China Justice Observer

中国司法观察

China's First Public Arbitration Case under the UNIDROIT Principles

Sat, 09 May 2020
Categories: Insights
Contributors: Zilin Hao 郝梓林

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To date, the application of the UNIDROIT Principles of International Commercial Contracts ((hereinafter “the UNIDROIT Principles”) has been discussed in only five published arbitral awards from Chinese arbitral institutions, all of which were made by China International Economic and Trade Arbitration Commission (CIETAC). [1] The latest case in 2019, which involves a contract dispute between a Chinese company and an Indonesian company, went beyond discussion for the first time, becoming the first and, to date, the only reported case where the UNIDROIT Principles are explicitly applied by a Chinese arbitration institution. It is worth noting that, since most arbitral awards are unreported, there could be more cases of this kind in reality.

I. Introduction

The UNIDROIT Principles is an international uniform contract law document formulated by the International Institute for the Unification of Private Law (UNIDROIT) in 1994, and was amended in 2004, 2010, and 2016 respectively. The UNIDROIT Principles are designed to govern all international contracts, “irrespective of the legal tradition, economic and political environment”. [2]

CIETAC incorporated the arbitration case mentioned above into its latest publication titled “Selection of Arbitration Cases involving The Belt and Road Countries” in 2019. In this case, the parties chose Singapore law as the applicable law. Given that Singapore law could not be ascertained, the arbitral tribunal presumed that the UNIDROIT Principles were consistent with Singapore law and was therefore applicable, unless one party could prove otherwise. More specifically, the arbitral tribunal applied Articles 7.3.1, 7.3.5, 7.3.6, 7.4.1~7.4.4, and 7.4.7 of the UNIDROIT Principles to settle the disputes arising from contract termination and compensatory damages.

II. Case Brief

The applicants of this case were A (a Chinese Power Plant Engineering Company) and B (an Indonesian Power Plant Engineering Company), and the respondent was C (an Indonesian Engineering Company). The applicants and the respondent signed a Subcontractor Agreement and agreed that the contract was to be governed by Singapore law (regardless of the conflict rules). The arbitral tribunal held that the parties’ consensus in the Agreement should be fully respected, so the case should be governed by Singapore law. However, the applicants failed to submit the specific content of Singapore law, and only made their claim according to Chinese law. Although the respondent submitted a written expert testimony from a Singapore legal expert and some Singapore judicial precedents, the content of Singapore law provided by the evidence was very limited and failed to cover the main disputes. Under such circumstances, the applicants proposed the application of the Chinese law, but the respondent expressly objected it on the ground that Singapore law was specified as the applicable law in the Agreement.

Considering the situation above, and according to Paragraph 49 (1) of CIETAC Arbitration Rules 2015, “The arbitral tribunal shall independently and impartially render a fair and reasonable arbitral award based on the facts of the case and the terms of the contract, in accordance with the law, and with reference to international practices”, the arbitral tribunal recommended the parties to settle the disputes by international practices, i.e., the relevant provisions of the UNIDROIT Principles. The arbitral tribunal held that the UNIDROIT Principles represented the general principles of contract laws and there was no reason to believe that Singapore law was inconsistent with it. Both the applicants and the respondent accepted this recommendation. Therefore, the arbitral tribunal held that under the UNIDROIT Principles, the applicants had the right to terminate the contract pursuant to Article 7.3.1  and to claim restitution as appropriate on termination of a contract pursuant to Article 7.3.6. In addition, the arbitral tribunal also assessed the amount of damages at its discretion pursuant to Article 7.4.3, and handled the claims for damages pursuant to Article 7.4.7 “[w]here the harm is due in part to an act or omission of the aggrieved party”.

III. Comments

Compared with litigation, the biggest advantage of international commercial arbitration is the autonomy of the parties and the flexibility of the arbitration procedure. In recent years, China’s arbitration is becoming ever-increasing international. International treaties, international practices, and foreign laws have been frequently applied in China’s foreign-related arbitration cases. The above-mentioned case not only represents the first time that China’s arbitral tribunal explicitly applies the UNIDROIT Principles, but also the first time that the arbitral tribunal takes the initiative to apply the UNIDROIT Principles when it is not in the agreement. This fully shows that China’s arbitration institutions attach great importance to international commercial practices. As Article 18 of the Several Opinions of the Supreme People’s Court on Providing Judicial Services and Safeguards for the Construction of the ‘Belt and Road’ by People’s Courts (关于人民法院进一步为“一带一路”建设提供司法服务和保障的意见) states, “[t]ake the initiative to apply international treaties that are effective for China, respect international practices and international commercial rules, as well as establish and improve regional and global commercial legal rules”, China’s arbitration institutions will continue to apply international uniform legal documents as the applicable law in arbitration practice in the future, which will be of great significance to further internationalize China’s arbitration and optimize China’s business environment.

 

 

[1]1.瑞士公司与中国公司轧制钢板买卖合同纠纷案(0291-1/2004),参见:http://www.unilex.info/principles/case/1441;

2.法国公司与中国公司冷冻设备买卖合同纠纷案(02-09-2005),参见:http://www.unilex.info/principles/case/1355;

3.中国公司与韩国公司国际货物销售合同纠纷案(2007),参见:http://www.unilex.info/principles/case/1208;

4.香港买方与中国内地卖方模具买卖合同纠纷案(10-09-2009),载《中国国际商事仲裁年度报告2015》,中国仲裁法学研究会,第73页。参见:http://www.cietac.org/Uploads/201612/58678e45783ae.pdf;

5.中国公司与印度尼西亚公司承包合同争议仲裁案(2019),载中国国际经济贸易仲裁委员会主编:《涉“一带一路”国家仲裁案例选编》,法律出版社2019年版,第58-106页。

[2] Gesa Baron, Do the UNIDROIT Principles of International Commercial Contracts Form a New Lex Mercatoria? Arbitration International, No.2, at p.127, 1999.

 

Photo by Casey Horner (https://unsplash.com/@mischievous_penguins) on Unsplash

 

Contributors: Zilin Hao 郝梓林

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