China Justice Observer

中国司法观察

CICC Case Tracking Series -04: On CICC's Jurisdiction over the Judicial Review of Arbitration with Luck Treat Ltd. Case as an Example

Sun, 03 Nov 2019
Categories: Insights

 

China International Commercial Court (CICC) rendered its first ruling on 18 Sept. 2019, which expanded its jurisdiction to the judicial review of arbitration cases.

In CICC Case Tracking Series – 01, we introduced three related cases accepted by China’s First International Commercial Court on the application for confirming the validity of an arbitration agreement. Now there are some updates for this case.

On 18 Sept. 2019, CICC made civil rulings respectively on the three cases. It seems to be the first time for CICC to make rulings since its establishment. Based on the three rulings, we can get a preliminary understanding about how CICC handles cases, in particular, how CICC extends its jurisdiction from the listed scope to the judicial review of arbitration cases.

Related Posts on CICC Case Tracking:

 

I. Case summary

Luck Treat Co., Ltd. (“Luck Treat Ltd.”) and its affiliates had disputes with Zhongyuan Cheng Commercial Investment Holdings Co., Ltd. (domiciled in Shenzhen) (“Zhongyuan Cheng Ltd.”) on the establishment of arbitration agreement.

Luck Treat Ltd. and its affiliates filed three lawsuits in Shenzhen Intermediate People’s Court (“Shenzhen Intermediate Court”) respectively, all of which requested the Court to confirm that there is no arbitration agreement.

The Supreme People’s Court ruled that the cases should be heard by the First International Commercial Court. CICC made rulings respectively on the three cases, confirming the establishment and validity of the arbitration agreement.

II. Brief notes

Newpower Enterprises Inc. (domiciled in the British Virgin Islands) (“Newpower Inc.”) is a wholly-owned subsidiary of Luck Treat Ltd, the ultimate controller of which is China National Travel Service Group Corporation (“CTS Group”). Luck Treat Ltd. listed all its equity of Newpower Inc. on China Beijing Equity Exchange.

Zhongyuan Cheng Ltd. intended to purchase the equity through China Beijing Equity Exchange,and consulted with Luck Treat Ltd. on the transaction, which includes, among others, the following three contracts:

(1) the equity transaction contract between Zhongyuan Cheng Ltd. and Luck Treat Ltd.

(2) the obligation settlement agreement between Zhongyuan Cheng Ltd. and Newpower Inc.

(3) the obligation settlement agreement between Zhongyuan Cheng Ltd. and the affiliates of Luck Treat Ltd., namely Beijing HKCTS Grand Metropark Hotels Management Co., Ltd and Shenzhen Metropark Hotel Co., Ltd.

Luck Treat Ltd. sent the primary version of the above contracts to Zhongyuan Cheng Ltd. by email, including a clause that all disputes arising from the transaction contracts should be settled by arbitration in Shenzhen Court of International Arbitration. Zhongyuan Cheng Ltd. signed the contracts and emailed a scanned copy to Luck Treat Ltd.

Afterwards, the parties agreed that the transaction contract should be submitted to CTS Group, the ultimate controller of Luck Treat Ltd., for compliance review, after which the parties would formally sign the contract.

CTS Group raised objection after the review. As a result, the parties did not formally sign the contract.

Zhongyuan Cheng Ltd. applied to Shenzhen Court of International Arbitration for arbitration on the disputes arising from the three contracts. Prior to the arbitration tribunal's first hearing, Luck Treat Ltd. and its affiliates filed three litigation in Shenzhen Intermediate Court respectively, requesting to confirm that the arbitration agreement in the above three transaction contracts was not established. Shenzhen Intermediate Court registered the case on 11 Sept. 2018.

During the review by Shenzhen Intermediate Court, the SPC held that the three cases were of legal significance, and it would be conducive to the uniform application of law and improving the dispute settlement efficiency that CICC took over the cases. Therefore, the SPC ruled that the cases should be reviewed by the First International Commercial Court. [1]

Under the inquiry of CICC, the parties negotiated several times on the dispute resolution method and the material issue but reached no agreement. Thus, CICC resumed its review.

On 18 Sept. 2019, CICC made rulings on the three cases separately, namely [2019] Zui Gao Fa Min Te No.1, [2]No. 2 [3]and No. 3. [4]

In the rulings, CICC held that:

(1) An arbitration agreement shall exist independently. The failure to establish a contract does not affect the validity of the arbitration agreement. The establishment of arbitration clause mainly depends on whether the parties reach the consensus of submitting the dispute to arbitration, i.e. whether the agreement on arbitration has been reached.

(2) Luck Treat Ltd. sent the contract, and the arbitration agreement was reached when Zhongyuan Cheng Ltd. replied with the signed version. Although the parties disagreed with the contract later, such disputes did not concern the arbitration agreement.

(3) The parties did not claim the arbitration agreement was void on statutory grounds, therefore, the arbitration agreement should be recognized as a valid one ever since its establishment.

(4) Even if the contract failed to be established because it was not signed by Luck Treat Ltd., this fact made no difference on the validity of the arbitration agreement.  

(5) Now that the arbitration agreement was effective, the parties should settle the disputes concerning the establishment of the contract by arbitration.

According to the rulings, the members of the collegial panel were Judge Zhang Yongjian (张勇健) (presiding judge), Judge Gao Xiaoli (高晓力), Judge Xi Xiangyang (奚向阳), Judge Ding Guangyu (丁广宇), and Judge Shen Hongyu (沈红雨).

III. Our commentary

1. Using a cleaver to kill a chicken: necessary or not?

 “Using a cleaver to kill a chicken” is a Chinese proverb, a counterpart of “to use a sledgehammer to crack a nut”, meaning use much more force than is needed. [5]

After CICC’s rulings were published, I noticed a Chinese scholar’s comment on this case on his social account, quoting this proverb.

Is it necessary for CICC itself to trial such a “small” case as confirming the validity of an arbitration agreement?

Was it because of the amount in controversy? As disclosed in the rulings, the deposit of this transaction was CNY 270 million, suggesting the total amount of this transaction might probably be more than CNY 300 million. Therefore, in terms of the amount, it certainly reached the threshold of the cases accepted by CICC. [6]However, cases concerning such amount are not so rare in China that not all of them need to be heard by CICC.

Was it because of the cause of action? In terms of cases on the confirmation of arbitration agreement as in the three cases, primary research shows that only in 2018 there had been more than 1 700 cases of this type. Still, not all these cases need to be trialed by CICC.

There seems no compelling reason for CICC to hear these three cases.

2. Using a cleaver to kill a chicken: why not?

Despite the analysis above, however, we believe that CICC has its own reason to accept these cases.

(1) To improve the efficiency of the judicial review of arbitration

The parties of this case, Luck Treat Ltd. and Newpower Inc. are both domiciled in the British Virgin Islands, so this case is a foreign-related arbitration case. According to the SPC’s provisions on judicial review of arbitration cases promulgated in 2017, if the accepting court (i.e. the intermediate court) intends to determine that foreign-related arbitration agreement is invalid, it should report to high people’s court. If the high people’s court agrees with the intermediate court, it should report to the SPC for approval. This procedure aims to ensure that courts handle the judicial review of arbitration cases with the utmost caution, but it drags the legal process to 1 or 2 years, or even more.

When the SPC finds that some cases are likely to be controversial, it can directly hear this case to skip the review periods of the intermediate courts and high courts. This practice not only highly improves the trial efficiency of the case, but also provides a uniform judicial decision as soon as possible for courts across the country.

(2) To declare a new source of CICC cases

To review the validity of an arbitration agreement is not clearly listed in CICC’s jurisdiction scope. Therefore, the SPC invoked the catch-all clause to establish its jurisdiction on this case, i.e. “other international commercial cases that the Supreme People’s Court considers appropriate to be tried by the International Commercial Court”. [7]

It means that CICC will be highly likely to expand its source of cases in the listed jurisdiction scope. The judicial review of arbitration cases by local courts probably becomes one of its new sources. According to relevant provisions, [8] this type of cases include:

(1) a case of an application for verification of the validity of an arbitration agreement;

(2) a case of an application for setting aside an arbitral award rendered by a Mainland (Mainland China) arbitral institution;

(3) a case of an application for enforcement of an arbitral award rendered by a Mainland arbitral institution;

(4) a case of an application for recognition and enforcement of an arbitral award rendered in the Hong Kong Special Administrative Region, the Macao Special Administrative Region, or Taiwan region;

(5) a case of an application for recognition and enforcement of a foreign arbitral award; and

(6) other arbitration-related judicial review cases.

We will continue to observe the expansion of CICC’s jurisdiction in judicial review of arbitration cases.

 

[1] 《中华人民共和国民事诉讼法》第三十八条第一款、《最高人民法院关于设立国际商事法庭若干问题的规定》第二条第五项。

[2] 运裕有限公司、深圳市中苑城商业投资控股有限公司申请确认仲裁协议效力民事裁定书([2019]最高法民特1号), http://wenshu.court.gov.cn/website/wenshu/181107ANFZ0BXSK4/index.html?docId=515299563a794c57a3b0aad600c0c9a3

[3] 新劲企业公司、深圳市中苑城商业投资控股有限公司申请确认仲裁协议效力民事裁定书([2019]最高法民特2号), http://wenshu.court.gov.cn/website/wenshu/181107ANFZ0BXSK4/index.html?docId=6c9880032f304fd59c09aad600c0c9b5

[4] 北京港中旅维景国际酒店管理有限公司、深圳维景京华酒店有限公司申请确认仲裁协议效力民事裁定书([2019]最高法民特3号), http://wenshu.court.gov.cn/website/wenshu/181107ANFZ0BXSK4/index.html?docId=f765a80f2f4044f1b848aad600c0c9c3

[5] Why use a cleaver to kill a chicken?  https://susanday.net/why-use-a-cleaver-to-kill-a-chicken/

[6] 《关于设立国际商事法庭若干问题的规定》第二条第(一)款。

[7] Provisions of the Supreme People’s Court on Several Issues Regarding the Establishment of the International Commercial Court, http://cicc.court.gov.cn/html/1/219/199/201/817.html

[8] Provisions of the Supreme People's Court on Issues Concerning the Reporting and Approval in the Judicial Review of Arbitration Cases(《最高人民法院关于仲裁司法审查案件报核问题的有关规定》), https://www.chinajusticeobserver.com/p/provisions-of-the-spc-on-issues-concerning-the-reporting-and-approval-in-the-judicial-review-of-arbitration-cases

 

Cover Photo from Pixabay.

 

Contributors: Guodong Du 杜国栋 , Yu Chen 陈雨

Save as PDF

You might also like

Will Chinese Courts Admit E-mail into Evidence?

E-mail is an evidence form recognized by Chinese courts, but given its authenticity being easily challenged, the parties should take the right way to obtain and present evidence to ensure its effectiveness.