CS Marine Technology Pte. Ltd v. Penglai Bohai Shipyard Co. Ltd

Cite as: CS Marine Technology Pte. Ltd v. Penglai Bohai Shipyard Co. Ltd, The Supreme People’s Court (8 December 2011), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV (2014)

Case identification

• Date of Decision: 8 December 2011 

• Courts:

• The Supreme People’s Court

• The Higher People's Court of Shanghai

• Arbitral Tribunal:

• N/A

• Case number / Docket number:

• No. 61 of the Fourth Civil Tribunal of the Supreme People’s Court [2011]

• No. 11 of the Fourth Civil Tribunal of the Higher People’s Court of Shanghai [2011]

Classification of issues present

• Application of the New York Convention: No

• Key PRC Arbitration Law provision(s) at issue: Articles 16 and 18

• <The Law of Applicable Laws for Foreign-related Civil Relations> and <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”>

Descriptors: Contract involves foreign elements; Applicable law to the arbitration agreement; Seat of the arbitration; Validity of arbitration agreements; Failure to designate an arbitration institution; Institutional arbitration; ad hoc arbitration 

CS Marine Technology Pte. Ltd v. Penglai Bohai Shipyard Co. Ltd    

An agreement to arbitrate “in a third city in China as approved by the parties” was found invalid under the PRC Arbitration Law. In its Reply to the Higher People’s Court of Shanghai, the Supreme People’s Court found that 1) CS Marine Technology is a company registered in Singapore, thus the contract in question involves foreign elements; 2) as the parties agreed to arbitrate in a city in China, the seat of arbitration is in China and the PRC laws governed the validity of the arbitration agreement; and 3) as the parties failed to reach any supplementary agreement on the designation of an arbitration institution after the dispute arose, the arbitration clauses concerned are invalid. Accordingly, the Supreme People’s Court agreed with the lower court that the people’s court has jurisdiction over the case.

Case text (English translation)

(8 December 2011 No. 61 of the Fourth Civil Tribunal of the Supreme People’s Court [2011])

The Higher People’s Court of Shanghai:

Your court’s Request for Instructions (No. 11 of the Fourth Civil Tribunal of the Higher People’s Court of Shanghai [2011]), has been received. Upon deliberation, our reply is as follows:

Pursuant to your submitted materials, in the dispute between the plaintiff, CS Marine Technology Pte Ltd and the defendant, Penglai Bohai Shipyard Co. Ltd adjudicated by the Shanghai Maritime Court, the defendant disputed the jurisdiction of the Shanghai Maritime Court on the grounds that the contract named <Contract for the design and production of 6,800-ton multi-purpose bulk carriers> concluded between the parties contains arbitration clauses.

It is in our court’s opinion that Chapter VII Dispute Resolution Clause of the <Contract for the design and production of 6,800-ton multi-purpose bulk carriers> stipulates that “If any disputes arise from the execution of contract, the parties shall negotiate amicably. If the dispute cannot be settled through negotiations, the dispute shall be resolved by arbitration, at a Chinese city approved by the parties. The results of the arbitration shall be binding.”

As the plaintiff is registered in Singapore, the contract in question involves foreign elements. Therefore, the <Law of Applicable Laws for Foreign-related Civil Relations>, <The Arbitration Law of the People’s Republic of China> and <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”> shall be considered to determine the validity of the arbitration clause. The parties have not agreed upon the applicable law to the validity of the arbitration clause in the contract, nevertheless they have agreed that the seat of arbitration shall be in China. Therefore the applicable law shall be the Laws of the People’s Republic of China. Pursuant to Article 18 of <The Arbitration Law of the People’s Republic of China>, if an arbitration agreement contains no or unclear provisions concerning the matters for arbitration or the arbitration commission, the parties may reach a supplementary agreement. If no such supplementary agreement can be reached, the arbitration agreement shall be invalid. In this case, the stipulations by the arbitration clauses concerning the arbitral institution are unclear, and the parties could not reach any supplementary agreement on the designation of an arbitration institution after the dispute arose. Thus, Pursuant to Article 16 and 18 of <The Arbitration Law of the People’s Republic of China>, we find the arbitration clause invalid. The people’s court shall have jurisdiction over this case. We agree with your court’s opinion that the arbitration clause is invalid.

Apart from that, the plaintiff is a company registered in Singapore while the defendant is a company registered in Penglai, Shangdong province. Upon finding the arbitration clause concerned is invalid; the Shanghai Maritime Court shall clearly state any legal grounds for exercising its jurisdiction over this contractual dispute.

Enclosed:

Request for Instructions on the validity of an arbitration clause contained in the shipbuilding contract between CS Marine Technology Pte. Ltd and Penglai Bohai Shipyard Co. Ltd

(30 November 2011 No. 11 of the Fourth Civil Tribunal of the Higher People’s Court of Shanghai [2011])

The Supreme People’s Court:

In the dispute arising from a shipbuilding contract between the plaintiff and the defendant adjudicated by the Shanghai Maritime Court, the defendant disputed the jurisdiction of the Shanghai Maritime Court on the grounds that the disputes in question should be submitted to arbitration. Upon review, the court decided that the arbitration clause in question shall be deemed null and void, proposed dismissing the defendant’s jurisdiction dispute, and requested for our court’s instructions. Upon discussion by the collegial panel, our court concurs with the provisional rulings of the court. Pursuant to Article 1 of 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 requests your court’s instructions.

I. The parties

Plaintiff: CS Marine Technology Pte. Ltd. Domicile: 10 Anson Road, #12-14, International Plaza, Singapore, 079903.

Defendant: Penglai Bohai Shipyard Co. Ltd. Domicile: 1 Haibin Road, Beigouzhen West, Penglai, Shandong, the People’s Republic of China.

II. Basic facts

The plaintiff filed a litigation claim submitting that on 16 September 2005, a <Contract for the design and production of 6,800-ton multi-purpose bulk carriers> had been concluded between the parties in Shanghai. The defendant appointed the plaintiff to provide design and consultation services for the defendant’s six 6800dwt multi-purpose bulk carriers to be exported to Germany. The contract provides that, designing fees for the first two ships shall be USD$ 250,000.00. The designing fees and mould charges for the remaining four ships shall be USD$ 100,000.00. The design works had been completed by the plaintiff, yet payments totalled USD$ 75,000.00 remained unpaid by the defendant. As the defendant refused to pay despite the plaintiff’s repeated demands, the plaintiff requested the court to order the defendant to pay the  instalment for the ship-designing fees totalled USD$ 75,000.00 plus late fees on overdue payments.

The defendant disputed the jurisdiction of the Shanghai Maritime Court, arguing that as the contract signed between the parties contained an arbitration clause, this case shall be arbitrated by an arbitral tribunal. The plaintiff explicitly refused to negotiate with the defendant and reach a supplementary agreement regarding arbitration, and requested the court to dismiss the defendant’s jurisdiction dispute.

It was found that Chapter VIII Dispute Resolution Clause of the <Contract for the design and production of 6,800-ton multi-purpose bulk carriers> signed by the parties stipulates that “If any disputes arise from the execution of contract, the parties shall negotiate amicably. If the dispute cannot be settled through negotiations, the dispute shall be resolved by arbitration, at a Chinese city approved by the parties. The results of the arbitration shall be binding.”

III. Provisional opinions of the Maritime Court

Upon review, it is in the Maritime Court’s opinion that considering that a party of the contract is a foreign legal entity and that the contract in question is a foreign-related contract, the arbitration clause contained in the contract in question shall be regarded as a foreign-related arbitration clause. Regarding the determination on the validity of the foreign-related arbitration clause, pursuant to Article 18 of the <Law of Applicable Laws for Foreign-related Civil Relations> and 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”>, as the parties have not agreed upon the Applicable Law to the validity of the arbitration clause in the contract but they have agreed that the seat of arbitration shall be in China. Therefore the applicable law shall be the Laws of the People’s Republic of China. Pursuant to Article 18 of <The Arbitration Law of the People’s Republic of China>, if an arbitration agreement contains no or unclear provisions concerning the matters for arbitration or the arbitration commission, the parties may reach a supplementary agreement. If no such supplementary agreement can be reached, the arbitration agreement shall be invalid. Here, although the parties provided that the seat of arbitration shall be in China, no clear provisions as to the arbitration institution had been made. The arbitration institution cannot be determined according to the parties’ agreement. Under the circumstance that a party had initiated a litigation claim in the people’s court, it is impossible for the parties to reach a supplementary agreement as to the arbitration institution. Therefore, pursuant to Article 16 and 18 of <The Arbitration Law of the People’s Republic of China>, the arbitration clause contained in the contract in question shall be deemed invalid. The people’s court shall have jurisdiction over this case.

IV. Provisional opinions of our court

Upon review, it is in our court’s opinion that the main focus of this jurisdiction dispute is whether the arbitration clause contained in the contract in question is effective. Firstly, regarding the Applicable Law governing the determination of the validity of the arbitration clause, pursuant to Article 18 of the <Law of Applicable Laws for Foreign-related Civil Relations>, considering that the parties have not agreed upon the Applicable Law to the validity of the arbitration clause in the contract but they have agreed that the seat of arbitration shall be in China, the determination of the validity of the arbitration clause in question shall be governed by the Laws of the People’s Republic of China. Secondly, regarding the effectiveness of the arbitration clause, pursuant to Article 16 of <The Arbitration Law of the People’s Republic of China>, an arbitration agreement shall contain three elements, namely an expression of intention to apply for arbitration, matters for arbitration and a designated arbitration commission. In this case, although the parties expressed their intention to apply for arbitration and agreed on the matters for arbitration, no designated arbitration commission had been made. After the dispute arose, the plaintiff explicitly refused to negotiate with the defendant and reach a supplementary agreement regarding arbitration. As the parties failed to reach a supplementary agreement as to the choice of arbitration institutions, the arbitration clause in question is null and void.

Please reply whether the above opinions are correct.