Wang Kunyi v. Dongguan Wei Yang Sports Goods Co. Ltd. and Wu Wensheng

 

Cite as: Wang Kunyi v. Dongguan Wei Yang Sports Goods Co. Ltd. and Wu Wensheng, The Supreme People’s Court (12 November 2012), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV

Case identification

  • Date of Decision: 12 November 2012 

  • Court:

    • The Supreme People’s Court

    • The Higher People's Court of Guangdong Province

  • Arbitral Tribunal:

    • N/A

  • Case number / Docket number:

    • No. 52 of the Fourth Civil Tribunal of the Supreme People’s Court [2012]

    • No. 4 of the Higher People’s Court of Guangdong Province [2011]

Classification of issues present

  • Application of the New York Convention: No

  • Key PRC law provision(s) at issue: Articles 7 and 16 of <Interpretation of Several Issues Concerning the Application of “The Arbitration Law of the People’s Republic of China”>

Descriptors: Arbitration agreement; Validity of arbitration agreement; Applicable law to the arbitration agreement; The law of the forum; Option to arbitration or litigation  

 

 

 

Wang Kunyi v. Dongguan Wei Yang Sports Goods Co. Ltd. and Wu Wensheng 

Two arbitration clauses providing for either arbitration or litigation in the people’s courts were found invalid pursuant to the law of the forum, i.e. the PRC law. In its Report to the Supreme People’s Court, the Higher People's Court of Guangdong Province found that the two arbitration clauses concerned did not stipulate either the governing law or the place of arbitration; thus, the law of the forum/court, i.e. the PRC law should apply. Further it was found that the two clauses provided for either arbitration or litigation in people’s courts. According to Article 7 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 said clauses were found invalid. In its Reply, the Supreme People’s Court agreed.

Case text (English translation)

(12 November 2012 No. 52 of the Fourth Civil Tribunal of the Supreme People’s Court [2012])

 

The Higher People's Court of Guangdong Province:

Your court’s <Request on instructions on an application to determine the validity of a foreign-related arbitration clause between Wang Kunyi, Dongguan Wei Yang Sports Goods Co. Ltd. and Wu Wensheng> No. 4 of the Higher People’s Court of Guangdong Province [2011] submission has been received. Upon deliberation, our reply is as follows:

Since Wang Kunyi and Wu Wensheng are Taiwan residents, the share transfer dispute in question have Taiwan-related elements. The determination in the Agreement on transfer of shareholders' capital contributions in Dongguan Wei Yang Sports Goods Co. Ltd. (Agreement on transfer of shareholders' capital contributions) in question shall be made pursuant to the relevant regulations governing the validity of foreign-related arbitration agreements. Here, no provisions as to the law governing the arbitration clause or the place of arbitration had been made in the <Agreement on transfer of shareholders' capital contributions>. 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”>, the validity of the arbitration agreement shall be determined pursuant to the lex fori, the Law of the People's Republic of China.

The arbitration clause contained in the Agreement on transfer of shareholders' capital contributions in question stipulated that regarding disputes related to the agreement, any party may make an application to arbitrate or initiate litigation proceedings in the people’s courts. Pursuant to Article 7 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”>, where the parties concerned agree that they may either apply to the arbitration institution for arbitration or bring a lawsuit with people’s court for settlement of dispute, the agreement for arbitration shall be invalid. Therefore, the arbitration clause contained in the Agreement on transfer of shareholders' capital contributions shall be held invalid.

Since the arbitration clause contained in the Agreement on transfer of shareholders' capital contributions in question was invalid, and the domicile of Dongguan Wei Yang Sports Goods Co. Ltd., one of the parties is in Dongguan, Guangdong, the Third People’s Court of Dongguan shall have jurisdiction over this case.

It is so replied.

Enclosed:

Request on instructions on an application to determine the validity of a foreign-related arbitration clause between Wang Kunyi, Dongguan Wei Yang Sports Goods Co. Ltd. and Wu Wensheng

(24 August 2012 No. 4 of the Higher People’s Court of Guangdong [2011])

 

The Supreme People’s Court:

 

Regarding Wang Kunyi’s litigation proceedings in the Third People’s Court of Dongguan against Dongguan Wei Yang Sports Goods Co. Ltd. (Wei Yang Sports) and Wu Wensheng, arbitration clauses were contained in the share transfer agreements between the parties. Upon review, it is in the Third People’s Court of Dongguan’s opinion that the arbitration clause stipulated in the Agreement on transfer of shareholders' capital contributions in Dongguan Wei Yang Sports Goods Co. Ltd. shall be invalid. The court reported the case to the Intermediate People’s Court of Dongguan for review, pursuant to 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 (No. 18 of the Supreme People’s Court [1995]). Upon review, the Intermediate People’s Court of Dongguan proposes to agree with the Third People’s Court of Dongguan’s opinion and reported the matters to our court in accordance with the requirements. Upon examination, our court also proposes agreeing with the opinions of the Third People’s Court of Dongguan and the Intermediate People’s Court of Dongguan, confirming that the arbitration clauses between the parties shall be invalid. Therefore, our court requests your court’s instructions in accordance to the requirements.

 

I. The parties

Plaintiff: Wang Kunyi, Male, Taiwan Resident.

Defendant: Dongguan Wei Yang Sports Goods Co. Ltd. Domicile: 128 Songgang Lu, Songgang Cun, Qingxizhen,Dongguan, Guangdong, China

Legal Representative: Huang Weiqiang.

Defendant: Wu Wensheng, Male, Taiwan Resident.

 

II. Basic facts of the case

On 20 March 2011, Wang Kunyi filed a litigation application to the Third People’s Court of Dongguan submitting that: on 20 July 2009, two Agreements on transfer of shareholders' capital contributions in Dongguan Wei Yang Sports Goods Co. Ltd. were signed between Wu Wensheng and Wang Kunyi, agreeing that Wu Wensheng shall transfer his 20% shareholding in Wei Yang Sports representing capital contributions totalled RMB¥ 1,200,000.00 to Wang Kunyi, with consideration amounted RMB¥ 1,200,000.00 in return. Wu Wensheng guaranteed that the shares to be transferred to Wang Kunyi are real capital contributions owned legitimately with full rights of disposal. At the same time, the agreement provided that upon ratification of the shareholder’s registry, Wang Kunyi would become a shareholder of Wei Yang Sports. Subsequent to the conclusion of the agreement, Wang Kunyi paid RMB¥ 1,200,000.00 in three instalments to Wu Wensheng in accordance to the agreement. In particular, payments of RMB¥ 800,000.00 were made to Wu Wensheng while payments of RMB¥ 400,000.00 were made to Beyond Worldwide Co. Ltd., the overseas billing company of Wei Yang Sports. Since Wu Wensheng did not take steps to transfer the shares in accordance with the agreement, the parties negotiated transferring 10% of the 20% shareholding of Wei Yang Sports owned by Wang Kunyi to Wei Yang Sports. Wu Wensheng made an undertaking to pay in instalments totalled RMB¥ 600,000.00. Subsequent to the conclusion of the agreement, Wu Wenshen paid RMB¥ 450,000.00 in accordance with the agreement, with RMB¥ 150,000.00 remained unpaid. Owing to Wu Wensheng’s failure to register the share transfers, Wang Kunyi was unable to become a shareholder of Wei Yang Sports. Therefore, Wang Kunyi requested the court to order Wei Yang Sports and Wu Wenshen to return the sum used for the purpose of purchasing of shares totalled RMB¥ 750,000.00.

Clause 5 “Resolution of Disputes” contained in the agreement on transfer of shareholders' capital contributions in Dongguan Wei Yang Sports Goods Co. Ltd. signed between Wang Kunyi and Wu Wensheng stipulated that: “1. Any disputes related to the validity, performance, breach and termination of this agreement shall be resolved amicably. 2. If the parties fail to negotiate, any party may make an application to arbitrate or initiate litigation proceedings in the people’s courts.

Clause 5 “Resolution of Disputes” contained in the agreement on transfer of shareholders' capital contributions in Dongguan Wei Yang Sports Goods Co. Ltd. signed between Wang Kunyi and Wei Yang Sports stipulated that: “1. Any disputes related to the validity, performance, breach and termination of this agreement shall be resolved amicably. 2. If the parties fail to negotiate, any party may make an application to arbitrate or initiate litigation proceedings in the people’s courts.

 

III. The opinions of the Third People’s Court of Dongguan and the Intermediate People’s Court of Dongguan

Upon review, it is in the Third People’s Court of Dongguan’s opinion that the arbitration clause agreed between the parties contained in the agreement in question shall be invalid. Pursuant to Paragraph 2, Article 16 of the <Arbitration Law>, an arbitration agreement shall contain the following particulars: (1) an expression of intention to apply for arbitration; (2) matters for arbitration; and (3) a designated arbitration commission. Pursuant to Article 18 of the <Arbitration Law>, if an arbitration agreement contains no or unclear provisions concerning the matters for arbitration or the arbitration commission, the parties may reach a supplementary agreement. If no such supplementary agreement can be reached, the arbitration agreement shall be invalid. Apart from that, pursuant to Article 7 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”>, where the parties concerned agree that they may either apply to the arbitration institution for arbitration or bring a lawsuit with people’s court for settlement of dispute, the agreement for arbitration shall be invalid. Therefore, the Third People’s Court of Dongguan may accept the case.

The opinions of the Intermediate People’s Court of Dongguan were in conformity with that of the Third People’s Court of Dongguan, that the arbitration clause between the parties is invalid. The Third People’s Court of Dongguan shall have jurisdiction over this case.

 

IV. The opinions of our court

Upon examination, considering that Wang Kunyi and Wu Wensheng, the parties of this case are Taiwan residents, the determination of the validity of the arbitration clause between Wang Kunyi and Wu Wensheng, Wang Kunyi and Wei Yang Sports shall be made pursuant to relevant provisions governing the determination of the validity of the foreign-related 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”, “the examination of the validity 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.”

Considering that no provisions as to the Applicable Law governing the arbitration clause and the place of arbitration had been made in the agreement on transfer of shareholders' capital contributions signed between Wang Kunyi and Wu Wensheng, Wang Kunyi and Wei Yang Sports respectively, 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” the validity of the arbitration agreement shall be determined pursuant to the laws at the locality of the court, the Law of the People's Republic of China.

Since the clause concluded between Wang Kunyi and Wu Wensheng, Wang Kunyi and Wei Yang Sports empowered parties to choose between arbitration and litigation, pursuant to Article 7 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 arbitration clause shall be invalid. The Third People’s Court of Dongguan may entertain the dispute between Wang Kunyi, Dongguan Wei Yang Sports Goods Co. Ltd. and Wu Wensheng concerning transfer of shares.

Summarizing the above, our court proposes to confirm that the arbitration clause contained in the agreement on transfer of shareholders' capital contributions in Dongguan Wei Yang Sports Goods Co. Ltd. between Wang Kunyi and Wu Wensheng, Wang Kunyi and Wei Yang Sports is invalid.

Please reply whether the above opinions are correct.