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Make no mistake – as lot as us would choose to believethat wonder creatures exist in this world, that's no what wefind in countless jurisdictions.

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As known to human being familiar with worldwide arbitration, theprinciple that finality is a an essential feature the arbitration inmany jurisdictions. That essentially way that arbitral awardscannot be tested or appealed ~ above the merits. In various other words,they space binding. However, there is this "fantasticbeast" called "non-binding arbitration" that isoccasionally viewed in advertising contracts and agreements, althoughits legality has actually not been well-known in the English or the Chinesedomain.

According come the referee of the English court in IS PrimeLtd v TF global Markets (UK) Ltd & Ors <2020> EWHC 3375(Comm) (9 December 2020):


It is a necessary requirement, prior to an agreement betweencommercial parties relating come disputes between them as regardstheir rights and liabilities inter se can be anarbitration commitment within the definition of s.6(1)of the Arbitration action 1996, the it administer for them to submitthose problems to be identified by an individual or panel ofindividuals, by whose decision and consequent award the partieswill, by their agreement, it is in bound. (Emphasisadded.)


In mainland China, article 9 the the Arbitration law provides,inter alia, as follows:


The arbitration compensation isfinal. ~ the award is given, the arbitrationcommission or the people's court shall no accept there-application of the suit concerning the same dispute byany that the next concerned. (Translated and emphasisadded.)


Having stated that, this fantastic beast seems to exist in theUnited States. Because that instance, at ar 1011(1) under title V(Judicial Branch) chapter 44 (Mediation options to JudicialAction) the the 2020 Florida law in the unified States, itprovides as follows:


"Arbitration" method a processwhereby a neutral 3rd person or panel, called an arbitrator orarbitration panel, considers the facts and arguments gift bythe parties and renders a decision which may be binding ornonbinding as provided in this chapter. (Emphasisadded.)


Why need to I Care?

Although rarely seen, "non-binding arbitration" doesexist in contracts and agreements. So, what wake up if youragreement provides, specifically or impliedly, because that non-bindingarbitration?

There are two recent court judgments calculation in 2020—onefrom one English court, the other from a mainland Chinesecourt—that wrestled with this wonderful beast and also led to twodifferent results. The English court proceedings were permitted tocontinue (i.e., arbitration to be terminated), whereas the Chinesecourt proceedings were continued to be (i.e., the next proceeded toarbitration).

The English Court Judgment

In the judgment in IS prime Ltd v TF worldwide Markets (UK) Ltd& Ors <2020> EWHC 3375 (Comm) (9 December 2020), the courtexamined a clause that provided, inter alia, that disputes"shall very first be submitted to non-bindingarbitration" in Palm coast County, Florida, under and inaccordance with the advertising Arbitration rules of the AmericanArbitration association (AAA).

In essence, the English court organized that a "non-bindingarbitration" does no amount come arbitration, becausearbitration contemplates that the parties room bound by an arbitralaward. As a result, the recurring English court proceedings werepermitted to continue.

Note, the referee did contemplate the provision that thenon-binding arbitration to be to take ar in Palm beach County,Florida, a U.S. State that does administer that arbitration might be"binding or nonbinding" (see the 2012 Floridastatute cited above). However, the court proclaimed that it to be a"distraction" because that the adhering to reason:


detailed for entry to "non-bindingarbitration" under and in accordance with the AAA Rules. TheAAA Rules carry out not provide for non-binding arbitration (in surname orsubstance). They are rules designed and drafted for use pursuant towhat on any kind of view would certainly be one arbitration commitment within s.6(1) ofthe Arbitration plot 1996, specific an agreement that cases orcontroversies be established by an arbitrator or panel ofarbitrators, binding the next to the result expressed in anarbitration award


Accordingly, it would certainly be interesting to view whether the court inthe future would certainly give result to the parties' refer provisionfor "non-binding arbitration" per se(i.e., through no referral to details arbitration rules).

The Mainland Chinese Court Judgment

In the referee rendered in By.O v Yushang GroupCo., Ltd., (2020) Shanghai 0115 Minchu No. 34710 (10 July2020), the Court of first Instance check a clause that provided,inter alia, together follows:


Any dispute or disputes arising from or regarded thisagreement (including disputes around the existence, validity ortermination of the agreed regards to this agreement, or theconsequences that invalidity) shall very first be resolved througharbitration through the Singapore global ArbitrationCentre.


If the 2 parties cannot with an commitment on the arbitrationresult the the Singapore worldwide Arbitration Center, eitherparty has actually the ideal to send the dispute to a advertising courtwith jurisdiction in the ar where Party A is domiciled forsettlement through litigation. 1


The Court of first Instance chose that (1) the firstsentence above amounted to a precious arbitration clause,(2) although the second sentence above did not expresslyprovide for non-binding arbitration, it was contrary to write-up 9of the Arbitration law (quoted above), which offers that anarbitration compensation is final and there shall be no re-application ofthe suit, and also (3) the second sentence must not it is in giveneffect. The an outcome was that the recurring Chinese court proceedingswere stayed, and the plaintiff appealed.

Upon appeal, the court above, in its judgment handed under inOctober 2020, 2 rejected the debate that the twosentences amounted to "arbitration or litigation," aconcept banned under mainland Chinese law, and also affirmed thedecision of the Court of an initial Instance.

What should I Do?

If you space fortunate—or unfortunate—enough to catchsight that this terrific beast in your contracts and agreements, itwould it is in prudent to take it the adhering to actions: 

Ascertain the parties' intention by interpreting theexpress language used by the parties (i.e., check out whether the partiesexpressly or impliedly provide for non-binding arbitration).Consider the jurisdiction (i.e., take into consideration the applicable regulation inEngland and Wales, mainland China, the unified States, or otherrelevant nations, and study the courts in the relevantjurisdictions managing the dispute), i beg your pardon may have actually an affect onthe outcome, as portrayed above.

In short, if you great to specify non-binding arbitration inmainland China, or the English jurisdictions, or otherjurisdictions such as Hong Kong, where the legal mechanism findsEnglish law extremely persuasive, you must think twice.

Footnotes

1 In thiscase, the "commercial court v jurisdiction in the placewhere Party A is domiciled for negotiation by litigation"is mainland China.

2 CaseNo.: (2020) Shanghai 01 Civil management Final No.780.

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The contents of this article is to plan to administer a generalguide to the topic matter. Professional advice should be soughtabout your specific circumstances.