Zhejiang Yishun Import & Export Co., Ltd v. Mohamed Mohamoud Ould Mohamed

 

Cite as: Zhejiang Yishun Import & Export Co., Ltd v. Mohamed Mohamoud Ould Mohamed, The Supreme People’s Court (7 April 2011), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV

Case identification

  • Date of Decision: 7 April 2011 

  • Court:

    • The Supreme People’s Court

    • The Higher People's Court of Zhejiang Province

  • Arbitral Tribunal:

    • N/A

  • Case number / Docket number:

    • No. 8 of the Fourth Civil Tribunal of the Supreme People’s Court [2011]

    • No.  2 of the Higher People’s Court of Zhejiang [2011]

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”>; Articles 16 and 18 of <Arbitration Law of the People’s Republic of China>.

Descriptors: Arbitration agreement; Validity of arbitration agreement; Applicable law to the arbitration agreement; Place of arbitration; Referral to arbitration is optional; Arbitration as well as jurisdiction of the courts;

 

 

Zhejiang Yishun Import & Export Co., Ltd v. Mohamed Mohamoud Ould Mohamed 

An agreement to submit disputes to either the China International Trade Promotion Commission Foreign Trade Arbitration Commission for arbitration or the local court where Zhejiang Yishun Import & Export Co., Ltd is located was found to be invalid. In its Report to the Supreme People’s Court, the Higher People's Court of Zhejiang stated that (1) the parties did not specify the governing law the validity of the arbitration clause but did specify the chosen arbitration institution which located in China; hence, the place of arbitration should be in China and the applicable law should be the law of the place of arbitration, i.e. the laws of the PRC; and (2) the arbitration agreement was invalid because the parties’ agreement stated that they could  submit disputes to arbitration or the local court. In its Reply, the Supreme People's Court stated that although the parties agreed on a chosen arbitration institution, they did not specify the place of arbitration; hence the validity of the arbitration clause should be governed by the laws of the forum, i.e. the PRC; and upheld the lower court’s finding that the arbitration agreement was invalid because it lacked an exclusive agreement to arbitration.

Case text (English translation)

(7 April 2011, No. 8 of the Fourth Civil Tribunal of the Supreme People’s Court [2011])

 

The Higher People’s Court of Zhejiang:

 

Your court’s <Request for Instructions Concerning the Validity of the Foreign-related Arbitration Clause in the International Sale of Goods Dispute between Zhejiang Yishun Import & Export Co., Ltd and Mohamed Mohamoud Ould Mohamed> No. 2 of the Higher People’s Court of Zhejiang (2011) has been received. Upon deliberation, our reply is as follows:

 

This case concerns a dispute arising out of a sale of goods contract between Zhejiang Yishun Import & Export Co., Ltd and Mohamed Mohamoud Ould Mohamed. The parties’ <Agreement for Distribution Responsibilities> contains an arbitration clause at clause 9.  One of the parties, Mohamed Mohamoud Ould Mohamed, is of Mauritanian nationality, thus the arbitration clause involves foreign interests. Pursuant to the provisions of 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”>, “[t]he examination of the effectiveness 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.” The parties did not clearly specify the laws applicable to disputes over the validity of the arbitration clause. Even though the parties agreed that disputes shall be submitted to the “China International Trade Promotion Commission Foreign Trade Arbitration Commission” for arbitration, the venue of arbitration was not specified. Thus the laws at the locality of the court, i.e. the laws of the People’s Republic of China, shall apply in the examination of the foreign-related arbitration clause. Your court’s view that the laws of the place of arbitration shall apply on the basis that the parties have agreed upon the place of arbitration is unfounded. Clause 9 of the <Agreement for Distribution Responsibilities> stipulates that disputes could either be submitted to “China International Trade Promotion Commission Foreign Trade Arbitration Commission” for arbitration or be brought to the court at the locality where Zhejiang Yishun Import & Export Co., Ltd is located. Pursuant to the provisions of 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”> No. 7 [2006], an arbitration agreement shall be invalid if the agreement provides that the parties may either apply to an arbitration institution for arbitration or bring a lawsuit in the People's Court for settlement of dispute. We agree with the opinion of your court that the arbitration clause concerned is invalid.

 

Enclosed:

 

Request for Instructions Concerning the Validity of the Foreign-related Arbitration Clause in the International Sale of Goods Dispute between Zhejiang Yishun Import & Export Co., Ltd and Mohamed Mohamoud Ould Mohamed

 

(14 January 2011, No. 2 of the Letter from the Higher People’s Court of Zhejiang [2011])

 

The Supreme People’s Court:

 

Our court has been asked by the Intermediate People’s Court of Shaoxing for instructions on the question of validity of the foreign-related arbitration clause in the dispute arising from the international sale of goods contract between Zhejiang Yishun Import & Export Co., Ltd and Mohamed Mohamoud Ould Mohamed. Upon examination, the Intermediate People’s Court of Shaoxing is of the view that the parties’ arbitration clause is invalid. Pursuant to the requirements of Article 1 of your court’s <Circular on Issues Related to the People’s Court’s Handling of Matters of Foreign-related Arbitration and Foreign Arbitration> No. 18 (1995), details of the case and the opinion of our court are reported for your court’s review as follow:

 

1.     Basic Facts of the Parties

 

Plaintiff: Zhejiang Yishun Import & Export Co., Ltd. Address: No. 1 Rongma Lu, Taozhu Jie Dao, Zhuji, Zhejiang.

 

Legal representative: Xuan Dongli

 

Defendant: Mohamed Mohamoud Ould Mohamed, Mauritanian. Address: Jiangdong Fan Cun, Yiwu, Zhejiang.

 

2.     Basic Facts of the Case

 

The plaintiff alleges that the parties signed a contract on 9 October 2009 under which the plaintiff shall supply to the defendant cotton jacquard fabrics and other products at CIF price terms, for the distribution at the destination determined by the defendant and the quantities and categories of goods shall be determined by the defendant. On 3 December of the same year, the plaintiff shipped and exported the goods of value USD $165,985 in accordance with the stipulations made by the defendant. The defendant took delivery of the goods with the original bill of lading on 16 December. Pursuant to the agreement, the defendant should have paid the whole of the purchase price before 2 March 2010 but the defendant is in arrears in the amount of USD $124,000 and 30 per cent of the premium income. The plaintiff, after repeatedly seeking payment to no avail, instituted the present action seeking a judgment ordering the defendant to pay for the outstanding amount of the purchase price of the goods in the amount of USD $124,000, plus interest in the amount of $31,000 (a total amount of USD $155,000). The plaintiff has also applied to the Intermediate People’s Court of Shaoxing seeking an order restricting the departure of the defendant.

 

Further, clause 19 of the parties’ <Agreement for Distribution Responsibilities> stipulates that “both parties shall cooperate with integrity and any disputes shall be resolved by amicable negotiation. If negotiation fails either party could submit the dispute to the China International Trade Promotion Commission Foreign Trade Arbitration Commission for arbitration or bring a lawsuit to the court at the locality where Zhejiang Yishun Import & Export Co., Ltd is located.” The said agreement was executed at Zhuji, Shaoxing.

 

3.     The Opinion of Our Court

 

Upon examination by our court, we are of the view that the foreign-related arbitration clause in the agreement is invalid. Firstly, it is determined that the laws of the Mainland shall apply in the examination of validity of the arbitration clause concerned. Pursuant to the <Interpretation of the Supreme People's Court concerning Some Issues on Application of the Arbitration Law of the People's Republic of China> No. 7 (2006), “[t]he examination of the effectiveness 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.” The parties did not agree upon the applicable laws but specified the arbitration institution would be China International Trade Promotion Commission, which is located in China. Thus the validity of the arbitration clause in question shall be determined in accordance with the laws of China. Further, 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> No. 7 (2006), states that an arbitration agreement is invalid if the parties’ agreement allows for a party to either apply to the arbitration institution for arbitration or bring a lawsuit in the people's court for settlement of dispute. The arbitration clause in question provided for both arbitration and litigation, thus pursuant to Article 7, the arbitration clause is invalid. The Intermediate People’s Court of Shaoxing, whether as the court at the place of execution or performance of the contract, shall have jurisdiction over this case.