Beifang Wanbang Logistics Co., Ltd v. JMT Mining SPRL Limited & JIAYA Group Ltd

 

Cite as: Beifang Wanbang Logistics Co., Ltd v. JMT Mining SPRL Limited & JIAYA Group Ltd, The Supreme People’s Court (22 January 2013), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV

Case identification

  • Date of Decision: 22 January 2013 

  • Court:

    • The Supreme People’s Court

    • The Higher People's Court of Anhui Province

  • Arbitral Institution/Tribunal:

    • China Maritime Arbitration Commission                                                                       Arbitral Award No.001 (2012)

  • Case number / Docket number:

    • No. 5 of the Fourth Civil Tribunal of the Supreme People’s Court [2013]

    • No. 6 of the Higher People’s Court of Tianjin [2012]

Classification of issues present

  • Application of the New York Convention: No

  • Key PRC law provision(s) at issue: Article 403 of <Contract Law of the People’s Republic of China> (1999); Articles 4 and 70 of <Arbitration Law of the People’s Republic of China>.

Descriptors: Arbitration agreements; Lack of an arbitration agreement; Annulment of foreign-related arbitral awards; Third party rights and obligations under arbitration agreements; Non-signatory parties to an arbitration agreement; Principal-agent relationships; Consent to arbitration; Implied consent

 

 

 

Beifang Wanbang Logistics Co., Ltd v. JMT Mining SPRL Limited & JIAYA Group Ltd

A CMAC foreign-related arbitral award was annulled on the ground that there was no valid arbitration agreement among the three parties concerned. In its Report to the Supreme People’s Court, the Higher People's Court of Tianjin found that: (1) there was a valid arbitration agreement between Beifang and JIAYA; (2) JMT was the principal of JIAYA and it was JIAYA that entered into the Carriage Contract concerned with Beifang directly; (3) after JIAYA disclosed to JMT that the other party to the Carriage Contract was Beifang, JMT exercised its rights under article 403 of the PRC Contract Law to intervene and commenced arbitration against Beifang directly; and (4) Beifang raised an objection to arbitration jurisdiction denying that there was an arbitration agreement between Beifang and JMT. Based on these facts, the Higher People’s Court of Tianjin was of the view that the award should be annulled because there was no arbitration agreement between Biefang and JMT. In its Reply, the Supreme People’s Court found that there was insufficient factual and legal support for the arbitral tribunal’s finding of a valid arbitration agreement between the three parties; accordingly, the award was annulled.

Case text (English translation)

(22 January 2013 No. 5 of the Fourth Civil Tribunal of the Supreme People’s Court [2013])

 

The Higher People's Court of Tianjin:

Your court’s Request for Instructions on Beifang Wanbang Logistics Co., Ltd’s Application to Set Aside Arbitral Award No. 001 of the China Maritime Arbitration Commission (2012) (No. 6 of the Higher People’s Court of Tianjin [2012]) submission has been received. Upon deliberation, our reply is as follows:

According the facts submitted by your court, the International Transportation Agency Contract concluded between Beifang Wanbang Logistics Co., Ltd (hereafter “Wanbang”) and Jiaya Group Ltd (hereafter “Jiaya”) stipulated that “Any disputes arising or related to this Agreement shall be submitted to the China Maritime Arbitration Commission for arbitration in Beijing, pursuant to its Arbitration Rules in force at the time of the submission of the arbitration application.” The said provision represented Wanbang and Jiaya’s common intention to resolve their contractual disputes through arbitration. It was not inappropriate for Jiaya to initiate arbitration in the arbitration institution pursuant to the terms of the said contract. Also, Wanbang’s counterclaim against Jiaya shall be governed by the arbitration clause contained in the International Transportation Agency Contract signed between the parties. The arbitral tribunal’s adjudication and rendering of rulings concerning the said counterclaim were in conformity with the relevant laws. However, the arbitration clause in question shall bind the parties of the contract (Wanbang and Jiaya) only. The first applicant, JMT Mining SPRL Limited (hereafter “JMT Mining”), made an application to the arbitration institution for arbitration with Wanbang as the respondent. JMT Mining failed to prove that a valid arbitration clause existed between it and Wanbang. Subsequent to Wanbang’s submission of the dispute on jurisdiction, the arbitral tribunal affirmed its jurisdiction over JMT Mining and made a decision that the arbitration procedures between JMT Mining, Jiaya and Wanbang shall proceed, pursuant to article 403 of the Contract Law of the People’s Republic of China. [This] lacked sufficient factual and legal support. The arbitral award in question was related to the rights and obligations of Jiaya, Wanbang and JMT Mining, yet no valid arbitration clause existed between the three parties. The arbitral award in question was in violation of article 4 of the Arbitration Law of the People’s Republic of China, which provides that “The parties’ submission to arbitration to resolve their dispute shall be on the basis of both parties’ free will and an arbitration agreement reached between them. If a party applies for arbitration in the absence of an arbitration agreement, the arbitration commission shall not accept the case.”

[Our court] agrees with your court’s decision to set aside Arbitral Award No. 001 of the China Maritime Arbitration Commission (2012).

It is so replied.

 

Enclosed:

Request for Instructions on Beifang Wanbang Logistics Co., Ltd’s Application to Set Aside Arbitral Award No. 001 of the China Maritime Arbitration Commission (2012)

(17 December 2012 No. 6 of the Higher People’s Court of Tianjin [2012])

 

The Supreme People’s Court:

The Tianjin Maritime Court accepted Beifang Wanbang Logistics Co., Ltd’s application to set aside Arbitral Award No. 001 of the China Maritime Arbitration Commission (2012). Upon review, the Tianjin Maritime Court proposed setting aside Arbitral Award No. 001 of the China Maritime Arbitration Commission (2012), and reported the said case by level to our court. Upon review, it is in our court’s opinion that Beifang Wanbang Logistics Co., Ltd’s application to set aside Arbitral Award No. 001 of the China Maritime Arbitration Commission (2012) shall be approved. Pursuant to the Circular of the Supreme People's Court on the Relevant Issues Regarding the Handling of Foreign-related Arbitration and Arbitration of a Foreign Country by the People's Court, [our court] hereby reports the case for your court’s consideration.

 

I. The parties

Applicant: Beifang Wanbang Logistics Co., Ltd.

Respondent: JMT Mining SPRL Limited.

Respondent: Jiaya Group Ltd.

 

II. The facts of the case and the rulings of the arbitral tribunal

JMT Mining SPRL Limited (hereafter “JMT Mining”) purchased 2,000 tons of coke (fuel) from NORINCO Chemicals Ltd with a price of US$710 per ton. NORINCO Chemicals Ltd actually delivered 2,041.465 tons, and JMT Mining paid US$1,449,436.60 for the goods. At the same time, JMT Mining appointed Jiaya Group Ltd (hereafter “Jiaya”) to manage the transportation of the coke (fuel). Jiaya signed a International Freight Forwarding Contract (hereafter the “Contract”) with Beifang Wanbang Logistics Co., Ltd (hereafter “Wanbang”) in its own name, agreeing that Wanbang shall be responsible for booking, cargo storage, customs declaration and transportation. The port of departure shall be the Port of Tianjin, China and the port of destination shall be Likasi, the Democratic Republic of Congo. The means of transportation shall be multimodal transport. [Also, the parties] stipulated that “Any disputes arising from or related to this Contract shall be submitted to the China Maritime Arbitration Commission for arbitration in Beijing, pursuant to its Arbitration Rules in force at the time of the submission of the arbitration application.” Subsequent to the conclusion of the Contract, the goods in dispute departed the Port of Tianjin on 13 August 2008. Some of the goods were destroyed in Likasi, the port of destination.

On 29 July 2010, JMT Mining and Jiaya made an arbitration application to the China Maritime Arbitration Commission (hereafter the “Commission”), pursuant to the arbitration clause contained in the Contract, demanding Wanbang’s return of the cost of freight amounting to US$154,999.68, compensation on losses incurred from damaged goods amounting to US$809,045.00 and lawyer’s fees incurred totaling RMB¥45,000.00. Wanbang shall also be responsible for the arbitration costs.

On 14 September 2010, Wanbang submitted an objection to the Commission’s jurisdiction, claiming that since no legally effective arbitration clauses existed between Wanbang and JMT Mining, the Commission has no jurisdiction over the parties’ dispute.

On 22 November 2010, the Commission rendered its Decision on Jurisdiction regarding the dispute over International Freight Forwarding Contract No. MA2010016, ruling that pursuant to article 403 of the Contract Law of the People’s Republic of China, the Commission has jurisdiction over JMT Mining. The arbitration procedures between JMT Mining, Jiaya and Wanbang shall proceed.

Insisting the assumption that the Commission had no jurisdiction over the dispute between Wanbang and JMT Mining, Wanbang submitted in defence that the damage of goods in question was due to Jiaya’s failure to exercise its legitimate rights to order the Africa Inland carrier to suspend transportation and to sell the goods in question. [Wanbang] also claimed that Jiaya’s abovementioned acts led to Wanbang’s incurred losses. Accordingly, Wanbang submitted a counterclaim demanding Jiaya’s payment of insurance fees that Wanbang paid in advance totaling RMB¥10,903.67, cargo storage fees and port expenses amounting to RMB¥58,225.00, demurrage charges amounting to USD$134,000.00, freight fees amounting to USD$157,321.38 and lawyer’s fees amounting to USD$ 1,700.00 plus interest from the abovementioned sums in arrears. At the same time, Wanbang demanded Jiaya’s compensation of its travelling expenses and notarization fees incurred totaling RMB¥364,252.66.

On 11 January 2012, the Commission rendered Arbitral Award No. 001 of the China Maritime Arbitration Commission (2012), ruling that: (1) Wanbang shall return freight costs totaling USD$ 152,700.96 to JMT Mining; (2) Wanbang shall compensate JMT Mining’s loss of goods amounting to USD$805,646.23; (3) Wanbang shall compensate JMT Mining lawyer’s fees totaling RMB¥45,000.00; (4) Jiaya shall pay Wanbang insurance fees amounting to RMB¥4,843.05 plus interest calculated from the date of Wanbang’s payment to the insurer until the date of Jiaya’s payment of the said sum to Wanbang, at a rate based on the lending rate announced by the People's Bank of China for the same period; (5) Jiaya shall pay Wanbang port expenses and cargo storage fees amounting to RMB¥25,350.85 plus interest calculated from the date of Wanbang’s payment until the date of Jiaya’s payment of the said sum to Wanbang, at a rate based on the lending rate announced by the People's Bank of China for the same period; (6) Jiaya shall pay Wanbang demurrage charges amounting to USD$10,000.00 plus interest calculated from the date of Wanbang’s payment until the date of Jiaya’s payment of the said sum to Wanbang, at a rate based on the USD$ lending rate announced by the People's Bank of China or the commercial banks for the same period; (7) JMT Mining, Jiaya and Wanbang’s other arbitration requests shall be dismissed; (8) Arbitration costs for the arbitration request totaling RMB¥72,030.00: JMT Mining and Jiaya shall be jointly responsible for RMB¥7,203.00 while Wanbang shall be responsible for RMB¥64,827.00 and arbitration costs for the counterclaim totaling RMB¥46,165.00: JMT Mining and Jiaya shall be jointly responsible for RMB¥4,616.50 while Wanbang shall be responsible for RMB¥41,548.00; and (9) Actual costs incurred in this case totaling RMB¥9,477.00 shall be borne by JMT Mining and Jiaya.

 

III. Grounds for setting aside the Arbitral Award and defences submitted

On 10 July 2012, Wanbang made an application to the Tianjin Maritime Court to set aside the said arbitral award. The main reasons were: (1) No arbitration agreements exist between Wangbang and JMT Mining; (2) The disputes between the parties shall be governed by the Tianjin Maritime Court pursuant to the law; (3) The arbitral tribunal did not give a full opportunity for Wanbang to submit its opinions; (4) The composition of the arbitral tribunal and the arbitration procedures did not conform to the arbitration rules; (5) The arbitral tribunal had adjudicated and rendered a decision on matters which did not belong to the scope of the arbitration agreement and which the arbitration institution had no jurisdiction; and (6) The arbitral award is in violation of public interests.

JMT Mining and Jiaya jointly submitted a defence that: (1) A principal-agent relationship existed between JMT Mining and Jiaya. Jiaya was authorized by JMT Mining to conclude the Contract with Wanbang, which clearly stipulated that any disputes arising or related to the Contract shall be arbitrated in the Commission. Exercising the right of intervention pursuant to article 403 of the Contract Law of the People’s Republic of China, JMT Mining may initiate arbitration proceedings against Wanbang by relying on the arbitration clause contained in the Contract; (2) Since this is an application to set aside an arbitral award, the court shall only examine the arbitration procedures, instead of adjudicating the substantive rulings contained in the award. Wanbang’s grounds for setting aside its application did not constitute any of the situations provided in article 258 of the Civil Procedure Law of the People’s Republic of China. Therefore, [JMT Mining and Jiaya] submitted that the court shall dismiss Wanbang’s application.

 

IV. The opinions of the Tianjin Maritime Court

The Tianjin Maritime Court ruled that the said arbitral award shall be set aside. Main reasoning:

The key issue to this dispute is whether an arbitration clause existed between the applicant, Wanbang, and the respondent, JMT Mining. Article 4 of the Arbitration Law of the People’s Republic of China provides that “The parties’ submission to arbitration to resolve their dispute shall be on the basis of both parties’ free will and an arbitration agreement reached between them. If a party applies for arbitration in the absence of an arbitration agreement, the arbitration commission shall not accept the case.” Therefore, an arbitration agreement shall reflect the parties’ common intention to arbitrate, based on their voluntary negotiations.

Here, the parties to the Contract containing the arbitration clause were Wanbang and Jiaya. During the signing of the Contract, Wanbang did not  know that an agency relationship existed between Jiaya and JMT Mining. In other words, when signing the arbitration agreement, Wanbang formed a common intention with Jiaya instead of other parties. JMT Mining had not participated in the signing of the arbitration clause and had no other arbitration agreements with Wanbang. Jiaya’s disclosure of its principal to Wanbang subsequent to the conclusion of the Contract (and claim that its principal may initiate arbitration proceedings with Wanbang) would lead to Wanbang’s inability to ascertain the parties to the arbitration when concluding the arbitration agreement, which violated the principle of voluntariness in arbitration. Therefore, it shall be determined that no arbitration agreement exist between Wanbang and JMT Mining. Wanbang’s first grounds supporting its setting aside application was established. Since Wanbang’s other grounds for its application to set aside the arbitral award lacked factual support, the said court did not accept [these arguments].

 

V. The opinions of the our court

Upon deliberation, our court decides to affirm the opinions of the Tianjin Maritime Court. Main reasoning:

Regarding the issue on the existence of an arbitration agreement between Wanbang and JMT Mining, pursuant to article 4 of the Arbitration Law of the People’s Republic of China, the parties’ submission to arbitration to resolve their dispute shall be on the basis of both parties’ free will and an arbitration agreement reached between them. Due regard must be given on principle of party autonomy when determining the existence of an arbitration agreement between the parties and whether the parties have reached a consensus on arbitration voluntarily and expressly.

Here, the arbitration clause stipulated in the Contract between Wanbang and Jiaya represented the parties’ common intention as to dispute resolution. Therefore, the arbitration clause contained in the Contract was only binding to the parties to the Contract, namely Wanbang and Jiaya. During the stipulation of the Contract, Wanbang had no knowledge that JMT Mining was the principal. After Jiaya’s disclosure of [its Contract with] Wanbang to JMT Mining, JMT Mining’s intervention in the Contract and submission of the disputes to arbitration merely indicated JMT Mining’s consent to resolve disputes through arbitration. Wanbang’s subsequent jurisdiction dispute submission to the Commission represented a clear intention of its refusal to resolve disputes with JMT Mining through arbitration. According to this, our court ruled that Wanbang and JMT Mining failed to reach a consensus as to resolving disputes through arbitration. Considering that no arbitration agreement exists between Wanbang and JMT Mining, pursuant to paragraph 1(1), article 258 of the Civil Procedure Law of the People’s Republic of China and article 70 of the Arbitration Law of the People’s Republic of China, [our court] decides to set aside Arbitral Award No. 001 of the China Maritime Arbitration Commission (2012).

Please reply whether the above opinions are correct.