Salzgitter Mannesmann International GmbH v. Jiangsu Provincial Foreign Trade Corporation

 

Cite as: Salzgitter Mannesmann International GmbH v. Jiangsu Provincial Foreign Trade Corporation, The Supreme People’s Court (26 August 2011), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV (2014)

Case identification

  • Date of Decision: 26 August 2011 

  • Court:

    • The Supreme People’s Court

    • The Higher People's Court of Jiangsu Province

  • Arbitral Tribunal:

    • N/A

  • Case number / Docket number:

    • No. 32 of the Fourth Civil Tribunal of the Supreme People’s Court [2011]

    • No. 0003 of the Foreign Trade Tribunal of the Higher People’s Court of Jiangsu Province [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 Supreme People’s Court’s Interpretation of the PRC Arbitration Law: Article 16

Descriptors: Validity of arbitration agreements; Arbitration clause in both Chinese and English; Discrepancies in Chinese and English texts; Parties failed to designate an arbitration commission; Parties failed to reach any supplementary agreement on the designation of an arbitration commission; Choice of more than one arbitration institutions; Governing law of the arbitration clause; Seat of arbitration

 

Salzgitter Mannesmann International GmbH v. Jiangsu Provincial Foreign Trade Corporation   

In this case, the contract between the parties was written in both Chinese and English and it was agreed that both texts were equally authentic. The Chinese text of the arbitration clause designated the arbitration commission of the International Chamber of Commerce situated in Beijing, China pursuant to Provisional Arbitration Rules of the arbitration commission (“设在中国北京的国际商会仲裁委员会，按照该仲裁委员会仲裁程序暂行规则进行仲裁”). The English text of the clause provided for arbitration pursuant to the Rules of the International Chamber of Commerce with the place of arbitration in Beijing, China. The Higher People’s Court of Jiangsu Province formed two different views on the validity of the arbitration clause. The first opinion was to find that the English text should prevail and the agreement to arbitration under <ICC Arbitration Rules> (1998) should be valid. The second opinion was to find that the Chinese text referred to the Court of Arbitration of China Chamber of International Commerce (the alternative name for the China International Economic and Trade Arbitration Commission); while the English text referred to the International Court of Arbitration of the International Chamber of Commerce. Given that the arbitration institutions in the Chinese and the English texts were inconsistent, it should be found that there was no common intention as to the arbitration institution. Upon parties’ failure to reach a supplement agreement, the arbitration clause in question should be found invalid under the PRC law. In its Reply, the Supreme People’s Court found that regardless of the discrepancies in the Chinese and English texts, the validity of the arbitration clause should be governed by the PRC law. Accordingly, it was proper for the lower court to find that the arbitration agreement concerned was invalid, although the lower court’s reasoning to support that conclusion was improper.   

Case text (English translation)

(26 August 2011 No. 32 of the Fourth Civil Tribunal of the Supreme People’s Court [2011])

The Higher People's Court of Jiangsu Province:

Your court’s <Request for instructions on an application to affirm the validity of an arbitration clause agreed between Salzgitter Mannesmann International GmbH and Jiangsu Provincial Foreign Trade Corporation> No. 0003 of the foreign trade tribunal of Jiangsu, has been received. Upon consideration, our reply is as follows:

This is a case concerning the validity of an arbitration clause involving foreign elements. At Article 16 of the contract in question, the parties have agreed on an arbitration clause. The clause is written in both Chinese and English. Pursuant to Article 17 of the contract, clauses written in either language shall be binding. In Article 16 of the contract, there are discrepancies between the Chinese and the English texts. However, regardless of the discrepancies, according 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 validity of the arbitration clause shall be determined pursuant to relevant Chinese laws.

According to the materials submitted, Salzgitter Mannesmann International GmbH applied to find that the arbitration clause is invalid on the ground that the arbitration clause did not contain any clear designation of an arbitration institution. The other party, Jiangsu Provincial Foreign Trade Corporation did not dispute this issue. The Intermediate People's Court of Nanjing, Jiangsu had ordered the parties to explicitly designate an arbitration institution, but the parties failed to reach any agreement on the designation. Accordingly, pursuant to Article 16 and 18 of the <Arbitration Law of the People's Republic of China>, it is held that the arbitration clause concerned is deemed invalid.

We agree with your court’s opinion that the arbitration clause should be found invalid. However your court’s reasoning on this issue is improper and so it is indicated herein.

It is so replied.

 

Enclosed:

Request for instructions on an application to affirm the validity of an arbitration clause agreed between Salzgitter Mannesmann International GmbH and Jiangsu Provincial Foreign Trade Corporation

(18 July 2011 No. 0003 of the foreign trade tribunal of Jiangsu [2011])

 

The Supreme People’s Court:

Regarding the application to affirm the validity of an arbitration clause between the applicant Salzgitter Mannesmann International GmbH and the respondent Jiangsu Provincial Foreign Trade Corporation, upon review, the Intermediate People’s Court of Nanjing (Nanjing Intermediate Court) ruled that the arbitration agreement in question shall be invalid, and reported the matters for our court’s review. Pursuant to the principles from the <Notice of the Supreme People's Court on the Disposal of the Relevant Issues about the Foreign-related Arbitration and Foreign Arbitral Matters by the People's Court>, our court hereby reports the following relevant matters:

 

I. The parties

Applicant: Salzgitter Mannesmann International GmbH. Domicile: Schwannstrasse 12, Düsseldorf 40476, Germany.

Legal Representative: Thomas Rossbach, Thorsten Feldmann.

Agent ad Litem: Lin Leng, Zhu Guolin, Attorney, Shanghai Yuan Tai Law Offices.

Respondent: Jiangsu Provincial Foreign Trade Corporation. Domicile: 25/F, Xinhua Mansion, 55 Zhongshan Rd, Nanjing, Jiangsu, China.

Legal Representative: Xia Qiang, Chairman.

Agent ad Litem: Zhang Jianwei, WANG Guangjun, Attorney, Jiangsu Grand Glory Law Office.

 

II. Basic Facts of the Case

The applicant, Salzgitter Mannesmann International GmbH raised a litigation claim and submitted that on  13 February 2007, the applicant and the respondent had signed a Sales and Purchase Contract numbered 07JOCF11Z-0311. Although an arbitration clause had been stipulated in Article 16 of the contract, no clear provisions as to the arbitration institution were made, which violated relevant regulations regarding arbitration agreements provided in the Chinese Arbitration Law. Pursuant to Article 18 of the <Arbitration Law>, the arbitration clause shall be deemed invalid. The applicant requested that the People’s Court to confirm the invalidity of the arbitration clause.

The respondent, Jiangsu Provincial Foreign Trade Corporation submitted in defence that it does not dispute the authenticity of the contract and the relevant arbitration clause. The validity of the arbitration clause shall be determined by the court.

During the trial, upon the Nanjing Intermediate Court’s communications and coordination, the respondent explicitly refused to reach another agreement as to the arbitration institution with the applicant.

Upon investigation, in February 2007 a Sales and Purchase Contract (Number: 07JOCF11Z-0311) had been concluded between the applicant and the respondent. The contract was drafted in Chinese and English. It was agreed between the parties that both texts are equally authentic. The Chinese text of Article 16 of the contract provides that “Arbitration: any disputes arising from performance of this Contract or related to this Contract shall be resolved by amicable negotiations. If the parties fail to resolve the dispute by negotiations, the dispute shall be submitted to the arbitration commission of the International Chamber of Commerce situated in Beijing, China for arbitration pursuant to Provisional Arbitration Rules of the arbitration commission. The award rendered by the arbitration commission shall be final and binding to the parties. Arbitration costs shall be borne by the losing party.” The English text of the Article 16 of the contract reads as “Arbitration: any disputes related to this Contract or arising from performance of this Contract shall be resolved by amicable negotiations. If the parties fail to resolve the dispute by negotiations, the dispute shall be submitted to arbitration. Arbitration shall be made pursuant to the Rules of the International Chamber of Commerce. The place of arbitration shall be Beijing, China. The award rendered by the arbitration commission shall be final and binding to the parties. Arbitration costs shall be borne by the losing party.”

 

III. Opinions of the Nanjing Intermediate Court and reasoning

It is in the Nanjing Intermediate Court’s opinion that since the parties had not made provisions as to the Applicable Law governing the determination of the validity of arbitration clauses, 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”>, determination of the validity of the arbitration clause in question shall be governed by the Law of the People’s Republic of China. Considering that no clear stipulations had been made as to the arbitration institution in the arbitration clause contained in the Sales and Purchase Contract between parties and that the parties failed to reach a supplementary agreement, pursuant to Article 18 of the <Arbitration Law of the People’s Republic of China>, the arbitration clause shall be invalid.

 

IV. Opinions of our court

Upon deliberation, it is in our court’s opinion that this case is an application to affirm the validity of a foreign-related arbitration agreement. Considering that no provisions had been made by the parties as to the Applicable Law governing the determination of the validity of arbitration clauses, but had agreed that the place of arbitration shall be in Beijing, China, the determination of the validity of the arbitration clause in question shall be governed by the Law of the People’s Republic of China.

2. Our court advances two opinions regarding the validity of the arbitration clause in question:

According to the first opinion, Paragraph 2, Article 125 of the <Contract Law of the People's Republic of China> stipulates that where a contract is concluded in two or more languages and it is agreed that all versions are equally authentic, the words and sentences in each version are construed to have the same meaning. In case of any discrepancy in the words or sentences used in the different language versions, they shall be interpreted in light of the purpose of the contract. Here, in view of the grammatical structure of the Chinese and the English texts, the discrepancies between the arbitration clause in Chinese and the English is due to erroneous translations contained in the Chinese texts. Therefore, it can be held that the parties’ intention regarding to arbitrate shall be determined in light of the English texts. According to the English text of the arbitration clause in question, although the parties merely agreed that arbitration shall be made pursuant to the Rules of the International Chamber of Commerce, pursuant to Article 1 ‘the function of the Court is to provide for the settlement by arbitration of business disputes of an international character in accordance with these Rules’, Article 4 ‘A party wishing to have recourse to arbitration in accordance with these Rules shall submit its Request for Arbitration to the Secretariat’ of the <ICC Arbitration Rules>, it can be confirmed that the arbitration institution agreed upon by the parties is the International Court for Arbitration. Therefore, the arbitration clause in question is valid.

According to the second opinion, it cannot be presumed that the Chinese and English texts of the arbitration clause, Article 16 of the Sales and Purchase Contract in question, carry the same meaning. According to the Chinese text of the arbitration clause in question, although the so-called arbitration commission of the International Chamber of Commerce does not exist in Beijing, it can be deduced that the clause was referring to the Court of Arbitration of China Chamber of International Commerce (the alternative name for the China International Economic and Trade Arbitration Commission). According to the English text of the arbitration clause in question, although the parties merely agreed that arbitration shall be made pursuant to the Rules of the International Chamber of Commerce, pursuant to Article 1 ‘the function of the Court is to provide for the settlement by arbitration of business disputes of an international character in accordance with these Rules’, Article 4 ‘A party wishing to have recourse to arbitration in accordance with these Rules shall submit its Request for Arbitration to the Secretariat’ of the <ICC Arbitration Rules>, it can be confirmed that the arbitration institution agreed upon by the parties is the International Court for Arbitration. Summarizing the above, the provisions as to the arbitration institutions in the Chinese and the English texts are inconsistent. The parties did not reach a common intention as to the arbitration institution, and failed to reach a supplement agreement. Pursuant to Article 18 of the <Arbitration Law of the People’s Republic of China>, the arbitration clause in question shall be invalid.

Please reply whether the above opinions are correct.