In Li Lian Dong and Others v Shen Yi (2018) Jing 04 Min Te 541, a first instance decision made earlier this year, the Beijing 4th Intermediate People’s Court considered whether the court’s power to set aside an arbitral award extends to setting aside the parties’ settlement formally given effect to by the arbitral tribunal in an instrument known under the Arbitration Law of the People’s Republic of China as a “conciliation statement”.

The Court decided that there is no legal ground for Chinese courts to set aside a conciliation statement issued by an arbitral tribunal.  Article 58 of the Arbitration Law provides only for the setting aside of an arbitral award, not a conciliation statement, despite Article 51(2) of the Arbitration Law expressly providing that a conciliation statement has the same legal effect as an arbitral award.

Background

On 12 January 2017, Shen Yi entered into an agreement with Xin Lv Ju (Shanghai) Enterprise Development Limited (Company), Mr Li Lian Dong (the Company’s legal representative) and two other companies to invest in the Company in exchange for the Company’s right to the proceeds from the operation of a certain project (First Transfer Agreement).  On the same day, other parties entered into similar investment agreements with the Company, Mr Li and the other companies.  In 2018, Shen Yi acquired the interests of all these other investors in the project under a second transfer agreement (Second Transfer Agreement).

Subsequently, a dispute arose in relation to the investment.  In April 2018 Shen Yi commenced an arbitration before the Beijing Arbitration Commission pursuant to the arbitration clause in the First Transfer Agreement, naming the Company and Mr Li as the respondents. An arbitral tribunal was constituted.  At the arbitral hearing, the parties agreed to mediation and reached a settlement. At the request of the parties, the arbitral tribunal issued a conciliation statement (No.0216) to confirm the terms of the mediated settlement reached and concluded the arbitration.

Later in 2018, the Company and Mr Li applied to the Court to set aside the conciliation statement, on the basis that (i) Shen Yi failed to produce in the arbitration the Second Transfer Agreement and thus had concealed evidence sufficient to affect the impartiality of the arbitration, and (ii) the arbitration was not in conformity with procedural requirements, both of which are grounds for setting aside an arbitral award under Article 58 of the Arbitration Law. They argued that (pursuant to Article 51(2) of the Arbitration Law) a conciliation statement issued by the arbitral tribunal has the same legal effect as an arbitral award, and can therefore be set aside by the courts on the same grounds as an arbitral award.

Decision

The Court rejected the application to set aside the conciliation statement. In particular, it found that the conciliation statement was not an arbitral award, and the Arbitration Law only provides for setting aside of the latter.

The Court went on to find that there was no factual basis to support the set aside application. In rejecting the applicants’ factual case, it referred to the formal transcript of the arbitration hearing, which it found to clearly record that Shen Yi had produced the Second Transfer Agreement in evidence during the hearing, and the authenticity of the same was not disputed by the applicants at the hearing.  The applicants therefore did not make out their case that Shen Yi had concealed evidence, nor was there procedural irregularity in the arbitration.

Discussion

In, effectively, rejecting Article 58 of the Arbitration Law as empowering the court to set aside a settlement given effect to by the arbitral tribunal through a “conciliation statement”, the Court in this case appears to have preferred similar approaches taken by a number of local Intermediate People’s Courts in the recent years, over the approach taken by the Supreme People’s Court’s (SPC) in at least one case (see SPC’s reply to the Guangdong Province Higher People’s Court in [2010] Min Si Ta Zi No. 45), which is that the grounds in Article 58 of the Arbitration Law can be referred to in dealing with an application to set aside a conciliation statement, but that the review should be limited to the procedure of the rendering of the particular conciliation statement in question and not the substance of the conciliation statement.  Whilst the Court’s decision is one of the latest on this issue, it remains to be seen whether more judicial clarity will be given by the SPC in a formal interpretation document, which may put the sometimes inconsistent approaches taken by local courts to rest.

Michelle Li
Michelle Li
Partner, Shanghai
+86 21 2322 2162
Helen Tang
Helen Tang
Partner, Shanghai
+86 21 2322 2160
Briana Young
Briana Young
Foreign Legal Consultant (England & Wales)/Professional Support Consultant, Hong Kong
+852 2101 4214