In the world of theoretical physics, truth is often stranger than fiction. For example, there is a theoretical passage known as a wormhole, which may allow travel through space-time from one universe to another.
In the world of arbitration, a similar situation may arise. OK, I exaggerated. But picture an arbitration clause which says arbitration at “China International Economic and Trade Arbitration Commission (CIETAC) in Shanghai,” and you might find yourself in a similar time-space puzzle, when different courts in different countries, interpreting the same wordings, find that different arbitration institutions would be applicable.
In order to understand this phenomena, let’s go back to July 15, 2015, when the Supreme People’s Court, highest court in China, issued a Reply regarding arbitral awards made by CIETAC and its original Sub-commissions (“the Reply”).
The Reply dealt with the situation after CIETAC’s original Sub-commissions in Shenzhen and Shanghai unilaterally declared independence in October 2012 and April 2013, respectively, to break away from CIETAC’s Headquarters in Beijing. As a result, the Supreme People’s Court issued the Reply, which can be summarized as follows:
In other words, pursuant to the Reply, if an arbitration agreement specifies CIETAC’s original Sub-commission in Shanghai, depending on the date of the agreement, different arbitration institutions would be applicable. In particular:
- If made before April 11, 2013 (i.e., before the date of relevant unilateral declaration), the applicable arbitration institution would be SHIAC (i.e., Shanghai International Arbitration Centre), which is the original Sub-commission in Shanghai.
- If made between April 11, 2013 and July 16, 2015 (which is the interim period between the declaration and the Reply), the applicable arbitration institution would be CIETAC.
- If made on July 17, 2015 or thereafter (i.e., after the Reply), the applicable arbitration institution would be CIETAC (CIETAC set up new Shanghai Sub-commission and South-China Sub-commission on 31 December 2014).
So far so good.
The problem came when the Indian High Court of Delhi, when faced with an arbitration clause which said arbitration at “CIETAC in Shanghai,” decided in July 2018 in the case of LDK v. Hindustan that the clause referred to CIETAC’s Headquarters in Beijing, and that the words “in Shanghai” was a mere reference to the place where the arbitration hearing should be held. As a result, the Reply was not applicable (because the Reply merely dealt with arbitration clauses referring to CIETAC’s original Sub-commission in Shanghai and in Shenzhen). The Indian Court’s reasoning is consistent with a decision by the No. 2 Intermediate People’s Court in Beijing (in the case of Wuhan Jiexibo Equipment v. Shanghai Jiexibo Construction Machinery decided in November 2016).
In contrast with those cases is a decision by the No. 2 Intermediate People’s Court in Shanghai (in the case of Southwest Cement v. TAN Guoren decided in August 2017). In this case, when faced with the same wordings which said arbitration at “CIETAC in Shanghai,” it was decided that the clause referred to CIETAC’s original Sub-commission in Shanghai, and that the words “in Shanghai” should be read as a reference to CIETAC’s location (rather than the place where the arbitration hearing should be held). As a result, the Reply was applicable, and given that the arbitration agreement was made on 23 March 2012, item 1 of the above table applies, and SHIAC was the relevant arbitration institution. The reasoning in this decision is consistent with a decision by the Intermediate People’s Court in Dalian (in the case of Dalian Baiyi v Dalian Carrefour decided in January 2018).
In the light of the above, pending any clarification of the Reply, in order to avoid ending up in a different universe that originally intended, whether your arbitration clause is made before or after the Reply, it would be prudent to clearly specify whether you intend to go to:
- CIETAC’s Headquarters in Beijing, or
- CIETAC’s original Sub-commission in Shanghai (now known as SHIAC), or
- CIETAC’s original Sub-commission in Shenzhen (now known as SCIA), or
- CIETAC’s newly set up Sub-commission in Shanghai, or
- CIETAC’s newly set up Sub-commission in Shenzhen.