Tensions within CIETAC

On 1 August 2012, the China International Economic and Trade Arbitration Commission (“CIETAC”) issued the Announcement on the Administration of Cases by CIETAC Shanghai and South China Sub-Commissions (“Announcement”). According to the Announcement, CIETAC headquarters in Beijing will be severing ties with its two largest sub-commissions in Shanghai and Shenzhen.

1. The Announcement states that as of 1 August 2012, CIETAC has suspended the authorisation given to the Shanghai Sub-Commission and the South China Sub-Commission in Shenzhen. From this date, parties who have agreed to arbitrate their disputes before the CIETAC Shanghai Sub-Commission or the South China Sub-Commission will have to submit their request for arbitration to CIETAC headquarters in Beijing. The CIETAC Secretariat will accept these arbitrations and administer the cases. Unless otherwise agreed by the parties, cases that were to be arbitrated by CIETAC’s Shanghai Sub-Commission will take place in Shanghai and cases that were to be arbitrated by CIETAC’s South China Sub-Commission will take place in Shenzhen. This means that the both the place of arbitration and the place of oral hearing will be in Shanghai and Shenzhen, respectively.
   
   
2. The CIETAC Secretariat has branches in both Shanghai and Shenzhen. Thus, according to CIETAC, cases can be handled in both cities without involvement of the sub-commissions. According to unofficial information obtained from the Shanghai branch of the CIETAC Secretariat cases will be administered as follows:
   
   a) For arbitration agreements concluded prior to 1 August 2012 where the parties agreed to have their disputes arbitrated by the CIETAC Shanghai Sub-Commission, the arbitration agreements are still valid. However, if the parties filed the request for arbitration after 1 August 2012, this request must be submitted to CIETAC headquarters in Beijing. The CIETAC Secretariat will accept such cases and appoint its Shanghai branch (not the CIETAC Shanghai Sub-Commission) to administer them.
   
   b) According to suggestions made by the Shanghai branch of the CIETAC Secretariat, for arbitration agreements concluded after 1 August 2012 the parties must stipulate in the arbitration agreement that disputes have to be submitted to CIETAC (not CIETAC Shanghai Sub-Commission) for arbitration, and Shanghai can be stipulated as the place of arbitration.
   
   
3. The Announcement explains that the above-mentioned suspension of authorisation was due to the refusal by the CIETAC Shanghai Sub-Commission and South China Sub-Commission to apply the amended CIETAC Arbitration Rules, which came into effect as of 1 May 2012, as well as their refusal to remain under the leadership of CIETAC in respect of case administration. From CIETAC’s perspective, this violated the basic principles set out in the CIETAC Articles of Association and the CIETAC Arbitration Rules.
   
   
4. Earlier this year, in an announcement on 30 April 2012 and a statement on 2 May 2012, the CIETAC Shanghai Sub-Commission declared itself to be an independent arbitration commission. The South China Sub-Commission did the same at a Shenzhen Municipal People’s Government ceremony on 16 June 2012. Further, the CIETAC Shanghai Sub-Commission has even adopted its own arbitration rules and established its own panel of arbitrators, both of which became effective on 1 May 2012.
   
   
5. On 4 August 2012, in response to the Announcement, the CIETAC Shanghai Sub-Commission and South China Sub-Commission jointly issued another announcement (“Joint Announcement”). In the Joint Announcement, both sub-commissions stated that they were independent arbitration institutions, established subject to approval by the Shanghai Municipal Government and the Shenzhen Municipal Government respectively, and their rights to accept requests for arbitration did not depend on CIETAC’s authorisation.
   
   
6. Since CIETAC is China’s largest arbitration institution, its internal conflict is conspicuous and has led to confusion among the business community. Further developments should be closely monitored. In fact, all participants involved should be interested in a solution that provides a legal basis for valid arbitration agreements. The PRC Arbitration Law does not recognise ad hoc arbitration and requires a definitive arbitration institution to be designated in the arbitration agreement. Otherwise, the arbitration agreement is invalid. The worst case would be that due to conflicting opinions within CIETAC over the handling of the case, an arbitration agreement will be regarded as invalid and the competent People’s Court will be in charge of the case.
   
   Arbitration agreements concluded as of 1 August 2012 designating the CIETAC Shanghai Sub-Commission or South China Sub-Commission as the arbitration institution may be particularly prone to the above risk. It could happen that a party submits the dispute to a court by arguing that such sub-commissions no longer exist and the court declares the arbitration agreement invalid. Therefore, if the parties agree on CIETAC arbitration as of 1 August 2012, for the time being in order to avoid an invalid arbitration agreement it is recommended that CIETAC headquarters in Beijing are designated as the competent arbitration institution.