Beijing counterattacks in CIETAC dispute

CIETAC's South China sub-commission in Shenzhen followed Shanghai and refused to adopt the 2012 Rules, favouring the 2005 Rules. Shanghai has since published its own set of arbitration Rules.

“Management structure and lack of communication between the arbitration commissions are key reasons,” said Catherine Mun, a partner with Bird & Bird in Hong Kong.

“The two sub-commissions believe they are not fairly treated by Beijing. Right now it is about local government issues, and the two seem to have the support of local government,” she added.

Beijing as default location

James Rogers, a partner at Fulbright & Jaworski in Beijing believes the requirement in the 2012 Rules that allows CIETAC Beijing to administer arbitration where the parties have failed to nominate a specific location is the reason.

“This new provision is generally considered to have the effect of increasing the role of CIETAC Beijing at the expense of its sub-commissions, as under the new Rules, any arbitration application where the parties made only general reference to CIETAC arbitration will by default be referred to CIETAC Beijing,” said Rogers.

This is in direct contrast with the 2005 Rules, where parties who failed to specify a location could choose any CIETAC branch when initiating arbitration.

While the exact reasons for the break is unclear, Beijing's decision to suspend its sub-commissions' authority on August 1 shows that the dispute had not been resolved three months after the initial split.

Dealing with Shanghai and Shenzhen's decisions

It is not yet clear what will happen when an arbitration award granted by either the Shanghai or Shenzhen sub-commission comes before a people's court or even the Supreme People's Court. Any decision granted by the courts will determine the authority of the breakaway commissions.

“The decision could be political, if they do not accept the sub-commission's rulings the courts have to say they are are illegal,” said Mun.

The legality of the sub-commissions hinges upon the PRC Arbitration Law (中华人民共和国仲裁法), which states that only one arbitration commission may exist in a city. In a previous interview with China Law & Practice the Secretariat of CIETAC explained that:

“The fundamental reason that CIETAC Shanghai Sub-commission and Shenzhen Sub-commission could coexist with the local arbitration commission in the same city at the same time was that these sub-commissions were branches of CIETAC rather than independent arbitration commissions.”

Current arbitrations

The most crucial aspect of the CIETAC dispute concerns cases now under arbitration. Any arbitration clauses in contracts that reference CIETAC Shanghai or CIETAC South China as the arbitration commission are now under a cloud, as the awards granted may not be upheld.

There are likely to be many jurisdictional challenges in relation to arbitration agreements signed before the split.

“At least in the short term, parties may choose to play it safe by specifically providing in their future arbitration agreements for arbitration administered by CIETAC Beijing, even where the arbitration is seated in Shanghai or Shenzhen. This is the safest option and is advisable over any ambiguous reference to the Shanghai or Shenzhen sub-commissions,” said Rogers.

Parties should also remember that the only way to arbitrate using the 2012 Rules is if they choose CIETAC Beijing. If no decisive action is taken by government agencies against the Shanghai and Shenzhen initiatives, they are likely to develop into arbitration bodies in their own right.

“With economic globalisation, Shanghai CIETAC does not need to be attached to Beijing to promote themselves with their own connections,” said Mun.

By Paolo Danese

Further reading:

CIETAC speaks out on a year of turmoil: interview

CIETAC suspends Shanghai and Shenzhen sub-commissions

Shanghai CIETAC cuts ties with Beijing

CIETAC goes global