China's highest court addresses CIETAC split

The Supreme People's Court of China (the SPC) has taken steps to bring consistency to decisions involving CIETAC, China's largest arbitral commission, and its breakaway sub-commissions in Shanghai and Shenzhen. (See our posts of 14 August 2012 and 12 July 2013 for more detail on the CIETAC split.)

In the wake of the split, Chinese courts have issued a number of decisions on the enforceability of arbitration agreements and awards involving the Shenzhen and Shanghai bodies (now known, respectively, as SCIA and SHIAC). These decisions have led to uncertainty over the effect of existing CIETAC arbitration clauses and the correct approach to new CIETAC clauses.

On 4 September 2013, the SPC issued a Notice on Certain Issues Relating to Correct Handling of Judicial Review of Arbitration Matters (《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)(the SPC Notice). Under the SPC Notice, any lower court that hears a case arising out of the breakaway of the former CIETAC Shanghai and South China (Shenzhen) sub-commissions must report to the SPC before making a decision.

Since the formal split by the former Shanghai and South China sub-commissions, local courts have been struggling with cases arising out of disputed agreements providing for either of the former sub-commissions as the administering institution, or applications to resist enforcement of awards made by the Shenzhen or Shanghai bodies. There have been some concerns around the consistency of the courts' decisions, leaving users of CIETAC arbitration uncertain, and resulting in negative publicity for Chinese arbitration.

The SPC recognised the increase in disputes over the jurisdiction of CIETAC and the former sub-commissions to accept arbitration cases. It was against this backdrop that the SPC issued the SPC Notice, offering guidance to the lower courts and providing a unified standard on how to address these cases.

When asked to review the validity of a CIETAC arbitration agreement, or to hear an application to set aside or not enforce an arbitral award made by CIETAC, SHIAC or SCIA, the SPC Notice requires the relevant court to report its intended decision to the SPC. Such report shall be made "level by level" (i.e. to all levels of court between the court seised of the matter and the SPC), after the lower court's judicial committee has discussed the case and given its opinion. The courts should not make any rulings until the SPC has given its opinion.

A similar "level by level" reporting system is in place for judicial review of all foreign-related arbitration agreements and foreign or foreign-related arbitral awards in China. Under this regime, a lower court must report to the competent higher people’s court if it is minded to nullify a foreign-related arbitration agreement, to set aside a foreign-related arbitral award or not to enforce a foreign or foreign-related arbitral award. If the higher people's court approves such decision of the lower court, the higher people’s court shall report its opinion to the SPC. By contrast, according to a notice issued by the Higher People's Court of Guangdong Province on 11 October 2013 circulating the SPC Notice (《广东省高级人民法院转发〈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〉的通知》)(Yue Gao Fa [2013] No. 322), it appears that the SPC Notice requires the lower courts to report their intended decisions to the SPC level by level in all cases that arise out of the CIETAC split, not just where they are minded to nullify a CIETAC arbitration agreement or set aside/refuse to enforce an award made by CIETAC, SHIAC or SCIA. This more rigorous system suggests a desire on the part of the SPC to ensure consistency across all decisions arising out of the recent developments of CIETAC. Another feature of the "level by level" reporting system implemented by the SPC Notice is the express requirement that the judicial committee of the relevant court be consulted in each case, another indication of the SPC's desire to ensure consistency and quality in the decision-making process. The function of the judicial committee, as set out in Article 10 of the PRC People's Court Organization Law is to "collect experience of adjudication, discuss significant or difficult cases and other issues related to the adjudication work".  

The SPC Notice is brief and lacks detail on certain issues, including the timeframe for the lower court's decision to reach the SPC and for the SPC to issue its opinion. It is not known at this stage whether the SPC will issue further guidance on this point.

It also remains to be seen how the SPC may rule on the effect of a pre-split arbitration agreement providing for CIETAC arbitration, and the enforcement of the arbitral award based on such agreement, when reviewing cases reported by the lower courts. However, it is to be welcomed that China's highest court has acknowledged the potential problems caused by the recent developments at CIETAC split and taken measures to address them.