The China International Economic and Trade Arbitration Commission ("CIETAC") is China's leading arbitration commission. Established in 1956, 1,282 cases were resolved under its auspices in 2011.
CIETAC's new arbitration rules came into force on 1 May 2012 (the "New Rules"), replacing the previous version (the "Old Rules") that had been in force since 2005. The New Rules are available on CIETAC's website (http://www.cietac.org/index.cms).
The New Rules aim to provide greater autonomy to parties, codify and clarify CIETAC's existing practice, and ensure that CIETAC remains competitive among other international arbitration centres, all of which have witnessed a rapid rise in China-related business. The New Rules apply to arbitrations commenced on or after 1 May 2012, and before 1 May 2012 if both parties agree.
In this newsletter we highlight the key changes introduced by the New Rules and also the impact that they have had on the workings of CIETAC.
Seat of arbitration
The Old Rules provided that the seat of arbitration could be chosen by the parties by written agreement, failing which the location of CIETAC (or one of its sub-commissions) would be designated as the seat of arbitration.
The New Rules, however, allow CIETAC to determine the seat of arbitration to be a place other than "the domicile of CIETAC or its sub-commission" taking into account the circumstances of the case (Article 7.2). Accordingly, the seat may be outside mainland China, although only when the dispute is "foreign-related". A dispute may be considered "foreign-related" if at least one of the parties is "foreign", the subject matter of the contract is wholly or partly outside mainland China, or there are other legally relevant facts "as to occurrence, modification or termination of civil rights and obligations" that occurred outside mainland China.
In theory, this is a significant change given that the seat determines both the governing law of the arbitration and the courts that retain supervisory jurisdiction over proceedings. It will be interesting to see whether, and how, these rules are invoked in practice.
Language of the arbitration
Chinese is no longer the default language of the arbitration in the absence of an agreement between the parties. The New Rules allow CIETAC to choose "Chinese or any other language…having regard to the circumstances of the case" (Article 71.1). This is a useful development for disputes where the relevant documents are written in a language other than Chinese.
Under the PRC Arbitration Law and the PRC Civil Procedure Law, only the Chinese courts have the power to grant interim orders including preservation of property and evidence. The New Rules comply with these mandatory provisions (Article 21.1). However, where a procedural law other than PRC law applies (for example, where the parties agree to a seat outside mainland China), for the first time the New Rules expressly empower an arbitral tribunal (on a party's application) to grant interim measures in accordance with the applicable law (Article 21.2).
Unlike the Old Rules, the New Rules allow CIETAC, with the agreement of the parties, to consolidate two or more parallel arbitrations into a single arbitration (Article 17.1). This will be particularly useful for multi-party/multi-contract arbitrations. In examining an application for consolidation, an arbitral tribunal has a wide discretion to consider "any factors it considers relevant" including whether all of the claims are made under the same arbitration agreement (Article 17.2).
Mediation & Conciliation
It has been reported that approximately 20 to 30 per cent of CIETAC's yearly caseload is resolved by way of a combination of arbitration and mediation processes conducted by an arbitral tribunal ("arb-med" or "med-arb"). The New Rules aim to provide further scope for such processes by allowing parties to elect to mediate a dispute without the assistance of an arbitral tribunal (Article 45.8), thereby preserving arbitrator impartiality. It remains to be seen, however, how such mediation would operate in practice because the New Rules do not specify, for example, who will conduct the mediation.
Appointment of arbitrators in multi-party disputes
Under the New Rules, where there are multiple claimants and/or multiple respondents in any proceedings and any party defaults in appointing its party appointed-arbitrator, CIETAC will appoint all members of the arbitral tribunal and designate the presiding arbitrator (Article 27.3). The aim of this new provision is to minimise the risk of a challenge to the arbitral award on the grounds of unfair treatment (in the situation where one side has been able to choose its own arbitrator whilst the other side has had its arbitrator imposed on it by CIETAC). It brings the CIETAC rules into line with those of other major institutions including the ICC and SIAC.
New criteria for selection of arbitrators
The nationality of arbitrators has long been a hot topic. It is interesting to note that Article 28 of the 2012 Rules allows the Chairman of CIETAC to consider the nationalities of the parties when appointing an arbitrator in the absence of party agreement. The 2012 Rules do not, however, require that the presiding or sole arbitrator be of a nationality other than the nationality of the parties. Parties should therefore make express provision in their arbitration clauses if they want the arbitrators to be of a different nationality to the parties.
Break-away of the Shanghai sub-commission
On the same day that the New Rules came into force, the Shanghai sub-commission of CIETAC announced that it had split from CIETAC Beijing, declaring itself an independent arbitral institution. CIETAC Shanghai also published a separate set of arbitration rules and established its own panel of arbitrators, separate from the panel published by CIETAC Beijing. In response, CIETAC Beijing rejected the Shanghai body’s move, accusing it of violating China's Arbitration Law and of "seriously affecting parties’ exercise of their arbitration rights".
Shanghai is one of four sub-commissions, the others being Shenzen, Chongqing and Tianjin. Its decision to break-away appears to be connected to the greater centralisation of power to Beijing contained in the New Rules, particularly the changes to Article 2 which, for instance, describe sub-commissions as "CIETAC's branches" (Article 2.3).
Furthermore, unless the parties have expressly agreed to administration by a sub-commission, Article 2.6 of the New Rules provides that the Secretariat of CIETAC (Beijing) will administer the case, including where a general reference to "CIETAC arbitration" is made or where the parties' agreement is ambiguous. These changes will likely lead to an increase in cases handled by CIETAC Beijing and a consequent reduction in the number handled by the sub-commissions. In response to suggestions that mandating Beijing's involvement will reduce party autonomy, CIETAC Beijing has defended this move in an open letter as being a means to prevent parties from "forum shopping" between the CIETAC branches, which may lead to delays and potentially conflicting arbitral awards.
Whilst many of the changes introduced by the New Rules are welcome, it remains important to draft CIETAC arbitration clauses carefully. In addition to making express provision for the language of the arbitration, in light of recent developments within CIETAC it is important to carefully consider, and specify, which CIETAC entity is to administer the case. In cases involving non-Chinese parties, it is also helpful to provide expressly that the sole or presiding arbitrator be of a nationality different from the parties and that the parties be permitted to appoint arbitrators from outside of the CIETAC panel.