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CISG CASE PRESENTATION

China 14 December 2004 Xiamen Intermediate People's Court [District Court] of Fujian Province (Xiamen Xiang Yu Group Corporation v. Mechel Trading AG) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/041214c1.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 20041214 (14 December 2004)

JURISDICTION: People's Republic of China

TRIBUNAL: Xiamen Intermediate People's Court [District Court] of Fujian Province

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: Xiamen Xiang Yu Group Corporation v. Mechel Trading AG

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Switzerland (defendant)

BUYER'S COUNTRY: People's Republic of China (plaintiff)

GOODS INVOLVED: Steel


Classification of issues present

APPLICATION OF CISG: Yes, but CISG issues not discussed. Of interest to the CISG mainly as an illustration of a contract clause that refers to the CISG and the UNIDROIT Principles as the applicable substantive law.

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles [-]

Classification of issues using UNCITRAL classification code numbers:

Unavailable

Descriptors: Unavailable

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Click here for Chinese text of case; see also CISG-China Case [IPC/04]: <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=74>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Xiamen Intermediate People's Court of Fujian Province

Xiamen Xiang Yu Group Corporation v. Mechel Trading AG

14 December 2004

Translation [*] by Zheng Xie [**]

Plaintiff Xiamen Xiang Yu Group Corporation [Buyer] and Defendant Mechel Trading AG [Seller] executed Contract No. 85-413.2 for the sale of steel. The arbitration clause at page 5 of the Contract stipulates that any dispute that arises out of the Contract or is related to the Contract shall be submitted for arbitration according to the Arbitration Rules of the Court of Arbitration of the International Chamber of Commerce; the parties can obtain the aforesaid Arbitration Rules at www.iccwbo.org and appoint one or more arbitrators for final arbitration; the place of arbitration is Beijing; the arbitration language is Chinese or English; a copy of the Arbitration Rules is provided free upon request.

The [Buyer] alleged that:

   (1)   Although the parties did not stipulate the applicable law regarding validity of the arbitration clause, because the place of arbitration that is stipulated is Beijing, China, the laws of the People's Republic of China apply to determine the validity of the arbitration clause.
 
   (2)   According to Article 16 Clause 3(3) and Article 18 of the Arbitration Law of the People's Republic of China, the arbitration clause in this case does not specify the arbitration organization, so it lacks a necessary element of arbitration clauses. Therefore, the arbitration clause is invalid.
 
   (3)   According to the Supreme People's Court's Legal Letter [1997] No. 36 issued on 19 March 1997 (Letter Responding to Questions Regarding the Issue When an Arbitration Clause Only Specifies the Arbitration Place but Not the Arbitration Organization), an arbitration clause, which only specifies the place of arbitration, but does not specify the arbitration organization, is invalid.

Based on the above, the [Buyer] request the Court to rule that this arbitration clause is invalid.

However, the [Seller] alleged that:

   (1)   The arbitration clause reflects the true intent of the parties, and definitely specifies the arbitration organization, i.e., the International Chamber of Commerce;
 
   (2)   The applicable law to decide the validity of the arbitration clause should be the law of Switzerland or France;
 
   (3)   However, even if the law of the People's Republic of China applies, according to Article 26 of the Supreme People's Court's Regulations (Soliciting Opinions on People's Court's Dealing with Foreign Arbitration): "If the parties only stipulate the arbitration rules of one arbitration organization, but do not stipulate this arbitration organization, the People's Court shall decide that the arbitration organization of which the parties select the arbitration rules has arbitration jurisdiction."

Therefore, the arbitration clause in this case is valid.

The Fujian Province Xiamen Intermediate People's Court held a public court session and confirmed the following facts:

   -    The parties executed Contract no. 85-413.2 for sale of steel on 26 March 2004.
 
   -    The Clause on Applicable Law at pages 4 and 5 of the Contract stipulates:
 
"All disputes arising out of this Contract shall be governed and explained by the United Nations Convention on Contracts for International Sales of Goods (of 11 April 1980) (CISG). If the CISG lacks relevant provisions, it shall refer to the UNIDROIT Principles of International Commercial Contract executed by the International Institute for the Unification of Private Law in 1994. If neither the CISG nor the Unidroit Principles has relevant provisions, international custom and the law of the seller's business place shall apply."
 
   -    The Arbitration clause at page 5 of the Contract stipulates:
 
"Any dispute arising out of the Contract or related to the Contract shall be submitted for arbitration according to the Arbitration Rules of the Court of Arbitration of the International Chamber of Commerce; the parties can obtain the aforesaid Arbitration Rules on www.iccwbo.org and appoint one or more arbitrators for final arbitration; the place of arbitration is Beijing; the arbitration language is Chinese or English; a copy of the Arbitration Rules is provided for free as per request."

The parties confirmed the following facts:

   (1)   The Court of Arbitration of the International Chamber of Commerce accepted the [Seller]'s arbitration application on disputes arising out of the Contract with the [Buyer] for the sale of steel on 13 August 2004. The case No. is 13437.MS. The [Buyer] had notified the ICC Tribunal of this Court's acceptance of this case. The ICC Tribunal did not decide on the validity of the arbitration clause;
 
   (2)   This Court has jurisdiction over this case.
 
   (3)   The CISG and the UNIDROIT Principles of International Commercial Contract Rules are the applicable substantive law.
 
   (4)   The Contract does not stipulate the applicable law for determination of the validity of the arbitration clause.
 
   (5)   The Arbitration Rules of the Court of Arbitration of the International Chamber of Commerce do not have provisions regarding validity of arbitration clauses.
 
   (6)   The arbitration clause disputed in this case is similar to the arbitration clause recommended by the Court of Arbitration of the International Chamber of Commerce.

Regarding the allegation that foreign laws should apply, the [Seller] only submitted a French lawyer's Legal Opinion. The French lawyer alleged that the arbitration clause in this case is valid according to French law. This Legal Opinion was not certified or notarized. In the court session, the [Seller] agreed to have this case resolved according to general arbitration theory.

The Xiamen Intermediate People's Court identified the issues in this case:

   -    Which law to apply to determine the validity of the arbitration clause?
   -    Whether the arbitration clause specifies the arbitration organization?
   -    Whether the arbitration clause is valid?

As to these issues:

   -    The [Buyer] alleged that the arbitration clause specifies that the place of arbitration place is Beijing, so according to the principle of most proximate connection, the laws of the People's Republic of China should apply. According to the Arbitration Laws of the People's Republic of China and the Supreme People's Court's relevant explanation, an arbitration clause must specify the arbitration organization; otherwise, the arbitration clause is invalid.
 
   -    The [Seller] alleged that the arbitration clause in this case was drafted according to the arbitration clause recommended by the International Chamber of Commerce, and that this arbitration clause would be deemed valid according to French law and arbitration custom. Moreover, even if the law of the PRC applies, the arbitration clause is valid.

The Fujian Province Xiamen Intermediate People's Court held that according to the Supreme People's Court's Answers to Questions Regarding Foreign Trade Practice and cases regarding the validity of arbitration clauses, the Immediate People's Court where the [Buyer]'s or the [Seller]'s place of business is or where the arbitration clauses are executed, has jurisdiction over this case. The [Seller] does not object the jurisdiction of this Court.

Regarding the applicable law:

   -    First, the Contract in this case stipulates that the CISG and the UNIDROIT Principles of International Commercial Contract Rules are the applicable substantive laws. However, because these laws do not provide for arbitration procedure, they are not the applicable law on the validity of the arbitration clause.
 
   -    Second, the parties have stipulated the applicable supplementary law, "The law of the seller's main business place," i.e., the law of Switzerland, but the [Seller] failed to submit the relevant laws of Switzerland within the period provided by the collegial bench, so it should be deemed that he [Seller] disclaimed the right to do so.
 
   -    Third, the arbitration clause is independent, and the law applicable to the arbitration clause is not the same as for the entire Contract. According to the arbitration principles and the Supreme People's Court's Answers to Questions Regarding Foreign Trade Practice, if the parties do not stipulate the law applicable to the arbitration agreement, but stipulate the place of arbitration, the law of the place of arbitration shall apply. If the parties do not stipulate the place of arbitration or the stipulation is not definite, the law of the country where the Court is shall apply. Since the parties have stipulated that the place of arbitration is Beijing, the laws of the PRC shall apply. [...]
 
   -    Fourth, the [Seller]'s defense does not exclude application of the laws of the PRC.

In sum, the applicable laws of this case shall be the laws of the PRC including international conventions in which China participates.

Regarding the issue whether the arbitration organization is definite:

   -    First, Article 18 of the Arbitration Law of the People's Republic of China and Article 4 of the Supreme People's Court's Legal Letter [1998] No. 27 (Responding to Questions Regarding the Validity of Arbitration Clauses), which provides that the arbitration agreement is invalid if the parties do not specify an arbitration organization, only apply to domestic arbitrations. At that time, it is common that there were many arbitration organizations in one city, so the Arbitration Laws provide that the parties shall specify arbitration organizations. [...]
 
   -    Second, China participates in the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, i.e., New York Convention. Article 1 Item 2 of this Convention stipulates, "the term "arbitral awards" shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submitted." China does not make any reservation on this provision. Therefore, People's Courts shall not determine that an arbitration clause is invalid just because the parties do not specify an arbitration organization. [...]
 
   -    Third (the most important point), the parties selected for their Contract the standard arbitration clause recommended by the Court of Arbitration of International Chamber of Commerce. The parties stipulated that the Arbitration Rules of the International Chamber of Commerce apply to the Contract, and the Arbitration Tribunal shall be formed according to this Arbitration Rules. The arbitration clause in the Contract is definite. It does not raise any conflict of meaning, and it does not need any supplemental stipulations by the parties to decide that the only arbitration commission which has jurisdiction is the Court of Arbitration of the International Chamber of Commerce. The Arbitration Rules stipulated by the parties are sufficient for the formation of an Arbitration Tribunal to hear the disputes arising out of the Contract. The Court of Arbitration of the International Chamber of Commerce is a standing arbitration commission, and the arbitration clause recommended by this arbitration commission is widely accepted by parties from the world. Many rules drafted by the Court of Arbitration of the International Chamber of Commerce have become international trade custom.

In an arbitration commission, the arbitration award is not handed down by the commission, but by an arbitration tribunal or a sole arbitrator according to the Arbitration Rules, or the Rules of the arbitration commission, or the relevant laws. Arbitration commissions provide management and services on arbitration matters. The general international arbitration principles recognize that if the arbitration rules of an arbitration commission apply, but the parties do not stipulate the arbitration commission, it is deemed that the arbitration commission to which the Arbitration Rules apply has jurisdiction. Article 26 of the Supreme People's Court's Regulations (Soliciting Opinions) on People's Court's Dealing with Foreign Arbitration states:

"If the parties only stipulate the arbitration rules of an arbitration organization, but do not stipulate this arbitration organization, the People's Court shall decide that the arbitration organization of which the parties select the arbitration rules has arbitration jurisdiction."

Although this is not a judicial explanation, it reflects a general arbitration principle in China. According to this principle, the arbitration clause in this case is valid. The parties' true intent is to submit disputes to the Court of Arbitration of the International Chamber of Commerce Commission for arbitration. If the arbitration clause were deemed invalid according to China's domestic law, it would encourage the parties to perform contracts without good faith.

In sum, the arbitration clause in the Contract between the [Seller] and the [Buyer] does not violate the laws of the PRC. It reflects the parties' true intent. The arbitration clause is definite. It can be determined that the arbitration organization is the Court of Arbitration of the International Chamber of Commerce according to the content of the arbitration clause. Therefore, the Arbitration clause is valid.

According to Article 1(2) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Article 140 Clause 1(11) of the Civil Procedure Law of the PRC, and Article 20 Clause 1 of the Arbitration Law of the PRC, the Fujian Province Xiamen Intermediate People's Court rules that the arbitration clause in Contract No. 85-413.2 signed by the [Buyer] and the [Seller] is valid.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff is referred to as [Buyer] and Defendant is referred to as [Seller].

** Zheng Xie, LL.M. Washington University in St. Louis, LL.M., BA in Economics, University of International Business and Economics, Beijing.

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Pace Law School Institute of International Commercial Law - Last updated May 12, 2010
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