A Comparative Study of Arbitration Law in the People's Republic of China and the Royal Kingdom of Saudi Arabia
Category : Arbitration System Examples
A Comparative Study of Arbitration Law in the People's Republic of China and the Royal Kingdom of Saudi Arabia
Arbitration is a device used for the settlement of questions or issues that is of interest to two or more parties through the intervention of an individual or group, called an arbitrator or arbitrators. The arbitrator derives authority and decides the case from the private agreement of the parties involved in the dispute and not from the authority granted by a state. Arbitration also pertains to the mechanism exercised in the settlement of disagreements between parties through the process of appointing an arbitrator with the acquiescence of the parties or by depending upon the procedures or institutions selected by the parties. (1998) In this sense, arbitration is similar to litigation because of the intervention of a third party in the settlement of the dispute, subject to the limitations on the power and extent of intervention set out in the agreement of the parties.
Arbitration has certain essential characteristics. One of the foundations of arbitration is the consensual nature of the mechanism. The common or mutual intention of the parties reflected in their agreement determines the authority and jurisdiction of the arbitrator. The limit of the power of the arbitrator is drawn from the words of the agreement for arbitration. The consensual nature of arbitration directs it to fall under the private system of adjudicating disputes, especially since the parties control the powers and obligations of the arbitrators instead of the state. (2001)
However, the determination of the powers and obligations of the arbitrators is not exclusively determined by the parties, but is also augmented by the national legal system, especially in the enforcement of ensuing awards. Moreover, the effectiveness and value of the process of arbitration is guaranteed by the support of national courts. The stature of arbitration resulting to its acceptance as a legitimate dispute resolution mechanism is partly based upon its ties to the national legal system. The national legal system provides the standards for the minimum requirements of justice and fairness. Compliance with these minimum standards is made by the imposition of the duty to follow due process by the national legal system, although indirectly. Awards made during the conclusion of the arbitration process cannot be enforced if there is non-compliance with due process. (2000)
Another characteristic of arbitration is that the disputing parties choose the arbitrator, and the parties have the option to delegate the responsibility to arbitration institutions. However, despite whichever option is chosen by the parties, they equally have the right to participate in the selection of a preferred number of arbitrators who will intervene in the case or who will select the final arbitrators. ( 1998)
Arbitration has made its mark as a significant and indispensable alternative dispute resolution mechanism in both national and international arenas. The dispute resolution system has become so pervasive that it is being included in contracts as the channel or venue for the settlement of disputes arising from the exercise of the rights and obligation in the agreement. Its significance determines its persistence as a dispute resolution process, despite changes in the structure and nature of international relations. Arbitration, as a dispute resolution tool, is also used as an initial system for settling civil and criminal complaints prior to litigation proper. In some instances, it is only after the arbitration system has been exhausted, without the issue or dispute being settled, that the courts may allow the case to proceed.
Although arbitration is an internationally accepted dispute resolution system, the particular processes and rules surrounding arbitration in different states differs depending upon the foundations of the dispute resolution system of each state. The historical context and dynamics of a society determines the development and persistence of the particular aspects of the dispute resolution system. This paper explores the similarities and differences in the arbitration systems that evolved in The People's Republic of China and Saudi Arabia, two countries with very different historical roots and cultures, and will show that although arbitration is accepted in these nations, there are vast differences in the manners in which these systems were established and utilized.
Arbitration Law in the People’s Republic of China
Arbitration in China has developed from the country’s rich traditions and philosophies on human relations, as well as the influence of the more recent socialist and communist ideologies. The development of arbitration in China dates back to centuries since the establishment of the Chinese civilization, between the 18th and 12th century B.C. Its persistence and contemporary practice was influenced by great thinkers and historical events that occurred in the country, from the constant cycle of war and peace during its earlier periods to the development, to the creation of a unified state, then the influence of socialism and communism, and the eventual dominance of democracy and capitalism. (2002)
Cultural & Religious Context of the Chinese Arbitration System
In relation to philosophy, there are three great sages considered to have influenced the Chinese tradition on human relations and dispute resolution. The first of these is Confucius. Although Confucian philosophy was remotely influential during his time, the teachings of Confucius became a state philosophy in the second century AD. Confucian philosophy revolved around the achievements of peace, order and stability in society. To achieve these goals, Confucius advocated virtue and ethics that emphasized the importance of duty, honor, loyalty, filial piety, sincerity, kindness and respect for seniority. Society’s compliance with these virtues created a code of conduct applicable to day-to-day life. (1999)
A significant impact of Confucian philosophy on Chinese society was the development of a hierarchical relationship since “the entire Chinese social system is based on existential inequality” (1998). This is reflected in the expectation that people belonging to the various social classes should comply with their appropriate roles in society. To achieve social order, there is a hierarchy of fixed moral and social rules where lower classes obey higher classes. These social rules pervade the different aspects of behavior and social interaction, and are expressed by the adage that “let the ruler be a ruler, the subject a subject, the father a father, and the son a son” ( 1998). Hierarchical etiquette was important during the time of Confucius and in the development of a unified Chinese society because of the historical lack of centralized leadership, resulting in wavering social order. Due to this historical context, Confucian philosophy aimed at facilitating a system of self-governance and self-regulation. The underlying principle is that if people comply with social rules, then the rule of man is adequate.
Confucian philosophy influenced not only Chinese human relations practices, but also dispute resolution systems, by advocating a system of self-governance through the recognition and compliance with social rules. It is the social rules that govern human relations, and society’s goals of achieving peace and order are attained if every person knows his place and sticks to the rules that coincide with his place in society. Consequently, the manner of settling disputes also depends upon compliance with social rules, so that a person not complying with the rules governing his place in society is the person who has wronged the other party, and the extent of liability depends upon the extent of non-compliance of the parties with the social rules. ( 1999)
The legal implication of Confucian teachings is that the rule of law is needed only in instances where the party’s actions extend beyond their role in society, as when every person complies with the hierarchical social roles legal, rule of law is not needed. In contract law, the implication is that a contract creates a relationship between the parties, but the relationship is dependent upon the role of the parties in society. There is always an underlying consideration of social rules in contractual agreements.
The second major philosophical influence on Chinese society was , author of the Tao Te Ching, which covers laws of virtue and ethics. His work constitutes the foundation of Taoism, both a tradition and philosophy, which has had a huge influence on Chinese culture. Although Taoist philosophy comments on various aspects of society, the general idea accepted by Taoist believers is that there is a single, encompassing way that covers all things in the universe, with the main goals being harmony and stability. When contrasting Taoism with Confucianism, it can be seen that while the former stresses the individual quest for self-fulfillment by rejecting false desires, the latter stresses hierarchical social rules. (1999)
These goals are achieved by finding and practicing integrity, righteousness, humaneness and etiquette. When a person strays from these disciplines, disorder ensues. When disorder occurs, it is only then that the need for law arises. Similar to Confucianism, there is an insistence upon non-interference or minimal control in Taoism. According to both philosophies, the best way of attaining control is by practicing minimal interference. In conjunction with minimal interference is the task of maintaining simplicity in society through the discouragement of desires. ( 1999)
The implication of Taoist philosophy in Chinese society is that state intervention through the implementation of laws is not necessary and is even detrimental to society. This puts contractual relations into the realm of the metaphysical world, achieved through self-realization and not based on the Western concept of negotiation. This means that people enter into human relations and fulfill their obligations through the self-realization of the humane and righteous ways of action, and when arbitration occurs between parties who fulfill these obligations, the result is the self-acceptance of responsibility and the voluntary settlement of the dispute.
The third major influence on Chinese thinking was Sun Tzu, who authored The Art of War, which deals with military warfare strategies. The military warfare strategies advocated by Sun Tzu were based on the Taoist philosophy of achieving more by doing less. A translated passage of The Art of War states, “To win without fighting is best”. This implies that the achievement of one’s goals is best attained through psychological tools such as deceiving opponents, translating weaknesses into strengths, encouraging loyalty and cohesion in the group. Sun Tzu’s philosophy has influenced modern Chinese society in many different areas, including dispute resolution. ( 1999)
The implication of Sun Tzu’s philosophy to law is that disputes or legal problems should be tackled in an indirect manner by deceiving the other party to believe what one wants them to believe using psychological maneuvering, as well as the subversion of individual to group needs. These may also exist in Western rules on human relations and legal systems, but the strict enforcement of these rules is different from the Western practice because compliance with legal obligations is based upon the incentive of not wanting to end up in litigation while the concept of litigation is non-existent in Sun Tzu’s philosophy.
Contemporary Chinese Arbitration Law
The three traditional philosophers previously mentioned, Confucius, Lao Tzu and Sun Tzu, have incalculably influenced the development of contemporary Chinese society and the development of non-adversarial methods of settling disputes such as Chinese arbitration law. As a result, Chinese arbitration law endorses the use of the arbitration system to resolve disputes. In practice, there is also a strong preference for arbitration of disputes that arise out of business transactions. However, due to the strong influence of the philosophies against law and interference and the intervention of socialist or communist rule, the National People’s Congress began enacting arbitration law in China only in August 1994, during the time that China was opening to the outside world. The Chinese Arbitration Act of 1994 is applicable to both international and domestic disputes. This statute integrates both the international principles of arbitration and the basic principles of the Chinese society. (2002)
Based on the provisions of the Chinese Arbitration Act 1994, arbitration is the legal arrangement between the disputing parties to submit voluntarily the dispute to a third party for resolution. This is commonly a non-governmental activity because it constitutes a private action. However, it is subject to supervision by the state. Thus, arbitration has become a part of the judicial regime of China. The Chinese Arbitration Law also provides a unified system of dispute resolution applicable to different sectors of the Chinese society and applying international standards for arbitration. ( 2002)
Chinese arbitration law embodies different fundamental principles such as voluntarism, independence, and legality and impartiality. Voluntarism refers to the willingness of the parties to reach an agreement for the resolution of their dispute through arbitration. This means that the arbitrator will not consider any case for arbitration without the application of the parties to the dispute. Independence pertains to the non-interference from any administrative body, social organization or individuals not party to the dispute. An independent arbitration system in China exists because: 1) the arbitration agency is not part of the administrative mechanism; 2) arbitration agency offices are established according to geographical location and exercise independence from each other; 3) arbitration committees, associations and tribunals are also independent from each other; 4) arbitration is not dependent on adjudication or on the courts, even if the courts are accorded supervisory responsibility over arbitration activities. Legality and impartiality pertains to the application of reasonable practice in arbitration so that the flow of the process should consider facts and laws. ( 2001)
In China, there are three arbitration bodies. First is the Chinese Arbitration Association, constituting the organization of arbiters applying self-disciplinary measures to its members. The China Arbitration Association supervises the arbitration committees and the individual members and ensures their compliance with the association’s constitution, which was drafted by the National Congress. The association also creates arbitration rules and regulations consistent with arbitration law and civil procedural law. Second are the Arbitration Committees, which are executive bodies, established in the provincial, municipal and autonomous regional capitals, as well as in other cities as the need arises. The membership of arbitration committees comes from the members of the government departments and chambers of commerce who are registered with the judicial administration of the geographic location where they conduct arbitration. One chairperson, two to four vice chairpersons and seven to eleven members comprise an arbitration association. The chairperson and vice chairpersons should be experts in law and trade and individuals with arbitration experience. Depending upon the trade from which the dispute arises, different people with the appropriate expertise make-up the arbitration committee. Third are the Arbitration Tribunals. After a dispute has been raised and accepted by an Arbitration Committee, the committee forms an arbitration tribunal to settle the case. The created arbitration tribunal may be composed of a single arbitrator or a panel of arbitrators, composed of three members including the chief arbiter. If the disputing parties want to create a panel of arbitrators, both parties choose the two arbiters respectively, with the third member chosen by both parties. Both parties also designate the chief arbitrator and the arbitrator in case of a single arbitrator. ( 2001)
In China, there are two essential components of arbitration. First is the arbitration or adjudication practice that respects the choice of the parties to settle the dispute through non-adversarial means, meaning that after the decision to arbitrate has been reached, the jurisdiction of the court is removed. However, there are certain instances where the court may still retain jurisdiction over the case, even though the arbitration agreement is not valid or has already expired. If, for example, despite the arbitration agreement, a party to the dispute files a case with the court which the other party answers, the effect is a renunciation of the arbitration agreement.
Second is the component of final ruling. This means that upon the pronunciation of the arbitration decision, the decision takes effect immediately. This is so even if one or both parties are not satisfied with the pronunciation. However, the unsatisfied parties may seek the intervention of the court to review or verify the decision. The court may overthrow the arbitration decision only if the court is convinced that the decision is wrong, provided the conditions for legal revocation exist. (2001)
Arbitration in China follows a process. The initial requirement is the existence of a valid arbitration agreement that constitutes the signal for the arbitration bodies to take cognizance of the case. During the arbitration process, the arbitration tribunal may also apply conciliation depending upon the agreement of the parties. After the deliberations, the tribunal pronounces its decision, which has automatic execution. The decision may be executed through a court intervention, especially if a party fails to comply with obligations. However, in case the parties are not satisfied with the decision, they may also seek court intervention to review the tribunal decision subject to certain rules and limitations. (2006 ) This complies with the Chinese Arbitration Act’s underlying principle of the court offering maximum court assistance by applying minimum interference. Thus, even if contemporary arbitration has been made subject of a statute, the principle of non-interference has been integrated but modified into minimal interference to provide maximum assistance.
Frequency of Arbitration Use in China
Arbitration in China is the preferred method of dispute resolution since ninety percent of disputes arising in the country are resolved through arbitration. However, the arbitration agreement should be entered into by the parties in anticipation of any disputes arising from their agreement. In agreements, particularly those revolving around business arrangements, the parties should have an arbitration agreement before the commencement of their obligations because it is difficult to arrive at an arbitration agreement after a dispute has already arisen. There are three areas where arbitration law is frequently applied. The first of these is arbitration in labor disputes, governed by the rules of labor arbitration issued by the Ministry of Labor of the Central Government in 1950, and which have been expanded in the succeeding years. In July 1993, the State Council issued the Regulations on Settlement of Labor Disputes in Enterprises, which made labor dispute arbitration applicable to all enterprises. In July 1994, the Standing Committee of the Eight National People’s Congress enacted the labor law of the People’s Republic of China that supports the arbitration of labor disputes and established the labor dispute arbitration system. At present, labor disputes are settled primarily through the labor dispute resolution system. (2006)
The second area of arbitration application is in economic disputes, and has developed through four stages of change. The initial stage covered the early days of the founding of the People’s Republic of China in 1949 until 1966, a period characterized by arbitration without litigation, when any economic dispute had to be resolved through arbitration because the parties were not allowed to bring cases to the People’s Court. The second stage covered the period between 1978 until the middle of 1982, where the dispute resolution system applied the principle of arbitration prior to litigation. Disputing parties who passed through arbitration without achieving a satisfactory resolution had the option of filing a case in the People’s Court within a limited time and subject to limitations. The third stage covered the period starting from the development of economic contract law in the mid-1980s emphasizing the use of both arbitration and litigation in dispute resolution. Contracting parties facing a dispute had the option to file a case in the People’s Court or to agree to settle the dispute through arbitration. The fourth stage, commencing in the mid-1990s with the Chinese Arbitration Act of 1994 and still in effect, allows freedom for parties to choose either arbitration or litigation. ( 2006) Contracting parties with a previous agreement to arbitrate or a subsequent arbitration agreement may either comply with the agreement in case of disputes, or the parties may seek court intervention through litigation if there is no arbitration agreement. ( 2003)
As of the end of 2005, there were more or less one hundred and seventy arbitration commissions established throughout China that complied with the Chinese Arbitration Act 1995. Based on the available 1994 data, the Beijing Arbitration Commission alone has already accepted more than one thousand cases for arbitration. The Beijing Arbitration Commission has also accepted thirty-three foreign-related cases, proving that arbitration in China is starting to develop consistency with international arbitration standards. (1996,)
Arbitration Law in the Royal Kingdom of Saudi Arabia
The population of Saudi Arabia experiences a high level of cultural homogeneity that unifies the various aspects of society, such as religion, politics, family relationships, social values and law (i.e. litigation and arbitration). As the kingdom is strongly theocratic, arbitration law is inextricably linked to the Islamic traditions of the country.
Cultural & Religious Context
The homogeneity of Saudi Arabian society is attributed to the popular adherence to Sunni Islam. It is the principles of Sunni Islam, strongly adhered to and promoted by the Saudi royal family, which have fostered the social, political and legal cultures of Saudi Arabia. Cultural homogeneity in Saudi Arabia is largely founded upon the circulation of values and attitudes observable in family relationships and the relationships between families within the tribal society. To form tribal societies, families align themselves with other families with similar principles and lifestyles. Individual family members have the tendency to engage in various social, economic and political relations within the family alliances, and allied families serve as social nets for each other. Families in Saudi Arabia are commonly patrilineal, so that the structure of the family is traced through the male descendants. Although links to maternal relatives are given importance, the identity of the entire family still rests upon the father’s bloodline. (2000)
Values and practices that have developed from the basic principles surrounding the family and adherence to Islam are reflected in the value given by society to displays of generosity, selflessness, and hospitality. Further displays of these values are the common deference to the family hierarchy, independence from other people and the mastery over one’s emotions, and a loyalty to family members so strong that family members will automatically assume accountability not only for individual relatives but also for family actions. This implies that in arbitration, the parties to the dispute resolution consist of the entire family, due to the close link between family traditions and dispute resolution systems.
Islam is both a religion and a lifestyle. Sunni Muslims live by Islamic teachings, and the arbitration of disputes is based upon the same teachings. Acts of worship not only reflect the affirmation of a person’s faith and recognition of the teachings of Muhammad, but also encompass and set the standards for civil and personal actions. Therefore, it is only through evaluation and action based on the tenets of Sunni Islam that arbitrators will determine which party acted wrongfully and the extent of the extent of damage caused.
One of the basic principles of Sunni Islam is that things are assumed to be pure and true, unless there is proof showing otherwise. This means that in arbitration, there is that assumption of correct or regularity of action and it is up to the complaining party to prove the commission of a wrong or damaging action, causing injury or loss. ( 2002, 1999) This is critical to understanding contemporary arbitration law in Saudi Arabia, as it clarifies a fundamental aspect of the arbitration process, namely the party on whom the burden of proof rests.
The Koran identifies three objectives for an Islamic government and society: believe in Allah, enjoy good behavior and forbid wrongdoing. Although these objectives imply the importance of prevention rather than post-dispute resolution, these objectives also imply that in cases of dispute resolution, these objectives are the standards from which the issue is to be resolved. Muslim teachings put emphasis on conformity in external appearances and actions as manifestation of inward faith. Thus, the public or the Islamic community becomes the judge of the extent of a person’s affirmation of Islam and public opinion serves as regulator of individual behavior. This means that in the settlement of disputes, every member of the community is a party because they are given the responsibility over each other’s actions and ensure compliance with the Islamic faith.
Contemporary Saudi Arabian Arbitration Law
The development of contemporary arbitration law in Saudi Arabia is based on Islamic law and traces its roots back to the founding of Islam. There are many examples of dispute resolution using arbitration in Islamic history. After the founding of Islam, the Treaty of Medina was created in 622 A.D. This treaty, one of the earliest examples of Islamic arbitration law, involved Muslim and non-Muslim Arabs and Jews agreeing to raise disputes for arbitration to the Prophet Mohammad. (2003) The present system of arbitration law in Saudi Arabia is strongly based on Islamic teachings and uses historical examples as precedents.
Arbitration in Saudi Arabia is a dispute resolution system linked to the Shari’a, or Islamic Law. The legal system in Saudi Arabia is managed by the Ministry of Justice, which has jurisdiction over civil and criminal matters. Disputes on commercial and labor issues are handled through a Board of Grievances. The Board of Grievances also manages any disputes between the Saudi government and private parties, including matters covered by special codes particularly bribery, forgery and trademarks. The Commission for the Settlement of Labor Dispute deals with disputes arising in employer-employee relations, as well as criminal violations of labor laws. The various Government Administrative Judicial Committees decide on matters covering any insurance disputes, disputes on unlicensed foreign capital investment, and custom duties violations. Most of the cases or disputes raised are decided independently and based on merits according to Shari'a, so that judges are not bound by the rules of legal precedent. ( 2003)
Most of Saudi Arabia's historical experience with dispute resolution revolves around the judicial system and the Shari’a Court. However, as the need to contract with foreign investors became increasingly important due to globalization, the state started to develop a system of commercial law with rules on the uses and terms of commercial contracts. As early as 1983 Saudi Arabia enacted its initial Arbitration Regulations through Royal Decree M/46 and the corresponding implementing rules in 1985 through Council of Ministers Resolution No. 7/2021/M, so that arbitration contained in contractual provisions increased in popularity. Instead of raising the settlement of disputes to the judicial system or the Shari’a Court, parties can now agree to settle disputes through the intervention of a third party, mutually agreed to by both disputing parties. ( 2003) In Saudi Arabia, this development is a major progress in resolving the backlog of commercial disputes pending before its judicial system. Moreover, the arbitration law provides allowance for the application of Saudi law in dispute resolution of private commercial disputes. However, in practice, this new arbitration system experienced drawbacks when the courts applied Saudi law in dispute resolution, despite provisions on the contract providing for alternative methods.
Another major development in Saudi Arabian arbitration law occurred when the Saudi government established the Saudi International Arbitration Commission in 2005. This body represents the first formal arbitration program beneficial to the business community, and falls under the supervision of the International Chambers of Commerce, Saudi Chapter. Moreover, the government has also expressed its willingness in establishing various arbitration bodies in city centers around the kingdom to handle both domestic and international commercial trade disputes covered by arbitration agreements.
Frequency of Arbitration Use in Saudi Arabia
In the past two decades, arbitration as a system of dispute resolution increased in significance due to the rising number of new areas and issues of disputes. In response to this developing situation, the Saudi government enacted the Arbitration Regulations of 1983, together with its corresponding rules in 1985. Article 1 of the regulations contains the provision on the arbitration agreement that may be created in a contractual agreement, or as disputes arise. This offers validation to arbitration as a dispute resolution system. The general language of the provision also allows coverage of various forms of dispute. The second article provides limitations to the matters covered by arbitration. In line with its implementing rules, disputes not qualifying for conciliation do not also qualify for arbitration, such as criminal offenses, issues concerning public administrative law, civil status, inheritance and some marital disputes. The degree of allowance in scope and the limitations are based on the Islamic tradition of the country. Arbitration regulations in Saudi Arabia do not specify the law to be applied in the process. However, based on the implementing rules and regulations, the application of the dispute resolution system should be consistent with Islamic laws and appropriate regulations. (2003)
Apart from the regulations and the implementing rules and regulations, the arbitration process in Saudi Arabia is subject to the rules derived from the international agreements to which the state is a party. The country is a party to the Agreement on the Reciprocal Enforcement of Judgments among the members of the League of Arab States. This means that arbitral awards ordered in the territories of any signatory state are enforceable in all the territories with a block to the reexamination of the issue of the arbitrated dispute. However, this agreement is subject to various limitations, such as when the law of a state does not allow certain issues to be settled through arbitration, when there is no valid arbitration agreement, when the arbitrators are found to have no jurisdiction over the issues of the dispute, if the disputing parties were not notified of the commencement and conclusion of the process, if the award is determined to be inconsistent with public policy and the principles of morality, and if the award is not yet final. ( 2003)
Apart from its acquiescence of the reciprocal enforcement of awards, Saudi Arabia is also a signatory of the Washington Convention on the Settlement of Investment Disputes, which provides for the utilization of either conciliation or mediation in investment disputes between the signatory states. The agreement covers investment disputes between state governments or state governments and nationals of other states. These developments in the arbitration system of Saudi Arabia marked the strengthening of the position of the country in international political and trade relations. ( 2003)
Although, there are no clear statistics on the number of arbitration cases in Saudi Arabia, this dispute resolution system has been used in various areas of disputes for a number of centuries. Domestic arbitration covers family relations subject to the limitations of Islamic norms and moral rules. It also covers inter-family disputes and local business disputes. International arbitration refers to dispute resolution that covers disputes arising between Saudi nationals and entities or the Saudi government with foreign nationals or governments. Arbitration as a preferred mode of dispute settlement in both domestic and international disputes serves as a convenient, accessible and efficient mode of settling family, inter-family and local business disputes and an incentive for foreign investors to engage in contractual relations with the Saudi government and its nationals. The success of the arbitration system of Saudi Arabia is subject to mixed assessments from international players. However, arbitration has become a popular dispute resolution system in Saudi Arabia.
Advantages / Disadvantages of the Chinese Arbitration System
The Chinese arbitration system offers several advantages in terms of both the development and the dynamics of the system. In relation to the development of the Chinese arbitration system, its advantages rest upon the philosophies that influenced arbitration. One advantage is the link between arbitration and the code of virtue recognized by the Chinese society in general. The code of virtue includes loyalty, kindness and respect in human relations. This results to an ordered society because every person knows his boundaries for human action and as long as the person sticks to that limit there is co-existence with other people resulting to peace and order. An ordered society translates not only to minimized disputes requiring arbitration but also to an ordered arbitration system based on the code of virtue.
Another related advantage is the influence of class roles to arbitration. Normally, class roles are frowned upon by democratic states due to its implication on discrimination. However, in the Chinese society the inherent inequality of people are recognized, especially by Confucian philosophy. Based on the class distinctions, there are corresponding moral and social rules to be followed. These rules are commonly accepted and recognized so that this implies the presence of a clear standard for determining fault and accountability. There is no need for court determination when the people themselves can delineate acceptable action from wrongful action and nobody can deny accountability.
Still another related advantage is the link between arbitration and the Taoism philosophy of self-governance. Self-governance implies that the people are aware of the moral and social rules so that they accept accountability and the corresponding reparation needed. This implies ease and efficiency in arbitration because the parties cooperate and act in an orderly manner due to the value given to the code of virtue. Thus, if one commits a wrong to another person, then the wrongdoer has to admit accountability and cooperate in an arbitration system if one wants to maintain an honorable or respectable status in society.
In relation to the dynamics of the arbitration system, the advantages revolve around the legal principles governing this Chinese dispute resolution system. One advantage is the primary role that arbitration plays in dispute resolution. This allows the parties freedom to determine and direct the resolution of the dispute because they can agree on the limit of the accountability and reparation, the manner of deciding the case, and the third party to arbitrate the dispute. It also means that the process may be applied privately to protect the status of the parties. Apart from these advantages to the parties, the state also gains by minimizing the cost of the number of litigations in court and other related state interventions, which would be much higher if they were not settled through arbitration and / or other dispute resolution systems.
Another advantage is the implementation of a unified arbitration in China. This offers not only credibility but also a basis for persistence of arbitration as a viable dispute resolution system. A unified arbitration system means that arbitration is an accepted and recognized venue of resolving disputes so that the people have a common understanding of the purpose, coverage and the ideal result of arbitration. In this light, the people respect the arbitration process and the resolution of the case by arbitrators. The common understanding and recognition of arbitration then ensures that the system continues to be utilized.
Still another advantage in terms of dynamics is the establishment of specialized arbitration tribunals, organized according to different areas of human relations. After a case has been recognized by the Arbitration Association established in the location where the disputing parties reside or agreed to settle the dispute, then an arbitration tribunal is formed composed of a person or a group of people with experience or knowledge about the issue raised by the parties. This ensures that the tribunal has a sufficient grasp over the issues between the disputing parties before a resolution is rendered.
Another important advantage is the independence of the arbitration system from state interference. The Chinese arbitration system runs independently from the Chinese government subject only to the supervisory responsibility that the government has over the system in ensuring a fair resolution of the dispute. This implies the lack of politicization of the arbitration process, resulting to its credibility as a dispute resolution system.
Advantages / Disadvantages of the Saudi Arabian Arbitration System
Similar to the Chinese arbitration system, the advantages of the Saudi Arabian arbitration system can be more clearly understood by examining first the foundations of the system, and then how it works. The foundation of the Saudi Arabian arbitration system is Islam, and it offers certain advantages. The first of the advantages is that arbitration takes place in the context of a homogenous social and religious system. This means that the people have a clear understanding of the social system of proper values and attitudes as well as the rules on violations and penalties. The recognition of these values and their corresponding penalties strengthens the arbitration system by giving it a recognized standard for determining violations and accountability. There is an efficient disposition of disputes with the cooperation of the parties. Apart from this, the homogenous social and moral system also encourages arbitration because of the similar context from which the issues raised by the parties are based. The resolution of the dispute would only revolve around the admission of evidence and the determination of wrongful action without the complexity that a different social context of the disputing parties would entail.
Another advantage is linked to the relationship between arbitration and the self-sustaining and independent character of the Saudi family. This implies that families are in themselves political units with their own decision-making mechanisms. Since strong interference in the family is not popular, families tend to prefer resolving their disputes by themselves through the intervention only of an arbitrator to ensure that both sides are heard. This is true whether the dispute is within a family or between families. As independent units, families opt to settle disputes by themselves without unnecessarily involving other parties. This protects the privacy and status of the family as well as provides an efficient venue for dispute resolution.
Still another advantage relates to the Islam influence to the arbitration system. Sunni Islam teaches habitual but meaningful compliance to one’s duties to God and to people. Wahhabi Islam teaches the responsibility of every member of society of ensuring that one’s actions and the behavior of others comply with the social and moral values. These teachings developed discipline in Saudi Arabian society, which provides arbitration with the advantage of developing rules governing the process that the parties recognize and accept.
In terms of dynamics, the Saudi arbitration system holds the advantage of having a context for the dispute resolution process, which is the assumption of good behavior subject to the presentation of evidence to the contrary. This designates the evidential standing of the disputing parties.
Disadvantages of Each System
The primary disadvantage of the Chinese arbitration system is its relations to existential inequality. This implies the recognition of the inherent inequality in society. This opens up the possibility of the unfair or unequal status given to the parties in the dispute belonging to different social classes. Although, the difference in status during arbitration may be acceptable in Chinese society as a necessary consequence of existential inequality, there is difficulty in reconciling this practice with the international standard on arbitration especially now that China has decided to enhance its international relations. A related disadvantage is the difficulty that the Chinese arbitration system faces in applying international standards for arbitration especially in international disputes. Chinese arbitration system insists on the application of its processes proving to result to greater dispute when the foreign party wishes to enforce different arbitration rules. China still has a long way to go in determining acceptable ways of internationalizing its arbitration system.
The primary disadvantage of Saudi Arabian arbitration system is the integration of the religious, social, political and economic areas into this dispute resolution system. This is considered as a disadvantage especially for international disputes because western practices often delineate these areas so that business dispute is separate from personal issues. Similar to the Chinese arbitration system, Saudi’s arbitration system face the disadvantage of difficulty in considering international arbitration rules. In practice, Saudi arbitration proceedings often apply Saudi rules and laws despite the existence of contractual agreements to the contrary. Saudi Arabia has to determine the effective manner of integrating its arbitration system with international standards especially since the country is seeking international investments.
Resolution of Conflicts between Chinese and Saudi Arabian Companies
Since both China and Saudi Arabia recognize international arbitration standards providing for respect of contractual agreements, then the provisions of the contract between both the Chinese and Saudi Arabian companies should be respected. If the contract provides for the application of the Chinese, Saudi Arabian or another arbitration system, then the companies that are also parties to the contract should comply with the agreement. This is true regardless of existence of an arbitration agreement prior or during the dispute.
Assuming that the parties are contemplating which arbitration system to use, the best option is to integrate the best and common arbitration rules in the two systems. The arbitration system should comply with the international rule of giving equal standing to disputing parties so the interests of both parties are respected. The arbitration system to be enforced should also follow the formalities of international arbitration of differentiating business and economic disputes from personal issues to facilitate a directed or guided dispute resolution.
Alternative Dispute Resolution Options
Alternative dispute resolution (ADR) comprise of mechanisms for the settlement of disputes outside of the courts. Alternative dispute resolution is utilized because it minimizes the time involved in the court settlement of disputes because issues can be settled in a month or several months compared to a year or years it takes to determine a case filed in court. ADR also minimizes the cost of litigation. Apart from these benefits, ADR also maximizes the control that the parties have over the settlement of the dispute by allowing them freedom to determine the limitations and the pace of the case resolution. (2005, 2000)
Apart from arbitration, there are several alternative dispute resolutions that may be utilized by disputing parties. First is mediation or conciliation. Mediation refers to the dispute resolution process where the parties call upon a mediator or conciliator to assist the parties in the settlement of their issues. This differs from arbitration because the mediator does not try to resolve the case but enhances the communication between the parties so that they can agree on ways to settle their dispute ( 1999). Mediation leaves the control over the outcome to the parties. Mediation is appropriate in cases where the parties seek to preserve their personal, business or legal relations. This system is also effective in instances where the emotions of the parties are clouding the judgment. The mediator can assist the parties by bringing the issues into focus for the parties. However, the system is effective only in case where the parties enjoy equivalent status. ( 2004, 1999, )
Second is neutral evaluation, where the parties present their case to a neutral person who then gives an objective assessment of the merits or strengths and weaknesses of the issues presented by the parties and offer recommendations for settling the dispute. The neutral party is usually expert on the issues of the dispute. Although the recommendation of the neutral party is not binding, the parties may recognize these as context for negotiating the issues ( 2003,). This ADR system is effective in disputes involving technical issues requiring expert assistance. (2004, 1999,)
Third is settlement conference that works either as mandatory or voluntary. This is done prior to the trial date with the parties together wither lawyers meeting with a judge or settlement officer to discuss the strengths and weaknesses of the case for both parties. After which, the parties decide whether to amicably settle the issue rather than commence court proceedings, especially if the latter option would result to a losing situation for the parties. (2004, 1999, )
International Arbitration Courts
In international arbitration there are two means of utilizing arbitration, these are ad hoc arbitration and institutional arbitration. Ad hoc arbitration works through the following process: 1) the parties seeking the settlement of their disputes specify the different aspects of arbitration such as a) the relevant law that supports the arbitration process, b) the rules that will govern the arbitration process, c) the methods to be employed in selecting an arbitrator or arbitrators; d) the particular language to be used in the communications as well as the place of arbitration; and e) most importantly the arbitrable issues; 2) the parties may also opt to utilize the rules of an arbitration institution even without submitting to the authority of that particular institution; and 3) the parties may consider using ad hoc arbitration in order to minimize costs, speed up the arbitration process and structure the proceedings according to the demands of their particular situation. (2002, )
Institutional arbitration refers to a mechanism where the parties identify a specific institution that will administer the arbitration process starting from the time of demand for arbitration until the award. The chosen institution may either administer arbitration according to the rules it follows or based on the rules of another institution, depending upon the exigencies of the situation. Institutional arbitration has several advantages and disadvantages to disputing parties. The advantages include; 1) the convenience of having previously established rules; 2) the availability of administrative assistance in the case of institutions with a secretariat or a court of arbitration; 3) the institution as a third party has a system of appointing an arbitrator; 4) there are also physical facilities established for arbitrators and the support services giving the process a semblance of formality; 5) generally, arbitration institutions review final awards to ensure that this meets the basic requirements for enforceability; and 6) arbitration institutions also provide objective encouragement for parties who are reluctant to proceed with the arbitration process. ( 2002,)
Institutional arbitration utilizes the venue of international arbitration courts and tribunals, one of which is the encompassing World Trade Organization rule-based Arbitration Tribunal covering a wide array of arbitration issues on trade and other commercial relations. There are differing opinions regarding the effectiveness of the dispute settlement mechanism of the World Trade Organization. Despite the fact that the system is riddled with issues, it offers a viable system of dispute resolution among trading states. The Understanding on Rules and Procedures Governing the Settlement of Disputes provides the rules and procedures for managing the different disputes arising between member states and their nationals. It was the dispute settlement understanding that created the Dispute Settlement Body (DSB) made up of all members of the WTO. The DSB facilitates the dispute settlement procedures. The dispute settlement understanding also provides for a time frame for the settlement of disputes. There is also a system for appealing the initial resolution of the case that applies a standardized interpretation of the particular clauses of multilateral state agreements. This prevents nations from delaying the dispute resolution process by merely ignoring the complaints. ( 2002,)
The aim of the strengthened dispute resolution rules and procedures is to provide “security and predictability to the multilateral trading system” contained in article 3, paragraph 2 of the Rules and Procedures Governing the Settlement of Disputes. The strict time limit provides a promising solution to the process. This gives the suggestion that a resolution to the dispute will be achieved within the period depending upon the cooperation and mutual goal for resolution of the nations involved. Dispute resolution facilitated by the WTO members themselves involves the protection of the interests of the parties in finding a mutually acceptable solution that is consistent with the agreements binding upon member states. (2004)
Arbitration has made its mark as a significant and indispensable alternative dispute resolution mechanism in domestic and international issues due to its ability to minimize cost and time spent for litigation when the conflict can be settled amicably. In domestic affairs, arbitration has long been a viable conflict resolution mechanism in ancient civilizations developing into modern nation-states, such as the present states of China and Saudi Arabia, covering various areas of family and interpersonal relations. In international relations, particularly in trade and economic disputes, arbitration is integrated into contracts as the preferred means for the settlement of disputes arising from the exercise of the rights and obligation in the agreement. Its significance determines its persistence as a dispute resolution process despite changes in the international relations of China and Saudi Arabia and the structure and nature of international trade.
The historical and religious context of China and Saudi Arabia led to the development of arbitration systems unique to their societies, constituting the primary difference between their arbitration systems. The three political thinkers Confucius, Lao Tzu and Sun Tzu influenced the principles governing Chinese arbitration while Sunni Islam serves as the foundation of arbitration rules and guidelines. However, international arbitration links these two different systems due to the recognition of both countries of international arbitration rules through their common membership of international organizations such as the United Nations and the World Trade Organization. Chinese and Saudi Arabian arbitration have both similarities and differences but one thing is clear, their respective arbitration systems are expected to persist due to the historical and self-determination foundations.