Beijing vs. Shanghai: CIETAC Arbitration-Dispute settled?

by Jennifer Bryant

 

Beijing vs. Shanghai: CIETAC Arbitration-Dispute settled?

The China International Economic and Trade Arbitration Commission (CIETAC) located in Beijing appears to be the leading officially registered arbitral institution in China dealing with domestic as well as international arbitration proceedings. According to Chinese law, domestic arbitral awards are only recognized if the arbitration proceedings are administered through an officially authorized arbitral institution. With respect to such official authorization, Art. 10 of the Arbitration Law of the People’s Republic of China (PRC Arbitration Law) which has entered into force on 1 September 1995 provides that “commissions may be established in the municipalities directly under the Central Government, in the municipalities where the people’s governments of provinces and autonomous regions are located or, if necessary, in other cities divided into districts.” CIETAC itself was founded and authorized by the Government Administration Council of the Central People’s Government on 6 May 1954. Even though CIETAC’s authorization took place long before Art. 10 of the PRC Arbitration Law came into force, even measured by this present standard, CIETAC is duly authorized. Until 2012, the sub-commissions of CIETAC in Shanghai, Shenzhen, Tianjin and Chongqing also benefitted from CIETAC’s official recognition.

The entering into force of the revised CIETAC Arbitration Rules on 1 May 2012, however, led to a dispute between the CIETAC headquarters in Beijing and its sub-commissions in Shanghai and Shenzhen. CIETAC suspended the sub-commissions’ authority which CIETAC had previously only granted to these sub-commissions on the basis of their relation to CIETAC as CIETAC’s sub-commissions. CIETAC declared that these sub-commissions in Shanghai and Shenzhen were no longer entitled to accept and administer arbitration proceedings under the CIETAC Rules. As a consequence, the former sub-commissions in Shanghai and Shenzhen declared their independence from CIETAC in January 2013. For this purpose, both established their own arbitral rules and drafted their own model arbitration clause. In addition, the two former CIETAC sub-commissions changed their names to Shanghai International Arbitration Centre (SHIAC; also known as Shanghai International and Economic Trade Arbitration Commission) and Shenzhen Court of International Arbitration (SCIA) respectively.

As a result of the withdrawal of authority by CIETAC, uncertainty arose as to the issues of jurisdiction as well as whether arbitral awards rendered in proceedings administered by the SHIAC and the SCIA could be recognized and enforced in China. Jurisprudence, inter alia by the Intermediate People’s Court of Suzhou, even deepened uncertainty in that regard. The court in Suzhou denied recognition and enforcement of an arbitral award that was rendered as part of arbitration proceedings administered by the SHIAC. The court made that decision on the basis of an assumed lack of jurisdiction by the SHIAC. Furthermore, on 4 September 2013, the Supreme People’s Court issued a Notice to the lower instance courts setting rules for interpretation and resolution of such jurisdictional disputes. According to this Notice, disputes arising from ‘old clauses’ stipulating jurisdiction of one of the former sub-commissions of CIETAC were to be reported to the Supreme People’s Court where the dispute affected the validity of the arbitration agreement, the setting aside or the enforcement of arbitral awards. The reasoning for this Notice was to settle the dispute in respect of the jurisdiction of CIETAC or the former sub-commissions respectively and to achieve uniform case law in that respect.

Two recent decisions of 31 December 2014 and 6 January 2015 of Chinese Intermediate People’s Courts now may contribute to the resolution of this issue of competence:

• In the first decision mentioned, the No. 2 Intermediate People’s Court of Shanghai Municipality ruled on 31 December 2014 („(2012) Hu Er Zhong Min Ren (Zhong Xie) Zi Di 5 Hao“) that the Shanghai International Arbitration Center (SHIAC) is an effectively founded independent arbitration commission that was approved by the responsible administrative authorities (Bureau of Justice of Shanghai Municipality as well as Shanghai Municipal Government und Shanghai Commission for Public Sector Reform). As an authorized arbitration commission, SHIAC is considered to be the competent institution to administer arbitration proceedings on the ground of respective arbitration clauses. The basis of this case was an old arbitration clause providing for the ‘CIETAC Shanghai Sub-commission’ to be the competent arbitration institution as to all disputes arising out of the contract. Initially, the claimant under the arbitration proceedings (who was then the defendant to the court proceedings) had filed an application for arbitration with CIETAC. Reacting to the application for arbitration, the respondent in the arbitration proceedings (who became the plaintiff to the court proceedings) immediately raised a claim with the No. 2 Intermediate People’s Court of Shanghai Municipality requesting for the ascertainment of the lack of jurisdiction by CIETAC. Upon that claim, the No. 2 Intermediate People’s Court of Shanghai Municipality confirmed the SHIAC to be competent arbitration commission while indeed establishing a lack of jurisdiction of the CIETAC.
• The second dispute mentioned was tried before the Intermediate People’s Court of Shenzhen. Like the No. 2 Intermediate People’s Court of Shanghai Municipality, the Intermediate People’s Court of Shenzhen also denied jurisdiction of the CIETAC. In its judgment of 6 January 2015 („(2013) Shen Zhong Fa She Wai Zhong Zi Di 133 Hao“), the court confirmed competence of the former sub-commission of CIETAC in Shenzhen, now the Shenzhen Court of International Arbitration (SCIA). According to the court’s ruling, the SCIA’s registration at the Guangdong Bureau of Justice resulted in the foundation of a lawful arbitration commission under the PRC Arbitration Law. The case was based on an arbitration clause according to which an arbitration was to be brought to the ‘CIETAC South China Sub-commission’. Contesting the validity of that arbitration clause, the plaintiff raised a claim with the Intermediate People’s Court of Shenzhen for the ascertainment of the invalidity of that arbitration clause as well as the determination that the plaintiff was no longer bound by that allegedly invalid clause. The court, however, denied such ruling based on the aforementioned reasoning.

In addition, the SHCIA has recently reported in its Arbitration Newsletter, Issue 1, 2015, that the No. 2 Intermediate People’s Court of Shanghai Municipality has rendered 12 additional rulings confirming SHCIA’s jurisdiction. The SHCIA, however, has not yet published the full texts of these court decisions.

All these recent court decisions have led to at least a bit more certainty as regards the fate of arbitration clauses which were agreed upon prior to the independence of the Shanghai International Arbitration Center and the Shenzhen Court of International Arbitration, and still refer to the former CIETAC sub-commissions. Unlike assumed initially, these recent decisions by the courts of Shenzhen and Shanghai give rise to the assumption that such arbitration clauses do not have to be considered as per se invalid. In fact, the SCIA and the SHIAC apparently are both – under their respective new names – competent to administer both domestic and international arbitrations. Ultimately, however, it remains to be seen how other Chinese courts will deal with these jurisdictional conflicts. This should as well be of particular importance with respect to the recognition and enforcement of arbitral awards rendered under the respective rules of SHIAC and SCIA in the international context. Since any such jurisdictional disputes should generally be reported to the Supreme People’s Court based on its Notice of September 2013, it can at least be assumed that the Supreme People’s Court has acknowledged the latest decisions by the Intermediate People’s Courts in Shanghai and Shenzhen.