Introduction

In May 2013, the Suzhou Intermediate People's Court refused to enforce an arbitral award rendered by the China International Economic and Trade Arbitration Commission Shanghai Sub-commission ("CIETAC Shanghai"), which has changed its name to, inter alia, the Shanghai International Arbitration Centre ("SHIAC").

The decision adds more uncertainty to the on-going difference between, on the one hand, SHIAC as well as CIETAC's South China Sub-commission based in Shenzhen ("CIETAC Shenzhen"), and on the other hand the China International Economic and Trade Arbitration Commission's Headquarters in Beijing ("CIETAC Beijing").

Background

In our Newsflash dated 17 April 2013, we reported the establishment of SHIAC (in Chinese 上海国际仲裁中心). SHIAC is also known as the Shanghai International Economic and Trade Arbitration Commission ("SIETAC" or 上海国际经济 贸易仲裁委员会). The official logo of the new organisation uses "SHIAC" for short.

SHIAC's predecessor was CIETAC Shanghai, which declared independence from CIETAC Beijing in April 2011.

After the declaration of independence in April 2011, upon acquiring a Registration Certificate of Arbitration Commission from the Shanghai Municipal Bureau of Justice in December 2011 to become an independent arbitration commission, and with the change of name in April 2013, SHIAC clearly wished to continue to accept and administer arbitration cases with a fresh start.

However, in a recent case before the Suzhou Intermediate People's Court decided in May 2013 (known as Suzhou Canadian Solar Inc v LDK Solar Co Ltd), the Suzhou Court decided not to enforce an arbitral award from CIETAC Shanghai. In this article we examine the brief facts of the case, and the implications.

Brief Facts of Suzhou Canadian Solar Inc ("CSI") v LDK Solar Co Ltd ("LDK")

In 2008 CSI and LDK entered into a contract for the sale and purchase of polycrystalline silicon chips. The parties agreed, inter alia, to submit the disputes to "CIETAC (place of arbitration: Shanghai, China)" for arbitration in accordance with the arbitration rules valid at the time of submission. Disputes arose between the parties, and in July 2010, CIETAC Shanghai accepted the case according to its 2005 Arbitration Rules.

In April 2011, CIETAC Shanghai declared independence from CIETAC Beijing, and in December 2011, a Registration Certificate of Arbitration Commission from the Shanghai Municipal Bureau of Justice was granted.

In December 2012, Award No. 452 (2012) was rendered in favour of LDK whereby CSI was ordered, inter alia, to pay about RMB 248,900,000.

In February 2013, LDK applied to the Suzhou Intermediate People's Court to enforce the Award. CSI opposed the enforcement on the ground that the Award was rendered without the relevant jurisdiction.

In a decision rendered in May 2013, the Suzhou Intermediate People's Court made the following findings:

  • The parties chose CIETAC as the arbitration commission to resolve their disputes.
  • Before the declaration of independence, CIETAC Shanghai was an integral part of CIETAC and thus had jurisdiction.
  • However, after the declaration, and with the registration as an independent arbitration commission in December 2011, CIETAC Shanghai was no longer the arbitration commission chosen by the parties, and thus has no jurisdiction.
  • The true will of the parties has not been given effect given that there was a failure to explain to the parties that an independent arbitration commission has been formed, in which case the parties may decide whether to continue the arbitration or select another arbitration commission.
  • Accordingly, the Suzhou Intermediate People's Court decided that the Award was rendered without the relevant jurisdiction and refused to enforce the Award.

The Implications

The decision by the Suzhou Court implicitly confirms that CIETAC Shanghai's declaration of independence in April 2011 was effective, especially after the registration as an independent arbitration institution in December 2011.

However, in public statements published by CIETAC Beijing, it was said that "the conduct of setting up its own commission by the sub-commission is null and void". If the declaration of independence was null and void, then logically it would not affect the relevant jurisdiction.

On the other hand, CIETAC Shanghai has maintained that as "a legal and independent institution, our Commission is the only institution entitled to use this name". In that case arguably when parties have chosen CIETAC Shanghai, the choice should include its successor, ie SHIAC.

In the light of the above, matters such as how CIETAC Shanghai has been set up, the legal basis for the declaration of independence, and the effect of the registration thereafter, will all be relevant.

Further, CIETAC Beijing has stated that the authorization to CIETAC Shanghai and CIETAC Shenzhen for accepting and administering arbitration cases has been terminated by CIETAC Beijing. The effectiveness of such termination has not been examined in the decision by the Suzhou Court, but may be the subject in future court decisions.

Meanwhile, in Shenzhen

Before the decision by the Suzhou Court in May 2013, there was an earlier decision by the Shenzhen Court in December 2012, which arrived at the opposite conclusion.

Brief facts of the case are as follows.

During the period between February 2006 and June 2010, Shenzhen Yong X Co (with related parties) and Hong Kong Jia X Co (with related parties) entered into a series of agreements and supplemental agreements, whereby the parties chose the CIETAC Shenzhen to resolve their disputes. Disputes arose between the parties. In particular, there were disputes as to the validity of the arbitration clause.

In December 2012, the Shenzhen Intermediate People's Court decided that the arbitration clause was binding on the parties, despite the change of name of CIETAC Shenzhen to the South China International Economic and Trade Arbitration Commission ("SCIETAC" or 华南国际经济贸易仲裁委员会), which is also known as the Shenzhen Court of International Arbitration ("SCIA" or 深圳国际仲裁院). The official logo of the new organisation uses "SCIA" for short.

The contradictory decision by the Shenzhen Court illustrates that different local courts may in practice adopt different approaches. While the Shenzhen Court (and probably the Shanghai Court) would be supportive of the declaration of independence as well as the change in name, other local courts may not be supportive.

Response from CIETAC Beijing

On the one hand CIETAC Beijing maintains that the conduct of setting up its own commission by the Sub-commissions is null and void. On the other hand, CIETAC Beijing has set up its own Secretariat in Shanghai and in Shenzhen, which is independent of SHIAC and SCIA.

However, SHIAC and SCIA have criticised those Secretariats as illegal.

There are reports that CIETAC Beijing is using different channels to reach a consensus with all the parties. Nonetheless, as at the time of writing, there is no sign that the parties can come to a consensus.

Further Steps

In the light of the above, it will be interesting to monitor any further decisions from the local courts, as well as from other parties.

For example, it will be interesting to see whether SHIAC or SCIA will, as suggested by the Suzhou Court, explain to the parties that an independent arbitration commission has been formed, and allow the parties to decide whether to continue the arbitration or select another arbitration commission.

In the meantime, the above situation will continue to have an impact on the drafting of arbitration agreements involving CIETAC, as well as potential and/or on-going disputes involving CIETAC.