Yxen Service Inc. v. Cangzhou Gancheng Steel Pipes Co. Ltd.

Cite as: Yxen Service Inc. v. Cangzhou Gancheng Steel Pipes Co. Ltd., The Supreme People’s Court (16 August 2012), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV

Case identification

• Date of Decision: 16 August 2012 

• Court:

• The Supreme People’s Court

• The Higher People's Court of Beijing

• Arbitral Tribunal:

• N/A

• Case number / Docket number:

• No. 39 of the Fourth Civil Tribunal of the Supreme People’s Court [2012]

• No. 170 of the Higher People’s Court of Beijing [2012]

Classification of issues present

• Application of the New York Convention: No

• Key PRC law provision(s) at issue: Article 16 of <Interpretation of Several Issues Concerning the Application of “The Arbitration Law of the People’s Republic of China”>; Article 9 of <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; Choice of two arbitration institutions; Singularity and finality of arbitration

Yxen Service Inc. v. Cangzhou Gancheng Steel Pipes Co. Ltd. 

An arbitration agreement to submit disputes first to the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade for arbitration pursuant to its Provisional Rules of Arbitration Procedure; and if a party is dissatisfied with the award, then to the Singapore International Arbitration Centre was found invalid under the PRC law. In its Report to the Supreme People’s Court, the Higher People's Court of Beijing found that the arbitration clause violated the fundamental principle of “arbitration shall be final” under the PRC law. In its Reply, the Supreme People’s Court agreed.

Case text (English translation)

(16 August 2012 No. 39 of the Fourth Civil Tribunal of the Supreme People’s Court [2012])

The Higher People's Court of Beijing:

Your Court’s <Request on instructions on an application to confirm the invalidity of the arbitration clause contained in the <Purchase Contract> numbered ZX090201-08 signed between Yxen Service Inc. and Cangzhou Gancheng Steel Pipes Co. Ltd.> No. 170 of the Higher People’s Court of Beijing [2012], submission has been received. Upon deliberation, our reply is as follows:

The parties had stipulated an arbitration clause in the Purchase Contract. There were discrepancies between the Chinese and the English version of the contract. The parties agreed that the Chinese version shall prevail. The arbitration clause provided that “Disputes… shall be submitted to the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade for arbitration pursuant to its Provisional Rules of Arbitration Procedure. If a party is dissatisfied with the award, the case shall be submitted to the “Singapore International Arbitration Act” (The institution should be the Singapore International Arbitration Centre. The original clause was incorrect) for arbitration pursuant to its arbitration rules.” No Applicable Law governing the arbitration agreement or place of arbitration had been agreed by the parties. Therefore, 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 clause shall be determined pursuant to the lex fori, the Law of the People's Republic of China. Pursuant to paragraph 1, Article 9 of the <Arbitration Law of the People‘s Republic of China>, “a system of a single and final award shall be rendered in arbitration”. The agreement between the parties violated the principle of singularity and finality of arbitration. The parties failed to reach a consensus regarding the choice of arbitral institution. In addition, both parties were of the view that the arbitration clause shall be null and void. Therefore, our court agrees with your court’s opinion and hereby confirms that the abovementioned arbitration clause is null and void.

It is so replied.

Enclosed:

Request on instructions on an application to confirm the invalidity of the arbitration clause contained in the <Purchase Contract> numbered ZX090201-08 signed between Yxen Service Inc. and Cangzhou Gancheng Steel Pipes Co. Ltd.

(23 May 2012 No. 170 of the Higher People’s Court of Beijing [2012])

The Supreme People’s Court:

Concerning the application to confirm the invalidity of an arbitration clause between Yxen Service Inc. and Cangzhou Gancheng Steel Pipes Co. Ltd. (“Gancheng”) accepted by the First Intermediate People's Court of Beijing, our court proposes deeming the arbitration clause in question null and void. Upon consideration, we report the following:

I. Parties

Applicant: Yxen Service Inc. Domicile: 2616 Sheringham Road, Orlando, FI 32808 USA.

Person in Charge: Nexy Y. Galve, Chief Executive Officer of the Company.

Respondent: Cangzhou Gancheng Steel Pipes Co. Ltd.. Domicile: Yanshan Industrial Park, Cangzhou, Hebei.

Legal Representative: Peng Wenzheng, Chairman of the Company.

II. Reasons of Application and Defences

(1) Background

Yxen Service Inc., the applicant filed an arbitration application to the China International Economic and Trade Arbitration Commission, Gancheng, the respondent on 19 May 2011. On 24 May 2011, the secretariat of China International Economic and Trade Arbitration Commission sent a letter to the applicant concerning relevant matters of the arbitration case, stipulating that “it has come to our Commission’s notice that discrepancies exist between the Chinese and English version of the arbitration clause submitted by your company in support of the arbitration application. The Chinese version of the clause stipulated that “If a party is dissatisfied with the award, the case shall be submitted to the Singapore International Arbitration Act for arbitration pursuant to its arbitration rules”, whereas the English version stipulated that “the case in dispute shall be submitted to the Promotion of International Trade, Shanghai Branch”. Please provide a written explanation as to the interpretation of the arbitration clauses, the case shall be entertained by which institution and the grounds.” Subsequently, the applicant made a reply to the secretariat of China International Economic and Trade Arbitration Commission, submitting that the arbitration clauses shall be deemed null and void under the same grounds with this case. After that, the applicant made an application to the First Intermediate People's Court of Beijing requesting a confirmation that the arbitration clause is ineffective.

(2) Reasons for application submitted by the applicant.

1. The stipulation that “If a party is dissatisfied with the award, the case shall be submitted to the Singapore International Arbitration Act for arbitration pursuant to its arbitration rules” was in violation of the basic principle of “single arbitration, the award shall be final” in arbitration. This provision challenged the effectiveness of the awards rendered by the China International Economic and Trade Arbitration Commission, violating of the basic principle of “single arbitration, the award shall be final” in arbitration and shall be deemed ineffectively in accordance with the law.

2. Substantively, the arbitration clause has chosen two institutions, namely the China International Economic and Trade Arbitration Commission and the Singapore International Arbitration Centre for arbitration. Pursuant to Article 5 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 an agreement for arbitration stipulates two or more arbitral institutions, the parties concerned may choose either arbitral institution upon agreement when applying for arbitration; if the parties concerned cannot agree upon the choice of the arbitral institution, the agreement for arbitration shall be ineffective”. Considering that there is no hope for the parties to resolve the dispute by negotiation, it is impossible for the parties to reach a consensus as to the choice of the arbitral institution. Therefore, the arbitration clause shall be considered null and void.

3. There were discrepancies between the Chinese and the English version of the arbitration clause. According to the English version of the clause, the parties agreed that disputes shall be submitted to the Shanghai Sub-commission, China International Economic and Trade Arbitration Commission. The  clause is inconsistent with the Chinese version of the clause, which stipulates that “… shall be submitted to the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade… for arbitration”. Since the applicant is a United States company, it must insist that the interpretation and expression of the contract in question in English should prevail. While since the respondent is a Chinese company, it must insist that the interpretation and expression of the contract in question in Chinese shall prevail. Such discrepancies would lead to the parties’ failure to reach a consensus through negotiation concerning the choice of the arbitral institution. In view of this, the  arbitration clause would be ineffective due to the parties’ failure to reach a consensus as to the choice of arbitral institution.

Summarizing the above, since the applicant and the respondent’s intention to arbitrate remained unclear, the agreed arbitral institution was inconsistent and was in violation of “system of a single and final award” required by the law, the arbitration clause shall be deemed null and void in accordance with the law.

(3) The respondent’s defence submitted

The respondent approved the applicant’s submission that the arbitration clause in question shall be deemed null and void in accordance with the law. (1) The Purchase Contract in question agreed between the parties was expressed in Chinese and English, and was relevant to the disputes arising from the  contract. It is in the respondent’s opinion that the Chinese version of the contract shall prevail, as the contract was issued by the applicant. Regarding the issue that whether disputes shall be submitted to the China International Economic and Trade Arbitration Commission or the Shanghai Sub-commission of the  Commission for arbitration, the expressions of the Chinese version and the English version were inconsistent, and so the agreement shall be regarded as unclear. The respondent agreed with the applicant’s submission that the arbitration clause in question shall be deemed null and void since the parties failed to reach a consensus as to the choice of arbitral institution. (2) The arbitration clause in question was in violation of the singularity and finality principles in arbitration provided in the Chinese <Arbitration Law>, and so shall be deemed null and void.

III. Opinions of our court

The Purchase Contract numbered ZX090201-08 between the applicant and the respondent was expressed bilingually in Chinese and English. In particular, the Chinese version of the arbitration clause stipulated that “If disputes arise when performing the agreement, the parties shall resolve the said disputes through amicable negotiations. If no agreement can be reached through amicable negotiations, the disputes shall be submitted to the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade for arbitration pursuant to its Provisional Rules of Arbitration Procedure. If a party is dissatisfied with the award, the case shall be submitted to the Singapore International Arbitration Act for arbitration pursuant to its arbitration rules.” The English version of the arbitration clause was inconsistent with the Chinese version. In particular, no provisions concerning arbitration in Singapore had been provided in the version. Instead, it stipulated that disputes shall be submitted to the Shanghai Sub-commission, China International Economic and Trade Arbitration Commission for arbitration, and the arbitration award shall be final.

Regarding the discrepancies between the Chinese and the English versions, during the trial the parties expressed their views that the Chinese version shall prevail. According to the arbitration clause in Chinese, disputes shall be submitted China International Economic and Trade Arbitration Commission for arbitration first. “If a party is dissatisfied with the award, the case shall be submitted to the Singapore International Arbitration Act for arbitration pursuant to its arbitration rules.” Clearly, the arbitration clause (the Chinese version of the clause) violated the fundamental principle of “arbitration shall be final” under Chinese arbitration law. Therefore, according to this the court confirms that the arbitration clause contained in the <Purchase Contract> numbered ZX090201-08 shall be deemed null and void.

Please instruct whether the above opinions are correct.