwise governing the Contract should also apply to the Arbitration Agreement.  In this case, PRC law was the governing law of the Contract.  The COA emphasised that this starting point can be displaced.  The HC had held that it was displaced.  In doing so, the HC emphasised that Rule 18.1 of the Arbitration Rules of the Singapore International Arbitration Centre 2013 (the “SIAC Rules“), which provided:

The parties may agree on the seat of arbitration.  Failing such agreement, the seat of the arbitration shall be Singapore, unless the Tribunal determines, having regard to all of the circumstances of the case, that another seat is appropriate. 

However, the COA found that Rule 18.1 could only apply if the parties had not agreed on the seat.   In the instant case, the Arbitration Agreement provided for “arbitration in Shanghai“.  The COA cited a number of authorities which support the proposition that this wording means that the parties chose Shanghai to be the seat and not, as the HC and the Tribunal found, merely as the venue of the arbitration.

The COA acknowledged that the natural reading of “arbitration in Shanghai” (i.e. meaning Shanghai as the seat) could be displaced by “contrary indicia“.   The Respondent argued that it should be displaced because the “background contextual material, including the earlier drafts of the [Contract], and the email correspondence between the parties, would show that the parties intended for their arbitration to be seated in a neutral forum which, in this case, could not be the PRC, and must instead be Singapore.

However, the COA refused to admit this evidence as doing so would contravene the parol evidence rule which applies according to s94 of the Evidence Act. The Respondent attempted to argue that the parol evidence rule and its exceptions (under ss 94 – 97 of the Evidence Act) should be displaced because the Evidence Act does not apply to arbitration proceedings.  This argument failed.  The COA emphasised that s2(1) of the Evidence Act provides that the applicable parts of the legislation do not apply to “proceedings before an arbitrator.”  The Respondent sought to introduce the evidence in the HC proceeding, which clearly was not a proceeding “before an arbitrator.

Since there were no contrary indicia to displace the natural meaning of “arbitration in Shanghai“, the COA therefore concluded that the parties had chosen Shanghai as the seat. The COA therefore held that there was no basis to rebut the starting position that PRC law applied to the Arbitration Agreement.

Third limb: What is the system of law with the closest and most real connection with the arbitration agreement?

This third limb only applies if there is no express or implied choice of the law which governs the Arbitration Agreement. Given the COA’s finding that PRC law was the implied choice of law, the third limb was therefore not considered in this case.

  1. Outcome of the COA’s decision

The COA found that the arbitration was seated in Shanghai and that PRC law governed the arbitration agreement.  In these circumstances, the COA did not consider it was able to then go on to determine whether the Tribunal had jurisdiction, as the Singapore courts did not properly have supervisory jurisdiction given that the seat was in the PRC.  The COA did not, therefore, make any finding as to whether or not the Arbitration Agreement would be invalid under PRC law.  As the COA stated: “it is for the parties to decide what further actions they wish to take“.

  1. Key points

The COA’s decision provides a welcome confirmation that the Singapore courts will not uphold the validity of an arbitration clause at all costs.  The case also highlights some important takeaways:

  • First, when it comes to drafting arbitration agreements it is critical to be as clear as possible as to the choice of legal seat and the law that governs the arbitration agreement (in addition to the law governing the balance of a contract). It is particularly important to include drafting on the choice of governing law where the law of the seat and the law governing the contract are different, as is common in many cross border transactions.
  • Second, parties should take extra care to seek advice on the negotiation and drafting of arbitration clauses for China related contracts. Further guidance can be found in our guide here.
  • Third, if a party wishes to rely on extrinsic evidence to support arguments in relation to the validity of an arbitration clause where the seat of arbitration is in Singapore, it should attempt to do so during the arbitration and not belatedly during any jurisdictional review or set aside proceedings before the Singapore courts. Proceedings before the HC or the COA are not proceedings “before an arbitrator” and, therefore, the parol evidence rule in the Evidence Act may prevent the admissibility of such evidence.

Herbert Smith Freehills is pleased to have advised the Appellant in this dispute, as counsel in the arbitration and as instructing solicitors to Singapore counsel TSMP Law Corporation in the Singapore court proceedings.  The Herbert Smith Freehills team has been led by Brenda Horrigan (Partner, Sydney) and Dan Waldek (of Counsel, Singapore) and supported by Weina Ye (Senior Associate, Shanghai) and Mitch Dearness (Associate, Singapore).

For more information, please contact Brenda Horrigan, Partner, Daniel Waldek, Of Counsel, Weina Ye, Senior Associate, Mitchell Dearness, Associate, or your usual Herbert Smith Freehills contact.

Brenda Horrigan
Brenda Horrigan
Partner
+61 2 9225 5536
Daniel Waldek
Daniel Waldek
Of Counsel
+65 686 88068
Weina Ye
Weina Ye
Senior Associate
+86 21 23222132
Mitchell Dearness
Mitchell Dearness
Associate
+65 68688061