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Publication

Arbitration in China – Recent CIETAC developments

James Lewis
18/09/2013

Locations

China, Germany, United Kingdom

The China International Economic and Trade Arbitration Commission (CIETAC), headquartered in Beijing, is the largest arbitration commission in China and internationally the most widely known.

Background

The China International Economic and Trade Arbitration Commission (CIETAC), headquartered in Beijing, is the largest arbitration commission in China and internationally the most widely known.

CIETAC has however no exclusivity in administering international arbitrations in China. For instance, since 2004, many foreign arbitration matters have been handled by the Shanghai Arbitration Commission Pudong International Arbitration Centre.

CIETAC had allowed two arbitration bodies, established in Shanghai and Shenzhen with the approval of the respective municipal governments, to use the CIETAC brand and be known as CIETAC Shanghai sub-commission (Shanghai CIETAC) and CIETAC South China sub-commission (Shenzhen CIETAC) respectively.

Both wanted to gain independence from CIETAC, which had announced new Arbitration Rules containing inter alia a provision centralising in Beijing the administration of all cases where the arbitration clause did not state a venue. 

Shanghai CIETAC and Shenzhen CIETAC refused to adopt these forthcoming new CIETAC Arbitration Rules.

Shanghai CIETAC declared its independence from CIETAC in April 2011, changed its name to 'Shanghai International Economic and Trade Arbitration Commission', also using the name 'Shanghai International Arbitration Centre' (SHIAC) and on 8 December 2011 was registered as an independent arbitration institution by the Shanghai Municipal Bureau of Justice.

Shenzhen CIETAC subsequently changed its name to 'South China International Economic and Trade Arbitration Commission', also using the name 'Shenzhen Court of International Arbitration' (SCIA) and was registered as an independent arbitration institution by the Department of Justice of Guangdong Province.

On 1 May 2012, the new CIETAC Arbitration Rules came into force.

On 31 December 2012, CIETAC terminated its authorisation to its sub-commissions in Shanghai and Shenzhen to accept and administer arbitration cases. In its Announcement of same date, CIETAC also stated that Shanghai CIETAC and SCIA can no longer conduct any further arbitration activities in the name of CIETAC and that it would soon establish new branch offices in Shanghai and Shenzhen.

On 21 January 2013, SHIAC and SCIA reacted in a joint announcement, declaring that they are independent arbitration institutions, authorised to accept and administer arbitration cases.

Risk

For international investors and legal practitioners, the developments involving CIETAC and its former sub-commissions do create a risk of challenges by the losing parties to the validity of arbitral awards rendered by SCIA or SHIAC, if the relevant arbitration clause specified that the proceedings be administered by Shenzhen CIETAC or Shanghai CIETAC respectively, or simply by CIETAC with venue in either Shenzhen or Shanghai.

Recommendations

To reduce this risk, it is recommended, at the contract drafting stage, to be extra clear in the arbitration clause on the chosen venue.  A party should either refer to Shenzhen CIETAC or to Shanghai CIETAC, with the full understanding that any dispute will be administered by the newly opened branch offices of CIETAC in Shenzhen or Shanghai under the 2012 CIETAC Arbitration Rules, or, alternatively, refer to arbitration by SHIAC or SCIA, without any reference to CIETAC.

Regarding existing contracts which include an arbitration clause referring disputes to be administered by Shenzhen CIETAC or Shanghai CIETAC, it is strongly recommended, in the event the parties want to have any dispute arising between them administered by SHIAC or SCIA, that the parties recognise by written agreement, prior to any validity challenge, that SHIAC or SCIA (as the case may be) has the jurisdiction and competence to hear the case and issue an award.

This recommendation is supported in particular by the decision issued on 7 May 2013 by the Suzhou Intermediate People's Court in re: Canadian Solar Inc v. LDK Solar Co Ltd, rejecting the enforcement of an arbitral award from SHIAC on the grounds that after 8 December 2011, when it was registered as an independent institution, it lost the power to decide cases where the arbitration clause referred any dispute to arbitration by CIETAC with venue in Shanghai. Since the parties did not confirm in writing to SHIAC that they both considered SHIAC as having jurisdiction, the court ruled that the parties' original intention to select CIETAC as the arbitration commission should be respected.