Beijing vs. Shanghai: CIETAC Arbitration-Dispute settled?

The China International Economic and Trade Arbitration Commission (CIETAC) located in Beijing appears to be the leading officially registered arbitral institution in China dealing with domestic as well as international arbitration proceedings. According to Chinese law, domestic arbitral awards are only recognized if the arbitration proceedings are administered through an officially recognized arbitral institution. Until 2012, the subcommissions of CIETAC in Shanghai, Shenzhen, Tianjin and Chongqing also benefitted from CIETAC’s official recognition.

The entering into force of the revised CIETAC Arbitration Rules on 1 May 2012 (please find more information on the respective revisions of the CIETAC Arbitration Rules in 2012 and 2015 in the News Section of our homepage) however led to a dispute between the CIETAC headquarters in Beijing and its subcommissions in Shanghai and Shenzhen. CIETAC suspended the subcommissions’ authority and declared that they were no longer entitled to accept and administer arbitration proceedings. As a consequence, the subcommissions in Shanghai and Shenzhen declared their independence in January 2013. For this purpose, they established their own arbitral rules and drafted their own model arbitration clause. In addition, the two former CIETAC subcommissions changed their names to Shanghai International Arbitration Centre (SHIAC; also known as Shanghai International and Economic Trade Arbitration Commission) and Shenzhen Court of International Arbitration (SCIA) respectively.

As a result of the withdrawal of authority by CIETAC, uncertainty arose as to the jurisdiction as well as the recognizability of arbitral awards rendered in proceedings administered by the SHIAC and the SCIA. Jurisprudence, inter alia by the Intermediate People’s Court of Suzhou led to even greater uncertainty in that regard. The court in Suzhou denied recognition and enforcement of an arbitral award that was rendered as part of arbitration proceedings administered by the SHIAC on the basis of an assumed lack of jurisdiction by the SHIAC arbitral tribunal. On 4 September 2013, the Supreme People’s Court issued a Notice to the lower instance-courts setting rules for interpretation and resolution of such jurisdictional disputes. According to this Notice, in order to settle a dispute in respect of the jurisdiction of CIETAC or the former subcommissions respectively and to achieve uniform case law in that respect, such disputes arising from ‘old clauses’ where competence was granted to one of the former subcommissions of CIETAC, were to be reported to the Supreme People’s Court where the dispute affected the validity of the arbitration agreement, the setting aside or the enforcement of arbitral awards.

Two recent decisions of 31 December 2014 and 6 January 2015 of Chinese Intermediate People’s Courts now may contribute to the resolution of this issue of competence:

• Firstly, the No. 2 Intermediate People’s Court of Shanghai Municipality ruled on 31 December 2014 („(2012) Hu Er Zhong Min Ren (Zhong Xie) Zi Di 5 Hao“) that the Shanghai International Arbitration Center (SHIAC) is an effectively founded independent arbitral institution that was approved by the responsible administrative authorities (Bureau of Justice of Shanghai Municipality as well as Shanghai Municipal Government und Shanghai Commission for Public Sector Reform). As an authorized institution, SHIAC is considered to be the competent institution to administer arbitration proceedings on the ground of respective arbitration clauses. The basis of this specific case was an old arbitration clause providing for the ‘CIETAC Shanghai Subcommission’ to be the relevant arbitration institution as to all disputes arising out of the contract. Though actions were initially brought to CIETAC, the No. 2 Intermediate People’s Court of Shanghai Municipality confirmed the SHIAC to be competent institution while establishing a lack of jurisdiction of a CIETAC arbitral tribunal.

• Within the scope of a second dispute – now handled by the Intermediate People’s Court of Shenzhen – this court also denied jurisdiction of a CIETAC tribunal in its judgment of 06 January 2015 („(2013) Shen Zhong Fa She Wai Zhong Zi Di 133 Hao“) and confirmed competence of the former subcommission of CIETAC in Shenzhen, now the Shenzhen Court of International Arbitration (SCIA). According to the court’s ruling, the SCIA’s registration at the Guangdong Bureau of Justice resulted in the foundation of a lawful subcommission. This case was based on an arbitration clause according to which an arbitration was to be brought to the ‘CIETAC South China Subcommission’.

These recent decisions led to at least a bit more certainty as regards the fate of arbitration clauses which were agreed upon prior to the independence of the Shanghai International Arbitration Center and the Shenzhen Court of International Arbitration, and which still refer to the former CIETAC subcommissions. Unlike assumed initially, these recent decisions by the courts of Shenzhen and Shanghai give rise to the assumption that such arbitration clauses do not have to be considered as per se invalid. In fact, the SCIA and the SHIAC respectively apparently remain – under their new names – competent as to domestic and international arbitrations. Ultimately, however, it remains to be seen how other Chinese courts will deal with these jurisdictional conflicts. This should as well be of particular importance with respect to the enforcement of SHIAC and SCIA arbitral awards in the international context.

If you are interested in further exploring domestic and international arbitration – also with regard to China – please do not hesitate to contact us!