The recent announcement by CIETAC (China International Economic and Trade Arbitration Commission) of suspending authorization to its Shanghai and Shenzhen branches for conducting arbitrations raises serious questions for investors seeking to arbitrate in China through CIETAC.

Previously, when parties to a contract chose arbitration in China through CIETAC, the common understanding was that disputes under such a contract could be resolved by CIETAC or at any of its sub-commissions in Shanghai or Shenzhen, and it was not necessary to specify the exact sub-commission to conduct the arbitration. This understanding is no longer valid. In April 2012, new CIETAC Arbitration Rules were issued requiring that all CIETAC arbitrations be administered by the central Beijing commission unless the contracts specifically stated an alternative venue.

Concerned with loss of revenue, and in a clear defiance of the new rules issued by CIETAC, the Shanghai and Shenzhen sub-commissions publicly announced that they would accept arbitration cases even if the relevant contract did not specify such branches to conduct the arbitration. This action resulted in CIETAC suspending these two sub-commissions from accepting or administering arbitrations on August 1, 2012. CIETAC stated that, starting from August 1, 2012, even if the agreement provided for arbitration by the Shanghai or Shenzhen sub-commissions, disputes should still be submitted to the central Beijing commission (although seat of the arbitration could still be in Shanghai or Shenzhen).

It remains to be seen if these sub-commissions will take their case to the Chinese courts. In the meantime, it is uncertain whether parties who previously contracted to submit their disputes to CIETAC Shanghai or Shenzhen, now have to go to CIETAC Beijing. The validity of these arbitration clauses may be questioned due to a lack of clarity over the chosen arbitration body or rules (since CIETAC Shanghai published its own rules). If the disputes end up in court because the parties differ in their interpretation of the arbitration provision, there could be delays and publicity that parties were seeking to avoid by agreeing on arbitration. It is also not clear if arbitral awards issued by the sub-commissions would be enforceable, since both sub-commissions are suspended from administering arbitration.

Until this dispute is resolved, parties may wish to review their existing arbitration clauses and consider whether to amend the arbitration venue to ensure certainty and clarity.