The Intermediate People’s Court of Wuxi, Jiangsu (24 October 2014)

(2013)Xi Shang Wai Zhong Shen Zi No. 0002, 24 October 2014

Petitioner: Queensland Cotton Corporation Ltd (“Queensland”)

Represented by Robert Dall’ Alba.

Attorney: Luo Yun, Xia Yan, Beijing ZHONGUN Law Firm Shanghai Branch

Respondent: Jiangyin Huafu Textile & Clothing Corporation Ltd (“Huafu”）

Represented by Gu Yonghua, chairman of the board 

Attorney: Qian Guoshuang, Jiangsu WEIYI Law Firm

This case was filed on 3 July 2014 by the Petitioner against the Respondent for recognition and enforcement of an arbitral award rendered by the International Cotton Association (“ICA”). The tribunal was constituted by three judges. The hearing was held on 30 July 2014, and counsel from both parties attended the hearing.

According to Queensland, on 9 February 2011 and 29 September 2011 respectively, it entered into two cotton sales contracts with Huafu, namely QC/A/00447 and QC/A/00598 (“Contract 00447” and “Contract 00598”). Under Contract 00447, Queensland sold Huafu 1,500 tons of cotton from Australia, with shipments in April and May 2012. Huafu shall make payment through a sight letter of credit in favor of Queensland, issued 14 days before the shipments. Under Contract 00598, Queensland sold Huafu 1,000 tons of cotton, with shipment in April 2012. Huafu shall make payment through 180-day usance letter of credit from the date of bill of lading in favor of Queensland issued 15 days before the shipment. Both contracts contained arbitration clauses submitting disputes arising out of the two contracts to arbitration administered by the ICA. Due to Huafu’s failure to apply for the issuance of a letter of credit, on Jun 28th 2012, Queensland filed a request for arbitration before the ICA against Huafu, for breach of contract. On 24 Jun 24 2013, the arbitral tribunal rendered a final award in favor of Queensland, ruling that Huafu should pay the contract price, namely USD 1,668,484.94 and corresponding interest, and bear the arbitration fees, namely GBP 5,770. Since Huafu has not autonomously complied with the award, Queensland filed this action, asserting that the court should: a) recognize the award rendered by the ICA on 24 Jun 2013; b) enforce the arbitral award, compelling Huafu to perform the payment duties or executing its assets; c) order Huafu to assume all the litigation and enforcement fees.

Huafu resists recognition and enforcement of the award, based on the following grounds. A) The business partner of Huafu was actually Hualong Corporation Ltd (“Hualong”) because deposits were directly paid to Hualong. Therefore, there was no arbitration agreement between Queensland and Huafu. B) Huafu had already paid $969,472.85 as deposits to Queensland, which was not deducted from the amount determined in the award. This part should not be granted enforcement. C) Huafu did not receive the emails and the relevant materials from the ICA, which led to procedural defects. Consequently, the award should not be enforced due to the deviation from due process, pursuant to Article V (1)(b) of the New York Convention. D) The arbitral tribunal erred in calculating the amount of the compensation. According to the Incoterm used in the contract, namely CIF, Queensland should bear the insurance fees, but the arbitral tribunal did not consider this factor.

In response to Huafu’s defense，Queensland made the following arguments. A) Contract 00447 and Contract 00598 were indeed signed by Queensland and Huafu, and Huafu also admitted the authenticity of both contracts. Therefore, an arbitration agreement truly existed between the two parties. Hualong was only an agency, and this was expressly recorded in the contracts. B) Cogent evidence shows that the parties’ submissions, procedural orders and arbitral award were served on Huafu through emails and international expressage. There was no violation of equal treatment or due process. C) The calculation of deposits and insurance fees in the compensation granted is a substantive issue which is not subject to the review of enforcing court. D) The arbitration was conducted completely in accordance with the arbitration rules, and the award became binding the day it was rendered. Besides, the enforcement is not contrary to China’ s legal order or public interest.

The court firstly cites Article 283 of the Civil Procedure Law of the PRC which deals with the recognition and enforcement of arbitral awards rendered by foreign arbitration institutions  and then confirms that the New York Convention shall govern the recognition and enforcement because the award was rendered in the United Kingdom and both China and the UK are contracting states of the New York Convention.

The court then makes its ruling that the recognition and enforcement of the award in dispute should be granted.

Firstly, Queensland has provided the authenticated original contracts, award as well as its translation. According to the explicit expression of Contract 00447 and Contract 00598, all that Queensland asserts are true. In other words, the contracts were truly signed by Queensland and Huafu，and Hualong was only an agent rather than a party to the contracts. All the rights and obligations are consistent with Queensland’s statements. Since Huafu does not contest the authenticity of the contracts, it must be deemed to have affirmed the existence and validity of the arbitration agreements contained in these two contracts.

Secondly, Queensland has provided evidence showing that ICA indeed served all the relevant arbitration materials on Huafu, including the notice of arbitration, the notice for appointment of arbitrators, the notice for statement of defense and the arbitral award. The email address used is exactly the same with the official email address put up in Huafu’s website, and each email expressly states that it has been successfully transmitted to Huafu, although without reply. The address to which international expressages were delivered is also identical to the official address of Huafu, and each international expressage has the proof of service. The argument raised by Huafu that the emails from ICA were intercepted by its computer system as spam emails is not sufficient, because it is not the responsibility of ICA to ensure that the computer system of Huafu can receive foreign emails.

Thirdly, the deduction of the deposits and the insurances fees from the amount of compensation and the method of calculation belong to substantive issues, which are not matters subject to review under the New York Convention.

Based on the above analysis, the court rejects all the defenses raised by Huafu to resist recognition and enforcement. The court does not find any other ground set forth in the New York Convention to refuse recognition and enforcement of this arbitral award. Therefore, the court grants recognition and enforcement of the award in its ruling, pursuant to Article V of the New York Convention and Article 154, para 1, item 11 of the Civil Procedure Law of the PRC.  

This ruling is final.

Presiding Judge: Zhu Jiadan

Acting Judge: Zhou Hua

Acting Judge: Zhao Wenjie

October 24th 2014

Court Clerk: Wang Wei

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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.