Ever since May 2012, the legal circle in China has been witnessing a “War of the Titans” between the various Chinese arbitration commissions conducting international arbitrations, namely the China International Economic and Trade Arbitration Commission headquartered in Beijing (CIETAC Beijing) against its sub-commissions seated in Shanghai (CIETAC Shanghai) and Shenzhen (CIETAC Shenzhen).
The dispute caused quite some chaos as it relates closely to jurisdictions of the various arbitration institutions which created considerable hurdles for dispute resolution cases involving clauses referring to CIETAC arbitration. The war appeared to cool down at the end of 2014 when CIETAC Shanghai and CIETAC Shenzhen published on their websites certain court rulings in their favor while on the other hand CIETAC Beijing also stressed on its website its exclusive position to handle cases referring to CIETAC arbitration.
The situation is not only touching the nerve of the legal circle, but also created a lot of confusion and obstacles for the business community when solving their disputes. How did this blurry story arise and where will this end?
Start of the quarrel
In the early 1990s, in order to promote the development of the Chinese arbitration practice, CIETAC Shanghai and CIETAC Shenzhen were established with the respective local governments acting as their sponsors although all of them including CIETAC Beijing used the name of CIETAC.
At the very beginning, they cooperated with each other and witnessed the rapid development of arbitration cases settled under the roof of CIETAC, in particular those related to foreign matters.
The peace broke in 2012 when CIETAC Beijing tried to strengthen its authority by publishing the 2012 CIETAC Arbitration Rules, which prevent CIETAC Shanghai and CIETAC Shenzhen from accepting cases where the arbitration clause does not explicitly mention the name of CIETAC Shanghai (or CIETAC Shenzhen) but only generally mentions arbitration with CIETAC −even if the venue of arbitration is clearly stated to be Shanghai or Shenzhen. Such an attempt aroused strong reaction from CIETAC Shanghai and CIETAC Shenzhen, both of which quickly proclaimed their independence from CIETAC Beijing and adopted their own arbitration rules.
They also presented their new name in addition to existing ones, namely Shanghai International Arbitration Center (SHIAC) and Shenzhen Court of International Arbitration (SCIA). As a countermeasure, CIETAC Beijing opened up its own branch offices in Shanghai and Shenzhen to accept CIETAC arbitration cases in these two locations. Facing the rhetoric debate among the different CIETACs, parties to an arbitration case got completely lost since they do not know who (e.g. SHIAC or the new Shanghai branch office of CIETAC Beijing) is legally competent to hear their cases.
The impact on judicial practice
Irrespective of all the controversies between the CIETACs, the attitude of the Chinese courts became critical as they are in charge of final enforcement of an arbitration award.
In this respect, quite some chaos was seen at the very beginning. Some cases were enforced, e.g. in July 2013 the Taizhou Intermediate Court of Zhejiang Province enforced an arbitration award rendered by SHIAC where the parties agreed to submit the dispute to “CIETAC Shanghai”. Also in the same year in Ningbo and Suzhou, the local intermediate courts declined enforcement of arbitration awards rendered by SHIAC based on a dispute resolution clause referring to arbitration with “CIETAC Shanghai” (although both courts’ rulings were withdrawn in the end upon interference from the high courts in the respective province).
The enforcement picture appeared favorable for SHIAC and SCIA as the practice implies some grandfathering arrangement which reserves for them existing cases referring to arbitration with CIETAC Shanghai or CIETAC Shenzhen.
There were even rumors spread around that the Supreme People’s Court (SPC) was preparing a draft judicial interpretation aiming at sealing off this implicit arrangement. But to the surprise of a lot of people, such interpretation never landed. Instead, on September 4, 2013, the SPC kept it open by issuing an internal notice to all lower level courts requesting them to submit all disputable cases involving SHIAC or SCIA to SPC for final instruction, as far as the case relates to the validity of an arbitration clause or to an application for non-enforcement of arbitration awards. Then a long silence followed and no cases were publicly reported to have been handled according to this SPC notice.
The story moved to another stage on December 31, 2014, when SHIAC published on its website the full text of a ruling granted by the Shanghai No. 2 Intermediate People's Court which supports SHIAC’s jurisdiction over cases submitted to it based on a clause referring to arbitration with CIETAC Shanghai. Although this ruling does not officially stand for SPC’s stance, its text indicates that SPC was informed and has endorsed this ruling. Following that, on January 9, 2015, SCIA posted on its website a similar ruling by the Shenzhen Intermediate People's Court which also supports SCIA’s jurisdiction over dispute cases referring to arbitration with CIETAC Shenzhen.
SHIAC continued its backfire on January 12, 2015 by posting another twelve similar rulings granted by the Shanghai No. 2 Intermediate People's Court in its favor. As regards the question who shall have jurisdiction over cases which have an arbitration referring to arbitration with “CIETAC Shanghai” or “CIETAC Shenzhen” or in either of these two locations with “CIETAC”, the answer seems to be clear now. Both SHIAC and SCIA appear to have won this round.
As a symbolic counterattack, CIETAC Beijing announced a clear cut-off on December 31, 2014 by stating that it would restructure its sub-commissions in Shanghai and Shenzhen. So, in the end, the confusing picture of a city of two “CIETACs” still continues.
To bear in mind
Since nobody could have predicted this dispute among the dispute resolution institutions, the quarrel opens room to argue whether an existing arbitration clause referring to CIETAC Shanghai or CIETAC Shenzhen is valid at all and, if yes, under which arbitration institution’s jurisdiction it falls. The latest development outlined above sheds some light on SPC’s attitude regarding this topic and will help to reduce unnecessary disputes caused by the fight between different CIETACs. It reflects SPC’s tendency to respect legacy arrangements.
On the other hand, the whole story also means that you must pay closer attention to your dispute resolution clauses having a China element. Since China does not have judicial assistance treaties with most Western countries, choosing courts in your home country to resolve disputes with your Chinese partners is always a no-go since the final judgment very likely will not be enforceable in China.
Instead, you should consider adopting arbitration, which is more easily enforceable by Chinese courts as China is a member to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. To further facilitate enforcement in China, adopting arbitration in China appears sensible as Chinese courts are much more familiar with Chinese arbitration practice.
For those who prefer to have arbitration in Beijing, there is in general no impact out of the above story as you may continue to stipulate in your arbitration clause that CIETAC shall have jurisdiction and the seat of arbitration will be in Beijing. But for those who prefer Shanghai or Shenzhen as a closer or more business- friendly location, it is strongly recommended to clearly refer to arbitration with SHIAC or SCIA according to their current rules.
Any attempt to still refer to their old names of CIETAC Shanghai and CIETAC Shenzhen, hoping that such an arbitration clause gets blessed by local courts and SPC, is no doubt a risky undertaking.