In Wicor Holding A.G. v. Taizhou Haopu Investments Limited (Civil Action (2015) Tai Zhong Shang Zhong Shen Zi No. 00004), the Taizhou Intermediate People’s Court refused to enforce an ICC award on the ground of public policy.
Taizhou Haopu Investment Limited (“Haopu“) entered into a joint venture agreement (“JVA“) with Wicor Holding A.G. (“Wicor“) in 1997, establishing a joint venture company (“JV“). The parties agreed in the JVA to have their disputes arbitrated “in accordance with ICC mediation and arbitration rules“. The JVA also provided that “if one party initiates the arbitration, the other party shall choose the seat of arbitration“. In July 2011, Haopu commenced legal proceedings before the Taizhou Intermediate People’s Court (“IPC“) against Wicor, alleging that Wicor had breached the JVA by starting a similar business in competition with the JV. The Taizhou IPC rendered a judgment in 2012 (“2012 Judgment“) declaring the arbitration agreement in the JVA invalid as it failed to specify an arbitral commission in breach of article 16 of the PRC Arbitration Law. This conclusion was endorsed by the Supreme People’s Court (“SPC“).
Interestingly, the SPC, in confirming the Taizhou IPC’s decision, found that the law governing the JVA did not apply to the validity of the arbitration agreement. Relying on Article 16 of the Interpretation of the Supreme People’s Court concerning Some Issues on Application of the Arbitration Law of the People’s Republic of China, the SPC held that since the parties had neither agreed on the applicable laws governing the arbitration agreement, nor did they decide on a seat (since neither party had even applied for arbitration), the laws at the locality of the court (PRC laws) applied to determine the validity of the arbitration clause. (The governing law of the JVA was PRC law, so the same result would have been reached if the SPC had decided that the governing law extended to the interpretation of the arbitration agreement.)
With respect to the failure to specify an arbitration agreement, the SPC found the reference to “ICC arbitration rules” to be insufficient to ascertain the relevant arbitral commission.
Wicor had started ICC arbitration against Haopu in November 2011 based on a different dispute arising from the JVA. As Haopu had failed to designate the seat, the ICC arbitral tribunal decided, in January 2012, on Hong Kong as the seat of arbitration. The award was rendered in 2014 and Wicor sought to enforce it before the Taizhou IPC. However, the Taizhou IPC refused to enforce the award on the ground of public policy.
Wicor argued that as the dispute arbitrated by the ICC arbitral tribunal was different from the dispute handled in the 2012 Judgment, and because the arbitration involved two private parties with no public interests, the Taizhou IPC should enforce the awards under the Arrangements of the Supreme People’s Court on the Mutual Enforcement of Arbitral Awards between the Mainland and the Special Administrative Region of Hong Kong. The Taizhou IPC rejected those arguments and found that the 2012 Judgment, which had ruled the arbitration clause to be invalid, had already taken legal effect. Since the ICC award was rendered on the basis that the arbitration agreement was valid, enforcing the award would contradict the social and public interests of China. Haopu had also argued that the behavior of the ICC arbitral tribunal in regarding the arbitration agreement as valid had harmed the judicial sovereignty of China; the Taizhou IPC did not comment on this argument in its decision.
This case demonstrates the need for parties to unambiguously designate a “commission” to administer arbitration (see, e.g., the ICC model clause for China) in contracts having any nexus to China, even where the seat is not located in the PRC. In the present case, the failure to clearly designate a commission pursuant to the requirements of the PRC arbitration law had consequences not only for the case in which the 2012 Judgment was rendered, but also for the subsequent, unrelated arbitral proceedings in question. The reasoning of the SPC in declaring the arbitration clause invalid appeared to be based on the circumstance that the arbitration commission could not be “ascertained” from the ICC arbitration rules. The SPC’s decision was made on the basis of the 1998 ICC Rules (although there are also some obscure references to the 1988 rules in the referral from the Taizhou IPC). It is doubtful whether the SPC could justify the same conclusion under the 2012 ICC Rules, since they provide, in Art 1(2), that the “[ICC] Court is the only body authorized to administer arbitrations under the Rules”.
While the result is not unexpected in light of previous, similar decisions such as the 2004 case of Züblin International vs. Wuxi Woke and the 2008 case of Hemofarm DD v. Jinan Yongning Pharmaceutical Co. Ltd (in which the public policy ground for refusal to enforce an arbitral award was used for the first time by the Chinese courts), it serves to add to the uncertainty surrounding the validity of arbitration clauses in arbitrations with a China nexus. Consequently, despite positive developments in cases such as the 2013 case of Longlide Packaging v. BP Agnati, in which the SPC upheld the validity of an arbitration agreement providing for ICC-administered arbitration in China, the present case highlights the potential risks that still remain in arbitrations involving China and Chinese parties.