Shenhua Coal Transportation Sale Corp. v. Marinic Shipping Company

Cite as: Shenhua Coal Transportation Sale Corp. v. Marinic Shipping Company, The Supreme People’s Court (4 February 2013), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV

Case identification

• Date of Decision: 4 February 2013 

• Court:

• The Supreme People’s Court

• The Higher People's Court of Tianjin

• Arbitral Institution/Tribunal:

• N/A

• Case number / Docket number:

• No. 4 of the Fourth Civil Tribunal of the Supreme People’s Court [2013]

• No. 4 of the Higher People’s Court of Tianjin [2012]

Classification of issues present

• Application of the New York Convention: No, but may be yes.

• Key PRC law provision(s) at issue: Article 13 of <Interpretation of Several Issues Concerning the Application of “The Arbitration Law of the People’s Republic of China”>; Articles 10, 20 and 66 of <Arbitration Law of the People’s Republic of China>.

Descriptors: Arbitration agreements; Incorporation of arbitration clauses; Applicable law to the incorporation of arbitration clauses; Applicable law to the formation of arbitration agreement; The law that has the closest connection; The ‘Report System’; Foreign arbitral institution’s decision on jurisdiction  

Shenhua Coal Transportation Sale Corp. v. Marinic Shipping Company    

It was found that the arbitration clauses contained in the Charterparty were not effectively incorporated into the Bill of Lading (B/L) to bind the holder of the B/L. In its Report to the Supreme People’s Court, the Higher People's Court of Tianjin found that the governing law of the incorporation of arbitration clauses was not the same as the governing law of the validity of the arbitration clauses. In the absence of parties’ agreement, the PRC law applied as the law that had the closet connection to the issue. Applying article 13 of the SPC’s Interpretation of the Arbitration Law of the People’s Republic of China (2006), it further found that the Chinese maritime court should not accept Shenhua’s application for confirmation that there was no arbitration agreement between Shenhua and Marinic, because the London arbitral tribunal already rendered its decision confirming that it had jurisdiction over the dispute. In its Reply, the Supreme People’s Court agreed that the law governing the incorporation and formation of the arbitration agreement was the PRC law, but disagreed that the Chinese maritime court should not accept Shenhua’s application. The Supreme People’s Court held that the SPC’s Interpretation of the Arbitration Law of the People’s Republic of China (2006) applies to foreign-related arbitration, but article 13 of the said interpretation does not apply to a foreign arbitral tribunal or institution’s decisions. Thus, the Tianjin Maritime Court should accept Shenhua’s application and dispose the matter accordingly. The Supreme People’s Court further clarified that whether an arbitration clause contained in the Charterparty has been effectively incorporated into the B/L falls under the ambit of the ‘Report System’ under the SPC Circular No. 18 [1995].

Case text (English translation)

(4 February 2013 No. 4 of the Fourth Civil Tribunal of the Supreme People’s Court [2013])

The Higher People’s Court of Tianjin:

Your court’s Request for Instructions on the Issue Regarding the Confirmation of the Validity of an Arbitration Clause between Shenhua Coal Transportation Sale Corp. and Marinic Shipping Company (No. 4 of the Higher People’s Court of Tianjin [2012]) submission has been received. Upon deliberation, our reply is as follows:

1. Regarding whether paragraph 2, article 13 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” (hereafter the “Interpretation of the Arbitration Law”) shall be applicable. Pursuant to chapter 7 of the Arbitration Law of the People's Republic of China (hereafter the “Arbitration Law”), [our court] agrees with your court’s opinion that the Arbitration Law and the Interpretation of the Arbitration Law shall be applicable in foreign-related arbitration cases. Nevertheless, article 13 of the Interpretation of the Arbitration Law is a specific judicial interpretation of article 20 of the Arbitration Law. The “Arbitration Commission” provided in article 20 of the Arbitration Law refers to arbitration commissions established pursuant to article 10 and article 66 of the Arbitration Law, instead of foreign arbitration institutions. Therefore, article 13 of the Interpretation of the Arbitration Law is not applicable in situations where the foreign arbitration institutions’ determination of the validity of the arbitration agreements is in question.

2. Regarding issues concerning the Applicable Law. This case concerns Shenhua Coal Transportation Sale Corp.’s application to affirm the non-existence of an arbitration agreement. The bill of lading (“B/L”) in question is a Short Form B/L to be used with the Charterparty, but no clear stipulations that the Charterparty (including the arbitration clause) shall be incorporated in the said B/L were provided. Therefore, the arbitration clause contained in the said Charterparty had not been effectively incorporated in the said B/L. This case is not concerned with the determination of the validity of the arbitration clause contained in the Charterparty. Your court’s holding that the determination of the existence of an arbitration agreement shall be governed by the Laws of the People’s Republic of China is correct.

3. Regarding the application 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 (hereafter the “Circular”). The courts shall strictly abide by the “Report System” as provided by the Circular, and shall not evade the system by relying on excuses including [the matter] does not belong to the scope of arbitration or the arbitration clause is invalid. The issue of whether an arbitration clause contained in the Charterparty has been effectively incorporated in the B/L falls under the ambit of [the matters to be reported] regulated by the said Circular.

Summarizing the above, the Tianjin Maritime Court shall accept Shenhua’s application for confirmation of the non-existence of an arbitration agreement with Marinic and decide the matter in accordance with the law.

It is so replied.

Enclosed:

Request for Instructions on the Issue Regarding the Confirmation of the Validity of an Arbitration Clause between Shenhua Coal Transportation Sale Corp. and Marinic Shipping Company

(21 November 2012 No. 4 of the Higher People’s Court of Tianjin [2012])

The Supreme People’s Court:

Regarding the case between Shenhua Coal Transportation Sale Corp., and Marinic Shipping Company accepted by the Tianjin Maritime Court, Shenhua Coal Transportation Sale Corp., submitted that no arbitration agreements existed between it and Marinic Shipping Company. Since the case involves issues regarding the applicable law, the Tianjin Maritime Court requested our court’s instructions. Upon review, our court’s opinions on the ruling of this case are different from that of the Tianjin Maritime Court. Therefore, [our court] requests your court’s instructions. [Our court] hereby reports the following:

I. The parties

Plaintiff: Shenhua Coal Transportation Sale Corp. (hereafter “Shenhua”). Domicile: Room 1517, Zhouji Tower, 16 Ande Road, Dongcheng District, Beijing, China.

Legal representative: Hua Zeqiao, Chairman.

Defendant: Marinic Shipping Company. Domicile, 152 Kifisias Avenue & L Sochou Street, 11525 Athens, Greece.

Legal represenative: Nikolaos Mazarakis, Chairman.

II. Basic facts

On 13 June 2005, Shenhua signed a contract of sale with a third party, Fiesta Investments Ltd. (hereafter “FIL”), for FIL’s purchase of Shenhua’s 560,000 tons of coal, to be transported in fourteen installments with a price of USD$56.5 / ton, FOB Xingang, China.

In November 2005, Shenhua loaded 49,098 tons of coal on the vessel named Rmever Aim chartered by FIL in Xingang, Tianjin, to be transported from Xingang to Turkey. Tianjin United International Shipping Agency, being the ship agent, issued a bill of lading (“B/L”) numbered No.01 on 13 November 2005. It was stipulated in the said B/L that the Consignor shall be Shenhua, to order of the consignee, the Notify Party shall be Eti Krom A/S, a Turkish company. The said B/L was drafted in “CONGENBILL” 1994 Edition. The front page of the said B/L stipulated that “TO BE USED WITH CHARTER-PARTIES; Freight payable as per CHARTER-PARTIES dated 7 November 2005; The BIMCO International Safety Clause, Millennium clause, New Jason Clause, Both-to-Blame Collision Clause, P. & I. Bunker Deviation Clause, time unification clause and Paramount Clause are to be incorporated in this B/L.”

Marinic Shipping Company was the ship owner of the vessel Rmever Aim. The vessel was time-chartered to T.K.B. Shipping A/S (hereafter “TKB”). On 7 November 2005, TKB trip chartered the said vessel to Yilmar Shipping And Trading Ltd. (hereafter “YST”). On the same day, YST and FIL signed a voyage charter contract, which chartered the vessel Rmever Aim to FIL. Article 33 of the contract provides that any disputes arising from the voyage charter contract shall be resolved by arbitration in London, pursuant to English Law.

On 9 December 2005, a fire broke out in the vessel Rmever Aim. Marinic Shipping Company initiated claims against Shenhua by submitting an arbitration application in London, on the grounds that the incident was caused by Shenhua’s goods, which generated huge losses for Marinic Shipping Company. On 28 January 2010, Shenhua received Marinic Shipping Company’s arbitration claims. On 24 February 2010, Shenhua sent a mail to the London arbitral tribunal submitting that the said tribunal has no jurisdiction since arbitration agreements did not exist between the parties and demanded [the tribunal’s] dismissal of Marinic Shipping Company’s claims. On 30 March 2010, the arbitral tribunal ruled that it had jurisdiction over the case and dismissed Shenhua’s dispute. On 10 November 2010, Shenhua filed a claim in the Tianjin Maritime Court demanding the court’s confirmation that no arbitration agreements existed between it and Marinic Shipping Company.

The Tianjin Maritime Court conducted a hearing on 20 September 2012. The following issues were in dispute: (1) Whether the Laws of the People’s Republic of China or the English Law shall be applicable in this case; (2) Under the presupposition that the applicable law is determined, whether an arbitration agreement existed between the parties; (3) Whether this case falls under the situation described in paragraph 2, article 13 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”(hereafter the “Interpretation of the Arbitration Law”) that “Where, after an arbitration institution makes a decision on the effectiveness of an agreement for arbitration, a party concerned applies to the people’s court for confirming the agreement for arbitration as effective or applies for revoking the arbitration institution’s decision, the application shall not be accepted by the people’s court.”

III. The opinions of the Tianjin Maritime Court

1. Regarding the issue concerning the applicable law, it is in the Tianjin Maritime Court's opinion that this case is an application to confirm whether the arbitration agreement had been effectively incorporated in the B/L, instead of an application to affirm the validity of an arbitration clause. Therefore, article 16 of the Interpretation of the Arbitration Lawshall not apply. Considering that the parties did not reach a consensus as to the applicable law, the port of departure in question is Tianjin, China and that the B/L was issued in Tianjin, the Chinese Law had the closest connection to this case. Therefore, the Laws of the People’s Republic of China shall be applicable.

2. Regarding whether an arbitration agreement exists between the parties, it is in the Tianjin Maritime Court's opinion that pursuant to Reply No. 49 of the Supreme People’s Court (2006), the arbitration clause contained in the Charterparty in question had not been incorporated in the B/L. No arbitration agreements existed between the parties.

3. Regarding whether paragraph 2, article 13 of the Interpretation of the Arbitration Law shall be applied, the Tianjin Maritime Court advanced the following two opinions:

According to the first opinion, the Interpretation of the Arbitration Law is only applicable in domestic arbitrations. The New York Convention shall be applicable in foreign arbitrations. Apart from that, paragraph 2, article 13 of the said Interpretation is directed at the confirmation of the validity of arbitration clauses. This case is an application to confirm whether an arbitration agreement has been established. Therefore, the said provision is not applicable in this case. [The court] shall confirm that no arbitration agreements existed between the parties.

According to the second opinion, the Interpretation of the Arbitration Law is applicable in both domestic and foreign arbitrations. Pursuant to paragraph 2, article 27 of the Interpretation of the Arbitration Law, Shenhua’s claims shall be made after the rendering of the arbitral award. This case is in conformity with the principles of the abovementioned provisions. Therefore, Shenhua’s application shall be dismissed.

The Tianjin Maritime Court intended to affirm the first opinion.

IV. The opinions of our court

Upon review, it is in our court’s opinion that this case does not belong to the situation regulated under 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. Therefore, [our court] only report the following two issues regarding the applicable law:

(i) Issue regarding the Applicable Law

It is in our court’s opinion that this case is an application to confirm the non-existence of arbitration agreements between the parties. This case is not an application to confirm the validity of an arbitration agreement, which assumes the pre-existence of an arbitration agreement. Since it cannot be determined whether the parties had agreed on an arbitration agreement, article 16 of the Interpretation of the Arbitration Law, which states that [t]he 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, is not applicable in this situation. Considering that the parties failed to reach a consensus as to the applicable law, the port of departure in question is Tianjin, China and that the B/L was issued in Tianjin, the Chinese law had the closest connection to this case. Therefore, the laws of the People’s Republic of China shall be applicable in this case.

(ii) Whether Paragraph 2, Article 13 of the Interpretation of the Arbitration Law shall be applicable

1. Regarding the issue on whether the Interpretation of the Arbitration Law is applicable in foreign-related arbitration, it is in our court’s opinion that the New York Convention does not provide the courts and the arbitration institutions’ jurisdiction regarding parties’ application to confirm the non-existence of an arbitration clause. Therefore, the relevant regulations in the Chinese law shall be applicable. Article 65 of the Arbitration Law of the People’s Republic of Chinaprovides that “The provisions of this Chapter shall apply to the arbitration of disputes arising from economic, trade, transportation and maritime activities involving a foreign element. For matters not covered in this Chapter, the other relevant provisions of this Law shall apply.” Without specific regulations under the chapter governing foreign-related arbitration [in the Arbitration Law], the relevant provisions in the Arbitration Law and the Interpretation of the Arbitration Law shall be applicable in foreign-related arbitration.

2. Regarding whether article 13 of the Interpretation of the Arbitration Law may be applied in situations requiring the determination of the existence of an arbitration clause, it is in our court’s opinion that arbitration agreements are the source of the arbitration institutions’ jurisdiction. The parties’ submissions regarding the non-existence of the arbitration agreement or the invalidity of the arbitration agreement are substantively disputes against the jurisdiction of the arbitration institution. Article 13 of the Interpretation of the Arbitration Law, stating that:

As required by paragraph 2 of article 20 of the Arbitration Law, if a party concerned fails to object to the effectiveness of the agreement for arbitration prior to the first hearing in the arbitral tribunal, and then applies to the people’s court for confirming the agreement for arbitration as ineffective, the application shall not be accepted by the people’s court. Where, after an arbitration institution makes a decision on the effectiveness of an agreement for arbitration, a party concerned applies to the people’s court for confirming the agreement for arbitration as effective or applies for revoking the arbitration institution’s decision, the application shall not be accepted by the people’s court,

represents a requirement as to the time limits for the parties’ submission of disputes against the jurisdiction of the arbitration institution. According to the legislative intent of the said provision, the people’s court shall not accept the parties’ application to confirm that an arbitration institution lacks jurisdiction over their case, subsequent to the parties’ dispute on jurisdiction submitted to the arbitration institution and the said institution had rendered a decision on its jurisdiction. Furthermore, pursuant to article 18 of the Interpretation of the Arbitration Law, “If the agreement for arbitration is ascertained as ineffective or is revoked, it shall be deemed that there is no agreement for arbitration.” From the aforesaid provision, the invalidity of arbitration agreements and the non-existence of arbitration agreements carry the same legal effect. Therefore, pursuant to the legislative intent behind paragraph 2, article 13 of the Interpretation of the Arbitration Law, Shenhua’s claims shall be dismissed.

Please reply whether the above opinions are correct.