Is the dust finally beginning to settle on fractious intra-CIETAC dispute?

By Vincent Mu, Martin Hu & Partners (MHP Law Firm)
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On 1 May 2012, the China International Economic and Trade Arbitration Commission (CIETAC Beijing) issued a public statement declaring that the unauthorised public claim made by the Shanghai Sub-commission of CIETAC that it was an independent arbitration institution, its formulation of arbitration rules and engagement of arbitrators were all invalid. CIETAC Shanghai and the South China Sub-commission of the CIETAC (CIETAC Shenzhen) immediately came back with tough responses, not only publicly declaring their independence, but using their own newly formulated arbitration rules to replace the past CIETAC Arbitration Rules. This raised the curtain on the intra-CIETAC dispute that has riveted the attention of the arbitration world, both inside and outside the PRC.

 牟笛 Vincent Mu 胡光律师事务所 律师 Associate Martin Hu & Partners

牟笛
Vincent Mu
胡光律师事务所
律师
Associate
Martin Hu & Partners

The most central issue is how it will all end – will CIETAC ultimately split up or, after all of the shouting is over and done with, will it return to being a single entity? This not only involves territorial division in China arbitration, but also directly affects the immediate interests of large numbers of parties to arbitration. With a view to briefly delineating the origin of the intra-CIETAC dispute and analysing the effect that a ruling in an award vacation case will have on arbitration practice in China in future, the author has written this column to express his personal view.

Independent status

On 14 November 2012, Ruling (2012) Shen Zhong Fa She Wai Zhong Zi No. 225 of the Intermediate People’s Court of Shenzhen Municipality, Guangdong, found CIETAC Shenzhen to be an “independent arbitration institution” and dismissed the application for vacation of the arbitration award made on the grounds that “failure by CIETAC Shenzhen to apply the most recent arbitration rules of CIETAC Beijing resulted in the procedure being illegal”.

CIETAC Shenzhen posted this vacation ruling on its website on 11 January this year. With this, the dust in the seething intra-CIETAC dispute settled for the first time – the vacation ruling indicates that the three institutions will each tread their own paths of independent development.

Internal strife

Prior to 1 May 2012, CIETAC Beijing, CIETAC Shanghai and CIETAC Shenzhen all used the same arbitration rules, namely the 2005 version of the CIETAC Arbitration Rules.

Pursuant to item (8) of article 2 of these rules, if an arbitration agreement only provides that a dispute “shall be referred to the China International Economic and Trade Arbitration Commission for arbitration”, the applicant could select any one of the three arbitration institutions to open the case.

However, pursuant to the new version of the arbitration rules issued by CIETAC Beijing on 1 May 2012, only CIETAC Beijing will be able to accept such disputes in future. This change aroused intense dissatisfaction within CIETAC Shanghai and CIETAC Shenzhen, and became the trigger for the dispute.

Subsequently, CIETAC Shanghai began to apply, on 1 May 2012, a new version of the arbitration rules that it had formulated itself. On the same date, CIETAC Shenzhen announced that it would continue to apply the 2005 version of the CIETAC Arbitration Rules, but after a brief transition, it also issued, on 1 December 2012, new arbitration rules that it had formulated itself.

The new arbitration rules of the two institutions coincidentally provide that the scope of cases that they will accept is limited to those in which the arbitration agreements expressly provide that disputes are to be referred to “CIETAC Shanghai” or “CIETAC Shenzhen”, thereby voluntarily relinquishing acceptance of disputed cases and avoiding direct conflict among the three institutions at the arbitration agreement level.

Attitude of the courts

Past trial practice shows that a defect in an arbitration agreement is the most important reason for vacating or denying enforcement of an arbitration award. The voluntary yielding on the issue of jurisdiction by CIETAC Shanghai and CIETAC Shenzhen denies CIETAC Beijing an important tool for reining in the other two, leaving it only to hope that the court system will in future overturn the arbitration awards rendered by the two institutions based on the defects in their status.

However, the vacation ruling demonstrates that the court system has decided to take a wait and see attitude in the intra-CIETAC dispute, and will not find it to be an illegal arbitration institution merely on the grounds that CIETAC Shenzhen has refused to submit itself to the centralised control of, or failed to apply the arbitration rules of, CIETAC Beijing. Simply put, the issue of the status of CIETAC Shenzhen will not become a reason for overturning its arbitration awards.

This attitude is obviously favourable to CIETAC Shenzhen, which is desperately seeking acknowledgement of its status, and also benefits CIETAC Shanghai, which finds itself in a similar circumstance.

It is important to note that the award vacation case involves a domestic arbitration award. Pursuant to regulations of the Supreme People’s Court, the vacation of a domestic arbitration award does not require reporting to the Supreme People’s Court.

Accordingly, the vacation decision currently only represents the judicial stance of a local court, and it is not possible to speculate on the Supreme People’s Court’s judicial opinion.

If, in future, a similar ruling involving a foreign-related arbitration award presents itself, it will constitute the final stance of the court system on the intra-CIETAC dispute.

Arbitration clauses

It can be predicted that, in future, CIETAC Beijing, CIETAC Shanghai and CIETAC Shenzhen will become three independent arbitration institutions, however with similar names. Based on the strict requirements of the Arbitration Law, the complicated situation will pose challenges to the drafting of arbitration agreements.

The author’s recommendation would be that if a party clearly favours one of the three institutions, it is imperative to cite its full name accurately in the arbitration agreement or directly adopt the model arbitration clauses posted on the pertinent institution’s website so as to avoid the possible occurrence of any jurisdictional dispute.

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胡光 Martin Hu

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牟笛 Vincent Mu

电子信箱 E-mail: [email protected]