Wang Guolin v. Wu Shuochen
Cite as: Wang Guolin v. Wu Shuochen, The Supreme People’s Court (26 February 2013), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV
Case identification
Date of Decision: 26 February 2013
Court:
The Supreme People’s Court
The Higher People's Court of Guangdong Province
Arbitral Institution/Tribunal:
China International Economic and Trade Arbitration Commission (“CIETAC”) South China Sub-Commission, Arbitral Award No.3 (2012)
Case number / Docket number:
No. 8 of the Fourth Civil Tribunal of the Supreme People’s Court [2013]
No. 4 of the Higher People’s Court of Guangdong Province [2012]
Classification of issues present
Application of the New York Convention: No
Key PRC law provision(s) at issue: Article 274 of the <Civil Procedure Law of the People’s Republic of China>; Articles 61and 70 of <Arbitration Law of the People’s Republic of China>.
Descriptors: Re-arbitration; Award exceeded the scope of arbitration agreement; Award exceeded the scope of parties’ arbitration claims / request for arbitration; Parties’ opportunities to amend arbitration claims; The underlying contract has not come into effect; Validity of the underlying contract; Validity of the arbitration agreement; Autonomous of the arbitration agreement; Restitution; Awarding of damages
Wang Guolin v. Wu Shuochen
A CIETAC (Shenzhen) Taiwan-related arbitral award was subject to re-arbitration. In its Report to the Supreme People’s Court, the Higher People's Court of Guangdong Province found that the award should be annulled because it exceeded the scope of Wu Shuochen’s arbitration claims. In its Reply, the Supreme People’s Court was of the view that the arbitral tribunal had the power to decide on the validity of the underlying contract; however, in the absence of an explanation to the parties for the consequences of the tribunal’s finding of invalidity of the underlying contract concerned and the provision of an opportunity for the parties to modify their arbitration requests, the arbitral tribunal’s decision regarding the restitution subsequent to the finding of invalidity of the underlying contract and the award of damages indeed exceeded the scope of the parties’ request. Thus, the award exceeded the scope of arbitration. It was further held that although people’s court may set aside the award concerned, considering the circumstances related to the subject matter and the disputed amount in this case, the arbitral tribunal should be given an opportunity to re-arbitrate the case.
Case text (English translation)
(26 February 2013 No. 8 of the Fourth Civil Tribunal of the Supreme People’s Court [2013])
The Higher People’s Court of Guangdong:
Your court’s Request for Instructions on Wang Guolin’s Application to Set Aside Arbitral Award No. 3 of the South China Sub-Commission, China International Economic and Trade Arbitration Commission (“CIETAC”) (2012) (No. 4 of the Higher People’s Court of Guangdong [2012]) submission has been received. Upon deliberation, our reply is as follows:
This is an application to set aside a Taiwan-related arbitral award rendered by a Chinese arbitration institution. Adjudication shall be made pursuant to article 70 of the Arbitration Law of the People’s Republic of China and paragraph 1, article 274 of the Civil Procedure Law of the People’s Republic of China.
Regarding the issue on the validity of the arbitration clause, the parties had stipulated a specific arbitration clause in the contract in question. According to the principle of independence of arbitration clauses, the nullity of the contract in question does not affect the validity of the arbitration clause contained in the contract. [Our court] agrees with your court’s opinion that the arbitration clause in question is valid. Regarding whether the arbitral award exceeded the scope of the matters to be arbitrated, in this case, Wu Shuochen initiated an arbitration application demanding Wang Guolin’s payment of the remaining sum from share transfer, on the grounds that the arbitration clause in question is valid. The arbitral tribunal has the right to adjudicate and determine the validity of the contract in question on its own motion. However, in the absence of an explanation to the parties for the consequences of the invalidity of the contract in question and the provision of an opportunity for the parties to modify their arbitration requests, the arbitral tribunal’s decision regarding the restitution subsequent to the invalidity of the contract and the damages indeed exceeded the scope of the parties’ request, which shall be affirmed as having exceeded the scope of arbitration. The people’s court may set aside the arbitral award in question, pursuant to article 70 of the Arbitration Law of the People’s Republic of China and paragraph 1(4), article 274 of the Civil Procedure Law of the People’s Republic of China. Nevertheless, considering the circumstances related to the subject matter of this case, the arbitral tribunal has the ability to rectify the abovementioned mistakes. The people’s court may give the tribunal another opportunity to re-arbitrate the case. Therefore, as to the specific handling of this case, the people’s court shall notify the tribunal for re-arbitration, pursuant to article 61 of the Arbitration Law of the People’s Republic of China. If the arbitration tribunal refuses to re-arbitrate, the people’s court may set aside the arbitral award in question.
It is so replied.
Enclosed:
Request for Instructions on Wang Guolin’s Application to Set Aside Arbitral Award No. 3 of the South China Sub-Commission, China International Economic and Trade Arbitration Commission (“CIETAC”) (2012)
(28 November 2012 No. 4 of the Higher People’s Court of Guangdong Province [2012])
The Supreme People’s Court:
Regarding Wang Guolin’s application to set aside a foreign-related arbitral award, the Intermediate People’s Court of Shenzhen, Guangdong (hereafter the “Shenzhen Intermediate Court”) decided to set aside Arbitral Award No. 3 of the Huanan Sub-Commission, China International Economic and Trade Arbitration Commission (“CIETAC”) (2012). Pursuant to the Circular of the Supreme People’s Court Concerning Relevant Matters Regarding Setting Aside of Foreign-related Arbitration Awards by the People’s Courts (No. 40 of the Supreme People’s Court [1998]), the Shenzhen Intermediate Court reported the said matter for your court’s examination. Upon review, our court concurs with the opinion of the Shenzhen Intermediate Court, and hereby requests your court’s instruction in accordance with the abovementioned circular.
I. The parties
Applicant (Arbitration respondent): Wang Guolin. Address provided in the identity card: Wuxi, Chongqing. Current domicile: Bao'an District, Shenzhen.
Respondent (Arbitration applicant): Wu Shuochen. Domicile: Kaohsiung, Taiwan.
II. Grounds supporting the application to set aside the Arbitral Award and defences submitted
The applicant, Wang Guolin, made an application submitting that: (1) Arbitral Award No. 3 of the CIETAC (2012) exceeded the scope of the arbitration request and made rulings on matters which the arbitral tribunal had no jurisdiction. Wu Shuochen’s written arbitration application dated 13 June 2011 contained the following arbitration requests: An order requiring Wang Guolin’s payment for the equity transfer totaling RMB¥150,000.00 (the amounts thereof are expressed in Renminbi) plus interests (calculated at the bank lending rate over the same period, from the date of filing of the case until the date of payment). Upon trial, the arbitral tribunal ruled that the Share Transfer Agreement was invalid and dismissed the said request. The arbitral tribunal also made decisions on matters not requested by Wu Shuochen, making an order requiring Wang Guolin to compensate Wu Shuochen [in the amount] totaling RMB¥203,000.00, representing return of the principal plus interest from Wu’s RMB¥140,000.00 capital contribution. According to the principle of “no trial without complaint,” the arbitral tribunal had no jurisdiction to adjudicate matters not submitted by Wu Shuochen; (2) Although no evidence of Wu Shuochen’s capital contribution had been submitted, the arbitral tribunal held that Wu had made capital contributions; (3) Wu Shuochen concealed evidence which may substantially affect the fairness of the rulings; (4) The arbitral tribunal’s acceptance and adjudication on this case violated relevant legal provisions. The arbitration agreement between Wang Guolin and Wu Shouchen had not been effective, and so the arbitration clause under the said arbitration agreement was invalid. Therefore, the arbitral institution’s acceptance and adjudication of this case was made in violation of the relevant legal provisions; (5) The arbitral tribunal’s ruling that Wang Guolin was the party at fault, causing the invalidity of the contract and that Wang shall compensate Wu Shouchen’s losses violated relevant legal provisions; and (6) The interest granted at a rate of 15 per cent was not in conformity with relevant legal provisions. Summarizing the above, Arbitral Award No. 3 of the CIETAC (2012) violated relevant provisions stipulated in the Arbitration Law of the People’s Republic of China and the China International Economic and Trade Arbitration Commission Arbitration Rulesand shall be set aside in accordance with the law.
In defence, the respondent, Wu Shouchen, submitted orally that: After incorporating the trading firm in question, Wang Guolin contacted Wu Shouchen and a third party to meet its financing needs. The Cooperation Contract was signed on 26 May 2006. Upon the conclusion of the said contract, Wang Guolin failed to pay dividends to Wu pursuant to the relevant obligations stipulated in the contract. Since the parties were unable to cooperate with each other, a Supplementary Share Transfer Agreement was signed on 25 February 2009. The parties’ Cooperation Contract and the Share Transfer Agreement represented Wang Guollin’s intention. Wu Shouchen had actually made a capital contribution of ¥140,000.00, while Wang Guolin had used Wu’s capital contribution for [a period of] three to four years. Wu Shouchen argued that due to Wang Guolin’s failure to perform the Cooperation Contract and the Share Transfer Agreement, Wang shall pay him transfer fees amounting to ¥300,000.00. Wu Shouchen was dissatisfied with the arbitral award, yet he did not make an application to set it aside due to his work. Summarizing the above, the arbitral tribunal’s ruling on the compensation granted is legitimate and reasonable. Therefore, [Wu] requested the court to dismiss Wang Guolin’s application to set aside the award.
III. Basic facts of the case
On 10 September 2004, Shenzhen Bao'an Shajiang Bihai Hardware Store (hereafter “Shajiang Bihai Hardware Store”) was established. The person in charge was Wang Guolin. The organizational form was individual household (self-employed business) with a capital of RMB¥20,000.00.
On 24 May 2006, Wang Guolin, Wu Shouchen and a third party, Dai Mengliang, signed a Cooperation Contract agreeing that the three parties shall cooperate to operate a business in the name of Shajiang Bihai Hardware Store; Wang Guolin is entitled to 45 per cent of the shares, 35 per cent of which to be invested by assets and cash totaling RMB¥245,000.00, while 10 per cent of which are technology stocks. Wu Shouchen is entitled to 30 per cent of the shares, 20 per cent of which to be contributed by cash totaling RMB¥140,000.00, while the remaining 10 per cent are technology stocks. Dai Mengliang is entitled to 25 per cent of the shares, 15 per cent of which to be contributed by cash totaling RMB¥105,000.00, while the remaining 10 per cent are technology stocks.
On 25 August 2009, Wang Guolin and Wu Shouchen concluded a Share Transfer Agreement, agreeing that: (1) Wu Shouchen shall transfer his 30 per cent shareholding of the Shajiang Bihai Hardware Store to Wang Guolin at a price of RMB¥300,000.00, 50 per cent of which to be settled in one-month from the effective date of the said agreement and the remaining 50 per cent to be settled before 1 March 2010; (2) Any disputes arising or related to this agreement shall be resolved by the parties’ amicable negotiations. If the negotiations fail, the parties may submit the dispute to the Mediation Centre of the Huanan Sub-Commission, CIETAC if both parties agree so. If a party refuses to mediate or the mediation fails, the dispute shall be submitted to arbitration in the Huanan Sub-Commission, CIETAC; and (3) The agreement was signed by the parties witnessed by the Shenzhen International Hi-Tech Technology Equity Exchange, and was effective upon approval by the competent authorities and completion of the formalities for modification of registration in the administrative authorities for industry and commerce. The agreement also contained stipulations regarding various matters including sharing of profits and losses, liabilities for breach of contract, modifications and termination of the agreement.
On 13 June 2011, Wu Shouchen made an arbitration application to the Huanan Sub-Commission pursuant to the arbitration clause contained in the Share Transfer Agreement, submitting that: In 2004, Wu Shouchen and Wang Guolin formed a partnership to establish the Shajiang Bihai Hardware Store. On 25 August 2009, Wu Shouchen transferred his shareholding in the Shajiang Bihai Hardware Store to Wang Guolin at a price of RMB¥300,000.00. The parties had signed an agreement. Wang Guolin had merely paid RMB¥150,000.00 for the share transfer, while the remaining sum RMB¥150,000.00 due remained unpaid. Based on the abovementioned facts, to protect his legitimate interests, Wu Shuochen made an arbitration application to the Huanan Sub-Commission pursuant to the arbitration clause contained in the agreement. The arbitration requests were as follows: (1) An order requiring Wang Guolin’s payment of the share transfer fee totaling RMB¥150,000.00 plus interests (calculated at the bank lending rate over the same period, from the date of filing of the case until the date of payment); (2) Wang Guolin shall be responsible for the arbitration costs and the lawyer’s fees. On 21 June 2011, Wu Shuochen submitted that the lawyer’s fees incurred amounted to RMB¥6,000.00.
The China International Economic and Trade Arbitration Commission Arbitration Rules issued by the CIETAC effective from 1 May 2005 onwards was applied for the arbitration procedures in question. On 14 July 2011, Wang Guolin submitted a Dispute on Jurisdiction arguing that since the Share Transfer Agreement was not effective, the arbitration clause in question was also not effective. On 20 July 2011, Wu Shouchen submitted Defence Regarding the Jurisdiction Dispute. The China International Economic and Trade Arbitration Commission rendered Decision on Jurisdiction (No. 017922 of the CIETAC ([2011]) on 27 September 2011, ruling that (1) The Huanan Sub-Commission shall have jurisdiction over this dispute; and (2) The arbitration procedures between Wu Shouchen and Wang Guolin shall proceed. On 12 October 2011, the arbitral tribunal was formed. On 8 November 2011, a hearing was held to adjudicate the case.
The arbitral tribunal rendered Arbitral Award No. 3 of the CIETAC on 12 January 2012, ruling that: (1) Wang Guolin shall compensate Wu Shouchen for losses incurred amounting to RMB¥53,000.00; (2) Wang Guolin shall be responsible for Wu Shouchen’s lawyer’s fees incurred totaling RMB¥2,000.00; (3) Arbitration costs totaled RMB¥20,000.00, 60 per cent of which (RMB¥12,000.00) shall be borne by Wu Shuochen while the remaining 40 per cent (RMB¥8,000.00) shall be borne by Wang Guolin. Wu Shuochen’s arbitration costs paid in advance shall be used to set-off the arbitration costs of this case and shall not be returned. Wang Guolin shall pay Wu Shuochen RMB¥8,000.00, representing his share of the arbitration costs to be paid. Wang shall settle abovementioned sums within fourteen days from the date of the rendering of this award. The main reasonings for the arbitral tribunal were as follows: (1) Since Wu Shuochen is a Taiwan resident, the Share Transfer Agreement is invalid due to violations of the compulsory provisions under the Chinese law. Both parties were at fault. Since Wang Guolin was the main operator of the trading firm and the person responsible for the application for the approval of investments, the invalidity of the said contract was largely caused by Wang’s fault. (2) Pursuant to article 58 of the Contract Law of the People’s Republic of China:, The property acquired as a result of a contract shall be returned after the contract is confirmed to be null and void or has been revoked; where the property cannot be returned or the return is unnecessary, it shall be reimbursed at its estimated price. The party at fault shall compensate the other party for losses incurred as a result therefrom. If both parties are fault, beach party shall respectively be liable. Although the arbitral tribunal dismissed Wu Shuochen’s first request, it exercised its discretion and granted damages of RMB¥63,000.00 to Wu based on the circumstances of this case. Considering that Wu Shuochen received RMB¥150,000 from Wang Guolin’s share transfer fees paid and that Wu contributed RMB¥140,000.00 to the Shajiang Bihai Hardware Store, upon set-off, Wang Guolin shall compensate Wu Shuochen for RMB¥53,000.00.
IV. The rulings of the Shenzhen Intermediate Court
Upon review, the Shenzhen Intermediate Court held that considering the respondent Wu Shouchen is a Taiwan resident, Arbitral Award No. 3 of the CIETAC (2012) is therefore a Taiwan-related Arbitral Award. Therefore, this case shall be adjudicated pursuant to paragraph 1, article 258 of the Civil Procedure Law of the People’s Republic of China. Regarding Wang Guolin’s application to set aside the said arbitral award, the Shenzhen Intermediate Court had made the following rulings:
(i) Regarding the validity of the arbitration clause
Wang Guolin submitted that since the Share Transfer Agreement was not effective, the arbitration clause stipulated in the Share Transfer Agreement shall therefore be ineffective. Therefore, no arbitration agreements existed between the parties. Considering that the parties had not agreed on the applicable law while the place of arbitration was in China, the Laws of the People’s Republic of China shall be the applicable law governing the adjudication on the validity of the arbitration agreement in question. Paragraph 1, article 19 of the Arbitration Law of the People’s Republic of China stipulates, “An arbitration agreement shall exist independently. The amendment, rescission, termination or invalidity of a contract shall not affect the validity of the arbitration agreement.” Therefore, the validity of the arbitration clause contained in the Share Transfer Agreement in question was independent from Share Transfer Agreement itself. The validity of the Share Transfer Agreement did not affect the validity of the arbitration clause stipulated in the Share Transfer Agreement. Since the arbitration clause in question contained an expression of intention to apply for arbitration, matters for arbitration and designated arbitration commission, it was valid. Wang Guolin’s argument was not established.
(ii) Regarding whether the Arbitral Award exceeded the scope of the arbitration requests
Wang Guolin submitted that the arbitral award exceeded the scope of the arbitration requests and made rulings on matters that the arbitral tribunal did not have jurisdiction over. The Shenzhen Intermediate Court held that paragraph 2, article 19 of the Arbitration Law of the People’s Republic of China provides that “The arbitration tribunal shall have the power to affirm the validity of a contract.” The arbitral tribunal had the power to determine the validity of the Share Transfer Agreement. Upon trial, the arbitral tribunal confirmed that the Share Transfer Agreement was invalid, while Wu Shouchen submitted that the Share Transfer Agreement was valid and demanded Wang Guolin’s payment of the RMB¥150,000 share transfer fees. The arbitral tribunal shall dismiss Wu Shouchen’s said arbitration request or explain to the parties [the consequence of the invalidity of the Share Transfer Agreement, so that] the parties could dispose their civil rights themselves accordingly (‘由当事人自行处分自己的民事权利’). The arbitral tribunal’s ruling that Wang Guolin shall compensate Wu Shouchen’s losses exceeded Wu’s scope of arbitration requests. Pursuant to the Official Reply of the Supreme People's Court on Issues concerning Whether the Arbitration Awards Made by the Arbitration Institutions in China Can Be Partially Cancelled (Interpretation No. 16 of the Supreme People's Court [1999]): For arbitral awards rendered by the Chinese arbitration institutions, if the matters to be arbitrated exceed the scope provided in the parties’ arbitration agreement or those do not belong to the matters submitted by the parties in their arbitration request and that the aforementioned matters are separable from other matters decided in the said award rendered by the arbitration institution, the people’s court, based on the parties’ application, may set-aside the said rulings which exceeded the scope of the arbitration requests. According to the principles from the said Reply and the judicial practice of the people’s court, matters to be arbitrated which do not belong to matters requested by the parties would constitute rulings beyond the scope of the parties’ request, which shall be set aside. Therefore, the arbitral award in question exceeded the scope of Wu Shuochen’s arbitration requests. This argument of Wang Guolin’s set-aside application was established.
(iii) Regarding whether other grounds supporting the set aside application are established
Wang Guolin’s other grounds supporting his set-aside application, including the argument that the arbitral tribunal’s facts found were unclear and that the application of law was erroneous, did not fall under the situations for setting aside provided under paragraph 1, article 258 of the Civil Procedure Law of the People’s Republic of China. The said grounds were therefore not established.
Summarizing the above, the Shenzhen Intermediate Court held that Wang Guolin’s submission that the arbitral award in question exceeded the scope of the arbitration was established. The arbitral award constituted the situation provided in paragraph 1(4), article 258 of the Civil Procedure Law of the People’s Republic of China. Therefore the Shenzhen Intermediate Court decided to set aside Arbitral Award No. 3 of the CIETAC (2012).
V. The opinions of our court
This is Wang Guolin’s application to set aside an arbitral award, on the grounds that Arbitral Award No. 3 of the CIETAC (2012) exceeded the scope of the arbitration requests and made rulings on matters which the arbitral tribunal did not have jurisdiction. Considering that the respondent, Wu Shouchen, is a Taiwan resident, this is therefore an application to set aside a Taiwan-related arbitral award. Wang Guolin’s requests shall be adjudicated pursuant to 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.
Wang Guolin submitted six grounds supporting his application to set aside the said arbitral award. Pursuant article 258 of the Civil Procedure Law of the People’s Republic of China, Wang Guolin had submitted several arguments, including that Wu Shuochen failed to submit evidence on his capital contribution, concealment of evidence which may substantially affect the fairness of the rulings, the arbitral tribunal’s ruling that Wang was largely responsible for causing the invalidity of the contract and that the arbitral tribunal’s granted interest at a rate of 15 per cent, [all of which] lacked legal support. All these grounds related to the substantive holding of the said arbitral award, which exceeded the scope of the court’s jurisdiction over applications to set aside arbitral awards stipulated in law. Therefore, the court shall not adjudicate on the abovementioned applications submitted.
Regarding Wang Guolin’s submission that the parties’ arbitration agreement had not been effective and therefore the arbitration institution’s acceptance and adjudication of this case was in violation of the relevant legal provisions. The Share Transfer Agreement between Wang Guolin and Wu Shuochen dated 25 August 2009 provided that any disputes arising or related to the agreement shall be resolved by the parties’ amicable negotiations. If the negotiations failed, the parties may submit the dispute to the Mediation Centre of the Huanan Sub-Commission, CIETAC if both parties agree so. If a party refuses to mediate or the mediation fails, the dispute shall be submitted to arbitration in the Huanan Sub-Commission, CIETAC. The parties expressed a clear intention to apply for arbitration, provided specified matters for arbitration and had clearly stipulated a designated arbitration commission. Therefore, it is ruled that the parties had reached a consensus to resolve their disputes by arbitration. Pursuant to article 19 of the Arbitration Law of the People’s Republic of China, an arbitration agreement exists independently. The amendment, rescission, termination or invalidity of a contract shall not affect the validity of [the arbitration agreement]. Therefore, Wang Guolin’s submissions that (1) the Share Transfer Agreement including the arbitration clause had not been legally effective and (2) the arbitration commission’s acceptance of this case was in violation of the relevant legal provisions because there was no arbitration agreement existed between the parties, lacked legal support and was therefore rejected.
Regarding whether Arbitral Award No. 3 of the CIETAC (2012) exceeded the parties’ scope of their arbitration requests, subsequent to Wu Shuochen and Wang Guolin’s conclusion of the Share Transfer Agreement, disputes arose from the parties’ performance of the agreement. The matters to be arbitrated for Arbitral Award No. 3 of the CIETAC (2012) were as follows: (1) Wang Guolin’s shall pay Wu Shuochen share transfer fees totaling RMB¥150,000.00 plus interest; (2) Wang Guolin shall be responsible for the arbitration costs and the lawyer’s fees. Based on the circumstances that the said Share Transfer Agreement was confirmed invalid in accordance with the law and that both parties were at fault, the arbitral tribunal exercised its discretion and ruled that Wang shall pay RMB¥63,000.00 compensation to Wu. This ruling was contrary to Wu’s submission that the agreement was valid and the payment of the share transfer fees, which exceeded the scope of Wu Shuochen’s arbitration requests. Pursuant to the Official Reply of the Supreme People's Court on Issues concerning Whether the Arbitration Awards Made by the Arbitration Institutions in China Can Be Partially Cancelled(Interpretation No. 16 of the Supreme People's Court [1999]), for arbitral awards rendered by the Chinese arbitration institutions, if the matters to be arbitrated do not belong to the matters submitted by the parties in their arbitration request and that the aforementioned matters are separable from other matters decided in the said award rendered by the arbitration institution, the people’s court, based on the parties’ application, may set-aside the said rulings which exceeded the scope of the arbitration requests. Therefore, considering the matters arbitrated in the arbitral award in question exceeded the scope of Wu Shuochen’s arbitration requests, the said award constitutes a ruling exceeding the scope of the parties’ arbitration requests and shall be set aside. Wang Guolin’s said argument for his set-aside application was therefore established.
Summarizing the above, upon review, it is in our court’s opinion that Arbitral Award No. 3 of the CIETAC (2012) exceeded the parties’ scope of the arbitration requests. Pursuant to 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, our court proposes affirming the opinions of Shenzhen Intermediate Court to set aside the said arbitral award.
Please reply whether the above opinions are correct.