以下文章来源于中伦文德律师事务所 ，作者ZLWD

On May 30, the 63rd biweekly consultation forum of the National Committee of the Chinese People's Political Consultative Conference (CPPCC) was held in Beijing. Wang Yang, member of the Standing Committee of the Political Bureau of the CPC Central Committee and chairman of the CPPCC, presided over the meeting. The participants believe that the current arbitration law has played an important role in resolving civil and commercial disputes and strengthing economic and social development for more than 20 years; at the same time, it should be noted that there are still problems such as narrow scope of accepted cases, unclear positioning of the nature of arbitration institutions, imperfect provisions related to arbitrators, inadequate judicial support and supervision mechanisms, and inadequate interface with international arbitration rules. Those problems do not meet the needs of the development of the situation and the practice of arbitration which need urgent revision and improvement.

Based on the above-mentioned issues, the participants put forward the following proposals: (1) Appropriately expand the scope of arbitration, all disputes that the parties have the right to dispose of and do not affect the public interest can be arbitrated in principle, and to include disputes in the fields of intellectual property, international investment, sports and anti-monopoly into the scope of arbitration by referring to international common practice. (2) Improve the arbitration system, further clarify the specific type of arbitration institutions as non-profit legal persons, and the arbitration institutions should establish a sound corporate governance structure with mutual separation of decision-making, executive and supervisory powers, effective checks and balances, and reciprocity of powers and responsibilities, so as to improve their credibility. (3) Improve the mechanisms of appointment qualification review, selection and training, and assessment and evaluation of arbitrators, establish an information disclosure system for arbitrators, and strengthen industry self-regulation and supervision. (4) Rationalize the relationship between arbitration and litigation, clarify the principles of judicial support and supervision of arbitration, guarantee the independent conduct of arbitration in accordance with the law, and prevent the tendency of judicialization of arbitration. (5) Support the construction of international first-class arbitration centers, deepen international arbitration communication and cooperation with emphasis on countries along the "Belt and Road", and enhance the international competitiveness and influence of Chinese arbitration. (6) Strengthen the construction of arbitration disciplines and the training of talents, and build a high-quality international arbitration talent team.

On June 24, the 35th meeting of the Standing Committee of the 13th National People's Congress voted to adopt the newly revised Law of the PRC on Physical Culture and Sports(hereinafter referred to as the “Sports Law”), which will come into force on January 1, 2023. This is the first comprehensive and systematic revision of the law after nearly 27 years since its promulgation and implementation in 1995.

China first adopted the Sports Law on August 29, 1995, which had fillied a gap in this area. Although sports arbitration was written into the Sports Law as early as 1995, China has never issued rules to implement a sports arbitration system. Because of the lack of sports arbitration rules and the fact that most courts will choose not to accept sports disputes based on the relevant legal provisions【1995 Sports Law Article 33:  Disputes arising in competitive sports activities shall be mediated and arbitrated by sports arbitration institutions. Measures for the establishment of sports arbitration institutions and the scope of arbitration shall be prescribed separately by the State Council.】, many athletes involved in disputes such as unpaid salaries can only be resolved through mediation within the industry. At present, the Football Association and the Basketball Association and other institutions have set up arbitration committees to deal with all kinds of disputes within the industry.

As the background and realistic needs of sports have changed significantly, this revision of the Sports Law provides for the first time detailed and clear provisions on the sports arbitration system at the legal level, which fills the legal gap in this field and is of great significance to the subsequent construction of a professional and efficient sports arbitration system. As a whole, it will have an important normative and leading role in promoting deepening reform in the field of sports and modernizing the sports governance system and governance capacity.

On June 16, 2022 China Maritime Commercial Arbitration High-Level Dialogue (hereinafter referred to as "High-Level Dialogue") was held in Beijing. The theme of the High-Level Dialogue was "Reform, Innovation and High Quality Development of Maritime Commercial Arbitration in the New Situation". It was held in an online and offline manner.

The High-Level Dialogue discussed hot legal issues in arbitration, maritime and commercial. Specific issues included: transparency of arbitration procedures and enforcement of arbitral awards, application of artificial intelligence in arbitration procedures, feasibility and necessity of online court hearings, third-party funded arbitration in international arbitration, necessity and feasibility of amending the relevant rights and obligations of port operators under maritime law, and validity of the betting clauses signed between PE/VC and target companies.

Ren Hongbin, president of China Council for the Promotion of International Trade (CCPIT), said that this century has been interwoven the change and the epidemic, and the world economic recovery is difficult and tortuous, which has put forward higher requirements for foreign-related legal services. In order to vigorously promote high-level opening to other countries, accelerate the establishment and improvement of the international economic and trade system and the supporting legal service system, and promote economic and trade arbitration to play a more important role in maintaining the global economic and trade order and the change of the governance system, Ren Hongbin put forward three suggestions: First, strengthen coordination and cooperation and constantly improving a market-oriented, law-based and international business environment; Second, adhere to innovation-driven system, and continuously explore the growth potential of foreign-related economic and trade services; Third, insist on theoretical research and practical exploration, and actively participate in global governance.

The High-Level Dialogue brought together Chinese and foreign experts and scholars to fully summarize the new achievements and consensus in the current arbitration industry, which is conducive to further identify the entry point of maritime commercial arbitration in the new pattern, improve and deepen the institutional construction of maritime commercial arbitration and related supporting measures, and promote the high-quality development of Chinese foreign-related legal services.

Case Description:

In 2010, G, a property developer, entered into a Construction Contract (hereinafter referred to as the “Contract”) with H, a construction contractor, agreeing that H would act as the main contractor to carry out construction works for G's project in Hong Kong. Clause 35 of the Contract was a dispute resolution clause, which agreed that the relevant disputes would be arbitrated under the domestic arbitration rules of the Hong Kong International Arbitration Centre (HKIAC). The Contract also agreed that H would provide a 10-year warranty on the waterproofing system of the construction work from the date of completion, and that H would be jointly and severally liable for the warranty with its subcontractors or suppliers. In 2011, H and its subcontractor SC entered into a Deed of Warranty(herein after referred to as the “Warranty”) for the waterproofing system as an annex to the Contract, and Clause 11 of the Warranty contained a non-exclusive jurisdiction clause for dispute resolution through the Hong Kong courts. The construction work was completed in 2012.

In 2020, G initiated arbitration against H in relation to a dispute in which G claimed that the defects were caused by the negligence of H and its service provider or agent, who had breached the Contract and the Warranty. The tribunal ruled in 2021 that it had jurisdiction over G's claims under both the Contract and the Warranty, on the ground that matters arising under the Main Contract which might also amount to breaches of the Deed of Warranty may be determined within any arbitration convened in respect of such matters under the terms of the Clause 35 Arbitration Agreement. H argued that the tribunal did not have jurisdiction over G's claims under the Warranty and requested Hong Kong High Court(hereinafter referred to as the “Court”) to set aside the tribunal's jurisdictional decision.

H argued that the jurisdiction clause contained in Clause 11 did not seek to capture any disputes falling within the ambit of Clause 35, and Clause 35 should yield to the clear, contrary intention expressed in Clause 11 with regard to claims made under the Warranty.

G argued that Clause 11 of the Warranty and Clause 35 of the Contract could be applied simultaneously. G was not prevented in principle from submitting the dispute under the Warranty to arbitration, given that court proceedings had not been initiated. Furthermore, G argued that it makes no commercial sense to submit the dispute under the Contract and the Warranty to arbitration and litigation respectively, since they were related to the same subject matter of the dispute.

Court’ s View:

The central issue in the case was whether G and H intended to submit disputes under the Contract and the Warranty to the arbitral tribunal for resolution. The Court noted that when G and H negotiated and signed the Contract in 2010, both parties anticipated the execution of the Warranty and agreed to annex its contents to the Contract. The Warranty expressly stated that a third party would be responsible for the work in question as a subcontractor and contained a clause that disputes under the Warranty would be resolved through the courts. In light of this, the Court held that G and H had entered into the Contract with the express intention of separating disputes under the Warranty from the arbitration clause under Clause 35 of the Contract. As the Warranty involved a third party as a subcontractor and who would perform the installation of the waterproofing system, and potential disputes under the Warranty would be against different parties. The parties expressed their intention to provide for an alternative dispute resolution mechanism in Clause 11, separate from arbitration, by referring disputes under the Warranty to the courts of Hong Kong for resolution.

The Court cited Hamblen LJ's statement in BNP Paribas v Trattamento [2020] 1 All ER 762 that it is recognized that sensible business people are unlikely to intend that similar claims should be subject to inconsistent jurisdiction clauses. The starting presumption will therefore be that competing jurisdiction clauses are to be interpreted on the basis that each deals exclusively with its own subject matter and they are not overlapping, providing the language and surrounding circumstances so allow.

The Court also cited the statement of Longmore LJ in Deutsche Bank AG v Comune di Savona [2018] 4 WLR 151 that where there are theoretically competing jurisdiction clauses, the natural reaction would be that it should be possible to assign any particular dispute to one or such other clause and that there should be no overlap between them.

After examining the above cases, the Court held that Clause 35 and 11 dealt with separate disputes under the Contract and the Warranty, respectively. The parties had a clear choice of grounds and had chosen different dispute resolution clauses to apply to the different disputes. Interpreting Clause 35 to cover disputes under the Warranty would lead to the undesirable result that G would have the option to assert its claim against H through arbitration or litigation, while H would only be able to assert its joint and several liability and indemnity against SC through litigation. This would result in matters of breach of contract under the Warranty being resolved through different procedures and create the risk of inconsistent determinations and cost compounding that a reasonable businessman would wish to avoid.

In conclusion, the Court held that the tribunal did not have jurisdiction over the dispute under the Warranty.

Legal Basis:

Arbitration Law of the People's Republic of China(Revision 2017)

Article 58:

Where the parties concerned can provide evidence disproving the arbitration award in any of the following circumstances, they may request a cancellation of the arbitration award by an intermediate People's Court at the place where the arbitration commission is located:

(1) there was no arbitration agreement;

(2) items for arbitration were not within the scope of the arbitration agreement or were those upon which the arbitration commission had no right to arbitrate;

(3) the establishment of the arbitration tribunal or arbitration procedures are in contravention of legal proceedings;

(4) the evidence upon which the arbitration award is made was counterfeit;

(5) the other party has concealed evidence to the degree that fairness has been affected;

(6) arbitrators have accepted bribes, resorted to deception for personal gain or perverted the course of justice by the award.

Where the People's Court has formed a collegiate bench and has examined and verified that the award was made under one of the aforesaid situations, it shall order the cancellation of the award.

Case Description:

On August 17, 2021, Xi'an Arbitration Commission issued Arbitration Award No. 3227 of Xi'an Arbitration Word (2019)(hereinafter referred to as the “Arbitral Award”): 1. Respondent Li Mengsheng shall pay compensation of RMB896,176.36 to applicant Yanchang Shell Petroleum Co., Ltd.(hereinafter referred to as the “Company”); 2. The applicant's other arbitration requests are rejected; 3. The arbitration fee of RMB29,921 has been paid by the applicant in advance, 5,984.2 RMB by the applicant, and RMB23,936.8 by the respondent, Li Mengsheng. The arbitration fee of RMB23,936.8 borne by the respondent Li Mengsheng shall be paid to the applicant when the first request above is fulfilled. This award is final and takes legal effect from the date of making.

Li Mengsheng requested the Court to set aside the Arbitral Award issued by Xi'an Arbitration Commission. The facts and reasons are as follows: there is no arbitration agreement or arbitration clause between him and the Company. The Xi'an Arbitration Commission has no jurisdiction over the dispute between the two parties, and the Arbitral Award in question complies with the provisions of Article 58 (1) a of the Arbitration Law of the People's Republic of China. Therefore, the Arbitral Award should be set aside.

The Company argued that a lease relationship had been formed between Li Mengsheng and the gas station. Li Mengsheng accepted all the terms of the Sublease Contract, including the arbitration agreement. By signing the Consent Letter attached to the Sublease Contract, Li Mengsheng indicated that he should continue to accept the Sublease Contract, including the arbitration agreement, and that the dispute over the gas station in question should be submitted to the Xi'an Arbitration Commission for arbitration. Li Mengsheng did not bring the dispute to court. Therefore, the Xi'an Arbitration Commission has arbitration jurisdiction over this case in accordance with the law and should not set aside the award.

Court’ s View:

In this case, although the a lease relationship was automatically formed between Li Mengsheng and the Company after the lease relationship between the Company and Xi'an Dongsheng Investment Management Co., Ltd. was terminated, the parties did not reach an explicit agreement that the lease relationship would be governed by the Lease Contract between the Company and Xi'an Dongsheng Investment Management Co., Ltd. Therefore, the arbitration agreement between the Company and Xi'an Dongsheng Investment Management Co., Ltd. is not binding on Li Mengsheng, and there is no arbitration agreement between Li Mengsheng and the Company. Therefore, Li Mengsheng's application to set aside the Arbitral Award has factual and legal basis and should be supported. The argument of the Company is not based on facts and cannot be established.

In summary, the Court ruled to set aside the Arbitral Award issued by the Xi'an Arbitration Commission in accordance with Article 60 of the Arbitration Law of the People's Republic of China.

This Newsletter is produced by ZLWD International Business Committee and for your reference only.

Editorial Board: Wei LIN  Philip DUAN  Ellen WANG  Lingling GUO Yuming LI Ning NING  jingya MAO

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