Qingdao Jiacheng Construction Co., Ltd v. VEM S. P. A and SIMEST S. P. A
Cite as: Qingdao Jiacheng Construction Co., Ltd v. VEM S. P. A and SIMEST S. P. A, The Supreme People’s Court (22 April 2011), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV
Case identification
Date of Decision: 22 April 2011
Court:
The Supreme People’s Court
The Higher People's Court of Beijing
Arbitral Tribunal:
China International Economic and Trade Arbitration Commission Award No. 0355 CIETAC BJ (2009)
Chairman of the Tribunal: Peter Thorpe
Case number / Docket number:
No. 13 of the Fourth Civil Tribunal of the Supreme People’s Court [2011]
No. 67of the Higher People’s Court of Beijing [2011]
Classification of issues present
Application of the New York Convention: No
Key PRC law provision(s) at issue: Articles 70 of <Arbitration Law of the People’s Republic of China>; Article 258 (1) and (4) of <Civil Procedure Law of the People’s Republic of China>
Descriptors: Validity of arbitration agreement; Lack of a chosen arbitration institution; Ad hoc arbitration; Annulment of arbitral award; Arbitrator’s duty to disclose; Arbitrability; Dissolution and liquidation of a company are non-arbitrable; Challenges to the arbitral tribunal’s jurisdiction; Outside or beyond the scope of the arbitration agreement; Decisions on matters submitted to arbitration cannot be separated from those not so submitted;
Qingdao Jiacheng Construction Co., Ltd v. VEM S. P. A and SIMEST S. P. A
A CIETAC Beijing award was annulled. In its Report to the Supreme People’s Court, the Higher People's Court of Beijingstated that (1) the arbitration clause of the <October Contract> was invalid because it did not identify an arbitration institution or arbitration rules that would govern; and the arbitral tribunal could not arbitrate the <October Contract> pursuant to the arbitration agreement contained in the <December Contract>, because the two contracts were independent from each other; (2) issues involved in the dissolution and liquidation of the company were not arbitrable under the PRC laws; and (3) it rejected the ground of incompliance with the CIETAC rules in that the presiding arbitrator, Peter Thorp, appointed by the arbitration commission, had failed to disclose that he and Zhang Shixian, attorney of VEM S. P. A and SIMEST S. P. A had both been working in the Beijing Representative Office of Allen & Overy. In its Reply, the Supreme People's Court upheld the lower courts’ findings and further stated that those matters that the arbitral tribunal had no authority to arbitrate could not be separated from the rest of the dispute; hence the award was annulled.
Case text (English translation)
(22 April 2011 No. 13 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 Annulment of the Award No. 0355 CIETAC BJ [2009] of the China International Economic and Trade Arbitration Commission>, No. 67 of the Higher People’s Court of Beijing [2011] has been received. Upon deliberation, our reply is as follows:
The <Joint Venture Contract for Qingdao VEM Mechanical Equipment Co., Ltd> signed between Qingdao Jiacheng Construction Co., Ltd and VEM S. P. A does not contain a valid arbitration clause and Qingdao Jiacheng Construction Co., Ltd did not agree to apply for arbitration of disputes over that contract; therefore, the arbitral tribunal had no authority to arbitrate disputes arising over that contract. The <Joint Venture Contract> in question was signed by Qingdao Jiacheng Construction Co., Ltd, VEM S. P. A and SIMEST S. P. A and it contains a valid arbitration clause, the arbitral tribunal could arbitrate disputes arising over the parties’s contract.
Pursuant to the requirements of Article 181 of the <Company Law of the People’s Republic of China>, an arbitration institution lacks the authority to order the dissolution of a company.
The arbitral award’s holding that the two joint-venture contracts were invalid and the joint venture should be dissolved, it is not severable. Pursuant to the provisions of Article 70 of the <Arbitration Law of the People’s Republic of China> and paragraph 1(1) and (4) of Article 258 of the <Civil Procedure Law of the People’s Republic of China>, the award should be annulled.
We agree with the opinions of your court.
Enclosed:
Request for Instructions from the Higher People’s Court of Beijing on the Annulment of the Award No. 0355CIETAC BJ [2009] of the China International Economic and Trade Arbitration Commission
(4 March 2011, No. 67 of the Higher People’s Court of Beijing [2011])
The Supreme People’s Court:
The First Intermediate People’s Court of Beijing accepted the application by Qingdao Jiacheng Construction Co., Ltd for the annulment of the Award No. 0355 CIETAC BJ [2009] issued by the China International Economic and Trade Arbitration Commission. The court intends to annul the award and sought instructions from our court. Upon deliberation, we hereby report the facts of the case as follows and request for instructions of your court:
1. Basic Facts of the Parties
Applicant (Respondent to Arbitration): Qingdao Jiacheng Construction Co., Ltd. Address: No. 213 Zhenguang Jie, Chengyang Cun, Yuyang Jiedao, Chengyang, Qingdao, Shandong, China
Legal representative: Zhang Yuping, chairman of the company.
Attorney: Gao Kuanzhong, lawyer of Beijing JJ&G Law Firm.
Attorney: Lu jincheng, lawyer of Beijing JJ&G Law Firm.
Respondent (Applicant for Arbitration): VEM S. P. A. Address: 23 Calzavecchio Road, Casalecchio di Reno, Italy.
Legal representative: Hougue Franco-Svizzera, executive director of the company.
Attorney: Chen Han, male, born in 1979, Han zu, Associate Professor of the Civil and Commercial Law School of China University of Political Science and Law, lives in Century City, Haidian, Beijing.
Respondent (Applicant for Arbitration): SIMEST S. P. A. Address: 323 Vittoria Emanuele II Road, Rome, Italy.
Legal representative: Massimo Da Youtuo, executive director of the company.
Attorney: Chen Han, male, born in 1979, Han zu, Associate Professor of the Civil and Commercial Law School of China University of Political Science and Law, lives in Century City, Haidian, Beijing.
2. Facts of the Arbitration
(1) Facts of the Case
On 2 August 2005, Qingdao Jiacheng Construction Co., Ltd (hereafter referred to as “Jiacheng Ltd”) and VEM S. P. A reached a <Feasibility Investigation Report> for the purpose of setting up a joint venture to produce, install and sell of FRP products within local and foreign markets. The report indicated that the registered capital would be 1 million Euros and VEM S. P. A would take up 70 percent of the shares. Jiacheng Ltd would subscribe the remaining shares.
On 21 September 2005, Jiacheng Ltd and VEM S. P. A entered into the <Letter of Intent>. The main content of the letter is as follows: a limited liability company would be set up in Qingdao; the <Letter of Intent> adjusted the shareholding structure initially proposed by the <Feasibility Investigation Report>, enjoining a government funded company in Italy - SIMEST S. P. A – as the third shareholder of the joint venture; the registered capital was 1 million Euro, of which Jiacheng Ltd would contribute 30 percent, VEM S. P. A would contribute 45 percent and SIMEST S. P. A would contribute 25%; “all parties recognized that SIMEST S. P. A merely participated in the joint venture by way of financing, that is, Party B (VEM S. P. A) shall represent the interests of SIMEST S. P. A in board meetings and operation management…”; “the board of directors of the ‘joint venture’ shall be composed of five members, four of which (including the chairman) shall be appointed by ‘VEM S. P. A’ and the fifth member of the board be appointed by ‘Qingdao Jiacheng’, SIMEST S. P. A shall not appoint any director”. On 20 October 2005 (the date of signing as specified on the contract is 20 October 2005, the date found by the <Award> is 25 October 2005), Jiacheng Ltd and VEM S. P. A signed in Chinese the <Joint Venture Contract for Qingdao VEM Mechanical Equipment Co., Ltd> (hereafter referred to as <October Contract>) for the incorporation of the joint venture. The <October Contract> does not mention SIMEST S. P. A and the provisions outlining the shareholding structure, registered capital and board representation are different from those in the <Letter of Intent>. The main content of the <October Contract> is as follows: Party A: Jiacheng Ltd, Party B: VEM S. P. A; name of the company: Qingdao VEM Mechanical Equipment Co., Ltd; business scope: production, research and development of FRP mechanical equipment; registered capital: 5 million Euros; formation of the board of directors: the board be composed of five people, two of them to be appointed by Party A and three to be appointed by Party B, the chairman be appointed by Party B and the vice chairman be appointed by Party A; resolution of disputes: all disputes arising from the performance of or in connection with this contract shall be resolved by the parties through amicable negotiation, if negotiation proves unsuccessful, they should be submitted to arbitration commission for arbitration; this contract is written in Chinese. The representative of Jiacheng Ltd, Zhou Aimin, signed and the seal of Jiacheng Ltd was affixed. The representative of VEM S. P. A, Hougue Franco-Svizzera signed. The date of signing is 20 October 2005 in Qingdao.
On 20 October 2005, Jiacheng Ltd issued the <Letter of Appointment>, appointing Zhou Aimin and Qu Guoyang as members of the board of directors and Zhou Aimin as the vice chairman and general manager of Qingdao VEM Mechanical Equipment Co., Ltd. On the same day, VEM S. P. A issued the <Letter of Appointment>, appointing Yorke Farley, Irgacure Farley and Tan Yeping as members of the board of directors and Yorke Farley as the chairman of Qingdao VEM Mechanical Equipment Co., Ltd.
On 20 October 2005 (the date of signing as specified on the document is 20 October 2005, the date found by the <Award> is 25 October 2005), Jiacheng Ltd and VEM S. P. A signed the <Constitution of Qingdao VEM Mechanical Equipment Co., Ltd>. The main content of the constitution is as follows: the legal representative was Yorke Farley; the board of directors shall have five members, there shall be one chairman to be appointed by Party B (VEM S. P. A) and there shall be one vice chairman to be appointed by Jiacheng Ltd; other shareholders (the term “shareholders” rather than “directors” appears to be typographical error) shall be appointed by Party A and Party B respectively. The representative of Jiacheng Ltd, Zhou Aimin, signed and the seal of Jiacheng Ltd was affixed. The representative of VEM S. P. A, Hougue Franco-Svizzera signed. The date of signing is 20 October 2005 in Qingdao.
On 25 October 2005, the Bureau of Foreign Trade and Economic Cooperation of Chengyang, Qingdao issued the <Approval for the Contract and Constitution of the Sino-foreign Joint Venture Qingdao VEM Mechanical Equipment Co., Ltd>. On 26 October, the Qingdao Municipal Government issued the <Certificate of Approval of the People’s Republic of China for Enterprises with Foreign Investment>. On 26 October, the Administration for Industry and Commerce of Qingdao issued the <Business license for Corporate Entity> (Yorke Farley as the legal representative and the registered capital as 5 million Euros). On 27 October, the <Organization Code Certificate> was issued.
During the period from 7 to 19 December 2005, Jiacheng Ltd, VEM S. P. A and SIMEST S. P. A entered into the <Joint Venture Contract> (hereafter referred to as the <December Contract>). The main content of the <December Contract> is as follow: Party A was Jiacheng Ltd, Party B was VEM S. P. A and Party C was SIMEST S. P. A; the name of the joint venture was VEM Mechanical Equipment (Qingdao) Limited Liability Company; each party agreed to incorporate a new company by way of joint venture in accordance with the laws of the People’s Republic of China; the registered capital was 1 million Euros, Party A shall be responsible for 30 percent, Party B shall be responsible for 45 percent and Party C shall be responsible for 25 percent and Party A agreed that the proportions between Party B and Party C shall flow free; the board of directors shall be composes of five directors, two of which shall be appointed by Party B, another two shall be appointed by Party A and the remaining one shall be appointed by Party C. The chairman shall be appointed by Party B and the vice chairman shall be appointed by Party A. Resolution of dispute: all disputes arising from the signing of or in connection with this contract (the Chinese translation is “when disputes arise”), all parties to the joint venture shall attempt to resolve as much as possible by negotiation. If disputes cannot be resolved by negotiation within a reasonable period, they can be submitted to Chinese arbitration institution. Arbitration shall be conducted in Beijing, China, and pursuant to the arbitration procedures of the China International Economic and Trade Arbitration Commission. The arbitration institution must appoint an arbitral tribunal with three arbitrators and its president shall be occupied by a person of nationality other than those of the parties. The medium of arbitration shall be English. The arbitral award shall be final and binding on all parties.
On 30 December 2005, the Bureau of Foreign Trade and Economic Cooperation of Chengyang, Qingdao approved the change of name of the joint venture from “Qingdao VEM Mechanical Equipment Co., Ltd” to “VEM Mechanical Equipment (Qingdao) Limited Liability Company.” VEM S. P. A and SIMEST S. P. A submitted the business licence issued on 12 January 2006, under which the registered capital is stated as 1 million Euros. Jiacheng Ltd submitted the business licence issued on 14 March 2006, under which the registered capital is stated as 5 million Euros and the initial date of incorporation of the joint venture as 26 October 2005.
From February to March 2006, the parties entered into a supplement to the <December Contract>, under which the parties agreed that the contract shall be written in Chinese and English and both versions shall have equal force. In the event of discrepancies, the English version shall prevail.
From 2006 to 2007, disputes arose between the parties over management of the joint venture and over which contract was controlling.
On 21 March 2008, VEM S. P. A and SIMEST S. P. A applied to the China International Economic and Trade Arbitration Commission for arbitration. VEM S. P. A and SIMEST S. P. A alleged that VEM S. P. A and Jiacheng Ltd had contemplated that the joint venture was incorporated on the basis of participation by three shareholders and, the third shareholder, SIMEST S. P. A, was a silent shareholder. The parties’ intention is reflected in the <Letter of Intention> signed on 21 September 2005. On 21 October 2005, for the purpose of obtaining control of the shareholding and management structures of the joint venture so as to enjoy better benefits, Jiacheng Ltd managed to obtain the signatures of the legal representative of VEM S. P. A on two Chinese documents (the <October Contract>). Jiacheng Ltd represented to VEM S. P. A that these documents were applications for obtaining approval of the Chinese Government, but, in fact, they were documents for incorporation of the joint venture. Meanwhile, Jiacheng Ltd contintued to participate in the negotiation as a party and signed the <December Contract> with the other two parties. Thereafter, Jiacheng Ltd claimed that the “December company” had already been incorporated” and manufactured (forged) the relevant registration documents. The parties commenced fulfillment of the obligation to contribute to the registered capital in accordance with the <December Contract>. It is not until early 2006 that VEM S. P. A discovered the <December Contract> had not been registered and the joint venture was in fact incorporated and registered on the basis of the <October Contract>. VEM S. P. A and SIMEST S. P. A avers that the <October Contract> is a based on a significant misunderstanding and is unconscionable, and, therefore, it should be annulled pursuant to the <Contract Law of the People’s Republic of China> and deemed invalid pursuant to the <General Principles of the Civil Law of the People's Republic of China>. The <December Contract> should be invalid because it was never approved by the proper government authorities. The requests are as follow: that all joint venture contracts be rescinded and the joint venture incorporated under the <October Contract> be dissolved, that the <December Contract> be declared invalid, that Jiacheng Ltd pay damages amounting 300,000 Euros for the losses incurred by VEM S. P. A and SIMEST S. P. A from the signing and performing of the <October Contract> and the <December Contract>.
Jiacheng Ltd avers that the <December Contract> is not a document for the incorporation of the joint venture but a tool to modify the terms of the <October Contract>. Further, the applicant had never prepared the necessary documents for the registration of the joint venture. The <December Contract> merely regulates the the joint venture formed under the <October Contract>, which was already registered. Nevertheless, the <December Contract> did not mention the <October Contract> already in existence, nor did it mention the “October company” which was allegedly already incorporated pursuant to the <October Contract>, it could never be approved and registered by the government authorities of Qingdao and is invalid for sure. Meanwhile, Jiacheng Ltd raised an objection to the arbitral tribunal’s jurisdiction over the <October Contract>.
On 26 December 2008, with regard to the jurisdictional issue, the arbitral tribunal decided: the tribunal is of the view that it was not necessary to reach preliminary opinions regarding the validity of the <October Contract> and the <December Contract>, nor was it necessary to reach preliminary opinions regarding whether the clause of CIETAC arbitration does not merely cover the disputes arising out of the <December Contract> but also disputes in connection with the joint venture as claimed by the applicant. It was only necessary to say that the arbitral tribunal is of the view that the validity of the arbitration agreement of the <December Contract> is independent from that of the <October Contract> and that it covers the claims of arbitration submitted by the applicant. The arbitral tribunal ruled: (1) the arbitral tribunal had jurisdiction over the case; (2) the arbitration of the case would continue.
(2) Opinions of the Arbitral Tribunal and the Ruling
The arbitral tribunal stated in the award that it was not possible for VEM S. P. A to have changed its position on the basic terms of the joint venture contract within a very short period of time. The smooth ongoing status of the negotiation proves that the <December Contract> is the parties’ natural continuation of the <Letter of Intent>, and the <October Contract> is merely a process for the purpose of incorporating the joint venture. The <October Contract> is only in Chinese but the <December Contract> has both the Chinese and English versions and the English version shall prevail. The <October Contract> stipulates that the Chinese party is the minority shareholder but in the controlling position in the board of directors and that the general manager is to be appointed by the Chinese party, hence the corporate structure is not equitable. There is no evidence to prove that Jiacheng Ltd had notified VEM S. P. A about the registration status if the “October company.” The <December Contract> does not specify that it is for the purpose of modifying a corporate entity already in existence, nor does it mention the <October Contract>. The agreements for the relevant trademarks and proprietary technology licensing are Annex 4 and 5 to the <December Contract>. VEM S. P. A’s contribution is close to the contribution proportion agreed upon in the <December Contract> and Jiacheng Ltd admitted in an email that SIMEST S. P. A had also contributed. From February to March 2006, upon commencement of contribution to the joint venture by the parties, the parties agreed to modify the <December Contract>. It shows that at the time of amendment, the parties had already recognised that the joint venture incorporated on the basis of the <December Contract> was already in existence and was valid. Consequently, the arbitral tribunal finds that the <October Document> (sic) was signed on the basis of a significant misunderstanding and unconscionability and should be invalid. It is also ruled that the “October company” should be dissolved, so as to allow VEM S. P. A and SIMEST S. P. A to performance the relevant procedures in the government authorities concerned in accordance with the ruling.
The ruling is: (1) the <October Contract> is invalid; (2) the company incorporated pursuant to the <October Contract> should be dissolved; (3) the <December Contract> is invalid; (4) Jiacheng Ltd shall pay to VEM S. P. A damages totaling 40,000 Euros for the losses incurred from the negotiation and signing of the <October Contract> and the <December Contract>; (5) Jiacheng Ltd shall pay for the depreciation of the equipment and machines contributed as capital by VEM S. P. A, totaling 30,000 Euros; (6) Jiacheng Ltd shall pay to SIMEST S. P. A damages totaling 10,000 Euros for the losses incurred from the negotiation and signing of the <December Contract>; (7) Jiacheng Ltd shall compensate SIMEST S. P. A for the loss input by SIMEST S. P. A to the joint venture (capital contributed by SIMEST S. P. A), totaling 83,325 Euros; (8) the arbitral tribunal has no jurisdiction over the <Agreement for Transfer of Trademark> and the three < Agreement for Transfer of Proprietary Technology>; (9) the parties shall bear their own legal costs; (10) Jiacheng Ltd shall be responsible for half of the arbitration fees already paid to the arbitration commission in advance by VEM S. P. A and SIMEST S. P. A, that is, 50 percent of USD $35,265, totaling USD $17,632.50; (11) Jiacheng Ltd shall be responsible for half of the arbitrator's fees and extra costs already paid to the arbitration commission in advance by VEM S. P. A and SIMEST S. P. A, that is, 50 percent of USD $19,000, totaling USD $9,500. Jiacheng Ltd shall complete all the payments mentioned above within 30 days upon receipt of the award.
3. Grounds for and Arguments against the Application for Annulment of Arbitral Award
(1) Grounds for the Application by Jiacheng Ltd for Annulment of Arbitral Award
1. Matters arbitrated in the instant award are not within the scope of the arbitration agreement
(i) Issue of the arbitration agreement
The arbitral tribunal heard and passed a ruling over two unrelated joint venture contracts. The first joint venture contract is the <Joint Venture Contract for Qingdao VEM Mechanical Equipment Co., Ltd> signed between VEM S. P. A and Jiacheng Ltd on 20 October 2005 in Qingdao, that is, the <October Contract>. The second joint venture contract is the <Joint Venture Contract> signed between VEM S. P. A, SIMEST S. P. A and Jiacheng Ltd in China and Italy respectively on around 7 to 19 December in the same year, that is, the <December Contract>.
The following is about the first joint venture contract (<October Contract>). In August 2005, through introduction, VEM S. P. A started contacting the applicant to discuss the incorporation of a joint venture in Qingdao for the purpose of producing FRP products and equipment. Upon several rounds of negotiation and visits, the parties entered into the <October Contract> creating the joint venture on 20 October 2005 in Qingdao, and the parties respectively appointed their directors for the joint venture. On 26 October 2005, the People’s Government of Qingdao issued a Certificate of Approval to the joint venture and the Administration for Industry and Commerce of Qingdao issued a Business Licence for Corporate Entity to the joint venture. Thus, the joint venture was incorporated legally. Clause 41 of the <October Contract> states that “all disputes arising from the performance of or in connection with this contract shall be resolved by the parties through amicable negotiation. If negotiation proves unsuccessful, the disputes should be submitted to arbitration commission for arbitration. The arbitral award shall be final and binding on all parties.” That clause does not stipulate a specific arbitration commission nor does it stipulate the applicable arbitration rules and the venue of arbitration. Thereafter, the parties did not supplement or modify that arbitration agreement. Consequently, the arbitration agreement of the <October Contract> is invalid and the arbitration commission had no jurisdiction over that contract. Further, the application for arbitration by VEM S. P. A and SIMEST S. P. A merely seeks rescission of the <December Contract> and damages, but does not seek a ruling as to the <October Contract>.
The following is about the second joint venture contract. The <December Contract> is a tripartite contract drafted by VEM S. P. A without authorization for the purpose of defrauding SIMEST S. P. A of its capital under the circumstances that it had already signed the <October Contract> with Jiacheng Ltd, obtained the approval of the Qingdao Government and incorporated legally the joint venture. The “disputes arising from the signing of or in connection with this contract” prescribed by clause 46 in chapter 18 of the <December Contract>, that is, disputes arising from the signing of the <December Contract> or arising in connection with the <December Contract> shall be arbitrated by the arbitration commission. The <December Contract> fundamentally contravenes the laws of the Mainland and had not been approved by any Chinese government departments, thus, it is absolutely invalid.
As to the relationship among the two contracts, the <December Contract> is not a supplement or modification to the <October Contract> as the former contract does not mention the <October Contract> and the joint venture was already legal incorporated.
To conclude, the arbitration agreement of the <October Contract> is invalid. The arbitration agreement of the <December Contract> is not a supplement or modification to the arbitration agreement of the <October Contract>. The ruling of the arbitral tribunal regarding the <October Contract> is not within the scope of the arbitration agreement.
(ii) The arbitral tribunal had no authority to arbitrate matters of application for dissolution of the company
The dissolution of the joint venture should comply with the system of judicial dissolution set up by the Company Law of the Mainland. That is, the application for dissolution of the joint venture should be made to the people’s courts which have jurisdiction over the issue, not the arbitration commission. The arbitration commission had no authority to arbitrate matters of dissolution of the joint venture. Further, the joint venture should be treated as the defendant in an application for dissolution of joint venture.
(iii) The matters decided in the <Award> exceed the scope of the application by the respondents
Here, VEM S. P. A and SIMEST S. P. A sought “rescission of the joint venture contract between the parties”, i.e. the <December Contract>; in other words, the termination of a joint venture contract that had become effective. Nevertheless, the arbitral tribunal in its ruling held that all the joint venture contracts were invalid; a holding that exceeds far beyond the scope of application for arbitration. VEM S. P. A and SIMEST S. P. A were or should have been aware of the grounds for annulment in 2005 but they only proposed rescission of the contract in 2008. The limitation period had long expired and the arbitral tribunal had no authority to arbitrate.
(iv) The decision of the arbitration commission (CIETAC) regarding the jurisdiction is first ambiguous and then conflicting
The following is about the <Decision> made by the arbitration commission. The arbitration commission, prior to the start of the arbitration proceedings, was avoiding Jiacheng Ltd’s several objections to its jurisdiction and only issued the ambiguous <Decision> regarding jurisdiction on 26 December 2008. That <Decision> does not state whether the arbitration commission had jurisdiction over the <October Contract>. On 31 December 2008 and 6 February 2009 respectively, Jiacheng Ltd had sent a letter to the arbitration commission reminding it that it had no authority to arbitrate the <October Contract>. The arbitration commission did not reply.
The following is about the <Award> rendered by the arbitral tribunal. On 13 August 2009, the arbitral tribunal rendered the <Award> of this case. In the award, the tribunal, for the first time states that it has jurisdiction over both the <October Contract> and the <December Contract>, and also rules that it had no jurisdiction over the annexes of the <December Contract>, namely <Agreement for Transfer of Trademark> and the three <Agreement for Transfer of Proprietary Technology>. The substantial matters decided in the <Award> do not fall within the scope of the arbitration agreement of the <December Contract>, neither does item 4 of the <Award>, which concerns the <October Contract>.
2. Formation of the arbitral tribunal does not comply with the arbitration rules
The arbitration commission appointed the presiding arbitrator whose name is Peter Thorpe. On 15 December 2009, Mr. Gao Kuanzhong, the litigation representative of the applicant, participated in the “China International Arbitration Forum” where met Mr. Peter Thorpe and learned that he is the chief representative at the Beijing Representative Office of the UK law firm Allen & Overy. Upon further research, that applicant discovered that Zhang Shixian, attorney of VEM S. P. A and SIMEST S. P. A in the arbitration, had previously worked as an assistant to the lawyers of the Beijing Representative Office of Allen & Overy. Mr. Peter Thorpe should have disclosed this to the arbitration commission and the applicant, but he did not. Therefore, the formation of the arbitral tribunal is not in compliance with the arbitration rules of the arbitration commission.
(2) Arguments of VEM S. P. A and SIMEST S. P. A
1. Jiacheng Ltd had raised in the course of arbitration the issue of “whether the <October Contract> contains an arbitration clause.” As to this issue, the arbitral tribunal conducted the proceedings and requested the parties to attend and submit their grounds respectively. In accordance with the results of the proceedings, the arbitral tribunal made its “Ruling on Jurisdiction,” ruling that the China International Economic and Trade Arbitration Commission had jurisdiction over this case. Even though the arbitral tribunal issued the “Ruling on Jurisdiction,” Jiacheng Ltd nevertheless objected to the tribunal’s jurisdiction in the course of arbitration on the same grounds cited in the present application for annulment of arbitral award. In the arbitral award, the arbitral tribunal once again confirmed its “Ruling on Jurisdiction,” holding that it had jurisdiction because there was a legal arbitration clause in the <October Contract> and all claims related to the <December Contract> and the arbitration procedures were made on the basis of the legal arbitration clause. The arbitral tribunal had already made a specific decision confirming the validity of the arbitration agreement; thus, Jiacheng Ltd’s application to annul the arbitral award based on the fact that that “no arbitration agreement concluded in this case” is entirely unfounded. The court should dismiss or reject the application.
The arbitral tribunal did not order that the joint venture be dissolved;, rather, the tribunal ruled the following: firstly, the <October Contract> is invalid because of actions by Jiacheng Ltd; secondly, because the joint venture was incorporated on the basis of the incorrect <October Contract>, it naturally follows that it should be dissolved. Therefore, the arbitral tribunal did not directly order that the joint venture be dissolved, but its holding the <October Contract> is invalid naturally necessitates the dissolution of the joint venture. Consequently, the arbitral tribunal did not directly order the dissolution of the joint venture but merely determined that the <October Contract> was invalid pursuant to the relevant regulations in the Company Law of China. The award in itself could never dissolve the joint venture.
Jiacheng Ltd further submitted that the matters decided by the arbitral tribunal exceed the scope of application by VEM S. P. A and SIMEST S. P. A. In fact, in the course of arbitration, Jiacheng Ltd raised this issue and the arbitral tribunal addressed it and explained the reasons why the scope of application was not exceeded.
Jiacheng Ltd claimed that “where request is made to annul the award, it shall be made within 1 year from the date of becoming aware or should have become aware of the causes of annulment.” Hence, Jiancheng Ltd claimed, “the limitation period has long expired and the arbitral tribunal had no authority to arbitrate.” This argument is also unfounded. Firstly, this is not one of the grounds stipulated by the statute upon which an arbitral award can be annulled; secondly, the one-year limitation period runs from the date on which the parties became aware that the contract was revocable, not from the date on which the contract was signed; thirdly, the “fact” that the one-year limitation period had already expired should have been raised during the course of arbitration but Jiacheng Ltd fail to raise the issue then.
2. From 1998 to 1999, attorney Zhang Shixian worked as assistant attorney in the Beijing Representative Office of Allen & Overy and. in 2003, Zhang Shixian joined Beijing Duo & Partners, where she remains currently. Peter Thorp only joined Allen & Overy in 2004. The two attorneys never worked together and they did not previously know each other. To sum up, all grounds raised by Jiacheng Ltd for the annulment of arbitral award are unfounded and its application should be rejected.
4. Opinions of Treatment of the First Intermediate People’s Court of Beijing
(1) Issue of Applicable Laws
The applicant is a foreign company and the arbitration commission rendered a foreign-related arbitral award by adopting foreign-related arbitration procedures. Thus, the court examined the case pursuant to the provisions of 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> .
(2) Whether arbitral award contains an order for annulment
The basis of VEM S. P. A and SIMEST S. P. A’s application for arbitration is the <December Contract>. The said contract stipulates that “disputes arising from the signing of or in connection with this contract” shall be arbitrated by the arbitration commission and this clause is legal and valid. Nevertheless, the <October Contract> signed between VEM S. P. A and Jiacheng Ltd does not contain an arbitration agreement. If the arbitral tribunal is of the view that “the <December Contract> does not specify that it is modifying a corporate entity already in existence or mention the <October Contract>”, it means that the tribunal concluded that the <October Contract> and the <December Contract> are independent from each other. Under these circumstances, the <October Contract> cannot be subject to the arbitration agreement of the <December Contract> and the tribunal had no jurisdiction to arbitrate the <October Contract> pursuant to the arbitration agreement of the <December Contract>. Further, the joint venture incorporated under the <October Contract> had undergone a legal review by the relevant administrative authorities. The arbitral tribunal, by ruling the <October Contract> was invalid, has ignored the legal review of that contract by the relevant administrative authorities.
Pursuant to the regulations on dissolution of company in the Company Law, request for dissolution of company could only be heard by the people’s court. The arbitral tribunal had no legal authority to order the joint-venture company be dissolved.
Although Zhang Shixian, attorney for VEM S. P. A and SIMEST S. P. A, and Peter Thorp, the presiding arbitrator appointed by the arbitration commission, had worked in the Beijing Representative Office of Allen & Overy, there is no evidence to prove that they ever worked together. Nor is there proof that the two parties knew each other prior to the arbitration. This is not a situation the arbitrator should have disclosed; thus, this ground is rejected.
To conclude, on the basis that the award does not comply with the provisions of paragraph 1(1) and (4) of Article 258 of the <Civil Procedure Law of the People’s Republic of China>, which read “the parties have neither included an arbitration clause in their contract nor subsequently reached a written arbitration agreement” and “matters decided in the award exceed the scope of the arbitration agreement or are beyond the arbitral authority of the arbitration institution” respectively, pursuant to the requirements of Article 60 of the <Arbitration Law of the People’s Republic of China>, the Award No. 0355 CIETAC BJ [2009] of the China International Economic and Trade Arbitration Commission should be annulled.
5. Opinions of Our Court
(1) Whether the award must be annulled
The arbitration clause of the <October Contract> does not specify the parties’ chosen arbitration institution or the applicable arbitration rules, thus it is invalid. The contents of the <October Contract> and the <December Contract> are independent from each other and there is no evidence to show that the arbitration clause of <December Contract> constitutes a supplement or modification to the arbitration clause of the <October Contract>. Therefore, the <October Contract> is not within the scope of arbitration agreement of the <December Contract> and the tribunal was without authority to arbitrate the <October Contract> on the basis of to the arbitration agreement of the <December Contract>.
(2) Whether the award was without authority
Pursuant to the provisions of the <Company Law of the People’s Republic of China> and the <Interpretation of the Supreme People's Court concerning Some Issues on Application of the “Arbitration Law of the People's Republic of China” (2)>, in cases of dissolution and liquidation of companies, the target company for dissolution and liquidation must be a party to the case. Further, such a case might involve matters of the company and also interested parties outside the case. The the parties’ request for dissolution and liquidation of the company could only be made to the people’s court. Here, the claims for arbitration made by VEM S. P. A and SIMEST S. P. A are as follow: “rescinding all the joint venture contracts between the parties (i.e. the <October Document> and <December Document> and the associated contracts concerning intellectual property rights) and dissolving the VEM (Qingdao) Mechanical Equipment Co., Ltd which was incorporated on the basis of the <October Document>”, “demanding the respondent to pay to the applicants 300,000 Euros as damages for the losses incurred by the applicants from signing and performing the <October Document> and <December Document>,” etc. As to the above claims, the China International Economic and Trade Arbitration Commission made the following ruling: “2. The company which was incorporated on the basis of the <October Document> should be dissolved”; “5. Jiacheng Ltd shall pay for the depreciation of the equipment and machines input as capital by VEM S. P. A, totaling 30,000 Euros”; “7. Jiacheng Ltd shall compensate SIMEST S. P. A for the loss input by SIMEST S. P. A to the joint venture (capital contributed by SIMEST S. P. A), totaling 83,325 Euros,” etc. The instant award involves orders the dissolution and liquidation of the joint-venture company, and, therefore, the tribunal exceeded its authority in the arbitration award.
(3) We agree with the other opinions of the First Intermediate People’s Court of Beijing
In conclusion, pursuant to the provisions of paragraph 1(1) and (4) of 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>, the Award No. 0355 CIETAC BJ [2009] of the China International Economic and Trade Arbitration Commission should be annulled.
Please reply whether the above opinions are correct.