IV. BUILDING EFFECTIVE MECHANISMS TO MAINTAIN INTEGRITY
All arbitration institutions attest to their own fairness. But how can we test whether such a claim is true? At least two criteria should be taken into consideration: first, whether an arbitration institution tries to build effective mechanisms to prevent unfairness; second, whether the sanctions in place are strictly enforced when misconduct does occur. In China, both the expectations and concerns regarding arbitration have been closely related to the people’s impressions of the judiciary. China’s judiciary has long been criticized for its lack of independence, its lack of legal competence, and its corruption. Consequently, it was hoped that arbitration would provide an effective alternative forum. At the same time, some are concerned that corruption in the judiciary will spread to arbitration institutions. Thus, the fairness of arbitration in China should be discussed against the background of corruption in the judiciary.
A. Corruption in the Judiciary
The Supreme People’s Court has long been plagued with corruption despite repeatedly prohibiting the adjudication of cases by means of personal relations (guan xi an), favors (ren qing an), and bribes (jin qian an). According to the research of Hualing Fu, the recent development of corruption in China’s judiciary demonstrates specific characteristics. First, the nature of corruption in the courts has become more sophisticated, not simply resulting from cash bribes. Second, judges have become more selective in demanding or accepting gifts. Third, corruption has become more indirect, and a third party is almost always involved. Lawyers in particular have become instrumental in brokering deals and facilitating transactions between litigants and judges.51
As for why corruption can occur so easily, Fu attributes it to the existence of numerous opportunities for litigants or their lawyers to influence judges. First, Chinese law requires trial judges to maintain contact with the parties or their lawyers throughout the litigation process. Second, the mediation process also gives the parties and their lawyers opportunities to influence judges. During a mediation judges must maintain frequent ex parte contacts with the parties in order to negotiate a possible settlement.52 In a word, the fact that judges maintain close contact with the parties or their lawyers throughout the litigation process gives the parties or their lawyers the opportunity to influence judges. Fu also unveiled how corruption can possibly affect a case. First, the judge may allow a delay for the party who sent the bribe, or he or she may provide information about the court’s thinking and the likely outcome of the case. Second, it is in the gray area of discretion that corrupt practices have their greatest impact. In economic cases and civil cases, corruption is also seen in the form of undue delays, repeated mediation to force a compromise, findings of fact that favor one party, and divided liability.53
Though there are some concerns about the integrity of arbitration, no empirical research has been conducted about whether corruption in the judiciary has also spread to arbitration. Actually, there is no empirical data showing to what extent corruption exists in the judiciary either. For that matter, nobody has collected systematic data to demonstrate whether such misconduct is an aberration or an everyday occurrence. Fu himself admitted that it does not make sense to condemn the entire judiciary and to reject the entire legal system because of some corrupt practices. Not all judges are corrupt, and certainly not all judges are corrupt at all times.54
B. Fairness in Arbitration
However, the undisputed fact that there is corruption in the judiciary is undoubtedly a warning to arbitration. It seems the BAC was quite aware of this point. At the time of its establishment, the BAC believed that whether its arbitration proceedings are seen as fair would decide the life or death of an arbitration institution.55 To cultivate a fair and impartial image of arbitration, the BAC took four measures right at its inception. First, it stressed impartiality and fairness as the most important aspects of the training and examination of arbitrators, as stipulated in the Ethical Standards for Arbitrators of the BAC (“Ethical Standards”).56 The Ethical Standards mandate that if an arbitrator conceals any fact that should have been disclosed, meets with a party ex parte, accepts entertainment, gifts or other benefits from the parties, violates principles of fairness in the handling of cases, or behaves in any other way that exhibits a definitive bias toward any party, the BAC has the power to dismiss or not re- engage him. Second, the BAC established the challenge and feedback systems for the parties. After the BAC receives pleadings from the parties and constitutes an arbitral tribunal, it will deliver notifications to the parties and require arbitrators to sign the arbitrators’ declaration. The notification makes the parties aware of the fact that they are not permitted to meet with arbitrators in private, discuss the case ex parte, or provide entertainment, gifts or other benefits to the arbitrators. In the arbitrator’s declaration, the arbitrators agree to accept their selection (or appointment) and affirm that no conditions stipulated in the Arbitration Rules bar them from hearing the case. Parties may challenge the selection or appointment of an arbitrator if any such conditions do in fact exist. After the resolution of a case, the BAC solicits feedback from the parties on the implementation of the Arbitration Rules either by letter or through an informal discussion. Third, the BAC has opened up its case-handling procedures and the Arbitration Rules to the public, and invited feedback and suggestions from lawyers and business managers on ways to enhance and improve the fairness of arbitration. Finally, a disciplinary board has been set up to investigate any violations by arbitrators.57 The above measures are not only backed by the parties and their representatives, but also supported by the arbitrators. A report in 2001 stated that of more than 260 arbitrators who have handled cases, and been appointed on more than 1800 occasions, there has not been a single occasion on which the parties or representatives have alleged that the arbitrators have violated the Arbitration Rules and accepted entertainment, gifts or other benefits.58
The BAC panel of arbitrators consists of lawyers, scholars engaged in legal research and teaching, experts engaged in economic or trade work, civil servants engaged in legislation and legal affairs, and retired or resigned judges. Obviously, the relations between arbitrators who are practicing lawyers and an arbitration institution are most troubling when a member of the arbitrator panel acts as a party representative in an arbitration before the BAC. There is concern that, in this case, he may take advantage of his status on the panel and unduly influence has colleagues on the arbitral tribunal. Therefore, during the process of revising the Ethical Standards in 2001, some participants argued that the arbitration institution should prohibit members of the panel of arbitrators from representing parties in its arbitration cases. Others argued that whether an arbitral tribunal is fair in a specific case depends on the arbitrators rather than the representatives. Besides, no other arbitration institution in the world has adopted such a rule.59
The 2001 version of the Ethical Standards did not prohibit arbitrators from acting as party representatives in BAC arbitration cases, but rather standardized the conduct expected of a member of the arbitration panel while acting as such a representative. Article 21 of the Ethical Standards stated that BAC arbitrators must comply with the following requirements while acting as a party representative in a BAC arbitration case: (1) he shall not violate the time limits for hearings and the submission of legal documents; (2) in the presence of the parties and their representatives, he shall not discuss with arbitrators or secretaries matters involving other cases in which he is acting as an arbitrator; (3) he shall not discuss the case privately with the arbitrator or secretary concerned; (4) he shall not represent himself as having close relations with any arbitrator or secretary concerned; (5) if acting as a party representative in a case would probably result in a challenge to any arbitrator in that case, he shall make it clear to the party concerned and refuse to act as representative; (6) he shall not ask for any accommodations that are not suitable to his status as representative.
These provisions demonstrate that the BAC was aware of the existence of the potential problem and intended to control it. However, enforcement under this version of the Ethical Standards heavily depended on the self-discipline of arbitrators. It did not completely eliminate the concern of the parties when an arbitrator acts as representative for the other side in a BAC case. After three years, the 2004 version of the Ethical Standards set forth the BAC’s resolution of this issue. It explicitly provides that an arbitrator shall not act as a party representative in any BAC arbitration cases (including an application to set aside or for non- enforcement of an arbitral award rendered by the BAC), nor make inquiries regarding a case nor provide lavish dinners and gifts or grant favors and benefits to member(s) of the arbitral tribunal or the secretary on behalf of another (Article 9).
This is perhaps the most stringent set of ethical requirements for arbitrators anywhere. Obviously, the 2004 revisions will reduce the income of those arbitrators who are lawyers because it blocks their opportunity to represent parties before the BAC. Since these lawyers provide opinions for their clients nearly every day and can influence their clients during the process of forum selection, that raises the question of how the BAC could adopt this provision without fear of offending those arbitrators who are lawyers. Two main reasons account for the BAC’s action: First, the BAC tried to reduce or avoid possible complaints by first imposing a prohibition on commission members and staff from acting as arbitrators before adopting the prohibition against arbitrators representing parties before the BAC. On January 24, 2003, the BAC revised its constitution to provide that the Chairman and the office staff of the BAC could not be appointed concurrently as arbitrators. The Vice-Chairmen and members of the Commission may not accept an appointment to act as arbitrators by a party, nor may the Chairman of the BAC appoint them as arbitrators except when they have been jointly appointed by both parties. Second, Secretary-General Wang has stated that it is the BAC’s position that the interest of the client should be placed above the interest of the lawyer.60 Actually, considering that a lawyer usually has to maintain many complicated relations with all kinds of departments and people and faces many challenges to remain an impartial arbitrator, the BAC intentionally reduced the percentage of lawyers who act as arbitrators when it re-engaged the arbitrators for the third and fourth term of the panel.61 Disaffected lawyers who were not re-engaged as arbitrators began to suggest that their clients not choose the BAC as a dispute resolution forum. The BAC was willing to risk this outcome.
The BAC has successfully fought corruption not only through the adoption of positive measures but also because it benefits from the existence of the institutional role of the secretary and from the procedures of institutional arbitration. One way that the parties or their lawyers can unduly influence the judiciary is that there are many opportunities for judges to maintain contact with the parties or their lawyers. When examining the practice of the BAC, we find that there are generally no opportunities for arbitrators to contact the parties or their lawyers directly, because of the existence and function of the secretary. According to Article 8 of the Ethical Standards, in the course of an arbitration the arbitrator may not meet or accept any evidence submitted by a party or its representative ex parte and may not discuss the case directly or indirectly with any party or its representative in the absence of the other party (including but not limited to conversations, telephone calls, letters, facsimiles, telexes, or e-mails). In practice, all documents should be submitted to the secretary and then delivered to the arbitrator by the secretary. Even in the course of mediation, the arbitral tribunal shall consider carefully the decision to assign an arbitrator to meet one of the parties or its representative in the absence of the other party. In cases where the arbitral tribunal has decided to assign an arbitrator to meet with one of the parties or its representatives in the absence of the other party, a secretary must be present and the other party must be notified (Article 8). Therefore, there is no legitimate channel for parties and their lawyers to contact the arbitrators directly. This should reduce the risk of the arbitrators being unduly affected by the parties.
Observers may be skeptical because, although there is no legal channel for the arbitrators to use to contact parties or their lawyers, ex parte contact is still possible. Even so, the relevant analysis should focus on whether ex parte contacts or even bribery could affect an arbitration case without being detected. The above- mentioned pitfalls of the judicial process that result from bribery will be discussed separately below.
C. The Risk of Bribery
First, is it possible to obtain a delay for the party who delivered the bribe? According to Article 29 of the BAC Rules, the arbitral tribunal has the power to require the parties to produce their evidence within a specified period of time and the parties must comply accordingly. The arbitral tribunal has the power to reject any evidence not produced within the specified time period. In practice, if the tribunal does not require parties to produce their evidence within a specified period of time, both sides would be given equal opportunity to submit supplemental documents. If the tribunal sets a specific time limit, both sides must comply. If the arbitral tribunal accepts the documents submitted by one party after the time limit has expired, the other party can challenge the admissibility of that evidence. If the arbitral tribunal does consider such evidence in drafting its award, this will constitute a statutory ground for the award to be set aside by the court.
Second, is it possible for the arbitral tribunal to favor one party by undue delays? Efficiency is deemed one of the advantages of arbitration over litigation. Any undue delay (whether it results from bribery or not) could be regarded as a form of injustice. The BAC attaches great importance to efficiency. It makes the remuneration of both arbitrator and secretary related to efficiency – the sooner the arbitrator closes a case, the more subsidies he will receive. The same applies to the secretary. Therefore both the arbitrator and the secretary usually have an incentive to expedite the arbitration procedure.
From an institutional perspective, the BAC has formulated the provisions needed to strengthen control over the time management of the arbitration process, thus avoiding inefficiency and delay in handling cases. The 2d Meeting of the 3d Session of the BAC held in February 2002 deliberated and approved the “Selected Provisions pertaining to the BAC Strengthening Control Over Arbitration Hearing Duration” (“Selected Provisions”). These provisions define the concepts of “delay” and “exceeding trial duration” by arbitration tribunals and the shared liability caused by the delay, and expand the obligation of arbitrators to maintain timely contacts with the secretaries or other members of the arbitration tribunals. Article 6 of this provision stipulates that when the hearing of a case is delayed for 20 days, the arbitration commission shall issue a “Case Expedition Notice” to the arbitrator(s) causing the delay. If the delay is caused jointly by all members of the arbitration tribunal, resulting in the hearing exceeding the specified duration by one month, the arbitration commission shall issue a “Case Expedition Notice” to the arbitration tribunal. Article 5 of the “Selected Provisions” stipulates that if an arbitrator fails to comply with the “Ethical Standards” and the “Selected Provisions,” “resulting in the secretary or other members of the arbitration tribunal not being able to contact him and the case being unable to be heard within the prescribed duration, the said arbitrator shall be deemed as having absented himself without cause and the other arbitrators may make a decision on procedural issues in his absence, except commencement of the trial.” At the same time, the “Selected Provisions” further spell out the measures the BAC shall adopt regarding the delay, including “recording the number of cases exceeding the prescribed trial duration due to delay in the computerized enquiry system for the parties’ reference,” “the delay satisfying the circumstances of an arbitrator not being re-appointed or dismissed as provided in the ‘Arbitrators’ Ethical Standards’ and ‘Administrative Measures on Appointment of Arbitrators’ and dealing with it according to these provisions” (Article 7).
In September 2003, the 5th Meeting of the 3rd Session of BAC deliberated and approved the revised “Selected Provisions” and renamed them “Selected Provisions of the Beijing Arbitration Commission on Raising Arbitration Efficiency,” incorporating the provisions allowing the hearing of cases within the prescribed time limit in the original “Ethical Standards” into the “Selected Provisions,” clearly stipulating the time limits on hearing cases and rendering of arbitral awards and requiring each stage of the process to proceed as scheduled so as to ensure the efficient and smooth progress of the entire proceedings. In order to implement the “Selected Provisions,” the BAC has, in its arbitrator management software system, set up “Arbitrator Time Statistics” and “Statistics on Delay by Arbitrators” as well as an instant messaging system to remind arbitrators to render the arbitral award promptly. Essentially, any undue delays, whether resulting from the arbitral tribunal’s favoring one party or not, will be controlled and redressed under the BAC’s mechanism.
Third, is it possible to favor one party by conducting repeated mediation to force a compromise? Both the Arbitration Law and the BAC Rules stipulate that mediation should only be initiated with the consent of both parties. In practice, if one party does not consent to mediation, the process of mediation cannot even begin. In the case of a three-arbitrator tribunal, there is at least one arbitrator appointed by each party. If the presiding arbitrator tries to unduly force a compromise by repeated mediation, he will probably be opposed by one of the party-appointed arbitrators. Meanwhile, a secretary must be present during the mediation who should be aware if improper repeated mediation occurs. In this situation, the secretary will record the conduct of the arbitrators. If similar misconduct happens repeatedly, the opportunity for the arbitrator to be reappointed will be reduced and he may even not be re-engaged.
Fourth, is it possible for an arbitrator to manipulate the findings of fact to favor one party or unfairly divide liability? The findings of fact and apportionment of liability are critical, and the decision on the merits is the task of the arbitral tribunal. According to current the BAC Arbitration Rules, unless otherwise agreed by the parties, the summary procedure conducted by a sole arbitrator will only apply when the amount in dispute does not exceed RMB 1,000,000. That means any case with the amount in dispute exceeding RMB 1,000,000 necessarily will employ the Ordinary Procedure (non-summary procedure) and have a three-arbitrator panel. Each party will appoint his arbitrator and then jointly nominate or jointly entrust the Chairman to appoint a third arbitrator who shall be the presiding arbitrator. It is highly unlikely that an arbitrator would agree to a decision that is unfair to the party who appointed him, and even a party-appointed arbitrator is required by the Ethical Standards to treat both parties impartially and equally. The presiding arbitrator would thus play a critical role, since any decision of a tribunal composed of three arbitrators must be made by a majority of the arbitrators.
If the arbitral tribunal fails to reach a majority decision, the decision of the presiding arbitrator will prevail (Article 39). In practice, it is rare that parties can reach an agreement to jointly appoint the presiding arbitrator. If they cannot, the presiding arbitrator will be appointed by the Chairman of the BAC (Article 18). The Chairman authorizes the Secretary-General to perform this obligation according to Article 1 of the Arbitration Rules. In this situation, as Yoshio Iteya pointed out based on to his experience in CIETAC, the Secretariat wields substantial influence.62 Iteya further raised concern that the Secretariat could influence or control the arbitration through its appointment of the presiding arbitrator, or that one of the parties to the arbitration could influence the Secretariat’s decision on that appointment because there are no specific rules on the Secretariat’s responsibility and scope of power, and in particular no written rules regulating the Secretariat’s appointment of the presiding arbitrator.63
Actually, the Secretariat’s responsibility and scope of power are provided specifically by the Arbitration Rules (Article 1) and Constitution (Article 15) of the BAC. A wise decision appointing the presiding arbitrator should be made after comprehensively considering the nature of the dispute and the expertise required of the arbitrators, even the party-appointed arbitrators. It is impossible to set out written rules to regulate the conduct of appointment, which is why no arbitration institution in the world has this kind of rule. Since the appointment of the presiding arbitrator is always an act of discretion, it is impossible to over- emphasize the importance of the impartiality of the arbitration institution in making this decision. In practice, to reduce its institutional influence over this key appointment, the BAC tries to facilitate an agreement of the parties to jointly nominate the presiding arbitrator. The 2004 Arbitration Rules stipulate that the parties may each nominate one to three arbitrators as candidates for the presiding arbitrator or jointly apply to the BAC to provide a list of five to seven candidates for the presiding arbitrator from which the parties shall select one to three as candidates within the given time limit. Where there is only one common candidate on either the nomination list or the selection list of both parties, such candidate shall be the presiding arbitrator jointly nominated by both parties. If there are two or more such candidates, the Chairman shall, taking into consideration the specific circumstances of the case, confirm one of them as the presiding arbitrator, who shall be regarded as being jointly nominated by the parties. If there are no such candidates, the Chairman shall appoint the presiding arbitrator from outside of the parties’ nomination or selection lists (Article 18).
As an additional means of promoting integrity in arbitral decisions, the BAC permits the dissenting arbitrator to choose not to sign the award and instead to issue a dissenting opinion, which shall be sent to the parties together with the award (Article 41). This mechanism, to some extent, will check the majority opinion and reduce the possibility of unreasonable decisions on the merits.
Fifth, is it possible for the arbitrator inappropriately to provide information about the tribunal’s thinking and the likely outcome of the case? If the arbitrator does so, usually the party will take some responsive measure in the process. For example, if the claimant knows its claims will not be supported by the arbitrator, it is very likely that the claimant will withdraw the application. In this case, the secretary will become aware of what may have happened behind the scenes and will make a record about the arbitrator in the case management system. The arbitrator probably will not be appointed to deal with a specific case again by the BAC. If a similar situation occurs repeatedly, the arbitrator probably will not be re-appointed to the panel next time.
The existence of the secretary not only prevents possible direct contact between the arbitrator and the parties, but makes nearly any form of misconduct hard to conceal. This reality raises the question of how to prevent the secretary himself from being involved in corruption. First, in recruiting the secretary, professional ethics is one of the important factors for consideration. Second, the BAC has adopted a case management system where the status of every case can be tracked easily. If a secretary were to intentionally allow a case to be delayed, he would likely be found out by his supervisors. Third, there is also a feedback system to evaluate the secretary. When every case is closed, a questionnaire is sent to the parties and arbitrators concerned to ask for their evaluations of the performance of the secretary. Fourth, the employment contracts of the BAC with its secretaries are for one year only. If a secretary is found to be involved in corruption, he will be fired immediately under the contract. In addition, even if a secretary does not violate the provision concerning integrity but nevertheless performs poorly in managing his caseload, he probably will not be re-engaged the following year. Furthermore, the BAC has a policy that a secretary will not be re- engaged if he has been working at the BAC for eight years unless he has been promoted to a manager/supervisor position and no longer serves as a secretary. The BAC undertook this policy out of a concern that those who have worked as a secretary for more than eight years would tire of the job and lack the necessary passion to make sure the job is done well. Because of the provision that the staff of the BAC may not be appointed concurrently as an arbitrator, if a secretary were not promoted to a managerial position, he might well become bored with the job of secretary. So the BAC will not re-engage a secretary with a lengthy tenure. But if the secretary meets the qualifications of an arbitrator, he might be appointed as an arbitrator after he leaves the BAC. This arrangement provides an incentive for the secretary to adhere to professional ethics and to hone his professional skills to enhance the possibility of being appointed as an arbitrator after working as a secretary for eight years.
D. Recent Measures to Combat Corruption
The foregoing analysis indicates that the BAC has worked to build effective mechanisms to combat corruption. On August 14, 2006, the BAC strengthened these mechanisms by revising its Constitution, the Rules for Arbitrators, and the Administrative Measures for the Employment of Arbitrators (the “Administrative Measures”) and establishing procedures for the “suspension from being listed on the panel of arbitrators.”
The Administrative Measures specifically provide that, if during an arbitrator’s term of office, the BAC has reason to suspect that an arbitrator has breached provisions of the Ethical Standards or the Administrative Measures pertaining to impartiality and independence such that would warrant his/her dismissal, then the Disciplinary Board must conduct an investigation. The Board will have the right to request that the arbitrator explain facts that need clarification and furnish proof thereof. During the period of investigation by the Disciplinary Board, that arbitrator must be temporarily suspended from the Panel of Arbitrators (“Panel”). The Chairman of the BAC must also refrain from appointing him/her as an arbitrator in any matter, and any case currently being handled and heard by such arbitrator must be dealt with in accordance with the provisions in Article 18(4) of the Constitution of the Beijing Arbitration Commission. As stipulated in Article 18(4), when an arbitrator is dismissed during his term of office, or not listed in the Panel of Arbitrators as a result of the circumstances set forth in Article 9 of the Administrative Measures, the BAC shall notify him/her in writing. Within 7 days from the receipt of the notice, the arbitrator concerned must decide if he is withdrawing from the case/s he is arbitrating and must then notify his or her decision in writing to the relevant secretary handling the case. In the event the arbitrator fails to respond or decides not to withdraw voluntarily, the BAC shall inform the parties of the cases that are still pending of the BAC’s decision. The dismissed arbitrator or the arbitrator excluded from the Panel shall not participate in the hearing of cases from the date the newly revised Panel is officially published. However, where both parties have agreed for the arbitrator to continue hearing the case, he may perform his duties until the hearing of the case is concluded. According to Article 9 of the Rules for Arbitrators, which also concerns the role of secretaries, such arbitrator also shall not make inquiries regarding a case on behalf of someone else, nor shall he/she lavish dinners and gifts on or grant favors and benefits to member(s) of the arbitral tribunal or the secretary on behalf of another.
E. The Extent of Corruption
The BAC strictly enforces the stated sanctions when misconduct occurs. In 2006, one arbitrator was dismissed and two arbitrators were suspended from the panel of arbitrators.64 The dismissed arbitrator was found to have engaged in ex parte contact. The two arbitrators excluded from the panel were suspected of misconduct that involved breaching provisions in the Ethical Standards. Though the BAC seems not entirely pure, that only a few arbitrators have been sanctioned might indicate that the extent of corruption could be far less than imagined. Can it be true? I am inclined to believe that it is true because, based on my own experience as a case-handling secretary, I found it is not difficult for a secretary with legal training to discern whether the arbitrator has an intentional bias in a specific case. Arbitrators should also know it is difficult to make blatantly unfair awards without being found out. My private interviews with some arbitrators show they are very proud of the integrity of their conduct during the arbitration.
If most of awards are, in fact, fair, where does the suspicion of general corruption come from? This is a complicated question and needs to be discussed in a separate article. Based on my experience, I will offer two conjectures about this. The first is that corruption sometimes is used by lawyers as an excuse to shirk responsibility or to ask for additional fees from their clients. Since hearings in China have become more and more adversarial, how lawyers perform in presenting their case during a hearing can have an important influence on the award. When lawyers lose a case because of their own poor performance, they may not want to admit their own fault, but try instead to blame their failings on corruption in the system. Furthermore, some lawyers may take advantage of the parties’ ignorance of arbitration procedures and attribute the smooth progress of the procedure and the successful outcome of the case to their personal relationship with the arbitrators in order to ask for more attorney fees. The other conjecture is that when a decision goes against a party, the losing party may jump to the conclusion that corruption was involved. Behavioral studies of legal decision- making show that judicial decision-makers such as juries, judges and arbitrators are more or less subject to the effect of cognitive illusions.65 This would suggest that there is no single objective correct decision in a case. But in China, these normal variations among judicial decisions are often suspected of corruption because of the low level of trust throughout the society.
The development of the BAC points out specific constraints that an LAC might face against a background of China’s social transformation and the extent to which these constraints can be overcome through an LAC’s own efforts. The enactment of the Arbitration Law is part of China’s top-down legal reform, rather than a reform driven by bottom-up demand. The framework set up for the reorganization of arbitration institutions was constrained by then-existing social conditions and could not block all the potential threats to the independence of arbitration institutions, especially in financing and personnel. However, the framework also leaves room for arbitration institutions to consciously strive for independence. The BAC successfully expands and maintains its independent space by fully employing the flexibility created by the legal and policy framework.
China revived its legal education system and began legal reform in 1978. There is no doubt that in building a professional arbitrator cadre in China one can expect to encounter more challenges than exist in any developed country with a mature legal system and ample legal talents. The BAC works to strengthen its competence by continuously raising its standards and eliminating incompetence. Aside from building a professional arbitrator team, the BAC also spares no effort in selecting and training its secretaries to ensure their competence to manage cases.
Although no empirical data show to what extent corruption exists in the Chinese judiciary, judicial corruption amplifies concerns about arbitration. At its inception the BAC actively took measures to prevent the occurrence of partiality and has gradually built effective incentive and constraint mechanisms. Meanwhile, the BAC has shown its resolve by strictly enforcing sanctions when misconduct does occur.
The frequent revisions of the BAC Arbitration Rules, its Constitution, Arbitrators’ Ethical Standards, and Administrative Measures on Appointment of Arbitrators are indicative of its effort to build effective mechanisms to strengthen its competence and fairness. The BAC’s practices demonstrate the possibility of success in building a modern commercial arbitration system in China. In the near future, however, the other LACs which would like to follow the BAC’s example, will still face great challenges in taking active measures like those of the BAC. The main reason is that the factors allowing the BAC to take effective measures through a series of rules and regulations are still hard to duplicate completely elsewhere in contemporary China. One is that the employment system of the BAC avoids the typical bureaucratic style. The other is its full financial independence, through which the BAC can provide comparatively greater remuneration to attract and maintain high-caliber arbitrators and secretaries even while imposing high standards on them. Comparing these two factors, full financial independence is the more fundamental. It not only provides incentive for the BAC to try its best to meet the demand from the dispute resolution market and increase its share, but becomes a natural constraint to prevent any misconduct that might be harmful to its reputation. For those LACs that are dependant on financial support from the government and that are constrained by the system of “income and expenses separate” management, it is difficult to take substantial measures to impose high requirements on its arbitrators and secretaries. What is worse, they may even not have enough incentive to consider such reforms, since usually the performance of the whole institution will have little influence on the income of the staff individually.
Why can the BAC successfully achieve these two prerequisites for further reform while other LACs cannot? Leadership plays an important role. The employment system was set in place by Secretary-General Wang as a safeguard to prevent incompetent employees in other governmental departments from transferring to the BAC in 1995. It is a common practice to employ staff by contract in arbitration institutions in other countries. But in China, it was really innovative, since at that time the concept of the “iron rice bowl” was still very popular. Until 2000, one of the main tasks to promote personnel system reform of public institutions in China was to break the tenure system (“iron rice bowl”) and introduce the employment system.66
As for full financial independence, to avoid the application of “income and expenses separate” management by paying tax means an arbitration institution will not have any financial support from the government and thus will be nearly totally dependent on its own income from its fees generated from managing cases. Most LACs, even those that currently have good performance records, are not confident that they will be able to maintain a stable caseload in the future and are reluctant to take the possible risk of losing financial support from government. The BAC has pioneered a road that most LACs dare not take because of Secretary-General Wang’s boldness to withstand various pressures, and her ability to win support for every innovation. As she puts it in her own words, “When turning ideas and decisions into reality, boldness is even more important than intelligence.”67
Although the BAC’s development demonstrates the institutionalization of positive ideas into effective practice, the role played by a strong executive is the key for its success. The main challenge for other LACs that want to follow the BAC is to find the “Hongsong Wang” in their institutions, while the potential limitation for the BAC is whether it will be able to maintain the momentum to strive for independence, competence, and fairness after the retirement of Secretary-General Wang. This raises two important questions deserving of future study. One is how to find strong arbitration leaders like Hongsong Wang. The other is how to build a governing structure that does not depend on any single individual once an arbitration institution has been put on track. Recently, the BAC has made great efforts to build a governing structure not dependant on individually strong executives by improving the supervision of the commission over the working body, attracting arbitrators to participate in the management of the institution through the organization of a development committee, and making the revenue report available to arbitrators.68 These actions may allow the BAC to develop further toward its goals, even after its current leadership is no longer driving the reforms.
51 Hualing Fu, supra note 30, at 211.
52 Id. at 211-12. 53 Id. at 212-13. 54 Id. at 214. 55 Wang, Work Summary of the BAC, supra note 39. 56 The Ethical Standards for Arbitrators of the Beijing Arbitration Commission were first adopted on October, 1995 and revised successively in December 1996, September 1998, April 2001, July 2003 and August 2006.
57 See Wang, Work Summary of the BAC, supra note 39; BAC, Di yi jie Beijing zhong cai wei yuan hui gong zuo zong jie [The Work Summary of the First Session of the Beijing Arbitration Commission] (Nov. 4, 1998) (unpublished memorandum, on file with the author).
58 Hongsong Wang, Ge ren shu zhi bao gao [Report on Debriefing Mission] (Jan. 1, 2001) (unpublished memorandum, on file with the author).
59 Hongsong Wang, Guan yu “Beijing zhong cai wei yuan hui zhong cai yuan shou ze” he “Beijing zhong cai wei yuan hui zhong cai yuan xuan (xu) pin biao zhun” de xiu ding shuo ming [The Revision Explanations on the Ethical Standard of Arbitrators of BAC and the Appointment Standard of Arbitrators of BAC] (April 25, 2001) (unpublished memorandum, on file with the author).
60 Interview with Hongsong Wang, Secretary-General, BAC (Apr. 24, 2006).
61 The percentage of lawyers who act as arbitrators among the panel fell from 23.1% during the second term to 19% during the third term and to 16.3% in the first year of the fourth term. See BAC, Di san jie Beijing zhong cai wei yuan hui gong zuo zong jie [The Work Summary of the Third Session of the Beijing Arbitration Commission] (April 25, 2001) (unpublished memorandum, on file with the author); Hongsong Wang, Zai 2005 nian chun jie cha hua hui shang de jiang hua [The Speech at the Spring Festival Tea Party of 2005] (Feb. 4, 2005) (unpublished transcript on file with the author).
62 Yoshio Iteya, Case Study of Arbitration in China, in NEW HORIZONS IN INTERNATIONAL COMMERCIAL ARBITRATION AND BEYOND 119-22 (Albert Jan van den Berg ed., 2005).
64 BAC, Beijing zhong cai wei yuan hui di si jie gong zuo bao gao [The Work Report of the Fourth Session of the Beijing Arbitration Commission] (Sept. 20, 2007) (unpublished memorandum, on file with the author).
65 For an in-depth discussion of cognitive illusions (or cognitive biases), see Christopher R. Drahozal, Behavioral Analysis of Arbitral Decision Making, in TOWARDS A SCIENCE OF INTERNATIONAL ARBITRATION: COLLECTED EMPIRICAL RESEARCH 319-37 (Christopher R. Drahozal & Richard W. Naimark eds., 2005).
66 Organization Department of the Communist Party of China Central Committee & Ministry of Personnel, Guan yu jia kai tui jin shi ye dan wei ren shi zhi du gai ge de yi jian [Opinion on Expediting Personnel System Reform of Institutions] (August 13, 2000).
67 Hongsong Wang, 2003 nian gong zuo zong jie yu 2004 nian gong zuo she xiang [The Work Summary of 2003 and the Work Plan of 2004] (Feb. 12, 2004) (unpublished memorandum, on file with the author).
68 BAC, supra note 64.
The author wishes to thank Malcolm Feeley, Jerome Cohen, Stanley Lubman, Gerald Clark, Robert Baum, Benjamin Liebman, David Anderson, Yaxin Wang and Yu Fan for their constructive comments on earlier versions of this article. The author also wants to acknowledge the support of the staff in the office of the Beijing Arbitration Commission during the field study and the financing by the China Scholarship Council during his stay at Berkeley. The project is part of a large study of Hybrid Dispute Resolution Mechanisms and the Construction of Harmonious Society funded by the Chinese Ministry of Education (Grant No. 05JZD0004).
Approved by the Dispute Resolution Section Executive Committee on April 14, 1999 Approved by the North Carolina Bar Association Board of Governors on June 17, 1999 INTRODUCTION The use of...By Managing Editor