CIETAC Arbitration Clauses — Negotiation and Drafting for Shanghai Commercial Contracts

The Importance of Your Arbitration Clause

In Shanghai's commercial environment — where thousands of international contracts are signed every month — the arbitration clause is frequently treated as boilerplate and given inadequate attention. This is a costly mistake. A poorly drafted arbitration clause can render your dispute resolution mechanism unenforceable and leave you litigating in Chinese courts, an outcome most foreign parties actively seek to avoid.

Shanghai courts consistently hold that a valid arbitration agreement requires a clearly expressed intention to arbitrate and a specifically designated arbitration institution. Ambiguous references to "arbitration in Shanghai" without naming SHIAC or CIETAC may be held invalid. Similarly, clauses that provide for both arbitration and litigation — the "split clause" problem — are almost always void for uncertainty.

The Pre-Arbitration Negotiation Clause

Many Shanghai commercial contracts include a clause requiring the parties to negotiate in good faith before initiating arbitration. A typical formulation is: "The parties shall attempt in good faith to resolve any dispute arising from or in connection with this contract through friendly negotiation. If the dispute cannot be resolved within 30 days after either party has given written notice of the dispute to the other party, either party may submit the dispute to CIETAC for arbitration in Shanghai."

Under Chinese law and practice, such pre-arbitration negotiation clauses are generally valid and enforceable. However, practical issues arise: what constitutes "good faith" negotiation? If one party refuses to negotiate, can the other proceed directly to arbitration? Chinese courts have held that the pre-arbitration step is satisfied if negotiations have demonstrably broken down, one party has refused to participate, or the specified time period has elapsed without resolution.

Practical tip: Always specify a clear deadline for negotiations — 30 days is standard in Shanghai practice. Without a deadline, a recalcitrant party may argue that "negotiations are ongoing" to indefinitely delay arbitration.

Recommended CIETAC Clause for Shanghai Contracts

Based on current Shanghai arbitration practice, the following model clause is recommended for international commercial contracts with a Shanghai nexus:

"Any dispute arising from or in connection with this contract shall be submitted to the China International Economic and Trade Arbitration Commission (CIETAC) for arbitration in Shanghai, which shall be conducted in accordance with the CIETAC Arbitration Rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties. The arbitration shall be conducted in English. The number of arbitrators shall be three. The parties shall first attempt to resolve any dispute through friendly negotiation for a period of 30 days before initiating arbitration."

This clause addresses all critical elements: designated institution, seat, language, number of arbitrators, and a pre-arbitration negotiation requirement with a clear time limit. It is drafted to be enforceable under both PRC law and international arbitration norms.