The Jiangsu Province Higher People's Court ("JHPC") has ruled that the decision of the Suzhou Intermediate People's Court ("SIPC") to refuse the enforcement of an arbitration award by the Shanghai International Economic and Trade Arbitration Commission ("SHIAC") is wrong. The JHPC has ordered the SIPC to re-examine the case and issue a new decision. In our legal update released in July 2013, "A change in the tides or a drop in the ocean: how will a recent decision by the Suzhou Intermediate People's Court affect arbitration in China", we discussed the previous ruling which could have a profound impact on the status of both the SHIAC and its break away partner the Shenzhen Court of International Arbitration ("SCIA"). [Read more]

Background

The case before the SIPC was an application for compulsory enforcement of an award by the SHIAC. The main issues were whether the arbitration institution in question, the SHIAC, was the arbitral body agreed by the parties to arbitrate the disputes between them, based on an arbitration clause stating that the parties "agreed to submit the case to CIETAC (place of arbitration: Shanghai, China)", and thus whether it had jurisdiction over the disputes. The SIPC ruled that the SHIAC, although it used to be an integral part of the CIETAC, no longer had jurisdiction because when SHIAC issued the award it failed to inform the parties of its separation from CIETAC following its declaration of independence from CIETAC Beijing.

The order by the higher court

In response to the decision made by the SIPC, the SHIAC filed a complaint to the JHPC, the supervisory and appellate court, arguing that the former had infringed its legal rights and interests. The JHPC then initiated an adjudication supervision procedure and ordered the SIPC to rescind its decision and re-examine the case.

A positive signal from the higher Court?

After the decision by the JHPC, it could be said that the position of the courts in the Jiangsu region on interpretation of arbitration clauses on wording similar to that in the present case is now in line with views of the courts in Shenzhen and Zhejiang. It may reflect the willingness of Higher People's Courts in certain more developed regions, not only Shanghai and Guangdong where the SHIAC and the SCIA are located, but also other areas such as Jiangsu and Zhejiang, to support arbitration as a dispute resolution mechanism and to avoid excessive intervention.

Nevertheless, uncertainty relating to Chinese courts' interpretation of such arbitration clauses may still exist in the national context. It may not come as a surprise if courts in areas where the issues have not yet been tried or tested to issue a contradictory decision. This is because the Chinese legal system does not adopt the principle of binding case precedent.

Although we are not appraised of SHIAC's arguments, it is notable that the arbitration commission itself played an active role in convincing the JHPC of its jurisdiction regardless of the change in its name during the course of the arbitration proceedings. For parties who are in similar situations, the ruling of the higher court reinforces to some extent their confidence in the SHIAC and encourages them to file a claim with the SHIAC.  Nevertheless, it is still too early to say whether the awards of the SHIAC will be universally recognised by all Courts across China.