China arbitrator dispute leaves foreign investors uneasy

According to the announcement on August 1, parties that have agreed to arbitration by CIETAC Shanghai or CIETAC South China (Shenzhen) should submit their applications to CIETAC in Beijing. Without the governing body's authorization, no institution has the right to accept and administer such arbitration cases.

This is the latest development in a disagreement on the integration of Chinese arbitrators. In April, CIETAC released a set of amended arbitration rules that became effective on May 1, which stated that all arbitrations had to be administered from Beijing unless contracts specifically stated an alternative venue.

However, as CIETAC in Shenzhen and Shanghai have been handling more cases every year and are ambitious to play a larger role, they refused to adopt the new rules and subsequently declared their independences.

"CIETAC Beijing's announcement is significant. The sub-commissions in Shanghai and Shenzhen effectively no longer exist as official CIETAC entities," Herbert Smith said in a commentary following the news. "Consequently, there is a real risk that arbitration clauses, or new arbitration proceedings, referring disputes to CIETAC Shanghai or Shenzhen could be subject to challenge."

In the absence of further guidance from CIETAC Beijing or the courts, the law firm added that parties drafting arbitration clauses should expressly refer to CIETAC Beijing.

Other market observers suggested that going to CIETAC Beijing may leave foreign investors - who previously agreed to have disputes resolved by Shanghai and Shenzhen - with a choice: either amend contracts post-investment, or proceed to court, which may result in negative publicity.

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