Arbitration agreements in respect of arbitrations seated in China (whether a domestic arbitration or a so-called foreign-related arbitration i.e. an arbitration in China with foreign elements) are required to stipulate the arbitration institution that will administer the arbitration. Failing to do so renders the arbitration agreement void and unenforceable.

The China International Economic and Trade Arbitration Commission (CIETAC) is the oldest and most recognised foreign-related arbitration institution in China. It is headquartered in Beijing and has branch operations (Sub-commissions) in Shanghai, Shenzhen (South China), Tianjin and Chongqing.

Given its status, it made news when on 1 May 2012 when the Shanghai Sub-commission announced its decision to breakaway from CIETAC to become an independent institution on the same date as the introduction of the new CIETAC Arbitration Rules 2012. Subsequently, the South China (Shenzhen) sub-commission also broke away from CIETAC’s control.

The ostensible reason behind the breakaway is because of the introduction of the CIETAC Arbitration Rules 2012 which asserts the primacy of Beijing over the sub-commissions. In this respect, Article 2.3 states,

“CIETAC is based in Beijing. It has sub-commissions or centers in Shenzhen, Shanghai, Tianjin and Chongqing. The sub-commissions/centers are CIETAC’s branches, which accept arbitration applications and administer arbitration cases with CIETAC’s authorization.”  

On 1 August 2012, CIETAC issued an Announcement on the Administration of Cases Agreed to be Arbitrated by CIETAC Shanghai Sub-Commission and CIETAC South China Sub-Commission. CIETAC announced that as of 1 August 2012 it had suspended its authorisation to both sub-commissions for accepting and administering arbitration cases. Furthermore where parties have agreed to arbitrate their disputes by either sub-commission, the parties should instead submit their applications for arbitration to CIETAC and the CIETAC Secretariat shall accept such arbitration applications and administer such cases. Without CIETAC’s authorisation, no institutions shall have the right to accept and administer these arbitration cases.

This prompted a joint response from CIETAC Shanghai and CIETAC South China on 4 August 2012 asserting, inter alia, their independence from CIETAC,

“Both CIETAC Shanghai and CIETAC South China are independent arbitration institutions, which were sponsored, approved and organized by the Shanghai Municipal Government and the Shenzhen Municipal Government respectively, and are independent legal persons. Both institutions have completed their judicial registrations respectively with the Shanghai Municipal Bureau of Justice and Department of Justice of Guangdong Province according to the Arbitration Law of the People’s Republic of China“.

CIETAC Shanghai and CIETAC South China stated their continued intention to accept and manage arbitration cases referred to them by parties. In this respect, their joint response stated that CIETAC’s announcement “has no binding effect on CIETAC Shanghai, CIETAC South China and the parties“.

The joint statement also denounced CIETAC’s announcement in very strong terms.

“According to the Arbitration Law, as duly established arbitration institutions, the respective jurisdiction of CIETAC Shanghai and CIETAC South China come from the agreement of the parties, rather than the “authorization” from any other institutions, not to mention the so-called “suspension of authorization”.  Nowhere in the Arbitration Law ever provides that an arbitration institution may grant so-called authorization with regard to jurisdiction over cases.  However, CIETAC fabricated a theory of “authorization” and “suspension of authorization” in its Administration Announcement, trying to distort the selection of an arbitration institution already made by the parties.“

According to an IBA news report, these developments have engendered uncertainty over the enforceability of any arbitral award, whether rendered by CIETAC or the breakaway sub-commissions.

“‘The big question is whether a dispute submitted to the Shanghai Subcommission will be enforced by courts around China. Nobody knows for sure,’ said Maarten Roos, founder and managing director of R&P China Lawyers, a firm focusing on legal support for foreign companies. ‘There might be serious problems as the losing party subject to the enforcement is very likely to challenge the legitimacy of the arbitral procedure under the Shanghai Subcommission’s own rules,’ added the PRC firm partner.

Where an arbitration clause specifies Shanghai, but a resultant dispute has been submitted to Beijing according to CIETAC’s new instructions, a court may also refuse to enforce because arbitration was not undertaken in accordance with the agreement between the parties.”

We expect the situation between CIETAC and its sub-commissions in Shanghai and Shenzhen to continue to unfold over the next few weeks and will update our readers as and when more information becomes available.