China: Case Alert: Chinese Court Refused Recognition And Enforcement Of A SIAC Award

Last Updated: 10 January 2018
Article by John Liu and Minli Tang

Fact

A foreign company (the Seller) and a Chinese company (the Buyer) signed the "Iron Ore Sales Contract" on October 29, 2014. The contract also stipulated that the attached "GlobalORE Standard Iron Ore Trading Agreement" (SIOTA) would be incorporated by reference.

Part 2, Clause 16 "Disputes" of the SIOTA:

16.1 Any dispute or claim caused by the transaction or the agreement, including matters regarding the existence, validity or termination shall be submitted to and finally resolved in Singapore in accordance with the Arbitration Rules of Singapore International Arbitration Centre (SIAC Rules) for the time being in force, which rules are deemed to be incorporated by reference in this clause.

16.1.1 The arbitration tribunal shall consist of three (3) arbitrators.

Later, disputes arose and the Seller submitted Notice of Arbitration to Singapore International Arbitration Centre (SIAC) on January 14, 2015. The Seller applied for the Expedited Procedure and claimed that the Buyer should to be liable for breach of contract. SIAC accepted the case.

SIAC then asked the Buyer to submit opinions on the application of the Expedited Procedure before February 6, 2015. The President would determine whether the arbitral proceedings shall be conducted in accordance with the Expedited Procedure by considering the facts and reasons offered by the parties.

The Buyer wrote to SIAC on February 6, 2015. In the letter, the Buyer disagreed to conduct the arbitral proceedings in accordance with the Expedited Procedure and required for an arbitration tribunal with three arbitrators. On February 27, 2015, the Buyer wrote to SIAC again and contended that the Expedited Procedure shall not be applied and the tribunal shall consist of three arbitrators.

On March 3, 2015, SIAC wrote to both parties and stated that the parties did not reach an agreement on the nomination of the sole arbitrator. The President of SIAC would appoint the sole arbitrator in accordance with clause 7.2 of SIAC Rules (2013). On the same day, the Seller wrote to the Buyer and said that if the Buyer could promise that it would pay the costs of three arbitrators, the Seller would agree to conduct the proceedings with three arbitrators.

On March 5, 2015, the Seller wrote to SIAC and said that the Buyer had not replied within the deadline and the conditional offer became invalid. The Seller thus requested SIAC to advance the arbitral proceedings.

On April 20, 2015, the vice president of SIAC appointed a sole arbitrator to hear this case but the Buyer did not attend the hearing.

The arbitral award was issued by the sole arbitrator on August 26, 2015, under which the Buyer was required to pay the Seller the liquidated damages, the interest, the costs of arbitration, and other legal costs.

The Seller submitted an application to Shanghai No. 1 Intermediate People's Court (Intermediate Court) for the recognition and enforcement of the arbitral award made by SIAC.

Ruling

The issue before the court was whether the composition of the arbitral tribunal was in accordance with the agreement of the parties.

The Intermediate Court held that the arbitral tribunal with the sole arbitrator was not in accordance with the agreement of the parties and the case fell under article 5.1(d) of the New York Convention ("(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place;").

Whereas the default rule under Expedited Procedure is to have a sole arbitrator to hear the case, SIAC Rules (2013) did not exclude other compositions of the arbitral tribunal (e.g. three arbitrators) and SIAC Rules did not authorize SIAC to appoint a sole arbitrator while the parties had already reached an agreement on the composition of the arbitral tribunal.

The principle of party autonomy is the foundation of arbitration. The parties in this case had already made a specific agreement that the arbitral tribunal shall consist of three arbitrators and had not excluded this composition in the Expedited Procedure. Therefore, the application of the Expedited Procedure shall not impede the parties' fundamental procedural right.

While the arbitration agreement stipulated that the arbitral tribunal shall consist of three arbitrators and the Buyer explicitly opposed the appointment of a sole arbitrator, the decision made by SIAC to appoint a sole arbitrator was in breach of the arbitration agreement, thus fell under article 5.1(d) of the New York Convention.

The award was thus set aside by the Intermediate Court.

  • Comment

Under Chinese Law, as per Circular of the Supreme People's Court on Issues in the People's Courts Handling of Foreign-related Arbitrations and Foreign Arbitrations, prior to making decision on refusing to recognize or enforce a foreign arbitration award, the court of first instance should report the case to the Higher People's Court within its jurisdiction for review, and if the Higher People's Court agrees with the lower court, it shall report its review opinion to the Supreme People's Court.

Therefore, even though the ruling was made by Shanghai No. 1 Intermediate People's Court, it was actually double checked by Shanghai Higher People's Court and confirmed by the Supreme People's Court of China. Thus, the ruling can be deemed to be authoritative adjudication endorsed by the highest judicial authority in China and is expected to be followed by other courts in China under similar circumstances.

In Singapore, there were two cases which had very similar facts background as to the current case: W Company v Dutch Company and Dutch Holding Company [2012] 1 SAA 97 and AQZ v ARA [2015] SGHC 49. However, under both cases, the arbitrator/judge hold that there is no intrusion of party autonomy. It was held that the parties chose the SIAC Rules to govern the arbitration and they accepted the entirety of the SIAC Rules including the Expedited Procedure in Rule 5 together with the powers that the Rule reserves to the Chairman and Registrar of the SIAC to administer and guide the proceedings. There is no derogation from party autonomy and it is precisely the parties' choice of the SIAC Rules that requires acceptance of the Chairman's decision. Therefore, the Expedited Procedure provision can override parties' agreement for arbitration before three arbitrators

Actually, all these cases reflect the tension between party autonomy and institutional control under institutional arbitration. It is noteworthy that different jurisdictions tend to have different views towards this tension. While Chinese courts are more likely to adopt strict interpretation of party autonomy and hold that institutional rules shall not override party autonomy stipulated under the parties' arbitration agreement, other courts may have contrasting views.

Previously published Lexology, August 25 2017.

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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