Validity for arbitration agreement/clause in China

Content of an Arbitration Agreement [82T171]

[Law Excerpt]

An arbitration agreement shall include the following contents:

(1) Manifestation of the intention to request arbitration;

(2) Arbitrable matters; and

(3) Selected arbitration commission.   Article 16 Arbitration Law of the People's Republic of China

[Headnote]

The relevant contract between the appellant and the appellee states that any disputes and economic liabilities between them should be resolved through consultation, and should be submitted to the local arbitration institution for arbitration in the case of failure of the consultation. In the court's opinion, even though the expression of the arbitration agreement was not standard, the parties' intention for arbitration was truthfully manifested therein. The court was also of the opinion that it would not cause any misunderstanding because there was only one arbitration institution in that area, which was the Dongying Arbitration Commission. Therefore, the court determined the arbitration agreement valid.  Diao Jiankao v. Dongying Jinlei Jianan Limited (Dispute over Jurisdiction in a Contract Agreement) [Dongying Intermediate Court (2005)Dongying Intermediate Court, Civil Division (Jurisdiction), Final Ruling, Case No. 7][20050324]

The contract entered into by the parties concerned clearly specifies that any disputes arising from the contract should be timely resolved through consultation by the parties, or could be submitted to the local administrative authority in charge of construction for mediation, and the parties also agreed to submit disputes to the Kunming Arbitration Commission for arbitration if the mediation failed. This agreement was deemed to be the arbitration clause agreed upon by the parties. The court was of the opinion that such arbitration clause had clearly manifested the parties' intention to request for arbitration and had clearly specified the arbitrable matters, i.e., any dispute arising from the performance of the contract, which should be submitted to the selected arbitration commission for arbitration. As such, the court determined that the arbitration clause involved in this case, as agreed upon by the parties, was valid.  A Case of Yunnan Ruiyu Real Estate Development Co., Ltd. Applying for Withdrawing the Arbitration Award [Kunming Intermediate Court (2004) Kunming Intermediate Court, 1st Civil Division, Initial Ruling, Case No. 180][20041207]

(1)  According to Article 12 of the Service Contract on Well Drilling concluded by and between the applicant Mitchell, (Guizhou) Well Drilling Engineering Co., Ltd. (hereinafter referred to as "Well Drilling Company"), and the respondent, Weixin Yuntou Yudean Zhaxi Energy Co., Ltd., (hereinafter referred to as "Zhaxi Company") dated August 23, 2007, both parties had reached an agreement on the settlement of disputes. The said Service Contract reflected the true intention of both parties and did not violate any laws or regulations. Thus, it should be valid. (2) According to the claims made by the applicant in arbitration proceedings, the applicant mainly applied for revocation of the contract and compensation for losses. According to the Service Contract of Well Drilling Engineering and the correspondence submitted, either of the parties could be deemed to have been negotiating for a change in project design and the responsibility for expenses arising in the performance of the contract from January 2008 when the drilling was ceased to the time the dispute was submitted for arbitration.  During this process, neither party proposed to revoke the contract and the applicant's cessation of drilling activities did not indicate a contractual breach. In addition, the correspondence between the parties did not show an intention to revoke the contract. The applicant was not justified in alleging that the cessation of drilling activities was an indication of the existence of a dispute. Thus, the parties could be conclusively held to have had a dispute concerning the revocation of the contract and compensation for loss only at the time the revocation of the contract was proposed. (3) In accordance with Article 12 of the Service Contract on Well Drilling and Article 45 of Contract Law, the stipulation of "90 days after the dispute arises" was the condition for the parties to institute the arbitration proceedings. It was on June 17, 2008 that Yunnan Cihong Law Firm served a legal notice on the applicant stating that the respondent would take legal recourse if the applicant did not resume the drilling activities. As such, the parties could be deemed to have disputed on whether the contract should be performed at that time, and the respondent instituted the arbitration on June 25, 2008, which did not fall outside the "90 days after the dispute arises" clause as specified in the contract. (4) Article 12 of the Service Contract on Well Drilling concluded between the parties indicated that both parties reached an agreement on the matters subject to arbitration and the selection of the arbitration institution, which was in conformity with Article 16 of Arbitration Law. Based on the above, it was legally compliant for the respondent to institute arbitration proceedings. Therefore, a valid arbitration agreement existed between and was final and binding upon both parties.  Application by Mitchell (Guizhou) Well Drilling Engineering Co., Ltd. for Vacation of Arbitration Award  [(2009) Kunming Intermediate Court, 1st Civil Division, Initial Ruling, Case No. 13][20090223]

(1) According to a Contract for Sale and Purchase of Commodity Housing concluded by and between the applicants, Qiu Donglan and Wu Feng, and the respondent, Kunming Bangsheng Real Estate Development Co., Ltd., both parties agreed to submit the dispute to Kunming Arbitration Commission.(2) Neither party submitted evidence of its disagreement with Article 14 of the said contract nor that it signed the contract under duress. Having full capacity for civil conduct, the two applicants affixed their names to the contract which proved that the contract reflected the true intention of both parties. (3) The said article was a standard clause and the applicants failed to submit evidence showing the existence of circumstances specified in Article 52 and Article 53 of Contract Law, or circumstances where the party supplying the standard term excluded its own liability, increased the other party's liability, or deprived the other party of any material rights, thereby sufficiently invalidating the standard term. Thus, the said article should not be deemed invalid. (4) Article 14 of the Contract for Sale and Purchase of Commodity Housing executed between the parties clearly specified the necessary content required for an arbitration agreement as required by Article 16 of the Arbitration Law. Thus, the said article should be the arbitration agreement concluded between both parties. In addition, the applicants failed to submit relevant evidence showing the existence of the circumstances set forth in Article 17 and Article 18 of the Arbitration Law and the arbitration agreement stated in the contract indicated the true intention of the parties. Therefore, the said arbitration agreement should be valid.  Application by Qiu Donglan and Wu Feng for Confirming Validity of an Arbitration Agreement [(2009) Kunming Intermediate Court, 1st Civil Division, Initial Ruling, Case No. 1][20090121]

Neither did the applicant, Villagers' Committee of Dongzhao Village, Xincheng Street, Huiji District, Zhengzhou, nor the respondent, Henan Shenghuang Industrial Development Co., Ltd., raise an objection to the authenticity of their Agreement on Urban and Rural Cooperation Reforming of Dongzhao and Longzewenyuan. Article 14 of the agreement provided: "where any dispute arises during the performance of this agreement, both parties should conduct timely negotiation; where negotiation fails, either party might apply to the local district government for mediation; where mediation is unable to settle the dispute, either party might submit the dispute to the Zhengzhou Arbitration Commission for arbitration." Considering the content of the arbitration clause of the contract concluded between both parties, the intention to resort to arbitration was clear, and the matters subject to arbitration did not fall outside the legally specified scope of arbitration. Moreover, the arbitration clause contained a selected arbitration institution and was clear and valid. The arbitration clause did not stipulate that the dispute might be resolved through litigation. The word "might" specified in the arbitration clause was used mainly in connection with the subject, which meant that "either party" might institute arbitration proceedings; it did not indicate the institution of either arbitration or a lawsuit. Thus, it did not fall under the circumstances for invalidating an arbitration agreement as specified in Article 7 of the Interpretation of the Supreme People's Court on Certain Issues Concerning the Application of the "Arbitration Law of the People's Republic of China". In conclusion, the said arbitration clause between both parties should be valid.  Application of Villagers' Committee of Dongzhao Village, Xincheng Street, Huiji District, Zhengzhou Applying for Confirming Invalidity of Arbitration Clause [(2009) Zhengzhou Intermediate Court, 3rd Civil Division, Initial Ruling, Case No. 756][20090901]

The provisions of the Measures on Financial Leasing of Industrial and Commercial Bank of China were merely reference when Harbin Zhengyanghe Wood Comprehensive Processing Factory (hereinafter referred to as "Wood Factory") and Heilongjiang Bureau of Forest Industry Industrial concluded a leasing contract with Commercial Bank of China, Senrong Branch of Harbin. In the contract, the concerned parties failed to specify dispute resolution through arbitration. Article 9 of the above-mentioned Measures provides: "any dispute in connection with a leasing contract should be resolved through negotiation or arbitration". However, the Measures were a departmental regulation, among which the provisions related to arbitration were not definite or operational at the time when both parties failed to reach an agreement through negotiation. The three copies of the Financial Leasing Contract explicitly stipulated that where any breach or dispute in connection with the contract occurred, either party was entitled to bring the lawsuit before a people's court. Thus, the court of the original instance properly accepted hearing of this dispute.  Industrial and Commercial Bank of China, Senrong Branch of Harbin v. Harbin Zhengyanghe Wood Comprehensive Processing Factory & Heilongjiang Bureau of Forest Industry (Dispute involving a Leasing Contract)  [Supreme Court (1999) Supreme Court, Economic Division, Final Ruling, Case No. 285][20020719]

The House Lease Contract concluded by and between Xi'an Lanxi Industrial Limited (hereinafter referred to as "Lanxi Company") and Xi'an Sanfu Properties Management Co., Ltd. (hereinafter referred to as "Sanfu Company") reflected the true intention of both parties. There was a clear stipulation on dispute resolution in Article 9 of the said contract, which stated, "any dispute arising from the execution and performance of this contract or in connection with this contract should be amicably resolved through negotiation; where negotiation fails, it should be submitted to the China International Economic and Trade Arbitration Commission, Shanghai Branch for arbitration. Regarding the dispute arising out of a delay in payment of rent by Party B (hereinafter referred to as "Sanfu Company") during the performance of the contract, Party A (hereinafter referred to as "Lanxi Company") had the right to settle the dispute through judicial procedures. The said stipulation on arbitration manifested the intention of the parties to resort to arbitration, the issues to be arbitrated and the selected arbitration commission, which fulfilled the requirements of the essential elements of a valid arbitration agreement. In the meantime, both parties agreed that the dispute arising from delay in payment of rent should be separated from the issues subject to arbitration settlement through litigation. Such agreement did not conflict with the original agreement on arbitration. Considering that Lanxi Company had filed the lawsuit before the relevant court in accordance with that agreement, this court dismissed the application by Lanxi Company for confirming that the stipulation on arbitration in the said House Lease Contract was invalid.  Xi'an Lanxi Industrial Limited v. Xi'an Sanfu Properties Management Co., Ltd. (Application for Confirming Validity of Arbitration Clauses) [Shanghai Second Intermediate Court (2003) Shanghai Second Intermediate Court, 2nd Civil Division, (Civil Case), Initial Ruling, Case No. 64][20040312]

In Article 43 of the disputed cooperative joint venture contract, it was only stipulated that "any dispute arising from the implementation of, or relating to this Contract, should be settled through friendly negotiation between the two parties concerned and that the dispute should be submitted to an arbitration organization for arbitration through arbitration procedures in the event of an unsuccessful negotiation between the parties". However, this clause failed to specify the arbitration commission or the place of arbitration. As a result, the arbitration clause was unenforceable due to indefinite content. Therefore, this case should not fall under the jurisdiction of an arbitration organization.  Harbin Underground Construction Projects Co., Ltd v. Yonghua (China) Investment Co., Ltd and Harbin Yonghua Public Facilities Co., Ltd (Case involving objection to jurisdiction over dispute concerning Sino-Foreign equity joint venture contract)  [Supreme People's Court (2005) Supreme Court, 4th Civil Division, Final Ruling, Case No., 13][20050425]

According to the equity joint venture contract, a dispute arising between all parties relating to the equity joint venture from the implementation of this Contract, and which could not be resolved through negotiation, may be submitted to the Foreign Economic and Trade Arbitration Commission of China Council for the Promotion of International Trade (hereinafter referred to as "FETAC of CCPIT") for arbitration in accordance with the arbitration procedures concerned. The "FETAC of CCPIT" as stipulated under the equity joint venture contract has now been renamed as "China International Economic and Trade Arbitration Commission". Considering that the said arbitration clause covered the content which was clear and specific and that the arbitration organization was in existence, the dispute in this case should be subject to the arbitration of the arbitration organization as agreed.  Hong Kong Jinrui Development Co., Ltd v. Fengyang County Zhonghai Medical Apparatus Co., Ltd (Dispute over Sino-Foreign equity joint venture contract)  [Hefei Intermediate Court (2003) Hefei High and New Tech Industry Development Zone Court, 2nd Civil Division, Initial Ruling, Case No. 042][20030806]

It was stipulated under Article 10 of the Agreement on the Issuance of Convertible Bonds concluded by the four concerned parties to this case that "the four parties shall settle any dispute arising during the performance of this Agreement in a proper manner. Where a dispute fails to be settled through consultation, it shall be submitted for arbitration. This Agreement shall be governed by the laws of Hong Kong Special Administrative Region of the People's Republic of China." Pursuant to the relevant provisions of Article 16 of the Interpretation of the Supreme People's Court on Certain Issues Concerning the Application of the Arbitration Law of the People's Republic of China, the four concerned parties may stipulate the applicable law to determine the effect of the arbitration clause but such stipulation must be clear. The applicable law stipulated in the contract for settling disputes under the contract should not be used to determine the effect of an arbitration clause involving foreign elements. In other words, the applicable law determining the effect of the arbitration clause should be distinguished from the applicable law for the settlement of disputes. Under the arbitration clause, the four concerned parties agreed that "this agreement shall be governed by the laws of Hong Kong Special Administrative Region of the People's Republic of China". Such stipulation was liable to give rise to ambiguity as to whether the stipulated applicable law was to determine the effect of the arbitration clause or for the settlement of disputes under the contract. Thus, it should not be deemed as a clear stipulation of the applicable law for determining the effect of the arbitration clause. In addition, the Agreement on the Issuance of Convertible Bonds contained no stipulation on the place of arbitration. Therefore, the Lexi Fori, or the laws of Mainland China should be applied in determining the effect of the said arbitration clause.  China Hi-Tech Wealth Group Co., Ltd and Beijing Beida Jade Bird Group Co., Ltd v. Guangsheng Investment and Development Co., Ltd and Hong Kong Jade Bird Technology Development Co., Ltd (Dispute involving contract for security of loan) [Supreme Court (2006) Supreme Court, 4th Civil Division, Final Ruling, Case No. 28][20070608]