1. Background

This was a typical foreign-related sales contract dispute. A domestic environmental technology company brought an action against a Japanese metal industrial corporation before the Tieshan District People's Court of Huangshi, Hubei Province, claiming the outstanding purchase price and additional charges outside the contract, amounting to approximately RMB 1.84 million, together with interest at the one-year Loan Prime Rate. After receiving the claim documents, the Japanese company instructed Zhai Chenhong of Yingke Law Firm (Shenzhen) to defend the action.

2. Key difficulties and issues in dispute

The core difficulty lay in procedure. The parties had agreed an arbitration clause in the Equipment Supply Contract, but the institution named in the clause was not the exact statutory designation of a registered arbitration institution. The plaintiff seized on this point, arguing that the agreed institution did not exist and that the arbitration clause was therefore invalid, so that the court had jurisdiction.

Two issues were therefore in dispute: first, whether the arbitration clause had been validly concluded and was effective; second, whether that clause excluded the jurisdiction of the people's court over the dispute.

3. Counsel’s approach

• Procedure before merits: raise the jurisdiction objection within the period for submitting the defence, so that the defendant would not be treated as having waived its right to arbitrate by defending on the substance.

• Anchor to the contract wording: obtain Article 13 (“Dispute Resolution”) of the Equipment Supply Contract signed by both parties, and establish the clear expression of intent that “disputes arising in the performance of this contract shall be submitted to arbitration”.

• Show that the institution was ascertainable: relying on Article 3 of the SPC Interpretation on the Arbitration Law, argue that although the name used was imprecise, it contained the core elements of locality and nature and was sufficient to point to a single, ascertainable permanent foreign-related arbitration institution.

• Delimit the scope of the dispute: compare each of the plaintiff’s claims and demonstrate that the payment of the purchase price and the bearing of additional charges all arose from the performance of the contract and so fell within the scope of the arbitration agreement.

4. The court’s findings

The court held, first, that the clause contained a clear expression of intent to arbitrate and defined the matters to be arbitrated as “disputes arising in the performance of this contract”, satisfying the basic requirements for the formation of an arbitration agreement under Article 16 of the Arbitration Law.

Secondly, as to whether the institution was ascertainable, although the name agreed was not the exact statutory designation of a registered institution, it contained the core elements “Shanghai”, “International” and “Arbitration Commission”. In the light of the international commercial arbitration institutions established in that city, this was sufficient to identify a single, ascertainable permanent arbitration institution, which was competent under law to accept foreign-related arbitration cases. The institution agreed by the parties was accordingly clear, specific and uniquely ascertainable, and the arbitration clause was lawful and valid.

5. Outcome

The court found that the arbitration agreement was lawful and valid and binding on both parties. Where a valid arbitration agreement exists, the court has no jurisdiction over the dispute. The defendant raised its jurisdiction objection before the first hearing, as the law requires, and the objection was upheld.

Applying Articles 5 and 20(1) of the Arbitration Law, Article 3 of the SPC Interpretation on the Application of the Arbitration Law, and Articles 130(1), 157(1)(iii) and 288 of the Civil Procedure Law, the court ruled that the plaintiff’s action be dismissed, and the case acceptance fee was refunded in full to the plaintiff.

6. Practical advice for foreign-related businesses

• Draft the arbitration clause properly at the signing stage: use the full statutory name recognised under the Arbitration Law and avoid vague formulations such as “the City International Arbitration Commission”, so as to leave less room for a later challenge to validity.

• Instruct counsel as soon as you are sued: a jurisdiction objection must be raised within the period for submitting the defence; an objection raised out of time is treated as acceptance of the court’s jurisdiction.

• Take no step that could waive the right to arbitrate: filing a defence going to the substance, or adducing and examining evidence on the merits, may be treated as a waiver of the arbitration agreement. Do not assume you can “defend first and see”.

• Commence the arbitration in parallel: once the court has dismissed the action, apply promptly to the agreed institution so as not to miss the limitation period.