Arbitration in China

Presently, the International Arbitration in China went through a period of uncertainty in 2012. For many years, the CIETAC controlled international arbitration in China. In addition, CIETAC established sub-commissions in both Shanghai and Shenzhen in order to expand its scope.

Eventually, the Shanghai and Shenzhen Sub-Commissions separated from the main branch in Beijing. To cement their new-found independence, each sub-commission changed their name: The Shanghai International Arbitration Center (SHIAC). This newly named arbitration center carried on new rules and engaged a new panel of arbitrators.

However, for a contract that specified arbitration at the Shanghai CIETAC subcommision, does the newly renamed SHIAC have jurisdiction? In China this is not the case. Beijing issued a notice on August 1, 2012 that the former sub-commissions had no jurisdiction and contracts referring to the CIETAC Shanghai-subcommission should be submitted to Beijing CIETAC for resolution.

The situation was caused by the CIETAC notice issued on December 31, 2014 announcing that it had formed new sub-commissions in both Shanghai and Shenzhen. Based on this notice, all contracts referring to the CIETAC Shanghai-subcommission should be heard in the newly formed, Beijing CIETAC controlled subcommissions.

In the event of this decision, Shanghai has two competing international arbitration centers at present: the SHIAC and the Beijing CIETAC-Shanghai-subcommission. However, the Shanghai Number 2 Intermediate Court brought some semblance of order to this situation: A decision announced on December 31, 2014, the court concluded that a contract stipulates arbitration before the CIETAC Shanghai-subcommission, SHIAC has exclusive jurisdiction in the matter—not Beijing. (in other words, Beijing has no legal force)—since the name change was procedural in nature rather than substantive.

In the future, careful designation of the arbitration location in your China contract is required. Presently, there are two competing international arbitration commissions operating in Shanghai: SHIAC and the CIETAC Shanghai subcommission. Choose one. Chinese lawyers are masters at delay. Therefore, it is essential that your China contract be absolutely clear on threshold decisions such as dispute resolution, governing language and governing law.

The most important is that foreign parties should carefully think about whether it even makes sense for them to use arbitration in China at all. CIETAC arbitrators are excellent, and the decisions are well crafted; however, arbitration is usually slow and expensive and their powers are limited.

Think carefully about which method is best for you: litigation, international arbitration in China or arbitration in a neutral foreign country?