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07 August 2012 at 11:29 BST

Feuding arbitrators spark China contract uncertainty

The Shanghai and Shenzhen branches of China's main arbitration body have been suspended in an on-going dispute between rival factions, casting worrying doubt over existing investor contracts.

Shanghai: arbitrators delcare independence

Shanghai: arbitrators declare independence

Asian Legal Business reported that the China International Economic and Trade Arbitration Commission (CIETAC) has closed its Shanghai and Shenzhen offices after it refused to comply with rules implemented in April.

Power play

The rules, which were designed to bring CIETAC Beijing in line with other global arbitration centres, gave increased power to the branch in the Chinese capital, including the responsibility for administrating all arbitrations except where contracts explicitly stated otherwise.
In a bid to protect their substantial revenues, the Shanghai and Shenzhen branches ignored the rules and declared independence. The Shanghai branch even published its own rules.
A notice published on the CIETAC website on August 1 announced the suspension of the two branches. The move has cast doubt on existing contracts with the Shanghai and Shenzhen commissions. Private equity funds using the commission are now likely to have to choose between amending the investment contracts or facing high-profile and potentially detrimental court battles.

Alternatives

Marcia Ellis, a partner at Boston-based law firm Ropes & Gray, said: ‘If CIETAC Shanghai in effect doesn’t exist anymore because CIETAC has thrown it out, you may end up in the courts when you thought you had a binding agreement to arbitration by CIETAC Shanghai.’ Ms Ellis continued: ‘That means funds are less likely to bring any kind of claim’.
Jim James, a partner at the Hong Kong office of London-based global law firm Norton Rose, said the suspension was likely to encourage investors to seek arbitration from alternative commissions.

 
   
 
 
 

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