CIETAC Disputes are Settled

On 15 July 2015, the Supreme People's Court ("SPC") promulgated the Official Reply regarding Issues concerning the Shanghai Higher People's Court and Others Requesting Instructions on the Judicial Review Case Involving Arbitral Awards Made by the China International Economic and Trade Arbitration Commission and Its Original Sub-Commissions and Other Arbitral Authorities (the "SPC Reply"). The SPC Reply took effect on 17 July 2015 and brings to an end the long-lasting ambiguity regarding jurisdiction between the China International Economic and Trade Arbitration Commission ("CIETAC") and its former Shanghai and South China Sub-commissions since their split-off in 2012. We summarize below the most significant changes introduced by the SPC Reply:

Content

1. Where the parties concerned have signed an arbitration agreement agreeing to submit their disputes to the "CIETAC Shanghai Sub-Commission" or the "CIETAC South China Sub-Commission" for arbitration, according to the SPC Reply, the jurisdiction pision shall be as follows: a) If the arbitration agreement was signed before the former CIETAC Shanghai Sub-Commission was renamed as the Shanghai International Economic and Trade Arbitration Commission ("SHIAC"), i.e. 11 April 2013, or the former CIETAC South China Sub-Commission was renamed as the South China International Economic and Trade Arbitration Commission (“SCIA”), i.e. 22 October 2012, SHIAC or SCIA, respectively, shall have jurisdiction over these arbitration cases. If any concerned party requests the people's court to deem the arbitration agreement invalid or applies for revocation or non-enforcement of the arbitration award on the ground that SHIAC or SCIA has no right to arbitrate, the people's court shall reject such a request. b) If the arbitration agreement was signed after the former CIETAC Shanghai Sub-Commission was renamed as SHIAC or the former CIETAC South China Sub-Commission was renamed as SCIA, and before the SPC Reply took effect, i.e. 17 July 2015, CIETAC shall have jurisdiction over these arbitration cases. However, if a party applies to SHIAC or SCIA for arbitration and the respondent raises no objection to the jurisdiction, and after an arbitration award is made, any concerned party applies for revocation or non-enforcement of the arbitration award on the ground that SHIAC or SCIA has no right to arbitrate, the people's court shall reject such an application. c) If the arbitration agreement was signed after this SPC Reply took effect, i.e. 17 July 2015, CIETAC shall have jurisdiction over these arbitration cases. d) According to the above, if the parties had agreed in the arbitration agreement that their disputes “shall be submitted to CIETAC Shanghai Sub-Commission (or CIETAC South China Sub-Commission)”, the following rules shall apply: If the arbitration agreement was signed before 11 April 2013 (SHIAC) or 22 October 2012 (SCIA) CIETAC shall have no jurisdiction over the arbitration case. Instead, SHIAC or SCIA, respectively, shall have jurisdiction over the case. If the arbitration agreement was signed after 11 April 2013 (SHIAC) or 22 October 2012 (SCIA), CIETAC shall have jurisdiction over the arbitration case.
2. The Reply formulates an astonishing exception to the principle that people’s courts must refrain from deciding jurisdictional disputes after jurisdiction has been confirmed by an arbitration institution. According to the Reply by the SPC Regarding Several Issues Relating to the Validity of Arbitration Agreements issued in 1998 and the Interpretation by the SPC concerning Some Issues on the Application of the PRC Arbitration Law issued in 2006, if a) a party has requested an arbitration institution to determine its jurisdiction over the case; b) the arbitration institution has confirmed the validity of the relevant arbitration agreement and its jurisdiction over the case; and c) subsequently the concerned party requests a people’s court to rule on the validity of the arbitration agreement, such request shall not be accepted by the people's court. The SPC Reply now stipulates that in respect to cases affected by the CIETAC split, the above request made by the concerned party shall be accepted by the people’s court. It remains to be hoped that this exceptional deciding power of the courts will not lead to more involvement of the people’s courts in arbitration cases.
3. The SPC Reply further clarifies that prior to 17 July 2015, when the SPC Reply took effect, if CIETAC, SHIAC or SCIA had already assumed jurisdiction over cases against the rules as set out above, and subsequently any concerned party applies for revocation or non-enforcement of the arbitration award on the grounds that the arbitration institution has no right to arbitrate, such a request shall be rejected by the people's court.

Conclusion

Since August 2012, when CIETAC issued an announcement for suspension of its authorization to CIETAC Shanghai and South China Sub-Commissions, disputes between these three arbitration institutions had become escalating. Already on 4 September 2013, the SPC issued an Interpretation on Issues Concerning Correct Hearing of Cases Involving Arbitration-related Judicial Review stipulating that all disputes over the jurisdiction between CIETAC and its former Sub-Commissions shall be submitted to the SPC for decision. However, there was no clear guidance provided concerning how these disputes should be resolved. Parties’ irritation continued not only when resolving disputes based on old arbitration agreements, but also when formulating new arbitration agreements. The SPC Reply, which brings clear guidance on jurisdictional pision among the three arbitration institutions, is welcomed. It provides a clear allocation of contracts using the outdated "Sub-Commission" clauses as follows: New contracts to CIETAC – old contracts to SHIAC or SCIA.

Practical Suggestions

1. In practice, many business operators are still working on the basis of old contracts with arbitration clauses signed before the split (11 April 2013 or 22 October 2012, respectively). If such business operators prefer the jurisdiction of CIETAC rather than SHIAC or SCIA, they should check and update their arbitration clauses as soon as possible, explicitly specifying "CIETAC" and not mentioning any Sub-Commission. Although CIETAC has continued to maintain branches in Shanghai and Shenzhen, and even renamed them "Sub-Commissions" on 31 December 2014 , after the SPC Reply it is impossible to interpret that the term "Sub-Commission" in old arbitration clauses can refer to one of those branches. Instead, if the parties do not update their arbitration clauses, they would need to accept jurisdiction of SHIAC or SCIA, respectively.
2. In contrast, if contracts with arbitration clauses have been signed after 11 April 2013 or 22 October 2012, respectively, the parties must clearly realize that they will be under CIETAC jurisdiction if their clauses designate the "CIETAC Shanghai Sub-Commission" or the "CIETAC South China Sub-Commission". If they do not desire this, they need to update their arbitration clauses, clearly designating "SHIAC" or "SCIA".
3. Future arbitration clauses should be carefully drafted in full consideration of the above.