Qingdao Xin Yongan Industrial Co., Ltd v. Summit Equities Ltd & Tangshan Shi Bo Ao Coal Co., Ltd.

Cite as: Qingdao Xin Yongan Industrial Co., Ltd v. Summit Equities Ltd & Tangshan Shi Bo Ao Coal Co., Ltd., The Supreme People’s Court (11 March 2011), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV

Case identification

  • Date of Decision: 11 March 2011 

  • Court:

    • The Supreme People’s Court

    • The Higher People's Court of Shandong Province

  • Arbitral Tribunal:

    • N/A

  • Case number / Docket number:

    • No. 3 of the Fourth Civil Tribunal of the Supreme People’s Court [2011]

    • No.  30 of the Higher People’s Court of Shandong Province [2010]

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”>; Articles 16 and 18 of <Arbitration Law of the People’s Republic of China>.

Descriptors: Arbitration agreement; Validity of arbitration agreement; Lack of a chosen arbitration institution; No subsequent agreement on a chosen arbitration institution; Ad Hoc arbitration; Institutional arbitration

 

 

 

Qingdao Xin Yongan Industrial Co., Ltd v. Summit Equities Ltd & Tangshan Shi Bo Ao Coal Co., Ltd. 

An agreement to submit disputes to arbitration under the rules of the local People’s Court of China was found to be invalid. The arbitration agreement provided that the seat of the arbitration would be China; the language of the arbitration would be Chinese; and the agreement, including the arbitration clauses, would be governed by and interpreted in accordance with the laws of China. In its Report to the Supreme People’s Court, the Higher People's Court of Shandong stated that (1) the parties did not specify the governing law of the main contract or the validity of the arbitration clause but did specify that the place of arbitration was in China; hence, the applicable laws should be the law of the place of arbitration, i.e. the laws of the PRC; and (2) the arbitration agreement was invalid because no arbitration institution was chosen or agreed upon subsequently. In its Reply, the Supreme People's Court stated that the parties did agree that the main contract and the arbitration clause were governed by the laws of the PRC; and upheld the lower court’s finding that the arbitration agreement was invalid for the lack of a chosen arbitration institution.

Case text (English translation)

(11 March 2011, No. 3 of the Fourth Civil Tribunal of the Supreme People’s Court [2011])

 

The Higher People’s Court of Shandong:

 

Your court’s <Request for Instructions on the Validity of the Arbitration Clause in the Sale and Purchase Contract between Qingdao Xin Yongan Industrial Co., Ltd, Summit Equities Ltd & Tangshan Shi Bo Ao Coal Co., Ltd > No. 30 of the Higher People’s Court of Guangdong (2010) has been received. Upon deliberation, our reply is as follows:

 

According to the materials reported by your court, clause 14 of the <Agreement for the Sale of Australian Coking Coal>, signed between Qingdao Xin Yongan Industrial Co., Ltd and Tangshan Shi Bo Ao Coal Co., Ltd, stipulates that “in the event of any disputes arising out of or in connection with this agreement, including those concerning the existence, validity or termination of this agreement, such disputes shall be submitted to and resolved by arbitration in accordance with the rules of the local people’s court of China and these rules are deemed referenced and adopted. The seat or the place of arbitration shall be China. The arbitration shall adopt Chinese. This agreement, including the arbitration clause, shall be interpreted in accordance with and be governed by the laws of China. The arbitral award shall be the final determination and binding on all parties.” Pursuant to the above statements, the parties agreed that the laws of the People’s Republic of China shall be the applicable laws in the examination of validity of the arbitration clause in question.

 

Although the <Agreement for the Sale of Australian Coking Coal> stipulates that disputes shall be resolved by arbitration, in addition to the place of arbitration, the applicable laws in examination of validity of the arbitration clause and the applicable laws in resolution of contractual disputes, it does not specify the arbitration institution chosen. Pursuant to the provisions of Articles 16 and 18 of the <Arbitration Law of the People’s Republic of China>, an arbitration agreement must clearly specify the arbitration institution in order to be valid. Consequently, the arbitration clause in question is invalid. One of the parties has already filed a lawsuit in the Intermediate People’s Court of Qingdao, Shandong, as the court of the locality where the agreement was executed shall have jurisdiction over the case.

 

We agree with the opinions of your court. Nevertheless, your view that clause 14 of the agreement in question “does not specify the applicable laws in examination of validity of the arbitration clause” is inconsistent with the contents therein. Further, 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”> is not applicable to this case.

 

Enclosed:

 

Request for Instructions on the Validity of the Arbitration Clause in the Sale and Purchase Contract between Qingdao Xin Yongan Industrial Co., Ltd, Summit Equities Ltd & Tangshan Shi Bo Ao Coal Co., Ltd. 

 

(28 December 2010, No. 30 of the Letter from the Higher People’s Court of Guangdong [2010])

 

The Supreme People’s Court:

 

Regarding the objection to jurisdiction in the disputes arising from the contract between Qingdao Xin Yongan Industrial Co., Ltd (“Xin Yongan”), Summit Equities Ltd (“Summit Equities”) & Tangshan Shi Bo Ao Coal Co., Ltd (“Bo Ao”), the Intermediate People’s Court of Qingdao, Shandong has made the Civil Judgment No. 16-2 of the Fourth Civil Tribunal of the Intermediate People’s Court of Qingdao [2010], on 27 May 2010. Summit Equities thereafter appealed to this court. During examination of this case, we found that Bo Ao and Xin Yongan have chosen arbitration as their dispute resolution mechanism when they signed the <Agreement for the Sale of Australian Coking Coal>. On the basis that this case involves foreign interests and for prudent handling, pursuant to the stipulations in your court’s <Circular on Issues Related to the People’s Court’s Handling of Matters of Foreign-related Arbitration and Foreign Arbitration> No. 18 (1995) and <Circular on Issues Related to the Trial and Enforcement of Foreign-related Civil and Commercial Cases>No. 51 (2000), we hereby submit our report on the validity of the arbitration clause for your court’s review.

 

1.     Basic Facts of the Parties

 

Plaintiff: Qingdao Xin Yongan Industrial Co., Ltd. Address: 21/F, Century Mansion, No. 39 Donghai West Road, Shinan, Qingdao, Shandong.

Legal representative: Song Qingyou, Chairman of the company.

Defendant: Summit Equities Ltd. Address: Leve14, 95 Pitt Street, Sydney, NSW2000, Australia.

Legal representative: Alex Alexander, Chairman of the company.

Defendant: Tangshan Shi Bo Ao Coal Co., Ltd. Address: Malu Cun West, Kaiping zhen, Kaiping Qu, Tangshan, Hebei

Legal representative: Huang Ningjie, General Manager of the company.

 

2.     Basic Facts of the Case

 

On 18 November 2009, Bo Ao as the vendor signed with the purchaser Xin Yongan the <Agreement for the Sale of Australian Coking Coal> (the “Agreement”) for the purchase of coking coal produced in Australia in bulk. The first line of the Agreement states that “this Agreement is signed by the vendor and the purchaser on 18 November 2009 in Qingdao.” On 9 December 2009, Summit Equities Ltd sent a facsimile on behalf of Bo Ao to Xin Yongan purporting to terminate the said Agreement. Thereafter, Xin Yongan filed a claim for breach of contract against both Bo Ao and Summit Equities Ltd seeking RMB15 million in damages.

 

Upon examination, clause 14 of the Agreement states that “in the event of any disputes arising out of or in connection with this agreement, including those concerning the existence, validity or termination of this agreement, such disputes shall be submitted to and resolved by arbitration in accordance with the rules of the local people’s court of China and these rules are deemed referenced and adopted. The seat or the place of arbitration shall be China. The arbitration shall adopt Chinese. This agreement, including the arbitration clause, shall be interpreted in accordance with and be governed by the laws of China. The arbitral award shall be the final determination and binding on all parties.”

 

3.     The Opinion of Our Court

 

(1)   One of the defendants in this case, i.e. Summit Equities Ltd, is located in Australia, hence, the case is a contractual dispute involving foreign interests. Clause 14 of the Agreement in question states that the parties’ shall resolve disputes by arbitration. The parties stipulated in clause 14 that Chinese laws shall be used to resolve contractual disputes but failed to specify which laws would apply in determining the validity of the arbitration clause, though the place of arbitration has been specified to be China. Pursuant to the provisions of 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”>, in the determining the validity of an arbitration clause, the laws of the place of arbitration, i.e. the laws of the People’s Republic of China, shall apply.

 

(2)   Clause 14 of the Agreement does not clearly specify an arbitration institution. Given the fact that one of the parties has filed a lawsuit in court, it can be assumed that the parties did not reach any supplementary agreement regarding the choice of arbitration institution. Pursuant to the provisions of Articles 16 and 18 of the <Arbitration Law of the People’s Republic of China>, the arbitration clause in question is invalid.

 

(3)   Because the Agreement was executed in Qingdao, Shandong, pursuant to the provisions of Article 241 of the <Civil Procedure Law of the People’s Republic of China>, the Intermediate People’s Court of Qingdao, Shandong as the court of the locality where the Agreement was executed shall have jurisdiction over the case.

 

Please reply whether the above opinions are correct.