The Beijing/Guangdong CIETAC dispute is rearing its head again, as in a recent notification (“Notification”), the Department of Justice of Guangdong Province mandated that the re-organized South China Branch of China International Economic and Trade Arbitration Commission (“Guangdong CIETAC”) immediately cease its “illegal” arbitration activities. The Notification states that the re-organized Guangdong CIETAC has been conducting “illegal” arbitration activities without registration and under a name identical to that of an existing arbitration institution (see this Chinese-language article in The Paper).
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In a reply letter, China International Economic and Trade Association (“CIETAC”), which is the Beijing Head Office of the re-organized Guangdong CIETAC, characterises the Notification as “incorrect, groundless and mistaken”, and requests the Department of Justice of Guangdong Province to immediately withdraw it (Chinese-language letter available online).
According to CIETAC, in 2011, the original Guangdong CIETAC separated from CIETAC and registered as a new arbitration institution under the name of Shenzhen Court of International Arbitration (SCIA). In 2012, it changed its name to South China International Economic and Trade Arbitration Commission ( SCIETAC) but has continuously used the name “Shenzhen Court of International Arbitration”. In response to the spin-off, in 2014 CIETAC “re-organized” its South China Branch, being the re-organized Guangdong CIETAC that has been allegedly conducting illegal arbitration activities according to the Notification (see above).
According to an opinion issued by the Supreme People’s Court in 2015, where the Guangdong CIETAC was designated as the arbitration entity, the original Guangdong CIETAC (ie, SCIA) may continue to arbitrate in cases if the designation took place before it changed its name to SCIA (Chinese-language communication available online). For cases where the designation took place on or subsequent to the day of name change, the re-organized Guangdong CIETAC will arbitrate. Referring to this opinion, CIETAC claims that the original Guangdong CIETAC is a different entity from the re-organized Guangdong CIETAC and has no capacity to continue to act under the name thereof. Further, CIETAC suggests that the re-organized Guangdong CIETAC, as a branch of a pre-existing arbitration institution, does not have to register with the Department of Justice of Guangdong Province.
It remains to be seen how the Department of Justice of Guangdong Province is going to react to CIETAC’s letter and whether the re-organized Guangdong CIETAC will be “illegalized”. However, the reality is that currently there are two arbitration institutions in the city of Shenzhen in Guangdong province.
The Chinese law provides that, where an arbitration agreement only identifies the designated arbitration entity by location and where there exists more than one arbitration institutions in said location, the arbitration agreement will be deemed to be invalid insofar as the parties to the agreement are unable to agree on which institution is designated (details online). As such, if the re-organized or the original Guangdong CIETAC is to be designated, it would be prudent to specify in the arbitration agreement the specific name of the designated entity to avoid the agreement being invalidated.
Going forward, to avoid the uncertainty of any issues with the various arbitration entities in Southern China, it may be prudent for foreign entities to simply designate Beijing’s CIETAC entity as the arbiter in licensing contracts.