CIETAC Update: SPC Clarifies Jurisdiction of CIETAC, SHIAC and SCIA

Recent developments

China’s Supreme People’s Court (“SPC”) has clarified the jurisdiction of China International Economic and Trade Arbitration Commission (“CIETAC“), the Shanghai International Economic and Trade Arbitration Commission (also known as the “Shanghai International Arbitration Center”) (“SHIAC”) and South China International Economic and Arbitration Commission (also known as the “Shenzhen Court of International Arbitration”) (“SCIA”).

The SPC provides guidance by way of the Reply of the Supreme People’s Court to the Request of Shanghai High People’s Court and Other Courts for Instruction on the Judicial Review Case Concerning the Arbitral Awards Made by the Arbitral Institutions Including China International Economic and Trade Arbitration Commission and its Former Sub-Commissions/最高人民法院关于对上海市高级人民法院等就涉及中国国际经济贸易仲裁委员会及其原分会等仲裁机构所作仲裁裁决司法审查案件请示问题的批复 (the “Reply“). The Reply became effective on 17 July 2015 and among other things, provides a practical solution for handling arbitrations selecting CIETAC’s Shanghai and Shenzhen sub-commissions.

Implications for clients

Our previous alert discussed that due to the rift with CIETAC in 2012, the former CIETAC South-China and Shanghai sub-commissions were renamed as SCIA and SHIAC on 22 October 2012 and 16 April 2013 respectively (the “Name Changes“). Court rulings in Shanghai and Shenzhen earlier this year held that agreements providing for arbitration before “the CIETAC Sub-commission in Shanghai or Shenzhen” (“CIETAC Shanghai/South-China Arbitration Agreements“) entered into prior to the dates of the Name Changes are valid, and that SHIAC and SCIA have jurisdiction to administer such cases.  However, a few issues remained uncertain, for example, the jurisdiction of SHIAC and SCIA after the Name Changes.

The Reply addresses the unresolved issue over cases involving CIETAC  Shanghai/South-China Arbitration Agreements entered into after the dates of the Name Changes. The Reply confirms that CIETAC has jurisdiction over cases which involve CIETAC  Shanghai/South-China Arbitration Agreements entered into after the Name Changes.

However, the Reply has no retroactive effect on arbitral awards made by CIETAC, SHIAC or SCIA in existing arbitrations accepted by these institutions before the effective date of the Reply, unless CIETAC and SHIAC or SCIA accepted the same dispute between the parties before that date.

In view of the complexities of the issues brought about by the CIETAC rift, we will be keeping a close watch on how the local courts will apply the guidance under the Reply.

Summary of the Reply

Article 1 of the Reply clarifies the SPC’s position on the jurisdiction of CIETAC, SHIAC and SCIA in cases involving CIETAC Shanghai/South-China Arbitration Agreements as follows:

1. SHIAC or SCIA has jurisdiction over cases where the CIETAC Shanghai/South-China Arbitration Agreements were entered into by the parties before the Name Changes;
2. CIETAC has jurisdiction over cases where the CIETAC Shanghai/South-China Arbitration Agreements were entered into by the parties after the Name Changes and before the effective date of the Reply;
3. CIETAC has jurisdiction over cases where the CIETAC Shanghai/South-China Arbitration Agreements are entered into by the parties after the effective date of the Reply.

In respect of existing cases involving CIETAC Shanghai/South-China Arbitration Agreements and which have been accepted by CIETAC, SHIAC or SCIA before the effective date of the Reply (the “Existing Case“), the Reply provides a practical solution:

1. If the Existing Case has been accepted by one arbitral institution among CIETAC, SHIAC and SCIA, the parties cannot challenge the arbitral award as being in violation of Article 1 of the Reply;
2. If the Existing Case has been accepted by both CIETAC and SHIAC or SCIA, and none of the parties has applied to the court for deciding on the validity of the CIETAC Shanghai/South-China Arbitration Agreement before the first arbitration hearing, the arbitral institution who accepted the case first has jurisdiction;
3. If the Existing Case has been accepted by both CIETAC and SHIAC or SCIA, and a party has applied to the court for deciding on the validity of the CIETAC Shanghai/South-China Arbitration Agreement before the first arbitration hearing, the court will decide the case subject to Article 1 of the Reply.

Actions to consider

1. Parties who prefer CIETAC arbitrations can select CIETAC, or its sub-commissions (e.g., the CIETAC Shanghai / South-China Sub-Commissions) to administer their disputes.As the Reply provides clear guidance on the jurisdiction of CIETAC, SHIAC and SCIA, parties now have increased options and can take the following steps:
2. Parties opting for SHIAC or SCIA arbitrations should clearly stipulate the name of SHIAC or SCIA in their agreements.
3. If enforcement is required in Hong Kong, we recommend that clients select CIETAC instead of SHIAC or SCIA. For a Mainland award to be enforced in Hong Kong, the relevant institution should be included in the list of recognized Mainland arbitral authorities as published by notice in the Gazette in Hong Kong. SHIAC and SCIA are not yet on this list.

Conclusion

The SPC has made its position clear on the jurisdiction of CIETAC and its former Shanghai and Shenzhen sub-commissions, pre and post change of names. This confirms that parties seeking to arbitrate in China now have increased options in their choice of arbitral institutions.