CIETAC: a look at the Beijing and Shanghai Rules

On May 1 2012 the new Arbitration Rules of the China International Economic and Trade Arbitration Commission (CIETAC) came into force. Meanwhile, the China International Economic and Trade Arbitration Commission Shanghai Commission (CIETAC Shanghai) released its own Arbitration Rules, also effective from May 1 2012. The new Arbitration Rules of CIETAC (Beijing Rules) embrace some new features that follow trends in international commercial arbitration while the Arbitration Rules of CIETAC Shanghai (Shanghai Rules), though with some revisions, are clear-cut and easy to implement. On the whole, the two sets of Rules are largely the same with respect to their structure and content. However, there are some prominent differences between the two that might have an influence on the choice of arbitration institutions. The following article compares and highlights the major differences between the two sets of rules, with particular emphasis on the procedural provisions of the rules.

Different acceptance procedures…leads to different results
With respect to the acceptance of a case, the Beijing Rules follow the old approach. Under the old approach, CIETAC sends a Notice of Arbitration to both parties at the same time. Under the Shanghai Rules, after a case has been accepted for arbitration, the notice of arbitration is served on the claimant and respondent separately. The notice of acceptance needs to be served on the claimant within five days after the application is formally accepted while the notice of arbitration is requested to be served on the respondent within five days after the service on the claimant, with a maximum allowance of ten days for service. Given the fact that the respondent may not receive the notice of arbitration until the last day of the service period, the Shanghai Rules, from a practical perspective, minimise the opportunity for the respondent to transfer its assets and maximise the claimant’s chances of successfully implementing an asset preservation order through a PRC court.

Consolidation
Following standards established by modern international arbitration practices, both of the new rules incorporate a new mechanism which allows the parties to consolidate two or more separate arbitrations into one proceeding, provided that all the parties consent. One difference between the two rules lies in how the consolidation process is initiated. According to the Beijing Rules, consolidation can be requested by one party or be proposed by CIETAC when it believes consolidation is necessary.

Under the Shanghai Rules, consolidation can only be initiated upon application by one party. In addition, the types of cases that can be consolidated under the Beijing Rules are broader than those that can be consolidated under the Shanghai Rules. Article 17(2) of the Beijing Rules lays out the factors that CIETAC may consider in deciding whether to consolidate arbitrations. These factors include: “whether all of the claims in the different arbitrations are made under the same arbitration agreement, whether the different arbitrations are between the same parties, and the appointment or nomination of arbitrators in the different arbitrations” (sic). In contrast, it can be implied from the Shanghai Rules that only when the arbitration panel members of the arbitral tribunals are the same can two or more related arbitrations or arbitrations involving similar subject matter be consolidated.

A question of preservation
In terms of interim measures, the Shanghai Rules provide for two preservation measures, the preservation of property and preservation of evidence. Under the Shanghai Rules, an application for preservation of property or evidence shall be forwarded to the competent court for its order and enforcement. This procedure is strictly in line with the current provisions of PRC Civil Procedure Law and Arbitration Law.

In the interim…
The Beijing Rules regarding interim measures are a bit vague. CIETAC once published draft rules for public comment in which the scenarios under which interim measures would be granted were more clearly defined. The draft rules stated, “At the request of a party, the arbitral tribunal may grant any interim measure it deems necessary or proper, and may require the party requesting the interim measure to provide appropriate security in connection with the measure. The grant of an interim measure by the arbitral tribunal may take the form of a procedural order or an interlocutory award.” Under the draft rules, the Beijing Rules would have empowered an arbitral tribunal to order any interim measure it deems necessary or proper. However, this draft clause may fall foul of the current law. In its published rules, the Beijing Rules added the restrictive phrase “in accordance with the applicable law” to the granting of interim measures in the form of an interlocutory award or a procedural order clause in the draft rules. The purpose and effect of this restrictive phrase is unclear as PRC Civil Procedure Law and Arbitration Law reserve the authority to grant such interim measures to a competent people’s court. Additionally, there is no text in the Arbitration Law that authorises arbitral tribunals to grant preservation of assets in the form of an order. A more in-depth reading of the clause and the current consensus is that this rule only applies when CIETAC conducts its hearing outside of China in a location where the local law allows such interim measures to be granted by an arbitral tribunal. If this understanding is correct, it would be a welcome improvement for parties who intend to choose a location outside of mainland China as the place of arbitration and arbitral tribunals in that location have the authority to grant such interim measures.

Summary procedures: different thresholds
The Shanghai Rules continue to adopt the RMB 500,000 threshold for summary procedure, while the Beijing Rules raised the threshold from RMB 500,000 to RMB 2 million. It is also noteworthy that the two rules diverge with respect to the transition between summary procedure and general procedure in cases where the claimed amount is amended to an amount that exceeds the ceiling set forth for summary procedure. Article 61 of the Beijing Rules provides that where the amount claimed in the amended claim or counterclaim exceeds RMB 2 million, the summary procedure shall continue to apply unless the parties agree otherwise or the arbitral tribunal decides that a change to the general procedure is necessary. The Shanghai Rules on the other hand, takes the opposite approach by providing that where the amount claimed in the amended claim or counterclaim exceeds RMB 500,000, the procedure shall be changed from the summary procedure to the general procedure unless the parties have agreed to the continuous application of the summary approach.

Language…not a barrier
The provision on the arbitration language in the Shanghai Rules remains the same as the old CIETAC Rules and provides that Chinese shall be the official language in arbitration proceedings absent an agreement by the parties to the contrary. In contrast, the Beijing Rules grant CIETAC the power to designate the arbitration language taking into account the circumstances of the case. This provision will reduce the limitation to the participation of foreign arbitrators who are not fluent in Chinese and also makes the working language of the arbitration a bit unpredictable to the arbitration parties.