Beijing Tepu Foods Co. Ltd v. Unknown

 

Cite as: Beijing Tepu Foods Co. Ltd v. Unknown, The Supreme People’s Court 30 June 2011, in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV (2014)

Case identification

  • Date of Decision: 30 June 2011 

  • Court:

    • The Supreme People’s Court

    • The Higher People's Court of Beijing

  • Arbitral Tribunal:

    • American Arbitration Association Award No. 26-435-08

    • UNCITRAL Arbitration Rules (1976)

  • Case number / Docket number:

    • No. 21 of the Fourth Civil Tribunal of the Supreme People’s Court [2011]

    • No. 157 of the Higher People’s Court of Beijing [2011]

Classification of issues present

  • Application of the New York Convention: Yes

  • Key New York Convention provision(s) at issue: Article V.1(b)

  • UNCITRAL Arbitration Rules (1976): Article 2 paragraph 1

Descriptors: Notice of appointment of arbitrators; Habitual residence, place of business or mailing address; Last-known residence or place of business; Notice deemed to have been received

 

 

 

 

 

Beijing Tepu Foods Co. Ltd v. Unknown  

Beijing Tepu Foods Co. Ltd sought to resist the recognition and enforcement of an AAA Arbitral Award on the ground that the notice of the appointment of the arbitrator had not been received. In its Reply to the Higher People’s Court of Beijing, the Supreme People’s Court found that the parties agreed on the UNCITRAL Arbitration Rules (1976) and the issue at hand was whether the address to which the notice of the appointment of the arbitrator was sent by the AAA was the habitual residence, place of business or mailing address or the last-known address or place of business of the recipient pursuant to paragraph 1, Article 2 of the UNCITRAL Arbitration Rules (1976). Having found that the Higher People’s Court did not address this issue in its Report, the Supreme People’s Court advised the Higher People’s Court to investigate into the issue and dispose the application accordingly.

Case text (English translation)

(30 June 2011 No. 21 of the Fourth Civil Tribunal of the Supreme People’s Court [2011])

 

The Higher People's Court of Beijing:

Your Court’s <Request for instructions on the application for the recognition and enforcement of American Arbitration Association Arbitral Award No. 26-435-08 > No. 157 of the Higher People’s Court of Beijing [2011], submission has been received. Upon deliberation, our reply is as follows:

This case is an application for recognition and enforcement of arbitral awards rendered by an arbitral institution in the United States. As China and the United States are both signatories of the <Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the New York Convention”)>, the Convention applies to this case.

Pursuant to your report, on 9th September, 2008 a notice of appointment of arbitrators was sent via post to Beijing Tepu Foods Co. Ltd (“Tepu Foods”) under the address of “D-901, Jia Run Garden, 19 Guangshun S St, Chaoyang, Beijing, China” by the American Arbitration Association. The post was returned, due to the recipient was “moved”. Afterwards, the American Arbitration Association had sent other documents to Tepu Foods but did not re-send the notice of appointment of arbitrators. From the two opinions presented by your Court, the key issue in this case is whether Tepu Foods received the notice of appointment of arbitrators, and if not, whether the failure amounted to the situation under Section 1(b), Article V of the New York Convention, that “The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or arbitration proceedings or was otherwise unable to present his case.”

Given that the parties have chosen the UNCITRAL Arbitration Rules (“UNCITRAL Rules”) for arbitration and the notice from the American Arbitration Association has indicated so respectively, the effectiveness of the notice of appointment of arbitrators will be determined according to relevant provisions of the UNCITRAL Rules. Section 1, Article 2 of the UNCITRAL Rules stipulates that “[F]or the purposes of these Rules, any notice, including a notification, communication or proposal, is deemed to have been received if it is physically delivered to the addressee or if it is delivered at his habitual residence, place of business or mailing address, or, if none of these can be found after making reasonable inquiry, then at the addressee’s last-known residence or place of business. Notice shall be deemed to have been received on the day it is so delivered.”

In your report, your court has not determined whether “D-901, Jia Run Garden, 19 Guangshun S St, Chaoyang, Beijing, China” is the habitual residence, place of business or mailing address of Tepu Foods. Your Court should investigate into this issue. Pursuant to Section 1, Article 2 of the UNCITRAL Rules, if the address of “D-901, Jia Run Garden, 19 Guangshun S St, Chaoyang, Beijing, China” which the notice from the American Arbitration Association was served is the habitual residence, place of business or mailing address or the last-known address or place of business of the recipient, the delivery of documents is effective even it has not been actually signed or received by the addressee. In that case, your court shall not refuse recognition and enforcement of the arbitral award pursuant to Section 1(b), Article V of <Convention on the Recognition and Enforcement of Foreign Arbitral Awards>. Otherwise, if the address is not the habitual residence, place of business or mailing address or the last-known address or place of business of Tepu Foods, your court shall refuse recognition and enforcement of the arbitral award pursuant to the New York Convention.

It is so replied.

 

Enclosed:

Request for Instructions on the application for the recognition and enforcement of American Arbitration Association Arbitral Award No. 26-435-08

(10 May 2011 No. 157 of the Higher People’s Court of Beijing [2011])

 

The Supreme People’s Court:

Regarding the case concerning the applicant Subway International B.V.’s application for the recognition and enforcement of American Arbitration Association Arbitral Award No. 26-435-08 accepted by the Second Intermediate People’s Court of Beijing, the said court proposed non-recognition and enforcement and made a request for our court’s instructions. Upon deliberation, our court hereby reports the abovementioned case for your court’s instructions.

 

I. The parties

Applicant (Arbitration applicant): Subway International B.V. Domicile: Prinsengracht 13, 1015 DK Amsterdam.

Legal Representative: Maurice Selhorst, Managing director.

Respondent (Arbitration respondent): Beijing Tepu Foods Co., Ltd. Domicile: Gaolingcun, Miyun, Beijing.

Legal representative: Liu Defeng, Chairman.

 

II. The parties’ application and defences submitted

Subway International B.V. (Hereafter: “Subway”) submitted that: The final award regarding the disputes arising from the Franchise Agreement between Subway and Beijing Tepu Foods Co., Ltd. (Hereafter: “Tepu Foods”) was rendered by Thomas B. Leonardi, arbitrator of the American Arbitration Association on 14 November 2008. Tepu Foods refused to perform in accordance with the said Award. Therefore, pursuant to the <Civil Procedure Law of the People’s Republic of China> and the <Notice of the Supreme People's Court on Implementing the “Convention on the Recognition and Enforcement of Foreign Arbitral Awards” Acceded to by China>, Subway made an application to recognize and enforce Award No. 26-435-08.

Pursuant to Award No. 26-435-08, the matters contained in the said Award for enforcement are as follows: 1. The Franchise Agreement and its annexures, letters of assignment of rights and letters of succession signed by Tepu Foods dated 23 December 1996 shall be terminated. 2. Tepu Foods shall, pursuant to Clause 8(e) of the said Franchise Agreement, remove all Subway® logo (in its premises), cease adopting any trade names, trademarks, service symbols, logos, colors, illustrations, prints and advertisements representing Subway’s sandwich business and return the operations manual to Subway. 3. Pursuant to Clause 8(e) of the said Franchise Agreement, starting from the date of the rendering of the said Arbitral Award (14 November 2008), Tepu Foods shall pay Subway a daily fee of USD$ 250.00 if it continues to adopt any trade names, trademarks, service symbols, logos, colors, illustrations, prints and advertisements representing Subway’s sandwich business or continues using the operations manual. Considering that Tepu Foods failed to perform the abovementioned obligations of removal and return, it shall pay Subway USD$ 250.00 per day from 14 November 2008 until the date of its discharges of the aforementioned removal and return obligations. Calculated as of today, fees incurred under this head amounted to USD$ 250.00 x 432 days = USD $108,000.00. 4. Tepu Foods shall abide by the following conditions stipulated in Clause 8(g) of the said Franchise Agreement: Tepu Foods shall not be directly or indirectly involved in the establishment or operation of any sandwich businesses (except Subway® restaurants officially authorized), regardless of being an employee, shop owner, shareholder, partner,  consultant, agent, management personnel or others, within 3 miles / 5 kilometers of any existing Subway® sandwiches (or any Subway® sandwiches existed during the previous year) for a one-year period. If Tepu Foods is in breach of the said Clause, it shall pay Subway USD$ 10,000.00 per shop plus 8% of the gross sales for each shop involved for the one-year period, being a reasonable estimation of compensation for Subway’s losses in the future. Apart from that, Subway may make applications through judicial means to restrain Tepu Foods from doing certain acts, pursuant to Clause 10.e of the said Franchise Agreement. 5. Tepu Foods shall pay Subway arbitration costs and arbitrator’s remuneration amounting to USD$ 2,150.00. 6. Tepu Foods shall be responsible for Subway’s all reasonable costs incurred, including but not limited to arbitration costs, litigation costs, attorneys’ fees, costs representing the management’s preparation, witnesses’ fees and travelling expenses.

Tepu Foods submitted in defence that: Pursuant to Subway’s application, Arbitral Award No. 26-435-08 was rendered by the American Arbitration Association in New York, the United States of America on 14 November 2008. Yet the American Arbitration Association had never notified Tepu Foods any matters concerning Subway’s arbitration application, as well as notifying Tepu Foods to participate in the arbitration hearing. When the said Arbitral Award came into effect, the said Association also failed to inform Tepu Foods the outcome of the Award and deliver Arbitral Award No. 26-435-08 to Tepu Foods pursuant to the relevant procedures.

1. The said arbitration was in violation of Article V(1)(b) of the <Convention on the Recognition and Enforcement of Foreign Arbitral Awards> (Hereafter the “New York Convention”). The said Article stipulates that recognition and enforcement of the Award may be refused, if the party against whom the award is invoked (Tepu Foods) was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case. Here, Tepu Foods did not receive any notices of oral hearing from the arbitral tribunal. It had no knowledge of relevant procedures such as the appointment of arbitrators, and was unable to submit any defences. Therefore, the said arbitration procedures were in violation of the Convention.

2. It was in Subway’s knowledge that Tepu Foods’s place of business was Hongxi Lou, Xinzhong Street, Dongcheng District. Hence, the delivery address submitted by Subway to the arbitral tribunal should be the abovementioned address. No express mails from the U.S. had been received by the abovementioned address. This indicated that no documents from the U.S. tribunal had been received. From the above, it can be determined that the composition of the arbitral tribunal and the award rendered were in violation of the procedures stipulated in the law, and so the court shall refuse recognition and enforcement of the said Award pursuant to the law.

3. The statement “the parties’ evidence and claims have been heard by the tribunal” stipulated in the Award is totally untrue. Considering that Tepu Foods did not receive any documents from the arbitral tribunal and so it failed to attend the hearing in the United States, how can the said tribunal heard Tepu Foods’s evidence and claims?

4. Pursuant to the Award submitted by Subway, no Award in Chinese had been submitted. This is in conformity with the situation where “the party against whom the award is invoked was otherwise unable to present his case”. Therefore, the court shall refuse recognition and enforcement of the said Award pursuant to the law.

5. The said Award was in violation of Article V(1)(c) of the <New York Convention>, that the award deals with a difference not contemplated by or not falling within the term of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, the courts where the recognition and enforcement is sought may refuse recognition and enforcement of the award pursuant to the claims and proof submitted by the party whom the arbitral award to be enforced on. Paragraph 9 of the said Award that “Tepu Foods shall be responsible for Subway’s all reasonable costs incurred, including but not limited to arbitration costs, litigation costs, attorneys’ fees, costs representing the management’s preparation, witnesses’ fees and travelling expenses” exceeded the scope of matters which the parties had agreed to arbitrate. In addition, the amount claimed was not clearly specified. The said matter exceeded the scope of [the arbitration agreement between the parties], which was ineffective and not-enforceable. Therefore, [the court] shall refuse recognition and enforcement the said Award pursuant to the Convention.

6. The said Award was rendered on 14 November 2008. In fact, at that time the parties continued performing the said Franchise Agreement peacefully and amicably. In several occasions in 2009, Subway collected management fees under the Agreement from Tepu Foods. Therefore, the contents of the said Award are false. Relying on the fact that the parties were performing in accordance with the said Agreement, Tepu Foods requested the court to dismiss Subway’s application.

 

III. Facts identified

1. The arbitration clause

On 23 December 1996, a Franchise Agreement had been signed between Subway and Tepu Foods. Clause 10.c of the said Agreement stipulated that: Any disputes or claims arising or related to this Agreement which cannot be resolved by the aforementioned mediation procedures provided in Clause 10.a or submitted to arbitration pursuant to the provisions of this Agreement shall be submitted to the American Arbitration Association for arbitration pursuant to the UNCITRAL Arbitration Rules. The place of arbitration shall be Bridgeport, Connecticut, the U.S.A or any other place in Connecticut designated by the American Arbitration Association. Unless the law of the country where the franchisee’s sandwich shop situated otherwise provides that an award shall be rendered by an arbitral tribunal formed by three arbitrators, the Arbitral Award shall be rendered by a sole arbitrator. The proceedings shall be conducted in English. All arbitrators shall speak fluent English. Any courts having jurisdiction may recognize the Arbitral Award.

On 7 July 2008, the parties signed a Rectification Agreement. Clause 3 of the said Agreement stipulated that: The parties agree that: Any disputes, controversies, claims or breaches arising or related to the said Rectification Agreement and the abovementioned Franchise Agreement shall be resolved by arbitration provided in Clause 10 of the said Franchise Agreement. The parties further agree that arbitration applications shall be entertained by an arbitration institution, such as the American Arbitration Association (AAA) or the American Dispute Resolution Center.

 

2. The American Arbitration Association’s Award

Upon oath, Thomas B. Leonardi, the officially appointed arbitrator of this case entertained by the AAA, heard the parties’ evidence and claims and made an Award ruling that:

(1) Tepu Foods was in breach of the Rectification Agreement with Subway dated 7 July 2008. (2) Tepu Foods was in breach of the Franchise Agreement and its annexures, letters of assignment of rights and letters of succession with Subway dated 23 December 1996. (3) The Franchise Agreement and its annexures, letters of assignment of rights and letters of succession signed by Tepu Foods dated 23 December 1996 shall be terminated. (4) Tepu Foods shall, pursuant to Clause 8(e) of the said Franchise Agreement, remove all Subway® logo (in its premises), cease adopting any trade names, trademarks, service symbols, logos, colors, illustrations, prints and advertisements representing Subway’s sandwich business and return the operations manual to Subway. (5) Pursuant to Clause 8(e) of the said Franchise Agreement, starting from the date of the rendering of the said Arbitral Award (14 November 2008), Tepu Foods shall pay Subway a daily fee of USD$ 250.00 if it continues to adopt any trade names, trademarks, service symbols, logos, colors, illustrations, prints and advertisements representing Subway’s sandwich business or continues using the operations manual. (6) Tepu Foods shall abide by the following conditions stipulated in Clause 8(g) of the said Franchise Agreement: Tepu Foods shall not be directly or indirectly involved in the establishment or operation of any sandwich businesses (except Subway® restaurants officially authorized), regardless of being an employee, shop owner, shareholder, partner, consultant, agent, management personnel or others, within 3 miles / 5 kilometers of any existing Subway® sandwiches (or any Subway® sandwiches existed during the previous year) for a one-year period. If Tepu Foods is in breach of the said Clause, it shall pay Subway USD $10,000.00 per shop plus 8% of the gross sales for each shop involved for the one-year period, being a reasonable estimation of compensation for Subway’s losses in the future. Apart from that, Subway may make applications through judicial means to restrain Tepu Foods from doing certain acts, pursuant to Clause 10.e of the said Franchise Agreement. (7) The arbitration costs of American Arbitration Association paid by Subway in advance amounted to USD$ 750.00 shall be borne by Tepu Foods. Therefore Tepu Foods shall pay Subway USD$ 750.00 for the said payments in advance. (8) Arbitrator’s remuneration paid by Subway in advance amounted to USD$ 1,400.00 shall be borne by Tepu Foods. Therefore Tepu Foods shall pay Subway USD$ 1,400.00 for its payments in advance. (9) Tepu Foods shall be responsible for Subway’s all reasonable costs incurred, including but not limited to arbitration costs, litigation costs, attorneys’ fees, costs representing the management’s preparation, witnesses’ fees and travelling expenses. (10) This Award shall come into force immediately No further adjudications are required. This Award shall be recognized by courts having jurisdiction.

The said Award was rendered on 14 November 2008.

 

3. According to the evidence submitted by Subway, it was also found that:

On 28 August 2008, Subway sent Tepu Foods a copy of its arbitration application submitted to the AAA and the relevant annexures by mail, with the address being D-901, Jia Run Garden, 19 Guangshun S St, Chaoyang, Beijing and the recipient being Maegan Yang, Tepu Foods Ltd (Yang Zhizhong, the legal representative of Tepu Foods). Subway submitted that the said address was the mailing address supplied by Tepu Foods. The said mail was received on 1 September 2008.

On 9 September 2008, the AAA sent Tepu Foods a mail to the same address, stating that: [the AAA] confirms receipt of Subway’s arbitration application submitted on 9 August 2008 regarding a dispute between the parties. An arbitration clause was included, providing that arbitration pursuant to the UNCITRAL Arbitration Rules. If a hearing is requested, the designated place for the hearing shall be in New York, New York. In accordance with the abovementioned Arbitration Rules, a list of neutral arbitrators and their curriculum vitae is enclosed. Upon the parties’ selection of the arbitrator pursuant to the Rules, the list shall be returned to the arbitration institution in 15 calendar days. The case manager may select arbitrators from the remaining list of arbitrators which is acceptable by the parties. If the parties fail to reach a consensus as to the appointment of the arbitrator, the case manager may appoint an arbitrator. If Tepu Foods wishes to submit defences or counterclaims, it shall submit two copies of the said documents to the arbitration institution and settle the acceptance fees. A checklist of conflict of interest is also enclosed. The arbitration institution requires the parties to disclose any witnesses, enterprises, companies or personnel who is or may be involved in this arbitration case. The said checklist shall be returned to the arbitration institution in 15 calendar days, to be distributed to the arbitrators. Subway also requested a trial on the papers. Therefore, unless [the AAA] received a notification as to the contrary in 15 calendar days, Tepu Foods will be deemed to have no objections as to Subway’s request and a trial on the papers will be conducted. The said mail was sent to Tepu Foods by first class registered post. It was subsequently returned due to “moved”.

On 24 September 2008, the AAA sent Tepu Foods another mail to the same address, stating that: upon reviewing Subway’s appointment of another arbitrator, no replies had been made by Tepu Foods. It is hereby confirmed that Richard E. Bennett Esq. shall be the arbitrator. Pursuant to the UNCITRAL Arbitration Rules, the parties shall submit two copies of their claims, defences, together with their summary and evidence to the American Arbitration Association no later than 28 October 2008. Upon receiving the abovementioned documents, the arbitration institution shall send the original copies of the parties’ documents to the arbitrator, and exchange the remaining documents between the parties. If the arbitrator considers that a trial on the papers is to be conducted, he may conclude the case and render an award. Otherwise, he shall make a notification to the American Arbitration Association requesting scheduling a date for a hearing. The said mail was sent to Tepu Foods by first class registered post. It was returned, due to “moved”.

On 30 September 2008, the AAA sent Tepu Foods another mail to the same address, stating that: it is confirmed that regarding arbitrator Bennett’s disclosure, he shall cease to be the arbitrator of this case. Upon reviewing Subway’s appointment of the arbitrator and Tepu Foods’ failure to reply, Tomas B. Leonardi Esq. shall become the arbitrator. Since a trial on the papers is to be conducted, the parties parties shall submit two copies of documents to the arbitration institution no later than 28 October 2008. Upon receipt, the arbitration institution shall deliver the original copies of the parties’ documents submitted to the arbitrator, and facilitate exchanging the copies between the parties. Upon review, the arbitrator would make a notification concerning whether further information is needed. The said mail was sent to Tepu Foods by first class registered post. It was returned due to “moved”.

On 14 October 2008, the AAA sent Tepu Foods a mail to the address named “Hongxi Lou, Xinzhong Street, Beijing” (the said address being the address of the franchised store provided in the Agreement in question) stating that: [the AAA] received a non-material disclosure from the arbitrator, and hereby attached the said disclosure for the parties. In addition, a copy of the arbitration institution’s letter to the parties dated 30 September has been attached for Tepu Foods, since the arbitration institution is not certain whether Tepu Foods has received the said letter. The said mail had not been returned.

On 21 November 2008, the AAA sent Tepu Foods a mail to the address named “Hongxi Lou, Xinzhong Street, Beijing” stating that: pursuant to the arbitration rules and the arbitrator’s instructions, the trial for the abovementioned case has been completed. Attached please find the formal arbitral award signed by Leonardi, the arbitrator. The said mail was returned due to “insufficient address”.

 

IV. Provisional opinions

(1) Provisional opinions of the Second Intermediate Court

It is in the Second Intermediate Court’s opinion that since Tepu Foods admitted that Hongxi Lou, Xinzhong Street, Dongcheng District, Beijing was its place of business, it is appropriate for Subway and the arbitration authorities to send the relevant documents to the said address. According to the evidence submitted by Subway, upon the return of various documents including the notice of acceptance of the case, list of arbitrators and notice for the appointment of arbitrator from the address “D-901, Jia Run Garden, 19 Guangshun S St, Chaoyang, Beijing”, the arbitration institution sent a mail to Tepu Food’s place of business on 14 October 2008. The said mail was not returned. Therefore, Tepu foods shall be deemed to have received the said mail. The said mail was a non-material disclosure by arbitrator Leonardi to be delivered to Tepu Foods. At the same time, another letter sent to Tepu foods by the arbitration institution dated 30 September was attached. The said attachment stated that regarding arbitrator Bennett’s disclosure and his resignation, no replies had been made by Tepu Foods upon reviewing Subway’s appointment of another arbitrator, and so Tomas B. Leonardi Esq. shall become the arbitrator. The arbitration institution confirmed that a trial on the papers was to be conducted. The parties shall submit two copies of documents to the arbitration institution no later than 28 October 2008. Upon receipt, the arbitration institution shall deliver the original copies of the parties’ documents submitted to the arbitrator, and facilitate exchanging the copies between the parties. Upon review, the arbitrator would make a notification concerning whether further information is needed.

The evidence mentioned above may prove that Tepu Foods received materials regarding the arbitrators and their disclosures. At the same time, Tepu Foods was informed about the deadline for submission of documents and the work progress of the arbitration institution. Nevertheless, the arbitration institution failed to re-send Tepu Foods the notice of the arbitration case and the list of arbitrators previously sent (the first mail sent [to Tepu Foods]). Therefore, Tepu Foods did not receive the list of arbitrators and the notice regarding appointment of arbitrators, and was unable to appoint an arbitrator. This situation conforms with the description that the respondent “was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings” stipulated in Article V(1)(b) of the <New York Convention>. The said Award shall not be recognized.

 

(2) Provisional opinions of our Court

Upon deliberation, our court advances the following two opinions:

According to the first opinion, pursuant to the facts found by the Second Intermediate Court and Article V (1)(b) of the <New York Convention> that recognition and enforcement of the Award may be refused if the respondent was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case. Although Subway and the arbitration institution sent Tepu Foods the relevant documents, no mails had been received by Tepu Foods except a non-material disclosure by an arbitrator dated 14 October 2008 and an attached copy of the letter from the arbitration  institution to the parties dated 30 September. Tepu Foods was unable to submit its defences to the arbitration institution. Therefore, our court is in concurrence with the opinions of the Second Intermediate Court and proposes that Arbitral Award No. 26-435-08 of the American Arbitration Association shall not be recognized and enforced.

According to the second opinion, Subway and the arbitration institution had mailed all documents related to the arbitration procedures in question to Yang Zhizhong, the legal representative of Tepu Foods and Tepu Foods Ltd. Yang Zhizhong was the legal representative of Tepu Foods and the Agreement in question was signed by him. Despite several documents were returned, Subway and the arbitration institution had discharged their obligation to deliver the materials. Therefore, the Arbitral Award in question shall be recognized and enforced.

Please advise which opinion is more appropriate.