Arbitration in China

The latest example of the differences between decision-making in the East and the West comes from China.  If anyone in the West still believes that the nation of China is a controlled unitary actor, this example demonstrates that it is not. There is always competition among various cities, regions, and locales in China, at least in the economic sphere. 

The story is a bit of a page-turner.  Rarely do you find this much interesting maneuvering among competing arbitral institutions.  Unfortunately, this squabble could set the quest of domestic Chinese institutions for significance in the international ADR marketplace back by years

The Setting

The China International Economic and Trade Arbitration Commission (“CIETAC”) is by all accounts the largest arbitral institution in the People’s Republic of China, and perhaps the world, if its self-reported case volume is to be believed. While its procedures have been criticized over the years, they have since been rectified with Western practice. CIETAC has become the premier domestic arbitration provider in the world’s most populous nation.  This is no easy feat—given estimates that CIETAC has over 200 domestic Chinese competitors vying for those same accomplishments. 

CIETAC used to run sub-commissions in Beijing, Shanghai, and Shenzhen.  In 2012, CIETAC issued new Arbitration Rules that provided among other things that “CIETAC and its sub-commissions form an integrated arbitration commission that uses a uniform set of Arbitration Rules and Panel of Arbitrators.” Additionally

“[A]s from 1 May 2012, the CIETAC Arbitration Rules (2012) shall uniformly apply to the CIETAC and its sub-commissions.” 

A key change in the 2012 CIETAC Arbitration Rules was that the default provision for case administration was in favor of CIETAC Beijing.  The prior practice was that parties would designate the CIETAC rules as applying and the claimant would choose which sub-commission to file in, subject to an objection by the respondent.

Big Trouble in Big China

Dissatisfied with this decision being imposed on them by Beijing, two of CIETAC’s sub-commissions, those in Shanghai and Shenzhen, declared themselves independent arbitral institutions, keeping CIETAC in their names.  Shenzhen retained the 2005 CIETAC Arbitration Rules, and the Shanghai sub-commission published its own Arbitration Rules based on the 2005 CIETAC Arbitration Rules.  All of these institutions issued their own announcements about the situation.  Rather than clarifying things, the announcements caused confusion.  In addition, many professional neutrals with Asian practices received rather confusing solicitations from one or more of the new trio of CIETACs, seeking our service on their new lists. 

To say that parties were left with unanswered questions is an understatement.  In one fell swoop these developments rendered what had been simple standard arbitration clauses referring to CIETAC, ambiguous 

In April 2013, the former Shanghai sub-commission of CIETAC, now fully autonomous, changed its name to the Shanghai International Economic Trade Arbitration Commission, with the still-ambiguous Western abbreviation “SIETAC.” To make matters worse, it also goes by the name of Shanghai International Arbitration Commission. 

To add to the chaos, the former Shenzhen sub-commission of CIETAC, also now fully autonomous, announced a name change to South China International Economic Trade Arbitration Commission, or the similarly still ambiguous Western abbreviation “SCIETAC.”  CIETAC, SIETAC, and SCIETAC -- Three acronyms apparently carefully selected that all sound identical in English!

At one point CIETAC (Beijing) declared the SIETAC (Shanghai) and SCIETAC (Shenzhen) sub-commission actions null and void, de-authorized their affiliation with Shanghai and Shenzhen, and determined that any arbitration clause that referred to CIETAC would be administered in Beijing.  Not to be outdone, the Shanghai and Shenzhen entities announced jointly that they were now independent, and that clauses that reference CIETAC Shanghai and CIETAC Shenzhen shall be administered by them respectively, contrary to the CIETAC (Beijing) pronouncement.

Competition adds still more complexity to the situation. There exists in Shanghai a separate arbitration institution known as the Shanghai Arbitration Commission, and in Shenzhen another separate arbitration institution, the Shenzhen Arbitration Commission.

Finally, courts in the People’s Republic have contributed to the uncertainty.  At least three recent cases are split on the validity of arbitration awards issued by the former Shanghai and Shenzhen sub-commissions while this dispute has been pending.

Current Legal Issues/Status

The practical effect of these events is that prior arbitration clauses referencing CIETAC arbitration, and in particular either the Shenzhen or Shanghai sub-commissions, are rendered ambiguous.  Contracting parties whose arbitration clauses contain such language should attempt pre-dispute agreement on precisely which institution should administer their disputes.

Similarly, those who must draft China arbitration clauses must be careful about the precise wording they use.  Multiple institutions use similar sounding acronyms and similar English words in their names.  They exist in parallel with other similar-sounding institutions in their geographic locales. Suddenly what used to be the simple process of drafting a China-specific arbitration clause has become a detail-oriented, and perhaps complex matter.  CIETAC, SIETAC, SCIETAC.  Be careful!

If parties wish to specifically select CIETAC as the institutional provider, they should consider stating specifically that they choose “CIETAC Beijing” as the administrator/rules provider, though they may separately state the hearing location, including in Shanghai or Shenzhen.

If at all possible, avoid inserting a clause that references a sub-commission of CIETAC.  Who knows what the future will bring with respect to the sub-commissions!  Instead, if you are using CIETAC as the provider, this author recommends making a specific reference to CIETAC Beijing and separately identifying the hearing locale.

 It is important to check your existing contracts, and determine whether it is possible to clarify them now in advance of a dispute. Getting parties to reach agreement on changes in arbitration clause language is often difficult after a dispute arises.

If you find yourself in a proceeding with a controversial clause and you disagree with the administrator, follow the basic rule of objecting to jurisdiction early, loudly, clearly, and often so you have a viable argument on appeal. This argument could give you leverage, and persuade your opposition to consider an alternative venue.

Finally, you might consider avoiding the controversy and uncertainty altogether by designating an alternative to CIETAC, SHIETAC, or SCIETAC  There are plenty of respected  institutional providers active in the region, such as the Hong Kong International Arbitration Centre, ICC Court of Arbitration, London Court of International Arbitration, Singapore International Arbitration Centre, American Arbitration Association International Center for Dispute Resolution, or the Australian Centre for International Commercial Arbitration. There are also smaller, well-established and well-recognized domestic providers with strong panels of Western and Chinese arbitrators such as the Beijing Arbitration Commission that can administer a dispute.

Choosing an uninvolved institution can keep you away from the CIETAC-related fray.  Of course, all of this is subject to the negotiation of the various deal points in a contract, but it is clear that counsel need to treat the arbitration provision much more seriously than they might when they are opting for arbitration in China.  And remember to check your forms and contracts!

By Jeffrey G. Benz

Jeff Benz is a Los Angeles-based arbitrator and mediator who serves on the panels for the American Arbitration Association, Hong Kong International Arbitration Center, Beijing Arbitration Commission, Republic of China Arbitration Association, London Court of International Arbitration, International Chamber of Commerce, Court of Arbitration for Sport, and others.