International Arbitration Newsletter April 2022

Date and time :2022-05-06



Recently, the Ministry of Justice, the Ministry of Education, the Ministry of Science and Technology, the State-owned Assets Supervision and Administration Commission of the State Council, the All-China Federation of Industry and Commerce, and the China Council for the Promotion of International Trade jointly issued The Notice on the Implementation of the Foreign-Related Arbitration Talent Training Program (hereinafter referred to as "the Notice"), specifying that by 2025, a foreign-related arbitration talent training system compatible with the international accepted arbitration system will be established, 1,000 high-end leaders will be selected, 1,000 career advancement talents will be trained, and 1,000 young reserve talents will be cultivated.

The Notice requires that the training of foreign-related arbitration talents shall be incorporated into national and local talent development plans and major talent projects. The key elements include the formation of an expert committee for the training of talents in foreign-related arbitration, which will undertake research, consultation, guidance and services for the training of talents in foreign-related arbitration. At the same time, the Ministry of Justice, together with the Ministry of Education, has selected more than 10 universities nationwide with comprehensive advantages in relevant disciplines and well-equipped professional faculties to set up multilingual training bases for foreign-related arbitration talents with different characteristics.

In order to efficiently complete the talent training program, the Ministry of Justice is also responsible for taking the lead in forming a pool of high-end talent for foreign-related arbitration and conducting education for certificates in foreign-related arbitration programs. On the other hand, the Ministry of Education and the Ministry of Justice have implemented the postgraduate training program for LLM degrees (international arbitration). The Ministry of Justice will take the lead in organizing arbitration committees, law firms and other practical units of foreign-related arbitration to sign joint training agreements with universities, the parties involved in the above-mentioned agreements will conduct joint education, develop high-quality courses and strengthen practical teaching.


In the difficult times caused by the COVID-19 pandemic, Shanghai International Economic and Trade Arbitration Commission (SHIAC) promulgates The Special Relief Arrangements for business Entities (hereinafter referred to as the “Special Arrangements”) to alleviate the economically distressed market participants and to ensure no disruption to the just, efficient, professional and convenient services SHIAS has been providing. The Special Arrangements are now released to the public.

1. Newly-Registered Cases will have 15% Discount of Arbitration Fees, and the arbitration fees shall not be charged for the part of the arbitration claims or counterclaims in a single case whose dispute amount exceeds 2 billion Yuan. 

2. “Mid-Arb” Cases will have 75% Discount of Arbitration Fees. For cases where, from the date of implementation of these Special Arrangements, an application is submitted to SHIAC for appointing a sole arbitrator to render a settlement award in accordance with the settlement agreement concluded through the mediation services provided by the Council for the Promotion of International Trade Shanghai/Shanghai International Chamber Commerce Mediation Center or any other organizations recognized by SHIAC, the arbitration fees shall be charged at 25% of the amounts originally calculated under the Fees Schedule annexed to the applicable arbitration rules promulgated by SHIAC.

3. Successfully Mediated or Conciliated Arbitration Cases will be refunded part of the Arbitration Fees. SHIAC will refund part of the arbitration fees to the parties on the basis of Section 1 of the Special Arrangements in the following circumstances: (a) Where the arbitration case is withdrawn upon successful mediation by a mediator appointed by SHIAC before the constitution of the arbitral tribunal, 70% of the arbitration fees shall be refunded; (b) Where the arbitration case is withdrawn before the first hearing upon successful mediation by the arbitral tribunal, 50% of the arbitration fees shall be refunded; (c) Where the arbitration case is withdrawn after the first hearing by the arbitral tribunal, 25% of the arbitration fees shall be refunded; (d) Where a settlement agreement is concluded upon successful mediation by the arbitral tribunal after the first hearing and the arbitral tribunal is requested to make a settlement award in accordance with the settlement agreement, 20% of the arbitration fees shall be refunded. 

4. Arbitration Cases Conducted through Online Means will be refunded part of the Arbitration Fees. Upon written application by the parties, SHIAC may refund part of the arbitration fees on the basis of Section 1 of the Special Arrangements, and the refund proportion shall not exceed 15% of the arbitration fees.

5. Arbitration Fees in Instalment under Exceptional Circumstances. Where a party applies to pay the arbitration fees in instalment, it shall submit an application in written form. If SHIAC decides to approve the application, the first instalment of the arbitration fees shall not be less than 25% of the total amount, and the last instalment shall be paid before the first hearing of the arbitral tribunal. 

6. The Special Arrangements shall come into effect from the date of promulgation and shall be effective until December 31, 2022.


On June 11, 2018, Shanghai Kehua Bio-Engineering Co., Ltd. (hereinafter referred to as KHB) signed the Investment Agreement (hereinafter referred to as the “Agreement”) with the founding shareholders of Xi’an Tianlong Science and Technology Co., Ltd and Su’zhou Tianlong Science and Technology Co., Ltd (hereinafter both referred to as Tianlong). According to the Agreement, KHB first acquired 62% equity interest in Tianlong for a consideration of 554 million yuan, and the parties agreed to dispose of the remaining 38% shares in 2021, either be made by the KHB at the request of 1.2 billion yuan or 30 times of Tianlong’s net profit after deduction for 2020, or by the subject's other shareholders at the request of 900 million yuan or 25 times the Tianlong’s net profit after deduction for 2020, whichever is higher will be adopted, and by then the acquisition of 100% of Tianlong's equity will be completed.

According to the calculation of both parties at that time, the final post-investment P/E ratio of Tianlong will not exceed 10 times after the transaction is completed. However, starting in 2020, Tianlong's profits showed explosive growth. This caused a qualitative change in the dynamic P/E calculation base for this acquisition. The transaction consideration of more than 10 billion yuan, calculated based on the profit surge brought by the sudden factors, far exceeds the market value of KHB in A-shares. Therefore, the best choice for KHB is to maintain the status quo. In May 2020, the largest shareholder of KHB changed. On May 12, 2021, it changed again and Shengxiang-Bio has become the largest shareholder. But Shengxiang-Bio is a rival of Tianlong. Therefore, the founding shareholder of Tianlong filed an arbitration, demanding KHB to fulfill the investment agreement and immediately pay the remaining investment price of 10.5 billion yuan or buy back the shares of Tianlong held by KHB at the corresponding price.

On March 12, 2022, Shanghai International Economic and Trade Arbitration Commission (SHIAC) organized an online hearing for this case, but it did not make an award in this arbitration case. According to professionals, the situation that Tianlong's performance has exceeded the normal foreseeable and predictable scope at the time of entering into the Agreement should fall under the category of "business risk". However, considering the solvency of KHB, it would be difficult for SHIAC to fully support Tianlong's request. The arbitration may reject Tianlong's request, and may also reject KHB’s counterclaim. At this point, Tianlong may request an overall termination of the contract. If the overall termination request is upheld by arbitration, the parties will back to the status quo before the equity transaction.


Case Description:

The plaintiff is the owner (co-owner) of floors G/F, 1/F and 2/F of a building in Kowloon, Hong Kong. The first defendant is the owner of floor 3/F; the second defendant is the registered owner of the office building; and the third defendant is the management company of the office building. On August 18, 2021, the plaintiff sued the three defendants for breach of the Deeds of Mutual Covenant (DMC) and the Building Management Ordinance (BMO) on the grounds that the first defendant had caused water leakage on the plaintiff's floor due to illegal alterations and that the second and third defendants had failed to take any action against the first defendant and had failed in their maintenance obligations. On August 30, 2021, the second and third defendants asserted that the plaintiff's claims should be resolved through arbitration pursuant to Article 16 of the DMC. The plaintiff, on the other hand, argued that the court was the proper forum for adjudication based on the nature of the claims (including nuisance, negligence, breach of DMC and breach of BMO.) On September 3, 2021, the second and third defendants requested the court to suspend the proceedings and argued that the dispute between the plaintiff and the three defendants should be resolved by arbitration, to which the first defendant agreed.

The plaintiff argued that the third defendant was not a party to Article 16 of the DMC and that the claims against the second and third defendants did not fall within the scope of application of Article 16 of the DMC. The application of Article 20 of the Arbitration Ordinance would deprive the public of the right to know about the safety and management of the building, and therefore this Article should not be applied.


Court’s View:

1. Paragraph 20.1 of the 2011 Arbitration Ordinance quotes Article 8 of the UNCITRAL Model Law, "(1) If, when litigating the subject matter of an arbitration agreement before a court, a party requests arbitration no later than when it makes its first claim with respect to the entity in dispute, the court shall give the party recourse to arbitration unless the court finds that the arbitration agreement is invalid, inoperative or incapable of being performed ". The Court stated that if the conditions of paragraph 20.1 of the Arbitration Ordinance are met, the Court will refer the dispute to arbitration and stay the proceedings.

2. The Court held that Article16 of the DMC was an arbitration agreement between the plaintiff and the first and second defendants, and that the third defendant was acting as an agent to perform the second defendant's obligations under the DMC. The plaintiff also argued in its defense that the third defendant was bound by the DMC, and therefore Article 16 of the DMC was also an arbitration agreement between the plaintiff and the third defendant.

As for the plaintiff's claims against the three defendants, the court held that they all fell within the scope of application of Article 16 of the DMC. Accordingly, the court held that the three defendants had proved the existence of a stay of proceedings under paragraph 8.1 of the UNCITRAL Model Law, unless the plaintiff could prove that article 16 of the DMC was invalid or incapable of being performed.

3. The plaintiff claimed that Article 16 could not be fulfilled in this case. The court held that where the parties fail to agree on the appointment of a sole arbitrator, the parties may endeavor to negotiate the appointment of a sole arbitrator by a neutral and authoritative body such as the HKIAC. In addition, the parties could also agree on the appointment process and, if they ultimately could not agree on the appointment process, HKIAC would take the necessary steps to secure the appointment of the arbitrator. Therefore, the court found that there was no situation where the arbitration clause could not be fulfilled.

4. The plaintiff argued that a stay of proceedings under section 20.1 of the Arbitration Ordinance was not feasible on the ground that the principle of open justice and the right of the public to seek and receive information would be infringed if the dispute was submitted to arbitration, which would be contrary to section 16.2 of the Hong Kong Bill of Rights Ordinance. The court noted that the Hong Kong Bill of Rights Ordinance only binds the government and public bodies, and and persons acting on behalf of the government or public bodies. The parties in this case were not subject to the application of the Ordinance. Therefore, the Court held that there was no legal basis to prevent the Court from enforcing the mandatory stay provision under section 20.1 of the Arbitration Ordinance.

The Court held that the plaintiff had failed to prove that Article 16 of the DMC was invalid or unenforceable. Pursuant to paragraphs 20.1 and 20.5 of the Arbitration Ordinance, the Court will refer the disputed matters to arbitration for resolution and stay the proceedings in this case.


Case Description:

Plaintiff Livian is a German company specializing in the development and manufacture of electronic devices for the health sector. The first defendant, Elekta, is a British company that manufactures and sells devices for the clinical management of cancer and related diseases, including linear particle gas pedals ("LINAC"). The second defendant is a subsidiary of the first defendant. The plaintiff developed a patient identification and verification system called Identification ("Identify") for use in conjunction with the LINAC device. In 2011, the plaintiff and the defendant entered into a distribution agreement whereby the plaintiff assigned certain rights to the development, marketing and distribution of Identify to the defendant. Paragraph 22.1 of the agreement provides for the application of German law, and the dispute in question was arbitrated in English in London under the rules of The London Court of International Arbitration (LCIA).

A dispute later arose and the plaintiff filed an arbitration claiming that the defendant failed to promote and market the Identify System as agreed under the distribution agreement. The plaintiff argued that the defendant should have included the Identify System in all LINAC devices it sold and could not sell its LINAC devices in a manner other than without the Identify System bundled. Mr. Prosser, who was an employee of the defendant, participated in the negotiation of the distribution agreement and voluntarily appeared as a witness in the arbitration proceedings. He noted that the percentage of new sales of LINAC devices bundled with the Identify system was only slightly more than 50%, which was negotiated with the plaintiff's beneficial owner.

The tribunal held that the bundling requirement was not reflected in the distribution agreement. The defendant's agreement to associate or bundle the Identify system in the LINAC devices it sold did not imply that the system was to be bundled in all its LINAC devices. On March 2, 2021, the tribunal issued a final award rejecting the plaintiff's claims. The plaintiff filed a lawsuit in court to set aside the arbitral award.

The plaintiff claimed that the arbitral tribunal had ignored and/or disregarded the undisputed evidence of the witness Mr. Prosser, which constituted a serious irregularity under article 68 of the English Arbitration Act, affecting the final award and causing great injustice to the plaintiff. The plaintiff therefore requested that the award be set aside or, in the alternative, that it be remanded to the arbitral tribunal for a new hearing.


Court’s View:

The English High Court held that the central dispute in the case was the interpretation of the true intent of the relevant provisions of the distribution agreement. The first issue in the case was whether the plaintiff had demonstrated that the tribunal had failed to act fairly and impartially between the parties by ignoring Mr. Prosser's undisputed testimony. In response, the court held that for several reasons, the tribunal's disregard or failure to consider the evidence relied upon by one of the parties could not be the subject of a serious irregularity allegation under Article 68 (2) (a) or (d).

First, the arbitral tribunal does not have to address in its reasons every argument raised by a party in relation to the main dispute, nor does it have to refer to all relevant evidence. Secondly, the assessment and evaluation of such evidence is the exclusive power of the arbitral tribunal and the court does not have competence in this regard. Finally, if the court seeks to determine why the tribunal did not refer to certain evidence, it must consider the evidence submitted to the tribunal as a whole and relevant to the award.

In summary, the court held that the plaintiff had failed to prove that the tribunal's disregard of Mr. Prosser's evidence constituted a serious irregularity. The court emphasized that the plaintiff had to prove that, had the irregularity not arisen, the arbitral tribunal would likely have formed a different opinion and produced a significantly different conclusion. The court held that the tribunal's disregard of the relevant testimony was the result of a correct application of German law, as the bundling requirement was not reflected in the distribution agreement. The tribunal had every right to disregard Mr. Prosser's testimony because what Mr. Prosser had said did not contradict the conclusions reached by the tribunal. The court also emphasized that even if the court's aforementioned reasoning was wrong, the plaintiff had to prove that the tribunal would have likely formed a different opinion and reached a significantly different conclusion if it had adopted the testimony in question, a requirement that was not met in this case.

The court rejected the plaintiff's request. The tribunal concluded more on the basis of the interpretation of paragraph 7.4 of the distribution agreement under German law that the distribution agreement did not reflect the intention that all new sales of LINAC devices were to be bundled with the Identify system. Even if the tribunal had considered Mr. Prosser's testimony, it cannot be inferred that the tribunal would likely have reached a different conclusion.

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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