Hubei Sanjiang Space Wanshan Special Vehicle Co. Ltd v. NRS Norway

Cite as: Hubei Sanjiang Space Wanshan Special Vehicle Co. Ltd v. NRS Norway, The Supreme People’s Court (30 October 2012), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV

Case identification

Date of Decision: 30 October 2012
Court:

The Supreme People’s Court
The Higher People's Court of Hubei Province

Arbitral Tribunal:

Case number / Docket number:

No. 49 of the Fourth Civil Tribunal of the Supreme People’s Court [2012]
No. 229 of the Higher People’s Court of Hubei Province [2012]

Classification of issues present

Application of the New York Convention: No
Key PRC law provision(s) at issue: Article 16 of <Interpretation of Several Issues Concerning the Application of “The Arbitration Law of the People’s Republic of China”>; Article 16 of <Arbitration Law of the People’s Republic of China>.

Descriptors: Arbitration agreement; Validity of arbitration agreement; Applicable law to the arbitration agreement; Place of arbitration; No designation of arbitral institution; Ad hoc arbitration

Hubei Sanjiang Space Wanshan Special Vehicle Co. Ltd v. NRS Norway

An agreement to submit disputes to “arbitration in Beijing” was found invalid under the PRC law. In its Report to the Supreme People’s Court, the Higher People's Court of Hubei Province found that the validity of the arbitration clause was governed by the law of the place of arbitration, i.e. the PRC law; and that since no arbitral institution had been designated or agreed subsequently by the parties, the arbitration clause was invalid. In its Reply, the Supreme People's Court agreed.

Case text (English translation)

(30 October 2012 No. 49 of the Fourth Civil Tribunal of the Supreme People’s Court [2012])

The Higher People's Court of Hubei Province:

Your Court’s <Request on instructions concerning the validity of an arbitration clause involved in the dispute over a contract for work agreed between Hubei Sanjiang Space Wanshan Special Vehicle Co. Ltd and NRS Norway> No. 229 of the Higher People’s Court of Hubei [2012] submission has been received. Upon deliberation, our reply is as follows:

This case concerns the determination of the validity of a foreign related arbitration clause. Article 12 of the contract in question stipulated that “Any controversies or disputes arising from the performance of this contract shall be resolved by amicable negotiations. If no consensus can be reached after amicable negotiations, the parties shall make an application for arbitration in Beijing. The outcome of the arbitration shall be final.” No Applicable Law governing the validity of the arbitration clause had been agreed between the parties, but the parties agreed that the place of arbitration shall be Beijing. Pursuant to Article 16 of the <Interpretation of the Supreme People's Court concerning Some Issues on Application of the “Arbitration Law of the People's Republic of China”>, “the examination of the effectiveness of an agreement for arbitration which involves foreign interests shall be governed by the laws agreed upon between the parties concerned; if the parties concerned did not agree upon the applicable laws but have agreed upon the place of arbitration, the laws at the place of arbitration shall apply; if they neither agreed upon the applicable laws nor agreed upon the place of arbitration or the place of arbitration is not clearly agreed upon, the laws at the locality of the court shall apply”, the validity of the arbitration clause shall be determined pursuant to the law of the place of arbitration, i.e. the Law of the People's Republic of China.

In this case, the parties agreed to arbitrate in Beijing. Currently, several arbitral institutions, including the China International Economic and Trade Arbitration Commission, the China Maritime Arbitration Commission Arbitration and the Beijing Arbitration Commission can be found in Beijing. Thus, the arbitration clause failed to clearly identify the designated arbitral institution, while no supplementary agreement had been made between the parties after the arising of the dispute. Pursuant to Article 16 and 18 of the <Arbitration Law of the People's Republic of China> and Article 6 of the <Interpretation of the Supreme People's Court concerning Some Issues on Application of the “Arbitration Law of the People's Republic of China”>, the arbitration clause in question shall be deemed invalid.

Since the arbitration clause in question shall be deemed invalid while the place of performance and the subject matter of this case are both situated in Xiaogan, Hubei Province, pursuant to Article 241 of the <Civil Procedure Law of the People’s Republic of China> and relevant provisions from the Supreme People’s Court concerning centralized jurisdiction over foreign-related civil commercial cases, the Intermediate People’s Court of Wuhan shall have jurisdiction over this case.

It is so replied.

Enclosed:

Request on instructions concerning the validity of an arbitration clause involved in the dispute over a contract for work agreed between Hubei Sanjiang Space Wanshan Special Vehicle Co. Ltd and NRS Norway

(14 September 2012 No. 229 of the Higher People’s Court of Hubei [2012])

The Supreme People’s Court:

The case concerning disputes over a contract for work agreed between Hubei Sanjiang Space Wanshan Special Vehicle Co. Ltd and NRS Norway accepted by the Intermediate People’s Court of Wuhan involves issues concerning validity of arbitration clauses. 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> issued by your court, we hereby report the following:

I. Parties

Plaintiff: Hubei Sanjiang Space Wanshan Special Vehicle Co. Ltd

Defendant: NRS Norway

II. Facts

On 28 February 2008, a contract had been signed between Wanshan, the plaintiff and NRS Norway the defendant. The contract stipulated that pursuant to the blueprints supplied by the defendant, the defendant entrusts the plaintiff to process and manufacture the main steel structure and the wheel set of one 900-tonne beam carrier, including the purchase of materials for the main steel structure, processing and manufacturing and the assembly of the main steel structure. Delivery is defined as the plaintiff’s completion of all works within the scope of the defendant’s supply, upon the defendant’s inspection and satisfactory acceptance pursuant to the standards stipulated in the contract. Time of delivery is defined as the completion of the first vehicle 60 days after the date of submission of all blueprints and necessary technical documents by the plaintiff. The time does not include time for assembling and trial runs. Assembling, trial runs and inspection shall be conducted in the plaintiff’s manufacturing plants. The final inspection and acceptance shall be made at the user’s construction site with the final user’s participation. The procedures include overload test and the final user’s acceptance. The total price of the contract shall be RMB¥ 3,450,000.00. Apart from the contract, the plaintiff and the defendant had also agreed on three annexures, namely list of prices, the scope of work, and agreement for payment regarding the processing and manufacturing of 900-tonne beam carrier. After making prepayments amounted to RMB¥ 690,000.00, the defendant had not paid the plaintiff any outstanding fees. According to this, on 11 March 2010 the plaintiff filed a claim to the Intermediate People’s Court of Wuhan, requesting it to order (1) the defendant to pay the plaintiff manufacturing fees amounting to RMB¥ 2,760,000.00 plus interests; (2) the defendant to pay the plaintiff relevant costs amounting to RMB¥ 2,482,958.50; (3) the plaintiff shall have priority over the 900-tonne beam carrier manufactured for the defendant; (4) Costs and preservation fees related to this case shall be borne by the defendant. Since the defendant was absent from trial upon summons issued by the Intermediate People’s Court of Wuhan, the case was heard in default in open court in accordance with the law.

Upon investigation, Article 12 of the contract in question stipulates that “Any controversies or disputes arising from the performance of this contract shall be resolved by amicable negotiations. If no consensus can be reached after amicable negotiations, the parties shall make an application for arbitration in Beijing. The outcome of the arbitration shall be final.” No Applicable Law governing the validity of the arbitration clause had been provided in the contract.

III. Opinions of the Intermediate People’s Court of Wuhan

It is in the Intermediate People’s Court of Wuhan’s opinion that:

1. This case concerns disputes regarding foreign-related contracts. The validity of the dispute resolution method contained in the contract in question belongs to procedural issues. No Applicable Law governing contractual disputes related to the contract in question (including determination of the validity of the arbitration agreement in question) had been agreed by the parties. Instead, the parties agreed that “application for arbitration shall be made in Beijing”. The provision can be regarded as the parties had agreed that the place of arbitration shall be Beijing. Therefore, regardless of the law of the place of arbitration or the law of the forum/court, the Law of the People’s Republic of China shall be the governing law for determination of the validity of the arbitration agreement in this case.

2. Although the arbitration clauses contained in Article 12 of the contract in question reflected parties’ intention to resolve disputes by arbitration, yet no clear stipulations concerning the arbitral institution had been made. Even though the agreement can be read as the parties clearly stipulated that Beijing shall be the place of arbitration, since two or more arbitral institution exist in Beijing, no specific arbitral institution can be identified according to Article 12 of the contract in question. Considering that no supplementary agreement regarding the arbitration agreement in question had been made between the parties, the court therefore held that the arbitration agreement shall be deemed invalid.

Summarizing the above, pursuant to relevant provisions in the <Interpretation of the Supreme People's Court concerning Some Issues on Application of the “Arbitration Law of the People's Republic of China”>, the arbitration clause in question shall be deemed invalid. Considering that the place of performance and the subject matter of this case are both situated in Xiaogan, Hubei Province, pursuant to Article 241 of the <Civil Procedure Law of the People’s Republic of China> and relevant provisions concerning centralized jurisdiction over foreign-related civil commercial cases, the Intermediate People’s Court of Wuhan, being the court of the place of performance and place where the subject matter is situated, shall have jurisdiction over this case.

IV. Opinions of our court

Upon investigation, it is in our court’s opinion that this case concerns disputes regarding foreign-related contracts. Since the parties provided that an application to arbitrate shall be made in Beijing, the court shall determine the validity of the arbitration clause involving foreign elements. Pursuant to Article 16 of the <Interpretation of the Supreme People's Court concerning Some Issues on Application of the “Arbitration Law of the People's Republic of China”>, “the examination of the effectiveness of an agreement for arbitration which involves foreign interests shall be governed by the laws agreed upon between the parties concerned; if the parties concerned did not agree upon the applicable laws but have agreed upon the place of arbitration, the laws at the place of arbitration shall apply; if they neither agreed upon the applicable laws nor agreed upon the place of arbitration or the place of arbitration is not clearly agreed upon, the laws at the locality of the court shall apply”, the validity of the arbitration clause shall be determined pursuant to the law of the place of arbitration, i.e. the Law of the People's Republic of China.

Paragraph 2, Article 16 of the <Arbitration Law of the People's Republic of China> stipulates that “an arbitration agreement shall contain the following particulars: (1) an expression of intention to apply for arbitration; (2) matters for arbitration; and (3) a designated arbitration commission.” Article 18 provides that “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, no arbitral institution had been provided by the parties. As currently several arbitral institutions, including the China International Economic and Trade Arbitration Commission, the China Maritime Arbitration Commission Arbitration and the Beijing Arbitration Commission can be found in Beijing, the arbitration clause failed to identify the arbitral institution. Furthermore, no supplementary agreement had been made between the parties after the arising of the dispute. Therefore, the arbitration clause in question shall be deemed invalid.

Please reply whether the above opinions are correct.