First International Aviation Court of Arbitration Initiated in Shanghai Free Trade Zone

International Dispute Resolution Group of King & Wood Mallesons

The China Air Transport Association (“CATA”), the International Air Transport Association (“IATA”), and the Shanghai International Arbitration Centre (“SHIAC”) signed a co-operation agreement on international aviation arbitration in Shanghai this fall, after which the Shanghai International Aviation Court of Arbitration (“SHIACA”) and the Shanghai International Aviation Arbitration Experts Committee (“SHIAAEC”) were announced as being officially established.

SHIACA is affiliated with SHIAC. After the Court of Arbitration of the Shanghai Free Trade Zone was initiated, SHIACA was regarded as another marvellous innovation by SHIAC, being the world’s first arbitration agency specialising in aviation disputes. This means that the international aviation arbitration system is officially established in Shanghai, which will provide great convenience and advantages to domestic and foreign enterprises in the resolution of global disputes through SHIAC.

Background of SHIACA

Since 2005, the volume of Chinese civil aviation transportation has ranked second place in the world. Currently, Shanghai is committed to becoming an international economic centre, financial centre, trade centre, and shipping and air transportation centre. Establishing an international shipping centre is one of the most essential tasks. At the same time, Shanghai has placed great importance on the free trade zone’s development, which will help develop Shanghai into an international shipping centre and an aviation hub.

Functions of SHIACA

Arbitration has an inherent advantage in aviation dispute resolution because it is flexible, confidential, autonomous, professional and enforceable. Ad hoc arbitration is the common form of arbitration in aviation industry worldwide regarding disputes between airline companies and airports, oil and catering companies. However, China still only allows institutional arbitration. As a result, many civil aviation enterprises have to go abroad for an ad hoc arbitration or file a lawsuit in domestic courts, which is very expensive and time-consuming. With the establishment of SHIACA, there will be effective communications and connections between international and domestic arbitration rules, thus providing resolutions to recognition and enforcement of arbitration awards.

With the strategic co-operation of the three parties, SHIACA will spare no efforts to promote alternative aviation dispute resolution. SCATA and IATA have promised to recommend SHIACA to their members as a dispute resolution agency. The three parties will involve SHIACA in the dispute resolution clauses of their Chinese and international standard agreements.

Influence of SHIACA

As the world’s first arbitration agency specialising in civil aviation, SHIACA will promote the development of international aviation arbitration, and help Shanghai build an international and market-oriented business environment under the rule of law. Its establishment creates a new horizon for the Chinese legal service industry. However, opportunities also come with challenges. The sharp increase in arbitration cases and gaining the trust of arbitral parties will be issues the SHIACA will have to overcome.

Based on current reports, whether SHIACA will be an independent entity remains an open question. There is also public concern about how much SHIACA can change the Chinese traditional arbitration model, such as whether it will bring in many international arbitration concepts, like consolidation of arbitration and whether it can offer a new platform to solve the disputes of aviation accident compensation based on contracts. However, it is believed all of these questions will be answered by future practice.