Notice of the Supreme People’s Court on Issuing the Thirty-Sixth Group of Guiding Cases – On the Topic of Guiding Case No. 198 on the Binding Scope of an Arbitration Agreement

February 2023

Di Wu and Teresa Huang

Basic Facts and Judgment Result: On August 30, 2012, Yueyang Branch of Industrial and Commercial Bank of China Limited (hereinafter referred to as “ICBC Yueyang Branch”) and Hunan Baling Construction Co., Ltd. (hereinafter referred to as “Baling Company”) signed a Construction Contract for Renovation Project, by which ICBC Yueyang Branch contracted the project of overall renovation, reconstruction and interior decoration of its office building to Baling Company, and both parties agreed to resolve the contract dispute between them by arbitration of Yueyang Arbitration Commission.  On September 10, 2012, Baling Company subcontracted part of the project and the warranty to Liu Youliang.  On July 4, 2017, as ICBC Yueyang Branch failed to pay for the project in accordance with the Contract, Liu Youliang applied for arbitration with Yueyang Arbitration Commission, demanding ICBC Yueyang Branch to pay for the project.  On August 7, 2017, ICBC Yueyang Branch filed an arbitration jurisdiction objection on the ground that it and Liu Youliang had not reached an arbitration agreement, but Yueyang Arbitration Commission rejected ICBC Yueyang Branch’s arbitration jurisdiction objection.  On December 22, 2017, Yueyang Arbitration Commission rendered the Award Yue Zhong Jue Zi [2017] No. 696, ruling that ICBC Yueyang Branch shall pay Liu Youliang the due and payable project price and liquidated damages.  ICBC Yueyang Branch then applied to Yueyang Intermediate People’s Court of Hunan Province to set aside the arbitral award, and Yueyang Intermediate People’s Court made the Civil Ruling (2018) Xiang 06 Min Te No. 1 to set aside the Award Yue Zhong Jue Zi [2017] No. 696 of the Yueyang Arbitration Commission.

Reasons for Ruling: The effective ruling of the Court held that, first of all, in this case, although the Construction Contract for Renovation Project agreed to resolve the contract dispute between both parties by arbitration of Yueyang Arbitration Commission, the Construction Contract of Renovation Project was signed by ICBC Yueyang Branch and Baling Company, not Liu Youliang.  Therefore, no arbitration agreement was reached between Liu Youliang and ICBC Yueyang Branch or Baling Company, and Liu Youliang was not bound by the arbitration clause in the Contract.  Secondly, as a subject of the Construction Contract for Renovation Project, Baling Company still exists, thus the parties to this case did not constitute a situation under which the “succession” of the arbitration clause in the Contract shall apply as stipulated in the Interpretation of the Supreme People’s Court concerning Some Issues on Application of the Arbitration Law of the People’s Republic of China, nor did they constitute a change of a contract subject.  Therefore, there is no arbitration agreement between ICBC Yueyang Branch and Liu Youliang, and Liu Youliang has no right to resolve the project payment dispute with ICBC Yueyang Branch by arbitration.

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