JunHe: Shanghai court upheld an UNCITRAL arbitration agreement

Authors: CHEN Luming, CUI Wenhui and LIU Jiadi from JunHe

JunHe recently prevailed in a case before the Shanghai Second Intermediate Court (the “Court”). The case concerned the validity of an arbitration agreement that provides that, in arbitration proceedings in China, the UNCITRAL Arbitration Rules (the “UNCITRAL Rules”) shall be used and the arbitration shall be administered by the China International Economic and Trade Arbitration Commission, Shanghai Sub-commission (“CIETAC-SH”). The Court held that the arbitration agreement was valid and binding, and that the Shanghai International Economic and Trade Arbitration Commission (“SHIAC”) should handle the dispute.

Background

The arbitration agreement provides in relevant part as follows.

The parties agree to resolve all differences arising out of or relating to this AGREEMENT through binding arbitration before three arbitrators pursuant to the UNCITRAL Arbitration Rules. The place of arbitration shall be Shanghai, People’s Republic of China and the language of the arbitration shall be English. The China International Economic and Trade Arbitration Commission, Shanghai Commission shall administer the arbitration, and also act as the appointing authority when the UNCITRAL Arbitration Rules call for an appointing authority to act.

The respondent objected on two grounds. First, an arbitration agreement that did not specify an arbitration institution should be deemed as contemplating an ad hoc arbitration, which is not permitted under the law of the People’s Republic of China (“PRC”). In the case, the provision “resolve all the differences . . . before three arbitrators . . .”was a typical ad hoc arbitration clause. In addition, CIETAC-SH was only expected to be an “appointing authority” under the UNCITRAL Rules, rather than an arbitration institution. Therefore, the arbitration agreement failed to specify an arbitration institution and was not valid under PRC law. Second, the China International Economic and Trade Arbitration Commission had effectively terminated the authority of CIETAC-SH to accept and administer arbitration cases; therefore, CIETAC-SH was no longer a legitimate institution to act as an appointing authority and provide services in ad hoc arbitration proceedings under the UNCITRAL Rules.

Following the submission of briefs and supporting evidence, JunHe presented the following arguments to the court. First, the UNCITRAL Rules did not exclude an arbitration institution from acting both as an arbitration institution and as an “appointing authority” to administer cases in arbitration proceedings. The arbitration agreement in question first selected CIETAC-SH as an arbitration institution to administer and manage the arbitration proceedings; it also selected CIETAC-SH as an “appointing authority" under the UNCITRAL Rules. Therefore, the arbitration agreement did not provide for ad hoc arbitration, which was not permitted under PRC law. Second, CIETAC-SH was a legitimate arbitration institution under PRC law, with jurisdiction to independently accept and administer arbitration cases.

The Court's Decision

On March 12, 2015, the Court issued its decision. The Court dismissed the objection, affirmed the validity of the arbitration agreement and held that SHIAC has jurisdiction to hear the case. The Court reasoned as follows. To a certain extent, the phrase “the China International Economic and Trade Arbitration Commission, Shanghai Commission shall administer the arbitration, and also act as the appointing authority when the UNCITRAL Arbitration Rules call for an appointing authority to act” might have an ad hoc feature. However, the text “administer the arbitration” and “appointing authority” clearly showed the parties’ intent to give CIETAC-SH more power than that of a body in an ad hoc arbitration proceeding conducted under UNCTIRAL Rules, which only provides secretarial services. Moreover, the PRC Arbitration Law and the Arbitration Rules of CIETAC-SH do not prohibit parties from choosing other applicable arbitration rules.

Therefore, from the perspective of respecting the parties’ prerogative to select arbitration, the Court believed that the parties did choose an arbitration institution for their dispute, and that the arbitration agreement did not contemplate an ad hoc arbitration. In addition, CIETAC-SH was a legitimate arbitration institution under PRC law. As it had changed its name to SHIAC, SHIAC had proper jurisdiction to accept and administer the arbitration case and issue an award.

Meaning of the Case

It is the first case in which a court in Shanghai confirmed the validity of an arbitration agreement providing for the application of the UNCITRAL Rules to be administered by a Chinese arbitration institution. Previously, the Ningbo Intermediate Court issued a decision confirming the validity of a similar arbitration agreement in which a Chinese arbitration institution was appointed to administer a case under the UNCITRAL Rules.

The Court’s decision further affirms the validity of arbitration agreements providing for the application of the UNCITRAL Rules to be administered by Chinese arbitration institutions in China.

It is worth noting from this case and other cases relating to the application of the UNCITRAL Rules that there are various technical issues in drafting an arbitration agreement providing for the application of UNCITRAL Rules; a minor mistake may lead a court to believe that it provides for ad hoc arbitration and is therefore invalid. We suggest that companies seek advice from their counsel when preparing an arbitration agreement specifying the UNCITRAL Rules.

* * * * * * * * * *

Disclaimer

Articles published on JUNHE Legal Updates represent only the opinions of the authors and should not in any way be considered as formal legal opinions or advice given by JunHe or its lawyers. If any part of these articles is reproduced or quoted, please indicate the source. Any picture or image contained in these articles MUST not be reproduced or used unless otherwise consented by us in writing. You are welcome to contact us for any further discussion or exchange of views on the relevant topic.