China: International Dispute Resolution Newsletter – December 2015

Last Updated: 20 January 2016
Article by AnJie Law Firm

INTERNATIONAL COMMERCIAL ARBITRATION NEWS

HKIAC Achieves Breakthrough by Launching Office in Mainland China

The Hong Kong International Arbitration Centre (HKIAC) has reached an important milestone by being the first international arbitration institution to open a representative office in mainland China. This represents a major stride made by HKIAC to promote international arbitration services on the mainland.

The launch of HKIAC's Shanghai office marks the beginning of a new chapter of arbitration in mainland China, since it is the first time an offshore arbitration institution has set up a formal presence on the mainland. The Shanghai office is located within the China (Shanghai) Pilot Free Trade Zone, which has been designated by the State Council as an area to "support the introduction of internationally renowned commercial dispute resolution institutions". The office is headed by HKIAC's Deputy Secretary-General, Liu Jing, who has been facilitating HKIAC's on-the-ground support for its Chinese users for many years. The Shanghai office is HKIAC's second overseas presence.

CIETAC Opened Sub-Branch in Zhejiang

Recently, CIETAC opened its new sub-branch in Hangzhou, Zhejiang Province. An opening ceremony was held. CIETAC Zhejiang Branch is the sixth sub-branch of CIETAC after Huanan Shanghai, Tianjin, Xinan and Hong Kong sub-branchs were established.

"Zhejiang is an important economic zone in China. It has top-tier import and export amounts and the most prosperous private business in mainland China. Therefore, developing professional, convenient, and international commercial arbitration service in Zhejiang is a necessity", according to Mr. Yu, vice president as well as chief secretariat of CIETAC at the opening ceremony.

SIAC Beijing Conference Turns out to be a Huge Success

The 2015 SIAC Beijing Conference was successfully held on 3 November 2015. The topics discussed at the conference include: how to handle international disputes from a corporate perspective; how to advise a Chinese multinational company with cross-border disputes, and the relevance of dispute resolution mechanisms when trading with foreign companies, etc.

ICC Report Looks at Costs Allocation

The ICC Commission on Arbitration and ADR's latest report looks at how costs can be allocated between parties and at the specific role of arbitrators and counsel in costs management, in light of the fact that, on average, 83 per cent of costs are party costs.

India Revised Arbitration and Mediation Law

India recently had its Arbitration and Mediation Law revised. The Arbitration and Mediation Law was promulgated in 1996 and aimed at promoting ADR in commercial dispute resolution in India.

ANJIE OBSERVATIONS ON INTERNATIONAL COMMERCIAL ARBITRATION

Hong Kong Court's Decision on Hybrid Arbitration Clause

On 18November2015, Hong Kong's Judge Chan issued a detailed decision refusing a defendant's serious set of challenges to an interim injunction ordered in Hong Kong in assistance to an imminent international arbitration. The July injunction had frozen approximately $2.5million in Hong Kong based assets in relation to defendant's alleged breach of an iron ore shipping and sales agreement. Plaintiff accomplished the injunction pursuant to 21M of the High Court Ordinance, which acts in support of "substantive proceedings" outside of Hong Kong and which either are imminent or have already begun. 21M of the High Court Ordinance also requires an applicant to demonstrate a good arguable case that the foreign proceedings may lead to a judgment enforceable in Hong Kong.

Defendant averred that Hong Kong's Section 45 of its Arbitration Ordinance was the only proper source of power for an injunction, but Plaintiff not only made its application for injunction under 21M, but failed to disclose to the Hong Kong court the full criteria to prevail under Section 45. Additionally, Defendant challenged whether Hong Kong was an appropriate forum for interim relief over Singapore.

Plaintiff was able to attain its injunction in Hong Kong but not Singapore because Hong Kong applied its own standard, which evaluated whether Defendant's conduct was of such unacceptably low commercial morality that there might be a real risk of dissipation of assets. Judge Chan stated that jurisdiction was a matter for the Tribunal itself, but circumstances might develop such that Hong Kong Court might even enforce the award of an ICC Singapore panel. Nonetheless, Judge Chan upheld the injunction according to a critical distinction; primary jurisdiction would go to the soon-to-be empaneled Singapore Tribunal, and not Singapore's courts. Besides, in Judge Chan's view, applicants for interim relief in support of arbitration proceedings simply have their choice between Section 45 of the Arbitration Ordinance or 21M of the High Court Ordinance.

Judge Chan's decision to uphold the injunction displays both openness and understanding towards the legal system of arbitration. Under the facts, Judge Chan may have very easily found an excuse to unravel the injunction; the Plaintiff failed its request for interim relief in the supervisory courts of Singapore, it delayed releasing $500,000 of funds to Defendant pursuant to the interim order, and it even referred the arbitration to the ICC instead of SIAC in apparent contravention of the arbitration clause. Nevertheless, the Judge focused primarily on whether the asset freeze was merited under the available facts, and whether it, or further intervention, would assist the Tribunal. Judge Chan thereby clarified that 21M of the High Court Ordinance is applicable to applicants in situations when an arbitration clause governs but the arbitration has not yet commenced.

CHINA INTERNATIONAL COMMERCIAL DISPUTE RESOLUTION SPOTLIGHT

Shanghai Intermediate People's Court's Creative Reasoning in Golden Landmark v. SITL Case

In a contract dispute between Shanghai Golden Landmark Co. Ltd (hereinafter as "Golden Landmark") and SIEMENS International Trade Co. Ltd (hereinafter as "SITL"), Golden Landmark filed an arbitration application to SIAC, and SIEMENS soon filed a counterclaim against Golden Landmark. SIAC made an award which was in favor of SITL and dismissed all the claims of Golden Landmark. SITL later applied to Shanghai First Intermediate People's Court (hereinafter as "the Court") for recognize and enforce the award, Golden Landmark challenged the application by stating that the arbitration agreement between the parties was invalid, so the award should not be recognized and enforced according to Article V (1) (a) of the New York Convention. The Court dismissed Golden landmark's challenge and made a final decision to recognize and enforce the award in China.

The major arguments of Golden Landmark were:

  1. The arbitration agreement between the parties was invalid because in a contract dispute which did not contain any foreign elements. Therefore the parties were not entitled to commence arbitration in front of a foreign arbitration institution according to current Chinese law. Hence, an award rendered based on an invalid arbitration agreement shall not be recognized and enforced under the New York Convention;
  2. Recognizing and enforcing the award would be contrary to the public policy of China;
  3. There were errors insubstantive issues in the award.

The Court, having verified the facts of this case and considered allegations and reasoning from both parties, rendered its decisions as follows:

  1. With regard to the first issue, the Court decided that the arbitration agreement was valid. The reason was that the arbitration agreement was drafted out of real intent of both parties. It clearly specified SIAC as the arbitration institution to settle any dispute arising from the contract. The only issue was whether the contract dispute was foreign-related. The Court further reasoned that the contract dispute did not contain any foreign elements prima facie, however, considering the nature of the contract, the parties and the process of contractual performance as a whole, this contract was obviously different from any pure domestic contracts, it was more of a foreign-related contract, since (1)the parties to the contract were WOFEs. Although they were Chinese legal entities according to Chinese law, their registration place were in Shanghai Free Trade Zone, the sources of the capital, allocation of income, governance of the companies were closely related to their foreign investors. Compared with normal domestic enterprises, these two companies had foreign-related characteristics; (2) the performance of the contract had foreign-related characteristic. The goods under this contract had to be imported from abroad to Shanghai Free Trade Zone and went through a whole set of Chinese custom procedures, which was more similar to international sale of goods. The Court thus concluded that the contract dispute fell within the scope of "Other situations that may be recognized as foreign-related civil relations" set forth in the Interpretation of the Supreme People's Court on Certain Issues Concerning the Application of the "Law of the People's Republic of China on the Application of Laws to Foreign-Related Civil Relations" (I).
  2. As to the second issue, the Court decided that there was no ground or evidence to support that recognizing and enforcing this SIAC award would be contrary to Chinese public policy.
  3. In light of Golden Landmark's allegation that there were errors in substantive issues in SIAC's award, the Court decided that it was beyond the situation listed in New York Convention and refused to answer to Golden Landmark's request for alteration of payment of interests in the award. The Court additionally decided that "the fact that Golden Landmark had performed part of its obligations under SIAC's award was sufficient to prove that it recognized the legal binding force of the arbitration agreement and accepted jurisdiction of the tribunal. Therefore, based on the principles of good faith and promissory estoppel, the Court shall refuse Golden Landmark's challenge."

The decision of Shanghai First Intermediate People's Court was highly apprised by arbitration practitioners in China. It reminds people of a similar case a few years ago----Beijing Chaolaixinsheng Case. The decision in the latter case was, however, adversely different than the present one. However, the Shanghai Court's ruling did not substantively altered what had been decided in SPC's Rely over Chaolaixinsheng Case, because it did not directly give a positive answer to "whether Chinese parties are entitled to submit contract dispute which has no foreign element to a foreign arbitration institution".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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