The China Arbitration News keeps you on top of business, economic and
political events in the China.
Blawg | Newsletter Archive
______________________________________________________________________
China Arbitration Headlines
Arbitration :Hong Kong Court upholds an Arbitration Agreement for ICC Rules Arbitration in ShangHai
By a judgment of 14 July, a Hong Kong Justice upheld the validity of an agreement to refer disputes to ICC Rules arbitration in Shanghai.
The “Governing law and Jurisdiction” clause in the contract, having stipulated that the contract was subject to German law, provided that disputes“… shall be submitted to an arbitral tribunal comprising of three arbitrators and the arbitration venue shall be in Shanghai, China… The arbitration procedure shall be held in accordance with the arbitration rules of the International Chamber of Commerce (‘ICC’) …”.
Nonetheless, the unpaid supplier of goods initiated court proceedings in Hong Kong. The purchaser reacted by seeking to have the court proceedings stayed in favor of arbitration.
To object to the staying of the court proceedings, the supplier claimed that the arbitration agreement was governed by PRC law, arguing that the lex arbitri is the law of the seat of arbitration. The supplier went on to argue that the clause was, under that law, “null and void, inoperative or incapable of being performed” (Art. 8 UNCITRAL Model Law), because of failure to identify an arbitration institution in the arbitration clause as required by PRC law (Art.16, Art.18 of the PRC Arbitration Law, Art. 4 of the Interpretations of the Supreme People’s Court on Implementing the Arbitration Law of 23 August 2006, and a relevant SPC decision which invalidated a similar clause, as noted by the Hong Kong judge in obiter).
The critical question was therefore whether PRC law was the lex arbitri, which would then apply to determine the validity of the arbitration clause. The judge rejected the submissions of the supplier, holding that three factors indicated that German law was intended to apply:
1. the language of the governing law clause plainly covered the whole of the contract including the arbitration clause; 2. the third arbitrator had to be a lawyer qualified to practice in Germany; 3. the statement as to the governing law and the arbitration clause were within the same clause; i.e. there was a link between them.
2. the third arbitrator had to be a lawyer qualified to practice in Germany;
3. the statement as to the governing law and the arbitration clause were within the same clause; i.e. there was a link between them.
As German law was the lex arbitri, and there was no evidence that the clause was unenforceable under German law, the judge upheld the clause and stayed the proceedings.
Prudence requires that if the arbitration venue is the PRC mainland, an arbitration institution is expressly identified. Following this logic, if the parties wish to subject the arbitration to ICC Rules, they should simply stipulate that the dispute “shall be submitted to the International Court of Arbitration of the ICC”. However, given the current framework of the PRC Arbitration Law, such stipulation providing for ICC arbitration in mainland China is highly risky for parties who wish to enforce the future award in the mainland. As China’s Arbitration Law only provides for institutions registered with the local authority to conduct arbitration in the mainland, the PRC courts are very reluctant to welcome ad hoc arbitration or arbitration conducted by foreign institutions with the seat being located in mainland China, though the PRC courts do recognize and enforce ad hoc or institutional awards made elsewhere. Even though a lower court did once enforce an ICC award rendered in Beijing (Decision of NingBo Intermediate People’s Court of 22 April 2009), the position of the SPC is yet unclear. It will be interesting to see how the parties in the present case proceed with their disputes and how, if sought by the parties at a later stage, the PRC courts will react to the case.
Arbitration :Roles and Responsibilities of the China Legal Representative
Every business established in China, whether domestic or foreign, is required to have a legal representative. He/she is the main principal of the company and is the employee with the legal power to represent – and enter into binding obligations on behalf of – the company in accordance with the law or articles of association of the company. Essentially, the legal representative is someone who is appointed to act on the company’s behalf and Article 38 of the General Principles of Civil Law of the People’s Republic of China defines the role as the “responsible person who performs the duties and powers on behalf of a legal person in accordance with the law or the constituent documents of the legal person.”
However, foreign investors often have only a limited understanding of the legal representative’s role and are startled when they learn of their power and how difficult it is to replace an un-cooperative one. Legal representatives possess broad powers and potentially unlimited liability. When concluding a contract a legal representative’s acts are binding on the company even if he/she is acting beyond their authorized scope. Failure to properly understand the powers and responsibilities of a legal representative can therefore lead to a situation where foreign investors are held to ransom. In appointing a legal representative, it is vital to bear in mind that the legal representative will essentially have the full keys to the company, cash, and capital.
The supervisor
Amendments to the PRC Company Law require a new company established on or after January 1, 2006 to appoint a supervisor, or board of supervisors depending on the size of the company, whose role is to monitor the activities of the legal representative. Shareholders and employee representatives of a company can act as supervisors. However, members of the company’s board of directors or senior management may not simultaneously serve as supervisors. If a company has a board of supervisors, it must have a proportion of employee representatives which accounts for at least one-third of supervisory membership. The supervisor, like the company’s directors, is not required to reside in or visit China.
The main role of the supervisor is to safeguard and supervise the operation of a company and exercise supervision over the work of directors and senior management. The Company Law gives supervisors an array of powers, such as inspecting the company’s finances, supervising the company directors and senior managers, recommending dismissal of directors or senior managers who violate laws or damage the company’s interests, proposing shareholder meetings, and any other powers specified in the company’s articles of association.
The role of supervisor is very relevant to the potential liabilities of the legal representative as they are permitted to supervise and constrain the legal representative in order to reduce the potential risks of a rogue legal representative acting on behalf of the company.
Basic requirements and selecting a legal representative
The PRC Company Law does not impose any restrictions on the nationality of the legal representative and the selected individual could effectively be the resident of any country; he/she is also not required to reside in China. Under the Company Law, the legal representative may be the chairman of the board of directors, executive director (if there is no board of directors), or the general manager. However, the selection of legal representative varies depending on the structure of the company.
For a Sino-foreign equity joint venture, a board of directors should be established and its chairman will be the legal representative, which means the general manager cannot act in the same role. This also applies to a Sino-foreign cooperative or contractual joint venture in which either a board of directors or a joint management board may be established. For a wholly foreign-owned enterprise (WFOE), the chairman, executive director or general manager can act as its legal representative. The appointment of a legal representative, whether to a JV or WFOE, is required to be registered with the company registry authority and the legal representative’s name will also be on the company’s business license.
When choosing a legal representative for the first time, foreign investors typically choose either an existing employee (often lacking in China experience) or a new Chinese recruit (often lacking familiarity with the investor’s culture, policies, decision-making procedures and home-country compliance regulations). Foreign investors should select their legal representative carefully, and the legal representative should be made aware of the responsibilities and liabilities that come with the position.
Selecting an existing employee is often the favored route as the individual is familiar with the company’s culture and can be trusted and relied upon. Frequently, the preferred choice for legal representative is a director of the parent company since they also hold separate duties to the parent company under the laws of its place of establishment. The investor may then select a different person with greater local market experience as general manager.
Legal representative’s powers and responsibilities
The PRC Company Law does not clearly define the powers of a legal representative. However, it is clear that a legal representative is authorized to perform all acts regarding the general administration of a company according to the company’s aims and objectives. This may include:
- Acting (legally) to conserve the company’s assets;
- Executing powers of attorney on the company’s behalf;
- Authorizing legal representation of and litigation by the company;
- And executing any legal transactions that are within the nature and scope of that company’s business.
Chops
In China, every company is required to have a “chop” which will be in the custody of the legal representative. Control of the chop is important in order to minimize risks. The legal representative’s chop is required on numerous company documents and is regarded as a signature. In this sense, the legal representative plays a very important role in the company’s daily operations. Consequently, any person in possession of the legal representative’s chop may exercise their power to bind the company. In order to prevent unauthorized use, companies should restrict access to the legal representative’s chop by keeping records of who used the chop, at what time, and for what purpose.
Potential liabilities
Legal representatives are held by Chinese law to a higher standard of care and competence than other personnel, and they can face civil, administrative and even criminal liability for wrongful acts – both the company’s and their own. Accordingly, the legal representative may be subject to fines and penalties accrued by the company and, importantly, the liabilities of a legal representative extend to bankruptcy.
It is also critical to be aware that a company will generally be held liable for the unauthorized actions of a rogue legal representative. The Contract Law of the People’s Republic of China specifically provides that “[i]f the legal representative … of a [company] creates a contract in excess of authority limits, such representative action is valid except where the counterparty knows or should know that it exceeded authority limits.”
In order to persuade a court or arbitration tribunal to release a company from liability for an unauthorized contract or other action by its legal representative, the company will general need to demonstrate that it has made reasonable efforts to define, implement, record, and give notice of its legal representative’s authority limits.
Generally speaking, a company’s articles of association and related corporate documents, filed with the local Administration of Industry and Commerce, set the limits of the authority of its legal representative. However, in practice, counterparties may often argue that they are unable to view these documents to determine the legal representative’s authority. In order to avoid any difficulties it is important for companies to specifically limit a legal representative’s authority in the articles of association in order to minimize the risk the legal rep may expose the company to.
The liabilities of a legal representative can be divided into civil, administrative and criminal liabilities, each of which carries out different legal consequences.
Civil liability
The legal representative’s activities are deemed as activities of the company, which means that any civil liabilities arising from the legal representative’s actions are borne by the company. However, the company may claim damages from the legal representative for any losses caused by him/her.
Administrative liability
A legal representative could be subject to fines and punishment if their company violates any PRC laws, in addition to any punishments meted out to the company. If the situation is serious, the legal representative may be subject to criminal liability.
Criminal liability
The PRC criminal law imposes criminal liability on both the individual and the company who are in charge of, or responsible for, a company which commits a crime. As the main principal of the company, the legal representative will not be pursued with any criminal liability unless he/she participates in the crime and is directly in charge of or responsible for the crime of the company.
Source:
by China Briefing on August 11, 2011
______________________________________________________________
China Law News
______________________________________________________________________
CONTENTS
- Intellectual
Property
Hebei cracked down upon crimes on the manufacture and sales of counterfeits - China
Banks
China's ICBC to take over Standard Bank Argentina - Litigation
law
Chinese people may soon be able to challenge unreasonable administrative legislation
_______________________________________________________________________
Intellectual Property - Hebei cracked down upon crimes on the manufacture and sales of counterfeits
As of the end of June this year, Hebei procuratorate has approved to arrest 228 suspects in 116 cases for infringing intellectual property rights (IPR) as well as producing and selling counterfeit and shoddy commodities since the launch of a special campaign on combating IPR infringements and counterfeits; while 195 criminals in 91 cases have been sent to court.
During the special campaign, the procuratorate has attached great importance
to the crackdown on illegal activities violating intellectual property rights
and civil rights. It has vowed to handle all those cases, especially major
cases that had been transferred from public security organs, effectively and
efficiently.
The procuratorate always participates in the investigation process of major and
serious cases in due time and guides relevant departments to get access to the
required evidences.
Continue reading at http://www.chinaipr.gov.cn/newsarticle/news/local/201108/1244319_1.html
China Banks - China's ICBC to take over Standard Bank Argentina
Industrial and Commercial Bank of China (1398.HK) is to pay $600 million to take control of the Argentina operations of South Africa's Standard Bank (SBKJ.J), it said on Friday, becoming the first Chinese lender to enter Latin America's third-largest economy.
ICBC, the world's biggest bank by market value, will take 80 percent of commercial lender Standard Bank Argentina and its two affiliates, asset manager Standard Investments and Inversora Diagnol, a commercial service provider.
The deal highlights the booming growth of Chinese finance in emerging markets beyond Asia. ICBC has been the top shareholder in Standard Bank since 2008, and is looking to benefit more as Chinese corporates extend their reach into Africa and other frontier markets.
"Chinese government policy probably had some influence on ICBC's decision. When you look at the other Chinese banks, none of them are doing acquisitions like ICBC is," said Ivan Li, an analyst at Kim Eng Securities in Hong Kong.
"China is probably treating ICBC like its flagship and wants it to expand everywhere."
Continue reading at http://www.reuters.com/article/2011/08/05/us-icbc-idUSTRE7742FR20110805
Litigation law - Chinese people may soon be able to challenge unreasonable administrative legislation
Wang Xixin, a law professor at Peking University and contributing researcher of China's top legislature, told China Daily that related departments have started to draft the amendment to the Administrative Litigation Law, which will very likely add government regulations such as urban planning to the scope of judicial hearings.
"It is a big deficiency in the current litigation regulation which doesn't allow the public to sue regulatory documents, government decisions and other regulations, since such government decisions usually exert a constant and wide-ranging impact on the people and will seriously infringe on civic rights, if ill-drafted," Wang said.
Continue reading at http://www.chinadaily.com.cn/cndy/2011-08/10/content_13081886.htm
_______________________________________________________________________
Lehman, Lee & Xu is a top-tier Chinese law firm specializing in corporate, commercial, intellectual property, and labor and employment matters. For further information on any issue discussed in this edition of China Law News or for all other enquiries, please e-mail us at mail@lehmanlaw.com or visit our website at www.lehmanlaw.com.
________________________________________________________________________
Lehman, Lee & Xu 2011.
You may share this document with your friends or colleagues, either by
forwarding the e-mail edition to them (provided that the contents of the e-mail
edition, including all notices, are preserved in their entirety), or by
directing them to the online edition at here. You may use short excerpts from this document in your
own work (provided that each such excerpt shall not exceed three sentences in
length; no more than twenty percent of this document, by word length, may be
excerpted; no more than twenty percent of your work, by word length, may
consist of such excerpts; each such excerpt shall be attributed to Lehman, Lee
& Xu, with such attribution to include the Internet address of the online
edition of this document; and your work shall not disparage Lehman, Lee &
Xu). All other rights reserved.
_______________________________________________________________________
This document has been created for educational purposes for
clients, potential clients and referrers of services to Lehman, Lee & Xu,
and to alert readers to the services provided by Lehman, Lee & Xu. It is
not intended to serve as definitive professional or legal advice, and should
not be relied upon as such. Lehman, Lee & Xu does not endorse any personal
opinions which may be contained herein.
_______________________________________________________________________