2012 Review: Dispute Resolution - all eyes on CIETAC

January 04, 2013 | BY

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All eyes were on the China International Economic and Trade Arbitration Commission (CIETAC) in 2012 as two sub-commissions broke away with the Commission's new Arbitration Rules as one of the contributing reasons for the split

CIETAC 2012 Rules

CIETAC's revised Arbitration Rules took effect on May 1 2012. The new Rules were commended to provide greater assurance to companies who choose CIETAC as the place of arbitration.

The revised Rules expand the scope of the arbitrator's power by, for example, empowering the tribunal to grant interim measures. These can be granted through a procedural order or an interlocutory award to suspend or prohibit a party from carrying out certain acts, such as infringement.

However, the powers granted may not have as much effect in practice as expected. Xu Guojian from Boss & Young explained that even if the tribunal issues an interim measure, the parties must go to the court to enforce it. “The court will always prevail and have the final say, the tribunal does not have the same power,” he said.

Even though the rules have been in play since May, many practitioners are still waiting to see what implications, if any, this may have on existing and future cases.

For detailed analysis of the Rules see: CIETAC goes global

Break away

The controversial split between CEITAC's Beijing headquarters and its sub-commissions in Shanghai and Shanghai has cast wider implications for the reputation of arbitration in China. The two commissions broke away in May as the new Rules became effective.

On August 1 2012, CIETAC's headquarter located in Beijing (CIETAC Beijing) issued a statement addressing how cases are to be administered following the Shanghai Sub-Commission (CIETAC Shanghai) and the CIETAC South China Sub-Commission's (CIETAC Shenzhen) refusal to apply the 2012 Arbitration Rules.

CIETAC's announcement stated: “Such conduct violates the basic principles provided in the CIETAC Arbitration Rules”. The announcement clearly conveys CIETAC Beijing's dissatisfaction by declining to recognise CIETAC Shanghai and Shenzhen's intention to be independent.

According to the CIETAC Articles of Association and Arbitration Rules, the effect is that from August 1 2012, CIETAC will suspend Shanghai and Shenzhen's power to accept and administer arbitration cases. Existing arbitration agreements that stipulate Shanghai or Shenzhen to be the place for arbitration will now have to first be approved by Beijing.

“The impact has been very substantial and outstanding. The struggle looks like it happened between CIETAC internally, but in fact it is not internal, it is being seen by the outside world and the impact is on the overall arbitration in China, or even the reputation of arbitration in China - this is dangerous,” said Wilson Huo, a partner at Zhong Lun Law Firm in Beijing who specialises in dispute resolution.

Jeannette Chan from Paul, Weiss, Rifkind, Wharton & Garrison advised that stakeholders to be careful: “We have to be cautious in advising our clients who still want to proceed with CIETAC arbitration. Measures should be taken to avoid the whole arbitration clause being deemed ineffective due to lack of clarity,” she added.

Clients may also be at risk when it comes to the enforcement of arbitration awards. The split could allow the losing party to challenge the award on the grounds of jurisdiction and competence.

Clients and arbitrators are hoping that the internal dispute will be resolved soon. However, whether the dispute will be resolved through the courts or internal negotiations remains to be seen.

Also in 2012 dispute resolution news:

CIETAC opens HK branch

On September 24 2012, CIETAC launched its new branch in Hong Kong – the first branch to be established outside Mainland China. The move is in line with CIETAC's direction to become more internationally exposed along with the increasing trend of domestic Chinese companies to develop overseas.

CIETAC is now one of three major arbitration centres in Hong Kong, in addition to the Hong Kong International Arbitration Centre (HKIAC) and ICC International Court of Arbitration.

Rimsky Yuen, Hong Kong's Secretary for Justice, announced in his speech at the opening ceremony that CIETAC's presence will strengthen Hong Kong's position as the location for international dispute resolution.

As the new branch has only been set up, there are still many logistical issues that need to be clarified. “It's hard to predict how its impact will be. At the moment it is new and fresh, I do not think CIETAC Hong Kong has its own independent rules or whether it will follow the rules issued by Beijing,” said Huo.

By Nickie Yeung

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