Austrian Weingartiner Machinery Manufacturing Co., Ltd. v. UNID Neff (Nanjing) Technology Co., Ltd.

Cite as: Austrian Weingartiner Machinery Manufacturing Co., Ltd. v. UNID Neff (Nanjing) Technology Co., Ltd., The Supreme People’s Court (22 February 2011), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV

Case identification

  • Date of Decision: 22 February 2011 

  • Court:

    • The Supreme People’s Court

    • The Higher People's Court of Jiangsu Province

  • Arbitral Tribunal:

    • N/A

  • Case number / Docket number:

    • No. 1 of the Fourth Civil Tribunal of the Supreme People’s Court [2011]

    • No.  2 of the Foreign Trade Tribunal of the Higher People’s Court of Jiangsu [2010]

Classification of issues present

  • Application of the New York Convention: No

  • Key PRC law provision(s) at issue: Article 16 of <Interpretation of Several Issues Concerning the Application of “The Arbitration Law of the People’s Republic of China”>; Articles 16 and 18 of <Arbitration Law of the People’s Republic of China>.

Descriptors: Arbitration agreement; Validity of arbitration agreement; Governing law of the validity of the arbitration agreement; Law of the forum; Law of the court; Non-existence of the agreed arbitration institution  

 

 

 

Austrian Weingartiner Machinery Manufacturing Co., Ltd. v. UNID Neff (Nanjing) Technology Co., Ltd. 

An agreement to submit disputes to a nonexistent arbitration institution was found invalid. The arbitration agreement provided that the parties would use the Nanjing International Trade Arbitration Commission for arbitration in accordance with the relevant laws and regulations of the People’s Republic of China. In its Report to the Supreme People’s Court, the Higher People's Court of Jiangsu first found that because the parties did not specify the law to be used when determining the validity of the arbitration clause and they did not clearly specify the place of arbitration – the laws of the forum (Nanjing) would apply. The court then found that because the parties chose a nonexistent arbitration institution and no subsequent agreement was reached on this point, the arbitration agreement was invalid under PRC law. The Supreme People's Court agreed.

 

Case text (English translation)

(22 February 2011, No. 1 of the Fourth Civil Tribunal of the Supreme People’s Court [2011])

 

The Higher People’s Court of Jiangsu Province:

 

Your court’s <Request for Instructions Concerning the Validity of the Foreign Related Arbitration Clause Found in the Sale and Purchase Contract between Austrian Weingartiner Machinery Manufacturing Co., Ltd. and UNID Neff (Nanjing) Technology Co., Ltd>, No. 2 of the Foreign Trade Tribunal of the Higher People’s Court of Jiangsu (2010), has been received. Upon deliberation, our reply is as follows:

 

This case concerns a determination of the validity of a foreign related arbitration clause. Clause 23 of the <Agreement> states that “in the event of any disputes arising out of the execution of this agreement, the parties shall resolve by amicable negotiation or submit the matter to the Nanjing International Trade Arbitration Commission for arbitration in accordance with the relevant laws and regulations of the People’s Republic of China.” The arbitration clause does not stipulate to the applicable laws or venue. Article 16 of the <Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of “The Arbitration Law of the People’s Republic of China”> provides that “examination of the effectiveness of an agreement for arbitration which involves foreign interests shall be governed by the laws agreed upon between the parties concerned; if the parties concerned did not agree upon the applicable laws but have agreed upon the place of arbitration, the laws at the place of arbitration shall apply; if they neither agreed upon the applicable laws nor agreed upon the place of arbitration or the place of arbitration is not clearly agreed upon, the laws at the locality of the court shall apply.” The “Nanjing International Trade Arbitration Commission” does not exist, and the parties did not reach a supplementary agreement on this point. Thus, the arbitration clause is invalid per Articles 16 and 18 of the <Arbitration Law of the People’s Republic of China>. We therefore agree with your court’s opinion that the arbitration clause is invalid.

 

Enclosed:

Request for Instructions Concerning the Validity of the Foreign Related Arbitration Clause Found in the Sale and Purchase Contract between Austrian Weingartiner Machinery Manufacturing Co., Ltd. and UNID Neff (Nanjing) Technology Co., Ltd.

(17 December 2010, No. 2 of the Foreign Trade Tribunal of the Higher People’s Court of Jiangsu [2010])

 

The Supreme People’s Court:

 

We have received from the Intermediate People’s Court of Nanjing the <Request for Instructions Concerning the Validity of the Foreign Related Arbitration Clause Found in the Sale and Purchase Contract between Austrian Weingartiner Machinery Manufacturing Co., Ltd. and UNID Neff (Nanjing) Technology Co., Ltd.>, No. 1 of the Foreign Trade Tribunal of the Intermediate People’s Court of Nanjing [2010]. Pursuant to the requirements of your court’s <Circular on Issues Related to the People’s Court’s Handling of Matters of Foreign-related and Foreign Arbitration>, No. 18 (1995), we hereby report the findings of our review as follow:

 

1.     The Parties

 

Plaintiff: Austrian Weingartiner Machinery Manufacturing Co., Ltd. Address: Kirchham 29 4656 Kirchham bei Vorchdorf Austria.

Legal representative: Andreas Weingartner.

Attorney: Liao Yuhui, lawyer of Luther, Shao & Co.

Attorney: Shao Wanlei, lawyer of Luther, Shao & Co.

Defendant: UNID Neff (Nanjing) Technology Co., Ltd. Address: No. 8 Longcang Da Dao, Yuhua Economic Development Zone, Nanjing, Jiangsu.

 

Legal representative: Yu zhou.

 

2.     Factual Background

 

On 23 November 2005, Austrian Weingartiner Machinery Manufacturing Co. (“Weingartiner”) and UNID Neff (Nanjing) Technology Co., Ltd (“UNID”) signed the <Agreement>. In the <Agreement>, the parties agreed that Weingartiner would sell to UNID a set of milling machine equipment at a cost of 580,000 euros to be paid by instalments. The <Agreement> also contained stipulations regarding the parties’ rights and liabilities, including the date of delivery, guarantee of quality and audited total sum of claims. Further, clause 23 of the <Agreement> states that “in the event of any disputes arising out of the execution of this agreement, the parties shall resolve by amicable negotiation or submit the matter to the Nanjing International Trade Arbitration Commission for arbitration in accordance with the relevant laws and regulations of the People’s Republic of China”. During the execution of said agreement, UNID failed to pay for the balance upon inspection and acceptance of the equipment as required by the <Agreement>. As a result, on 20 November 2008, the parties signed the <Mutual Payment Agreement> in which UNID undertook to settle the balance of the outstanding payment before 25 February 2009. Thereafter, despite pressure from Weingartiner and its agent, the payment remained in arrears. On the date Weingartiner filed its complaint, the outstanding principal totalled 96,668.66 euros. In its complaint, Weingartiner asked the court for a ruling requiring (1) UNID to pay the outstanding principal of 96,668.66 euros plus interest; (2) UNID to compensate Weingartiner for all other losses resulting from UNID’s breach of contract including, but not limited to, the legal service fees, translation fees, attestation and consular certification costs; and (3) UNID to bear all  litigation costs.

 

3.     The Opinion of the Intermediate People’s Court of Nanjing

 

(1)   The laws of the Mainland shall be used to determine the validity of the arbitration clause in issue

 

Article 16 of the <Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of “The Arbitration Law of the People’s Republic of China”> provides that an “examination of the effectiveness of an agreement for arbitration which involves foreign interests shall be governed by the laws agreed upon between the parties concerned; if the parties concerned did not agree upon the applicable laws but have agreed upon the place of arbitration, the laws at the place of arbitration shall apply.” Article 58 of the Supreme People’s Court’s <Summary of the Second National Conference on Trials of Foreign-related Commercial and Maritime Matters> states that if the parties have agreed upon the laws applicable when determining the validity of an arbitration clause, the laws agreed upon between the parties shall apply; if the parties concerned did not agree upon the applicable laws but have agreed upon the place of arbitration, the laws of the place of arbitration shall apply. Only where the parties have neither agreed upon the applicable laws nor agreed upon the place of arbitration or where the chosen place of arbitration is not clear, the laws of the court’s locality – i.e. the laws of the Mainland – shall apply. In keeping with the above, as the parties in this case did not agree upon the laws applicable when determining the validity of the arbitration clause in their contract, the laws of the place of arbitration (Nanjing) – i.e. the laws of the Mainland – shall be used to determine the validity of the arbitration clause. Even if the parties’ choice of venue were deemed unclear, the laws of the Mainland would still be used because they are the laws of the court’s locality.

 

(2)   The arbitration clause is invalid; therefore, the dispute is within the jurisdiction of the people’s court

 

The <Arbitration Law of the People’s Republic of China> shall be used to determined whether the arbitration clause is valid. Article 18 of the <Arbitration Law of the People’s Republic of China> provides “whereas an agreement for arbitration fails to specify or specify clearly matters concerning arbitration or the choice of arbitration commission, parties concerned may conclude a supplementary agreement. If a supplementary agreement cannot be reached, the agreement for arbitration is invalid.” Article 59 of the Supreme People’s Court’s <Summary of the Second National Conference on Trials of Foreign-related Commercial and Maritime Matters> also provides “whereas an agreement for arbitration fails to specify or specify clearly matters concerning arbitration or the choice of arbitration commission, the agreement for arbitration is invalid unless the parties have reached a supplementary agreement.” Although the parties contractually agreed that disputes shall be “submitted to the Nanjing International Trade Arbitration Commission for arbitration,” there is no such arbitration institution in Nanjing. Further, from the language used in the agreement it is unclear whether the chosen place of arbitration is “Nanjing” or whether the chosen arbitration institution is “International Trade Arbitration Commission”. Because the parties did not reach a supplementary agreement on these points, pursuant to the above Articles the arbitration clause is invalid. The people’s court has jurisdiction.

 

4.     The Opinion of Our Court

 

We agree that the people’s court has jurisdiction for the following reasons: (1) the parties did not specify the law applicable when determining the validity of the arbitration clause, and the parties’ chosen place of arbitration is unclear. Therefore, pursuant to the provisions of Article 16 of the <Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of “The Arbitration Law of the People’s Republic of China”> and Article 58 of the Supreme People’s Court’s <Summary of the Second National Conference on Trials of Foreign-related Commercial and Maritime Matters> the laws of the Mainland shall be used; (2) The parties failed to clearly identify in their agreement the place of arbitration or the chosen arbitration commission. As they did not reach a supplementary agreement, the arbitration clause in is invalid. Even though the parties contractually agreed that disputes shall be “submitted to the Nanjing International Trade Arbitration Commission for arbitration,” there is no such arbitration institution in Nanjing, Jiangsu. Further, from the language used in the arbitration agreement, it is unclear whether the chosen place of arbitration is “Nanjing” or whether the chosen arbitration institution is “International Trade Arbitration Commission”. Because the parties did not reach a supplementary agreement on these points, pursuant to Article 59 of the Supreme People’s Court’s <Summary of the Second National Conference on Trials of Foreign-related Commercial and Maritime Matters> the arbitration clause is invalid.

Your court’s <Circular on Issues Related to the People’s Court’s Handling of Matters of Foreign-related and Foreign Arbitration> requires the following with respect to economic and maritime cases filed with a people's court that involves a foreign, Hong Kong, Macao or Taiwan element. Where the arbitration clause in the parties’ contract or in a subsequent agreement is considered null and void, invalid or unenforceable by virtue of ambiguous contents by the people’s court, the court shall prior to accepting the lawsuit report to the higher people's court within its jurisdiction for review; if the higher people's court accepts the case, it shall report its review and opinion to the Supreme People's Court. The case may be suspended while the Supreme People’s Court conducts its review. Per the above, we hereby report the matter for your court’s review.