In a recent and welcome judicial interpretation, the PRC Supreme People’s Court (SPC) has sought to resolve the uncertainty for parties involved in PRC arbitration caused by the 2012 schism within the China International Economic and Trade Arbitration Commission (CIETAC). This schism resulted in CIETAC’s Shanghai and Shenzhen sub-commissions breaking away from CIETAC and forming their own independent arbitral institutions. The interpretation, which many would argue was somewhat overdue, directly addresses the primary areas of uncertainty created by the schism and, provided it is properly and consistently applied, ought to mark the conclusion of what has been a challenging chapter in PRC arbitration.
In May 2012, the landscape of Chinese institutional commercial arbitration was thrown into disarray when the Shanghai and South China sub-commissions of CIETAC (CIETAC Shanghai and CIETAC South China) declared independence from CIETAC in Beijing and became independent arbitral institutions officially endorsed by their respective municipal governments.
Subsequently, on 16 April 2013, the breakaway Shanghai sub-commission renamed itself the Shanghai International Economic and Trade Arbitration Commission (SIETAC or 上海国际经济贸易仲裁委员会). Its second official name is the Shanghai International Arbitration Centre (SHIAC or 上海国际仲裁中心). On 22 October 2012, the breakaway South China sub commission renamed itself the South China International Economic and Trade Arbitration Commission (SCIETAC or 华南国际经济贸易仲裁委员会). Its second official name is the Shenzhen Court of International Arbitration (SCIA or 深圳国际仲裁院).
In the meantime, CIETAC Beijing created new sub-commissions in Shanghai and Shenzhen called, once again, CIETAC Shanghai and CIETAC South China.
This created considerable confusion and uncertainty for parties who had agreed “CIETAC Shanghai” or “CIETAC South China” in their arbitration clauses. In the event of a dispute, should their arbitration be governed by the now independent SIETAC and SCIETAC, or by the new CIETAC Shanghai and new CIETAC South China?
The concern, which soon proved to be well-founded, was that respondent parties would use the uncertainty as to which arbitral institution had jurisdiction to determine the dispute in order to delay or frustrate arbitration proceedings and/or as a barrier to enforcement.
The SPC attempted to address these difficulties on 4 September 2013 when it issued a notice requiring that disputes arising out of the CIETAC schism and heard before the PRC courts should be reported to the SPC before being rendered. This procedure was somewhat similar to a pre-existing system in the PRC, whereby decisions relating to the enforcement of foreign or foreign related arbitration awards are referred to the corresponding Higher People’s Court and thereafter the SPC before being rendered.
Whilst this procedure ensured a degree of higher judicial oversight, it did not guarantee the consistency of decisions, nor did it provide a set of transparent rules for the determination of such disputes. It also further incentivised respondents looking to delay proceedings to make jurisdictional challenges because the decision in relation to the challenge would have to go through the potentially time consuming reporting procedure.
The procedure was a step in the right direction, but it fell some way short of resolving the problems created by the schism and providing parties with the certainty and security they would normally expect from opting for institutional arbitration.
These ongoing difficulties prompted the Shanghai Higher People’s Court, the Jiangsu Higher People’s Court and the Guangdong Higher People’s Court to seek directions from the SPC as to how to deal with jurisdictional issues arising out of the CIETAC schism.
In response, on 15 July 2015 the SPC published the Reply of the Supreme People’s Court at the Request of the Shanghai and other Higher People’s Courts for Instructions on Cases Involving the Judicial Review of Arbitral Awards Made by the CIETAC and its Former Sub-Commissions1 (the Reply).
The Reply, which took effect on 17 July 2015, mandates which arbitral institution should exercise jurisdiction and in what circumstances. In the case of an arbitration agreement that selects “CIETAC Shanghai” or “CIETAC South China” as the arbitral institute, the following rules apply:
- If the arbitration agreement was entered into before the corresponding institution changed its name, it should be referred to SIETAC or SCIETAC (as the case may be) who will have jurisdiction over the matter.
- If the arbitration agreement was entered into after the institution changed its name but before 17 July 2015, it should be referred to the corresponding new CIETAC sub-commission.
However, if the dispute is referred in the first instance to SIETAC or SCIETAC, and the respondent does not object to the jurisdiction at the outset, it cannot later apply to nullify the award on the grounds that SIETAC or SCIETAC did not have jurisdiction.
- If the arbitration agreement was entered intoafter 17 July 2015, the new CIETAC sub-commission will have jurisdiction.
The Reply also lays down the following rules in respect of historic cases:
- Where an institution accepted the case before 17 July 2015, its jurisdiction may not be overturned by the courts unless a jurisdictional challenge was brought in the PRC Court before the first oral hearing in the arbitration proceedings. If a challenge was brought before the first oral hearing, then the institution’s jurisdiction may be overturned (even if the institution has previously determined that it does have jurisdiction) and in determining whether to overturn the jurisdiction the PRC Court will apply the rules set out above.
- Where an institution accepted the case before 17 July 2015 and it has rendered an award, the award may not be challenged at the enforcement stage.
- Where more than one institution (i.e. CIETAC and one of its former sub-commissions) accepted the case before 17 July 2015, if none of the parties apply for a jurisdictional determination before the oral hearing, the institution that first accepted the case shall have jurisdiction over the case. If a challenge was brought before the first oral hearing, then its jurisdiction may be overturned and in determining whether to overturn the jurisdiction the PRC Court will apply the rules set out above.
The Reply is a sensible and pragmatic response to the uncertainty created by the schism within CIETAC. It provides a clear set of rules for deciding jurisdiction and enforcing awards for the vast majority of parties affected by the schism. As such, it is to be welcomed.