Xiamen Maritime Court of China
11 May 2008
*LMAA arbitration - preliminary issue - arbitrators’ reading of without prejudice materials during amicable settlement talks - whether arbitrators should disqualify thereby - truncated arbitration tribunal - during arbitration one of the arbitrators was arrested due to involvement with economic crimes - absent arbitrator only commented on 1st draft (there are 3 drafts in total) - Section 52 of the England Arbitration Act 1996 - paragraph 8(e) of the LMAA Rules - whether the said arbitration award accordingly rendered by the remaining two arbitrators should be refused to recognize and enforce
Applicant: First Investment Corporation, Marshall Islands.
Domicile: Trust Company Complex, Ajeltake Road, Ajeltake Island Majuro, Marshall Islands, MH96960.
Respondent: Fujian Mawei Shipbuilding Ltd.
Domicile: No.3 Chuanzheng Road, Mawei Economic Development Zone, Fuzhou, Fujian Province, China.
Respondent: Fujian Shipbuilding Industry Corporation
Domicile: Seventh Floor, Shijiejinlong Plaza, No.159 Wusi Road, Fuzhou, Fujian Province, China.
With respect to the case of dispute arising from the ship building Option Agreement between the applicant First Investment Corporation (hereinafter “FIC”) and the respondents Fujian Mawei Shipbuilding Ltd. (hereinafter “Mawei Shipyard”) and Fujian Shipbuilding Industry Corporation (hereinafter “FSIC”), an ad hoc arbitral tribunal seating in London had rendered a final award on 19 June 2006. On 5 December 2006, the applicant FIC filed an application to our Court to recognize the validity of the said arbitral award and to enforce the arbitral award in China. After accepting this case, a collegial trial panel is duly composed. The members of the collegial trial panel are Judge Zhang Xizhou (as the presiding judge), Judge Li Tao and Judge Chen Pingping. After exchange of evidence between the applicant and the respondents, a hearing was conducted by this court on 13 July 2007. The trial of this case has now been completed.
I Application of applicant
The applicant FIC filed the application to court and stated that:
1. On 15 September 2003 Mawei Shipyard and FISC as joint seller entered into an Option Agreement with FIC, a company incorporated in Marshall Islands which was set up by the Restis Group (hereinafter “Restis”). Under this Agreement, Mawei Shipyard and FISC irrevocably agreed to enter into option shipbuilding contracts (the “OSCs”) for the construction of up to eight cargo vessels with either FIC or its nominees to be designated by FIC. Any and all disputes arising out of or in relation to this Agreement should be referred to arbitration in London.
2. After the Agreement came into effect, dispute then arose when both Mawei Shipyard and FISC failed to sign the OSCs within the agreed period. The dispute was submitted to arbitration. An ad hoc arbitral tribunal made a final award, which ordered that Mawei Shipyard and FISC should jointly and severally pay to FIC the sum of USD 26.4 million as damages for breach of the Option Agreement, and interest on the said sum of USD 26.4 million from 1 May 2004 to the date of fulfillment of payment of the sum at the interest rate of 4.5% per annum, compounded with three-monthly rests.
3. Both UK and China are signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter referred to as the “New York Convention”). Pursuant to the provisions of the Notice issued by the Supreme People’s Court of China on the Enforcement of Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the applicant FIC hereby filed an application to this court to recognize the validity of the said arbitral award and to enforce the award in China.
II Defence of respondents
The respondents filed defence statements that:
4. The application for recognition and enforcement of the said arbitral award shall be refused as per relevant provisions of New York Convention. Namely, (1) the tribunal did not give the parties a proper notice on the replacement of the absent arbitrator or how the arbitration should proceed when one arbitrator was absent at the later stage of deliberation; (2) after the tribunal became truncated, its composition was not consistent with the arbitration agreement that the tribunal be composed of three members and the two arbitrators had no power to make procedural orders or awards; (3) that the tribunal adjudicated a dispute which was not agreed to be submitted to arbitration and this was in excess of jurisdiction of the arbitration tribunal; (4) the tribunal failed to decide, as a preliminary issue, whether the eight nominees were proper parties to the arbitral proceedings, thus causing that the defence of the respondents were directed to a wrong direction in the course of arbitration ; (5) the tribunal violated the public policy and law of the place of arbitration UK by exposing themselves to, hearing and adopting without prejudice materials; (6) there was a serious error with the arbitral proceedings when the tribunal rushed to render the final award without deciding all disputes submitted to arbitration; (7) the tribunal violated the principle of natural justice; its award was based upon perjury and thus violated the public policy of China.
5. In conclusion, in the present case, the case fell into circumstance for non-recognition/non-enforcement as provided in provisions of article 5.1 (b), (c),(d) and article 5.2 (b) of the New York Convention. Accordingly, the application for recognition and enforcement of the said arbitral award should be refused
III Finding of facts by court
Our court finds out facts of this case as follows:
6. On 15 September 2003, Mawei Shipyard and FISC as joint seller entered into an Option Agreement with FIC, a company set up by Restis in Marshall Islands. Under this Agreement, both Mawei Shipyard and FISC irrevocably agreed to enter into option shipbuilding contracts for the construction of up to eight cargo vessels. The purchase price for each Option Vessel for the first, second, third and fourth vessels was USD18,400,000. The purchase price for each Option Vessel for the fifth, sixth, seventh and eighth vessels was USD19,000,000. FIC as the Option Holder shall exercise each Option by notifying Mawei Shipyard and FISC in writing (the “Declaration Notice”) on or before the declaration date. Any and all disputes arising out of or in relation to this Agreement shall be referred to arbitration in London. The arbitration proceedings, including the enforcement of the award, shall be conducted in accordance with the Arbitration Act (of England) 1996 or any statutory modification or re-enactment thereof for the time being in force and the rules then in force of the London Maritime Arbitrators Association (“LMAA”). Each party may appoint one arbitrator. The two arbitrators so appointed shall select a third arbitrator.
7. On February 20, 2004 before the agreed declaration date, FIC declared the eight options to be effective and required the respondents to enter into option shipbuilding contracts with eight nominees, which were all one vessel companies incorporated in Marshall Island and set up by Restis. Copies of the contracts prepared by FIC were sent to the respondents to be signed by 16 March2004. Subsequently FIC extended the deadline date to 30 April 2004. However, the respondents failed to sign the contracts within the period.
8. On 1 May 2004, Mr. Li Lianjun, an attorney of Richards Butler who represented FIC, sent a fax to the respondents, which said that FIC and eight nominees considered it a breach of the Option Agreement when the respondents failed to sign and deliver copies of the OSCs within the agreed period and obligations of both parties under the Option Agreement were therefore discharged. On the same day, Mr. Li sent another fax on behalf of FIC to the respondents, notifying them that FIC had appointed Mr. Bruce Harris to be an arbitrator and requiring them to appoint an arbitrator of their own in accordance with the Option Agreement.
9. On 24 May 2004, the respondents appointed Dr. Wang Sheng Chang as the arbitrator appointed by them pursuant to the Option Agreement.
10. On 4 June 2004, FIC and eight nominees initiated arbitration proceedings in London, UK, claiming that the respondents were jointly and severally liable to pay it compensation in the sum of USD 45.4 million for damages and interests.
11. On 18 June 2004, Mr. Bruce Harris and Dr Wang jointly appointed Mr. Martin Hunter to seat as the third arbitrator. Since both parties did not agree on in the Option Agreement a mechanism for the selection of the chief arbitrator, pursuant to paragraph 8 (c) of the LMAA Rules, Martin Hunter should seat as the chief arbitrator. During the course of arbitration, the applicant was represented throughout by Richards Butler, and the respondents were represented throughout by Lovells.
12. On 6 July 2004, the respondents submitted their defence, alleging that FIC disclosed certain documents which were created in the course of settlement of dispute and covered by without prejudice privileges protection under English law, and requesting the members of the tribunal to disqualify themselves on the ground that they might have been influenced by reading the without prejudice materials.
13. By a letter dated 8 July 2004 Mr. Martin Hunter required both parties to consultation and attempt to resolve the issue between them concerning the inclusion of the allegedly without prejudice materials in the exhibits submitted to the arbitration tribunal.
14. By 15 July 2004, both parties exchanged and delivered to the tribunal voluminous submissions concerning the procedures to be followed, including the question of whether the arbitrators should disqualify themselves.
15. By a fax dated 15 July 2004 Mr. Martin Hunter invited the parties to exchange by 20 July 2004 one more round of brief submissions on the resignation issues, and Mr. Martin Hunter ordered them “not to continue to refer to the allegedly without prejudice materials which makes the issue more complex”. In view of this situation, the respondents did not hang on to their argumentation that the arbitrators should disqualify themselves.
16. On 30 July 2004, the tribunal held deliberations by taking into account the submissions of both Parties. Mr. Martin Hunter notified the parties that the tribunal had determined that none of its members should resign. The respondents accordingly requested that an independent assessor should be appointed to review the documents in question.
17. On 17 November 2004, the tribunal issued Procedural Order No. 2, which established a procedure for evaluation of the allegedly without prejudice documents by an Independent Assessor.
18. On 25 January 2005, the Independent Assessor delivered his report to the arbitration tribunal that the correct application of English law principles indicated that only one of the documents submitted to him for review should be protected from disclosure in the arbitration on without prejudice grounds. It is found out that, the above-mentioned document referred to a statement contained in Claim Submissions of FIC and eight nominees, which read, inter alia, “…it once again manifested that they would probably not be able to perform the contracts due to financial difficulties, even if they had signed them.”
19. The respondents objected to the Independent Assessor’s decision, but the tribunal did not issue any new decision concerning the allegedly without prejudice materials. Prior to that, the respondents also submitted defense submissions concerning whether eight nominees were proper parties to the present arbitration proceedings and requested the question of locus standi of the nominees should be determined as a preliminary issue. The tribunal considered that this question could be dealt with together with the substantive issues and by Procedural Order No. 8 the tribunal decided that the question would not be determined as a preliminary issue.
20. From 25 January to 5 June2005, both parties disputed over procedural issues, including the allocation of costs incurred in connection with the Independent Assessor’s review, forms of and time for evidence to be produced and translation of evidence and other documents. The tribunal respectively issued Procedural Orders No. 3, 4, 5, 6, and 7 to deal with these issues.
21. After dealing with and resolving the above procedural issues, the tribunal held the first hearing at the International Dispute Resolution Center in London from 20 June to 24 June 2005. As witnesses, Mr. Evan Breibart and Mr. Li Lianjun gave oral statements for the applicant and Mr. Dong Jingzhi and Ms. Chen Xiuxiang gave oral statements for the respondents. In the oral statements, Mr. Dong and Ms. Chen made several statements that the respondents were in financial difficulties when the price for steel went up and the banks refused to issue guarantees.
22. On 17 September 2005, the tribunal held the second hearing at the London office of Lovells. Dr. Wang took part in the hearing via videoconferencing. Attorneys of Lovells attended the hearing on behalf of the respondents. Attorneys of Richards Butler attended the hearing on behalf of FIC and eight nominees. During the hearing, Lovells contended that: (a) eight nominees were not proper parties to the arbitration agreement; (b) the tribunal had no jurisdiction to adjudicate claims by eight nominees; (c) FIC’s claims for damages shall be rejected for the reason that it did not suffer any loss; and (d) the tribunal had been exposed to without prejudice materials. At the conclusion of the hearing, the tribunal indicated that no further submissions would be permitted. Subsequently the tribunal held deliberations on the arbitral award in various ways on various occasions.
23. On 21 January 2006, Mr. Martin Hunter finished a first draft of the arbitral award and distributed it to Dr. Wang and Mr. Bruce Harris for comments.
24. On 16 February 2006, Dr. Wang supplied his draft dissenting opinion.
25. In Early March, Mr. Bruce Harris sent his comments on the first draft. Then on 25 March 2006 Mr. Martin Hunter sent out a second draft of the award, in which all the amendments proposed by both Dr. Wang and Mr. Bruce Harris had been incorporated, together with some consequential drafting changes resulting from Dr Wang’s draft dissenting opinion.
26. On March 31, 2006, having taken in some minor final proof-reading changes noted by Mr. Bruce Harris, Mr. Martin Hunter finalized the Award and sent it to Dr. Wang and Harris for signature.
27. During that period, by a letter dated 2 March 2006 the respondents requested that the arbitration tribunal should re-open the proceedings to order further production of documents in the light of new information that was adverse to FIC.
28. On 3 May 2006, Mr. Martin Hunter wrote to both parties, stating that, “on this occasion, in rather unusual circumstances, I am writing to the parties on behalf of Mr. Bruce Harris and myself only, rather than on behalf of the full Arbitration Tribunal…” Then he continued that:
(1) The Final Award (on all issues except as to the allocation of costs) has been lying on my desk for some time, signed by Mr. Bruce Harris and me, but undated. The Arbitration Tribunal reached its determination of the issues by a majority after an extensive period of deliberations. Dr. Wang, who participated fully in these deliberations, confirmed that he would sign the majority award, under reserve as to part of it; and that he intended to provide a dissenting opinion to be attached to the award when the time came for the award to be notified to the parties. Dr. Wang had in fact already sent us a draft dissenting opinion in February, and that draft is also lying on my desk.
(2) However, although I have written to him by fax and by email on several occasions, we have heard nothing directly from him for over two months. Meanwhile, through a third party, Mr. Bruce Harris and I received a report that Dr. Wang and two other senior CIETAC officials had been removed from their official positions and detained by the Chinese authorities pending certain investigations.
(3) The present position is that a majority award could be “made” simply by writing a date on the document in the appropriate place…Thus, if, with the agreement of Mr. Bruce Harris, I were to insert a date into the document we would have a perfected majority award and, it follow, an obligation to notify it to the parties immediately. Mr. Bruce Harris and I have, of course, been hoping that Dr. Wang’s position would be resolved, and that he would fulfill his stated intention of signing the award (under reserve) and providing a final version of his dissenting opinion for communication to the parties.
(4) However, as time passes, we have become more inclined to the view that the proper course would be to perfect the majority award and to notify it to the parties, perhaps accompanied by Dr. Wang’s draft dissenting opinion. This is the context in which we now invite the parties, within seven days, to let us have their comments and/or submissions as to what we should do next. Thereafter we will proceed in such manner as we consider being appropriate. If either or both of the parties believe that, through their connections in Beijing or elsewhere in East Asia, they may be able to obtain any information that might assist our assessment of the position, we would consider extending the seven days time limit mentioned above; but we need to hear from the parties promptly if we are to take this course.
29. In this letter, Mr. Martin Hunter also mentioned the respondents’ application on March 2 regarding disclosure of documents. He stated that, “meanwhile, we have not forgotten the respondents’ application that currently lies on the table; and we intend to deal with it – either by a majority or with Dr. Wang’s participation- at the appropriate time.”
30. From 10 May to 16 June 2006, by communications with Mr. Martin Hunter, attorneys of both parties delivered respectively their submissions on the issues mentioned above. No agreement was reached.
31. Lovells contended, inter alia, that, (a) Section 52 of the Arbitration Act required that the award be signed by all the arbitrators or those assenting to the award. Since Dr. Wang confirmed that he would sign the award and the arbitration agreement required the tribunal be composed of three arbitrators, the award signed by the two arbitrators only could not be the final award; (b) with the participation of Dr. Wang, it could not preclude the possibility that all or any member of the tribunal might amend their or his views after further deliberations; (c) the tribunal should endeavor to regain contact with Dr. Wang so as to proceed with the arbitration proceedings; (d) without Dr. Wang’s participation in the deliberation, the tribunal had no power to decide upon the application made by the respondents on 2 March 2006 for the disclosure of certain FIC documents .
32. Richards Butler contended, inter alia, that, (a) Dr. Wang had participated fully in the deliberations and assented to the draft award under reserve and therefore Section 52 of the Arbitration Act did not apply; (b) paragraph 8(e) of the LMAA Rules provided that after the appointment of the third arbitrator, decisions, orders or awards shall be made by all or a majority of the arbitrators. Based on this provision, the two arbitrators were empowered to make the award (and also to deal with the outstanding application for disclosure); (c) Section 22(2) of the Arbitration Act should be applicable to the present case and the case could be decided by a majority of members of the tribunal; (d) the tribunal had already decided the issues and there should be no further deliberations; (e) there was a possibility (no higher than that) that Dr. Wang might continue to take part in the deliberations with the permission of the Chinese Authority. If the tribunal felt it worthwhile making this attempt, it might contact the People's Procuratorate of The Tianjin Municipality; (f) since both parties to the arbitration could not reach a consensus on how it should proceed, the tribunal in this case should act promptly.
33. On 19 June 2006, Mr. Martin Hunter and Mr. Bruce Harris dated and published the arbitral award, which decides that:
(1) The nominees are not proper parties to the proceedings and are dismissed from the arbitration by the award;
(2) The respondents shall pay to FIC the sum of USD 26.4 million as damages for breach of the Option Agreement;
(3) The respondents shall pay to FIC interest on the said sum of USD 26.4 million from 1 May 2004 to the date of payment of the sums due under the Award at the interest rate of 4.5% per annum, compounded with three-monthly rests;
(4) The liability of the respondents under the Award shall be joint and several;
(5) In the event that the parties are unable to agree as to the allocation and/or quantum of the costs incurred in the arbitration, these issues will be determined by the Arbitration Tribunal in a separate later award;
(6) The Award is made by a majority of the Arbitration Tribunal and, in accordance with the parties’ arbitration agreement, is final, conclusive and binding on them.
34. After the award was published, no appeals by either of the parties have been made.
35. Our Court has also found out that, Dr. Wang Sheng Chang was formerly Chief of Legal Department, China Council for the Promotion of International Trade (CCPIT) and Secretary-General of the China International Economic and Trade Arbitration Commission (CIETAC). He was detained on 20 March 2006 by the First Branch of the People's Procuratorate of the Tianjin Municipality for involvement in crimes and soon arrested on 31 March 2006. Ever since Dr. Wang Sheng Chang was detained, he lost contact with Mr. Martin Hunter or Bruce Harris. It would be safe to conclude that Dr. Wang did not have the opportunity to read either the second draft of the award sent by Mr. Martin Hunter on 25 March2006 or the finalized draft sent on 31 March 2006, let alone any other documents sent afterwards. In other words, his participation in the case went as far as his draft comments on the first draft of the award.
36. In addition, our Court has found out that eight procedural orders had been issued during the course of arbitration. Procedural Order No. 1 was issued on 31 May 2004 and Procedural Order No. 7 was issued on 5 June 2005. Procedural Orders No.1, 2,3,4,5,6,7 had been issued by Mr. Martin Hunter on behalf of “the tribunal“, whereas Procedural Order No. 8 was issued on 19 June 2006 by Mr. Martin Hunter on behalf of “the majority”.
37. Besides a review of the situations as described above in Mr. Martin Hunter’s letter dated 3 May 2006, Procedural Order No. 8 mainly elaborates on (a) the drafting of arbitral award and subsequent amendments and an analysis and discussion of the power of the tribunal after it became truncated; (b) the determination and decision on the application made by the respondents on 2 March 2006; (c) annotations to two paragraphs.
38. Regarding the competence of a “truncated tribunal”,
(1) Paragraph 4 of Procedural Order No. 8 states that: “English arbitration law neither authorises nor prohibits the making of decisions by a so-called ‘truncated tribunal’. It is therefore necessary to review the agreement of the parties to ascertain the powers of the remaining arbitrators if one of them fails to participate at a late stage of the proceedings.
(2) Paragraph 5 of Procedural Order No. 8 continued to state that: “many sets of modern arbitration rules authorise a truncated tribunal to complete arbitration in certain circumstances. Paragraph 8(e) of the LMAA Terms, (2002)(the ‘LMAA Terms’), which applies to the present arbitration, states that after the appointment of the third arbitrator, decisions, orders or awards shall be made by all or a majority of the arbitrators.”
(3) Paragraph 12 of Procedural Order No. 8 then states that: “having taken into account of the submissions received from the parties, and taking into account of the fact that the Arbitration Tribunal had completed its deliberations on the substantive issues in dispute, the Majority determines that the proper course is for the Award to be ‘made’ by inserting a date in the signature block and then, as expressly required by the Parties ‘arbitration agreement, notifying it to the parties immediately."
(4) Paragraph 13 of Procedural Order No. 8 particularly deals with Dr. Wang’s draft dissenting opinion, stating that: “however, the Majority considers that, the Parties not having agreed on whether or not Dr. Wang’s Draft Dissenting Opinion should be notified to them, it should remain undisclosed pending further developments and/ or discussion with the Parties.”
39. Regarding the application made by the Respondents on 2 March 2006, paragraph 15 of Procedural Order No. 8 referred it as a procedural application. In paragraph 16, it states that: “by a letter dated 2 March 2006, the Respondents requested that the Arbitration Tribunal should re-open the proceedings to order further production of documents in the light of new information concerning the alleged election by the Restis Group not to exercise certain options. These options arose under option contracts between a Restis Group company and a different Chinese party, unrelated to the Option Agreement that is the subject of the present arbitration.”
40. Paragraphs 17, 18, 19 of Procedural Order No. 8 further proves that following facts: (a) on 6, 20, 21, 23, March 2006, both FIC and the respondents delivered submissions on the respondents’ application; (b) having reviewed the submissions, Mr. Martin Hunter and Mr. Bruce Harris considered that the factual scenario on which the respondents’ application was based was not relevant to the determination of the liability or quantum issues in the present arbitration, which did not arise under the same Option Agreement. In paragraph 24 of Procedural Order No. 8, Mr. Martin Hunter and Bruce Harris reached their conclusion, which reads, inter alia: “the Majority therefore determines that the respondents’ application must be rejected. The result would not be different if Dr. Wang has been able to participate in making this determination. Even if he were to take a different view, there is no realistic possibility that he would have persuaded the Majority to change its considered opinion”.
41. In terms of the two annotations, annotation to paragraph 1 mainly emphasizes that the award would be final on all matters in dispute except as to the allocation of costs between the parties. Annotation to paragraph 12 is intended to clarify a fact that before 16 February 2006 the tribunal had discussed the possibility of a face to face meeting for further deliberations. However, Dr. Wang, via an email dated 16 February 2006, made it clear that although he would be willing to attend such a meeting, “the award could be issued more quickly “if the Majority made the award with his dissenting opinion attached.
IV Reasoning of court
42. Our Court holds that, in the present case, a foreign company files an application to recognize and enforce an English arbitration award in China. Since China is a signatory to New York Convention, our Court shall review the award in accordance with the provisions of New York Convention and decide whiter the award may be recognized and enforced.
43. Under the arbitration clause contained in the Option Agreement, any and all disputes arising out of or in relation to the Agreement shall be referred to arbitration by a tribunal of three arbitrators, English law being the applicable law. The arbitration proceedings shall be conducted in accordance with the Arbitration Act 1996 and the LMAA Rules.
44. Both parties’ debates over the validity of the arbitral award are in fact caused by the fact that the tribunal had been incomplete following Dr. Wang Sheng Chang’s being arrested. The problem with the constitution of the tribunal after Dr. Wang was arrested was referred to as a so-called “truncated tribunal” in Procedural Order No. 8, which states: “English arbitration law neither authorises nor prohibits the making of decisions by a so-called ‘truncated tribunal’. Such a statement has indicated that nothing in the Arbitration Act of 1996 can be applied to deal with the so-called “truncated tribunal” in the present case. Moreover, Procedural Order No.8 has also pointed out that in this situation, the powers of a so-called “truncated tribunal” and how it shall proceed shall be determined based on the arbitration agreement and paragraph 8 (e) of the LMAA Rules.
45. Considering the overall opinions of both FIC and the respondents on this particular issue, it can be seen that both parties do not oppose to or even agree on how the rules shall be applied to the situation of a so-called “truncated tribunal” as explained in Procedural Order No. 8. Therefore, the arbitration agreement itself and the LMAA Rules shall be the sole basis upon which to determine whether the so-called “truncated tribunal” in this case is entitled to conduct deliberations and render the award.
46. The arbitration clause in this case requires that three arbitrators be appointed to resolve the dispute. However, it does not contain a particular provision regarding the powers of the three arbitrators. Then paragraph 8(e) of the LMAA Rules should step in to fill the blank, which provides that: “after the appointment of the third arbitrator, decisions, orders or awards shall be made by all or a majority of the arbitrators.” Consequently, paragraph 8(e) is procedurally binding upon both parties to the arbitration and the tribunal.
47. In this case, Mr. Martin Hunter and Mr. Bruce Harris, in their letters to both parties and Procedural Order No. 8, have made numerous references to paragraph 8(e) of the LMAA Rules. Some of the statements are even self-contradictory. However, based on the fact that the above communications and procedural orders all lay emphasis on and reiterate Mr. Wang’s full participation in the whole deliberation process, and taking into account the English law principle that all arbitrators shall participate in the whole process of arbitration proceeding, our Court concludes that the factual condition on which paragraph 8 (e) of the LMAA Rules is applicable is that any member of the tribunal has fully participated in the arbitration proceedings. On this premise, and on this premise only, decisions, orders or awards shall be made by the majority of arbitrators under the LMAA Rules. Failing this premise, the majority has no powers to do so.
48. Based on the description of facts in Procedural Order No. 8, there have been three drafts of the arbitral award, i.e., a first draft dated 21 January 2006, a second draft dated 25 March 2006 and the third draft dated 31 March 2006. Indeed Dr. Wang had only the opportunity to comment on the first draft. Since he was arrested on 20 March 2006, his participation went no further than the reading of and commenting on the first draft. Dr. Wang did supply his draft dissenting opinion and stated that he was willing to sign the award under reserve of his dissent. However the term “draft” was used, which indicated that his review of the contents of the first draft was not completed and, of course, the deliberations among members of the tribunal had not come to an end. The fact that Mr. Martin Hunter distributed the second draft to Dr. Wang and Mr. Bruce Harris for comments further proved that the deliberation of the issues in dispute was ongoing. Dr Wang did not fully participate in the whole of arbitral proceedings. Thus, under the arbitration agreement of the parities and paragraph 8 (e) of the LMAA Rules, the two arbitrators had no power to reach a decision by majority.
49. When the second hearing was over on 17 September 2005, the tribunal decided that no further submissions would be permitted. It was reasonable for the tribunal to make such a decision taking into consideration the specific circumstances of the arbitration. Following this decision, the tribunal should have disregarded the application the respondents made on 2 March 2006.
50. However, in the absence of Mr. Wang, the two arbitrators decided to allow both parties to deliver submissions on this issue. This on the one hand manifested that the two arbitrators overturned the decision by all arbitrators that no further submissions would be permitted. On the other hand it further proved the fact that the two arbitrators considered it necessary to continue to determine the relevant facts of the dispute.
51. Subsequently, with the apparent knowledge that Dr. Wang was unable to and, in fact, did not attend, the two arbitrators proceeded to decide that the respondents’ application should be rejected for the reason that the application was irrelevant to the determination of the issues in the present dispute. Such an act also violated the parties’ agreement and the LMAA Rules.
52. It shall be noted that, in Procedural Order No. 8, it is asserted that: “The result would not be different if Dr. Wang had been able to participate in making this determination”. Such an assertion and reasoning not only constituted a manifest disregard of the parties’ agreement on the constitution of a tribunal of three arbitrators, it also amounted to contempt and violation of Dr Wang’s right to arbitrate.
V Decision of court
53. In conclusion, in this case, the tribunal was composed of three arbitrator; however one of the arbitrators, Dr. Wang Sheng Chang, failed to participate in the entire arbitration proceedings and, in particular, the full deliberations of the dispute. Therefore the arbitral procedure was not in compliance with the agreement of the parties and not in compliance with the law of the country where the arbitration took place, i.e., UK. Contentions by the respondents on this particular point stand. As for other contentions, including the alleged admission by the tribunal of without prejudice documents and accordingly the violation of the laws of the place of arbitration, are not accepted by our Court as grounds for refusal of recognition and enforcement of the arbitral award.
54. In view of this, pursuant to Article 267 of the Civil Procedure Law of the PRC and Article 5.1(d) of the New York Convention, our Court hereby decides that:
55. Application for recognition and enforcement of the arbitral award made by the ad hoc London tribunal on the dispute in relation to the Option Agreement between the applicant FIC, and the respondents Mawei Shipyard and FSIC, shall be refused;
56. The court fee of RMB 500 shall be assumed by the applicant, First Investment Corporation, Marshall Islands;
57. This decision is final.
Presiding Judge: Zhang Xizhou
Judge: Li Tao
Judge: Chen Pingping
11 May 2008
Court Clerk: Chen Yanzhong
[*] This case is flagged as one of the “Top Ten Cases During China’s 30 Years of Maritime Trials” in the meeting organized by Supreme People’s Court of China on 2 September 2014 for commemorating China’ maritime judicial history in the past 30 years, i.e., from 1984 when China established maritime courts alongside its coastlines to 2014. This case is reported on basis of preliminary translated text provided by Dr. CHEN Yanzhong, who is a PhD. in International Law and a judge of Xiamen Maritime Court of the PRC, with due editorial work by Editors Team. The Editors Team sincerely thanks a lot for Dr. CHEN Yanzhong in this respect.