On 11 April 2013, the arbitral institution formerly known as CIETAC Shanghai held a press conference to publicise its establishment as the Shanghai International Economic and Trade Arbitration Commission and its promulgation of a new set of institutional rules which will apply as of 1 May 2013.  It will use the name the Shanghai International Arbitration Centre and the official short form of its name is SHIAC.

Users of arbitration will be aware that this has arisen out of the well-publicised split in May 2012 between CIETAC Beijing and CIETAC Shanghai, South China and Shenzhen following a disagreement over the 2012 CIETAC rules. SHIAC has stated that its establishment has been approved by the Shanghai Municipal Government and agreed by Shanghai Commission for Public Sector Reform.  CIETAC, which has set up new Secretariats in Shanghai and Shenzhen, has not yet responded but, as we reported on 22 January 2013 (please click here for details), announced that the establishment of Shenzhen Court of International Arbitration (“SCIA”) or South China International Economic and Trade Arbitration Commission (“SCIETAC”) was null and void.  We predict the reaction to this latest news will be in the same vein.

A host of dangers arise from the CIETAC split, and the recent news only consolidates the potential for confusion, argument and, ultimately, risk to arbitral awards.  Parties seeking to arbitrate in Shanghai or Shenzhen under the new or old institutions or rules or under CIETAC should take great care and seek legal advice, both in commencing arbitrations under existing arbitration clauses, and drafting new arbitration agreements.

Ensuring that the correct institution is specified in the arbitration clause

Parties naturally wish to choose an arbitration institution which is most suitable to their particular needs.  The main difference between CIETAC, SHIAC and SCIETAC will be the applicable procedural rules.  SCIETAC continues to use the 2005 CIETAC Rules1,  whilst CIETAC Beijing will apply the 2012 CIETAC Rules, and now SHIAC will apply its own set of rules from May 2013.

The most far-reaching difference in the 2012 CIETAC Rules is that arbitrations concerning “foreign-related” disputes can be seated outside the People’s Republic of China (the “PRC”).  Hong Kong is the first jurisdiction to benefit from this amendment, with CIETAC announcing the opening of the CIETAC Arbitration Centre in Hong Kong as we reported on 4 October 2012 (please click here for details).

Parties entering into arbitration agreements to be held in the PRC and/or which may lead to an arbitral award to be enforced in the PRC ought to state clearly both the seat of the arbitration and the institution under whose rules the arbitration is to be held.

It is particularly important to specify an arbitration institution because Article 16 of the PRC Arbitration Law provides that if “an arbitration agreement contains no or unclear provisions concerning the matters for arbitration or the arbitration institution” the arbitration agreement “shall be null and void.”  This would provide a basis for the dispute to be referred to the courts, in the PRC or elsewhere.

Article 4 of the Interpretation of the SPC’s Interpretation on Several Issues Concerning the Application of the Arbitration Law of the PRC (the “Interpretation”) suggested that it would be sufficient for the PRC courts to uphold an arbitration clause so long as it specified the applicable rules.  Unfortunately, the PRC courts have not followed suit. For example, in 2009, the Supreme People’s Court in the Xiaxin Electronics case refused to recognise an Award which provided for arbitration under the ICC rules. While the arbitration clause stated that the arbitration should be conducted under the ICC Rules of Arbitration, it did not clearly specify the arbitration institution and was null and void2.

The requirement to state an institution can also make it difficult to enforce an ICC award seated in the PRC under a clause which specifies the ICC rules and the location of the arbitration, but not the arbitral institution.  For example, in the Zublin case of 2004 the Supreme People’s Court held that an arbitration clause was invalid which provided for “arbitration: ICC Rules, Shanghai shall apply”.3  This was upon the basis that the clause failed to designate an arbitration institution in accordance with Article 16.

The Hong Kong Court of First Instance reached a similar conclusion in the case of Klöckner Pentaplast GmbH v. Advance Technology (HK) Company Limited.4 The Court had to consider whether an arbitration agreement seated in Shanghai under the ICC Rules and governed by Chinese law was null and void because it failed to specify an arbitration institution. Considering the Interpretation, the failure of the arbitration clause to specify a particular institution was held to be fatal under PRC law, unless the CIETAC arbitration institution could be identified through the agreed-upon arbitration rules.

Where does the Claimant issue the Request for Arbitration: Beijing, Shenzhen or Shanghai?

Therefore, where an arbitration clause is ambiguous as to the arbitral institution (CIETAC or otherwise) to resolve the dispute and/or administer the arbitration a Claimant can decide which institution to submit the request for arbitration. However, in such a case the Respondent can claim that the arbitration agreement is null and void for failing to contain a clear provision as to the arbitration institution, and/or claim a different institution has jurisdiction. As a result, it is important for parties to arbitration clauses providing for CIETAC, SCIETAC or SHIAC arbitrations to specify the relevant arbitral institution to prevent a challenge to the interpretation of the clause and/or jurisdiction of the institution.

For example, consider a typical CIETAC arbitration clause used prior to the schism at CIETAC:

“Any dispute arising from or in connection with this Contract shall be submitted to CIETAC for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.  The seat of the arbitration and the venue for hearing will be Shanghai.”

Previously, it would have been clear that the CIETAC Rules then in force would apply to an arbitration to be held at the CIETAC Shanghai Sub-commission. However, the divide between the centres now creates an ambiguity. This is because a party to such a clause could claim that either:

  1. CIETAC Beijing has jurisdiction because at the time of the agreement, the parties foresaw that CIETAC Beijing would resolve the dispute, albeit the arbitration would be seated in CIETAC Shanghai, now the CIETAC Beijing’s Secretariat in Shanghai; or
  2. SHIAC has jurisdiction because it is the successor of the CIETAC sub-commission in Shanghai. 

There is yet more complexity as, in addition to SHIAC and CIETAC Beijing’s Secretariat in Shanghai, there is another independent arbitration commission in the region called the Shanghai Arbitration Commission.  Similarly in Shenzhen, as well as the SCIA and CIETAC Beijing’s Secretariat, there is a further institution called the Shenzhen Arbitration Commission.

Solutions

If parties are subject to a CIETAC arbitration agreement which is unclear, they should consider entering into a supplementary agreement which clarifies the relevant institution, venue and arbitral rules.  Article 16 of the Interpretation provides for this eventuality, stating that “the parties may reach a supplementary agreement” to resolve an unclear arbitration clause.

For example, a possible clause for an arbitration at CIETAC Beijing, but seated in Shanghai, could read as follows:

"Any dispute arising from or in connection with this Contract shall be submitted to CIETAC Beijing’s Shanghai Secretariat (Arbitration Center) for arbitration which shall be conducted in accordance with the CIETAC Beijing arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties. The seat of the arbitration and the venue for hearing will be in Shanghai"

In terms of clearly and sufficiently specifying the required details, the CIETAC, SCIA and SHIAC model clauses may not provide suitably watertight arbitration clauses for parties wishing to resolve disputes at their preferred centre. CIETAC model clause 2 is an example5. As such, parties should be wary of relying upon those model clauses without seeking further legal advice.