Xu Jianwen v. Zhongwei Urban-rural Comprehensive Development Corporation

 

Cite as: Xu Jianwen v. Zhongwei Urban-rural Comprehensive Development Corporation, The Supreme People’s Court (30 July 2012), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV

Case identification

  • Date of Decision: 30 July 2012 

  • Court:

    • The Supreme People’s Court

    • The Higher People's Court of Ningxia Hui Autonomous Region

  • Arbitral Tribunal:

    • South China Sub-Commission, CIETAC                                                                Arbitral Award No. 36 of South China Sub-Commission, CIETAC (2011)

  • Case number / Docket number:

    • No. 27 of the Fourth Civil Tribunal of the Supreme People’s Court [2012]

    • No. 1 of the Higher People’s Court of the Ningxia Hui Autonomous Region [2012]

Classification of issues present

  • Application of the New York Convention: No

  • Key PRC law provision(s) at issue: Article 26 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”> (2006).

Descriptors: Arbitration was not conducted according to the arbitration rules; Notice of arbitration; Notice of appointment of arbitrators; Arbitral award dealt with a matter outside the scope of the arbitration agreement; No review of the merits of the arbitral award; Annulment proceedings; Non-enforcement proceedings; Arbitrability; Ownership and compensation of assets confiscated by the government   

 

Xu Jianwen v. Zhongwei Urban-rural Comprehensive Development Corporation 

An application for non-enforcement of a CIETAC (South China Sub-commission) arbitral award was rejected. In its Report to the Supreme People’s Court, the Higher People's Court of Ningxia Hui Autonomous Region found that the arbitral award should be denied enforcement because (1) the arbitration was not conducted in accordance with the arbitration rules; and (2) the arbitral award dealt with a matter outside the scope of the arbitration agreement. In its Reply, the Supreme People’s Court found that the Intermediate People’s Court of Shenzhen had already rendered a final ruling and refused to annul the arbitral award concerned. Given that the current non-enforcement proceeding was based on the same grounds as in the annulment proceeding, the Supreme People’s Court rejected the application for non-enforcement pursuant to Article 26 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”> (2006).

Case text (English translation)

(30 July 2012 No. 27 of the Fourth Civil Tribunal of the Supreme People’s Court [2012])

 

The Higher People's Court of the Ningxia Hui Autonomous Region:

Your court’s request <Regarding the Intermediate People’s court of Zhongwei request on instructions concerning refusal of enforcement of an foreign-related Arbitral Award on a joint-venture dispute between applicant Xu Jianwen and respondent Zhongwei Urban-rural Comprehensive Development Corporation> No. 1 of the Higher People’s Court of the Ningxia Hui Autonomous Region [2012] has been received. Upon deliberation, our reply is as follows:

After the Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011] was issued, Zhongwei Urban-rural Comprehensive Development Corporation (Now Ningxia Hongye Real Estate Development Co. Ltd.) applied to the Intermediate People’s Court of Shenzhen, Guangdong to set aside the Award. The court rendered its judgment on 12 January 2012 (Civil Judgment No. 253 of the Intermediate People’s Court of Shenzhen [2011]) dismissing Zhongwei Urban-rural Comprehensive Development Corporation’s application. The judgment shall be final. During the enforcement of the Arbitral Award, Zhongwei Urban-rural Comprehensive Development Corporation applied for non-enforcement of the Award based on the same grounds. Pursuant to Article 26 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”> (2006) that “where, after the application filed by a party concerned to the people’s court for annulment of the arbitral award is rejected, the party applies for non-enforcement on the same ground during the enforcement procedures, such applications shall not be supported by the people’s court”, the court shall not support the respondent’s application for non-enforcement of the Arbitral Award.

It is so replied.

 

Enclosed:

Regarding the Intermediate People’s court of Zhongwei request on instructions concerning refusal of enforcement of a foreign-related Arbitral Award on a joint-venture dispute between enforcement applicant Xu Jianwen and respondent Zhongwei Urban-rural Comprehensive Development Corporation

(17 April 2012 No. 1 of the Higher People’s Court of the Ningxia Hui Autonomous Region [2012])

 

The Supreme People’s Court:

 

Subsequent to rendering and the coming into force of Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011] between the e applicant and the respondent, the applicant made an application to the Intermediate People’s court of Zhongwei to enforce the Award. The court accepted the application for enforcement on 30 September 2011. During enforcement proceedings, the respondent made an application for non-enforcement to the Intermediate People’s court of Zhongwei, requesting that the court not enforce the Arbitral Award. A collegial panel was formed by the Intermediate People’s court of Zhongwei in accordance with the law to examine and verify Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011]. Upon discussion, the collegial panel ruled that the Arbitral Award shall not be enforced and reported the decision for our court’s consideration. A collegial panel was formed by our court to review and discuss the case. Our court hereby reports the facts and rulings for the matter:

 

I. The parties

Applicant: Xu Jianwen, Male, Han ethnicity. Place of residence: Choi Wan Estate, Kowloon, Hong Kong Special Administrative Region.

Attorney: Wang Zhiyun, Attorney, Ningxia Fude Law Firm. Scope of entrustment: Special power of attorney.

Respondent: Zhongwei Urban-rural Comprehensive Development Corporation. Domicile: Gu Lou Xi Jie, Zhongwei, Ningxia Hui Autonomous Region

Legal representative: Chen Zhong, General Manager of the company.

Attorney: Liu Weiwei, Attorney, Ningxia Baozhong Law Firm. Scope of entrustment: Special power of attorney.

 

II. Grounds supporting the respondent’s defence and the reply of the applicant

The respondent submitted that: 1. The arbitration procedure was illegal. The delivery of documents and materials under the arbitration procedure described in Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011] did not correspond to the facts. The party subject to enforcement did not receive any notices in any forms, and so it had no knowledge of the arbitration procedure and the award. On 18 October 2007, the respondent was renamed Urban-rural Development Corporation. When making the arbitration applications in the South China Sub-Commission, China International Economic and Trade Arbitration Commission, the applicant would have known about the changes, yet the arbitration application was nevertheless made against Hengjia. No verification had been made by the Commission as to the identity of the party subject to enforcement, leading to a failure to deliver relevant arbitration documents to the party. The respondent’s litigation rights had been deprived, as it was unable to submit its defence and pleadings. The matters for arbitration exceed the agreed scope of arbitral matters. It was stated in Page 6 of Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011] that “Regarding the disputes arise from the matters regarding ownership and compensation of the respondent’s assets seized by the applicant in 2007, the parties failed to resolve the matters through negotiation. The applicant subsequently initiated arbitration proceedings”. This statement fully illustrated that the matters for arbitration did not fall under the ambit agreed in the parties’ agreement. 2. The ruling from the Arbitral Award was duplicated, violating the principle of ne bis in idem. An arbitration application had been made by the applicant to the South China Sub-Commission, China International Economic and Trade Arbitration Commission in 2007. The Commission had rendered Arbitral Award No. 73 of the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2007], and the Award had been enforced. Here, the applicant had made another arbitration application concerning the same matter, and so arbitration should be refused. 3. The decision that the party subject to enforcement shall be responsible was erroneous in respect of the identity of the respondent. The Award ruled that assets of the party subject to enforcement totalled RMB¥ 6,304,100.00 had been confiscated by the Zhongwei Peoples Government. The applicant shall not claim against the party subject to enforcement. Instead, it shall initiate proceedings against Zhongwei People Government. The Award recognized the probative value of the reports from three newspapers, namely the <Zhongwei Daily, the <Ningxia Daily> and the <Legal Daily> and held that the three newspaper reports are credible. This illustrates that the Commission recognized the authenticity of the contents of the reports, and the statement “over 6-million Renminbi’s worth of dissipated state-owned assets retrieved” contained therein. The statement illustrated that the 6-million Renminbi’s worth of dissipated assets is owned by the state, but not by the others. The Award’s holding that the applicant had interest over 25% of the over 600-million sum lacked factual support. 4. The Arbitral Award was in violation of public interests. The facts determined in the Arbitral Award lacked evidence. The applicant submitted false evidence, leading to the errors contained in the Arbitral Award which should be rectified. Summarizing the above, it is in the respondent’s opinion that Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011] unenforceable due to the arbitration procedure being illegal, the substantive matters being arbitrated were unclear and there was insufficient evidence. Therefore, the respondent requested that the court not enforce the Award in accordance with the law.

The applicant submitted the defence that the arbitration procedures for Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011] were legal and the substantive matters to be arbitrated were clear. Therefore the respondent’s application should be dismissed in accordance with the law.

 

III. Facts of the case and the opinions of the court where enforcement is sought

The Intermediate People’s court of Zhongwei found that in August 1993, a joint-venture contract had been signed between the Urban-rural Development Corporation and Hong Kong Yee On Enterprise Co. Ltd. (Xu Jianwen) for the investment and establishment of Ningxia Tianhe Real Estate Development Co. Ltd (Tianhe). The contract stipulated that total investment for Tianhe would be RMB¥ 10,000,000.00. The Urban-rural Development Corporation will contribute RMB¥ 7,500,000.00, amounting to 75% of the registered capital. Hong Kong Yee On Enterprise Co. Ltd. will contribute RMB¥ 2,500,000.00, amounting to 25% of the registered capital. The operation period for Tianhe will be ten years. Any disputes arising from the performance of the Joint-venture Contract or related to the contract shall be resolved by the parties through amicable negotiations. If the parties fail to resolve the dispute through negotiation, the dispute shall be submitted to the Foreign Economic Relations and Trade Arbitration Committee of the China Council for the Promotion of International Trade for arbitration pursuant to its arbitration rules. Subsequent to the conclusion of the contract, on 8 October 1993, the People’s Government of the Autonomous Region approved the establishment of Tianhe, and the company started business operation by the end of 1993. In July 2007, a dispute arose between the applicant and the respondent regarding the disposal of assets and allocation of shareholder’s rights. The applicant made an application to the South China Sub-Commission, China International Economic and Trade Arbitration Commission requesting a ruling that the respondent should pay him shareholders’ equity entitled amounting to RMB¥ 1,575,000.00, lawyer’s fees amounting to RMB¥ 60,000.00 and arbitration costs. At the hearing, the South China Sub-Commission, China International Economic and Trade Arbitration Commission found that the net assets of the respondent as at the date of restructuring totalled RMB¥ 6,874,730.74. After subtracting assets to be divested amounting to RMB¥ 2,319,320.90, its actual net assets totalled RMB¥ 4,555,415.84. Therefore, the shareholders’ equity of the applicant amounted to: RMB¥ 4,555,415.84 x25% = RMB¥ 1,113,853.90. On 30 July 2008, Arbitral Award No. 73 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2008] was rendered, holding that the respondent should pay the applicant’s shareholder’s equity entitled amounting to RMB¥ 1,113,853.90 and shall be responsible for lawyer’s fees amounting to RMB¥ 60,000.00 and arbitration costs amounting to RMB¥ 48,899.00. An application to enforce the Arbitral Award had been made by the applicant to the Intermediate People’s Court of Yinchuan. Enforcement of the Arbitration Award had been completed.

On 22 July 2010, the applicant made another arbitration application to the South China Sub-Commission, China International Economic and Trade Arbitration Commission concerning the dispute with the Urban-rural Development Corporation arising from the ownership and compensation of the RMB¥ 6,304,100.00, requesting the Commission order the Urban-rural Development Corporation to compensate his loss arising from detachment of share ownership amounting to RMB¥ 1,576,205.00 and shall be responsible for lawyer’s fees amounting to RMB¥ 49,890.00 and arbitration costs. On 15 November 2010 and 20 February 2011, despite the respondent’s absence, the South China Sub-Commission, China International Economic and Trade Arbitration Commission conducted two hearings for the application. On 11 May 2011, the South China Sub-Commission, China International Economic and Trade Arbitration Commission rendered Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011]. It was held that the People’s Government of Zhongwei confiscated RMB¥ 6,304,100.00 from the respondent. In the RMB¥ 6,304,100.00 confiscated, the applicant had interests over 25% of the sum. The 25% interest owned by the applicant amounted to RMB¥ 1,576,205.00 shall be compensated by the party in fault, the respondent. On 11 May 2011, Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011] was rendered, ordering that the respondent compensate the applicant RMB¥ 1,576,205.00 and shall be responsible for lawyer’s fees amounting to RMB¥ 49,890.00 and arbitration costs amounting to RMB¥ 63,548.00.

On 30 September 2011, the applicant made an application to the Intermediate People’s court of Zhongwei requesting enforcement of Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011]. On 25 October 2011, the respondent made an application to the Intermediate People’s court of Zhongwei requesting non-enforcement of the Arbitral Award.

It is also found that the Urban-rural Development Corporation was established on 3 July 2003. In September 2004, it was renamed Hengjia. In October 2007, the enterprise name changed from Hengjia to Urban-rural Development Corporation. The enterprise was then restricted and renamed Ningxia Hongye Real Estate Development Co. Ltd. (Hongye). On 7 August 2009, Bai Jie, the legal representative of Hengjia reported to the Public Security Bureau of Zhongwei requesting investigation on Xu Jianwen, the shareholder of Tianhe’s conducts of misappropriating of the company’s capital. Upon investigation, the Public Security Bureau of Zhongwei found that during Tianhe’s operation, the capital investment of RMB¥ 2.5 million undertaken by the respondent had been unfulfilled. Although being the vice-chairman of Tianhe, the applicant did not make any substantial capital contribution to the company and so he did not participate in the operation and management of the company. Considering that the applicant did not make any substantial capital contribution to the company, no misappropriation of the company’s capital can be found. Therefore the Bureau refused to establish a case concerning the matter.

Upon review, it is in the Intermediate People’s court of Zhongwei’s opinion that:

1. The delivery of relevant materials regarding Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011] was in violation of Paragraph 1(2), Article 258 of the <Civil Procedure Law>. The following descriptions had been made in the Award: “On 25 August 2010, the South China Sub-Commission, China International Economic and Trade Arbitration Commission had sent an arbitration notice by express mail pursuant to the respondent’s address (Gu Lou Xi Jie, Zhongwei, Ningxia Hui Autonomous Region) and name (Zhongwei Hengjia Real Estate Developing Co. Ltd.) as stipulated in the applicant’s arbitration application, and attached the <Arbitration Application> submitted by the applicant with the supporting documents, the <Arbitration Rules> and the <List of Arbitrators> of the Arbitration Commission. The relevant arbitration documents were sent to the applicant on the same day. Upon investigation, the materials sent to the parties had been successfully dispatched.”; “The notice of the formation of the arbitral tribunal, the notice of hearing and the notice for changes in the hearing date had been sent through express mail to the parties on 29 September, 14 October and 3 November 2010 respectively. Upon investigation, the three mails sent to the parties had been successfully dispatched.” Yet the descriptions failed to prove that the respondent had received notice regarding appointment of arbitrators or the arbitration procedures.

 

2. The Arbitral Award was in violation of Article 258 of the <Civil Procedure Law> and the relevant regulation governing the jurisdiction of the arbitral tribunal stipulated in the <Arbitration Rules of the China International Economic and Trade Arbitration Commission>. In Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011], it was stated that “Due to disputes arising from the ownership and compensation of the assets seized by the government in 2007 and that the parties failed to resolve the matters through negotiation, the applicant initiated arbitration proceedings. It is in the arbitral tribunal’s opinion that the People’s Government of Zhongwei confiscated RMB¥ 6,304,100.00 from the respondent. Among the RMB¥ 6,304,100.00 confiscated, the applicant had interests over 25% of it (amounting to RMB¥ 1,576,205.00), which shall be compensated by the respondent, the party in fault.” The ruling was erroneous in the following aspects: (1) The matters decided in the Arbitral Award exceeded the jurisdiction for arbitration. The People’s Government of Zhongwei’s confiscation of the respondent’s dissipated state-owned assets valued RMB¥ 6,304,100.00 was a legitimate governmental administrative measure irrelevant to the performance of the parties’ Joint-venture Contract and was outside the scope of the agreed matters to be arbitrated. The arbitral tribunal had no jurisdiction over the dispute regarding the ownership and compensation of the dissipated state-owned assets legally confiscated by the government. Pursuant to Paragraph 1(4), Article 258 of the <Civil Procedure Law>, the matters decided in Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011] exceeded the scope of arbitration, which the arbitral institution has no arbitration power. (2) The Arbitral Award was in violation of the Arbitration Rules. Article 2 of the <Arbitration Rules of the China International Economic and Trade Arbitration Commission> stipulates that “the China International Economic and Trade Arbitration Commission independently and impartially resolves, by means of arbitration, disputes arising from international or foreign-related economic and trade transactions of a contractual or non-contractual nature.” As illustrated by the provision, cases arbitrated by the arbitral tribunals are limited to civil commercial disputes of a contractual or non-contractual nature. Arbitral tribunals have no jurisdiction over disputes of other nature. Here, the reasons for the People’s Government of Zhongwei’s administrative measures of confiscation of RMB¥ 6,304,100.00 and the disputes over the ownership and compensation of the confiscated assets were not economic and trade disputes of a contractual or non-contractual nature and so did not belong to the contents of the Arbitral Award. Therefore, Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011] was in violation of Article 2 of the <Arbitration Rules of the China International Economic and Trade Arbitration Commission>. The Intermediate People’s Court of Zhongwei’s holding that Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011] was in violation of Article 258 of the <Civil Procedure Law> and Article 2 of the <Arbitration Rules of the China International Economic and Trade Arbitration Commission> concerning the scope and jurisdiction of the arbitral tribunal and so the arbitration procedures of the award was illegal was established. The respondent’s application for non-enforcement of the Arbitral Award was established and shall therefore be supported.

 

IV. Holding and reasoning

Upon review, it is in our court’s opinion that:

1. Regarding the submission that the arbitration procedure violated the law, the respondent argued that it had not received notices in any forms and had no knowledge of the arbitration procedures and award. It was shown in Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011] that between 25 August 2010 and 3 November 2010, the South China Sub-Commission, China International Economic and Trade Arbitration Commission had on four occasions sent the respondent the arbitration notice, the notice for the formation of the arbitral tribunal, the notice of hearing and the notice for changes in the hearing date through express mail pursuant to the address and name of the respondent as stipulated by the applicant in the arbitration application, together with the supporting documents including the <Arbitration Rules> and the <List of Arbitrators> of the Arbitration Commission. The relevant arbitration documents were sent to the applicant on the same day, while the materials sent to the parties had been successfully dispatched. Upon investigation, the Secretariat of the South China Sub-Commission, China International Economic and Trade Arbitration Commission delivered the documents through express mail, while inquiries from China Postal Express’s records indicated that the materials had been successfully dispatched. No other evidence support the allegation that the respondent had received the arbitration documents such as the arbitration notice, the notice for the formation of the arbitral tribunal and the notice of hearing and so the respondent shall not be deemed to have received the materials. Since the Arbitration Commission’s Arbitral Award was made in the absence of the respondent’s receipt of notice for the appointment of arbitrators or the arbitration procedures, it is unable to submit its case during the arbitration process. This situation gave rise to the situation where the respondent was unable to make submissions due to causes for which the corporation was not responsible, which was in conformity with Paragraph 1(2), Article 258 of the <Civil Procedure Law> that “the party against whom the application for enforcement is made was not given notice for the appointment of an arbitrator or for the inception of the arbitration proceedings or was unable to present his case due to causes for which he is not responsible”. Therefore, the party subject to enforcement’s request for the court’s refusal to enforce the Arbitral Award shall be established.

 

2. The matters decided in Arbitral Award No. 36 by the South China Sub-Commission, China International Economic and Trade Arbitration Commission [2011] did not fall under the scope of the arbitration agreement, and so the Arbitration Committee had no power to arbitrate. It was stated in the Award that: The People’s Government of Zhongwei confiscated RMB¥ 6,304,100.00 from the respondent. In the RMB¥ 6,304,100.00 confiscated, the applicant had interests over 25% of the sum. The 25% interest owned by the applicant amounted to RMB¥ 1,576,205.00 shall be compensated by the party in fault, the respondent. It is in our court’s opinion that the People’s Government of Zhongwei’s confiscation of the respondent’s dissipated state-owned assets valued RMB¥ 6,304,100.00 confiscated by The People’s Government of Zhongwei’s was an administrative measure irrelevant to the parties’ agreed matters to be arbitrated. The arbitral tribunal had no jurisdiction over the dispute regarding the ownership and compensation of the respondent’s dissipated state-owned assets legally confiscated by the government, in conformity with Paragraph 1(4), Article 258 of the <Civil Procedure Law>. The party subject to enforcement’s request for the court’s refusal to enforce the Arbitral Award shall be established.

 

3. Pursuant to the relevant legal provisions of the People’s Republic of China, people’s court’s decisions of non-enforcement of foreign-related arbitration awards shall be determined pursuant to Article 258 of the <Civil Procedure Law>. Other matters concerning the facts and the Applicable Law shall not be reviewed. Upon investigation, issues concerning the substantive ruling, including the legal relationships and the application of law submitted by the respondent fell out of the ambit of the people’s court’s jurisdiction in determination of foreign-related arbitral awards.

Summarizing the above, it is in our court’s opinion that the respondent’s reasons for non-enforcement submitted was in conformity with Paragraph 1(2) and (4), Article 258 of the <Civil Procedure Law>. Upon discussion by our court’s collegial panel, our court concurs with the opinion of the Zhongwei Intermediate People’s Court not to enforce the arbitral award. Pursuant to Article 2 of the <Circular of the Supreme People's Court on the Relevant Issues Regarding the Handling of Foreign-related Arbitration or Arbitration of a Foreign Country by the People's Court>, our court hereby reports the case level by level for the Supreme People’s Court’s review.

Please reply whether the above opinions are correct.