Internal dispute compounds uncertainty over China arbitration
By Phil Taylor
The latest development in what one lawyer has called a ‘fight for turf and money’ has created significant uncertainty for those wishing to use arbitration in mainland China.
The China International Economic and Trade Arbitration Commission (CIETAC) is China’s most popular and well-respected arbitral institution. Headquartered in Beijing, it has four subcommissions, in Shanghai, Tianjin, Chongqing and Shenzhen (the latter going by the name of the South China Subcommission).
Although CIETAC’S 2005 Arbitration Rules state clearly that the subcommissions ‘are integral parts of … CIETAC’, it was reported in May that the Shanghai and South China Subcommissions had declared themselves independent of Beijing and were following their own rules.
A Beijing-based partner at a well-known PRC law firm said this development ‘came as a huge surprise’ to him and many other practitioners. ‘Both subcommissions did everything they can to gather support from local court and government authorities,’ he said.
On 1 May 2012, new CIETAC Arbitration Rules took effect, stating that unless a subcommission is specified in an arbitration agreement, any request for arbitration should be filed through CIETAC’s Beijing headquarters. A subcommission can only accept an arbitration directly where it was explicitly agreed that the particular subcommission would be used in case of a dispute.
CIETAC subcommissions' efforts to break away from Beijing could cause problems
The Shanghai Subcommission is, however, adopting its own rules (apparently in contravention of Article 73 of the PRC Arbitration Law) and has changed its English name to CIETAC Shanghai Commission. Meanwhile, the South China Subcommission continues to follow the 2005 Arbitration Rules. In response, CIETAC declared on 1 August that its authorisation for the two subcommissions to accept and administer arbitration cases was ‘suspended’.
It is thought that the breakaway subcommissions will continue to assert their independence and accept cases for arbitration. But this may lead to problems with enforcement of arbitral awards. ‘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.
‘The big question is whether a dispute submitted to the Shanghai Subcommission will be enforced by courts around China.'
R&P China Lawyers
‘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.
A simple solution may be to specify CIETAC Beijing in an arbitration clause to avoid uncertainty. But this may not suit everyone: some lawyers contacted by IBA Global Insight confirmed they would prefer to keep working with the Shanghai Subcommission as it is seen as more business-oriented and less political than Beijing.
One lawyer suggested a compromise: ‘I appreciate that some clients want to arbitrate in Shanghai; in such a situation, it is advisable for them to provide in the arbitration clause that the arbitration shall be filed through the Beijing headquarters, but the place of arbitration and/or the place of oral hearing shall be Shanghai,’ he said.
At the time of publication, CIETAC had not responded to several requests for comment; some information is available in the news section of its website at www.cietac.org.
Phil Taylor is a freelance writer and editor. He can be contacted at firstname.lastname@example.org