The Contract and Dispute
On 7 September 2017, Art-Mosaic Co., Ltd. (“Art-Mosaic”), an Uzbekistan-based company, executed a purchase contract (the “Contract”) via email with a Chinese individual named Liu Shaoqing to buy raw materials for glass production. According to the Contract, Hongguan Trading Co., Ltd. (“Hongguan Trading”), a Chinese company, would be both the manufacturer and consignor of the goods.
The Contract specified, inter alia, Hongguan Trading's business address and the particulars of its bank account with Barclays Bank PLC. In addition, the Contract also contained an arbitration clause providing that “in case the dispute cannot not be settled through negotiation, the dispute shall be submitted to the court of arbitration at the place of the either the claimant or the respondent for adjudication.”1
On 1 November 2017, Art-Mosaic paid the contract price of USD18,268 to the afore-mentioned bank account. However, it did not receive the goods or any refund from Hongguan Trading thereafter.
Arbitral Proceedings
On 22 November 2017, Art-Mosaic filed a Request for Arbitration against Hongguan Trading with the International Commercial Arbitration Court at the Uzbek Chamber of Commerce and Industry (“ICAC Uzbekistan”) seeking damages of USD 21,191. This sum was comprised USD18,268 for the goods and USD 2,923 for liquidated damages. It appears that Hongguan Trading did not participate in the arbitration.
On 24 January 2020, the Arbitral Tribunal issued an award in favour of Art-Mosaic, ordering Hongguan Trading to pay to a total compensation of USD 21,191 plus UZS 2,113,348 (approx. USD 222)2 for the arbitration fees.
Initiation of Court Proceedings and Position of the Parties
On 23 April 2021, as Hongguan Trading had failed to pay the sums due under the Arbitral Award, Art-Mosaic initiated proceedings for recognition and enforcement before the Foshan Intermediate People's Court (the “Foshan IPC” or “Court”). In the Court proceedings, Hongguan raised the following objections to the enforcement application.
- The arbitration agreement in the Contract was not binding on
Hongguan Trading. The Contract
was not entered into between Art-Mosaic and Hongguan Trading because it was not stamped with Hongguan Trading's company chop or contract chop. Instead, the Contract was signed by Liu Shaoqing, an employee with another Chinese company, Foshan Meijing Building Materials Co., Ltd. (“Meijing Co”).
- Hongguan Trading had never received any payment from Art-Mosaic
for the disputed goods. The bank account details specified in the
Contract were not those of Hongguan Trading which had never opened
an account with any overseas banks.
- Hongguan Trading was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings, rendering it unable to present its case. Hongguan Trading had not received any documentation relating to the arbitration, including the hearing notice and the Arbitral Award. Even if the Court were to find that the company had received the arbitration documentation, such documentation was disregarded because it was in a language other than Mandarin or English.
The evidence Art-Mosaic adduced included the Contract, the payment order for the contract price, notices of the appointment of arbitrator(s) and of the arbitral hearing, the relevant courier record regarding the delivery of the arbitration notices, and the Arbitral Award. In further support of its application, Art-Mosaic also submitted (i) the air tickets and travel itinerary of its principal, Kim Gennadiy Aleksandrovich, who had travelled to meet with Liu Shaoqing in 2014 and 2017 at her office and factory in Foshan city and obtained goods samples from her; and (ii) a copy of Liu Shaoqing's passport and Wechat account screenshot.
In response, Hongguan Trading presented the following evidence to prove Liu Shaoqing was neither its employee nor authorized to sign the Contract on its behalf: (i) communication record between Hongguan Trading's personnel and Liu Shaoqing on social media platforms, and (ii) Hongguan Trading's record of social insurance subscription for its employees.
Liu Shaoqing does not appear to have given testimony in Court on Hongguan Trading's objections.
Court Analysis
When examining the enforcement application, the Foshan IPC made the following findings:
- The Contract bore the signature of Liu Shaoqing at the bottom of each page. Hongguan Trading alleged that Liu Shaoqing was an employee of Meijing Co. However, the Court found the record of social insurance subscription inadmissible as it was prepared by Hongguan Trading without any stamp of the social insurance administration.
- Hongguan Trading submitted that it had a long-term business relationship with Meijing Co which included the provision of export services and tax rebate applications.Considering Hongguan Trading's past dealings with Meijing Co and Liu Shaoqing, as well as the industry practices of the import and export trade, it could not be ruled out that Hongguan Trading might have entrusted its business chop to Liu Shaoqing for disposition and control. Hongguan Trading may also have authorized Liu Shaoqing to enter into contracts. Hence, the Court found that Art-Mosaic had sufficient grounds to believe that Liu Shaoqing had been duly authorized to sign the Contract on Hongguan Trading's behalf.
- The Contract was stamped with Hongguan Trading's business chop, as opposed to its company chop or contract chop. However, Art-Mosaic as a foreign company should not be burdened with distinguishing between the legal implications of different chops used by Chinese companies. Given that the Contract already bore Hongguan Trading's business chop, Art-Mosaic had reasonable grounds to believe that the chop demonstrated Hongguan Trading's consent to the Contract. Accordingly, the Contract containing the arbitration clause was found to be binding on Hongguan Trading.
- Art-Mosaic had presented sufficient evidence to show that its principal had repeatedly communicated with Liu Shaoqing and obtained specimens for goods from her before concluding the Contract. Considering Hongguan Trading's business address and the bank account beneficiary's address specified in the Contract were indeed the company's registered and actual business address, the Court found that Art-Mosaic had exercised due diligence in concluding the Contract.
- The notices of arbitrator appointment and for the arbitral hearing had been successfully delivered via courier to Hongguan Trading's registered business address on 28 November 2017. The Arbitral Award was also successfully delivered to Hongguan Trading on 6 July 2020. Hongguan Trading was still operating at its registered business address and had failed to prove that it had not received the aforementioned arbitration documentation.
- As a company specialized in the import and export business, Hongguan Trading should have exercised a greater degree of care and attention to documents from abroad or written in foreign languages. Therefore, the company should bear the consequences of having failed to take note of or respond to the arbitration.
Decision of the Court
On 28 February 2022, the Foshan IPC ruled to recognize the Arbitral Award based on Articles I, IV, and V of the New York Convention (1958) and Articles 157(1)(xi) and 290 of the PRC Civil Procedure Law (2021).
Commentary
This case is one of the first “typical cases” published by the Supreme People's Court in early 2024 on judicial review of arbitration,ranging from the annulment and enforcement of arbitral awards to the verification of the validity of an arbitration agreement. The case concerns the recognition and enforcement of an Uzbekistan arbitral award under the framework of the New York Convention (1958), and serves as a positive example of the PRC courts' application of international conventions in determining the enforceability of foreign arbitral awards. It also exemplifies the Court's efforts in providing judicial services and safeguards for the “Belt and Road” initiative.
Further, it is encouraging to note that the Court imposed a more lenient standard when examining Art-Mosaic's exercise of due diligence in concluding contracts with Chinese parties, particularly with respect to company stamps. This follows from recognising that Art-Mosaic would not have been familiar with the niceties of the various chops used by Chinese companies. That said, the Court's focus on the factual aspects of the dispute meant that it did not specifically assess what law applies to determine the alleged lack of authority on the part of Liu Shaoqing when the Contract was
signed. Beyond that, in applying Article V of the New York Convention (1958), the Court appears to have not considered the applicable law of the arbitration agreement in determining the establishment and binding effect of the disputed arbitration clause.
A further point of interest in relation to this case is that the Court only granted Art-Mosaic's request for recognition of the Arbitral Award in its the holding, despite Art-Mosaic having applied for recognition and enforcement of the Arbitral Award. This approach may be said to deviate from general practice of other PRC courts, and may be explained by the Court's inclination to treat recognition as a prerequisite to enforcement under Article 546(1) of the Supreme People's Court's Interpretation on the PRC Civil Procedure Law (2020).
Footnotes
1. Author's translation of the Chinese wording in the court decision.
2. Exchange rate of the Central Bank of Uzbekistan applicable on the payment day of the arbitration fees: USD 1 = UZS 9519.6.
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