China-EU Comprehensive Agreement on Investment and International Investment Arbitration Forum Successfully Held in 2021

On 26 March 2021, the China-EU Comprehensive Agreement on Investment (hereinafter referred to as CAI) and International Investment Arbitration Forum was successfully held online, with a simultaneous webcast of the conference. The forum was co-organized by the China International Economic and Trade Arbitration Commission (hereinafter referred to as CIETAC) and the China Permanent Forum on International Investment Arbitration.

The forum focused on three topical issues in international arbitration, namely "New Developments in CAI and International Investment Treaties", "New Developments in Investor-Host Country Dispute Settlement Reform" and "Investment Arbitration and the Revision of China's Arbitration Law", with a panel of renowned arbitration law experts discussing the opportunities, challenges, and solutions for international arbitration under the CAI.

In the closing session, Wang Chengjie, Deputy Director and Secretary-General of CIETAC summarised the highlights of the Forum, highlighting the high level and high profile of the development of the CAI, which also demonstrated to the world the new pattern of China's high level of openness to the outside world. In the 20 years since the promulgation of China's arbitration law, changes in the domestic and international situation and the renewal of the rule of law have prompted Chinese arbitration to keep pace with the times. As a major two-way investment country, China should actively promote the process of amending its arbitration law to improve its arbitration system and make China a more attractive place for international arbitration.

Shanghai Arbitration Commission Releases Annual Report 2020

In March 2021, the Shanghai Arbitration Commission released its 2020 Annual Work Report. According to the report, 4,173 cases were received in 2020, reaching the 4,000 marks for the second consecutive year, a decrease of 9.34% compared to 2019. 4,165 cases were concluded in 2020, an increase of 8.27% year-on-year, a record high.

Among them, the types of cases were mainly financial and civil, with financial cases focusing on investment contracts, insurance contracts, loan contracts, fund contracts, and financial leasing contracts, and civil cases focusing on the sale and purchase contracts, service contracts, cooperation contracts, contracting and entrustment contracts. Among them, the value of cases involving the Free Trade Zone (hereinafter referred to as FTZ) increased, with 270 cases involving the FTZ accepted in 2020, with a disputed amount of RMB 3.738 billion, an increase of 1.55% year-on-year. The report shows a slight decrease in the number of foreign-related cases. 62 foreign-related arbitration cases were received in 2020, accounting for 1.49% of the total number of cases received, a decrease of 15.07% year-on-year; the value of cases received was RMB 1.381 billion, accounting for 3.99% of the total value of cases received, a decrease of 2.40% year-on-year.

ICSID Releases Statistics for 2020

In February 2021, the International Centre for Settlement of Investment Disputes (hereinafter referred to as ICSID) published the latest statistics on case data for 2020. The report includes the number and types of new cases received by ICSID in 2020 and the selection of arbitrators, summarises the impact of the global COVID-19 on investment arbitration cases in 2020, and reveals the trends in investment arbitration cases in 2021.

New cases in 2020 will mainly involve the Contracting States in Eastern Europe and Central Asia (28%), South America (17%), and Sub-Saharan Africa (12%). These figures are relatively consistent with the total ICSID caseload since 1966 (26%, 22%, and 15% respectively). In terms of sectoral distribution, the oil, gas, and mining (26%) and construction (17%) sectors account for a significant proportion of new cases in 2020, followed by electricity and renewable energy (15%) and information and communications (12%), again in line with ICSID's historical statistics, where the energy sector dominates (24% and 17% for oil, gas, and mining and electricity respectively). These latest data also show that in the construction and IT industries, disputes between investors and the state are on the increase.

The digitization of the arbitration process has been greatly accelerated by the COVID-19, with ICSID being one of the many institutions transitioning to virtual hearings in response to the COVID-19. Statistics show that all hearings (including procedural, merits, and quantum hearings) in the last nine months have been held remotely, with 78% being held by video and the remaining 22% by telephone.

ICSID has also published the nationality and gender of arbitrators selected in 2020 cases. Overall, women were selected in 23% of cases in 2020 (up from 19% in 2019). Besides, nationals of more than 40 countries were selected as appointed arbitrators, mediators, and ad hoc committee members in 2020 ICSID cases.

Intermediate People’s Court of Shaoxing, Zhejiang Province:

The validity and arbitrability of the arbitration clause of civil and commercial agreements signed by the Administrative Authorities

Relevant Provisions:

Arbitration Law of the People’s Republic of China (Revision 2017)

Article 3.

The following disputes shall not be subject to arbitration:

……

(2) administrative disputes which shall, under the law, be dealt with by administrative bodies.

Article 16.

An arbitration agreement shall include arbitral clauses stipulated in the contract and other written agreements which request arbitration to be made before 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 20.

Where the parties concerned have a differing opinion upon the validity of an arbitration agreement, a request may be made for an award to be made by the arbitration commission or a judgment made by the People's Court. Where one party requests an award to be made by the arbitration commission and the other party requests a judgment from the People's Court, it shall be judged by the People's Court.

Where the parties concerned have a differing opinion upon the validity of an arbitration agreement, this shall be raised before the arbitration tribunal commences the first hearing.

Case Description:

On 7 November 2017, the People's Government of Zhuji approved and adopted the Implementation Plan for the Zhuji Hosiery Town Comprehensive Supporting PPP Procurement Project (hereinafter referred to as Project), agreeing to the implementation plan of the project and authorizing the People's Government of Datang Town of Zhuji to act as the project implementation agency and be specifically responsible for the preparation, procurement, contracting, supervision and other related work of the project.

On 3 January 2018, the People's Government of Datang Town of Zhuji issued the Tender Notice for the Project. On 23 January of the same year, Tian Song Construction Group Co., Ltd., and Zhongxin Housing East Co., Ltd. bid as a consortium and won the tender.

On 7 February 2018, the government of Datang Town, Zhuji, as the Party A, Zhongxin Housing East Co., Ltd. and Tian Song Construction Group Co., Ltd. as the Party B signed the Agreement of the Project. Article 5 of the Agreement, "Settlement of Disputes", stipulates that any dispute arising in the course of the performance of this Agreement shall be settled through consultation between the parties based on the principles of friendship and mutual benefit; if consultation or mediation fails, either party shall have the right to submit to the Zhuji Branch of the Shaoxing Arbitration Commission for arbitration. Pending the arbitration award, both parties shall abide by the decision of the Zhuji Branch of the Shaoxing Arbitration Commission.

On 20 December 2019, the Datang Street Office of Zhuji applied to the Zhuji Branch of the Shaoxing Arbitration Commission for arbitration, requesting the arbitral tribunal to award: 1. RMB 69 million in liquidated damages for failure to perform the obligations of capital contribution as agreed by Zhongxin Housing East Co., Ltd., and Tian Song Construction Group Co., Ltd.; 2. RMB 42 million in liquidated damages for failure to formally sign the Project Agreement with the implementation agency by Zhongxin Housing East Co., Ltd., and Tian Song Construction Group Co., Ltd. shall bear the liquidated damages of RMB 42 million for failing to formally sign the Project Agreement with the implementation agency; 3. Confirm that the bid deposit of RMB 10 million paid by Zhongxin Housing East Co., Ltd., and Tian Song Construction Group Co., Ltd. shall bear the lawyer's representation fee of 1 million yuan for Datang Street Office of Zhuji City; 7. Zhongxin Housing East Co., Ltd., and Tian Song Construction Group Co., Ltd. shall bear all the arbitration costs of this case.

On 27 December 2019, the Zhuji Branch of the Shaoxing Arbitration Commission accepted the arbitration application of the Datang Street Office of Zhuji Government. The case has not yet been heard by the Zhuji Branch of the Shaoxing Arbitration Commission after it was accepted. It was also found that on 21 June 2019, the Zhuji Government issued the Notice on the Adjustment of Part of the Administrative Divisions, which abolished the former Datang Town establishment and formed Datang Street.

Court’s View:

This is an application for confirmation of the validity of an arbitration agreement. According to the provisions of Article 20 of the Arbitration Law of the People's Republic of China, the applicant, Tian Song Construction Group Co., Ltd, after receiving the Notice of Defence from the Zhuji Branch of the Shaoxing Arbitration Commission, applied for the Court to confirm the validity of the arbitration agreement, which was under the above-mentioned legal provisions.

According to the provisions of Article 2 and Article 3 of the Arbitration Law of the People's Republic of China. Whether the dispute, in this case, is arbitrable depends on the legal nature of the Project Agreement in question.

Regarding the nature of the Project Agreement, firstly, although the project in question is related to the administrative authorities' achievement of administrative objectives and performance of public management duties, the project is not a public service provided by the Datang Street Office of Zhuji to the public completely free of charge and in a single manner. Secondly, from the conclusion of the contract and the determination of the content of the contract, although one of the parties to the contract is the Datang Street Office of Zhuji, the content of the agreement in question does not sufficiently indicate that the administrative organ enjoys unilateral superiority and dominance in the conclusion of the contract, supervision, and direction of the performance of the contract, modification or cancellation of the contract, etc. The counterparty to the contract, Tian Song Construction Group Co., Ltd., and Zhongxin Housing East Co., Ltd. still enjoyed full autonomy in concluding the contract and deciding the content of the contract and were not compelled by unilateral administrative acts. Again, from the content of the contract, the contract, in this case, did not agree on administrative approval, administrative permits, and other rights and obligations under administrative law. The contract was signed to sign the Project Agreement after the establishment of the project company and implement the design, investment and financing, construction, operation and management, and maintenance of the project. The specific rights and obligations, as well as the liability for breach of contract, agreed in the contract reflect the equal, equitable, and consensual agreement of the parties. The agreement, in this case, has a clear nature of civil and commercial legal relations, and should be characterized as a civil and commercial contract, and does not belong to the administrative agreement with citizens, legal persons, or other organizations within the scope of their statutory duties and responsibilities to achieve public interests or administrative goals, which has the content of rights and obligations under administrative law. Besides, the arbitration request of the Datang Street Office of Zhuji, is about the performance of the Project Investment Agreement in question, and the dispute does not involve a specific administrative act. Therefore, the dispute, in this case, is arbitrable and does not belong to an administrative dispute that should be handled by administrative organs according to law.

In this case, the parties agreed in the Project Agreement that any dispute arising in the course of the performance of this Agreement shall be resolved by consultation between the parties based on the principles of friendship and mutual benefit; if consultation or mediation fails, either party shall have the right to submit to the Zhuji Branch of the Shaoxing Arbitration Commission for arbitration. The arbitration clause contained the intention to request arbitration, the subject matter of the arbitration and the chosen arbitration committee, and the subject matter of the arbitration and the arbitration committee were agreed upon, which met the elements of a valid arbitration agreement as stipulated in Article 16 of the Arbitration Law. The arbitration clause, in this case, did not have the circumstances that the arbitration agreement was invalid as stipulated in Articles 17 and 18 of the Arbitration Law of the People's Republic of China. The applicant's argument that the Project Agreement is an administrative agreement is not valid and is not accepted by the Court, and its request to confirm the invalidity of the arbitration agreement is not supported by the Court.

In summary, under the provisions of Article 16 and Article 20 of the Arbitration Law of the People's Republic of China and Article 154(11) of the Civil Procedure Law of the People's Republic of China, the Court ruled as follows: The request of the applicants for confirming the invalidity of the arbitration agreement (clause) stipulated in the Project Agreement of Zhuji signed by and among Tiansong Construction Group Co., Ltd., Zhongxin Housing East Co., Ltd. and Zhuji Datang Sub-district Office on February 7, 2018, has been rejected.

Shanghai No. 1 Intermediate People's Court：

The validity of an agreement to arbitrate at the SIAC first and then to conduct litigation

Relevant Provisions:

Arbitration Law of the People’s Republic of China (Revision 2017)

Article 9.

Arbitration awards shall be final. Where an arbitration award has been made and a party reapplies for arbitration or requests a hearing before the People's Court upon the same matter, the arbitration commission or People's Court shall not deal with the matter.

Case Description:

The plaintiff, BY.O, was a French company and the defendant, Yushang Group Co., Ltd was a Shanghai company. The parties entered into the M&A Financial Advisory Services Agreement. Article 6.2 provides that "Any dispute or controversy arising out of or in connection with this Agreement (including any dispute as to the existence, validity or termination of the terms of this Agreement or the consequences of its invalidity) shall first be settled by arbitration at the Singapore International Arbitration Centre (hereinafter referred to as SIAC). If the parties fail to reach an agreement on the arbitration award issued by SIAC, either party shall have the right to submit the dispute to the commercial court with competent jurisdiction in the locality of Party A's domicile for litigation. "

Subsequently, a dispute arose in the course of the performance of the contract and the plaintiff filed a lawsuit with the People's Court of Shanghai Pudong New Area. The People's Court of Shanghai Pudong New Area rendered the Civil Ruling ((2020) Hu 0115 Min Chu No. 34710) based on an effective arbitration agreement between both parties to reject the lawsuit.

BY. O refused to accept the ruling and filed an appeal with Shanghai No. 1 Intermediate People's Court.

The reason is that Article 6.2 of the agreement involved in this case has violated the basic principle of "arbitral award is final", belongs to a contingent award or trial clause, and should be affirmed as invalid. On this basis, the court requested the court to revoke the original ruling and ruled under the law that this case shall be heard by the People's Court of Shanghai Pudong New Area.

Court’s View:

Upon review, the court held that this case was a foreign-related civil case. The agreement in Article 6.2 of the Agreement in this case, which states that "the matter shall first be settled by arbitration at the SIAC", specifies the priority of arbitration between arbitration and litigation, and the choice of arbitration institution is specific, clear, and unique, and does not have the characteristics of "either arbitration or trial". The choice of arbitration institution is specific, clear, and unique, and does not have the characteristic of "either adjudication or trial", so the Court finds the agreement of the arbitration clause acceptable. The parties further agreed that "if the parties cannot agree on the outcome of the arbitration by the SIAC, either party shall have the right to submit the dispute to the competent commercial court in the domicile of Party A for settlement by litigation", which is inconsistent with Article 9(1) of the Arbitration Law of the People's Republic of China, which provides that "The agreement shall be deemed null and void as it violates the basic principle of excluding court jurisdiction from arbitration. The case should be referred to the SIAC for arbitration and settlement. The original ruling dismissing the Appellant's suit was based on law and was upheld by the Court.

Accordingly, under Item 1, Paragraph 1 of Article 170 and Article 171 of the Civil Procedure Law of the People's Republic of China, it is ruled as follows: the appeal shall be rejected and the original ruling shall be sustained.

This Newsletter is produced by ZLWD International Business Committee and for your reference only.

Editorial Board: Wei LIN  Simon TANG  Philip DUAN  Ellen WANG  Yuming LI  

Lingling GUO Yu ZHUAN  Ning NING

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