Less than two years ago, Professor Jerome Cohen of the New York University Faculty of Law represented a U.S. claimant in an arbitration in Beijing. The arbitration was conducted under the auspices of the China International Economic and Trade Arbitration Commission (CIETAC), the country's main international commercial arbitration body.

“My client and I both deemed the hearing grossly unfair,” Cohen says.

A week later, Cohen discovered his instincts were correct. It turned out opposing counsel, without public announcement, had become a vice chairman of CIETAC just before the hearing.

This meant that the presiding arbitrator worked for opposing counsel. Neither the arbitrator nor opposing counsel revealed their relationship at the opening of the hearing.

Only after Cohen filed a memorandum demonstrating that no other major international arbitration organization would tolerate such a conflict of interest did CIETAC replace the arbitrator.

But the failure to disclose at an earlier stage meant a new hearing had to take place, at great expense to Cohen's client.

“CIETAC's rules lack the integrity that a credible adjudication institution requires,” Cohen says.

Recent experiences have shaken his confidence in CIETAC's ability to deliver fair verdicts in disputes between foreigners and local parties. “Only concerted reform will preserve CIETAC's credibility,” he says.

Fortunately, a round of amendments that took effect May 1 go a considerable way toward achieving just that.

“These amendments will strengthen China's arbitration governance and boost confidence among foreign investors,” says Peter Chow, a registered foreign lawyer with the Hong Kong office of Mallesons Stephen Jaques, an Australian law firm.

New Rules

Change is nothing new to CIETAC, the world's busiest arbitration center.

“There have been numerous revisions to the arbitration rules, with the last one in 2000,” notes Kathleen Scanlon, special counsel in Heller Ehrman's litigation group. “And each revision has moved the rules more in line with what corporate counsel regard as international standards.”

The Chinese government established CIETAC in the 1950s. CIETAC's arbitration rules were based on the voluntary arbitration and final award system that is the foundation of modern international arbitration.

But it was 1995 before China's first arbitration statute, the Arbitration Act of the People's Republic of China (CAA), came into effect. The legislation formally embraced voluntary arbitration and finality. Although the CAA allowed the establishment of other organizations to accept international cases, most parties still file their cases with CIETAC.

Since enacting CAA, China has changed the rules four times. But up until the latest round of amendments, certain aspects of the rules left foreign parties dissatisfied.

The most common complaint was that CIETAC required parties to appoint arbitrators from the organization's panel.

“Although foreign experts sit on the CIETAC panel, the quality of the CIETAC arbitrators as a whole varies,” Chow says.

The new rules permit parties to choose non-CIETAC arbitrators, provided both parties agree. “Foreign parties should therefore consider including in their arbitration agreements a provision that parties may choose an arbitrator who isn't on the CIETAC panel,” Chow says.

The new procedure also diminishes CIETAC's role in selecting the presiding arbitrator. It allows each party to provide a list of candidates for the position.

Other provisions require arbitrators to be independent. The new rules expressly mandate that arbitrators don't represent any party, are independent of all parties and must treat all parties equally. Arbitrators also must sign declarations disclosing anything that may cause reasonable suspicion about their independence.

“The introduction of these declarations puts considerably more teeth into making arbitrators impartial and independent,” Scanlon says.

Yet Cohen and others aren't entirely satisfied: Measured by the standards of the international arbitration community, they say, CIETAC still has a ways to go.

Conflict Of Interest

Among Cohen's primary concerns is that the new rules continue to allow CIETAC to use its own personnel as arbitrators.

“This creates an obvious opportunity for the exercise of administrative influence and even control over the arbitration panel and its decision,” he says.

While Cohen sees allowing parties to name their own arbitrators as a positive step, he's concerned that CIETAC still has the power to reject the parties' choice.

“The rules don't state the criteria for approval and we don't know how that will work out in practice,” he notes.

He's also concerned the rules don't prevent arbitrators from discussing a case with unauthorized outside parties.

“A law professor told me that, rather than appear as an expert witness in a CIETAC hearing, he informally discussed the issues with the arbitrators,” Cohen says.

Indeed, William Hawkins, general counsel and secretary at Cincinnati-based Convergys Corp.–which has been providing support services for Chinese telecom companies for more than three years–notes that the amendments, which specifically authorize the tribunal to undertake its own investigations and collect evidence, may encourage arbitrators to delve into the case outside of the formal arbitration.

“When the fact finder becomes the judge, a party loses control of the process,” Hawkins says. “There's nothing in the rules that requires the tribunal to tell parties who they've talked to.”

Adding to the concern, Cohen cites the widespread belief that CIETAC sometimes orders its arbitrators to change proposed awards.

In a bid to reverse the perception of interference, the new rules state that CIETAC may “remind” the panel of “issues” in the award on the condition that “arbitral tribunal independence in rendering the award is not affected.”

Scanlon says the amendment doesn't solve the problem entirely. “The panel still has to submit a draft of the award to CIETAC for scrutiny, and that lends itself to suggestions of interference,” she says.

Still, even Cohen–CIETAC's most vocal critic–says the amendments amount to a “clear improvement”–a sentiment, it seems, shared by most observers.

Commitment To Chance

“It's obvious to me that CIETAC has recognized the need for greater transparency and openness,” says Tom Stipanowich, CEO of the CPR Institute for Dispute Resolution, an international ADR resource center based in Washington, D.C.

And despite his criticisms, Hawkins believes that the amendments address “many of the shortcomings that concern Western companies and lawyers.”

What's most encouraging, Chow says, is that the recent amendments are almost certainly not the end of CIETAC's evolution toward a Western model of arbitration.

“Chinese authorities have demonstrated their commitment to bringing Chinese arbitration in line with international standards,” he observes. “What that means is that we can expect further changes as time goes on.”

Still, Chow cautions that there will always be differences.

“Chinese arbitration is like Chinese chess–it shares a common ancestry with international arbitration standards, but also has differences that make it unique,” he says.

Less than two years ago, Professor Jerome Cohen of the New York University Faculty of Law represented a U.S. claimant in an arbitration in Beijing. The arbitration was conducted under the auspices of the China International Economic and Trade Arbitration Commission (CIETAC), the country's main international commercial arbitration body.

“My client and I both deemed the hearing grossly unfair,” Cohen says.

A week later, Cohen discovered his instincts were correct. It turned out opposing counsel, without public announcement, had become a vice chairman of CIETAC just before the hearing.

This meant that the presiding arbitrator worked for opposing counsel. Neither the arbitrator nor opposing counsel revealed their relationship at the opening of the hearing.

Only after Cohen filed a memorandum demonstrating that no other major international arbitration organization would tolerate such a conflict of interest did CIETAC replace the arbitrator.

But the failure to disclose at an earlier stage meant a new hearing had to take place, at great expense to Cohen's client.

“CIETAC's rules lack the integrity that a credible adjudication institution requires,” Cohen says.

Recent experiences have shaken his confidence in CIETAC's ability to deliver fair verdicts in disputes between foreigners and local parties. “Only concerted reform will preserve CIETAC's credibility,” he says.

Fortunately, a round of amendments that took effect May 1 go a considerable way toward achieving just that.

“These amendments will strengthen China's arbitration governance and boost confidence among foreign investors,” says Peter Chow, a registered foreign lawyer with the Hong Kong office of Mallesons Stephen Jaques, an Australian law firm.

New Rules

Change is nothing new to CIETAC, the world's busiest arbitration center.

“There have been numerous revisions to the arbitration rules, with the last one in 2000,” notes Kathleen Scanlon, special counsel in Heller Ehrman's litigation group. “And each revision has moved the rules more in line with what corporate counsel regard as international standards.”

The Chinese government established CIETAC in the 1950s. CIETAC's arbitration rules were based on the voluntary arbitration and final award system that is the foundation of modern international arbitration.

But it was 1995 before China's first arbitration statute, the Arbitration Act of the People's Republic of China (CAA), came into effect. The legislation formally embraced voluntary arbitration and finality. Although the CAA allowed the establishment of other organizations to accept international cases, most parties still file their cases with CIETAC.

Since enacting CAA, China has changed the rules four times. But up until the latest round of amendments, certain aspects of the rules left foreign parties dissatisfied.

The most common complaint was that CIETAC required parties to appoint arbitrators from the organization's panel.

“Although foreign experts sit on the CIETAC panel, the quality of the CIETAC arbitrators as a whole varies,” Chow says.

The new rules permit parties to choose non-CIETAC arbitrators, provided both parties agree. “Foreign parties should therefore consider including in their arbitration agreements a provision that parties may choose an arbitrator who isn't on the CIETAC panel,” Chow says.

The new procedure also diminishes CIETAC's role in selecting the presiding arbitrator. It allows each party to provide a list of candidates for the position.

Other provisions require arbitrators to be independent. The new rules expressly mandate that arbitrators don't represent any party, are independent of all parties and must treat all parties equally. Arbitrators also must sign declarations disclosing anything that may cause reasonable suspicion about their independence.

“The introduction of these declarations puts considerably more teeth into making arbitrators impartial and independent,” Scanlon says.

Yet Cohen and others aren't entirely satisfied: Measured by the standards of the international arbitration community, they say, CIETAC still has a ways to go.

Conflict Of Interest

Among Cohen's primary concerns is that the new rules continue to allow CIETAC to use its own personnel as arbitrators.

“This creates an obvious opportunity for the exercise of administrative influence and even control over the arbitration panel and its decision,” he says.

While Cohen sees allowing parties to name their own arbitrators as a positive step, he's concerned that CIETAC still has the power to reject the parties' choice.

“The rules don't state the criteria for approval and we don't know how that will work out in practice,” he notes.

He's also concerned the rules don't prevent arbitrators from discussing a case with unauthorized outside parties.

“A law professor told me that, rather than appear as an expert witness in a CIETAC hearing, he informally discussed the issues with the arbitrators,” Cohen says.

Indeed, William Hawkins, general counsel and secretary at Cincinnati-based Convergys Corp.–which has been providing support services for Chinese telecom companies for more than three years–notes that the amendments, which specifically authorize the tribunal to undertake its own investigations and collect evidence, may encourage arbitrators to delve into the case outside of the formal arbitration.

“When the fact finder becomes the judge, a party loses control of the process,” Hawkins says. “There's nothing in the rules that requires the tribunal to tell parties who they've talked to.”

Adding to the concern, Cohen cites the widespread belief that CIETAC sometimes orders its arbitrators to change proposed awards.

In a bid to reverse the perception of interference, the new rules state that CIETAC may “remind” the panel of “issues” in the award on the condition that “arbitral tribunal independence in rendering the award is not affected.”

Scanlon says the amendment doesn't solve the problem entirely. “The panel still has to submit a draft of the award to CIETAC for scrutiny, and that lends itself to suggestions of interference,” she says.

Still, even Cohen–CIETAC's most vocal critic–says the amendments amount to a “clear improvement”–a sentiment, it seems, shared by most observers.

Commitment To Chance

“It's obvious to me that CIETAC has recognized the need for greater transparency and openness,” says Tom Stipanowich, CEO of the CPR Institute for Dispute Resolution, an international ADR resource center based in Washington, D.C.

And despite his criticisms, Hawkins believes that the amendments address “many of the shortcomings that concern Western companies and lawyers.”

What's most encouraging, Chow says, is that the recent amendments are almost certainly not the end of CIETAC's evolution toward a Western model of arbitration.

“Chinese authorities have demonstrated their commitment to bringing Chinese arbitration in line with international standards,” he observes. “What that means is that we can expect further changes as time goes on.”

Still, Chow cautions that there will always be differences.

“Chinese arbitration is like Chinese chess–it shares a common ancestry with international arbitration standards, but also has differences that make it unique,” he says.