The China International Economic and Trade Arbitration Commission (“CIETAC”) recently announced the suspension of the Shanghai and Shenzhen Sub-Commissions for accepting and administering arbitration cases.
CIETAC South China Sub-Commission (“CIETAC Shenzhen”) and CIETAC Shanghai Sub-Commission (“CIETAC Shanghai”) refused to adopt CIETAC’s 2012 Arbitration Rules (“2012 Rules”) which came into effect on 1 May 2012. Instead, CIETAC Shanghai published its own arbitration rules (“Shanghai Rules”) based on the old CIETAC 2005 rules (“2005 Rules”) and announced that it is an independent arbitration commission named “CIETAC Shanghai Commission”. Similarly, CIETAC Shenzhen has announced that it will retain the 2005 Rules.
The position has been further compounded by CIETAC’s announcement that to safeguard parties’ arbitration rights, parties who have agreed to arbitrate their disputes by CIETAC Shanghai or CIETAC Shenzhen have to seek prior authorization from CIETAC’s headquarters in Beijing (“CIETAC Beijing”). Upon acceptance of the case, CIETAC Beijing will administer the case and select Shanghai or Shenzhen for those cases previously agreed to be arbitrated by CIETAC Shanghai or CIETAC Shenzhen respectively, unless the parties agree otherwise.
In response, CIETAC Shanghai and CIETAC Shenzhen jointly issued an announcement stating that CIETAC Beijing’s announcement is not binding and will not impact their operations or any entities who wish to proceed to arbitrate before them.
There are now three sets of CIETAC rules – the 2012 Rules, Shanghai Rules and the 2005 Rules. The 2012 Rules amend the 2005 Rules quite substantially, bringing the procedures closer to international best practice. Some of its key revisions include:
- Interim measures may be granted by an arbitral tribunal in certain circumstances
- Summary procedure where the amount in dispute does not exceed RMB2 million
- Expert witnesses required to give oral evidence if called
- Consolidation of related arbitration proceedings
- CIETAC can determine the seat of arbitration to be a place other than “the domicile of CIETAC or its sub-commission”, taking into account the circumstances of the case
- Default language is no longer Chinese
- Multi-party appointment of arbitrators
Implications for Clients
As a consequence of the conflict within CIETAC, uncertainties have arisen in the following areas:
- Which institutions will administer CIETAC Shanghai and CIETAC Shenzhen arbitrations?
- Which rules will apply – 2012 Rules, Shanghai Rules, or 2005 Rules?
A potential scenario when a dispute arises is for a claimant to apply to CIETAC Beijing pursuant to CIETAC’s recent announcement. This would be conducted under the 2012 Rules if the arbitration clause is silent as to which version of the rules apply, or if the arbitration clause states that the CIETAC rules in force on the date that the Request for Arbitration is served apply.
If the arbitration clause stipulates CIETAC Shanghai as the agreed venue, a respondent may challenge the procedure as not being in accordance with the agreement of the parties pursuant to the arbitration agreement. The respondent could commence arbitration and submit their disputes to be administered by CIETAC Shanghai, under the Shanghai Rules. The situation can also apply in reverse if a claimant goes directly to CIETAC Shanghai. Both these scenarios create the risk that awards may be set aside or rendered unenforceable.
Actions to Consider
Parties with existing arbitration clauses providing for CIETAC Shanghai or CIETAC Shenzhen arbitration are advised to seek agreement on the following:
- Amend their clause so that CIETAC Beijing administers the dispute. This provides for more certainty while retaining the same place of arbitration in either Shanghai or Shenzhen.
- Alternatively, parties may consider entering into a supplemental agreement to submit future disputes to arbitration in CIETAC Beijing (with Beijing being the place of arbitration).
Likewise, parties entering into future contracts should consider adopting CIETAC Beijing as the seat of the arbitration (or if for business or political reasons, the venue needs to be in Shanghai, parties will need to specify that the administration will be by CIETAC Beijing). In the event that existing agreements are impacted by the uncertainties, alternative clauses may be adopted.
The conflict between CIETAC’s central body and its Shanghai and Shenzhen sub-commissions has important implications for future disputes and the enforcement of arbitral awards rendered from clauses which specify the CIETAC Shanghai and Shenzhen Sub-Commissions. To mitigate future risks and uncertainties, business parties are encouraged to take the opportunity to review their contracts with their counterparties while they are not in an existing dispute.