Foreign-related arbitration often involves cross-border transactions and parties from different countries. Among various legal issues arising from such arbitrations, counsel of the parties often need to conduct conflicts of law analysis to ascertain specific law applying to certain aspects of the case.
It’s therefore important that counsel have a profound understanding of private international law, and properly assess the potential impact of claiming the application of a particular body of domestic laws.
Last year, the author handled an arbitration case representing two Cambodian companies before the China International Economic and Trade Arbitration Commission (CIETAC), where a series of application-of-law issues arose.
This required in-depth and complex analysis of various aspects, which successfully helped the clients obtain tribunal support in their jurisdiction objection. Analysis included: qualification of a dissolved party to be listed as a party to the arbitration; the parties’ capacity to perform a civil act; and the validity of a contract bearing only seals without a signature.
A Chinese buyer (claimant) and Cambodian seller (company A, the first respondent) entered into an international commercial contract for the purchase and sale of goods (main contract) in Cambodia, specifying that company A would sell goods to the Chinese buyer, with the parties agreeing to resolve any disputes by arbitration before CIETAC, applying Chinese law as the substantive law.
Another Cambodian company (company B, the second respondent) affixed its official seal to the main contract but without any authorised representative’s signature. The main contract did not contain any clause mentioning company B, and it was not listed as a party within the contract. Subsequently, the Chinese buyer made full payment for the goods, and company A did not deliver.
Apart from the main contract, the Chinese buyer claimed existence of an information note – which appeared to bear the official seals of company A, company B and a third Cambodian company (company C, the third respondent) – but still without any authorised representative’s signature.
The information note stated, inter alia, that company B and company C would guarantee company A’s contractual obligations and liabilities with the Chinese buyer. It did not contain any terms on dispute resolution or applicable law.
APPLICATION FOR ARBITRATION
The Chinese buyer initiated arbitration with the CIETAC naming companies A, B and C as respondents based on the main contract and the information note. It requested company A to refund the price paid, and companies B and C to bear joint and several liabilities.
The Chinese buyer submitted that:
- Companies A and B were both signatories and parties to the main contract and were bound by its arbitration clause; and
- Companies B and C, by affixing seals on the information note, provided guarantees for company A’s contractual obligations and liabilities under the main contract, and so were also bound by the arbitration clause of the main contract.
At the time of the arbitration, company A had already been dissolved. The author represented companies B and C (the second and third respondents) in the arbitration, and after strategic analysis submitted a jurisdictional objection to the tribunal on their behalf.
In response, the Chinese company did not conduct any application of law analysis, broadly asserting that all legal issues in the case should be governed by Chinese law.
But the author’s team meticulously delved into the intricacies, providing detailed analyses of the application of laws for different legal aspects of the case. These submissions were fully accepted by the arbitral tribunal in the final award, and are briefly summarised below:
Whether the arbitration clause of the main contract should bind company B for the fact that company B had affixed its seal on the document.
According to article 14 of the Law on Application of Law in Foreign-related Civil Relations (foreign relationship law), the issue of the binding effect of affixing a corporate seal on a document falls under the scope of the civil capacity of a legal person, which should be determined by the law of the legal entity’s place of registration, which in this case was Cambodian law.
Under Cambodian law, company B’s act of affixing its seal to the main contract without the signature of any authorised representative did not constitute a valid execution of the contract. Also, considering that the contract did not contain any provision on the rights and obligations of company B, it is evident that company B was not a party to the contract. Therefore, company B is not bound by the arbitration clause in the contract.
Whether companies B and C should be bound by the arbitration clause of the main contract for affixing their seals on the information note.
First, according to article 14 of the foreign relationship law, the issue of the validity of the agreement signed by companies B and C should be determined by the law of the legal entities’ place of registration, which in this case is Cambodian law.
According to Cambodian law and practices, the affixation of a company’s official seal without the signature of an authorised representative does not constitute a valid execution of the relevant agreement. Therefore, companies B and C had not validly executed the information note.
Second, the information note did not contain any applicable law clause. According to article 2(1) of the foreign relationship law, the rules of conflicts of law of the place of arbitration – in this case, Chinese law – should apply to determine the applicable law to the information note.
Based on article 41 of the foreign relationship law, applying the closest connection principle, the applicable law for the information note should be Cambodian law, under which the information note does not constitute a guarantee contract due to a lack of required legal elements and specification.
Also, even if the information note can be considered a guarantee contract in relation to the main contract, the author disputed whether the arbitration clause under the main contract could be extended to the information note, and should be considered under the law of the place of arbitration, which is Chinese law.
According to Chinese law and practice, in the absence of a dispute resolution clause in a guarantee contract, if the main contract contains an arbitration clause, the arbitration clause does not extend to the guarantee contract.
Mariana Zhong and Yang Xiaofu are partners at Hui Zhong Law Firm.
Hui Zhong Law Firm
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