China Pushes for Increase in Online Dispute Resolution as It Reboots Economy

As China slowly sends people back to work in an effort to reboot its economy, the government is advising dispute resolution organizations across the country to bolster their online dispute resolution efforts as it anticipates an increase in domestic disputes emerging from the coronavirus pandemic.

The Ministry of Justice issued a guideline on March 3 calling for the accelerated development of China’s “internet arbitration systems.” The guideline emphasizes the importance of online dispute resolution, or ODR, for achieving its goal of getting the economy back on track while still maintaining control over the spread of COVID-19.

China’s economy ground to a halt beginning in January as the world watched the coronavirus outbreak spread from Wuhan to other parts of the country. But now the tables have turned, and China is looking to revitalize its economy just as other countries across the globe are all but shutting down and imposing tight restrictions on their people. China has seen more than 80,000 confirmed cases, but the number of new cases has dropped significantly in recent days, with no new local infections reported Wednesday for the first time since the coronavirus crisis began. Still, there is a fear that the numbers could rise again as people return to work.

Most Chinese residents, including judges, lawyers and business parties, have been confined to their homes since the outbreak began in January. The newly issued guideline calls on dispute resolution organizations to bolster their online capabilities, including their online case management systems and interface.

The move is part of China’s broader promotion of alternative dispute resolution. The Ministry of Justice has issued several directives in recent weeks encouraging the use of arbitration and mediation to resolve disputes caused by COVID-19 and the stringent government restrictions on the movement of people that resulted.

“Arbitral awards must be quickly handed out as they may facilitate the resumption of work,” the guideline says. “Arbitral proceedings may only be postponed if they cannot be conducted online and delaying them will not affect resumption of work for any of the parties involved.”

In the past, online dispute resolution in China was primarily used for resolving internet-related disputes such as e-commerce and domain name disputes. However, the guidelines instruct arbitration institutions to expand its use to include disputes expected from work resumption after an extended break, including debt issues, labor disputes and work injury compensation. Institutions should even defer payment for their services if the businesses are facing financial difficulty as a result of the pandemic, the government has said.

“The Chinese government certainly wants to see more ODR now,” said Ronald Sum, a Hong Kong-based dispute resolution partner at Addleshaw Goddard. “But its support for ODR precedes the current crisis.”

In early December, China’s Supreme Court issued a white paper outlining the government’s strategy to develop the “internet judiciary.” It included measures to improve the court’s online mediation platform, which has resolved over one million disputes since launching in 2016. In the last three years, China has set up “internet courts” with the capability to handle entire proceedings online in the major cities of Hangzhou, Beijing and Guangzhou.

“The overall trend is towards increasing digitization of the entire judicial system,” Sum said.

Dispute resolution in China has reaped the rewards of this growing digitization amid the outbreak. China’s biggest arbitration institution, the China International Economic and Trade Arbitration Commission, has conducted video conference hearings for the first time, including for an arbitration originally slated to be held in Wuhan, the city at the center of the outbreak.

In February, the Shanghai Maritime Court granted interim relief in support of a shipping arbitration—the entire process done online. Meanwhile, the China Council for the Promotion of International Trade, a semi-governmental body, has resolved contractual disputes through its online mediation platform in addition to issuing force majeure certificates to Chinese businesses.

Hong Kong, considered a major world financial hub, has experienced similar disruption to its dispute resolution system. Many arbitrations in Hong Kong, a popular seat for cross-border commercial arbitrations, have been suspended as courts and arbitral institutions have closed due to COVID-19. However, not many of the arbitrations there have moved online, Sum said, partly due to international arbitrators’ preference for in-person hearings.

“Many international arbitrators like to be able to read witnesses in person. With ODR, arbitrators cannot read witnesses’ twitches and mannerisms, which help them get a sense of whether a witness is reliable.”

There are also concerns about internet issues when a Chinese party is involved because of China’s internet censorship. This is especially problematic for cross-border disputes, as they typically involve more co-arbitrators and witnesses in multiple jurisdictions, Sum added.

“Discovery of documents and the exchange of expert statements can be easily done online, but conducting arbitration hearings online would be a very substantial change under common law procedures,” said Edward Liu, a Hong Kong-based legal director at Hill Dickinson and an arbitrator at the Hong Kong International Arbitration Centre. Cross-border arbitrations under Hong Kong’s common law system involve more cross-examination of witnesses, whereas mainland China’s civil law system sees arbitrators themselves driving proceedings.

“As there is less cross-examination, it is much easier for domestic disputes administered by Chinese arbitral institutions to conduct online hearings [than cross-border disputes in Hong Kong],” Liu explained.

Nevertheless, Hong Kong is also developing its online dispute resolution capabilities. Later this year, the city will launch its first online dispute resolution platform, eBRAM. The platform will employ blockchain and artificial intelligence technology and is designed to address concerns among practitioners about the feasibility of replicating entire dispute resolution proceedings online.

“The challenges of the outbreak have called for imagination to identify ways to safeguard clients’ interests,” said Janie Wong, a Hong Kong-based legal director at Addleshaw Goddard.

Wong cited recent examples of Hong Kong courts modifying procedures to accommodate parties during this critical period—for instance allowing the first telephone hearing and another case where a plaintiff was permitted to serve proceedings on defendants through Facebook.

“Parties, tribunals and the courts are more willing than ever to rely on technology to resolve disputes in Hong Kong,” she said.

Sum, former chairman of the International Chamber of Commerce Hong Kong Arbitration and Alternative Dispute Resolution subcommittee, believes that the outbreak has improved both practitioners’ and businesses’ attitudes towards online dispute resolution. He expects Chinese parties’ demand for online dispute resolution services to increase moving forward.

“The pandemic has changed people’s thinking generally on what work can be done remotely—dispute resolution is no exception,” he said.

Several Hong Kong arbitral institutions already have specific rules for online arbitrations, including the HKIAC and the ICC. Numerous mainland Chinese institutions also have such rules, including CIETAC, but questions remain as to whether they will gain traction internationally as foreign parties might not want their disputes resolved in China.

“Domestic acceptance [in China] of ODR is higher than it is internationally,” Sum said. “You see this reflected in Chinese society broadly, where people are very receptive to technological changes—for example in e-payments and e-commerce. Therefore, although ODR is developing fast in China, the systems are being designed to fit domestic disputes rather than cross-border disputes.”

Vincent Mu, a Shanghai-based partner at Llinks Law Offices and an arbitrator at the Shanghai International Arbitration Centre and the HKIAC, also expects to see more online dispute resolution developments in China. However, he is unsure whether it is wise to move entire proceedings online.

“Hearings are about communicating with the judges, the arbitrators and other participants of the proceedings,” he said. “Where an important case is concerned, I would always prefer to plea the case in a face-to-face manner.”