For nearly a year there has been an ongoing internal conflict between the China International Economic and Trade Arbitration Commission (CIETAC), located in Beijing, and its sub-commissions based in Shanghai and Shenzhen. The most recent development is that the sub-commissions have split and renamed themselves, becoming independent arbitration institutions. CIETAC has since also formed new sub-commissions in these locations. With only very little court guidance or interpretation, companies which included arbitration provisions in agreements relating to their dealings in China prior to the split are now faced with many uncertainties pertaining to choice of arbitration venue and the enforcement of future arbitration decisions.

Background

In April 2012, CIETAC issued new arbitration rules requiring that unless a contract specifically states an alternative venue, all CIETAC arbitrations will be administered by the central Beijing commission. Under the old 2005 rules, a dispute under a contract choosing CIETAC could be resolved by the central Beijing commission or its sub-commissions in Shanghai or Shenzhen.

The new rules effectively deprived the Shanghai and Shenzhen sub-commissions of the right to issue awards in their own names and to administer arbitrations when the arbitration agreement has failed to expressly provide for the institution within CIETAC that is the supervisory body of the arbitration.

Concerned with loss of revenue, the Shanghai and Shenzhen sub-commissions refused to adopt the 2012 CIETAC Rules and consequently declared independence from CIETAC, publicly announcing that they would accept/administer arbitration cases even if the relevant contract did not specify such sub-commission to conduct the arbitration.

CIETAC countered with a Suspension Announcement, which further stated that starting from August 1, 2012, even if the contracts provided for arbitration by the Shanghai or Shenzhen sub-commissions, disputes should still be submitted to the central Beijing commission (and also adding more confusion buy stating that venue of the arbitration could still be in Shanghai or Shenzhen).

The two sides have exchanged a number of public announcements, with the Beijing headquarters repeatedly denying the lawfulness and the independence of the sub-commissions, and eventually withdrawing their authority to administer cases in the name of CIETAC.

Since then, the Southern China sub-commissions in Shanghai and Shenzhen have respectively renamed themselves the Shanghai International Arbitration Centre (SHIAC) and Shenzhen International Court of Arbitration (SICA), published their own rules, formed their own panels of arbitrators, and unilaterally declared their independence from CIETAC as well as the continued authority to administer cases where parties have selected CIETAC arbitration in Shenzhen or Shanghai.

CIETAC has in return formed new Shanghai and Southern China sub-commissions, which effectively has created two competing arbitral institutions in both Shanghai and Shenzhen, both of which can lay claim to be the CIETAC sub-commissions for these locations designated in previous arbitration agreements.

Court Rulings

In a recent (May 2013) court ruling, CSI Cells Co., Ltd. Vs Jiangxi LDK Solar Hi-Tech Co., Ltd. (“CSI v. LDK”, 2013 Su Zhong Shang Zhong Shen Zi No. 004), the Suzhou Intermediate People’s Court of Jiangsu Province ruled on an arbitration award given out by the former CIETAC Shanghai sub-commission (now SHIAC). The arbitration agreement in question was signed and went into effect before the split in CIETAC, and an award was handed out after the split.

The Suzhou Intermediate People’s Court found that the CIETAC sub-commission in Shanghai (now SHIAC) satisfies the procedural requirements as an independent arbitration institution in China. However, this also implies that the now independent CIETAC sub-commission in Shanghai is no longer the same institution as CIETAC, and arbitration with the new entity violated the original intent of the parties to arbitrate with CIETAC and was therefore invalid.

Venue Uncertainties

The recent CSI v. LDK case suggests that arbitration agreements signed before the CIETAC split should not be arbitrated at the now independent sub-commissions (SHIAC or SICA). However, certain uncertainties still exist as even if the arbitration is set at the newly formed official CIETAC sub-commissions, parties can still claim that this is not the same entity as that was agreed upon at the time of signing (the continuation of which is now the independent SHIAC), and thus possibly invalidate any awards by claiming that it goes against the original intent of the parties. Chinese courts also do not set precedent. It remains to be seen whether Shanghai courts will agree with the Suzhou court, or if it will protect the local interests of the Shanghai sub-commission. Although for the time being it seems that it would be a safer to arbitrate previously signed arbitration agreements that call for CIETAC arbitration in Shanghai or Shenzhen at the newly formed official sub-commissions, uncertainties still exist with regards to venue choice.

Enforcement Uncertainties

It remains unclear whether awards issued by SHIAC and SICA can be enforceable. CIETAC has made announcements to the affect that both groups lack the lawful authority to arbitrate. However from a legal perspective, there are no convincing arguments why SHIAC and SICA cannot be independent arbitrators in China. These institutions have issued arbitral awards under their own names in the past. From the CSI v. LDK ruling, it seems that that although the court in Suzhou denied the enforceability of the award, it recognized the legal authority of SHIAC to issue awards as an independent arbitration institution. If no wrong choice of venue claims prevail, there is a good chance that awards issued by SHIAC or SICA may be recognized and enforced by the Chinese or foreign courts.

Conclusion

Parties with existing arbitration clauses should consider whether to amend the arbitration venue to ensure certainty and clarity. Likewise, parties should be very specific and careful about arbitration provisions when they enter into future contracts. Until these issues are cleared up by Chinese courts, parties should consider carefully which entity and venue they specify in arbitration provisions and may also consider whether to forego arbitration altogether and submit disputes to local courts.