Since its establishment in 1956, the China International Economic and Trade Arbitration Commission (CIETAC) has become the preferred venue for the administration of foreign-related disputes in China. Headquartered in Beijing, CIETAC established the Shanghai Sub-Commission in Shanghai in 1988, the South China Sub-Commission in Shenzhen in 1989, the Tianjin International Economic Financial Arbitration Center in Tianjin in 2008 and the Southwest Sub-Commission in Chongqing in 2009.

In 2012, the Shanghai and Shenzhen Sub-Commissions of CIETAC declared independence from the Beijing CIETAC commission. (For the purposes of this article, the independent entities will be respectively referred to as the "Shanghai Commission" and the "South China Commission", and collectively as the "New Commissions".)

CIETAC Beijing responded with an announcement in August 2012 that the New Commissions would no longer have any authority to administer CIETAC arbitrations. It then established new venues to administer CIETAC arbitrations in Shanghai and Shenzhen ("Shanghai Branch" and "Shenzhen Branch," respectively) which are separate from the New Commissions.

Most recently, in December 2012, CIETAC Beijing published another announcement reiterating its position that the New Commissions do not have the authority to administer cases, and that the arbitration rules adopted by the New Commissions should be deemed void. While the New Commissions deny the assertions of CIETAC Beijing, and continue to claim their independence and authority to hear cases, the dispute between CIETAC Beijing and the New Commissions has caused a considerable degree of confusion and concern among investors in China.

As a result of the divergence, investors must now determine which arbitration venue is most appropriate for their purposes (i.e., Shanghai Commission v. Shanghai Branch, or South China Commission v. Shenzhen Branch). The following is a brief summary of key issues and implications with respect to each arbitration venue.

Enforceability and Suitability

The choice between CIETAC (Beijing, Shanghai or South China), on the one hand, and either of the New Commissions, on the other, is a delicate balancing exercise. This requires due consideration of, among other factors, (i) the enforceability of the arbitral award rendered by each institution and (ii) the suitability of the arbitration rules of each institution, in light of the facts and circumstances of a given dispute.

Enforceability of Arbitral Award

Although CIETAC arbitral awards have enjoyed widespread judicial recognition both within and outside China, it is unclear whether awards granted in arbitration proceedings administered by either of the New Commissions would enjoy the same level of recognition by relevant courts.

In our experience, the judicial authorities where the New Commissions are situated may recognise orders and awards made in arbitrations administered by the New Commissions. For example, in a recent arbitration administered by the Shanghai Commission, the Shanghai Pudong New Area People's Court recognised and enforced a property attachment request awarded by the Shanghai Commission. At this point in time, however, it is uncertain how judicial authorities in other parts of China would view arbitration awards granted by a New Commission.

The fundamental legal issue is whether the New Commissions are, in fact, duly established and independent arbitral institutions or merely local branch commissions of CIETAC Beijing. Under Chinese arbitration law, a local arbitral institution must be established by the municipal government and be registered with the provincial level justice bureau. Moreover, in order for an arbitral institution to administer cases relating to foreign interests, the arbitral institution may need to be established by the China Chamber of International Commerce (CCOIC), an organisation established by the China Council for the Promotion of International Trade (CCPIT).

Based on the documentation that is publicly available in respect of the New Commissions, it is difficult to determine whether the New Commissions have satisfied the above requirements. Until legislative or judicial confirmation with respect to the validity of the New Commissions is provided, a risk remains that arbitration awards granted pursuant to arbitration proceedings administered by either of the New Commissions may be found to be invalid or unenforceable.

Suitability of Arbitration Rules

Each New Commission has announced its own set of arbitration rules and its recommended panel of arbitrators. The Shanghai Commission adopted a new set of arbitration rules on 1 May 2012, and the South China Commission published its own arbitration rules on 1 December 2012.

The chart below compares key arbitration rules, as promulgated by CIETAC, the Shanghai Commission and the South China Commission.

Click here to see chart.

The rules promulgated by CIETAC and the New Commissions permit parties to adopt a different set of arbitration rules (e.g., CIETAC, UNCITRAL, etc.), and to alter the arbitration rules then in effect, provided that such rules are practical and do not conflict with compulsory requirements under the laws of the jurisdiction in which the arbitration is administered.

Authority to Arbitrate

Each institution has its own claim regarding the cases that it can administer. Each New Commission claims that it can administer cases where the parties specifically agree to submit the dispute to the Shanghai Commission or the South China Commission. However, in light of the ongoing dispute with CIETAC, the New Commissions have generally notified parties of the risk of taking on any case that is specifically required to be submitted to CIETAC (Beijing, Shanghai or Shenzhen).

CIETAC takes a very different view on the authority of the New Commissions, and has alleged that neither the Shanghai Commission nor the South China Commission has the authority to administer cases. As such, CIETAC's position is that all cases that have been agreed to be submitted to one of the New Commissions should instead be submitted to CIETAC Beijing or its branch office in Shanghai or Shenzhen.

Conclusion

Given the ongoing developments with respect to the Chinese arbitration institutions, parties would be well advised to keep abreast of new developments in this area and carefully consider the choice of venue when drafting and/or interpreting their arbitration provisions. Parties to existing arbitration agreements may also find it prudent to revisit the terms of their arbitration clauses in order to avoid any potential ambiguities regarding the choice of venue.

While it remains uncertain how the current disputes will be resolved, given the issuance by each institution of new arbitration rules, it would appear that the developments over the last nine months of 2012 have seen a profound and lasting change in the structure and operation of China's leading and most widely recognised arbitral institution.