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POLICY EXPLANATION: A Civil War of Arbitration Institutions in China
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Background

Established in 1956, the China International Economic and Trade Arbitration Commission (CIETAC) is the most renowned and long standing arbitration institution in China for arbitrations with an international element, which handled 1060 cases in 2012. CIETAC, headquartered in Beijing ("CIETAC Beijing"), has four Sub-Commissions across China. In addition to the Shanghai and South China Sub-Commission which is based in Shenzhen ("CIETAC Shanghai" and "CIETAC Shenzhen"), it also has offices in Chongqing and Tianjin.


In early 2012, CIETAC amended its arbitration rules which came into effect on 1 May 2012. On the same day, CIETAC's Shanghai Sub-Commission announced independence from CIETAC Beijing, declaring itself an independent arbitral institution. In the same period, CIETAC's Shenzhen (also known as the South China Sub-Commission) also declared its independence.


A fierce rhetoric war then started between CIETAC Beijing and its two Sub-Commissions, i.e. CIETAC Shanghai and CIETAC Shenzhen and news releases followed during which each organisation claimed the legitimacy of its actions and in the meantime accused the illegality of the others.


The dispute which astounded the legal community was prompted by changes to CIETAC's Arbitration Rules. Under CIETAC's amended 2012 Arbitration Rules, absent specific nomination by the parties of a named Sub-Commission in their arbitration agreement, all cases submitted to CIETAC should be administered in Beijing. Thus “CIETAC” as such when used without specifying any Sub-Commission that appears in any dispute resolution clause of any commercial contract refers only to “CIETAC Beijing” and excludes all other Sub-commissions. This is a major departure from previous versions of the CIETAC Arbitration Rules and past practices, which allowed cases to be allocated by taking into account of regional connection, party convenience, or cost. In its previous version of the Arbitration Rules, effective as of 2005, Sub-Commissions were described as an integral part of CIETAC with the power to administer cases independently.


For example, under the CIETAC 2012 Arbitration Rules, if an arbitration agreement simply designates CIETAC as the arbitration body and in the meantime requires that the hearing shall take place in Shanghai, the past practice was that the CIETAC Shanghai Sub-Commission would administer the case. However, the amended 2012 Arbitration Rules now suggest that such an arbitration agreement would require the case to be administered by CIETAC Beijing, with the hearing held in Shanghai. The same applies to Shenzhen, Chongqing and Tianjin Sub-Commissions. This new amendment certainly diverted many cases towards CIETAC Beijing that would otherwise have been administered by other Sub-Commissions under the 2005 Arbitration Rules.


To date, the Tianjin and Chongqing Sub-Commissions of CIETAC have not taken any action or made any statements similar to those of the former CIETAC Shanghai and Shenzhen Sub-Commissions.


The subsequent high-profile open dispute between CIETAC Beijing and CIETAC Shanghai and CIETAC Shenzhen highlights the fact that each of the three is financially independent, although the latter two have traditionally been addressed as Sub-Commissions of CIETAC Beijing. Over the years, as the amount of cases substantially increases, they have all become a growing source of revenues for local governments. Unlike the court system, there does not exist a substantive hierarchy with a uniform administration within the CIETAC arbitration system. Moreover, CIETAC remains a semi-government organization with major officials to be appointed by local governments rather than by CIETAC Beijing, in spite of being the headquarters. 


The key issue at play is that Shanghai and Shenzhen objected to the centralising effect of the amended 2012 Arbitration Rules simply because that would take away the revenue as a result which otherwise would have been theirs. In addition, many arbitration agreements in practice simply refer to CIETAC and do not specifically provide for arbitrations to be administered expressly by either Sub-Commission.

 

Impact of the Dispute


On October 22, 2012, CIETAC Shenzhen changed its name to the South China International Economic and Trade Arbitration Commission, or SCIETAC, with its own set of arbitration rules that became effective on December 1, 2012. In the meantime, SCIETAC also adopted a second official name: the Shenzhen Court of International Arbitration (“SCIA”), which has a more modern flavour. Then on April 18, 2013, CIETAC Shanghai also changed its name to the Shanghai International Arbitration Centre (“SHIAC”), with its own set of arbitration rules that went into effect on May 1. Similarly, SHIAC does not intend to give up its former name completely as it has gained good reputation over the past decades so it slightly changed its former name and now also keeps a second name, which is: Shanghai International Economic and Trade Arbitration Commission (SIETAC). Meanwhile, CIETAC Beijing opened up new offices in Shanghai and Shenzhen.


It has been confusing for those who have been watching the development of the turf war amongst the three institutions that gave rise to widespread concerns about the legal status of arbitration agreements and awards rendered where CIETAC Shanghai or Shenzhen are selected in the arbitration clause.


It was recently reported that a court in Ningbo, Zhejiang Province, has just affirmed the legality of an award rendered by CIETAC Shanghai and threw out an application by the opposing party for setting aside the same award on the basis of the recent development and change of names. Nonetheless, another court in Suzhou has recently delivered an exactly opposite ruling in relation to another enforcement case whereby the court refused to enforce a CIETAC Shanghai arbitration award because the court takes the view that the tribunal failed to inform the parties of the change in the Shanghai Sub-Commission’s status which is in breach of the principle of party autonomy. The decision adds further uncertainty to the enforceability of awards rendered by the former Sub-Commissions of CIETAC.

 

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Conclusion


In light of these recent developments, parties of a commercial dispute wishing to arbitrate in CIETAC should make sure that the arbitration clause specifically provide that the arbitration be administered by CIETAC Beijing according to its 2012 rules notwithstanding that hearings may be located in Shanghai or Shenzhen so as to avoid any unnecessary confusion and potential challenges with regard to the validity of awards. If they wish to arbitrate before SCIA or SHIAC, then they should take care to identify the correct arbitration commission as both of these commissions are not part of CIETAC anymore. In an event whereby the arbitration clause is vague under Chinese law, Article 18 of the PRC Arbitration Law states that an arbitration agreement shall be null and void if it “contains no or unclear provisions concerning the matters for arbitration or the arbitration commission.”

It remains uncertain whether any Chinese courts would hesitate to enforce an award from any of these institutions. In particular it will be intriguing to see whether awards from SCIETAC and SHIAC will be enforced anywhere outside Shenzhen and Shanghai.

Parties should also be aware that apart from SHIAC, there is a new CIETAC Sub-Commission in Shanghai and the existing Shanghai Arbitration Commission. The same applies to Shenzhen. This can cause confusion since the parties of a commercial dispute need to identify expressly the correct institution. Therefore, the parties must clearly agree on the selection of a particular institution of the one of the three. Otherwise the parties run the risk of having the arbitration agreement being found invalid. 
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