China: Arbitral Institutions At War - Beijing v Shanghai And Shenzhen

Background

On 1 August 2012, the China International Economic and Trade Arbitration Commission ("CIETAC") issued an Announcement ("CIETAC Announcement") to the effect that CIETAC's authorisation to the CIETAC Shanghai and CIETAC South China Sub-Commissions for accepting and administering arbitration was to be suspended with immediate effect. The CIETAC Announcement further stated that, as of 1 August 2012, if parties have agreed to refer their disputes to CIETAC Shanghai or CIETAC South China, the parties shall submit their applications for arbitration to CIETAC and the Secretariat of CIETAC shall accept such arbitration applications and administer such cases as appropriate.

In response to the CIETAC Announcement, CIETAC Shanghai and CIETAC South China issued a Joint Statement on 4 August 2012 reiterating that CIETAC Shanghai and CIETAC South China are independent arbitration institutions established following the approvals of local governments and that their powers to administrate arbitrations are derived from parties' agreement rather than authorisation from any other institution. CIETAC Shanghai and CIETAC South China maintain that the CIETAC Announcement has no binding effect on them.

On 28 August 2012, CIETAC Shanghai and CIETAC South China further issued a Joint Announcement reiterating their respective independent status. On 30 August 2012, the Joint Announcement was published on the front page of Legal Daily, a newspaper published by the Chinese Ministry of Justice.

For potential users of the CIETAC arbitration regime, the most critical consideration now is how to manage this state of legal uncertainty whilst ensuring that the arbitral process and any arbitral award rendered in due course are both valid and enforceable.

Before providing some recommendations on the way forward, it is appropriate to look back briefly at the events leading to this conflict within CIETAC.

A Brief History of the Conflict

The conflict was triggered by the introduction of the CIETAC Arbitration Rules 2012 (the "2012 Rules"), which came into force on 1 May 2012.

The predecessor to the 2012 Rules was the CIETAC Arbitration Rules 2005 (the "2005 Rules"). The disputes date back to 2009 when CIETAC set out to draft the 2012 Rules and its Charter, with an attempt to centralise the administration of all CIETAC arbitrations. Article 2.6 of the 2012 Rules provides, inter alia, that:-

Where the sub-commission/centre agreed upon by the parties does not exist, or where the agreement is ambiguous, the Secretariat of CIETAC shall accept the arbitration application and administer the case. In the event of any dispute, a decision shall be made by CIETAC.

Whilst under the 2005 Rules, the model arbitration clause reads as follows:-

Any dispute arising from or in connection with this Contract shall be submitted to China International Economic and Trade Arbitration Commission for arbitration which shall be conducted in accordance with the Commission's arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.

It was a common practice that parties had the right to choose between CIETAC (located in Beijing), CIETAC Shanghai or CIETAC South China (located in Shenzhen) and the parties' first choice was generally respected. In accordance with the 2012 Rules, arbitration agreements between parties adopting the 2005 model clause may be interpreted as ambiguous and subject to the administration of CIETAC. Since the model clause under the 2005 Rules was widely used in practice, the 2012 Rules could potentially cause CIETAC Shanghai and CIETAC South China to lose a substantial number of cases.

Article 47.4 of the 2012 Rules further provides that the seal of CIETAC shall be affixed on an arbitral award before issuance. Prior to this, the seals of CIETAC Shanghai or CIETAC South China were sufficient for them to issue arbitral awards. The new provision effectively removes the powers of CIETAC Shanghai and CIETAC South China to issue an arbitral award in their own names.

On 30 April 2012, CIETAC Shanghai issued an Announcement stating that it was set up by the Shanghai Sub-Council of the China Council for Promotion of International Trade (the "CCPIT") on 27 December 1987 with the prior approval of the Shanghai Municipal People's Government on 25 April 1987. CIETAC Shanghai states in the Announcement that it is an independent non-governmental arbitration institution with independent jurisdiction and powers. In line with that, CIETAC Shanghai publishes its own set of rules called CIETAC Shanghai Rules and maintains its own list of arbitrators.

In May 2012, CIETAC confirmed that CIETAC Shanghai, being a branch of CIETAC, has no power to pass its own arbitration rules and publish its own list of arbitrators. In turn, CIETAC Shanghai continues to operate as an arbitration institution in its own right and argues that the passing of the 2012 Rules has breached due process and was financially motivated, both of which CIETAC denies.

On 16 June 2012, the Shenzhen Court of International Arbitration ("SCIA") was established in Shenzhen following the approval from Shenzhen Municipal Government. The SCIA and CIETAC South China are managed by essentially the same group of staff members.

Recommendations

It appears that the impasse will not be broken until and unless a higher authority intervenes or, for that matter, mediates a resolution of the conflict.

Since the conflict between CIETAC, CIETAC Shanghai, and CIETAC South China involves the CCPIT (which is under the supervision of the Chinese Ministry of Commerce), the Shanghai Municipal Government and the Shenzhen Municipal Government, the appropriate superior authority to arbitrate the conflict could be the State Council of the People's Republic of China. There is no indication as to when this conflict would be resolved.

Pending the final resolution of the ongoing disputes and uncertainty, our suggestions under such circumstances are:-

  • Where the arbitration clause has not been agreed upon:- parties can still agree on CIETAC arbitration if the preferred place of arbitration is Beijing; or
  • parties should avoid arbitrations under the auspices of CIETAC Shanghai or CIETAC South China but could provide for CIETAC arbitration however with seats in Shanghai or Shenzhen, as necessary
  • Where there is already a CIETAC arbitration clause in place and:- there is no mention of the place of arbitration or the place of arbitration is Beijing, parties can submit the arbitration to CIETAC; or
  • arbitration under the auspices of CIETAC Shanghai or CIETAC South China has been agreed, parties are strongly advised to seek further legal advice before proceeding with the arbitration.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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