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Dust Finally Settles in the CIETAC Rift

The Supreme People’s Court of the PRC has issued definitive guidance, taking effect on 17 July 2015, which aims at ending any remaining uncertainty over jurisdictional issues arising from the recent CIETAC split.

INTRODUCTION

The controversial revisions to the arbitration rules of the China International Economic and Trade Arbitration Commission (“CIETAC”) in May 2012, which led to CIETAC’s former Shanghai and South China sub-commissions declaring their respective independence from CIETAC in August 2012, raised considerable uncertainty as to where disputes referred to these former sub-commissions should be heard. Adding to the confusion, the South China sub-commission rebranded itself as Shenzhen Court of International Arbitration[1] (the “SCIA”) on 22 October 2012, and the Shanghai sub-commission changed its name to Shanghai International Arbitration Commission[2] (the “SHIAC”) on 8 April 2013. Since then, CIETAC and SHIAC/SCIA have been engaged in a jurisdictional turf war over the administration of disputes arising from agreements that call for arbitration before the CIETAC Shanghai/South China sub-commissions.

As a result, a number of cases have come before the people’s courts concerning the validity of arbitration agreements referring disputes to the CIETAC Shanghai or South China sub-commission and the enforceability of SHIAC/SCIA awards. To ensure consistency in judicial practice, the Supreme People’s Court of the People’s Republic of China (the “SPC”) issued a notice (“Notice”)[3] on 4 September 2013 requiring lower courts to report to the SPC prior to making a decision in cases in which CIETAC’s Shanghai/South China sub-commissions had been involved. However, this Notice did not provide any clear guidance and, following the issuance of the Notice, there were no publicly available court rulings on these issues until the end of 2014/early 2015.

Against this backdrop, the Shanghai Higher People’s Court, the Higher People’s Court of Jiangsu Province, and the Higher People’s Court of Guangdong Province requested judicial assistance from the SPC regarding issues involving the CIETAC split. In response, the SPC published a “Reply of the SPC to the questions of Shanghai Higher People’s Court etc. on Judicial Review over Arbitral Award of the CIETAC and its original sub-commissions” (the “Reply”) on 15 July 2015, which was passed at the 1655th meeting of the Judicial Committee of the SPC on 23 June 2015. The Reply took effect on 17 July 2015. 

Key provisions of the Reply are summarised below.

1. CIETAC’S JURISDICTION VS. SHIAC OR SCIA’S

a. Arbitration agreements entered into BEFORE name change of the sub-commissions

Either SHIAC or SCIA (as the case may be) shall have jurisdiction over disputes submitted under an arbitration agreement designating either “CIETAC South China sub-commission” or “CIETAC Shanghai sub-commission” as the arbitration institution if the agreement was entered into by the parties prior to the former Shanghai and South China sub-commissions changing their respective names. Any application to invalidate the arbitration agreements, or to set aside or resist enforcement of the arbitral awards based on SHIAC or SCIA’s lack of jurisdiction, shall not be supported by the people’s courts in China.

b. Arbitration agreements entered into ON OR AFTER name change of the sub-commissions

CIETAC shall have jurisdiction over disputes submitted under an arbitration agreement designating “CIETAC South China sub-commission” or “CIETAC Shanghai sub-commission” as the arbitration institution if the agreement was entered into by the parties (i) on or after the date when the relevant sub-commission changed its name and (ii) prior to the effective date of this Reply. However, if one party filed an arbitration at SHIAC or SCIA and the respondent did not raise any objection to the jurisdiction of SHIAC or SCIA (as the case may be) during the course of the arbitral proceeding, any application to set aside or resist enforcement of the arbitral award based on SHIAC or SCIA’s lack of jurisdiction also shall not be supported by the people’s courts in China.

c. Arbitration agreements entered into on or after the effective date of this Reply

CIETAC shall administer any disputes submitted under arbitration agreements entered into on or after the effective date of this Reply (i.e., 17 July 2015) designating “CIETAC South China sub-commission” or “CIETAC Shanghai sub-commission” as the arbitration institution.

2. SEEKING JUDICIAL ASSISTANCE

The Reply further states that where (i) a claimant has requested the arbitral institution to determine its jurisdiction over the dispute when submitting the dispute to arbitration; (ii) the arbitral institution has confirmed the validity of the relevant arbitration agreement and its jurisdiction over the matter; and (iii) subsequently the respondent requests a people’s court to rule on the validity of the arbitration agreement prior to the first hearing held by the arbitral tribunal, such court shall accept the case and make a ruling.

This contrasts with Section 3 of the “1998 Reply by the SPC Regarding Several Issues Relating to the Validity of Arbitration Agreements”[4] (the “1998 Reply”) and Section 13 of the “2006 Interpretation of the SPC concerning Some Issues on Application of the Arbitration Law of the People’s Republic of China”[5] (the “SPC Interpretation”), both of which generally state that if a party applies to a court to determine the validity of an arbitration agreement or to set aside an arbitral award after such arbitration institution’s decision has been made, the court should dismiss such application.

The Reply makes it clear that arguments advanced by the claimant or the arbitral tribunal pursuant to Section 3 of the 1998 Reply or Section 13 of the SPC Interpretation in respect of cases affected by the CIETAC split shall not be supported by the people’s court.

3. THE REPLY HAS NO RETROSPECTIVE EFFECT IN RELATION TO CASES ACCEPTED PRIOR TO THE EFFECTIVE DATE OF THE REPLY

Section 3 of the Reply clarifies that Section 1 of the Reply shall not have retrospective effect over cases already accepted by the relevant arbitral institutions. Thus, even if CIETAC, SHIAC, or SCIA had assumed jurisdiction over any dispute prior to the effective date of this Reply in a manner contrary to Section 1, Section 3 states that the people’s courts shall not support any application to set aside or resist enforcement of an arbitral award based on the lack of jurisdiction of the relevant arbitral institution.

4. CONCURRENT JURISDICTION OF ARBITRAL TRIBUNALS

Section 1 of the Reply would apply to concurrent cases accepted by the relevant arbitral institutions prior to the effective date of this Reply, except in cases where no application to the people’s court to determine the validity of the arbitral agreement has been filed prior to the first hearing of the arbitral tribunal.

Section 4 of the Reply provides that where a case (i) was accepted concurrently by CIETAC and SHIAC (or SCIA) and (ii) a party had requested a people’s court to determine the validity of the arbitral agreement prior to the first hearing of the arbitral tribunal, the people’s court shall make a ruling pursuant to Section 1 of this Reply.

Nonetheless, if no application has been made to the court prior to the first hearing of the arbitral tribunal, the arbitral institution that first administered the dispute shall assume jurisdiction of said dispute. 

Click here to see the full text of the Reply (in Chinese) at SHIAC’s website.

CONCLUSION

The Reply puts an end to any lingering uncertainty regarding jurisdictional issues arising from the CIETAC split.

It is observed that since early 2015, the people’s courts appear to have adopted a consistent approach in handling questions arising from the CIETAC split, as evidenced by a number of rulings, which were likely endorsed by the SPC. The Reply, with detailed guidance on how jurisdictional issues should be handled under different situations, is a step in the right direction towards restoring confidence in arbitration in mainland China.

[1] Also known as the South China International Economic and Trade Arbitration Commission.

[2] Also known as the Shanghai International Economic and Trade Arbitration Commission.

[3] The full name of the notice is “Notice of the SPC on Issues concerning the Proper Trial of Cases Involving Arbitration-Related Judicial Review”.

[4] Section 3 provides that, in a situation where parties disagree on the validity of the arbitration agreement, and one party seeks confirmation from an arbitral institution on the validity of the arbitration agreement and the other party requests a people’s court to confirm the invalidity of the arbitration agreement, if the arbitral institution has accepted the request ahead of the people’s court and has made its decision, the people’s court shall not accept the request. However, if the arbitral institution has accepted the request ahead of the people’s court but it has not made its decision, the people’s court shall accept the request. At the same time, the people’s court shall notify the arbitral institution to terminate the arbitration.

[5] Section 13 provides that, pursuant to Article 20(2) of the Arbitration Law of the People’s Republic of China, a people’s court shall not accept a request by a party to confirm the invalidity of the arbitration agreement if such party has not challenged the validity of the arbitration agreement prior to the first hearing of the arbitral tribunal. The people’s court shall not accept a request by a party to confirm the validity of the arbitration agreement or to set aside the arbitral award if such request has been made after the decision of the arbitral institution on the validity of the arbitration agreement has been made.

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