Intermediate Court Set Aside Defense Mechanics under Chinese Law
Intermediate court set aside defenses require strict enforcement of arbitral waiver rules and immediate parallel asset preservation in enforcement courts.
Tribunal Formation Defects
Meaning
Irregularities in the selection or appointment of arbitrators constitute a violation of the agreed procedure and provide a legal basis for challenging the validity of the award. Tribunal formation defects occur when the composition of the panel does not match the rules set out in the arbitration agreement or the institutional guidelines. This can include the appointment of an arbitrator who lacks the required qualifications or the failure to follow the specified method for choosing the presiding member.
Such defects are considered a serious breach of the parties’ right to a fair and neutral hearing. Under the Chinese Arbitration Law, a proven defect in the formation of the tribunal is a mandatory ground for setting aside an award or refusing its enforcement. It is one of the most common reasons for judicial intervention in the arbitration process.
Appointment Breach
The most frequent type of tribunal formation defects involves a failure to comply with the specific selection steps defined by the parties. If an agreement states that each party shall appoint one arbitrator and the two shall then select a third, any deviation from this sequence is a breach of the procedure. For example, if the arbitration institution appoints the third arbitrator without consulting the two already chosen, the resulting panel is improperly formed.
This rule also applies to the use of a list system where parties must rank candidates from a specific pool. If the institution ignores the rankings or appoints someone not on the list, the integrity of the process is compromised. The courts strictly enforce these procedural rules to ensure that the will of the parties is respected.
Even a minor technical error in the appointment process can be enough to invalidate the entire proceeding. Parties must be vigilant from the very first stage of the case to ensure that every appointment follows the letter of the agreement.
Procedural Challenge
A party who identifies tribunal formation defects must raise a formal objection at the earliest possible stage of the arbitration. If a party participates in the hearings without objecting to the composition of the panel, they may be deemed to have waived their right to challenge the award later. This principle of good faith prevents a litigant from waiting for the final result before raising a procedural issue as a way to escape an unfavorable ruling.
The objection should be submitted in writing to the arbitration commission or the tribunal itself as soon as the defect is discovered. The institution will then review the challenge and determine whether the appointment needs to be corrected. If the commission rejects the objection, the party must preserve its position by making a clear statement on the record.
This record will be the primary evidence used in any future court proceedings to set aside the award. Judicial review is generally limited to checking whether the party followed the correct process for raising the objection.
Award Nullification
The final consequence of tribunal formation defects is the complete nullification of the arbitral award by a People’s Court. When a court finds that the panel was not constituted according to the law or the agreement, it has no choice but to vacate the ruling. The court does not look at whether the defect actually influenced the outcome of the case or if the arbitrators were biased.
The mere existence of the procedural error is sufficient to render the award void. This strict approach is intended to maintain the high standards of the arbitration system and protect the rights of the participants. Once an award is nullified, the entire dispute must be re-arbitrated before a new and correctly formed tribunal, or it can be taken to court if the parties agree.
This leads to a significant waste of time and money for everyone involved. Preventing these defects through careful contract drafting and diligent management is the only way to ensure a final and binding resolution. The authority of the tribunal depends on the legality of its creation.