Yantai Lufeng Environmental Protection Equipment Co. Ltd v. Rongsheng Holding Group (Hong Kong) Co. Ltd

 

Cite as: Yantai Lufeng Environmental Protection Equipment Co. Ltd v. Rongsheng Holding Group (Hong Kong) Co. Ltd, The Supreme People’s Court (27 October 2011), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV (2014)

Case identification

  • Date of Decision: 27 October 2011 

  • Court:

    • The Supreme People’s Court

    • The Higher People's Court of Shandong

  • Arbitral Tribunal:

    • N/A

  • Case number / Docket number:

    • No. 48 of the Fourth Civil Tribunal of the Supreme People’s Court [2011]

    • No. 22-1 of the Higher People’s Court of Shandong [2011]

Classification of issues present

  • Application of the New York Convention: No

  • Key PRC Arbitration Law provision(s) at issue: Article 18

  • The Supreme People’s Court’s Interpretation of the Arbitration Law: Article 16

Descriptors: Validity of arbitration agreements; Governing law of the validity of the arbitration agreement; Parties failed to designate an arbitration commission; Parties failed to reach any supplementary agreement on the designation of an arbitration commission; Institutional arbitration; ad hoc arbitration

 

Yantai Lufeng Environmental Protection Equipment Co. Ltd v. Rongsheng Holding Group (Hong Kong) Co. Ltd  

A foreign-related arbitration agreement was found invalid. In its Reply to the Higher People’s Court of Shandong, the Supreme People’s Court found that the parties did not agree on an applicable law to the arbitration agreement and neither did they agree on the seat of arbitration, thus the law of the court applied pursuant to the Supreme People’s Court’s Interpretation of the PRC Arbitration Law (Article 16). The Supreme People’s Court supported the lower court’s decision to find that the arbitration agreement was invalid because of the lack of a designated arbitration institution, and that the parties could not reach any supplementary agreement on the designation. Accordingly, the People’s Court had jurisdiction over the dispute.   

Case text (English translation)

(27 October 2011 No. 48 of the Fourth Civil Tribunal of the Supreme People’s Court [2011])

The Higher People's Court of Shandong:

Your court’s <Request for instruction on the question of the validity of arbitration clause within the dispute on termination of a contract between Yantai Lufeng Environmental Protection Equipment Co. Ltd and Rongsheng Holding Group (Hong Kong) Co. Ltd> No. 22-1 of the Higher People’s Court of Shandong [2011], submission has been received. Upon deliberation, our reply is as follows:

In this case, the parties have not agreed upon the applicable law as well as the seat of arbitration. Pursuant to Article 16 of <The Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of “The Arbitration Law of the People’s Republic of China”>, the validity of the arbitration clause in this case should be governed by the law of the court, i.e. the law of the Mainland China.

Although the parties have agreed to use arbitration to resolve their disputes, no provisions are made on the designation of an arbitral institution. Furthermore there is no agreement on the seat of arbitration. This is a situation in which the stipulations by the arbitration clauses concerning the designation of an arbitral institution are unclear. After the dispute arose, the parties could not reach any supplementary agreement on the designation of an arbitral institution. Pursuant to Article 18 of <the Arbitration Law of the People's Republic of China>, the arbitration agreement is invalid. Therefore, we agree with the opinion of your Court and that the People’s Court has jurisdiction over this case.

 

Enclosed:

Request for instruction on the issue concerning the validity of an arbitration clause involved in the dispute regarding termination of a contract between Yantai Lufeng Environmental Protection Equipment Co. Ltd and Rongsheng Holding Group (Hong Kong) Co. Ltd

(22 September 2011 Letter No. 22-1(1) from the Higher People’s Court of Shandong [2011])

 

The Supreme People’s Court:

When accepting the case concerning disputes arising from termination of a contract between Yantai Lufeng Environmental Protection Equipment Co. Ltd and Rongsheng Holding Group (Hong Kong) Co. Ltd, the Intermediate People’s Court of Yantai (governed by our court) found that Hong Kong parties were involved in the case. In the <<Yantai Xinlite Friction Material Co., Ltd. Joint-Venture Contract>> between the parties, the parties stipulated an arbitration clause. To handle the case seriously, pursuant to relevant provisions including 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]) and <Circular of the Supreme People's Court on Several Issues Regarding the Trial and Enforcement of Foreign-related Civil Commercial Cases> (No. 51 of the Supreme People’s Court [2000]), our court hereby reports the issue concerning the validity of the arbitration clause involved for your court’s examination.

 

I. The parties

Plaintiff: Yantai Lufeng Environmental Protection Equipment Co. Ltd. Domicile: Room 1205, Block B, Luk Yueng Sun Chuen, Tsuen Wan, Hong Kong Special Administrative Region.

Legal Representative: Chen Hongwei, Chairman.

Defendant: Rongsheng Holding Group (Hong Kong) Co. Ltd. Domicile: Laishan Shengquan Industrial Park, Yantai, Shandong.

Legal Representative: Ma Yansheng, Chairman.

 

II. Basic facts of the case

In June 2003, Yantai Lufeng Environmental Protection Equipment Co. Ltd, the applicant, and Rongsheng Holding Group (Hong Kong) Co. Ltd, the respondent, entered into a joint-venture contract named <<Yantai Xinlite Friction Material Co., Ltd. Joint-Venture Contract>> for mutual investment and establishment of Yantai Xinlite Friction Material Co., Ltd. On 10 August 2011, the applicant filed a claim to the Intermediate People’s Court of Yantai on the grounds that the respondent failed to discharge its obligations to contribute capital in accordance with the contractual stipulations. The applicant requested the court make an order terminating the contract and that the respondent is liable for damages and compensation for its losses.

Upon investigation, Clause 72 of the contract in question stipulated that “any disputes arising from the enforcement of this Contract or related to this Contract shall be resolved by amicable negotiations. Any matters remain unresolved upon negotiation shall be submitted to an arbitration institution for arbitration pursuant to its arbitration rules. The arbitral award shall be final and binding to the parties. Unless otherwise provided by the arbitration institution, arbitration costs shall be borne by the losing party.”

 

III. Our court’s opinions

1. This is a contractual dispute involving a Hong Kong party. Although the arbitration clause contained in Clause 72 of the contract in question expressed the parties’ intention to resolve dispute by means of arbitration, the parties failed to stipulate the Applicable Law governing the validity of the arbitration agreement and the place of arbitration. Therefore, the validity of the arbitration agreement shall be determined pursuant to the lex fori, the Law of the People's Republic of China.

2. No clear provisions as to the choice of arbitration institutions had been made in the arbitration clause contained in the contract in question. Considering that a party had initiated litigation proceedings in the people’s court, it can be determined that the parties failed to reach a supplementary agreement concerning the choice of arbitration institutions. Pursuant to Article 16 and 18 of the <Arbitration Law of the People’s Republic of China>, the arbitration clause in question shall be null and void. The people’s court shall have jurisdiction over this case.

Please reply whether the above opinions are correct.