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JUDICIAL SIDE EFFECTS OF THE CIETAC SPLIT – A confusing maze with happy end ?


Judicial Side Effects of the CIETAC Split – A confusing maze with happy end ?

JUDICIAL SIDE EFFECTS OF THE CIETAC SPLIT – A confusing maze with happy end ? By Lear Liu1 and Clarisse von Wunschheim2

Table of Contents

I.

Introduction.............................................................................................................................................. 2

II.

Brief Chronology of the CIETAC Feud.................................................................................................... 2

III.

Case Studies........................................................................................................................................... 3

Case 1:Shenzhen XY v. Zhang (2012).................................................................................................... 4

Case 2: Jiangxi LDK Solar v. Risen Energy (2013)................................................................................. 5

Case 3: Jiangxi LDK Solar v. Jinnuo Materials (2013)............................................................................ 8

Case 4: Jiangxi LDK Solar v. Suzhou Artes (2013)................................................................................. 9

IV.

Critical Analysis......................................................................................................................................11

V.

Conclusion............................................................................................................................................. 14

1 Associate at WunschArb. 2 Dr. iur. and Founding Partner of WunschArb.

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Judicial Side Effects of the CIETAC Split – A confusing maze with happy end ?

I. Introduction 1. When it comes to arbitration in China, CIETAC might be the first arbitration institution foreign observers think of, and in the past year, the internal conflicts at CIETAC were undoubtedly a cause célèbre in arbitration circles. Although the tension started to ferment with the amendment of the prior CIETAC Rules 2005, the internal conflict surfaced only after the promulgation of the new CIETAC Arbitration Rules in February 2012 and subsequently erupted into a continuous feud with various rounds of announcement and denouncement from each side. 2. With support from the local governments, the two CIETAC sub-commissions in Shanghai and Shenzhen have split from the CIETAC headquarters in Beijing by adopting their own institutional name, arbitration rules and panel of arbitrators (the ‘Split’). While it now seems that CIETAC has made its peace with the Split, the destiny of arbitration clauses involving and arbitral awards issued by the two former CIETAC sub-commissions before and after the Split remains uncertain. 3. In this article, the authors explore the impact of the CIETAC internal feud on arbitration practice in China through the study of recent judicial reactions to applications for annulment and enforcement of arbitral awards issued by CIETAC’s former Shanghai Sub-commission (now known as both the Shanghai International Arbitration Centre (SHIAC) and the Shanghai International Economic and Trade Arbitration Commission (SIETAC)) and CIETAC’s former South-China Sub-commission (now known as both the Shenzhen Court of International Arbitration (SCIA) and the South China International Economic and Trade Arbitration Commission (SCIETAC)).

II. Brief Chronology of the CIETAC Feud 4. In February 2012, CIETAC Beijing promulgated the CIETAC Arbitration Rules (2012), which became effective on 1 May 2012 (the ‘2012 Rules’).3 Under Article 2(6) of the 2102 Rules, a case could be administered by CIETAC’s local sub-commissions only where the arbitration agreement explicitly designates such sub-commission; where the arbitration agreement simply refers to CIETAC, the case was to be administered by CIETAC’s headquarters in Beijing.4 5. The promulgation of CIETAC Arbitration Rules (2012) was strongly resisted by the two sub-commissions, as the new Rules substantially cut the influence and revenue of the two sub-commissions. In response, the CIETAC Shanghai Sub-commission and CIETAC South-China Sub-commission asserted their independence from CIETAC Beijing in April and June 2012 respectively by enacting their own arbitration rules and adopting their own panel of arbitrators.5 This assertion of independence was based on registration certificates obtained from the local governments of Shanghai and Shenzhen.

3 The complete text of the 2012 Rules is available at http://www.cietac.org/index.cms (last visited on 7 February 2014). 4 Ibid. 5 See CITEAC South-China Sub-commission’s Announcement (dated 16 June 2012), available at http://www.sccietac.org/main/zxfw/xwtt/notice/T115204.shtml (last visited on 7 February 2014). As to the CIETAC Shanghai Sub-commission’s announcement, it was recently withdrawn from its website. Its rules are is available at http://www.cietac-sh.org/Guide.aspx?tid=12 (last visited on 7 February 2014).

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Judicial Side Effects of the CIETAC Split – A confusing maze with happy end ?

6. After their re-establishment as independent entities, CIETAC Beijing suspended and later revoked the authorization of the Shanghai and South-China Sub-commissions to accept and administer arbitration cases.6 CIETAC Beijing then set up new secretarial offices in Shanghai and Shenzhen to deal with incoming cases.7 7. The suspension and revocation was also contested by the two former Sub-commissions who claimed that their arbitral jurisdiction derived from the parties’ own entrustment rather than from CIETAC Beijing’s authorization.8 In addition, upon lobbying by the two former Sub-commissions, the local governments in Shanghai and Shenzhen subsequently published a list of local arbitration institutions, recognizing the independent status of CIETAC Shanghai Sub-commission and CIETAC South-China Sub-commission while omitting to list CIETAC’s new secretarial offices in Shanghai and Shenzhen.9

III. Case Studies 8. Be it a political or financial drama, this feud has not only cast CIETAC Beijing and its two former Sub-commissions as the main actors, the drama has also now become a judicial muddle with no sign of ending. Various courts at different levels in different provinces of China have been drawn into this public catfight and have had to express their opinions on the status of and relationship between CIETAC Beijing and the two former sub-commissions within the context of annulment and enforcement proceedings relating to arbitral awards issued by the two former sub-commissions. In reaction to this, SHIAC and SCIA have both felt the need to publish ‘encouraging’ and ‘beneficial’ news on their official websites regarding court decisions on the validity and enforceability of arbitral awards issued by them to reassure users about the efficiency of the process. 9. In order to illustrate the risks arising out of the CIETAC feud for arbitration users, the following section examines a few recent instances of judicial examination of arbitral awards issued by the two former Sub-commissions, including one case aimed at annulling the arbitral award and three enforcement cases.

6 See CIETAC Announcement on the Administration of Cases Agreed to be Arbitrated by CIETAC Shanghai Sub-Commission and CIETAC South China Sub-commission (dated 1 August 2012) and CIETAC Announcement on Issues Concerning CIETAC Shanghai Sub-commission and CIETAC South China Sub-commission (dated on 31 December 2012), available at http://www.cietac.org/index.cms (last visited on 7 February 2014). 7 See also CIETAC Secretariat South China Office, Shanghai Office Relocation Announcement (dated 1 August 2013) available at http://www. cietac.org/index.cms (last visited on 7 February 2014) 8 See Joint Statement by CIETAC Shanghai Sub-commission and CIETAC South-China Sub-commission (dated 4 August 2012), available at http://www.sccietac.org/upload/20120804/201284_1344083169849.pdf (last visited on 7 February 2014). 9 See the official replies of Shanghai Municipal Bureau of Justice (11 October 2012), available at http://www.cietac-sh.org/upload/ day_130408/201304080403566540.pdf (last visited on 7 February 2014), and Guangdong Provincial Department of Justice (dated 6 December 2012), available at http://www.sccietac.org/upload/20130101/201311_1357020625222.pdf (last visited on 7 February 2014).

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Judicial Side Effects of the CIETAC Split – A confusing maze with happy end ?

Case 1: Shenzhen XY v. Zhang (2012)10 10. On 23 May 2012, slightly before the Split, a Chinese individual surnamed Zhang (as creditor) filed a Request for Arbitration with CIETAC South-China Sub-commission against Shenzhen XY Co. Ltd (hereinafter ‘Shenzhen XY’) and four other Chinese individuals and companies. The Request for Arbitration was based on an arbitration clause contained in a loan agreement and a letter of warranty regarding the loan repayments. The arbitration clause provided for arbitration with CIETAC South-China Sub-commission without however specifying the arbitration rules to apply. In view of this, the Arbitral Tribunal decided to apply the CIETAC Rules (2005). 11. On 23 August 2012, the Arbitral Tribunal rendered an arbitral award, ordering Shenzhen XY and the other defendants to be jointly and severally liable for the loan repayment of over CNY 10 million. It seems that none of the defendants raised any objection during the arbitration proceedings to the jurisdiction of CIETAC South-China Sub-commission. 12. In late 2012, Shenzhen XY filed an application for annulment of the arbitral award in the Shenzhen IPC, based on the following reasons: (i) that the Arbitral Tribunal had erred in applying the 2005 version of CIETAC Arbitration Rules and should have applied the CIETAC Arbitration Rules 2012 (promulgated by CIETAC Beijing), which had taken effect on 1 May 2012; and (ii) the Arbitral Tribunal had failed to duly notify Shenzhen XY of the date for hearing thereby breaching the arbitration rules. 13. On 20 November 2012, the Shenzhen IPC issued a ruling rejecting Shenzhen XY’s application for annulment. In its decision, the Shenzhen IPC opined that the CIETAC South-China Sub-commission was an independent arbitration institution. In addition, in the absence of a special mutual agreement on the applicable arbitration rules, the parties’ submission of their dispute to CIETAC South-China Sub-commission had already indicated their consent to the use of the arbitration rules as applied by the CIETAC South-China Sub-commission at the time of applying forarbitration, i.e., the CIETAC Arbitration Rules (2005)11. Regrettably, though unsurprisingly, the Shenzhen IPC did not elaborate on the relationship between CIETAC Beijing and CIETAC South-China Sub-Commission, in particular the latter’s independent status.

10 《广东省深圳市中级人民法院民事裁定书》 (2012)深中法涉外仲字第 225 号 [Decision of the Guangdong Shenzhen IPC, (2012) Shenzhen IPC Foreign-Related Arbitration) No. 225] (www.sccietac.org). 11 According to Article 4(2) of the CIETAC Arbitration Rules (2005), “The parties shall be deemed to have agreed to arbitration in accordance with these Rules if they have agreed to arbitration by CIETAC. Where the parties agree to refer their dispute to CIETAC for arbitration but have agreed on a modification of these Rules or have agreed on the application of other arbitration rules, the parties’ agreement shall prevail unless such agreement is inoperative or in conflict with a mandatory provision of the law as it applies to the arbitration proceedings.” (Original English of the arbitration rules).

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Judicial Side Effects of the CIETAC Split – A confusing maze with happy end ?

Case 2: Jiangxi LDK Solar v. Risen Energy (2013)12 14. On 13 August 2012, i.e., after the Split but before the re-naming of the CIETAC Shanghai Sub-Commission, Jiangxi LDK Solar Hi-Tech Co. Ltd (hereinafter ‘Jiangxi LDK Solar’), a Chinese company, filed a Request for Arbitration with the CIETAC Shanghai Sub-commission against Risen Energy JSLC (hereinafter ‘Risen Energy’), also a Chinese company. The dispute for arbitration was derived from a sales contract with an arbitration clause, providing for arbitration with the CIETAC Shanghai Sub-commission. 15. On 21 August 2012, the CIETAC Shanghai Sub-commission registered the case. However, on 29 September 2012, Risen Energy raised objections to CIETAC Shanghai Sub-commission’s jurisdiction, though details are not available. Subsequently, the objections were overruled and the Arbitral Tribunal conducted proceedings applying the 2012 Rules. It seems that Risen Energy duly participated in the ensuing arbitration proceedings. 16. On 28 January 2013, the Arbitral Tribunal issued an award, ordering Risen Energy to pay an amount of approximately CNY 12 million covering outstanding goods payment, costs of arbitration, and legal costs. 17. In February 2013, Jiangxi LDK Solar initiated legal proceedings before the Ningbo IPC against Risen Energy for enforcement of the arbitral award. In response, Risen Energy raised objections to the enforcement application based on the grounds that (i) there was no valid arbitration agreement; (ii)CIETAC Beijing had cancelled its authorization of the CIETAC Shanghai Sub-commission regarding the administration of arbitration cases; and (iii) the court should examine the 13 enforceability of the award based on Article 237 of the PRC Civil Procedure Law (2012). 18. On 22 May 2013, the Ningbo IPC refused to enforce the arbitral award based on the following reasoning:

12 《浙江省宁波市中级人民法院执行裁定书》 (2013)浙甬执监字第 1 号 [Enforcement Decision of the Zhejiang Ningbo IPC, (2013) Zhejiang Ningbo IPC Enforcement Supervision No. 1] (www.cietac-sh.org). 13 According to Article 237 of the PRC Civil Procedure Law (2012), “Where a party refuses to comply with an award rendered by a legally established arbitral institution, the opposing party may apply for enforcement to the people’s court having jurisdiction. The people’s court accepting the application shall enforce the award. Where the respondent adduces evidence that the arbitration award falls under any of the following circumstances, the people’s court shall, upon examination and verification by a collegial bench, issue a ruling not to enforce the arbitration award: (1) The contract between the parties does not include an arbitration clause or the parties have not reached any written arbitration agreement after a dispute arose. (2) The matters arbitrated are outside the scope of an arbitration agreement or the arbitral institution has no arbitration power. (3) The composition of the arbitration tribunal or the arbitration procedure has violated the statutory procedures. (4) The evidence for rendering the award is forged. (5) The opposing party withholds any evidence to the arbitral institution, which suffices to affect an impartial award. (6) When arbitrating the case, any arbitrator commits embezzlement, accepts bribes, practices favoritism for personal gains, or renders the award by bending the law. If a people’s court holds that the enforcement of an arbitration award is contrary to the public interest, the people’s court shall issue a ruling not to enforce the award. Such a ruling shall be served on both sides and the arbitral institution. Where an arbitration award is not enforced according to a ruling of a people’s court, the parties may, according to a written arbitration agreement reached by them, apply again to an arbitral institution for arbitration or institute an action in a people’s court” (translation from www.pkulaw.com).

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Judicial Side Effects of the CIETAC Split – A confusing maze with happy end ?

(a) The parties to the arbitral award had designated the CIETAC Shanghai Sub-commission as the arbitration institution in their arbitration clause on 19 July 2011. Back then, the CIETAC Shanghai Sub-commission was a CIETAC branch. However, when the Request for Arbitration was accepted by the CIETAC Shanghai Sub-commission on 21 August 2012, it had already become an independent arbitration commission. Given that the CIETAC Shanghai Sub-commission obtained its registration certificate from the Shanghai Municipal Bureau of Justice on 8 December 2011 and adopted its own arbitration rules and panel of arbitrators after this, it was no longer a branch of CIETAC. In other words, it was no longer the arbitration institution as designated by the parties in the arbitration clause. Therefore, the matters decided in the award were beyond the arbitral authority of the CIETAC Shanghai Sub-commission based on Article 237(2)(iii) of the PRC Civil Procedure Law (2012). (b) Upon asserting its independence, the CIETAC Shanghai Sub-commission failed to inform the parties of the institutional changes and even went as far as discounting the jurisdictional objections raised by Risen Energy. This was in blatant breach of the parties’ autonomy in choosing the arbitration institution. (c) Moreover, the legitimacy of the change of institutional status was beyond the scope of judicial review in this case and fell within the exclusive jurisdiction of the ‘competent state department’, though the court did not specify which department this was. 19. This ruling was however later revoked by the very same Ningbo IPC. 20. It appears that Jiangxi LDK Solar somehow applied to the Zhejiang HPC to exercise supervisory power over the Ningbo IPC, presumably under the enforcement supervision mechanism provid14 ed in Article 130(1) of the SPC Provisions on Enforcement Work (Trial Implementation) (1998). In its supervision order to the lower court, the Zhejiang HPC held as follows: (a) The Ningbo IPC had erred in relying on Article 237(2)(ii) of the PRC Civil Procedure Law (2012)15 to rule that the CIETAC Shanghai Sub-commission had no authority over the dispute; (b) Given that the parties had designated the CIETAC Shanghai Sub-commission in their arbitration clause and the arbitral award was issued in the name of the CIETAC Shanghai Sub-commission, the Ningbo IPC should have conducted a prima facie examination when determining whether the CIETAC Shanghai Sub-commission as designated by the parties was identical to the institution that issued the arbitral award; (c) Despite its jurisdictional objections, Risen Energy continued to participate in the arbitration proceedings after the Arbitral Tribunal rejected such objections. Therefore, Risen Energy had actually consented to the arbitral authority of the CIETAC Shanghai Sub-commission.

14 Article 130 of the SPC Provisions on Enforcement Work (Trial Implementation) (1998) provided that “[i]f the court at a higher level finds errors or impropriety in a ruling, decision, notice, or any other specific enforcement measure made or taken by the court at a lower level in the enforcement proceedings, the court at the higher level shall instruct the court at the lower level to correct the errors or impropriety, and may order postponing the enforcement” (author’s translation). 15 See supra fn. 13.

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Judicial Side Effects of the CIETAC Split – A confusing maze with happy end ?

21. On 25 July 2013, the Ningbo IPC revoked its prior ruling and ruled to enforce the arbitral award issued by the CIETAC Shanghai Sub-commission.

Case 3: Jiangxi LDK Solar v. Jinnuo Materials (2013)16 22. On 26 December 2011, i.e., before the Split, the same Jiangxi LDK Solar filed a Request for Arbitration with the CIETAC Shanghai Sub-commission against another Chinese company, Zhejiang Jinnuo Composite Materials Co. Ltd (hereinafter ‘Jinnuo Materials’) over a sales dispute. The sales contract between the parties contained an arbitration clause, providing that any dispute arising from the performance of the contract should be resolved by negotiation, and in case17 of the failure of such negotiations, by arbitration with ‘the CIETAC Shanghai Sub-commission’. 23. On 5 November 2012, i.e., after the Split, the Arbitral Tribunal issued an award, ordering Jinnuo Materials to compensate Jiangxi LDK Solar an amount of over CNY 17 million, covering default damages and costs of arbitration. The Arbitral Award bore the stamp of CIETAC Shanghai Sub-commission. 24. On 28 February 2013, Jiangxi LDK Solar filed an application in the Taizhou IPC for enforcement of the domestic arbitral award against Jinnuo Materials. Jinnuo Materials raised the following objections against the enforcement: (i) the Arbitral Tribunal erred in its findings of fact; (ii) the Arbitral Tribunal erred in its application of the law; and (iii) enforcing the arbitral award would be contrary to PRC public policy. During the court proceedings, Jinnuo Materials raised additional objections claiming that (i) the CIETAC Shanghai Sub-commission had changed its institutional status during the arbitration proceedings by declaring its independence from CIETAC Beijing. Thus, the CIETAC Shanghai Sub-commission no longer had jurisdiction over the dispute according to Article 237(2)(ii) of the PRC Civil Procedure Law (2012); (ii) in addition, the CIETAC Shanghai Sub-commission had failed to inform the parties of its change of status, thereby depriving the parties of their right to an informed consent. 25. On 29 July 2013, the Taizhou IPC rejected Jinnuo Materials’ objections to the enforcement of the arbitral award. The court held that Jinnuo Materials’ objections regarding the Arbitral Tribunal’s error in factual finding and legal application were not legal grounds for non-enforcement as provided in Article 237(2) of the PRC Civil Procedure Law (2012). Moreover, the enforcement of the arbitral award did not violate PRC public policy. 26. Similar to the above reasoning of the Zhejiang HPC regarding CIETAC Shanghai Sub-commission’s lack of arbitral authority, the Taizhou IPC held that:

16 《浙江省台州市中级人民法院执行裁定书》 (2013)浙台执裁字第 2 号 [Enforcement Decision of the Zhejiang Taizhou IPC, (2012) Zhejiang Taizhou IPC Enforcement Ruling No. 2] (www.cietac-sh.org). 17 Author’s translation of the wording as quoted in the court decision.

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Judicial Side Effects of the CIETAC Split – A confusing maze with happy end ?

(a) According to Article 237(2)(ii) of the PRC Civil Procedure Law (2012), the terms ‘lack of arbitral authority’ meant that the matters subject to arbitration fall beyond the scope of arbitration as prescribed by the law. Thus, the change of institutional status did not deprive the CIETAC Shanghai Sub-commission of its arbitral authority. In other words, Article 237(2)(ii) 18 of the PRC Civil Procedure Law (2012) did not apply to the present case. (b) The parties had designated the CIETAC Shanghai Sub-commission in their arbitration clause and the arbitral award was issued in the name of the CIETAC Shanghai Sub-commission. In the enforcement proceedings, the court should only conduct a prima facie examination when comparing the name of the institution as designated by the parties with the one that issued the arbitral award. (c) After all, Jinnuo Materials had fully participated in the arbitration proceedings without raising any objection to the jurisdiction of the CIETAC Shanghai Sub-commission.

Case 4: Jiangxi LDK Solar v. Suzhou Artes (2013)19 27. On 23 July 2010, i.e., before the Split, the same Jiangxi LDK Solar filed a Request for Arbitration with the CIETAC Shanghai Sub-commission against Suzhou Artes Sunshine Power Technology (hereinafter ‘Suzhou Artes’), an affiliated company of Canadian Solar. The Request for Arbitration was based on two supply contracts including identical arbitration clauses and providing for arbitration with ‘CIETAC (place of arbitration: Shanghai, China) in accordance with the CIETAC arbitration rules in effect at the time of applying for arbitration’.20 28. On 28 July 2010, the CIETAC Shanghai Sub-commission registered the case and served the Notice of Arbitration on Suzhou Artes. The arbitration proceedings that followed were conducted in accordance with the CIETAC Arbitration Rules (2005). 29. On 7 December 2012, i.e., after the Split, the Arbitral Tribunal rendered an arbitral award, ordering Suzhou Artes to provide approximately a deposit of CNY 60 million (approx. USD 9,5 million) 21 according to the supply contracts. 30. In February 2013, Jiangxi LDK Solar applied to the Suzhou IPC for enforcement of the arbitral award. The Defendant Suzhou Artes raised objections to the enforcement application based on the following reasons: (i) the CIETAC Shanghai Sub-commission had no jurisdiction over the dispute; (ii) the arbitration proceedings had not been conducted in accordance with statutory procedure; and (iii) the Arbitral Tribunal had erred in both findings of fact and application of the law.

18 See supra fn. 13. 19 《江苏省苏州市中级人民法院民事裁定书》(2013)苏中商仲审字第 0004 号 [Decision of the Jiangsu Suzhou IPC, (2013) Suzhou IPC Arbitration Review No. 0004]. This decision is not published and was kindly provided to the author by Yi Bo from Law School of Southeast University in Nanjing. 20 Author’s translation of the wording as quoted in the court decision. 21 Average exchange rate (2012; World Bank): USD 1 = CNY 6.31.

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Judicial Side Effects of the CIETAC Split – A confusing maze with happy end ?

31. The Suzhou IPC focused on the first objection concerning the jurisdiction of CIETAC. In particular, the court approached the issue from three different perspectives: (i) the arbitration institution as designated by the parties; (ii) the CIETAC Shanghai Sub-commission’s relationship with CIETAC Beijing before obtaining its registration certificate from the local government; and (iii) the CIETAC Shanghai Sub-commission’s relationship with CIETAC Beijing after obtaining such certificate. 32. With regard to the first point, the Suzhou IPC found that the parties had designated CIETAC as the arbitration institution with Shanghai as the place of arbitration. As to the second point, the Suzhou IPC found that the CIETAC Shanghai Sub-commission was an integral part of CIETAC before obtaining its registration certificate from the Shanghai Municipal Bureau of Justice on 8 December 2011. As for the third point, the Suzhou IPC found that the CIETAC Shanghai Sub-commission was no longer a CIETAC branch after obtaining registration certificate. Moreover, the court opined that by obtaining the registration certificate, the CIETAC Shanghai Sub-commission fulfilled the formal requirements to qualify as an independent arbitration institution, and also satisfied the substantive requirements for promulgation of its own arbitration rules and panel of arbitrators. 33. Given that the jurisdiction of an arbitration institution originated from the consent of the parties to arbitration, the CIETAC Shanghai Sub-commission had jurisdiction over the dispute when accepting the case in 2010. However, once the CIETAC Shanghai Sub-commission obtained its registration certificate in 2011, its institutional status changed and it was no longer the institution designated by the parties. 34. Based thereon, the Suzhou IPC also found that the CIETAC Shanghai Sub-commission had failed to notify the parties to the arbitration of its change in institutional status. This constituted a breach of the parties’ autonomy as it deprived them of the opportunity to reconsider a different arbitration commission. 35. On 7 May 2013, based on Article 237(2)(ii) of the PRC Civil Procedure Law (2012), the Suzhou IPC rendered a ruling not to enforce the arbitral award issued by the CIETAC Shanghai Sub-commission. 36. However, on 27 September 2013, the Jiangsu HPC ordered the Suzhou IPC to22revoke its decision and issue a new ruling after reconsidering the case. Based on the ‘Reply’ of the Jiangsu HPC, The Jiangsu HPC issued such order on the basis of its supervisory power, regrettably without invoking any legal basis. 37. In November 2013, the Suzhou IPC decided to revoke its earlier decision and issue a new ruling after further examination of the case.23 At this point, it still remains to be seen whether the Suzhou IPC will grant enforcement of the CIETAC Shanghai Sub-commission’s award.

22 《江苏省高级人民法院通知书》(2013) 苏执监字第 0071 号 [Notice of the Jiangsu HPC, (2013) Jiangsu HPC Enforcement Supervision No. 0074]. This decision is not published and was on file with the author. 23 See news reports on the decision of the Suzhou IPC in November 2013 at http://solar.ofweek.com/2013-12/ART-260001-8120-28750654.html (last visited on 7 February 2014)

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Judicial Side Effects of the CIETAC Split – A confusing maze with happy end ?

IV. Critical Analysis 38. There are various noteworthy elements and trends arising out of the above four court decisions. 39. First of all, there are certain similarities among the four cases: (a) All four cases concerned purely domestic disputes, i.e., not involving any foreign entity. (b) In all cases, the request for arbitration was filed before the completion of the Split of the former CIETAC Sub-commissions, while the award was rendered after the Sub-commissions had fully restructured themselves. (c) Only in Case 2 did a party, Risen Energy, raise jurisdictional objections during the arbitration proceedings, whereas in all other cases the losing party sought to take advantage of the institutional status change of the former CIETAC Sub-commissions to challenge the award, without having raised similar objections in the arbitration proceedings. (d) The three applications for enforcement of CIETAC Shanghai Sub-commission’s arbitral awards all involved the same party, viz., Jiangxi LDK Solar, the world’s largest manufacturer of solar wafers. In addition, for Jiangxi LDK Solar, the three arbitral awards involved important financial interests totaling a value of CNY 90 million (approx. USD 14 million).24 40. Notwithstanding these similarities, different courts approached the same problem in different ways leading to different rulings: 41. The Ningbo IPC (in the first ruling of Case 1) and the Suzhou IPC (in Case 2) both examined the relationship between the CIETAC Shanghai Sub-commission and CIETAC Beijing before and after it obtained its independent registration certificate. Since they found that the CIETAC Shanghai Sub-commission issuing the arbitral award was not identical to the CIETAC Shanghai Sub-commission as designated in the arbitration clause, both courts found that the arbitral award was defective. 42. In contrast, the Zhejiang HPC (in Case 1) and the Taizhou IPC (in Case 3) adopted a distinct approach by opining that in enforcement proceedings, the court should only make a superficial, i.e. prima facie, examination when determining the consistency between the arbitration institution as designated in the arbitration clause and the one that issued the arbitral award. They did not bother examining what effects, if any, the CIETAC Split had on the efficiency and enforceability of the parties’ original agreement. 43. The other court which did not take issue with the jurisdictional problems raised by the Split was the Shenzhen IPC. In view of the support given by the Shenzhen government to the newly established SCIA and given the financial dependency of courts on government finances, it is understandable that the Shenzhen IPC had no incentive to undermine the efforts of the government and annul an award issued by such a newly established institution.

24 Average exchange rate (2012; World Bank): USD 1 = CNY 6.31.

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44. Thus, the Suzhou IPC and the Ningbo IPC adopted a more thorough approach than the other courts and sought to understand and respect the intention of the parties. Such an approach is in principle commendable as it seeks to give regard to a fundamental principle of arbitration, the parties’ autonomy. What is however puzzling is that instead of relying on a breach of the parties’ agreement, the courts felt more confident to rely on a procedural irregularity, the failure to notify the parties of the institutional status change. In contrast, the Zhejiang HPC and the Taizhou IPC gave little regard to the parties’ intentions and rights, and focused on maintaining appearances. 45. Another interesting but rather puzzling approach was taken by the Zhejiang HPC in Case 2. It considered that because Risen Energy continued to participate in the arbitration proceedings after the arbitral tribunal rejected such objections, it had actually consented to the arbitral tribunal’s jurisdiction. This argument is absurd as it would mean that a party raising jurisdictional objections should boycott the proceedings and disregard a ruling from the arbitral tribunal. This cannot reasonably have been the intention of the Zhejiang HPC. 46. In addition, the way in which the Zhejiang HPC and the Jiangsu HPC intervened is also opaque. Under the pretext of exercising ‘supervisory powers’, these two HPCs instructed the lower courts, i.e., the Ningbo IPC and the Suzhou IPC respectively, to revoke their prior decision and issue a new decision. This is a de facto circumvention of the principle that court rulings on the enforcement of awards are not subject to appeal.25 47. Based on the above considerations, it clearly arises that courts do not have a uniform or consistent approach to the jurisdictional challenges raised by the CIETAC Split and that they are likely to be driven by various motives and considerations when dealing with challenges to the award. This tendency is likely to be particularly strong for domestic cases, which are not subject to prior approval by the Supreme People’s Court under the Prior Reporting System 1995.26 48. It is thus not surprising that the Supreme People’s Court has been closely following the development of the CIETAC feud and the jurisdictional issues arising thereout. In fact, the SPC has since May 2013 been deliberating on how to tackle the judicial confusion and uncertainty derived from the CIETAC Split. On 4 September 2013, the SPC issued a Notice on Certain Issues Concerning Correct Handling of Judicial Review of Arbitration Matters27 (the ‘SPC Notice’) in an effort to ensure judicial consitency. 25 According to Article 154 of the PRC Civil Procedure Law (2012), “The scope of application of a ruling shall include: (1) Refusing to accept an action; (2) Objection to jurisdiction; (3) Dismissing an action; (4) Preservation and advance enforcement; (5) Granting or not granting the withdrawal of an action; (6) Suspension or termination of an action; (7) Correcting typos in a written judgment; (8) Suspension or termination of enforcement; (9) Revoking or not enforcing an arbitration award; (10) Refusing to enforce a debt instrument with enforceability legally granted by a notary office; and (11) Other issues to be resolved by a ruling. A ruling in items (1) to (3) of the preceding paragraph is appealable. A written ruling shall state the results of ruling and reasons for issuing the ruling. The judges and court clerk shall affix their signatures and the people’s court shall affix its seal to a written ruling. A verbal ruling shall be recorded in transcripts” (translation from www.pkulaw.com). Based on this legal provision, a civil ruling on enforcement of an arbitral award should not be subject to appeal. 26 See the SPC Notice on the Prior Reporting System (1995). 27 Author’s translation of the Notice titled 《最高人民法院关于正确审理仲裁司法审查案件有关问题的通知》(Fa [2013] No. 194).

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Judicial Side Effects of the CIETAC Split – A confusing maze with happy end ?

49. According to the SPC Notice, when dealing with arbitration matters involving the CIETAC Split, the lower courts are required to submit the case to their judicial committee28 for discussion and to report to the higher courts (and all the way up to the SPC) for instructions before they issue a ruling. This applies to cases concerning the verification of the validity of a CIETAC arbitration agreement as well as objections to an enforcement of or applications for the annulment of arbitral awards by the two former sub-commissions. 50. Admittedly, the SPC Notice as such is praiseworthy as it attempts to ensure judicial uniformity and a control by the SPC. While this reporting system is similar to the reporting system available with regard to the annullment and/or enforcement foreign-related and foreign arbitration agreements and awards,29 it shows several distinctive features: First, the reporting duty applies to both domestic and foreign-related arbitration. Second, the reporting duty applies irrespective of how the courts intend to rule, and not only in cases where they intend to refuse enforcement or annul the arbitration clause or the arbitral award. Third, it is not crystal clear whether the SPC Notice also require any intended opinion from the competent higher courts. Fourth, the SPC Notice does not provide for any specific time limit for reporting and/or for issuing a reply.

V. Conclusion 51. Notwithstanding the efforts made by the CIETAC Shanghai and Shenzhen Sub-commissions as well as CIETAC Beijing to highlight encouraging developments aimed to reassuring the arbitration users, local courts have taken different approaches, and losing parties have already started using the Split as a means to seek annulment or non-enforcement of disadvantageous awards. As one Chinese popular song goes, “Before one wave is quelled, another wave attacks.” 52. While the judicial confusion may now seem to be under control thanks to the promulgation of the SPC Notice, the SPC is yet to issue its first reply. It thus remains to be seen how the SPC will deal with these cases and, in particular, what weight it will give to party autonomy and what weight it will give to ensuring efficiency of the process and saving the ‘face’ of local authorities. 53. Until the current uncertainty is resolved by the SPC, those paying the price of such uncertainty are the parties, who face the risk of their original agreement becoming ineffective and seeing their cases administered by an arbitration institution they did not intend. Thus, caution is recommended and parties should re-negotiate and either confirm or modify their arbitration clauses where such clauses designate CIETAC’s former Sub-commissions as relevant arbitration institutions.30

28 The ‘judicial committee’ is a court-internal committee with the role of summing up judicial experience and discussing important or difficult cases and other issues relating to the judicial work (see Article 11 of the PRC Organic Law of the People’s Courts (1986). 29 See the SPC Notice on the Prior Reporting System (1995) and the SPC Notice on the Prior Reporting System (1998). 30 For further recommendations see Clarisse von Wunschheim and Lear Liu, ‘The CIETAC Feud – Why it’s a Mess, and How to Aovid Being Caught in the Middle’, Asian Dispute Review, July 2013, pp. 78-83.

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JUDICIAL SIDE EFFECTS OF THE CIETAC SPLIT – A confusing maze with happy end ?

Judicial Side Effects of The CIETAC Split  
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