In 1997, a Swiss company, Wicor Holding AG (Wicor), entered into a joint venture contract with a Chinese company, Taizhou Haopu Investment (Haopu). The contract contained an arbitration clause providing that:
“the dispute shall be finally settled under the Rules of Mediation and Arbitration of the International Chamber of Commerce. If arbitration claim is brought by one party, the place of arbitration should be chosen by the other party.”
Haopu brought court proceedings in July 2011 against Wicor in the Taizhou IPC alleging that Wicor had breached the joint venture contract. The Taizhou IPC considered the validity of the arbitration clause in the joint venture contract and found that it was invalid as, in breach of article 16 of the PRC Arbitration Law, no administering arbitration institution had been specified in the arbitration agreement.
Although the parties had stipulated the arbitral rules applicable to the arbitration (ICC Rules), they had failed to include any express reference to an administering institution. Nor could one be inferred simply by reference to the ICC Rules: the rules in force at that time (ICC Rules 1998) did not contain provisions equivalent to those found in the later ICC Rules 2012 and 2017 which provide that “The [ICC] Court is the only body authorised to administer arbitrations under the Rules…”; and “By agreeing to arbitration under the Rules, the parties have accepted that the arbitration shall be administered by the [ICC] Court” (Articles 1.2 and 6.2).
Had the ICC Rules 2012 or 2017 been the applicable rules, pursuant to Article 4 of the Interpretations on Certain Issues Relating to the Application of the PRC Arbitration Law 2006, the arbitration clause would have been considered enforceable.
The Taizhou IPC’s decision was subsequently confirmed by both the Jiangsu High People’s Court (HPC) and the SPC in March 2012. The SPC, in endorsing the Taizhou IPC’s decision, considered which law applied to questions over the validity of the arbitration agreement. The parties had not specified in the arbitration agreement the governing law of the arbitration agreement. Moreover, the arbitration agreement had deferred the choice of arbitral seat until after an arbitration claim had been commenced – when Haopu issued court proceedings no arbitration claim had been raised nor had the place of arbitration been nominated or agreed.
To ascertain the applicable law, the SPC relied on the following principles
- In the absence of the parties’ agreement on the applicable law of the validity of an arbitration agreement, the law of the place of arbitration shall apply if such a place is chosen.
- If the place of arbitration is not chosen or not clear, the law of the place where the court is located shall apply.
The SPC therefore held that the law at the locality of the court, i.e., PRC law, applied to the arbitration clause. And applying PRC law, the arbitration clause was invalid given it breached article 16 of PRC Arbitration law.