Civil Ruling of Xiaogan Intermediate People's Court

(2014) Exiaoganzhongminwaichuzi No.1, 20 August 2015

Claimant： Jesssmith & Sons Cotton, 11c, Bakersfield, CA 93301 United States 

Legal Representative: ernstdieterschroederjr;

Attorney: Yanzao HU, Fei Zhang, Hubei Deweijunshang law firm

Respondent: Jihua 3509 Textile Ltd.

Attorney: Weibing QIU, the executive director and the general manager of the Company

Attorney: Sufang HUANG, Guangdong Shengtang Law firm 

Attorney: Yinhua Wang，Hubei Chengming Law Firm.

This case is between the Claimant Jesssmith & Sons Cotton, 11c, (“Jess”) and the Respondent Jihua 305 Textile Ltd.(“Jihua”)，concerning the recognition and enforcement of the foreign arbitral awards. After the case was accepted at December 2nd 2014, the collegial bench was formed according of the PRC Law. Jihua handed the “Jurisdiction Challenge Application”，and asked the Court to transfer the case to Liverpool's High court. On March 13th 2015, the Court decided that this case was related to judicial assistance，which means there was no rule stating that the Claimant had the right of jurisdiction challenge in such kind of case. The content of the application was the recognition of foreign arbitral awards and they could not raise jurisdiction challenge in such circumstance. Jihua did not object to this decision. On March 18th, Jihua applied to delay the oral hearing to April 10th, the Court allowed Jihua’s application. On April 13th, May 6th, and May 18th 2014, the Court organized the oral hearing. Yanzhao HU, the attorney of Jess, Sufang HUANG and Yinhua WANG, the attorney of Jihua, attended the hearing. Now this case has been determined.

Jess claimed that: Jess and Jihua signed a sales contract on March 8th 2011, and the number of the contract is PME-10093. When the parties had disputes about the performance of the contract, Jess applied for arbitration at International Cotton Association (“ICA”）according to the terms of the contract On January 29th 2013, ICA made the following ruling (the case number is a01/2012/161): 1) The buyer should pay 639, 242.36 dollars to the seller. They were the total differences between contract price 238 cents per pound and the invoice price 180 cents per pound when the net weight of the goods is 1,102,142 pounds or 500 tons. 2) The buyer should pay 2,676.05 dollars of the extra fees related to the 90-day Usance Letter of Credit to the seller. 3) The buyer should pay 33,064.2 dollars of storage fees to the seller. 4) The buyer should also pay 42,024.61 dollars, the interest of 674,982.67 dollars, the total amount of the above three items (1,2,3). It should be calculated from April 1st 2012 to the date of this ruling which was January 29th 2013, and the rate of interest is 7.5% per annum. 5) The buyer should also pay the interest of 717,007.28 dollars, the total amount of the above four items (1,2,3,4). The interest rate is New York interbank offered rate (or its average rate) floating upwards 4.25%, and the interest should be calculated from February 19th 2013 to the date when the buyer make the payment. About the arbitration fees, ICA decided the money the buyer had paid, 3150 pounds and the 800 pounds stamp tax, should be paid by the seller. The buyer should ask the seller to pay. Since Jihua did not enforced the arbitral award, Jess made the following requests: 1) To recognize the arbitral award made by ICA, 2) To enforce the arbitral award made by ICA, which includes: (a) Jihua should pay RMB whose value is equal to 717007.28 dollars to Jess, and pay the interest at the rate of 4.25% per annum. The interest should be calculated from February 19th 2013 to the date when the buyer pays the RMB whose value is equal to 717007.28 dollars, (b) Jihua should pay the arbitration fees with RMB, whose value is equal to 3950 pounds. 3) Jihua should bear the costs of the litigation.

Jihua argued that the Court should not recognize and enforce the arbitral award，and gave the following arguments: 1) The contract was amended according to the parties' agreement，and the amended contract had been totally performed. The original Contract had no binding effect anymore. The amended contract was an independent contract and had been performed, however, the tribunal still used the original contract’s price terms and letter of credit terms to calculate the differences between the contract price and invoice price. This decision was beyond the scope of the submission to arbitration, which constitutes the circumstanced stated in Article V (c) of the New York Convention. 2) The arbitration clause was not valid, and the tribunal did not have the jurisdiction over this case. According to Article II and Article V (l)(a) of the New York Convention and Article 174 (1) and (4) of Civil Procedure Law of the PRC, the recognition and enforcement should be refused. 3) The service of process had serious flaws. The award neither had the tribunal’s reason about the decision，nor had any facts and legal basis，and was also contrary to parties’ agreement; the recognition and enforcement of the award should be refused according to the New York Convention. 4) The award was malicious and did not have legal effect. It seriously destroyed the international trade order and was also contrary to the basic morality and justice principle of China, and recognition and enforcement of the arbitral award would seriously injure the public interests of China.

Against Jihua’s arguments, Jesse pointed out that： 1) The cotton sales contract signed by the Claimant and the Respondent, whether the contract signed at March 8, 2011, or the contract amended at February 23, 2012 and February 29, 2012 of, all agreed the following arbitration clause in the first page: “Arbitration: the whole contract is governed by English Law and ICA rules under jurisdiction. Please sign at the bottom to confirm the acceptance of all the terms of the entire contract.” 2) ICA made the award according to ICA rules as agreed by the parties. The procedure was legitimate, and ICA delivered relevant legal documents properly. 3) Jihua received all the notifications and documents from ICA, and also received proper notice of the arbitration proceedings. 4) The award did not violate the principle of fairness and justice, and did not violate public policy of China. 5) There were no reasons to refuse recognition and enforcement of the arbitral award in this case, and the arbitral award should be recognized and enforced.

According to Article 283 of Civil Procedure Law of the PRC, where an arbitral award of a foreign arbitral institution requires recognition and enforcement by a people's court of the PRC, and a party shall apply directly to the intermediate people's court at the place of domicile of the party against whom enforcement is sought, or at the place where the property thereof is located, and the people's court shall process the application in accordance with an international treaty concluded or acceded to by the PRC or under the principle of reciprocity. This award was made in the United Kingdom. Since China and the United Kingdom both have joined the New York Convention, as stated in Article 283 of Civil Procedure Law of the PRC, the Court held that it should review the award according to the related articles in New York Convention. The ICA’s arbitral award submitted by the Claimant, has been duly authenticated, and has fulfilled the formality requirements of the New York Convention.

After serious consideration, the Court decided the arbitral award made by ICA towards the contract of pme-10093 should be enforced. The Court gave the following reasons:

1)There were valid arbitration agreements between the parties. The sales contract signed on March 8, 2011, or the contract amended at February 23, 2012 and February 29, 2012, agreed that the whole contract was governed by English Law and the ICA rules under jurisdiction. Article 2 of the amended contract also agreed: the seller has the right to submit the dispute to arbitration if any, and the applicable law should be English Law. The parties had not chosen the arbitration institution, however, the parties agreed that the applicable law is English Law. According to Article 6 of the English Arbitration Act (1996), “arbitration agreement” means an agreement to submit to arbitration present or future disputes (whether they are contractual or not), there was no requirement about identifying arbitration institution. Thus, Jess could submit disputes to the ICA based on the valid arbitration agreement.

2)ICA informed Jihua to choose arbitrators and participate in the arbitration proceeding by appropriate means. After accepting the application for arbitration from the Jess, ICA sent notifications to Jihua through two means, Yi Bin's e-mail box and Federal Express. On February 18, 2013, Jihua replied the e-mail sent from ICA to Yin Bin’s mail at February 14, 2013. This fact shows that Yin Bin mailbox was active and Jihua could receive notification from the ICA through Yin Bin’s Mailbox. When sending the email, the ICA also sent notifications to the Ji Hua Company via FedEx. Furthermore, upon inquiry, the documents were delivered and well received. Therefore, the ICA informed Jihua in an appropriate manner, which means the Jihua's procedure rights of arbitration were properly protected.

3)ICA’s non-delivery of the arbitral awards did not violate the English Arbitration Act (1996) and Bylaws and Rules of The International Cotton Association Limited. Article 55 (3) of the English Arbitration Act (1996) provides: nothing in this section affects section 56 (power to withhold award in case of non-payment), and Article 56 (1) provides: The tribunal may refuse to deliver an award to the parties except upon full payment of the fees and expenses of the arbitrators. Article 308(7) of the Bylaws and Rules of the International Cotton Association provides: The Award will only be released upon payment of the stamping fee and any outstanding fees, costs and expenses. Since Jihua did not pay the related fees, ICA had the rights not to deliver the award to Jihua.

In conclusion, there was no ground for refusing to recognize and enforce the award made by ICA based on Art. V of the New York Convention. The award should be recognized and enforced. Thus, based on Article V of New York Convention and Article 154(1)(11) and Article 283 of Civil Procedure Law of the PRC, the Court made the following ruling: Recognize and enforce the arbitral award whose number is A01 / 2012 / 161 made by ICA towards No.pme-10093 Contract.

This ruling is the final ruling.

Chief Judge: Zheng LIU

Judge: Shuli WANG

Judge: Shaojuan Dai

Date: August 20th, 2015

Clerk:Yi Zhang

*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.