This case involved two aviation companies, one registered in China and the other in Thailand. The claimant was a large domestic airport company located in the Pearl River Delta region, and the respondent was an air transport company registered in Bangkok, which operated several international air passenger and cargo routes, including those destined for the claimant’s airport. In order to facilitate the business of the Thai-registered company in mainland China, the respondent appointed “Mr X” as an agent stationed at the claimant’s airport.
Between March and May 2017, the claimant, as a domestic services provider, and the respondent signed a standard ground services agency agreement (summary procedure) pursuant to the Master Agreement and appendix A of the January 2008 International Air Transport Association (IATA) standard ground handling agreement.
In the ground services agreement, the parties agreed that the claimant would provide the services listed in appendix A as follows: section I representation, management and supervision; section II passenger services; section III ramp services; section IV load balancing, communications and aviation services; section V cargo and mail; section VI auxiliary services; section VII security; and section VIII aircraft maintenance.
On the basis of the ground services agreement, the parties further entered into the comprehensive ground agency services agreement, the supplemental ground services agency agreement, the disabled aircraft removal agreement, and the aviation services extension services agreement. Each of the agreements together constitute the content of co-operation between the two parties, and the locations where the claimant provides the services of the agreements are all within the territorial scope of its own airport.
Regarding dispute resolution, the ground services agreement, the comprehensive ground agency services agreement, the supplementary ground services agency agreement, the damaged aircraft removal agreement, and the aviation extension services agreement all provide for an arbitration clause that, “in case of dispute, the dispute shall be submitted to the Shanghai International Arbitration Centre”. In addition, the two parties also signed an aviation services agreement, specifying that Mr X, who was appointed by the respondent, was the respondent’s agent stationed at the claimant’s airport.
After each of the above-mentioned agreements was signed, the claimant handed over the bill for the services to Mr X for signature as agreed. In late March to August 2018, the claimant sent four reminders to the Thai company because the respondent was overdue in paying the service fees from September 2017 to March 2018. In late August 2018, the respondent replied with a payment plan for the outstanding amounts.
As the respondent’s proposed arrears payment period was too long, the claimant sent a letter to the Thai company in September 2018, requesting the respondent to settle the entire arrears by 31 December 2018. The respondent then sent a repayment plan to the claimant, promising to pay the outstanding amounts in three instalments totalling RMB2,108,288 (USD300,896) by 25 October, 25 November and 25 December, 2018.
On 2 November 2018, after the respondent had failed to pay the first instalment as promised, the claimant instructed its lawyer to send the Thai company a letter requesting the respondent settle the entire arrears within 15 days after it received the letter. However, the respondent failed to settle all the arrears within the grace period. The claimant then filed an application for arbitration with the Shanghai International Arbitration Centre in accordance with the arbitration agreements, demanding the respondent pay the outstanding services fees of RMB2,108,288, along with interest, arbitration fees and the costs of the case.
The respondent did not reply to the facts claimed by the claimant and the arbitration requests made by the airport company, nor did it provide any evidence to refute them.
OPINION OF THE TRIBUNAL
In accordance with the provisions of article 34 of the Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Centre) Arbitration Rules, the Arbitration Tribunal made a default award on the case.
Since the respondent is a foreign company, the case is a foreign-related arbitration case. Regarding the application of law in foreign-related cases, the parties did not agree on the applicable law in the agreements, especially in the ground services agreement. The arbitration tribunal found that, in accordance with article 41 of the Law of the Application of Law for Foreign-related Civil Relations of the People’s Republic of China, “The parties may agree to choose the law applicable to the contract. If the parties do not choose, the law of the place of habitual residence of the party whose performance best reflects the characteristics of the contract or other laws most closely connected with the contract shall apply”.
In view of the facts that the place where the parties provided and received the services was within the claimant’s airport, i.e. the place of performance of the contract was in China, the arbitration tribunal found that the law most closely connected to the agreements in question was the law of the People’s Republic of China, and thus Chinese law should be applied in this case. At the same time, considering that the signing of the agreements and the disputes occurred before the implementation of China’s Civil Code, on 1 January 2021, the laws and regulations prior to the implementation of the Civil Code should be applied in this case.
Regarding the performance of the agreements at issue, especially on the ascertainment of the fact that the respondent accepted the claimant’s services, the claimant submitted the “signed receipt” containing the signature of Mr X, the respondent’s agent, together with the invoices, payment notices, settlement lists and flight take-off and landing information sheets, which proved that the claimant had provided the respondent with the agreed services.
The claimant also submitted the repayment plan sent by the respondent on its own initiative, which further proved that the respondent acknowledged that it had defaulted on the service fees and confirmed the amounts of the unpaid services. Based on the agreements and the evidence submitted by the claimant, the arbitration tribunal finally supported the claimant’s arbitration requests and ruled that the respondent should pay the services fees of RMB2,108,288.
As for the liquidated damages, the agreed standard of liquidated damages was one-thousandth per day. The claimant took the initiative to adjust it to 24% per year during the arbitration process, which was also approved by the tribunal.
The standard ground handling agreement issued by the IATA consists of the Master Agreement, appendix A and appendix B. The Master Agreement contains the general conditions, including the arbitration clause. Appendix A specifies the agreed services contents. The standard terms and conditions concerning the services price and settlement matters are usually agreed in appendix B. The standard ground services agency agreement (summary procedure) signed by the parties in this case was reached on the basis of the Master Agreement and appendix A of the IATA standard ground handling agreement. The arbitration tribunal relied on the standard ground services agency agreement (summary procedures) and the other agreements for the settlement and payment of the ground services fees in dispute between the parties.
It is worth mentioning that the arbitration clause in the Master Agreement of the IATA standard ground handling agreement provides for ad hoc arbitration. However, along with the development of commercial arbitration in China, especially the successful establishment of the Shanghai International Aviation Court of Arbitration, the aviation industry has started to consciously include institutional arbitration clauses in their services agreements.
For example, some companies are inserting an arbitration clause providing “to submit disputes to the Shanghai International Aviation Arbitration Court”. The nature of the arbitration clause concluded between the parties and included in the services agreements should be a special arrangement made by the parties regarding the dispute resolution mechanism. According to the basic legal principle that the special clause takes precedence over the general clause, the special clause for institutional arbitration between the parties should prevail over the general clause in the Master Agreement, and this precedence should also apply to the arrangement of dispute resolution mechanism between the parties.
Another point is the serving of documents on a foreign company. In principle, the serving of legal documents on an overseas company should be made at the registered or principal business address of the overseas company. However, if the foreign company has appointed an agent in China, the relevant legal documents can also be served at the valid address of the agent in China. In this case, the claimant provided the secretariat with the registered address and contact address of the respondent in Thailand, and the address of the respondent’s designated agent, Mr X, in China.
The secretariat served the arbitration documents on these three addresses and completed the service of documents obligations under the SHIAC arbitration rules. Although the respondent was absent from the oral hearing, the arbitration tribunal conducted the default hearing in accordance with these rules, and made the default arbitration award under the circumstance that the secretariat had completed its service of documents obligation in accordance with the SHIAC arbitration rules. This treatment balanced between the procedural efficiency and the right of procedural awareness of a party, and has been recognised by the law of the juridical seat, i.e. China’s Arbitration Law.
Li Tingwei is a senior case management secretary of SHIAC