In August 2020, the Shanghai Court rules that if the parties have chosen a non-Chinese arbitration for an arbitration seated in China, as long as the arbitration agreement complies with other requirements within Article 16 of the PRC Arbitration Law, then the arbitration agreement is valid (Daesung Industrial Gases Co. Ltd. v Praxair (China) Investment Co. Ltd.  Shanghai 01 Civil Special 83).
Key Facts Related to the Appeal
Daesung Industrial Gases Co. Ltd. (BNB) is a corporation organised and existing under the laws of the Republic of Korea, with its principal place of business in the Republic of Korea. It was the original seller under the Takeout Agreement.
Praxair (China) Investment Co. Ltd. (BNA) is a corporation organised and existing under the laws of the PRC, with its principal place of business in the PRC. It was the buyer under the Takeout Agreement.
In 2012, BNA entered into a Takeout Agreement with BNB. Art. 14 of the Takeout Agreement provides as follows:
ARTICLE 14: DISPUTES
14.1 This Agreement shall be governed by the laws of the People’s Republic of China.
14.2 With respect to any and all disputes arising out of or relating to this Agreement, the Parties shall initially attempt in good faith to resolve all disputes amicably between themselves. If such negotiations fail, it is agreed by both parties that such disputes shall be finally submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai, which will be conducted in accordance with its Arbitration Rules. The arbitration shall be final and binding on both Parties.
BNC is a company organised and existing under the laws of the PRC, with its principal place of business in the PRC.
In 2013, BNC took over from BNB all its obligations to BNA by entering into an addendum to the Takeout Agreement with BNB and BNA.
In 2016, BNB and BNC lodged a notice of arbitration against BNA with the Singapore International Arbitration Center (SIAC) under the Arbitration Rules of the SIAC. In its response to the notice of arbitration, BNA challenged the tribunal’s jurisdiction.
In 2017, the majority of the tribunal ruled that the arbitral tribunal administered by SIAC had jurisdiction because: (i) the arbitration is seated in Singapore; (ii) the arbitration agreement is thereby governed by Singapore law; and (iii) PRC law is therefore irrelevant on the question of jurisdiction.
In 2018, BNA challenged this decision at the High Court of Singapore. The High Court affirmed that the seat of the arbitration was Singapore and thus, the arbitration agreement was valid and the tribunal administered by SIAC has jurisdiction on the disputes between BNA and BNB and another (BNA v BNB and another,  SGHC 142).
In 2019, the Court of Appeal of Singapore allowed the appeal to the extent that it found that the seat of the arbitration was Shanghai and thus the governing law of the arbitration agreement was the law of the People’s Republic of China (the “PRC”). As a consequence, it is inappropriate for the Singapore courts to decide whether the arbitration agreement was invalid or if the tribunal administered by SIAC had jurisdiction (BNA v BNB and another  SGCA 84).
In 2020, BNB and another brought the dispute to the Shanghai Court in order to determine if the Arbitration Agreement in the Takeout Agreement is valid.
Applicable Law and Regulation (non-exhaustive list)
Art. 16 of the Arbitration Law of the PRC stipulates that the arbitration agreement must comply with three requirements: (i) expression of intention to submit disputes to arbitration; (ii) matters for arbitration; (iii) parties have chosen an “arbitration commission”.
Is the Arbitration Agreement valid according to the laws of PRC?
Analysis of the Court
Yes, the Arbitration Agreement in the Takeout Agreement is valid under the laws of PRC even though the parties chose SIAC to administer the arbitration.
First, the Shanghai court noted that the Arbitration Agreement in the present case is the product of negotiations and compromise between the parties. It explicitly addresses the parties’ intention to submit disputes to arbitration.
Second, the Shanghai court noted that the matters for arbitration of this Arbitration Agreement are all disputes arising out of or relating to the Takeout Agreement.
Third, with respect to the “arbitration commission”, the Shanghai Court disagreed with BNA’s submission that Art. 16 of the Arbitration Law of the PRC prohibits the parties from choosing non-Chinese institutions to run domestic arbitration in China. This is because:
A. The arbitration of BNA and BNB and another is consensual arbitration. Thus, it does not involve the question of whether the arbitration market in China has opened up or not;
B. The SIAC administered arbitration is institutional arbitration, and not the “ad hoc” arbitration to which China’s reservation to the New York Convention applies;
C. In the Reply of the Supreme People’s Court to the Request for Instructions on Application for Confirming the Validity of an Arbitration Agreement in the Case of Anhui Long Li De Packaging and Printing Co., Ltd. v. BP Agnati S. R. L., the Supreme People’s Court of China confirmed that, in a foreign-related contract, if the parties have chosen a non-Chinese institution i.e. ICC International Court of Arbitration, for arbitration inside China, as long as the arbitration agreement complies with other requirements within Article 16 of the Arbitration Law of the PRC, then the arbitration agreement is valid. This judicial decision has binding effect as it is considered as judicial interpretation according to the Art. 6 of the Provisions of the Supreme People’s Court on the Judicial Interpretation Work.
D. The Shanghai Court acknowledges that there are views that under Art. 16 (iii), the “arbitration commission” must be one of the 200+ domestic arbitration commissions within China. However, this standpoint lacks support of express prohibition from the laws of China. The Shanghai Court also acknowledged that at the beginning of the legislative process of the Chinese arbitration law, the legislators lacked the international viewpoints. There could exist some legislative lags between the legislators for the Chinese arbitration law and general trends in international commercial arbitration. However, the judiciary and the legislature complement one another. If the legislature has not provided clear answer to the question of whether or not “arbitration commission” only refers to domestic arbitration commissions, the Supreme People’s Court of PRC can answer the question by the judicial interpretations.
(Reminder: The purpose of this article is to provide general legal information. It does not contain a full analysis of the law nor does it constitute a legal advice on the points of law discussed. To minimize the legal risk for your business, you must take specific legal advice from a lawyer on any particular matter which concerns you. Thanks for your attention. 😊)