On 17 January 2020, by its ruling numbered (2019) Jing 04 Min Te 135 (Ruling), the Beijing Fourth Intermediate People's Court (Beijing Court) upheld the validity of an arbitration agreement in a prospectus for a short-term financing bond which also contains conflicting litigation clauses.

In the Ruling, the Beijing Court followed the opinion of the Supreme People's Court of China (SPC), reversing the lower court's initial conclusion. The SPC opined that, where a contract contains different dispute resolution clauses in different sections, the parties' "last expression of intent" prevails.


In October 2017, Beijing Huaye Capital Holdings Co., Ltd. issued a prospectus for its RMB500 million short-term financing bond. The term of the bond is 365 days. On 2 August 2018, Guangzhou Securities Co., Ltd. purchased the bond at par value for RMB50 million according to the terms of the Prospectus.

Chapter 11 of the prospectus (under the heading "Investors Protections") contains a number of inconsistent dispute resolution clauses:

  • Article 2, paragraph 1 (under the heading "Liability of Default") provides that the investors "may commence litigation in accordance with the law" if the issuer fails to redeem the bond and pay interest on the maturity date;
  • Article 7, paragraph 2(3) (under the heading "Change of Control") provides, in summary, that the investor "may commence litigation or arbitration" against the issuer for breach of contract if there is a change of control of the issuer;
  • The last paragraph of Article 7, which is also the last paragraph of the prospectus, provides: "The issuer, in issuing this debt financing instrument, the lead underwriter, in underwriting this debt financing instrument, and the holders, in subscription and purchasing this debt financing instrument, shall be deemed to have agreed to the agreement above. If the issuer breaches the agreement above, the investor shall have the right to apply to China International Economic and Trade Arbitration Commission (CIETAC) for arbitration in Beijing which shall be conducted in accordance with the CIETAC's arbitration rules in effect at the time. [......]". (Arbitration Agreement) (emphasis added)

In November 2018, Guangzhou Securities filed a request for arbitration against Huaye Capital with CIETAC, relying on the Arbitration Agreement. It claimed that Huaye Capital had breached the terms of the prospectus by failing to redeem the bond or to pay interest.

In response, Huaye Capital challenged the jurisdiction of CIETAC in early 2019 on two main grounds. First, it argued that the Arbitration Agreement applies only to disputes arising from the change of control of the issuer under Article 7, Chapter 11 of the prospectus. Since Guangzhou Securities' claims were based on Huaye Capital's default in repaying the principal and interest, the Arbitration Agreement does not apply. Second, it argued that the prospectus provided for both litigation and arbitration and was therefore invalid under Chinese law.

The Beijing Court's initial conclusion

The Beijing Court initially concluded that the Arbitration Agreement was invalid. It found that the language "the agreement above" in the Arbitration Agreement referred to the full prospectus, instead of Chapter 11 only. However, the Beijing Court also noted that the prospectus "refers to the expressions like 'commence litigation' in several places; which means that the Prospectus provides for both litigation and arbitration as dispute resolution mechanisms without particular distinctions." It therefore considered that the Arbitration Agreement was invalid under the "Interpretation of the Supreme People's Court on Certain Issues relating to Application of the Arbitration Law of the People's Republic of China", (SPC Interpretation on Arbitration Law), Article 7 of which provides that an arbitration agreement is invalid if "the parties agreed that the dispute can be either referred to an arbitral institution for arbitration or to a court for litigation".

Minded to invalidate the Arbitration Agreement, the Beijing Court reported the case to the higher courts pursuant to article 2(2) of the Provisions of the Supreme People's Court on Issues relating to the Reporting and Review of Cases Involving Judicial Review of Arbitration" (Reporting Provisions) (further explanation here). The case was ultimately reported to the SPC for review.

SPC's review opinion

The Beijing Court's Ruling contains the SPC's opinion. While the SPC agreed with the Beijing Court that the term "the agreement above" in the Arbitration Agreement refers to all matters under the prospectus, it found that "[t]he Prospectus provides for different dispute resolution methods in its earlier and later parts, the parties' last expression of intent shall prevail". The SPC accordingly reversed the Beijing Court's decision and confirmed that the Arbitration Agreement is valid.


Two points are worth noting.

First, it has been trite law in China that a "hybrid arbitration clause", i.e., an arbitration clause which provides that the parties can submit their disputes to either arbitration or litigation, is invalid. This was reinforced after the SPC Interpretation on Arbitration Law came into effect in 2006. The Beijing Court Ruling may indicate that the SPC is now adopting a more flexible and pro-arbitration approach to this issue. Based on the limited SPC remarks in the Ruling, we think the language of the Arbitration Agreement, which refers to arbitration only and specifically covers "the agreement above", and the fact that the Arbitration Agreement is the last paragraph of the prospectus, both influenced the SPC's decision. Although the Ruling should not be seen as a blanket removal of the restrictions imposed by Article 7 of the SPC Interpretation on Arbitration, it does suggest that the SPC may now consider this issue on a case by case basis.

Second, before the SPC issued its latest Reporting Provisions in December 2017, the "reporting system" applied only to foreign-related arbitrations. Had the current case taken place before 2018, the Beijing Court would have delivered its ruling against the Arbitration Agreement without having to report to the SPC. After the Reporting Provisions came into force in January 2018, the SPC has taken control of all cases – both foreign-related and domestic – in which a lower court is minded to hold an arbitration agreement invalid. The Ruling is another example of the SPC supporting arbitration within the current legal regime.

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