Laws of the People's Republic of China

Reply of the Supreme People's Court to the Request for Instructions on the Force of Arbitration Clauses

Min Si Ta Zi [2005] No. 50

The Higher People's Court of Tianjin Municipality:

Your Request for Instructions on the Invalidity of Arbitration Clauses in the Case Involving a Dispute over Sales Contract between the Air Building Material (Tianjin) Co., Ltd. and German Masa (Group) Co., Ltd., Masa (Tianjin) Building Material Machinery Co., Ltd (Jin Gao Min Si Zhong Zi [2005] No. 171) has been received, and upon deliberation, we hereby make the reply as follows:

In this case, an arbitration clause has been made in the Contract in both Chinese and English Versions entered and concluded between the Air Building Material (Tianjin) Co., Ltd. (hereinafter referred to as the Air) and German Masa Group Co., Ltd. (hereinafter referred to as German Masa), and the Chinese version shall prevail. Therefore, in this case, the force of the arbitration clause shall be decided under the Contract in the Chinese version. It is prescribed in the Chinese version of the Contract that: "Any dispute arising from the performance of the Contract shall be resolved through a friendly negotiation of both parties concerned. Where the parties fail to solve it, the dispute shall be resolved through arbitration by China or Tianjin Council for the Promotion of Foreign International Trade in Beijing or Tianjin, China in accordance with the present existing procedures of arbitration in force. The arbitration made by the said arbitration commission shall be final and binding on both parties concerned, and shall be executed by both parties concerned as well. The arbitration cost shall be borne by the losing party." Both parties fail to set any applicable law for the force of their arbitration clause, yet it is prescribed that the place of arbitration shall be Beijing or Tianjin, China. Therefore, the judgment of the force of the arbitration clause shall accord with the law of the place where the arbitration is made, namely, the relevant Chinese Law. The arbitration clause has rendered an intent that any dispute over the Contract shall be settled through arbitration and it is prescribed that "China or Tianjin Council for the Promotion of Foreign International Trade" shall undertake an arbitration. Since that "Tianjin Council for the Promotion of Foreign International Trade" does not exist at all, it could be regarded that it is "China International Economic and Trade Arbitration Commission (CIETAC) that both parties have chosen to make arbitration as the parties stipulated that "China Council for the Promotion of Foreign International Trade" should undertake the arbitration. Therefore, it shall be deemed that the arbitration clause accords with the provisions of the Arbitration Law of China and thus is authentic. The dispute between the Air and German Masa shall be settled through arbitration and may not be subject to the jurisdiction of the people's court.

Since that there is no arbitral agreement between the Air and Masa (Tianjin), the relevant dispute therebetween shall be subject to the jurisdiction of No. 1 Intermediate People's Court of Tianjin Municipality where the defendant is located.

Additionally, your court shall pay attention to the consistency between the Chinese name of the defendant and that as indicated in the Contract.

The Supreme People's Court

December 30, 2005 Request for Instructions of the Higher People's Court of Tianjin Municipality on the Invalidity of the Arbitration Clause in a Case Involving Dispute over Sales Contract between the Air Building Material (Tianjin) Co., Ltd. and German Masa (Group) Co., Ltd., Masa (Tianjin) Building Material & Machinery Co., Ltd.

Jin Gao Min Si Zhong Zi [2005] No. 171 October 20, 2005

The Supreme People's Court:

As for the case involving a dispute over sales contract between the Air Building Material (Tianjin) Co., Ltd. (hereinafter referred to as the Air) and German Masa Group Co., Ltd. (hereinafter referred to as German Masa), Masa (Tianjin) Building Material & Machinery Co., Ltd. (hereinafter referred to as Tianjin Masa), it has been prescribed in the purchase contract concluded by the Air and German Masa on September 16, 2002 that: "Any dispute arising from the performance of the present Contract shall be resolved through a friendly negotiation of both parties concerned. Where the two parties fail to solve it, the dispute shall be resolved through arbitration by China or Tianjin Council for Promotion of Foreign International Trade in Beijing or Tianjin, China in accordance with the present existing rules of arbitration in force. The arbitration made by the aforesaid Arbitration Commission shall be final and binding on both parties concerned, and shall be accorded with by both parties concerned as well." The No. 1 Intermediate People's Court of Tianjin Municipality considered through examination that, when the Air and German Masa concluded the Purchase Contract, although both parties concerned stipulated that any dispute therebetwen should be subject to the arbitration conducted by an arbitration institution, the name of the arbitration institution failed to be prescribed in the arbitration clause clearly. As there is no clear arbitration institution prescribed in the arbitration clause, the people's court shall have the jurisdiction thereon.

Two pieces of opinions are given as follows by the people's court upon examination: The majority holds that there is no provision on the applicable law to confirm the force of the arbitration clause, except for the place of arbitration, in the purchase contract concluded between the Air and German Masa. Therefore, the law of the place where the arbitration is conducted, namely, the Arbitration Law of the People's Republic of China, shall be applied to adjudicate the force of the arbitration clause. The arbitration institution as prescribed in the purchase contract as concluded on September 16, 2002 by both parties concerned is China/Tianjin Council for Promotion of Foreign International Trade, which does not exist in either Beijing or Tianjin. Therefore, the No. 1 Intermediate People's Court of Tianjin Municipality holds that it is correct to deem that "there is no clear arbitration institution prescribed in the arbitration clause." Where both parties concerned fail to reach a supplementary agreement thereon, the people's court shall have jurisdiction.

The minority holds that, the China/Tianjin Council for Promotion of Foreign International Trade as prescribed in the arbitration clause shall be taken as China International Economic and Trade Arbitration Commission and thus the parties concerned shall apply with the arbitration institution for arbitration.

In accordance with the Notice of the Supreme People's Court on the Relevant Issues concerning the Transacting of Foreign-related Arbitration or Arbitration of a Foreign Country by the People's Court, we hereby report the examination opinions and relevant case materials to the Supreme People's Court for examination and reply.