Jurisdiction - China
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China – CIETAC “Jurisdictional Turf War” Comes To An End?

25 May, 2013

 

 

On April 17, 2013, China International Economic and Trade Commission Shanghai Commission (“CIETAC Shanghai”) published a notice of name change on its official website and the Legal Daily, announcing that, with the approval of Shanghai Municipal People’s Government and Shanghai Commission Office for Public Sector Reform, it was renamed “Shanghai International Arbitration Center” (“SHIAC”) and would use a new version of Arbitration Rules and Panel of Arbitrators from May 1, 2013.


Before that, China International Economic and Trade Commission South China Commission (“CIETAC South China”) published a notice on October 22, 2012, announcing that it was renamed “South China International Economic and Trade Arbitration Commission” (also the “Shenzhen Court of International Arbitration,” “SCIA”). SCIA started using its new version of Arbitration Rules and Panel of Arbitrators from December 1, 2012.


SHIAC’s announcement of name change may signal an end to the “jurisdictional turf war” among China International Economic and Trade Commission (“CIETAC”), CIETAC Shanghai and CIETAC South China.


I. Jurisdictional Turf War Revisited


Before the “jurisdictional turf war” occurred, CIETAC, CIETAC Shanghai and CIETAC South China used to jointly promote the “CIETAC” brand and apply the same Arbitration Rules and Panel of Arbitrators. Ever since the promulgation of CIETAC Arbitration Rules (2005), the parties may select at their own discretion one of the three commissions to apply for arbitration.


However, on February 3, 2012, CIETAC announced that it would use a new version of Arbitration Rules from May 1, 2012 (“2012 Rules”), which provide that, for any disputes involving CIETAC’s “General Arbitration Clause,” (General Arbitration Clause refers to “Any dispute arising out of or in connection with this Contract shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC) for arbitration under the arbitration rules of CIETAC effective upon the application for arbitration. The arbitration award shall be final and binding upon both parties.”) even if the clause was made prior to May 1, 2012, and even if the parties clearly agreed to “submit any dispute to CIETAC for arbitration in Shanghai or Shenzhen,” such cases must be administered by CIETAC. This means that, some cases which would have been administered by CIETAC Shanghai or CIETAC South China according to CIETAC’s 2005 Rules (“2005 Rules”) shall instead be administered by CIETAC according to the 2012 Rules. As a result, both CIETAC Shanghai and CIETAC South China publicly expressed their refusal to implement the 2012 Rules, and one after the other announced that they would promulgate their own Arbitration Rules or temporarily use the 2005 Rules.

 

Thereafter, with CIETAC on one side, and CIETAC Shanghai together with CEITAC South China on the other, both sides published several announcements accusing each other, which served to escalate the conflict. On December 31, 2012, CIETAC made an announcement prohibiting CIETAC Shanghai and CIETAC South China from further use (overtly or covertly) of the Chinese and English names, the brand and relevant logos of “China International Economic and Trade Arbitration Commission,” prohibiting them from carrying out any arbitration activities in the name of CIETAC Shanghai and CIETAC South China, and declaring a termination of its authorization for CIETAC Shanghai and CEITAC South China to accept and administer arbitration applications.


In return, CIETAC Shanghai and CIETAC South China (already SCIA then) made a joint announcement on January 21, 2013, claiming that both of them are legally established arbitration institutions who may independently exercise arbitration functions.


In addition, the Shanghai Municipal Bureau of Justice and the Department of Justice of Guangdong Province issued documents (See Hu Si Fa Zhi [2012] No. 7 and Yue Si Han [2012] No. 413.) respectively on October 11, 2012 and December 6, 2012, confirming that CIETAC Shanghai and CIETAC South China are lawful arbitration institutions having the right to accept and administer arbitration cases. On January 25, 2013, the Legislative Affairs Commission of Shanghai Municipal People’s Congress also issued a document (See Hu Hui Fa [2013] No. 2.) confirming that CIETAC Shanghai has the lawful qualification to independently exercise arbitration functions.


Despite that, after the “jurisdictional turf war,” in cases accepted by CIETAC Shanghai and CIETAC South China (or SCIA), many respondents raised objections to jurisdiction based on relevant announcements under the “jurisdictional turf war,” some respondents even applied to the courts requesting a ruling that thearbitration agreements be declared null and void. We can say that the “jurisdictional turf war” created difficulties for CIETAC, CIETAC Shanghai and CIETAC South China in respect of accepting cases and damaged the reputable “CIETAC” brand.


II. Reforms Accompanying the Name Changes


CIETAC Shanghai and CIETAC South China adopted some reform measures along with their name changes, including the following:


1. Use of New Arbitration Rules

 

CIETAC Shanghai began to use its new version of Arbitration Rules from May 1, 2013. According to Mr. Cen Furong, Chairman of CCPIT Shanghai and SHIAC, the Arbitration Rules formulated by SHIAC this time absorbed advanced experience and practice of international arbitration development in recent years, and added or adjusted provisions such as “use of other institutions’ arbitration rules,” “extension of the time limit to select arbitrators for the parties” and “third party participation in arbitration proceedings.” (See “CIETAC Shanghai Change Name and Use New Rules and Panel of Arbitrators Next Month”, from report dated April 12, 2013 in “Yicai.com” at http://www.yicai.com/news/2013/04/2621445.html.)

 

CIETAC South China began to use its new version of Arbitration Rules from December 1, 2012. The new version adopts a system of unified proceedings for both domestic and international arbitrations and no longer differentiates between them as the old rules did. Besides, such new version absorbs experience of  international arbitration development in many of its provisions, such as “several contracts in one arbitration”, “consolidated arbitration,” “additional parties” and “payment by installment for arbitration fee in advance,” etc.


2. Use of New Panel of Arbitrators


According to CIETAC Shanghai’s newly released Panel of Arbitrators, it has 625 arbitrators, among which, 199 arbitrators are foreigners or from Hong Kong, Macau and Taiwan (from 39 countries and areas), which accounts for one-third of all the arbitrators.


In CIETAC South China’s newly released Panel of Arbitrators, 180 arbitrators are foreigners or from Hong Kong, Macau and Taiwan (from 25 countries), which accounts for 34% of all the arbitrators. 

 

With a large number of foreign arbitrators and arbitrators from Hong Kong, Macau and Taiwan joining SHIAC and SCIA, the two arbitration institutions are more international than their counterparts in Beijing.


3. Use of New Model Arbitration Clause


After the name change, SHIAC published a new Model Arbitration Clause on its official website. According to the clause, if a party concerned intends to submit a dispute to SHIAC for resolution, it may set out in the arbitration agreement that the relevant dispute shall be submitted to Shanghai International Economic and Trade Arbitration Commission or Shanghai International Arbitration Center.


Before that, SCIA also published a new Model Arbitration Clause on its official website. According to the clause, if a party concerned intends to submit a dispute to SCIA for resolution, it may set out in the arbitration agreement that the relevant dispute shall be submitted to South China International Economic and Trade Arbitration Commission or Shenzhen Court of International Arbitration.


III. Arbitration Practice in China: Looking Forward


According to Mr. Cen Furong, in order to settle the “jurisdictional turf war” as soon as possible, the voluntary name change of CIETAC Shanghai is beneficial to settle the disputes over name, nature and jurisdiction power between institutions. Meanwhile, he also expressed that, the name change is only a modification of registration and the arbitration institution along with its status are not changed, and thus SHIAC shall not be deemed as a newly established arbitration institution. This not only maintains the stability of the institution and its services, but also exerts no impact on its jurisdiction before and after the name change. Besides, the name change provides clarity for parties when naming the parties an arbitration institution.


On the whole, the name change and use of new Arbitration Rules by CIETAC Shanghai and CIETAC South China will make them more distinguishable from CIETAC. In addition, the previous troubles caused to parties concerned by the “jurisdictional turf war” in respect of arbitration application and selection of arbitration institutions will gradually vanish.


From the perspective of arbitration practice, the parties shall pay attention to the following points after such name change.


1. In respect of any arbitration clause to be executed, if the parties select to submit the dispute to one of the three arbitration institutions, it is advised that the clause shall be made according to their respective Arbitration Rules and Model Arbitration Clause:


First, to select CIETAC, the arbitration clause may use the following Model Arbitration Clause: “Any dispute arising from or in connection with this Contract shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC) for arbitration which shall be conducted in accordance with the CIETAC's arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.”


Second, to select SHIAC, the arbitration clause may use the following two Model Arbitration Clauses: “Any dispute arising from or in connection with this Contract shall be submitted to Shanghai International Economic and Trade Arbitration Commission for arbitration” or “Any dispute arising from or in connection with this Contract shall be submitted to Shanghai International Arbitration Center for arbitration.”


Third, to select SCIA, the arbitration clause may use the following two Model Arbitration Clauses: “Any dispute arising from or in connection with this contract shall be submitted to South China International Economic and Trade Arbitration Commission (SCIA) for arbitration”” or “Any dispute arising from or in connection with this contract shall be submitted to Shenzhen Court of International Arbitration (SCIA) for arbitration.”


Besides, in the arbitration clause, the parties may also agree upon matters such as the assumption of cost, place of arbitration and/or hearing, arbitration language, number of arbitrators, nationality of arbitrators and whether the summary procedure is applicable.


For any arbitration clause that designates SHIAC or SCIA as arbitration institution, though theoretically speaking the risk still remains that the parties may challenge the arbitration institution based on the “jurisdictional turf war” in future arbitrations, as the use of the new names of the two institutions itself expresses the real intention of the parties, such risk of a jurisdictional dispute should be limited.


2. In respect of any arbitration clause already made which designates CIETAC Shanghai or CIETAC South China as arbitration institution, the parties may decide whether to make amendment thereto according to actual conditions. Though both SHIAC and SCIA expressed their willingness to accept the cases agreed to be arbitrated by “China International Economic and Trade Arbitration Commission Shanghai Commission” or “China International Economic and Trade
Arbitration Commission South China Commission” after their name change, according to the current situation, there still exists the possibility that the parties may raise objection to jurisdiction based on relevant announcements under “jurisdictional turf war” and even apply to the people’s courts for ruling the arbitration agreements null and void.


However, the trend of such cases is increasingly clear. In Shenzhen, on November 20, 2012, Shenzhen Intermediate People’s Court of Guangdong Province made a ruling on a case numbered Shen Zhong Fa She Wai Zhong Zi [2012] No. 226 over a jurisdictional dispute (whereby the respondent petitioned the court to affirm that no arbitration agreement exists between the parties), under which the court held that, the arbitration agreement in which the parties agreed to submit disputes to China International Economic and Trade Arbitration Commission South China Commission is effective and the relevant dispute shall be submitted to South China International Economic and Trade Arbitration Commission (Shenzhen Court of International Arbitration) for arbitration. (See http://www.sccietac.org/upload/2013131_1359624545419.pdf.)

 

While in Shanghai, though by far no public ruling supports SHIAC’s acceptance of the cases originally agreed to be arbitrated by CIETAC Shanghai, as both the Legislative Affairs Commission of Shanghai Municipal People’s Congress and Shanghai Municipal Bureau of Justice have issued documents confirming that SHIAC is a lawful arbitration institution which may independently exercise arbitration functions, we presume that relevant courts are more likely to make rulings favorable to SHIAC in such cases. 


Therefore, as to any arbitration clause already made which designates CIETAC Shanghai or CIETAC South China as arbitration institution, if both the parties intend to make amendment thereto, they may change the name of the arbitration institution to SHIAC or SCIA, but if such amendment involves hindrance and difficulty, there is no need for the parties to insist on the amendment.


Regarding the “jurisdictional turf war” among the three institutions, a relevant person-in-charge of SCIA said: “During the first 30 years in reform and opening up, the foreign-related arbitration institutions in Beijing, Shanghai and Shenzhen had a long-term good cooperation, who jointly promoted the reputation and influence of China’s international arbitration. Today, to meet the development needs of a new era, the three institutions have ended their cooperation relationship; however, they shall further strengthen independence and openness, step up management and services innovation and protect the real intention and legitimate rights of the parties, so as to gain a foothold in the three economically developed areas respectively and contribute to establish an internationalized and legalized commercial environment.” (See “SCIA and SHIAC: Independent Arbitration Institution Not Relying on Authorization”, from report dated January 31, 2013 in “Yicai.com” at http://www.yicai.com/news/2013/01/2463616.html.) We hope that the three institutions may conduct positive and healthy competition.


Along with the end of the “jurisdictional turf war,” a geographic landscape is being shaped among the five arbitration institutions, namely CIETAC, Beijing Arbitration Commission, SHIAC, Shanghai Arbitration Commission and SCIA, doing arbitration in three areas of Beijing, Shanghai and Shenzhen. In recent years, Beijing Arbitration Commission and Shanghai Arbitration Commission have been rapidly developing. Specifically, the Beijing Arbitration Commission offers a reasonable pay to arbitrators and thus promote their efficiency; the Shanghai Arbitration Commission recruits more foreign arbitrators and proactively expands its foreign-related arbitration services. We hope that all five arbitration institutions may become more open and international with orderly competition, so as to create a sound arbitration resolution platform for the parties and jointly promote further development of China’s arbitration.

 

Jun He 5

 

For further information, please contact:

 

Luming Chen, Partner, Jun He

chenluming@junhe.com

 

Wenhui Cui, Jun He

wenhuicui@junhe.com

 

Jiadi Lui, Jun He

jiadiluiouxq@junhe.com

 

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