Chengdu Youbang Stationery Co., Ltd and Wang Guojian v. Yau Bong Polybags Printing Company Limited

 

Cite as: Chengdu Youbang Stationery Co., Ltd and Wang Guojian v. Yau Bong Polybags Printing Company Limited, The Supreme People’s Court (20 March 2013), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV

Case identification

  • Date of Decision: 20 March 2013 

  • Court:

    • The Supreme People’s Court

    • The Higher People's Court of Guangdong Province

  • Arbitral Institution/Tribunal:

    • Shenzhen Arbitration Commission                                                                     Arbitral Award No.601 (2011)

  • Case number / Docket number:

    • No. 9 of the Fourth Civil Tribunal of the Supreme People’s Court [2013]

    • No. 2 of the Higher People’s Court of Guangdong Province [2012]

Classification of issues present

  • Application of the New York Convention: No

  • Key PRC law provision(s) at issue: Article 70 of the <Arbitration Law of the People’s Republic of China> and Paragraph 1(1), Article 274 of the <Civil Procedure Law of the People’s Republic of China>

Descriptors: Arbitration agreement; Scope of arbitration agreement; Primary and secondary contracts; Parties to the arbitration agreement  

 

 

Chengdu Youbang Stationery Co., Ltd and Wang Guojian v. Yau Bong Polybags Printing Company Limited  

A Hong Kong-related arbitral award rendered at the Shenzhen Arbitration Commission was annulled. In its Report to the Supreme People’s Court, the Higher People's Court of Guangdong Province found that although there was an arbitration clause in the primary contract of license of trademark between Chengdu Youbang and Yau Bong, there was no arbitration clause in the secondary guarantee contract between Wang Guojian and Yau Bong. The Higher People’s Court of Guangdong Province was of the view that the arbitration clause contained in the primary contract did not bind the parties to the secondary contract. Thus, the arbitral tribunal did not have jurisdiction over the dispute arising out of the secondary contract and the resulting award should be annulled. In its Reply, the Supreme People’s Court agreed and found that the arbitral tribunal’s finding that the arbitration clause contained in the primary contract should apply to disputes arising out of the secondary contract lacked legal basis under the PRC law.

Case text (English translation)

(20 March 2013 No. 9 of the Fourth Civil Tribunal of the Supreme People’s Court [2013])

 

The Higher People’s Court of Guangdong:

Your court’s Request for Instructions on Chengdu Youbang Stationery Co., Ltd and Wang Guojian’s Application to Set Aside Arbitral Award No. 601 of the Shenzhen Arbitration Commission (2011) (No. 2 of the Higher People’s Court of Guangdong [2012]) submission has been received. Upon deliberation, our reply is as follows:

This case is an application to set aside a Hong Kong-related arbitral award rendered by a Chinese arbitration institution. Since no arbitration clauses are stipulated in the guarantee contract in question, the arbitral tribunal’s opinion that the arbitration clause contained in the primary contract shall bind the guarantee contract (being the secondary contract) lacked legal grounds. Given the arbitral tribunal’s adjudication and decision rendered on the guarantee contract in the absence ofan arbitration clause, the guarantor’s, Wang Guojian’s, application to set aside the rulings regarding his liabilities as a guarantor contained in the said arbitral award shall be allowed. Considering that Wang Guojian, Qi Xiang and Chen Jianjun are joint guarantors having the same legal status and that the rulings regarding their liabilities were provided under ruling (4) of the said arbitral award, the people’s court ought to regard the said ruling as inseparable and set it aside.

Summarizing the above, pursuant to article 70 of the Arbitration Law of the People’s Republic of China and paragraph 1(1), article 274 of the Civil Procedure Law of the People’s Republic of China, rulings (4) and (6) of the said arbitral award concerning Wang Guojian, Qi Xiang and Chen Jianjun’s joint liability over the arbitration costs shall be set aside.

It is so replied.

 

Enclosed:

Request for Instructions on Chengdu Youbang Stationery Co., Ltd and Wang Guojian’s Application to Set Aside Arbitral Award No. 601 of the Shenzhen Arbitration Commission (2011)

(28 November 2012 No. 2 of the Higher People’s Court of Guangdong Province [2012])

 

The Supreme People’s Court:

Regarding Chengdu Youbang Stationery Co. Ltd. (hereafter “Chengdu Youbang”) and Wang Guojian’s application to set aside a foreign-related arbitral award accepted by the Intermediate People’s Court of Shenzhen, Guangdong (hereafter “the Shenzhen Intermediate Court”), the said court decided to set aside Arbitral Award No. 601 of the Shenzhen Arbitration Commission (2011) rendered on 8 September 2011. Pursuant to the Circular of the Supreme People’s Court Concerning Relevant Matters Regarding Setting Aside of Foreign-related Arbitration Awards by the People’s Courts (No. 40 of the Supreme People’s Court [1998]), the Shenzhen Intermediate Court reported [the case] for our court’s consideration. Upon review, our court partially affirms the opinion of the Shenzhen Intermediate Court, and hereby requests your court’s instructions pursuant to the abovementioned Circular.

 

I. The parties

Applicant (first respondent in the arbitration): Chengdu Youbang Stationery Co. Ltd. Domicile: Shuang Lin Lu, Chengdu, Sichuan.

Legal representative: Wang Guojian, General Manager of the company.

Applicant (second respondent in the arbitration): Wang Guojian. Domicile: Huangboji, Miluo, Hunan.

Respondent: (arbitration applicant): Yau Bong Polybags Printing Co., Ltd. Domicile: Kwai Cheong Road, Kwai Chung, New Territories, Hong Kong.

Third respondent in the arbitration: Qi Xiang. Domicile: Binhai, Jiangsu.

Fourth respondent in the arbitration: Chen Jianjun. Domicile: Xunyang District, Jiujiang, Jiangxi.

 

II. The grounds supporting the application to set aside the Arbitral Award and defences submitted

Chengdu Youbang and Wang Guojian refused to accept Arbitral Award No. 601 of the Shenzhen Arbitration Commission (2011) (hereafter “Arbitral Award No. 601”), and made an application to set aside the said arbitral award pursuant to the Arbitration Law. Grounds: 1. The arbitral award’s rulings on the Letter of Guarantee [hereafter “Letter of Guarantee”], which contained no arbitration clause, were inappropriate. (1) The Letter of Guarantee contained no stipulations as to the arbitration clauses, and the parties did not subsequently reach an arbitration agreement. Arbitral Award No. 601’s ruling that the guarantors of the Letter of Guarantee, Wang Guojian, Qi Xiang and Chen Jianjun, shall bear joint and several liabilities violated the Arbitration Law and constituted the situation “Without an arbitration agreement,” a legal ground for setting aside arbitral awards [provided in the Arbitration Law]; (2) The arbitration procedures represent the principle of party autonomy and are different from the people’s court’s mandatory jurisdiction. The arbitration institutions have no mandatory jurisdiction over the parties. Only the people’s court may exercise mandatory jurisdiction; (3) In the respondent‘s, Wang Guojian’s, dispute on jurisdiction submitted in April 2011 during the arbitration proceedings, the arbitral tribunal ruled that the arbitration clause contained in the “Trademark License Contract” shall be binding to the Letter of Guarantee since they were master and collateral contracts. In the first hearing, Wang Guojian solemnly raised the issue concerning the tribunal’s jurisdiction but the said submission was rejected by the tribunal. This constituted an error on the application of law; and (4) Here, the arbitration commission held that an ancillary contractual relationship existed between the main contract and the guarantee contract, and thus the arbitration clauses contained in the main contract shall be applicable to the guarantee contract. However, no clear stipulations were provided requiring the arbitration clauses contained in the main contract shall be applicable to the collateral contract in the existing effective laws, regulations and judicial interpretations. The arbitration commission’s acceptance and adjudication of this dispute and its ruling that the three guarantors shall be jointly and severally liable lacked legal grounds and was illegal. Summarizing above, the Shenzhen Arbitration Commission’s exercise of its jurisdiction over the guarantors of the Letter of Guarantee which contained no arbitration clauses and its ruling that the guarantors shall be jointly and severally liable violated the Arbitration Law, and thus the people’s court shall set aside the said award in accordance with the law; 2. During the arbitration proceedings, Yau Bong Polybags Printing Co., Ltd. (hereafter “Yau Bong”) concealed evidence which may substantially affect the fairness of the rulings including: (1) Important evidence contained in the “Industrial and Commercial Registration” of Shenzhen Changyou Plastic Products Co., Ltd. (hereafter “Shenzhen Changyou”); (2) “Notice for the termination of the Trademark License Contract,” causing the arbitral tribunal’s failure to identify the fact that the Trademark License Contract had already been terminated and its erroneous rulings rendered; (3) Yau Bong intentionally concealed another important [piece of] evidence, the “Notice Regarding the Termination of the Contract” which substantially affected the fairness of the award. 3. The arbitral tribunal violated the arbitration rules. (1) [The tribunal] willfully neglected the collection of important evidence and even ignored the proceedings of the hearings and rendered an award in violation of the rules; (2) Violating the principle that rulings shall be made in accordance with the facts as stipulated under article 5 of the Arbitration Rules, the arbitrator rendered the award by bending the law and dwelled at trivialities rather than the key issues, causing serious inconsistencies between the award and the facts. Summarizing the above, Arbitral Award No. 601 ruled on the Letter of Guarantee which contained no provisions on arbitration, Yau Bong concealed evidence that may substantially affect the fairness of the rulings during the arbitration procedure, the arbitral tribunal made rulings in violation of the arbitration rules and rendered the award by bending the law. Therefore, to protect the legitimate interests of Chengdu Youbang, [Wang Guojian] made an application to the people’s court to set aside the said award.

The respondent, Yau Bong, submitted in defence that: (1) The Shenzhen Intermediate Court had jurisdiction over the disputes related to the Trademark License Contract and the Letter of Guarantee; (2) Yau Bong had not terminated the Trademark License Contract and therefore it did not conceal any evidence; and (3) Here, no legal grounds supporting the setting aside of the arbitral award can be found. The applicant’s, Chengdu Youbang’s, argument that the arbitral award was unfair did not fall under the scope of the examination for applications setting aside foreign-related arbitral awards. Since the arbitral award in question belonged to Hong Kong-related arbitration, adjudication shall be made pursuant to article 70 of the Arbitration Law of the People’s Republic of China. Summarizing the above, [Yau Bong] requested [the court to] dismiss Chengdu Youbang’s application to set aside the award.

 

III. Basic facts of the case

On 1 February 2007, Yau Bong and Chengdu Youbang concluded a Trademark License Contract,, agreeing that Yau Bong shall authorize Chengdu Youbang’s use of its registered trademark “YOBO Youbang.” The authorization was effective for five years, from 1 January 2007 to 21 December 2011. The scope of the authorized goods shall be economy stationery products, with the exact scope to be negotiated by Chengdu Youbang and Shenzhen Changyou. Yau Bong authorized Shenzhen Changyou to supervise the quality of Chengdu Youbang’s goods using the registered trademark. Fees shall be paid for the use of the said registered trademark, calculated at a fixed sum plus a proportion of the sales. In particular, the fixed usage fee shall be RMB¥200,000.00 for the first RMB¥10 million of sales for 2007; RMB¥400,000.00 for the first RMB¥20 million of sales for 2008; RMB¥800,000.00 for the first RMB¥40 million of sales for 2009; RMB¥1,200,000.00 for the first RMB¥60 million of sales for 2010; and RMB¥2,000,000.00 for the first RMB¥100 million of sales for 2011. If Chendu Youbang’s sales for the year exceeded the abovementioned minimum sales, Yau Bong is entitled to an additional usage fee calculated at 2 per cent of the sales above the minimum sales. The said fees shall be settled in one month from the end of the financial year. If Chendu Youbang failed to settle the trademark usage fee in accordance with the contract, damages calculated at a rate of 5per cent shall be paid to Yau Bong. If the sum is overdue for over two months, Yau Bong has the right to terminate the said contract unilaterally. Means of dispute resolution shall be negotiated by the parties. If the negotiations failed, the parties agree to submit the said disputes to the Shenzhen Arbitration Commission [for arbitration] pursuant to its arbitration rules. The said contract was duly signed and sealed by Mai Canchi, the representative of Yau Bong.

2. On 7 February 2007, the 2nd, 3rd and 4th respondents Wang Guojian, Qi Xiang and Chen Jianjun,  [respectively,] jointly signed a Letter of Guarantee, providing guaranties for Chendu Youbang’s liabilities. The scope of guaranties covered all legal matters including the payment of the trademark usage fees, assurance on product quality, damages and the responsibilities arising from a breach of contract. The guarantee liability was joint and several. The said Letter of Guarantee was duly signed by Wang Guojian, Qi Xiang and Chen Jianjun.

3. The Trademark Bureau of the State Administration for Industry and Commerce issued a Trademark Registration Certificate for Yau Bong. [The certificate] was effective from 21 August 2003 until 20 August 2013.

4. On 1 February 2007, a contract was signed between Chendu Youbang and Shenzhen Changyou, agreeing that: both parties received Yau Bong’s authorization to use its trademarks. The scope of authorized goods for Chengdu Youbang was limited to economy stationery products; Chengdu Youbang may appoint manufacturers on its own to produce the economy stationery products. Under the same conditions, Chengdu Youbang shall give preference to Shenzhen Changyou when choosing a supplier for the said type of products. All debts arising from the production of the products shall be borne by Chengdu Youbang. If the license granted to Chengdu Youbang was cancelled due to its breach of contract or the Trademark License Contract has been terminated, Chengdu Youbang shall make a smooth transition of its regional markets occupied to Shenzhen Changyou. In addition, to facilitate Changyou’s operations, Chengdu Youbang shall provide the relevant channels and market statistics without requiring Changyou’s additional payments. The said contract was valid for five years, from 1 January 2007 to 31 December 2011.

5. During the arbitral tribunal’s hearing, it was found that the registered trademark and barcodes of Yau Bong had been sent to Chendu Youbang through Shenzhen Changyou.

6. In July 2007, Shenzhen Changyou issued an invoice stating that: Chengdu Youbang’s payment of RMB¥200,000.00 representing payment for the use of the “economy” trademark had been received: Qi Xiang RMB¥66,667.00, Chen Jianjun RMB¥66,667.00, Wang Guojian RMB¥66,666.00. The said invoice was duly sealed by Shenzhen Changyou’s special seal for financial use. In the hearing, it was found that part of Yau Bong’s usage fees, amounting to RMB¥66,666.00 received in 2008 confirmed in its arbitration application, was collected by Shenzhen Changyou.

7. On 28 October 2008, Shenzhen Changyou sent Chengdu Youbang a “Notice Regarding the Termination of the Contract,” stating that:

Due to your company’s breach of contract, Yau Bang had made a notification on 27 October 2008 declaring that the Trademark License Contract shall be terminated. The authorization to use the registered trademark “YOBO Youbang” shall also be terminated. Pursuant to article 9 of the contract, we hereby terminate the contract signed with your company dated 1 February 2007. Please facilitate the relevant transition proceedings. This Notice is in duplicate. A copy of which had been sent to your company by express mail and the other one is to be kept by our company.

[The said Notice] had been duly sealed by Shengzhen Changyou.

8. According to the Results of Information Inquiries on the Registry of the Market Supervision Administration of Shenzhen Municipality dated 4 March 2011, the shareholders of Shengzhen Changyou were Yau Bong Polybags Printing Co., Ltd and Shenzhen Longhua Technology Industry Co., Ltd. It was found in the hearing that Yau Bong is a company registered in Hong Kong; it had not registered and established any offices in the People’s Republic of China. The performance of the said Trademark License Contract was conducted through Shengzhen Changyou, its joint-venture company established.

9. Chengdu Youbang issued a Notary Certificate signed by the Guoli Notary Office, Sichuan Chengdu. The matter to be notarized was related to preservation of evidence, proving that on that day the name and the pictures of the goods of the applicant can be found at the webpage “http: // www.youbang.com,” while the name of Shengzhen Changyou, the company information with Yau Bong’s registered trademark and the pictures of its goods can be found at the webpage “http: // www.youbang.com.cn.”

10. During the hearing, the arbitral tribunal found that during the performance of the contract, Yau Bong had not made any proceedings under its name. Regarding the trademark usage fees for the years ended 2008, 2009, 2010 and 2011 owed by Chengdu Youbang, Yau Bong failed to submit evidence to prove that it had contacted [Chengdu Youbang] or it had demanded [Chengdu Youbang’s] repayments.

11. Pursuant to the arbitration clause contained in the Trademark License Contract concluded with Chengdu Youbang dated 1 February 2007, Yau Bong submitted an arbitration request to the Shenzhen Arbitration Commission in January 2011 requesting that: (1) The performance of the Trademark License Contract between Chengdu Youbang and Yau Bong shall be terminated. Chengdu Youbang shall cease using Yau Bong’s registered trademark; (2) Chengdu Youbang shall pay Yau Bong trademark usage fees amounting to RMB¥4,333,334.00 and damages totaling RMB¥2,774,001.00 (calculated until 1 February 2011 at a rate of 2 per cent from the date of late payment). The calculation of the damages shall be made in accordance with the abovementioned rate until Chengdu Youbang’s full settlement of the trademark usage fees; (3) Chengdu Youbang shall be responsible for Yau Bong’s lawyer’s fees incurred totaling RMB¥60,000.00; (4) The 2nd, 3rd and 4th respondents Wang Guojian, Qi Xiang and Chen Jianjun [respectively,] shall be jointly and severally liable for Chengdu Youbang’s payments for compensation under requests (1), (2) and (3); and (5). The arbitration costs shall be borne by Chengdu Youbang, Wang Guojian, Qi Xiang and Chen Jianjun. The Shenzhen Arbitration Commission accepted the said dispute over the Trademark License Contract. The case number was No. 9 of the Shenzhen Arbitration Commission (2011). The Shenzhen Arbitration Commission Arbitration Rules (hereafter the “Arbitration Rules”) effective from 1 January 2008 shall be applicable.

On 11 April 2011, Wang Guojian submitted a Application for Dispute on Jurisdiction arguing that: Wang was not a party to the Trademark License Contract and therefore was not bound by the arbitration clause contained in the said contract. Although Wang Guojian issued a Letter of Guarantee, no provisions that disputes shall be governed by the Arbitration Commission were provided in the said Letter of Guarantee. Therefore, the arbitration jurisdiction stipulated in the Trademark License Contract was invalid against Wang Guolin. The Arbitration Commission shall not exercise its mandatory jurisdiction. Upon reviewing Wang’s jurisdiction dispute, the Arbitration Commission ruled that: the Letter of Guarantee provided guarantees for relevant matters for the Trademark License Contract. From the view of the relationship between the two contracts, the Letter of Guarantee is a collateral contract of the Trademark License Contract. According to the relationship between master contracts and collateral contracts, the arbitration clause contained in the Trademark License Contract was binding on the parties to the Letter of Guarantee. Summarizing the above, pursuant to article 20 of the Arbitration Law of the People’s Republic of China, the Arbitration Commission rendered Decision on Jurisdiction No. 9 of the Shenzhen Arbitration Commission (2011) dismissing Wang Guojian’s jurisdiction dispute.

The Shenzhen Arbitration Commission had adjudicated the case. Upon the Arbitration Commission’s notice in accordance with the law, the respondents, Qi Xiang and Chen Jianjun, refused to attend the hearings without legitimate reasons and did not submit defences. They shall be deemed to have automatically waived their rights to [any] defence. On 8 September 2011, the arbitral tribunal rendered Arbitral Award No. 601 ruling that: (1) The Trademark License Contract between Chengdu Youbang and Yau Bong shall be terminated; (2) Chengdu Youbang shall pay Yau Bong trademark usage fees in arrears totaling RMB¥3,666,666.00; (3) Chengdu Youbang shall pay Yau Bong its lawyer’s fees totaling RMB¥30,000.00; (4) Wang Guojian, Qi Xiang and Chen Jianjun shall be jointly and severally liable for Chengdu Youbang’s abovementioned payment obligations; (5) Yau Bong’s other arbitration requests shall be dismissed; and (6) Arbitration costs totaling RMB¥83,689.00. Yau Bong shall be responsible for RMB¥41,845.00 and Chengdu Youbang, Wang Guojian, Qi Xiang and Chen Jianjun shall be jointly responsible for RMB¥41,844.00. The arbitration costs had been settled by Yau Bong in advance. Chengdu Youbang, Wang Guojian, Qi Xiang and Chen Jianjun shall pay Yau Bong the said arbitration costs. The abovementioned payments shall be settled by Chengdu Youbang, Wang Guojian, Qi Xiang and Chen Jianjun within seven days from the date of delivery of this award.

 

IV. The opinions of the Shenzhen Intermediate Court

Upon review, the Shenzhen Intermediate Court held that since Arbitral Award 601 was a Hong Kong-related arbitral award, [and] adjudication shall be made pursuant to article 70 of the Arbitration Law of the People’s Republic of Chinaand article 258 of the Civil Procedure Law of the People’s Republic of China. With reference to the grounds for setting aside arbitral awards provided in article 258 of the Civil Procedure Law of the People’s Republic of China, Chengdu Youbang’s grounds to set aside the said arbitral award included: [(1)] The Letter of Guarantee did not contain arbitration clauses; [(2)] the arbitral tribunal did not have the jurisdiction to adjudicate and rule on matters regarding the guarantees; [(3)] Yau Bong concealed evidence which may substantially affect the fairness of the rulings; [(4)] The arbitral tribunal did not actively collect evidence in accordance with the law and make a fair ruling [;] it rendered the award by bending the law, in violation of the Arbitration Rules. Since grounds 2 and 3 of Chengdu Youbang’s application mentioned above did not belong to the situations described in article 258 of the Civil Procedure Law of the People’s Republic of China, they shall not be examined.

Regarding the issue whether the arbitral tribunal’s adjudication and decision made on the Letter of Guarantee which contained no arbitration clauses, belong to a situation where [the arbitral tribunal] did not have the jurisdiction or the arbitration exceeded the scope of the arbitration agreement, the court of the first instance held that: although the Trademark License Contract and Letter of Guarantee were master and collateral contracts, the signing parties of the two contracts were different. The guarantors Wang Guojian, Qi Xiang and Chen Jianjun were not parties to the Trademark License Contract. In addition, no stipulations were provided in the Letter of Guarantee that the arbitration clause contained in the main contract, the Trademark License Contract, shall be binding to the said Guarantee Contract. Arbitration is based on the parties’ true and effective arbitration agreement. The arbitral tribunal obtains the jurisdiction to handle the parties’ dispute, only with the parties’ express authorization; in general, arbitration agreements shall be written. Under the circumstance where the main contract contains an arbitration clause while the guarantee contract does not contain an arbitration clause and considering that arbitration agreements shall be specific and written, it cannot be assumed that the guarantors impliedly accepted the arbitration clauses contained in the main contract. Thus, the arbitral tribunal’s adjudication and rulings made on the Guarantee Contract, which did not contain arbitration clauses or provided that the arbitration clause contained in the main contract shall be binding, lacked legal support. Its rulings made regarding the Letter of Guarantee exceeded the scope of the arbitration clause provided in the Trademark License Contract and shall be rectified. The matters in the award related to guarantee, which exceeded the scope of the arbitration agreement, shall be said aside. Meanwhile, in Ruling (6) of Arbitral Award No. 601, for arbitration costs totaling RMB¥83,689.00, the applicant’s [responsible share] shall be RMB¥41,845.00. The four respondents, Chengdu Youbang, Wang Guojian, Qi Xiang and Chen Jianjun, shall be jointly responsible for RMB¥41,844.00. Since the arbitration costs had been settled by Yau Bong in advance, the four respondents, Chengdu Youbang, Wang Guojian, Qi Xiang and Chen Jianjun, shall pay Yau Bong the said arbitration sum. Since the award ruled that Chengdu Youbang, Wang Guojian, Qi Xiang and Chen Jianjun shall be jointly responsible for part of the arbitration costs, the responsibility for settling the arbitration costs was inseparable. Hence, the award’s ruling on this matter was therefore inseparable, causing the arbitral award in question shall be set aside as a whole.

Summarizing the above, since Arbitral Award No. 601 ruled on the Letter of Guarantee, which contained no arbitration clauses, it exceeded the scope of the arbitration agreement. In addition, since the award’s ruling that Chengdu Youbang, Wang Guojian, Qi Xiang and Chen Jianjun shall be jointly responsible for part of the arbitration costs was inseparable, Arbitral Award No. 601 shall be set aside as a whole. Chengdu Youbang and Wang Guojian’s grounds regarding this matter in their application to set aside Arbitral Award No. 601 can be established. The collegiate panel unanimously held that Arbitral Award No. 601 of the Shenzhen Arbitration Commission (2011) shall be set aside.

 

V. The opinions of our court

This is Chengdu Youbang and Wang Guojian’s application to set aside Arbitral Award No. 601 on the grounds that the said award exceeded the scope of arbitration. Considering that the respondent, Yau Bong, is a corporate entity registered in the Hong Kong Special Administrative Region, this case is an application to set aside a Hong Kong-related arbitral award, which shall be examined pursuant to article 70 of the Arbitration Law of the People’s Republic of China and article 258 of the Civil Procedure Law of the People’s Republic of China.

[Since] Chengdu Youbang’s and Wang Guojian’s submissions supporting their set-aside application that [(1)] Yau Bong concealed evidence that may substantially affect the fairness of the rulings, [(2)] the arbitral tribunal violated the arbitration rules, and [(3)] the arbitral tribunal rendered the award without reference to the facts of the case do not fall under the situation for the people’s court’s adjudication on whether the arbitral award shall be set aside as provided in article 258 of the Civil Procedure Law of the People’s Republic of China, the court shall not examine the abovementioned grounds.

Regarding Chengdu Youbang and Wang Guojian’s submissions on whether the arbitral tribunal’s adjudication and decision made on the Letter of Guarante which contained no arbitration clauses, violated the relevant legal provisions, on 1 February 2001, Chengdu Youbang and Yau Bong concluded a Trademark License Agreement authorizing Chengdu Youbang’s use of Yau Bong’s registered trademark “YOBO Youbang” and the parties had agreed on an arbitration clause in the said contract. On 7 February 2007 Wang Guojian, Qi Xiang and Chen Jianjun issued a Letter of Guarantee to Yau Bong regarding Chengdu Youbang’s performance of the Trademark License Agreement, with the guarantee liability being joint and several. The said Trademark License Agreement contained no arbitration clauses. Pursuant to article 16 of the Arbitration Law of the People’s Republic of China, the intention to apply for arbitration by an arbitration commission shall be concluded in writing, while for the arbitration to be valid, the parties’ intention must contain the particulars stipulated in law. Under the circumstance that no arbitration agreements have been agreed on, the parties shall not be assumed to have agreed to be bound by the arbitration clause. Here, the Trademark License Agreement and the Letter of Guarantee were master and collateral contracts. Being the collateral contract, the Letter of Guarantee shall be subject to the master contract (the Trademark License Agreement) in several issues such as the validity of the contract. However, separate provisions as to dispute resolution may be made for the master and the collateral contract. Since the parties of the Letter of Guarantee had not agreed to resolve disputes by arbitration, according to the principle of party autonomy, the arbitration clause contained in the Trademark License Agreement was not binding to the Letter of Guarantee. Therefore, the arbitral tribunal’s adjudication and decision made on the Letter of Guarantee, which contained no arbitration clauses, lacked legal grounds and shall be set aside. Since during Shenzhen Arbitration Commission’s adjudication, Qi Xiang and Chen Jianjun refused to attend the hearings or submit defences without legitimate reasons and they had not submitted any applications to set aside the arbitral award rendered by the said arbitration institution, they shall be deemed to have no disputes over the jurisdiction and the award of the said arbitration institution.

Pursuant to the Official Reply of the Supreme People's Court on Issues concerning Whether the Arbitration Awards Made by the Arbitration Institutions in China Can Be Partially Cancelled (Interpretation No. 16 of the Supreme People's Court [1999]), considering that Wang Guojian’s joint and several liability on the debt obligations owed to Yau Bong was separable from other rulings in the arbitral award, the said part of rulings shall be set aside; since Wang Guojian was not responsible for the guarantees, he shall not be responsible for the arbitration costs. As Wang Guojian had undertaken joint and several guarantee responsibility, the arbitration costs were not apportioned between Chengdu Youbang, Wang Guojian, Qi Xiang and Chen Jianjun. Instead, the respondent paying the arbitration costs may subsequently claim compensation from the joint respondents. Therefore, the arbitration costs borne by Wang Guojian may be separated from the arbitration costs borne by the other respondents.

Summarizing the above, the rulings of Arbitral Award No. 601 of the Shenzhen Arbitration Commission (2011) regarding Wang Guojian’s joint and several liabilities and his responsibility for the arbitration costs were in conformity with the situation provided in paragraph 1(1), article 258 of the Civil Procedure Law of the People’s Republic of China and may be separated from other rulings of the said award. Therefore, Arbitral Award No. 601 regarding Wang Guojian’s joint and several liabilities [for Chengdu Youbang’s debt owed] to Yau Bong and his responsibility for the arbitration costs shall be set aside.

Please reply whether the above opinions are correct.