CIETAC has just fired its latest salvo against its breakaway sub-commissions in Shanghai and South China (Shenzhen). The background to this dispute is explored in greater detail in a previous post.  On 1 May 2012, the Shanghai Sub-commission announced its decision to breakaway from CIETAC and 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 was because of the introduction of the CIETAC Arbitration Rules 2012 which asserts the primacy of Beijing over the other sub-commissions.

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 and suspended its authorisation to both sub-commissions for accepting and administering 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 and their continued intention to accept and manage arbitration cases referred to them by parties.

In CIETAC’s latest announcement on 31 December 2012, it has gone a step further and has terminated (as opposed to merely suspended) its authorisation to both sub-commissions to accept and administer arbitration cases “[i]n order to uphold the uniformity of the legal system of arbitration in China, safeguard parties’ arbitration rights and ensure CIETAC’s normal business operation“. In this respect, CIETAC has made the following decisions:

(a) The South China Sub-commission’s change of its name and institutional status to the Shenzhen Court of International Arbitration and South China International Economic and Trade Arbitration Commission as well as its new arbitration rules and panel of arbitrators was made “without lawful procedure” and was “null and void by law”.

(b) Both Sub-commission were forbidden to continue using the CIETAC name, brand and logo.

(c) Where parties have previously agreed to arbitrate their disputes with the Shanghai and South China sub-commissions, parties should submit their requests for arbitration to CIETAC directly instead. Without CIETAC’s authorisation, no institution has the right to accept and administer such arbitration cases.

(d) Where the CIETAC Secretariat accepts and administers such arbitration cases, then absent parties’ agreement to the contract, such agreements shall be seated in Shanghai (where the agreement was to arbitrate under the Shanghai Sub-commission) or Shenzhen (where the agreement was to arbitrate under the Shenzhen Sub-commission).

This on-going war of words does not resolve the uncertainty engendered by these developments, particularly with respect to the enforceability of any arbitral award whether rendered by CIETAC or the breakaway sub-commissions. According to an IBA news report,

 “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.”

It would be prudent for parties caught up in this situation to seek legal advice. We will continue to update our readers as and when more information is available.