Chinese Supreme People’s Court Issued Judicial Reply – Jurisdictional Dispute Arising From CIETAC Split Solved.

19 August, 2015

 

On July 15, 2015, the Chinese Supreme People’s Court (hereinafter the “SPC”) published an Official Reply of the Supreme People's Court to the Request of the Shanghai High People's Court et al. for Instructions on the Cases Involving the Judicial Review of Arbitration Awards Made by the China International Economic and Trade Arbitration Commission and Its Former Sub-Commissions (hereinafter the “SPC Reply”).

 

The SPC Reply solves the jurisdictional disputes arising since 2012 over the Sub-commission Arbitration Clause (namely the arbitration clause by which the parties agree to submit disputes to arbitration before the "China International Economic and Trade Arbitration Commission South China Sub-Commission" or the "China International Economic and Trade Arbitration Commission Shanghai Sub-Commission") among China International Economic and Trade Arbitration Commission (hereinafter the "CIETAC"), the former CIETAC 

 

Shanghai Sub-Commission (renamed the Shanghai International Economic and Trade Arbitration Commission, also known as the Shanghai International Arbitration Center, hereinafter the "SHIAC"), and the former CIETAC South China Sub-Commission (renamed the South China International Economic and Trade Arbitration Commission, also known as the Shenzhen Court of International Arbitration, hereinafter the "SCIA").

 

I The SPC Reply Makes Clear the Divisions of Jurisdiction regarding the Sub-commission Arbitration Clause

The SPC Reply makes clear the division of jurisdiction regarding the Sub-commission Arbitration Clause using three key time points, namely: (1) the renaming date of the SHIAC on April 8, 20131, (2) the renaming date of the SCIA on October 24, 2012 2 , and (3) the effective date of the SPC Reply on July 17, 2015. The division of jurisdiction is summarized briefly as follows. 

 

 

II Rules for Judicial Review established by the SPC Reply concerning jurisdiction regarding the Sub-commission Arbitration Clause 

 

1. Protecting the Validity and Enforceability of Arbitral Awards 

 

According to the SPC Reply, any application for revocation or non-enforcement of an arbitration award on the ground that the arbitration institution lacks jurisdiction shall be rejected by the court where, before the SPC Reply takes effect, the CIETAC, SHIAC or SCIA has already accepted an arbitration case that actually should not have been accepted by that arbitration institution in accordance with the SPC Reply, and has rendered an arbitral award.

 

2. Chinese Court has Final Determination of Jurisdiction

 

According to the Competence-Competence principle in international commercial arbitration, once an arbitral tribunal or arbitration institution has exercised jurisdiction over the dispute, the courts normally will refrain from accepting and hearing any dispute regarding the jurisdiction of such case.4

 

The SPC Reply makes it clear that the Chinese courts have final determination of jurisdiction  

over the disputes (among the three arbitration institutions) arising from the Sub-commission Arbitration Clause in the following circumstance:

 

• the claimant in an arbitration case requests the arbitration institution to determine the jurisdiction over the dispute at the time of applying for arbitration, and
• after the arbitral institution decides that the arbitration agreement is valid and it has jurisdiction over the case, the respondent files a lawsuit with the Chinese court before the arbitral tribunal’s first hearing applying for confirmation of the validity of the arbitration agreement.

 

Under such circumstance, the court shall accept the application and make a final decision accordingly.

 

3. The Arbitration Institution which First Accepted the Case has Jurisdiction over the Case

 

For cases that were accepted by the CIETAC, SCIA or SHIAC before the SPC Reply takes effect, if any party applies for the court to confirm the validity of the arbitration agreement before the first hearing of the arbitration tribunal, the court shall comply with the SPC Reply as shown in the chart above. However, where the party did not challenge the validity of the arbitration agreement before the arbitral tribunal’s first hearing, the arbitration institution that first accepted the case shall have jurisdiction over the case.

 

III Comments

 

As the SPC Reply states in its introduction, disputes over the Sub-commission Arbitration Clause among the three arbitration institutions since 2012 have caused controversies and uncertainty regarding the validity of such type of arbitration agreements, the authority of case acceptance for the relevant arbitration institutions, jurisdiction over arbitration cases, and the enforceability of arbitral awards involving the Sub-commission Arbitration Clause. As a result, quite a number of the judicial review lawsuits have been brought before various Chinese courts.

 

The SPC Reply fully addresses all possible circumstances and situations that might arise in practice, successfully solves the jurisdictional disputes among the three arbitration institutions, and provides clear guidance for parties to apply for and proceed with arbitration involving the Sub-commission Arbitration Clause.

 

Since its publication, the SPC Reply has been duly recognized by arbitration practitioners. The SPC Reply not only solves uncertainties regarding the Sub-commission Arbitration Clauses, but also takes into account and balances the interests of the relevant arbitration institutions by acknowledging CIETAC’s leading position and public credibility in the arbitration community as well as recognizing and respecting the SHIAC and SCIA’s independent positions and their new names. 

 

Basing on the above analysis, after the SPC Reply comes into effect, we direct parties to the following recommendations.

 

• If the arbitration clause was entered into before July 17, 2015, the parties shall apply to the appropriate arbitration institutions in accordance with the time points categorized in the SPC Reply;
• When the parties enter into arbitration agreements on and after July 17, 2015, the agreement should accurately name the selected arbitration institution, i.e. China International Economic and Trade Arbitration Commission (CIETAC), Shanghai International Economic and Trade Arbitration Commission (SHIAC), or South China International Economic and Trade Arbitration Commission (SCIA); and
• If the parties continue to name the "China International Economic and Trade Arbitration Commission South China Sub-Commission" or "China International Economic and Trade Arbitration Commission Shanghai Sub-Commission" in their relevant arbitration clause, they should be advised that CIETAC will have jurisdiction over the case.