The First Intermediate People's Court of Shanghai
(2013) Hu Yizhong Minren (Waizhong) zi No. 2, 27 November 2015
Petitioner: Siemens International Trade Co. Ltd
Legal Representative: Dieter Steinbrenner, general Manager
Attorney: Xing Xiusong, Beijing (Shenzhen) Global Law Office
Respondent: Shanghai Golden Landmark Co. Ltd
Legal Representative: Henry Onggo (Wang Hengxin), CEO
Attorney: Xu Jianfeng, Guangdong WANG JING & CO, Shanghai Office
Petitioner, Siemens International Trade Co. Ltd. (“Siemens”), filed the case against Respondent，Shanghai Golden Landmark Co. Ltd (“Golden Landmark”), regarding the recognition and enforcement of a foreign arbitral award. In 14 June 2013, the case was accepted by this Court. This Court legally formed a collegial panel and heard the case. The case has now been concluded.
Siemens argued: Siemens and Golden Landmark concluded the “China Shanghai Pudong New District Lujiazui Trade Zone b2-5 Land Golden Landmark Building High (Low) Voltage Distribution System Supply Project” contracts in September 2005, after bidding. During the performance of the contract, disputes arose between the parties. Golden Landmark filed an application for arbitration before the Singapore International Arbitration Centre (“SIAC”) to terminate the contracts and to cease payments. Siemens filed counterclaims against Golden Landmark in the arbitration proceedings, requesting Golden Landmark to pay the price for all the goods, interest plus compensation for other losses suffered by Siemens. On 28 November 2011, SIAC issued the final award in which all the claims made by Golden Landmark were rejected and the counterclaims of Siemens were granted. Under the award, Golden Landmark should pay Siemens RMB 9,415,120.49 and SGD 172,292.63. Golden Landmark paid some of the monies, but RMB 5,133,872.30 remained unpaid, consisting of: RMB 4,340,460 under section (b) of the award; and RMB 793,412.30 under section (c) of the award, that is the interest until the date the award was registered on 28 November 2011. Siemens argued that, both China and Singapore are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”）and the award should be recognized and enforced under the New York Convention. Siemens thus made the following application to this Court: 1) Recognize and enforce the final award made by SIAC in No. ARB062/07 case (Award No. 73 in 2011); 2) Enforce the unpaid balance due by Golden Landmark under the award, that is, the principle RMB 4,340,460 plus interest; 3) Enforce the double interest for the debt during the period of the deferred performance, due according to Article 253 of the Civil Procedure Law; 4) Golden Landmark should bear the litigation fee.
Golden Landmark submitted: Siemens’ application should be rejected and the arbitral award should not be recognized and enforced. The reasons are as follows: 1. According to Article V of the New York Convention, the award should not be enforced if the arbitration agreement is invalid or the recognition or enforcement of the award would be contrary to the public policy of China. In this case, both parties were Chinese legal entities and the Contract was performed in China, so this case does not contain any foreign element. Thus，the agreement to submit the dispute to a foreign arbitration commission was invalid and the recognition and enforcement of the award would violate the public policy of China. 2. The arbitral award contains errors on the merits, and the recognition and enforcement would lead to unfair result. According to the contracts, the premise that Golden Landmark pay all the contract price is that the goods delivered by Siemens pass the acceptance inspection and be installed and debugged as qualified. However, the arbitral tribunal decided that Golden Landmark pay all the contract price without having investigated whether Siemens had delivered the goods according to the Contract (In fact, Siemens did not deliver the buses, 10kv transformer etc.). Thus, it was wrong for the tribunal to order Golden Landmark to pay all of the contract price and that is the reason why Golden Landmark has not performed sections (b) and (c) of the award. 3. As to the double interest claimed by Siemens, the relevant articles of the Civil Procedure Law only apply to binding judgment made by Chinese courts, not to foreign arbitral awards.
Siemens’ reply to Golden Landmark: 1. The arbitration agreement is valid and the award should be recognized and enforced. 1) During the arbitral proceedings, it was Golden Landmark that filed the arbitration and, after it lost the case, refused to recognize and enforce the arbitral award, which violates the good faith principle. 2) After the award was rendered, Golden Landmark partially performed its payment obligation, which indicates that it recognized and accepted the legal effect of the arbitral award. 3) As to whether this case contained any foreign element, since Siemens is a foreign invested enterprise, established in the Shanghai Waigaoqiao Bonded Zone, it can hardly be said that the parties and the content of the Contract in this case “do not contain any foreign element” under Chinese Bonded Zone Policy. In addition, the subject matter of this case was to import goods, which were located outside China and were delivered to China for the purpose of performing the Contract. Thus, the subject matter of the Contract was not without any foreign element. 4) Chinese Civil Procedure Law and Arbitration Law do not stipulate that the arbitration agreement is invalid if the agreement to submit the dispute to a foreign arbitral commission does not containing foreign element. 2. Whether the content of arbitral award contained any mistakes is beyond the scope of the review of the Court in the process of recognition and enforcement. According to the New York Convention, the enforcing state can only review the procedural issues as well as the public policy issues stipulated by Article V of the Convention. The enforcing state cannot review the merits of the award. The issue raised by Golden Landmark that some goods had not been delivered according to the Contract falls beyond the scope of review. Besides, the award had already dealt with this issue. 3. Claimant Siemens's application for enforcement complies with the arbitral award and with Chinese law. The double interest clause stipulated under Article 253 of the Civil Procedure Law does not apply only to binding judgments rendered by Chines courts, but also applies to “other legal documents”. “Other legal documents” include a foreign arbitral award.
Petitioner Siemens submitted the following documents to this Court: the duly authenticated award 2011 No. 73 issued by SIAC, the affidavit of service, and the contracts containing the arbitration clause. Golden Landmark raised no objection as to the authenticity of the above documents.
It is found by this Court that:
On 23 September 2005, Golden Landmark, as the owner, and Siemens, as the contractor，concluded the “China Shanghai Pudong New District Lujiazui Trade Zone b2-5 Land Golden Landmark High (Low) Voltage Distribution System Supply Project”contracts after bidding. The project contracts consisted of the “Contract for Supply of Goods” and the “Installation Contract”. The Contract for Supply of Goods was signed by Golden Landmark and Siemens. Siemens was responsible for the supply of the relevant equipment. Siemens (China) Co. Ltd, which was not involved in this case, was responsible for the installation project involved in the Installation Contract. According to the Contract for Supply of Goods, Siemens should deliver the equipment to the construction site before 15 February 2006; disputes arising from the Contract should be submitted to SIAC for arbitration; and PRC law is the substantive law. According to the documents submitted by Siemens, including the special payment letter, bill of lading and packing list etc., in order to perform the Contract for Supply of Goods, Siemens purchased the equipment under the Contract from abroad, transported the equipment to the China (Shanghai) Pilot Free Trade Zone (Originally Shanghai Waigaoqiao Bonded Zone) and completed the customs declaration and filing procedures. Thereafter, Siemens completed the secondary customs filing procedures with the Pilot Free Trade Zone Customs. Thus, the goods were transported from the Zone to outside of the Zone. Finally, Siemens performed its duty to deliver at the construction site of the Golden Landmark.
Disputes arose during the performance of the Contract. On September 21, 2007, Golden Landmark filed an application before SIAC according to the arbitration clause in the Contract for Supply of Goods. Golden Landmark claimed that, since the equipment supplied by Siemens was seriously damaged and did not meet the technical requirements, Siemens’ acts constituted fundamental breaches of the contract. Golden Landmark issued the “Notice to Terminate the Contract”. Accordingly, Golden Landmark submitted that Siemens should pay RMB 20 million, including damages for RMB 1,100,000, plus other losses. Siemens raised a jurisdictional challenge on the basis that SIAC did not have jurisdiction because the case did not contain any foreign-related element. The arbitral tribunal reviewed the case and rendered a decision on jurisdiction on 30 March 2009, rejecting Siemens’ jurisdictional challenge and deciding that the language the arbitration shall be Chinese.
In the arbitration, Siemens submitted that, the breaches alleged by Golden Landmark did not exist. Siemens counterclaimed that Golden Landmark should pay the balance of RMB 4, 340,460, the storage charge loss of RMB 1, 720, 480 that Golden Landmark wrongly claimed under the performance security, interest, attorney’s fees and arbitration cost etc.
The first hearing of the arbitration was held in Singapore on 8-10 July 2010. The second hearing was held in Shanghai on 25-26 October 2010. The third hearing was held on 21 November 2010 in Hong Kong. The arbitral tribunal reviewed all the claims made by Golden Landmark one by one. The tribunal finally decided that, though Golden Landmark claimed Siemens had committed several breaches under the contract, only a slight defective performance existed and all the rest of the claims failed. The slight defective performance did not constitute a fundamental breach of the contract. Thus, Golden Landmark had wrongly terminated the Contract. Accordingly, on 16 August 16, the arbitral tribunal decided: (a) Golden Landmarks termination of the contract was wrongful; (b) Golden Landmark pay Siemens the unpaid balance of RMB 4,340,460; (c) Golden Landmark pay interest of RMB 4,340,460, at the annual interest rate of 8% (without compound interest), from 17 August 2009 till the date of the award; (d) Golden Landmark pay Siemens RMB 1, 720, 480 that Golden Landmark wrongly claimed under the performance security; (e) Golden Landmark pay an interest of RMB 1,720,480 at the annual interest rate of 8% (without compound interest), from 17 August 2009 till the date of the award; (f) Golden Landmark pay 50% of the storage charge confirmed by the parties, which is RMB 57,020; (g) Golden Landmark compensate Siemens for the storage charge for four transformers, from 1 April 2007 to the date the transformers were accepted, and the storage charge should be calculated by RMB 58.18 per day. (h) Golden Landmark pay Siemens RMB 2,074,057.47 for attorney’s fee and other fees; (i) Golden Landmark bear its own attorney’s fees and other fees, (j) Golden Landmark pay Siemens the arbitration cost for SGD 172,292.63; (k) Claims and items not mentioned by this award are dismissed.
After the above award was rendered, Golden Landmark partially performed the payment duty under the award in June and November 2012, but it did not perform its duty under sections (b) and (c) of the award, that is the RMB 4,340,460 balance and the relevant interest.
Additionally, the Court found that Siemens and Golden Landmark are wholly foreign owned enterprises that are registered in China.
This Court holds that: The dispute in this case is about the recognition and enforcement of a foreign arbitral award, and the involved award was made by SIAC in Singapore. Since both China and Singapore are signatories to New York Convention, according to Article I of the New York Convention, when Siemens applied for the recognition and enforcement of the arbitral award made by SIAC, this Court will rely on New York Convention to review. This Court finds that, Siemens has submitted to this Court the documents stipulated by Article IV of the New York Convention, including the arbitral award and the arbitration agreement between the parties (that is, the arbitration clause in the Contract for Supply of Goods).
The major arguments raised by Golden Landmark to refuse to recognize and enforce the award are: The arbitration agreement between the parties which submitted the dispute to a foreign arbitral commission is invalid because the contract in dispute does not contain any foreign element; recognizing and enforcing the award would be contrary to the public policy of China; there are errors in the merits of the award. This court holds that an award containing mistake in merits is not among the scope of review of the court, according to the circumstances stipulated by Article V of the New York Convention that the enforcing jurisdiction may refuse to recognize and enforce the award. Thus, the issues are as follows 1. Whether the arbitration agreement between the parties is invalid; 2. Whether recognizing and enforcing the arbitral award would be contrary to public policy of China.
1. As to the validity of the arbitration clause. This Court holds that, in the Contract for Supply of Goods, the parties agreed that contractual disputes should be submitted to SIAC for arbitration. This arbitration clause reflected the genuine intent of the parties and the wording of for submitting the dispute to arbitration was clear. The key problem that affecting the validity of the clause is whether the contract has a foreign element. If the dispute is a foreign-related contractual dispute, the agreement to submit the dispute to a foreign arbitration commission is valid, otherwise the agreement is invalid.
According to the Interpretation of the Supreme People's Court on Several Issues Concerning Application of the Law of the PRC on Choice of Law for Foreign-Related Civil Relationships (I), an arbitration is considered to have foreign elements if one of the following circumstances is present: 1) either party or both parties are foreign citizens, foreign legal persons or other organizations, or stateless persons; 2) the habitual residence of either party or both parties is located outside the territory of China; 3) the subject matter is outside the territory of China; 4) the legal fact that leads to the establishment, change or termination of civil relationship happens outside the territory of China; 5) other circumstances under which the civil relationship may be determined as foreign-related civil relationship.
In this case, Siemens and Golden Landmark are corporate legal persons registered in China; the place of delivery, the subject matter of the contract (the equipment) are in China. It seems that the contract does not contain a typical foreign element. However, considering the parties to the contract and the characteristics of the contractual performance as a whole, this contract is obviously different from ordinary domestic contracts and can be deemed as involving a foreign- related civil legal relationship. The main reasons are as follows: firstly, the parties to the contract were foreign- related to some degree. Although they were Chinese legal persons according to Chinese law, their registration places were in the Shanghai Pilot Free Trade Zone. The sources of capital, the allocation of the final income, the governance of the companies were closely related to overseas investors. Compared with ordinary domestic enterprises, these two companies as parties to the contract, had quite obvious foreign- related elements. Secondly, the performance of the contract has foreign-related characteristics. Though the subject matter (the equipment) was delivered at the construction site in China, the transportation process of the subject matter has the characteristics of an international sale of goods: the equipment was transported from overseas to the Pilot Free Trade Zone (originally Shanghai Waigaoqiao Bonded Zone) for bonded supervision, the customs clearance procedures were timely completed for the purpose of contract performance, and the equipment was transported from the Zone to outside of the Zone. Then the importation procedures were finally completed. Therefore, the performance of the contract was different from that of an ordinary domestic sales contract, since the performance of the contract involved the special customs supervisory regulations in the Pilot Free Trade Zone. In conclusion, this Court holds that, the contractual relationship in this case is among the “other circumstances under which the civil relationship may be determined as foreign- related civil relationship" stipulated in Article 1(5) Interpretations of the Supreme People's Court on Several Issues Concerning Application of the Law of Choice of Law for Foreign-Related Civil Relationships (I). Thus, the disputed contract contains a foreign-related element and the agreement to submit the dispute to a foreign arbitration commission was valid.
2. As to whether the recognition and enforcement of the award violates the public policy of China, this Court holds that: the tribunal decided on the contractual disputes between the parties, ordering Golden Landmark to make payments to Siemens; the content of the award does not violate the public policy of China; Golden Landmark’s claims cannot stand and are not adopted by this court.
This court also notes that Golden Landmark, as claimant of the arbitration proceedings, initiated the arbitration. Both parties participated in the arbitration. In the arbitration, Golden Landmark had always argued that the arbitration clause was valid. After the award was made, Golden Landmark partially performed its obligation under the award. The reason Golden Landmark did not perform its obligation under sections (b) and (c) of the award was that it claimed that sections (b) and (c) contains mistakes on the merits. Golden Landmark’s above acts indicate that it had accepted the validity of the arbitration clause and the jurisdiction of the tribunal. Under such circumstances, Golden Landmark violated the principle of estoppel, good faith and fairness by requesting this court to refuse to recognize and enforce the award on the basis that the arbitration clause was invalid. Thus, Golden Landmark’s claim is not supported by this court.
In conclusion, the disputed contract in this case contains foreign-related elements; the arbitration clause in the contract is valid and the award does not violate the public policy of China. This Court has found that, the award does not fall within the circumstances under Article V of the New York Convention that the court may refuse to recognize and enforce. Thus, this Court recognizes the validity of the arbitral award and will enforce the award. Besides, Siemens claimed that Golden Landmark should pay the double interest for the debt for the period of deferred performance, which falls beyond the scope of recognition and enforcement of foreign arbitral awards. Thus, this Court will not deal with this issue. Therefore, pursuant to Article 283 of the Civil Procedural Law and Article III of the New York Convention, the Court holds as follows:
Recognizes the validity of SIAC final award No. ARB 062/07 (Award 2011 No. 73) and enforces the award.
The acceptance fee RMB 400 shall be borne by petitioner Golden Landmark.
This decision is final.
Chief Judge Huang Ying
Judge Yang Su
Judge Liu Jing
27 November 2015
Court Clerk Chen Yue
*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.