The internal conflict between CIETAC's Beijing headquarters and the Shanghai and South China (Shenzhen) sub-commissions has been going on for several months. Recently, CIETAC Beijing announced that it has suspended its authorisation to these two sub-commissions to accept and administer cases agreed to be arbitrated by them. In response to this announcement, the two sub-commissions published a joint statement on 4 August to restate that they will continue to accept and manage the cases as agreed to be submitted to them.
In this e-bulletin, we briefly set out the development and implications of the on-going dispute, with a view to giving some practical guidance to clients who wish to refer disputes to arbitration administered by CIETAC or who have existing clauses that refer disputes to arbitration before CIETAC's Shanghai or South China (Shenzhen) sub-commissions.
On 1 August, CIETAC Beijing issued the Announcement on the Administration of Cases Agreed to be Arbitrated by CIETAC Shanghai Sub-Commission and CIETAC South China Sub-Commission (the "Announcement on Administration of Cases"). That announcement stated that:
- effective from 1 August 2012, CIETAC Beijing had suspended its authorisation to the Shanghai sub-commission and the South China sub-commission to accept and administer arbitrations, and
- parties who had agreed to arbitrate before these two sub-commissions were now required to submit their disputes to CIETAC Beijing instead, which would in turn administer the arbitration (with seat and hearings in Shanghai or Shenzhen, as applicable, unless the parties agree otherwise).
(See an English version of the announcement on CIETAC's website)
On 4 August, in response to CIETAC Beijing's announcement, CIETAC Shanghai sub-commission and South China sub-commission (who recently changed its name to Shenzhen Court of International Arbitration, or "SCIA") jointly published their own announcement, which declared that:
- CIETAC Shanghai sub-commission and South China sub-commission have been independent arbitration entities since their establishment
- the so-called "authorisation" and "suspension of the authorisation" by CIETAC Beijing have no legal foundation, and therefore the "suspension" has no binding effect on the two sub-commissions and the relevant parties
- CIETAC Shanghai and SCIA will continue to accept and manage cases submitted to them. CIETAC Shanghai will use its new arbitration rules for any cases that it handles after 1 May 2012. SCIA will continue using the old 2005 CIETAC rules for any cases submitted to it after 1 May 2012 until it publishes its new arbitration rules.
(See an English version of the joint announcement)
History of the dispute
The dispute between CIETAC Beijing and the Shanghai and South China sub-commissions has been around for several months. It appears that the underlying cause of the dispute is that CIETAC's new arbitration rules (the 2012 Rules) provide that if the parties did not specify in their written agreement the sub-commission to which their dispute should be submitted, the dispute would be handled by CIETAC Beijing. The change has been said to potentially reduce the number of new cases that the sub-commissions can handle. As the two oldest and most popular sub-commissions, CIETAC Shanghai and CIETAC South China have refused to apply the 2012 Rules.
- On 30 April 2012, just before the 2012 Rules came into force, CIETAC Shanghai declared itself an independent arbitral institution with independent jurisdiction. It also established its own set of arbitration rules and panel of arbitrators. (See an English version of the announcement)
- CIETAC Beijing responded with a statement on 1 May 2012 declaring that any attempt by a sub-commission to declare independence is illegal. (See an English version of the statement on CIETAC's website)
- In response, CIETAC Shanghai made an announcement on 2 May 2012, emphasising that it has always been independent and not subordinate to CIETAC Beijing. It relied on some historical background and on its registration as a legal entity with the local government as evidence for this point. (See an English version of the announcement)
- CIETAC Beijing then made an announcement on 21 May 2012 to clarify some of the historical background regarding the establishment of CIETAC Shanghai and CIETAC South China sub-commissions. (See a Chinese version of the announcement)
- On 16 June 2012, CIETAC South China changed its name into SCIA, and announced that subject to the rules agreed in the arbitration agreement, it would apply the 2005 CIETAC Rules and use the panel of CIETAC Beijing until it establishes its own rules and panel of arbitrators. (See an English version of the announcement)
The determination of whether CIETAC Beijing or CIETAC Shanghai/SCIA is in fact right is ultimately in the hands of the regulators. It is therefore not possible to make any sensible predictions as to what the final outcome of the dispute will be. In terms of next developments, an officer within CIETAC Beijing has mentioned in a conference that they are trying to consult with the State Counsel and the Supreme People's Court to resolve the dispute (but it is not clear when any such resolution might follow).
In terms of immediate implications for investors in China, there have already been arguments and actual cases in relation to arbitration clauses where the parties have previously agreed to submit their disputes to CIETAC Shanghai or CIETAC South China sub-commission. The main areas of uncertainty are as follows:
- Whether such disputes should be handled by the "independent" CIETAC Shanghai/SCIA, or by CIETAC Beijing.
- Whether such arbitration clauses have become invalid.
- What are the applicable rules given that CIETAC Shanghai and SCIA have each declared that they now adopt different rules from the 2012 Rules?
In practical terms, the main implication of this uncertainty is the greatly increased likelihood of jurisdictional challenges and problems with enforcement in relation to cases submitted to CIETAC Shanghai sub-commission, or CIETAC South China sub-commission, or SCIA.
Until the dispute and the above areas of uncertainty are properly resolved, we recommend that:
- In negotiating arbitration clauses, parties who wish to submit disputes to arbitration administered by CIETAC should specifically choose CIETAC Beijing, and state their choice expressly in the arbitration clause. (Parties can still choose Shanghai or Shenzhen as the seat of arbitration)
- Those parties that have previously entered into an arbitration agreement/clause choosing CIETAC Shanghai or CIETAC South China sub-commission, who cannot or do not want to amend the agreement/clause with the counterparty, should take specialist legal advice before commencing arbitration under the original agreement/clause.