To shorten the time for resolving a dispute, the parties tend to choose arbitration to resolve disputes arising during the performance of their contract or agreement in the future. The parties must agree on an arbitration clause in writing when executing the contract or agreement. Article 4 of the Arbitration Law provides that an arbitration agreement reached by the parties on a voluntary basis is the premise for resolving disputes through arbitration. In entering into the arbitration clause, the parties usually state that “all disputes in connection with the contract” must be resolved through arbitration. This stipulation provides the parties with reassurance and a guarantee that all disputes in connection with the contract will be under the jurisdiction of arbitration as agreed upon in the arbitration clause, but it is not necessarily the case in judicial practice. The following cases are presented for illustration.
Case One. Is the arbitration clause involved in a series of contracts or agreements generally applicable in corporate merger and acquisition (M&A)?
Company A intends to acquire the mineral resource project of company B and the parties chose the method of the acquisition by way of stock exchange. Relevant parties first entered into a Framework Agreement on Share Transfer, which determines stock exchange as the method for the acquisition and specifies the parties to the stock exchange, and states that an agreement must be entered into separately for specific matters.
In the following years, relevant parties entered into a series of agreements including the Agreement on Increase in Capital and Shares, the Share Transfer Agreement and the Shareholder Agreement. Specifically, none of the agreements contains the arbitration clause that provides for arbitration as the method of dispute resolution, except for the Agreement on Increase in Capital and Shares, which includes an arbitration clause.
In the above-mentioned case, only the Agreement on Increase in Capital and Shares is accepted by the arbitration institution. Therefore, even though it is stipulated in the Agreement on Increase in Capital and Shares that “all disputes in connection with the contract” must be submitted to arbitration for resolution, such arbitration clause cannot be applicable to other agreements because the agreements involve different subjects and subject matters, and have respectively formed independent contractual systems.
Case Two. Can the arbitration clause agreed upon in the purchase and sale contract be applicable to a dispute arising during the performance of the guarantee contract on the ground that “all disputes in connection with the contract” must be resolved through arbitration?
Companies A and B agreed on an arbitration clause in an international purchase and sale contract, and delay of payment for goods occurred after six months of the performance of the contract. For this reason, the superior group corporation of the payer issued a guarantee contract. When A, the seller, intended to apply to the arbitration institution for arbitration later, it found that the guarantee contract contained neither an arbitration clause nor the stipulation that “the provisions of the purchase and sale contract must be applicable”. As a result, the guarantee contract cannot be put under the jurisdiction of the arbitration institution due to the difference from the purchase and sale contract in subjects. The purchase and sale contract and the guarantee contract cannot both be placed under the jurisdiction of the arbitration institution unless the parties first enter into a supplementary agreement to the guarantee contract to make such arbitration institution the place for dispute resolution.
Case Three. Upon separate biddings, the parties entered into two construction contracts for different sections of the same construction project. The two contracts both contain arbitration clauses but designate different arbitration institutions for jurisdiction. Can the issues involving the project payments under the two contracts be submitted to the same arbitration institution for resolution?
An energy company divided its mine roadway repair project into section A and section B through open bidding, and a construction company won the bids for the two sections. After completion of the project, there were additional items to both section A and section B, and both parties disputed the settlement price. The construction company intended to demand project payment from the energy company through legal proceedings, but found that the arbitration institutions stated in the two construction contracts were different.
Consequently, the parties had to separately enter into an agreement specifying the same arbitration institution for the issues of project payment and file an application for arbitration to the arbitration institution on the ground of such agreement. The application was accepted.
Case Four. A supplementary agreement is executed in respect of the performance of the project contract, the performance of which has been completed. Is the supplementary agreement covered by the provision regarding “all disputes in connection with the contract” in the project contract?
Company A and company B entered into a project construction contract. Due to problems in the use of materials, construction period, project quality, project price and payment, etc., arising during the performance of the project construction contract, the parties entered into a supplementary agreement that involved identical subjects to the project construction contract, but contained new provisions on the specific issues arising during the performance of the project construction contract.
It was stated in the project construction contract that the disputes should be resolved through arbitration, while the supplementary agreement failed to provide for the method of dispute resolution. As a result, the parties were uncertain as to whether the supplementary agreement was subject to the jurisdiction of arbitration. The arbitration institution accepted the application filed under the supplementary agreement on the ground that the supplementary agreement should prevail in the case of discrepancy between the project construction contract and the supplementary agreement, and that the provisions of the project construction contract not modified by the supplementary agreement should remain to be valid.
As indicated in the above cases, the agreement on “all disputes in connection with the contract” in the arbitration clause is applicable to the disputes under the contract in question only, and the disputes beyond the contract, although closely related to the performance of the contract, cannot be covered by the agreement on “all disputes in connection with the contract” due to differences in subjects, subject matter and main contents.
Therefore, in their agreement on an arbitration clause, the parties must pay attention to the consistency of the arbitration clauses in a package of contracts, series of contracts, related contracts and agreements. Otherwise they will encounter unnecessary trouble in jurisdiction once they have any dispute.
Lian Yan is a senior partner at Beijing Kangda Law Firm. She can be contacted on +86 10 5086 7666 or by email at [email protected]
Video: The agreement on ‘all disputes in connection with the contract’ (in Mandarin Chinese)