China Arbitration Update - a local (international) difficulty

The on-going dispute between, on the one hand, CIETAC and, on the other, SHIAC (the new Shanghai International Arbitration Center1) and SCIA (the new Shenzhen Court of International Arbitration), unfortunately, shows no sign of abating for now.

The existence of these three different international arbitration bodies in China should cause parties doing business in China (and entering into arbitration agreements) to pause for thought; particularly, as regards the appropriate arbitration forum.

Brief background to dispute

CIETAC is China's oldest and most experienced permanent international arbitration institution, resolving economic and trade disputes with the approval of the Chinese government since 1954.  Its head office is in Beijing.  It has representative offices in other important commercial centres, such as Shanghai, Shenzhen, Tianjin and Chongqing.

The origins of the dispute go back to 2012 when CIETAC adopted new arbitration rules that provided CIETAC Beijing would have jurisdiction over arbitrations, unless the parties specifically provided in their written agreement for one of CIETAC's representative offices to arbitrate. That appears to have put CIETAC's Shanghai and Shenzhen representative offices' "noses out of joint" (being the two oldest representative offices), such that they refused to apply the 2012 rules.

Over the course of May to December 2012, CIETAC headquarters in Beijing, on the one hand, and CIETAC Shanghai and CIETAC Shenzhen, on the other, tried to outmanoeuvre one another. CIETAC purported to suspend these two representative offices.  CIETAC Shanghai and CIETAC Shenzhen then, in effect, declared unilateral independence from CIETAC; naming themselves SHIAC and SCIA respectively.  CIETAC has appointed its own secretariat in Shanghai and Shenzhen.

SHIAC adopted its own arbitration rules, effective as from May 2013, and its own panel of arbitrators.  SCIA adopted its own rules in December 2012.

CIETAC has (for now) refused to accept the legality of SHIAC or SCIA or their authority to determine arbitrations. That legality depends on China's Arbitration Law, which (in effect) suggests that only one international arbitration commission can exist in a Chinese city; CIETAC's representative offices having been "branches", rather than independent arbitration centres.

Some practical points to note 

Parties proposing to arbitrate in China, or entering into written agreements to arbitrate there, through CIETAC or SHIAC or SCIA, now face some additional concerns.

Jurisdiction challenges

For now, the dispute increases the risk of parties refusing to abide by agreements to arbitrate using CIETAC in Shanghai or Shenzhen or challenging the jurisdiction of arbitrations submitted to SHIAC or SCIA.

Enforcement

CIETAC arbitration awards have generally received widespread recognition in the courts of China and overseas, as a result of CIETAC's reputation and China being a New York Convention signatory.  It is not clear whether arbitral awards arising out of SHIAC or SCIA will receive the same degree of recognition.  Much may depend on whether the local courts in Shanghai and Shenzhen recognise orders and awards arising out of arbitrations conducted by SHIAC or SCIA.

Arbitration clauses

For now, logic suggests that if parties are concerned and wish to continue using CIETAC for China arbitrations they should expressly choose CIETAC Beijing in their agreements to arbitrate and review their terms and conditions of doing business accordingly.  Such arbitrations can still be "seated" in Shanghai or Shenzhen.

Of course, the scope to amend or negotiate existing arbitration clauses will be limited and, if those clauses refer to CIETAC Shanghai or CIETAC Shenzhen, some caution should be exercised before incurring significant costs with such arbitrations.

Which arbitration rules?

Parties wishing to enter into institutional arbitrations already face a myriad rules; knowing the difference requires expertise. The choice has (for now) become more a bit more complex, although party autonomy is still key.

Comment

A resolution of this dispute may only be possible with the assistance of state and provincial officials and the Supreme People's Court.  For now, there is no telling when or what that resolution may be.  However, this is more than a "little local difficulty" for foreign parties doing business in China.  A resolution is required.  We will write more, in due course.

¹ Interestingly, also known as "SIETAC": Shanghai International Economic and Trade Arbitration Commission

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