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<xTITLE>Shanghai Holds that “SIAC Arbitration in Shanghai” is Valid After Longlide Case</xTITLE>

Shanghai Holds that “SIAC Arbitration in Shanghai” is Valid After Longlide Case

by Arthur Dong
September 2020 Arthur Dong

Under the PRC law, it was once controversial as to whether the seat of arbitration can be in China with foreign arbitration institutions administering the case. In March 2013, in Anhui Longlide Packaging and Printing Co., Ltd. v. BP Agnati S. R. L, the Supreme People’s Court of China (“SPC”) held that an arbitration agreement providing “ICC arbitration in Shanghai” is valid under the PRC Arbitration Law.

In this case, Shanghai First Intermediate People’s Court (“Shanghai Court”) echoed the SPC’s opinion in Longlide by holding that the arbitration agreement “submit the dispute to SIAC for arbitration in Shanghai” is valid under the PRC law. More importantly, the Shanghai Court gave detailed and clairvoyant elaboration on the coordination between courts in different jurisdictions for deciding the arbitration agreement’s validity.

In March 2016, Daesung Industrial Gases Co., Ltd. (“Daesung”), Daesung (Guangzhou) Gases Co., Ltd. (“Daesung Guangzhou”) as the co-claimants, filed an arbitration before the SIAC against Praxair (China) Investment Co., Ltd. (“Praxair”), pursuant to the arbitration agreement under the Sales Agreement and its Supplementary Agreement among the three parties. The arbitration agreement provides that any dispute arising from or in connection with the agreement shall be submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in accordance with the Arbitration Rules of SIAC in Shanghai.

Praxair raised a jurisdictional challenge in the SIAC proceedings, arguing that the arbitration agreement is governed by the PRC law because the seat of arbitration is Shanghai. Praxiair further submitted in the SIAC proceedings that the SIAC tribunal lacks jurisdiction because the arbitration agreement is invalid under the PRC law, as the PRC law bars oversea arbitration between two PRC companies which fails to satisfy the “foreign element” test.

Praxiar’s argument was dismissed by the SIAC tribunal, as the SIAC tribunal held that the seat of arbitration is Singapore hence the arbitration agreement is governed by the Singaporean law. Praxair then sued before Singapore High Court challenging the SIAC tribunal’s decision. The Singapore High Court dismissed Praxair’s claim by holding that the seat of arbitration is Singapore hence the arbitration agreement is governed by the Singaporean law.

Praxair further appealed to the Singapore Court of Appeal. On 15 October 2019, the Singapore Court of Appeal decided that the seat of arbitration under the arbitration agreement is Shanghai, China, and overturned the decision of the High Court and the SIAC tribunal. The Court of Appeal further held that it would not give further comment on the jurisdiction issue.

In February 2019, the arbitral tribunal issued a partial award on liability. In October 2019, the SIAC suspended the arbitration proceedings after considering the parties still had a substantial dispute on the SIAC tribunal’s jurisdiction.

In January 2020, Daesung and Daesung Guangzhou applied to the Shanghai Court, seeking the court’s declaration that the arbitration agreement is valid.

Praxair argued that, inter alia, that

  1. Shanghai Court should not accept the case because:
  2. a) The SIAC tribunal has decided on the jurisdictional challenge. Daesung and Daesung Guangzhou have consented to the SIAC tribunal’s decision. According to the PRC law, they are not entitled to sue before the PRC court now. The decision of the Singapore Court of Appeal is not a statutory ground for the PRC court to hear this case.
  3. b) “Arbitration Commission” prescribed under the PRC Arbitration Law specifically refers to the arbitration institutions in the PRC. There is no legal basis for the PRC courts to hear judicial review case concerning an arbitration case administered by foreign arbitration institutions.
  4. Even assuming the PRC court has jurisdiction, the Shanghai Court should rule that the arbitration agreement is invalid.
  5. a) The SIAC tribunal has already decided that if the arbitration seat is Shanghai, the arbitration agreement shall be subject to the PRC law and it will be invalid under the PRC law.
  6. b) The underlying dispute has no foreign elements. Under the PRC law, it is illegal to agree to have overseas arbitration institutions administer arbitration for dispute that has no foreign element.

In response to Praxair’s arguments, Daesung and Daesung Guangzhou claimed inter alia, that,

  1. The arbitral tribunal has never decided on the validity of the arbitration agreement under the PRC law. Parties are still waiting for the PRC court to make the decision.
  2. As Daesung is registered in Korea, the case contains foreign elements under the PRC law. So, the parties are entitled to choose foreign arbitration institutions. The Shanghai Court has jurisdiction over the case.
  3. It has no legal ground for Praxair’s allegation that the “arbitration commissions” under the PRC Arbitration Law are specifically referred to domestic arbitration institutions. The PRC court may hear this case.
  4. The application before Shanghai Court is to confirm that the arbitration agreement is valid. So Daesung and Daesung Guangzhou should not be bound by the PRC law under which a party may only challenge an arbitration agreement’s validity by either the arbitration institution or the court, instead of both. Further, under the PRC law, the rule that “where an arbitration institution has decided on the validity of an arbitration agreement and a party subsequently applies to the people’s court to determine the validity the arbitration agreement or overturn the decision of the arbitration institution, the people’s court shall not hear such a case” should not apply to the case as the Singapore Court of Appeal has already revoked the SIAC tribunal’s decision on jurisdiction.

The Shanghai Court held, regarding the jurisdiction issue, that

  1. Daesung, as a Korean company, signed both the Sales Agreement and the Supplementary Agreement. So, the case clearly contains foreign elements. The Shanghai Court has jurisdiction over the case.
  2. It is found that the SIAC tribunal did not rule that the arbitration agreement would be invalid under the PRC law. The Singapore Court of Appeal only held that the arbitration seat is Shanghai and it did not decide on whether the SIAC has the jurisdiction.
  3. Praxair’s argument that Daesung and Daesung Guangzhou are barred to file this case is unmeritorious. Daesung and Daesung Guangzhou are the parties who uphold the arbitration agreement’s validity, in contrast to challenging its validity. The notion under the PRC law is barring a party from challenging the arbitration agreement before both the arbitration institution and the court.
  4. Praxair’s rationale is self-conflicting. Because it also challenges the SIAC tribunal’s decision on jurisdiction before Singaporean courts, which conflicts its position that no parties can go to the court after jurisdiction challenge is decided in arbitration.
  5. Furthermore, this notion under the PRC law will not apply, because the SIAC tribunal’s decision on jurisdiction has already been revoked by the Singaporean court.
  6. There is no violation of res judicata if the Shanghai Court hears this case. Because the SIAC tribunal’s decision on jurisdiction has been revoked by the Singaporean court. The SIAC tribunal has suspended the arbitration too. There has been no binding decision, either rendered by the court or by the arbitral tribunal, on the arbitration agreement’s validity.

As to the validity of the arbitration agreement, Shanghai Court decided that

  1. Daesung and Praxair agreed to the arbitration agreement under the Sales Agreement as the signing parties. Later Daesung Guangzhou signed the Supplementary Agreement, which stipulates that it is concluded based on the Sales Agreement and the Sales Agreement should continue to be effective where not revised or supplemented. So, the arbitration agreement applies to Daesung, Daesung Guangzhou, and Praxair.
  2. As to Praxair’s argument that the PRC arbitration regulation does not allow overseas arbitration institutions to arbitrate in the PRC, Shanghai Court deemed that,
  3. a) Arbitration, in essence, is a method for parties to resolve disputes based on their agreement. It is irrelevant to the market access restriction of Chinese arbitration. This case is institutional arbitration, instead of ad hoc arbitration for which China made a declaration on the reservation under the 1958 New York Convention.
  4. b) The reply of the SPC of the PRC has binding legal effect. In Longlide, the SPC held the arbitration agreement “ICC arbitration in Shanghai” is valid under the PRC Arbitration Law.
  5. c) Praxair’s argument that “foreign arbitration institution may not administer arbitration seated in China” lacks legal ground as there is no such restriction under the PRC laws and regulations. It also conflicts with the trend of international commercial arbitration.
  6. d) The Court must not refuse to decide on an issue if not explicitly stipulated under the statute. Praxair’s argument was made based on the outdated definition of arbitration institution, which is the “arbitration commission” under the Arbitration Law. However, the SPC’s judicial interpretation, which cured the flaw on statutory law, must be observed.

Finally, the Shanghai Court rendered a ruling that the arbitration agreement between the applicants Daesung, Daesung Guangzhou, and the respondent Praxair under Article 14.2 of the Sales Agreement is valid.

This case shows the interaction between the courts of the two jurisdictions. This jurisdiction issue was first decided in Singapore, by the SIAC tribunal, the High Court, and the Court of Appeal. The Court of Appeal finally ruled that the arbitration seat is Shanghai and explicitly rule that it would not comment on whether the SIAC has the jurisdiction since the issue of the validity of the arbitration agreement is best left to judicial review of the PRC court. Later, in this case, the Shanghai Court recognized the validity of the arbitration agreement.

It is worth noting that in this case, the Shanghai Court offered eye-catching remarks that,

  1. The Court affirmatively commented on the flaws of Arbitration Law effective as of September 1, 1995, and offered clarification on the meaning of “arbitration commission” and echoed the Longlide decided by the SPC.
  2. The Court affirmatively elaborated on the relationship and coordination between proceedings in different jurisdictions on the jurisdictional challenge. It is also a valuable example for the application of Article 13 of the SPC’s Judicial Interpretation on Arbitration Law in terms of multi-jurisdictional proceedings.

You may find the Court’s ruling in Chinese here.

 

Biography


Dr. Arthur Dong is one of the most seasoned practitioners and arbitrators in China who has substantial experiences in representing clients before all major international arbitration institutions and sitting as an arbitrator (including sole/presiding/co-arbitrator) in both Chinese domestic and international arbitrations. He has been practising as a PRC lawyer for nearly 25 years. His expertise covers a wide spectrum, including without limitation international trade, cross-border transactions, corporate and shareholder disputes, technology transfer, intellectual property, infrastructure, natural resources, distribution, and franchise, etc. Arthur is a panel arbitrator of SIAC, HKIAC, AIAC, KCAB, WIPO, CIETAC, BAC, SHIAC, SCIA, etc. He has been recognised as one of the leading arbitration practitioners in China by most of the renowned rankings, such as Chambers, Who’s Who Legal, Legal 500, Asialaw and Benchmark Litigation, etc. for continuous years. Arthur serves as a member of the SIAC Users Council. He is also a member of the ICC Commission on Arbitration and ADR.



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