CHINA Law and Practice Contributed by: Tim Yimin Liu, Sybil Xueting Yuan and Cassie Wenjing Li, Global Law Office
13.3 Third-Party Funding China has yet to establish a unified legal framework governing third-party funding (TPF). In practice, TPF is generally regarded as a legitimate financing mecha - nism in the field of arbitration. For example, the Beijing Fourth Intermediate People’s Court’s decision in case [2022] Jing 04 Min Te No 368 marked the first judicial precedent explicitly recognis - ing the legality of third-party funding in arbitration. In recent years, platforms offering legal services akin to third-party funding have begun to emerge in China. There are rules on TPF in arbitral institutions in China. For instance, CIETAC has incorporated disclosure obligations into its arbitration rules, requiring parties to disclose any funding arrangements in order to pre - vent potential conflicts of interest. 13.4 Consolidation The PRC Arbitration Law does not explicitly provide for the consolidation of arbitral proceedings. Major arbitration institutions such as CIETAC and SHIAC have established rules for consolidation under their respective arbitration rules. For instance, under Article 19 of the current CIETAC Arbitration Rules, CIETAC may consolidate two or more arbitrations pending under these Rules into a single arbitration if: • all of the claims in the arbitrations are made under the same arbitration agreement; • the claims in the arbitrations are made under the arbitration agreements in multiple contracts that consist of a principal contract and its ancillary contract(s), or involve the same parties as well as legal relationships of the same nature, or involve related subject matters, and the arbitration agree - ments in such contracts are identical or compat - ible; or • all the parties to the arbitrations have agreed to the consolidation.
13.5 Binding of Third Parties In principle, arbitration agreements and arbitral awards are binding only upon the signatory parties. However, under specific circumstances, third parties will be bound by an arbitration agreement or award. This extension primarily applies to surviving entities following a corporate merger or division, or heirs of a deceased party. These scenarios are explicitly set out in the SPC’s Interpretation of the PRC Arbitration Law. In addition, certain arbitration rules permit the joinder of third parties into arbitration proceedings upon the consent of all parties involved. For instance, Article 41 (5) of the 2024 Arbitration Rules of the SHIAC allows for such joinder. Other common but more contentious scenarios in practice include: • assignment of claims; • subrogation by insurers; • exercise of subrogation rights by creditors; • shareholder derivative actions; and • disputes involving guarantee contracts. With respect to foreign third parties, Chinese courts may also bind them under the aforementioned condi - tions. Neither the applicable arbitration rules nor the SPC’s Interpretation of the PRC Arbitration Law dif - ferentiate between domestic and foreign third parties in this regard.
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