Qingdao Maritime Court (22 July 2014)

Civil Ruling of Qingdao Maritime Court

(2013)Qingdao FaHaiShangChuZi No. 1032, 22 July 2014

Petitioner: Spring Maritime Limited.

Legal Representative: Chen Xiaohui, Director.

Attorney: Yuan Hui, Tian Zhiqiang, Shangdong Jinghai (Qingdao) Law firm.

Respondent: Shangdong Hainai Real Estate Corporation Limited.

Legal representative: Guo Suquan, Chairman.

Attorney: Wang Darong, Beijing Dacheng (Xia Men) Law firm. Wang Boli, Shangdong Yuejing Law firm.

Spring Maritime Limited applied to the court to recognize and enforce the award made by the London arbitration tribunal on 19 July 2013. The award was between Spring Maritime Limited and Shangdong Hainai Real Estate Corporation Limited, concerning the issue arose from the “Letter of Guaranty” of the “Transspring” Wheel, dated 4 July 2011. The court admitted the case, formed a collegiate bench, and had the open hearing on 11 December 2013. The Claimant Counsel Yuan Hui and the Respondent Counsel WangDarong, Wang Boli attended the hearing. The judgment of this case is made.

Petitioner pledged: On 4 July 2011, Petitioner and Haide International Holding(HK) Limited singed a time charter contract. In the contract. Petitioner agreed to charter the “Transspring” Wheel to Haide International Holding(HK) Limited， and the charter period were about 58-60 months. To guarantee the performance of the above time charter contract, Respondent issued to the Petitioner the “Letter of Guaranty” and guaranteed all the obligation, responsibility, commitment and warranty of the Haide International Holding(HK) Limited under the time charter contract. The arbitration clause under the “Letter of Guaranty” says: English law governs the guaranty. All the disputes within or about this guaranty shall be arbitrated in London by the LMAA, in accordance with 1996 English Arbitration Act and the LMAA Rules which approves the validity of this arbitration clause.” Petitioner provided the Wheel according to the contract. Subsequently Haide International Holding(HK) Limited breached contract, while Respondent refused to fulfill the guaranty. That seriously harmed the interest of Petitioner, and Petitioner commenced arbitration according to the “Letter of Guaranty” in London. Petitioner appointed John Schofield as the arbitrator. Respondent appointed David Farrington as the arbitrator. The co-arbitrators chose Bruce Harris as the third arbitrator. On 19 July 2013, London tribunal made the Final Award in accordance with the 1996 English Arbitration Act. (The tribunal corrected the wording of the rational which did not affect the substantive part.) The award reads: a. Petitioner entirely win the case. b. Respondent shall pay Petitioner $4,604,751.62, the interest of $779,063.92 from 25 May 2012 to the date of payment, the interest of $3,825,687.70 from 1 July 2012 to the date of payment. The annual rate of the above two interests is rate 4.5%, and the less-than-one-year part shall be calculated in proportion. The interest shall be compounded quarterly, c. Respondent shall bear the cost which arose from this arbitration (If no agreement is reached, Petitioner may apply to the tribunal or the High Court to assess it according to Article 63(5) of the 1996 English Arbitration Act). Besides, Respondent shall bear the arbitration fee £84,925. If Claimant has paid any arbitration fee in advance, Claimant can request Respondent to pay for it immediately, d. The interest of the payment that Respondent shall pay to Claimant in chapter c, shall be calculated according to an annual rate 4.5% from the day that Claimant paid to the date of Respondent’s payment, and shall be compounded quarterly. The above award has been served on to Respondent, and has effected legally. However, Respondent has still refused to perform the obligation under the arbitral award. Petitioner request the court to recognize the Final Award which was made by the tribunal on 19 July 2013, concerned the issue arose from the “Letter of Guaranty’’ of the ‘‘Transspring’’ Wheel, dated 4 July,2011.

Respondent alleged:

1.Qingdao Maritime Court does not have jurisdiction over this case. The case shall be administered by Ri Zhao Intermediate People’s Court.

2.The content of “Letter of Guaranty” involved a cross-border guaranty. According to Article 6 of the Judicial Interpretation of the Supreme People's Court on Some Issues Regarding the Application of Security Law of the PRC, “A cross- border guaranty is invalid in the following occasions: providing cross-border guaranty without approval or registration from state authority”. Therefore, based on Article V (2) of the New York Convention, the foreign award which Petitioner applied for recognization and enforcement violates Chinese public policy and public order. Chinese courts shall refuse to recognize and enforce it.

3.Respondent is not the actual contractor of the “Letter of Guaranty”. Others counterfeited Respondent’s signature and signed the “Letter of Guaranty”. Besides, people who signed the guaranty contract did not have capacity for civil conduct, because the guaranty had not been approved by Respondents Board of Directors/ Shareholders. Therefore, the “Letter of Guaranty” and the arbitration clause is void. The foreign arbitration institution did not have jurisdiction to hear the case, and the arbitral award shall be refused to recognize and enforce in accordance with the provisions of the New York Convention.

4.The foreign arbitral award harms and disrespects the public interest and jurisdictional sovereignty of China. The award shall not be recognized and enforced.

5.According to Article V(1)(b) of the New York Convention, if the party against whom the award is invoked is not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or is otherwise unable to present his case, the award shall be refused to recognize and enforce under the party’s request. Respondent was not given proper notice of the arbitration clause, and Respondent knew the existence of the arbitration clause form other parties.

6.The Final Award that Petitioner applied to recognize and enforce is not the original award made by the London Arbitration Commission after the hearing. The original award was amended in accordance with Petitioner’s request. However, the tribunal did not give enough time for Respondent to present the case when the tribunal amended case. The arbitral proceedings materially lacked of justice. Therefore, the Final Award made through unjust proceeding shall not be recognized and enforced.

The court found that, on 4 July 2011, Petitioner and Haide International Holding(HK) Limited signed a time charter contract, agreed to charters the “Transspring” Wheel to Haide International Holding (HK) Limited. The charter period was about 58-60 months.

On the same day, Respondent issued to Petitioner the “Letter of Guarantee”. In this guarantee: Respondent as the guarantor issues this guarantee unconditionally and shall not revoke it. Respondent guaranties that Haide International Holding (HK) Limited shall performance and comply with all the obligation, responsibility, commitment and warranty under the time charter contract. The arbitration clause in the “Letter of Guarantee” states: “English law governs this guaranty. All the disputes within or about this guaranty shall be arbitrated in London by the London Maritime Arbitration Association (LMAA), in accordance with 1996 English Arbitration Act and the LMAA Rules which approves the validity of this arbitration clause.”

Subsequently, Haide International Holding (HK) Limited breached the charter contract. The Petitioner commenced the arbitration against the Respondent according to the “Letter of Guarantee” before the LMAA. Petitioner appointed John Schofield as the arbitrator, and Respondent appointed David Farrington as the arbitrator. The co-arbitrators chose Bruce Harris as the third arbitrator, and the three arbitrators constituted the arbitration tribunal. The oral hearings took place on 21-24 and 28-29 May 2013. Both parties appointed counsel to attend the hearing and requested witnesses to testify on their statements. Respondent submitted its Reply to the Claimant’s Statement to the tribunal.

On 19 July, 2013, the tribunal made the Final Award. The award reads: a. Petitioner entirely win the case. b. Respondent shall pay Petitioner $4,604,751.62, the interest of $779,063.92 from 25 May 2012 to the date of payment and the interest of $3,825,687.70 from 1 July 2012 to the date of payment. The annual rate of the above two interests is 4.5%, and the less-than-one-year part shall be calculated in proportion. The interests shall be compounded quarterly, c. Respondent shall bear the cost which arose from this arbitration (If no agreement is reached, Petitioner may apply to the tribunal or High Courts to assess it according to Article 63(5) of 1996 English Arbitration Act). Besides, Respondent shall bear the arbitration fee £84,925. If Claimant has paid any arbitration fee in advance, Claimant can request Respondent to pay for it immediately. d. The interest of the payment that Respondent shall pay to Claimant in chapter c, shall be calculated according to an annual rate 4.5% from the day that Claimant paid to the date of Respondent’s payment, and shall be compounded quarterly. Respondent refused to perform the obligation under the arbitral award. The above award has been served on to Respondent, and has effected legally. However, Respondent has still refused to perform the obligation under the arbitral award.

On 29 August 2013, the tribunal corrected paragraph 116 of the award, in accordance with the 1996 Arbitration Act and the 2012 Rules of the London Maritime Arbitration Association. The following content was added: When “China” is mentioned in the documents (It is mentioned three times in the above paragraphs), the tribunal knows that counsel for the shipowner mean “Mainland China”, which is distinct from Hong Kong. Petitioner provided evidence that the “Amendment to the Final Award” signed by Arbitrator David Farrington were served to both sides counsels. Respondent denied receiving this document.

Petitioner provided the origin of the “Letter of Guarantee” which contains the arbitration clause, a notarized and authenticated copy of the Final Award, a copy of “Amendment of the Final Award”. Other evidence proving the justice of the arbitration proceeding were also provided by Petitioner.

This court holds that this case is about the recognition of foreign arbitral award which arose from the guaranty of a time charter contract. In accordance with Article 31 of Provisions of the Supreme People's Court on the Scope of Cases to Be Accepted by Maritime Courts, cases on disputes over contracts of maritime guaranty are maritime cases, and they are within the scope of cases to be entertained by maritime courts. The arbitral award made by the LMAA is a maritime arbitral award. Article 11 of the Special Maritime Procedure Law of the PRC, provide that when the parties apply for recognition and enforcement of a foreign maritime arbitral award, an application shall be filed with the maritime court of the place where the property subjected to execution or of the place where the person subjected to execution has its domicile. Since Respondents domicile is Rizhao, Shandong Province. Rizhao is under the jurisdiction of Qingdao Maritime Court. This court has jurisdiction over this case. Both China and the UK are the members of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Award (“New York Convention”). According to Article 283 of the Civil Procedure Law of the PRC, since the arbitral award in this case was made in London, UK, the New York Convention shall be applied.

As for Respondent proposed that recognition and enforcement of the foreign award violated public policy and public order, the court find that, in accordance with Article V(2)(b) of New York Convention, recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that the recognition or enforcement of the award would be contrary to the public policy of that country. Even though that Respondent did not record the cross-border guaranty violates Chinese cross-border guaranty regulations, it does not constitute violation of public policy. Recognition of this foreign award will not violate Chinese legal principles, harm Chinese sovereignty, damage state or society security, violate good custom nor harm state’s basic public interest. Therefore, the court disagrees with Respondent’s argument.

Respondent also proposed that Respondent is not the actual contractor of the “Letter of Guaranty”. Others counterfeited Respondent’s signature and signed the “Letter of Guaranty”. Besides, people who signed the guaranty contract did not has capacity for civil conduct, therefore the “Letter of Guaranty” and the arbitration clause is void. Article V(1)(a) of the New York Convention particulars that: Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, prove that: ''(a) The parties to the agreement referred to in Article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or,  failing any indication thereon, under the law of the country where the award was made." Respondent is a Chinese legal person. To decide its capacity of civil conduct, Chinese law shall be applied. Pursuant to Article 36 of General Principles of the Civil Law of the PRC, a legal person's capacity for civil Rights and capacity for civil conduct shall begin when the legal person is established and shall end when the legal person terminates. Respondent had the capacity of civil conduct to provide guaranty during the existence of the legal person. Respondent's suggestion is irrelevant to the capacity of civil conduct. This court will not examine this argument because it is not a statutory ground in New York Convention. This argument lacks legal basis, and the court do not support it.

Respondent argued that they did not receive a proper notice according to Article V(1)(b) of the New York Convention. Article V(1)(b) of the New York Convention provides: "Recognition and enforcement may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought proof that... (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.” Respondent not only appointed the arbitrator, submitted its Reply to Claimant's Statement, but also appointed counsel to attend the hearing. Therefore, the argument lacks legal basis, and the court does not support it.

Besides, the correction which was made by the tribunal on 29 August 2013 is not a substantive amendment, and does not affect Respondent’s legitimate interest. The effectiveness of the Final Award is not decreased by the correction.

The requirement in Article IV of the New York Convention is satisfied since Petitioner provided the origin of the “Letter of Guaranty” including the arbitration clause, the copy of the “Final Award" which has been notarized and authenticated, the copy of “Correction of the Final Award”. No evidence shows any situations to refuse recognition and enforcement in Article V of New York Convention. The application to recognize foreign arbitral award has sufficient evidence and legal basis. It is in line with provisions in Civil Procedure Law of the PRC, New York Convention, and the reservation that China declared when contracting the Convention. The application is supported.

In accordance with Article 283 of Civil Procedure Law of the PRC and the New York Convention, the court order:

Recognize the effectiveness of the 19 July 2013 arbitral award and the 29 August, 2013 correction which were made by the tribunal that were constituted by three English arbitrators John Schofield, David Farrington, Bruce Harris.

The litigation fee is RMB500. Respondent, Shangdong Hainai Real Estate Corporation Limited, will bear the litigation fee.

Chief Justice Song Junwen

Justice Li Hua

JusticeGuo Ju

Date 22 July, 2014

Court Cleck Xu Wenwen

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*The original text is Chinese and has been translated into English for reference only. If there is any inconsistency or ambiguity between the Chinese version and the English version, the Chinese version shall prevail.