Selecting an arbitration institution in Shanghai

Out-Law Guide | 20 May 2015 | 11:05 am | 5 min. read

Until relatively recently companies doing business in Shanghai had very little choice about where to refer disputes for arbitration.

This guide was last updated in May 2015

In 2012, a rift developed between the China International Economic and Trade Arbitration Commission (CIETAC), which is China's oldest and largest arbitration institution, and its Shanghai and Shenzen-based branches, known as sub-commissions. CIETAC has since restructured, and its former Shanghai sub-commission is now an independent institution operating as the Shanghai International Arbitration Centre (SHIAC). Companies may also refer cases to the separate Shanghai Arbitration Commission (SHAC), which mainly administers domestic arbitration cases.

With this multiplication of tribunals, lawyers and in-house counsel may lack clear guidelines to help them select an arbitration forum in Shanghai. This guide compares the main features of, and differences between, the city's three main arbitration institutions. These are:

  • CIETAC: Established in 1956 in Beijing, CIETAC restructured its Shanghai sub-commission at the end of 2014 and released its updated arbitration rules, effective from 1 January 2015. CIETAC remains highly regarded in spite of the split.
  • SHIAC: The former Shanghai sub-commission of CIETAC, SHIAC rebranded itself on 11 April 2013 and amended its arbitration rules in 2014. SHIAC also launched the China (Shanghai) Pilot Free Trade Zone Arbitration Rules (SFTZ rules) in 2014.
  • SHAC: Founded in 1995, SHAC mainly administers domestic arbitration cases and also accepts foreign-related arbitration disputes. Its rules were last updated in 2013.

Choosing an arbitration institution

Companies should choose an arbitration forum based on, among other factors:

  • reputation for professionalism and integrity of the institute;
  • the nature and type of the dispute;
  • arbitrator experience and expertise;
  • differences in arbitration rules;
  • costs and efficiency.

Arbitrators

Arbitrator numbers are not determinative of the quality of the panels. The panels also vary by areas of expertise and levels of internationalisation. The numbers in this section are based on data disclosed by the arbitration institutions as of February 2015.

  • CIETAC has a total of 131 arbitrators on its panel, of which seven are foreign arbitrators predominantly from the UK, US and Germany.
  • SHIAC has 219 arbitrators, 15 of whom are foreign. Its panel is more diverse than CIETAC's and includes arbitrators from Turkey, Spain, Austria, Brazil and Chile.
  • SHAC is the largest arbitration institution with 710 arbitrators. However, only 3.6% of its panel is foreign, and the majority of those are from Hong Kong, Macao or Taiwan.

A higher percentage of arbitrators at CIETAC (54%) and SHIAC (63%) specialise in corporate law, foreign investment and M&A. SHAIC has the highest percentage of IP arbitrators: 27%; while CIETAC is next with 16.8%. SHAC is strongest in construction and real estate.

SHAC operates a strict registry system preventing companies from selecting their own arbitrators, while CIETAC and SHIAC offer more flexibility. Companies may choose arbitrators not on their panels, but the institution's chairman must confirm the appointment of an off-panel presiding or sole arbitrator as required by law.

Arbitration fees

CIETAC and SHIAC use the same method to calculate fees for domestic disputes, but with a different threshold. When the amount claimed is above 1,00,000,499 renminbi (just over $16 million), SHIAC's arbitration fees are higher. Below that amount, CIETAC's fees are higher. SHAC offers the lowest fees.

In international or foreign disputes, SHAIC's fees are higher when the amount claimed is above RMB175,000,000 (just over $28m). Below that amount, CIETAC's fees are higher. SHAC's rules do not distinguish between domestic and international disputes.

Arbitration rules

Single arbitration for multiple contracts

Under the 2015 CIETAC rules, single arbitration is permitted when disputes arise from multiple contracts provided that:

  • disputes relate to a principle contract and its ancillary contract(s), or to separate contracts involving the same parties and legal relationships of the same nature;
  • disputes arise out of the same transaction or series of transactions; and
  • arbitration agreements are identical or compatible.

No such provision exists in the SHIAC, SFTZ or SHAC rules.

Consolidation of multiple arbitrations

CIETAC can now consolidate arbitration proceedings at the request of any party if:

  • all claims are made under the same arbitration agreement; or
  • claims are made under multiple identical or compatible arbitration agreements and arbitrations involve the same parties and legal relationships of the same nature; or
  • claims are made under multiple identical or compatible arbitration agreements and contracts involved consist of a principle contract and ancillary contracts.

The SHAIC and SFTZ rules allow consolidation of multiple arbitration proceedings with the agreement of all parties. Under the SHAC rules, consolidation of multiple arbitration proceedings is possible if all parties agree that arbitrations involve the same parties and the same or related subject matter.

Special provisions for Hong Kong arbitration

CIETAC set up its Hong Kong Arbitration Centre in September 2012, and the 2015 CIETAC rules add a new chapter on special provisions for Hong Kong arbitration. No such provision exists in the SHIAC, SFTZ or SHAC rules.

Emergency arbitrator, emergency tribunal and interim relief

The 2015 CIETAC rules contain new provisions for emergency arbitral relief procedures. Under current Chinese law, if one party applies for interim relief such as property preservation, evidence preservation etc. then the application will be brought before the arbitration tribunal. If granted, it will then forward it to the competent people's court for enforcement. Therefore, in practice, feasibility must be considered on a case-by-case basis.

Neither the SHAC rules nor the standard SHIAC rules make provision for emergency arbitration. However, SHIAC's SFTZ rules include a new mechanism for interim relief before the tribunal is constituted by allowing parties to apply for emergency tribunal In practice, feasibility much again be considered on a case by case basis.

Summary arbitration procedure and procedure for small claims

The CIETAC 2015 rules raised the summary procedure threshold from RMB2m (approx. $322,000) to RMB5m (approx. $806,000). Parties can opt out of this and ask for full procedures instead. Summary procedure also applies to disputes where the claim amount exceeds RMB5m if both parties agree.

Under the SHIAC rules, the summary procedures apply where the claim amount is RMB1m (approx. $161,000) or less, or where the claim amount is more than this and both parties agree. The SFTZ rules include separate summary procedure and small claim procedure for claims less than RMB1m; however, small claim procedure only applies to domestic arbitrations.

Unless the parties agree otherwise, summary procedure applies to SHAC cases where the claim amount is RMB1m or less. It can also apply to claims for above this amount if both parties agree.

Time limits

For international, foreign and Hong Kong cases, awards must be made within six months of constituting the tribunal under all three sets of rules. The same applies to Macao and Taiwan cases under the SHIAC or SHAC rules. The 2015 CIETAC rules do not explicitly provide for Macao or Taiwan cases.

For domestic cases, awards must be made within four months of constituting the tribunal under all three sets of rules. Summary procedure awards must be made within three months of constituting the tribunal under the 2015 CIETAC rules and the SHIAC rules, or within two months of constituting the tribunal under SHAC rules. Small claims awards under the SHIAC rules must be made within 45 days.

Conclusion

For small value domestic commercial contracts, such as sales and service contracts, SHAC is cheaper and has a better selection of arbitrators. For international cases with claims of less than RMB175m, CIETAC’s cost is higher than SHIAC’s. However, SHIAC’s costs are more for larger cases.

It is obvious that SHAC is not the best option for international arbitrations. CIETAC and SHIAC are preferable, and are comparable in most respects. Nevertheless, in certain areas like maritime, real estate and construction, SHAC offers a panel with significant expertise.

From a practical point of view, at the moment SHIAC may be more stable and mature than the newly-formed CIETAC Shanghai branch. SHIAC was created from the former CIETAC Shanghai branch and just changed its name, and most its staff and arbitrators are those who previously worked for the former CIETAC Shanghai branch.

Finally, there are crucial differences among the three arbitration institutions’ rules. However the CIETAC and SHIAC rules, including the SFTZ rules, are comparable in most respects and are most in line with international best practice.