With the release of its new rules, China’s CIETAC aims to put the ghosts of a bitter discord behind it. But will it succeed, asks Shangjing Li

China’s oldest arbitration center, the China International Economic and Trade Arbitration Commission (CIETAC), officially unveiled the latest version of its rules towards the end of year, with the aim of bringing itself up to speed with the latest international arbitration practices.

The new rules, which took effect Jan. 1, were released less than three years after the previous version in 2012, which resulted in the well-publicized split within CIETAC.

While seeking to address the notorious conflict between CIETAC Beijing and its two sub-commissions in Shanghai and Shenzhen, the new rules feature innovative changes and follow international standards.

“The 2015 rules demonstrate CIETAC's intention to achieve international standards,” says Jessica Fei, a Beijing-based arbitration partner with Herbert Smith Freehills.

The key revisions, as Fei notes, include joinder of additional parties, consolidation of related cases, emergency arbitrators and introducing new rules governing CIETAC’s Hong Kong Arbitration Center.

But she also adds that while the developments are welcome among arbitrators and lawyers, “CIETAC's practical experience when it comes to handling the new areas covered by the 2015 rules is probably limited.  It remains to be seen how CIETAC will implement the new rules and how well it can administer arbitrations under them.”

Going global

One of the most noteworthy new provisions introduced by CIETAC is the emergency arbitration procedure, in line with other international arbitration centres.

The emergency procedure allows parties to apply for an emergency arbitrator to grant urgent interim relief before the arbitral tribunal is constituted. The emergency arbitrator should be appointed within a day of receipt of the requisite documents, and should make an order within 15 days from the date of his or her acceptance of the appointment.

“The emergency provision is  popular  worldwide,” says Terence Wong, a Shanghai-based partner at Hogan Lovells, “Obviously CIETAC has been closely following its counterparts in Singapore and Hong Kong.”

However, in principle, this provision is only applicable to CIETAC’s Hong Kong arbitration centre at the moment. Under the prevailing laws of mainland China’s, only courts are entitled to grant interim relief whereas in Hong Kong, emergency arbitrators can grant emergency relief under the arbitration rules either in or outside Hong Kong, and the relief is enforceable in Hong Kong in the same way as an order from the court.

Hong Kong rules

Among the major changes brought about by the 2015 rules is establishing CIETAC’s Hong Kong arbitration centre, its first branch outside mainland China, as a bona fide centre in its own right.
 
Under Article 74, for cases accepted and administered by CIETAC Hong Kong - unless otherwise agreed by the parties - the place of arbitration will be Hong Kong, the procedure will be governed by Hong Kong law, and the arbitration award will be a Hong Kong award.

“CIETAC has had an office in Hong Kong for a while, but there were no rules governing it, so it mostly served a marketing purpose for CIETAC,” says Wong at Hogan Lovells. “Now it has both a presence and rules, and if my client wants to pick CIETAC Hong Kong, I would, of course, consider it.”

Like Wong, many experts feel that the CIETAC's new provisions have made its Hong Kong office a strong alternative to other arbitration institutions in the city, as CIETAC has large client base in China and it offers a new choice to Chinese clients that want to choose a more familiar institution to administer foreign-related arbitrations, while enjoying the benefits of a Hong Kong seat.

Meanwhile, as parties have increasingly found themselves involved in multiple related contracts governing a single transaction, the 2015 rules have also been updated to handle the joinder and consolidation of arbitrations.

Article 18 introduces a mechanism for joining additional parties to an ongoing arbitration. Once a party wishes to join an additional party, it can file a request to CIETAC, as long as the third party is prima facie bound by the same arbitration agreement.

Article 19 further provides that CIETAC may consolidate two or more arbitrations into a single arbitration even absent consent from all parties, if the claims involve the same parties, and the legal relationship is identical.

The obvious benefits of consolidation, according to Wong, are cost-saving and enhanced efficiency. “It is a big step forward for CIETAC,” Wong says, noting that previously CIETAC had to gain consent of all parties  in order to consolidate arbitrations.

Is the split over?

Another eye-catching new provision is how CIETAC addresses the long-lasting and harmful split that put it in an unwanted spotlight about two years ago.

The relevant provision, listed in Article 2, confirms that if a contract provides for arbitration before the old CIETAC Shanghai or South China sub-commissions, the arbitration will fall under the jurisdiction of CIETAC Beijing.

To reiterate its stance, CIETAC issued an announcement on the last day of 2014, confirming that its re-organized sub-commissions in Shenzhen and Shanghai will administer the arbitration cases where the parties have agreed to submit disputes to CIETAC’s old South China sub-commission or Shanghai-sub-commission for arbitration. “Without CIETAC’s authorization, no other institutions shall have the right to accept or administer the afore-mentioned arbitration cases," it said.

“CIETAC obviously hasn’t given up yet,” Wong says.

As ALB reported two years ago, the 2012 rules resulted in the well-publicised split between CIETAC Beijing and its Shanghai sub-commission and South China sub-commission. The two sub-commissions declared independence and formed the Shenzhen Court of International Arbitration (SCIA) and the Shanghai International Arbitration Centre (SHIAC) respectively, and started administering disputes under their own rules.

The reason why Shanghai and Shenzhen staged the coup was because of their disagreements with the 2012 CIETAC rules. The most notable one was that it set Beijing as the default location of all arbitrations unless the parties expressed otherwise, instead of allocating cases on a regional basis as in the past.

The disagreement was also due to provisions such as raising the arbitration fee and increasing the threshold for the summary procedure, which, the old CIETAC Shanghai alleged, were being done out of “impure motives” to maximise profit.

The 2015 rules have certainly reopened some old wounds, with many suspecting that they  are being used by CIETAC Beijing to try and get its own back. However, CIETAC’s plan was almost immediately undermined by a number of decisions handed down by Shenzhen and Shanghai court decisions in December 2014.

“Given the recent decisions by these courts, we don’t think the provisions under Article 2 will have much of an impact,” says Fei of Herbert Smith Freehills.

On the same day that CIETAC issued the announcement restating its stance, the Shanghai No.2 Intermediate People’s Court handed down a decision, confirming that SHIAC and not the CIETAC had jurisdiction over a dispute arising from a previous contract where the parties had agreed to submit disputes to the “CIETAC Shanghai sub-commission.” Soon after, on Jan. 6, the Guangdong Shenzhen Intermediate People’s Court also delivered a similar ruling, finding that SCIA had jurisdiction over a case that was to be adjudicated by the “CIETAC Shenzhen sub-commission.” Many believe that China’s Supreme People’s Court (SPC) backs these decisions.

“The impact of these court decisions is significant.  It reveals the SPC’s position that it is the SHIAC or SCIA, instead of CIETAC, that has jurisdiction where the arbitration clause designates 'CIETAC Shanghai sub-commission' or 'CIETAC South China sub-commission' as the seat,” says Fei.

China's slowing economy is expected to give rise to more commercial disputes in the near future, boosting the arbitration market. And given that Chinese companies have more bargaining power in the world today, CIETAC, as the main international arbitration centre in the country, should be attracting more clients, both domestically and from abroad. However, the continual bickering between the three arbitration centres could hurt China's arbitration market, as it is likely to be perceived as unstable and constantly involved in a "civil war."

Paul Starr, a Hong Kong-based partner with King & Wood and Mallesons, who is well-acquainted with the three arbitration centers in the mainland China, says that they have been operating independently of each other for a while now. “I think the new CIETAC rules, should resolve the silly split once for all,” Starr says. “Let’s get a life and move on.”
Though both SHIAC and SCIA are now recognised by courts, the new chapter that everyone wishes to see is yet to happen.

Another problem facing the two breakaway centres is that their awards are not universally recognized overseas.

“For now, I still won’t use either the SHIAC or SCIA. What if the award isn’t enforceable outside China?” asks Wong. “As lawyers, we tend to be more conservative. If the three of them provide similar levels of service, why bother choosing the riskier option?”

Wong adds that recognition and enforcement of the awards of SHIAC or SCIA by courts in countries like the U.K, France, Germany and the U.S., will mark an important landmark for the end of the split.

“I wish the whole dispute would be over as soon as possible,” he says. “But as far as I can see, it won’t be over anytime soon.”