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International Arbitration Newsletter Nov. 2024

Date and time :2024-12-03
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"Draft Amendment to the Arbitration Law of the People's Republic of China" Submitted for First Review by the Standing Committee of the National People's Congress

On November 4, 2024, the "Draft Amendment to the Arbitration Law of the People's Republic of China" was submitted for its first review by the Standing Committee of the National People's Congress. The proposed amendment includes the establishment of a "place of arbitration" system and aims to improve the rules governing judicial jurisdiction in arbitration.

The "place of arbitration," as selected by the parties to resolve a dispute, refers to a specific country or region. It serves as an important basis for determining the applicable law for arbitration proceedings, the rules of evidence, the nationality of the arbitral award, and the competent judicial jurisdiction. According to the draft, parties may agree in writing on the place of arbitration, which will serve as the basis for determining the applicable law and the competent court for judicial jurisdiction. The draft encourages international arbitration parties to select a Chinese arbitration commission and agree on the People's Republic of China as the place of arbitration.

The draft also clarifies that it supports arbitration commissions establishing business offices outside the People's Republic of China to conduct arbitration activities. In response to economic and social development needs and the requirements of reform and opening-up, it may allow foreign arbitration institutions to establish business offices within pilot free trade zones approved by the State Council to engage in international arbitration activities in accordance with national regulations.

Additionally, the draft outlines provisions to enhance the credibility of arbitration, improve the internal governance and management systems of arbitration commissions, increase transparency of arbitration commissions and arbitrators, broaden the channels for the appointment of arbitrators, regulate the selection and management of arbitrators, and refine the supervision and management systems.


IPBA 2024 Arbitration Day Event Held in Shenzhen

On November 12, the 6th China-ASEAN Rule of Law Forum (hereinafter referred to as the "Forum") was held in Chongqing. The Forum was established by the city of Chongqing to promote the development of foreign-related rule of law and foster communication between the legal and judicial communities of ASEAN countries, in line with major strategic initiatives such as the Belt and Road Initiative and the construction of the New Western Land-Sea Corridor. The Forum, themed "Promoting China-ASEAN Rule of Law Exchange and Cooperation," was was attended by representatives from 11 countries, including China, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand, Vietnam and Nepal.

The Forum released the "Initiative on Serving China-ASEAN Rule of Law Exchanges and Cooperation". The forum read out congratulatory letters from the legislatures and judiciaries of ASEAN countries, released "Typical Cases of Rule of Law in Serving China-ASEAN FTA" and "Report on the Business Environment of ASEAN Countries under the Rule of Law", and set up "Xi Jinping's Rule of Law Thought International Seminar" and "Western Land and Sea New Corridor Law and Business Integration Development Forumr", "China-ASEAN Law School Deans Forum", "Western Land and Sea New Corridor International Commercial Arbitration Forum", "China-ASEAN Cross-Border Crime Governance Forum", "China-ASEAN Law Youth Forum" and other five sub-forums.


"International Commercial Arbitration and Dispute Resolution Forum" Successfully Held in Malaysia

On November 12, 2024, the "Great Wall of Alliance: Forum on International Commercial Arbitration and Dispute Resolution," co-organized by the China International Economic and Trade Arbitration Commission (CIETAC) and the Asian International Arbitration Centre (AIAC), was successfully held in Kuala Lumpur, Malaysia.

The forum featured four panel discussions: "The Green Silk Road: Responding to and Resolving Challenges," "The Digital Silk Road: Dispute Resolution in an Interconnected Future," "The Maritime Silk Road: Strategies for Preventing and Resolving Disputes," and "The Economic Silk Road: Dispute Resolution in Trade, Investment, and Manufacturing Industries." Twenty arbitrators, lawyers, in-house counsels, scholars, and business representatives from China (including Hong Kong), and Malaysia shared their insights on hot topics.



Urumqi Intermediate People's Court:

The "Repayment Agreement" is an independent agreement separate from the "Government Procurement Contract" and does not contain a situation where both arbitration and litigation are stipulated within the same contract.

Legal Basis:

"Arbitration Law of the People’s Republic of China"
Article 16.

An arbitration agreement shall include arbitral clauses stipulated in the contract and other written agreements which request arbitration to be made prior to or following the occurrence of a dispute.

An arbitration agreement shall include the following:

(1) the expression of an application for arbitration;

(2) items for arbitration;

(3) the chosen arbitration commission.


Article 17

An arbitration agreement shall be deemed invalid in any of the following circumstances:

(1) items provided for arbitration exceed the legally regulated scope of arbitration;

(2) the arbitration agreement has been concluded by persons without civil capacity or with limited civil capacity;

(3) one party has forced conclusion of the arbitration agreement through coercive means.


Case Description:

A New Energy Technology Co., Ltd. (hereinafter referred to as "New Energy Company") and an Automobile Sales and Service Co., Ltd. (hereinafter referred to as "Automobile Sales Company") signed a "Government Procurement Contract" on December 26, 2023. Under the contract, New Energy Company agreed to purchase 97 Panda MINI cars from Automobile Sales Company, totaling 4.5 million yuan. The contract stipulated that New Energy Company would pay part of the amount after receiving the vehicles. However, New Energy Company failed to pay the remaining balance on time, paying only 1.3 million yuan, with a balance of 3.2 million yuan.

To resolve the issue, the two parties signed a "Repayment Agreement" on May 15, 2024. This agreement stipulated that New Energy Company would pay the remaining balance in installments within a specified period and included a clause stating that, in case of disputes, arbitration could be applied to the Urumqi Arbitration Commission's Aksu Branch.

New Energy Company requested the court to declare the arbitration clause in the "Repayment Agreement" invalid. The company argued that the "Government Procurement Contract" specified dispute resolution through court litigation, while the "Repayment Agreement" provided for arbitration, creating a "choice between arbitration or litigation," which made the arbitration clause invalid. Furthermore, New Energy Company argued that the dispute arising from the "Repayment Agreement" was related to government procurement and should be considered an administrative dispute, which should be handled by administrative agencies rather than through arbitration.

Automobile Sales Company argued that the "Repayment Agreement" was an independent contract voluntarily signed by both parties, and it clearly stipulated the arbitration clause, which was not in violation of any legal provisions. The company contended that, since New Energy Company failed to pay the remaining balance as agreed, it filed for arbitration with the Urumqi Arbitration Commission's Aksu Branch in accordance with the arbitration clause in the "Repayment Agreement." Automobile Sales Company argued that the arbitration clause complied with the relevant provisions of the Arbitration Law and should be valid, requesting the court to reject New Energy Company's application.


Court's View:

The court held that the "Repayment Agreement" was an independent agreement between New Energy Company and Automobile Sales Company regarding the unpaid balance. Although the agreement was related to the "Government Procurement Contract," the contents were complete and independent, specifying the payment terms. The agreement clearly stated the dispute resolution method, and this provision reflected the true intention of both parties without creating a "choice between arbitration or litigation" situation. The court ruled that the "Repayment Agreement" was separate from the "Government Procurement Contract" and that the establishment of the arbitration clause was a voluntary decision by both parties. It complied with the relevant provisions of Article 4 and Article 16 of the Arbitration Law regarding the formation of arbitration agreements, and the arbitration clause should be valid.

Regarding New Energy Company's argument that the arbitration subject matter exceeded the scope of arbitration, the court found that the dispute under the "Repayment Agreement" was a civil contract dispute involving the property rights of two equal civil subjects, and did not involve an administrative dispute that should be handled by administrative agencies. According to Article 3 of the Arbitration Law, contract disputes between equal subjects can be resolved through arbitration, so the arbitration clause did not exceed the scope defined by the Arbitration Law.

In conclusion, the court found that New Energy Company's argument that the arbitration clause was invalid had no factual or legal basis and ruled to reject New Energy Company's application.



Paris Court of Appeal: Foreign Sovereign State Property Enjoys Immunity, Rejects Chinese Company’s Application to Enforce OHADA Arbitration Award

Case Description:

On June 3, 2020, the Government of the Republic of Chad (hereinafter "Chad Government") and the Hong Kong company N-Soft Ltd (hereinafter "N-Soft") signed a settlement agreement, under which the Chad Government agreed to pay 25 million euros in compensation, subject to financial availability, and terminate a previous contract signed in 2017. The settlement agreement was approved by the N'Djamena High Court and was delivered to the Chad Government on June 2, 2021, with no appeal filed by the Chad Government.

To ensure the execution of the agreement, N-Soft applied for arbitration with the OHADA Common Court of Justice and Arbitration. On May 23, 2022, the arbitral tribunal ruled that the Chad Government was required to pay compensation, plus additional interest and costs, totaling 48,000,000 CFA francs and 36,952.80 euros, with interest calculated at Chad’s statutory rate starting 30 days after the award was notified. Since the Chad Government failed to pay the compensation on time, N-Soft applied to French courts in July 2022 for enforcement of the arbitration award and requested the imposition of a provisional judicial lien on a property owned by the Chad Government located in the 16th arrondissement of Paris.

However, the Chad Government claimed that the property was diplomatic property and thus immune from enforcement under international law. The Chad Government objected and sought to have the provisional judicial lien removed, invoking diplomatic immunity. On July 25, 2023, the Paris Court of First Instance annulled the provisional judicial lien. N-Soft appealed this decision to the Paris Court of Appeal, requesting confirmation of the legality of the provisional judicial lien, while the Chad Government sought confirmation that the lien was invalid and continued to assert diplomatic immunity.


Court's View:

The Paris Court of Appeal ruled that under Article L.111-1 of the French Civil Enforcement Code, the property of a foreign state can only be used as security if it is not used for diplomatic purposes or explicitly used for commercial purposes. In this case, the Chad Government provided a formal confirmation letter from the French Ministry of Foreign Affairs, certifying that the property in question had been designated as the official residence of the Chad Ambassador in France and was considered diplomatic property. The court emphasized that the immunity of diplomatic property is not dependent on its actual use, but rather on its official designation for diplomatic purposes. Therefore, the court determined that the property was entitled to diplomatic immunity and annulled the provisional judicial lien imposed by N-Soft.

N-Soft provided evidence attempting to challenge the Chad Government's claim of diplomatic immunity, including the fact that the property tax bill did not indicate diplomatic immunity, and a site inspection revealed no evidence of the property being used for diplomatic purposes. However, the court found these arguments insufficient to rebut the formal confirmation issued by the French Ministry of Foreign Affairs. Moreover, under Article 30 of the Vienna Convention on Diplomatic Relations, diplomatic immunity extends to the private residences of diplomats, providing the same inviolability and protection as the embassy premises. The court emphasized that the formal confirmation from the French Ministry of Foreign Affairs carried superior legal weight, and N-Soft failed to provide sufficient evidence to counter this.

As a result, the court rejected N-Soft’s appeal regarding the legality of the provisional judicial lien and upheld the diplomatic immunity of the Chad Government's property.

In summary, the court ruled that N-Soft would bear the legal costs of the Chad Government, ordering N-Soft to pay 8,000 euros in cost compensation and cover all costs associated with the appeal.


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