Turbo (Far-East) Limited v. Hubei Yingtai Economic Development Co. Ltd 

 

Cite as: Turbo (Far-East) Limited v. Hubei Yingtai Economic Development Co. Ltd, The Supreme People’s Court (14 December 2011), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV (2014)

Case identification

  • Date of Decision: 14 December 2011 

  • Courts:

    • The Supreme People’s Court

    • The Higher People's Court of Hubei

  • Arbitral Tribunal:

    • N/A

  • Case number / Docket number:

    • No. 62 of the Fourth Civil Tribunal of the Supreme People’s Court [2011]

    • No. 275 of the Civil Tribunal of the Higher People’s Court of Hubei [2011]

Classification of issues present

  • Application of the New York Convention: No

  • Key PRC Law provision(s) at issue: Section 2, Article 258 and Article 204 of the <Civil Procedure Law of the People’s Republic of China (2007 Amendments) >

 

 

Descriptors: Non-enforcement of foreign-related arbitral awards; enforcement against state-owned assets; Unable to enforce; Third-party rights/interest; Social public interest 

 

 

Turbo (Far-East) Limited v. Hubei Yingtai Economic Development Co. Ltd     

Turbo sought to enforce a CIETAC (Shenzhen) foreign-related arbitral award against a stated-owned hotel. In its Report to the Supreme People’s Court, the Higher People’s Court of Hubei proposed not to enforce the award on the ground that enforcement of the award would be contrary to the social and public interest pursuant to Article 258 of the PRC Civil Procedure Law (2007 Amendments). In its Reply, the Supreme People’s Court disagreed and found that the lower court could not refuse enforcement of the award on any grounds under Article 258 of the PRC Civil Procedure Law (2007 Amendments). However, it was found that Article 204 of the said law applies and the enforcement may be suspended according to that article.

Case text (English translation)

(14 December 2011 No. 62 of the Fourth Civil Tribunal of the Supreme People’s Court [2011])

The Higher People’s Court of Hubei:

Your court’s <Request for instructions between an application to enforce an arbitral award involving foreign elements Turbo (Far-East) Limited and Hubei Yingtai Economic Development Co. Ltd> No. 275 of the Civil Tribunal of the Higher People’s Court of Hubei (2011), has been received. Upon deliberation, our reply is as follows:

According to your report, although the six-storey hotel property involved is state-owned, the problem of execution of transferal of ownership of the property does not fall into the category under Section 2, Article 258 of the <Civil Procedure Law of the People’s Republic of China>. Therefore, we find that your Court’s decision not to enforce the arbitral award involving foreign elements, pursuant to Section 2, Article 258 of the <Civil Procedure Law of the People’s Republic of China> is unsupported. When enforcing the arbitral award involving foreign elements, if there are reasonable objections from the administrator of the six-storey hotel property involved, the State-owned Assets Supervision and Administration Authorities, the Higher People’s Court of Hubei may investigate and determine whether the first item of the arbitration award shall be enforced, pursuant to Article 204 of the <Civil Procedure Law of the People’s Republic of China>.

It is so replied.

 

Enclosed:

Request for instructions on an application to enforce an arbitral award involving foreign elements between Turbo (Far-East) Limited and Hubei Yingtai Economic Development Co. Ltd

(26 July 2011 No. 275 of the Civil Tribunal of the Higher People’s Court of Hubei [2011])

 

The Supreme People’s Court:

In adjudicating the case concerning a dispute arising from the Cooperation Contract between Turbo (Far-East) Limited and Hubei Yingtai Economic Development Co. Ltd, our court encountered an issue concerning non-enforcement of foreign-related arbitral awards. Pursuant to the regulations in the <Notice of the Supreme People's Court on Several Issues Concerning the Trial and Enforcement of Civil and Commercial Cases Involving Foreign Elements> (Notice No. 51 of the Supreme People’s Court [2000]), our court hereby requests instructions from your court.

 

I. Basic facts of the case

On 13 July 1995, a Cooperation Contract had been concluded between Turbo (Far-East) Limited (hereafter: “Turbo”) and Hubei Yingtai Economic Development Co. Ltd (hereafter: “Yingtai”) for the establishment of Hubei Turbo Enterprise Co. Ltd (hereafter: the “Cooperative Company”) involving the development of a hotel. Yingtai introduced fixed assets including the right to use a six-storey, 3,600-square-meter hotel property, equipment amounting to RMB¥ 5,500,000.00 and cash amounting to RMB¥ 1,000,000.00 as its contributed capital (constituting 46% of the total capital contribution). Turbo introduced materials, equipment, office supplies and spot exchange amounting to RMB¥ 7,630,000.00 as its contributed capital (constituting 54% of the total capital contribution). When performing the said Contract, a dispute arose between the parties. Yingtai made an arbitration application to the China International Economic and Trade Arbitration Commission regarding the said Cooperation Contract (hereafter: the “Beijing Arbitration”). On 17 September 2001, Award No. 0278 of the China International Economic and Trade Arbitration Commission [2001] was rendered, ruling that: Turbo’s failure to make capital contribution pursuant to the Contract and its issuance of a fraudulent capital contribution certificate constitute a material breach of contract. Since incorporation, the Cooperative Company suffered losses and never distributed profits. Hence, it was impossible to further the purpose of the joint-venture. Therefore it was ordered that: Firstly, the Cooperation Contract between Yingtai and Turbo shall be terminated; Secondly, Yingtai’s all other claims shall be dismissed. Meanwhile, the Award ruled that the Cooperative Company shall be liquidated upon the termination of the said Contract. Since the second renovation work for Turbo Grand Hotel operated by the Cooperative Company was completed and the fees incurred had been settled by Turbo, the said fees shall be regarded as Turbo’s capital contribution. According to the principle of fairness, the parties shall take into account Turbo’s renovation fee paid when liquidating the Cooperative Company.

After the rendering of the Beijing Arbitral Award on 17 September 2001, the Hubei Provincial Department of Foreign Trade and Economic Cooperation made a <Reply regarding the implementation of special liquidation procedure for Hubei Turbo Enterprise Co. Ltd> (Reply No. 88 of the Hubei Provincial Department of Foreign Trade and Economic Cooperation [2001]) on 26 October 2001, in accordance with Yingtai’s application. On the same day, a liquidation committee was established for the purpose of liquidating the Cooperative Company. After the completion of the liquidation procedures, the ownership of the net assets of the Cooperative Company totaled RMB¥2,237,781.00 belonged to Yingtai. In June 2002, the liquidation committee transferred the assets of the Cooperative Company to Yingtai. On 15 July 2002, the Hubei Administration of Industry and Commerce issued a “Notice Regarding the Cancellation of Registration of a Foreign-invested Enterprise”, cancelling the Cooperative Company’s business registration.

Subsequent to the Cooperative Company’s liquidation by the Hubei Provincial Department of Foreign Trade and Economic Cooperation, Turbo initiated an administrative litigation in the Intermediate People’s Court of Wuhan against the said Provincial Department, claiming that its illegal administrative measures infringed Turbo’s legitimate interests. Upon trial of first instance in the Intermediate People’s Court of Wuhan and trial of second instance in our court, our court rendered Administrative Ruling No. 12 of the Higher People’s Court of Hubei [2003] on 1 March 2004. Since the Hubei Provincial Department of Foreign Trade and Economic Cooperation violated specific procedures [stipulated in law], the said Ruling set aside the Hunan Provincial Foreign Economic Relations and Trade Department’s approval for the special liquidation proceedings and the establishment of a liquidation committee against Hubei Turbo Enterprise Co. Ltd. On 11 March 2004, the Hubei Administration of Industry and Commerce resumed the industrial and commercial registration of the Cooperative Company Hubei Turbo Enterprise Co. Ltd Turbo Grand Hotel.

Meanwhile, Turbo made an application to the Second Intermediate People’s Court of Beijing to set aside the Beijing Arbitral Award. On 18 November 2002, ruling No. 0385 by the Second Intermediate People’s Court of Beijing was rendered, dismissing Turbo’s application.

During the abovementioned litigation proceedings (subsequent to Turbo’s initiation of the administrative litigation with the Hunan Provincial Foreign Economic Relations and Trade Department as the defendant),

Turbo made an arbitration application to the China International Economic and Trade Arbitration Commission Shenzhen Sub-Commission ( “CIETAC Shenzhen Sub-Commission”) (hereafter: the “Shenzhen Arbitration”) on 10 January 2002. Upon review, the said Sub-Commission held that although the Beijing Arbitration had been made and Award No. 0278 of the China International Economic and Trade Arbitration Commission [2001] was rendered, the dispute to be arbitrated in the Shenzhen Arbitration involved different matters, and so the issue of “ne bis in idem” did not arise. On 26 December 2002, Arbitral Award No. 92 of the China International Economic and Trade Arbitration Commission Shenzhen Sub-Commission [2002] was rendered, ruling that: Firstly, the “six-storey, 3,600-square-meter hotel” property contributed by Yingtai belongs to the Cooperative Company. Yingtai shall complete the formalities to transfer the hotel property to the Cooperative Company. Secondly, Yingtai shall make payments amounting to RMB¥ 1,946,000.00 representing its capital contributions in arrears to the Cooperative Company in 30 days from the rendering of the said Award. Thirdly, partial compensation for costs incurred by Turbo in handling this arbitration amounting to RMB¥ 100,000.00 shall be made [by Yingtai]. After the Arbitral Award rendered in the Shenzhen Arbitration came into force, the right-holder Turbo made an application to the Intermediate People’s Court of Wuhan for enforcement on 10 June 2003. Upon discussion, the collegiate panel of the Intermediate People’s Court of Wuhan decided not to enforce the Shenzhen Arbitration. Subsequent to further discussion by the same panel on 28 April 2004, enforcement of this case was terminated.

 

II. The present situation of the case and facts found by the Intermediate People’s Court of Wuhan

On 1 March 2004, our court rendered Administrative Ruling No, 12 of the Higher People’s Court of Hubei [2003], setting aside the Hunan Provincial Foreign Economic Relations and Trade Department’s approval for the special liquidation measures and the establishment of a liquidation committee against Hubei Turbo Enterprise Co. Ltd. On 11 March 2004, the Hubei Administration of Industry and Commerce resumed the industrial and commercial registration of the Cooperative Company Hubei Turbo Enterprise Co. Ltd Turbo Grand Hotel. On 6 April 2010, Turbo made an application to the Intermediate People’s Court of Wuhan requesting resumption of enforcement. On 7 September 2010, the enforcement of this case was officially resumed.

After the resumption of the enforcement of this case, the Intermediate People’s Court of Wuhan found that the property in question was originally a proposed plan to expand and reconstruct the longue of the Veteran Cadre Activities Centre approved by Document No. [91]381 of the Hubei Development Planning Commission (floor area: 467.601 square meters, usable floor area: 3,600 square meters). Due to shortage in funding, the renovation work for the said longue had not been completed over the last 5 years. On 26 July 1995, pursuant to the Reply of Hunan Provincial Foreign Economic Relations and Trade Department [1995], [the Department] approved Yingtai’s utilization of the fixed assets of the Veteran Cadre Activities Centre, equipment and public facilities and cooperation with Turbo.

On 20 July 1995, the Bureau for Veteran Cadres of the Hubei Provincial Party Committee decided to invest the building of the said lounge and its internal facilities as the capital contribution for a 20-year cooperation project between the Veteran Cadre Activities Centre and foreign investors. The investments would be retrieved upon the completion of the joint-venture. [The said decision] had been reported to the Hubei Office of the State-owned Assets Administration Bureau for approval. Pursuant to notice No. 39 of the Office of the State-owned Assets Administration Bureau [1995] and upon appraisal, it was confirmed that the value of [the assets of] the Hubei Veteran Cadre Activities Centre amounted to RMB¥ 4,554,000.00. On 20 July 1995, the Hubei Office of the State-owned Assets Administration Bureau issued Notice on Confirmation on State-owned Assets Valuation No. 51 by the Hubei Office of the State-owned Assets Administration Bureau issued Notice on Confirmation [1995], confirmed that the assets to be used for the joint venture totaled to RMB¥ 4,554,000.00.

The Intermediate People’s Court of Wuhan also found that the “six-storey hotel” property in question was administrated by the Administrative Government Offices of the [Hubei] Provincial Authorities and was used by the Hubei Veteran Cadre Activities Centre. [Therefore, the said property] is state-owned property under the State-owned Assets Supervision and Administration Commission’s management. Yingtai belonged to the Hubei Veteran Cadre Activities Centre. It was an enterprise with independent legal entity with a registered capital of RMB¥ 3,000,000.00, and was registered and established in the Hubei Administration of Industry and Commerce. Upon review, the property in question was not registered under the enforcee Yingtai’s name. In addition, no registered material related to the “six-storey hotel” property existed in the Real Estate Management Department. Therefore, owing to Yingtai’s lack of ownership, the Shenzhen Arbitral Award’s ruling confirming that the said property belonged to the Cooperative Company and ordering Yingtai to transfer the said property to the Cooperative Company were impossible to enforce.

 

III. The opinions of the Intermediate People’s Court of Wuhan

The Intermediate People’s Court of Wuhan found that Turbo is a company registered in Hong Kong, the civil dispute between Turbo and Yingtai contained foreign-related matters and that the Award rendered by the CIETAC Shenzhen Sub-Commission constituted foreign-related arbitration. On 27 April 2011, upon discussion the collegiate penal of the said court advanced two opinions. According to the first opinion, Paragraph 2, Article 258 of the <Civil Procedure Law of the People’s Republic of China> that “if the people’s court determines that the enforcement of the award goes against the social and public interest of the country, the people’s court shall make an order not to allow the enforcement of the arbitral award” shall be applicable. Reasoning: The property in question is administrated by the Administrative Government Offices of the [Hubei] Provincial Authorities and is used by the Hubei Veteran Cadre Activities Centre. [Therefore, the said property] is state-owned property under the State-owned Assets Supervision and Administration Commission’s management. If the Shenzhen Arbitral Award is enforced, the legitimate interests of third parties will be damaged, causing loss of state-owned assets and thus [the enforcement] would be in violation of public interest. According to the second opinion, Paragraph 2, Article 258 of the <Civil Litigation Law> shall not be applied for the ruling for non-enforcement. Reasoning: the facts identified under the Shenzhen Arbitral Award are erroneous. The property in question is administrated by the Administrative Government Offices of the [Hubei] Provincial Authorities and is used by the Hubei Veteran Cadre Activities Centre. [Therefore, the said property] is state-owned property under the State-owned Assets Supervision and Administration Commission’s management. Yet Yingtai has no ownership over the said property. Pursuant to Paragraph 1, sub-section (1)-(4), Article 258 of the <Civil Litigation Law of the People’s Republic of China>, the people’s courts shall only examine procedural aspects but not substantive rulings of the Award. Given the said Award does not constitute the situations stipulated in the said provisions, the abovementioned regulations shall not be applied for the non-enforcement decision.

Considering the inconsistencies in the opinions of the collegiate panel of the Intermediate People’s Court of Wuhan, [the said intermediate court] requested our court’s instructions.

 

IV. Opinions of our court

According to the facts found by the Intermediate People’s Court of Wuhan and upon discussion, it is in our court’s collegiate panel’s opinion that: Here, the Shenzhen Arbitral Award’s ruling requiring the transfer of state-owned properties not owned by the enforcee to the enforcer would inevitably harm national interests. In addition, since the property in question was not registered in the Real Estate Management Department, the relevant department may not provide assistance to ratify the register of ownership. Therefore, our court agrees with the Intermediate People’s Court of Wuhan’s first opinion that Paragraph 2, Article 258 of the <Civil Litigation Law of the People’s Republic of China> shall be applicable for the decision of non-enforcement of Arbitral Award No. 92 of the China International Economic and Trade Arbitration Commission Shenzhen Sub-Commission (2002).

Pursuant to the <Notice of the Supreme People's Court on Several Issues Concerning the Trial and Enforcement of Civil and Commercial Cases Involving Foreign Elements> (Notice No. 51 of the Supreme People’s Court [2000]), decisions of refusal to enforce foreign-related arbitral awards shall not be rendered before reporting to the Supreme People's Court and receiving the reply from the Supreme People's Court. Therefore, the collegial penal of our court has decided to submit the matters on non-enforcement of foreign-related arbitral awards in this case for your court’s instructions.