In January 2024, the Supreme Court of the People's Republic of China (the “Supreme Court”) issued ten leading cases in respect of judicial review of arbitration. The fifth case, China Oceanwide Holdings Group Co., Ltd v. Guo Wei, addresses whether a guarantor is bound by an arbitration clause in the underlying contract in circumstances where the letter of guarantee does not provide for an arbitration clause. In that case, the Beijing Financial Court held that the guarantor, China Oceanwide Holdings Group Co., Ltd (“China Oceanwide”), was not bound by the arbitration agreement in the underlying agreement with Guo Wei, and that the arbitral tribunal consequently no jurisdiction over Guo Wei’s claim against the guarantor. By publishing the case as a leading case, the Supreme Court is effectively affirming the judgement of the Beijing Financial Court, and thereby confirming that a guarantor is generally not bound by an arbitration agreement in the underlying contract.
Facts
On 27 December 2019, Guo Wei signed documents titled "Fund Contract", "Fund Supplementary Confirmation Letter" and "Share Subscription of Minsheng Wealth Zunyi No. 9 Investment Fund" with (a) a fund manager, Minsheng Wealth Co., Ltd (“Minsheng Wealth”); and (b) the fund trustee, China Merchants Securities Co., Ltd. On the day of the signing of the "Fund Contract", Guo Wei paid CNY 4.3 million to the account designated by Minsheng Wealth. The Fund Contract provides that if any dispute arising out of or in connection with it cannot be resolved through friendly negotiation, the said dispute(s) shall be settled by arbitration before the Beijing Arbitration Commission.
In October 2014, China Oceanwide issued a guarantee letter to Minsheng Wealth, promising to provide credit enhancement guarantee support for the asset management products initiated and established by Minsheng Wealth, and assuming active management responsibilities.
In September 2021, Guo Wei (as claimant) commenced arbitration before the Beijing Arbitration Commission against Minsheng Wealth, China Merchants Securities Co., Ltd, and China Oceanwide as respondents. On 23 November 2021, China Oceanwide formally challenged the jurisdiction of the Beijing Arbitration Commission. On 14 December 2021, the Beijing Arbitration Commission replied to China Oceanwide’s challenge, observing that the jurisdictional challenge could only be determined after reviewing the case on its merits, and the jurisdictional challenge will be decided by the Tribunal after constitution of the Tribunal .
On 19 January 2022, China Oceanwide commenced proceedings before the Beijing Financial Court, inviting the court to decide whether there existed a valid and binding arbitration agreement between China Oceanwide and Guo Wei. On 21 January 2022, the Beijing Financial Court accepted the case.
Issue
Whether there was a valid arbitration agreement or arbitration clause between China Oceanwide and Guo Wei.
Decision
The Beijing Financial Court observed that China Oceanwide did not directly sign the Fund Contract with Guo Wei, nor was the guarantee letter addressed to Guo Wei. There was no clear expression of intent to resolve the dispute through arbitration between China Oceanwide and Guo Wei. Thus, there was no arbitration agreement between China Oceanwide and Guo Wei. China Oceanwide had challenged the jurisdiction of the Tribunal before the first hearing in the arbitral proceeding, which is consistent with the relevant procedural provisions. The Beijing Arbitration Commission had also not made any decision as to the jurisdictional challenge which was before it. In the circumstances, the Beijing Financial Court ruled that there was no valid arbitration agreement between China Oceanwide and Guo Wei.
Commentary
The Supreme Court confirmed this case as a typical case for determining the applicability of arbitration clauses in underlying contracts to accessory contracts. The Supreme Court further commented that Chinese courts fully respect the parties' willingness to arbitrate, and determined that the arbitration clause of the main contract is not, without more, binding on the accessory contract (and the parties thereto) in the absence of an arbitration clause in the accessory contract. Based on these comments, it seems that whether the guarantee letter in the instant case was directly addressed to Guo Wei was irrelevant, and the Supreme Court may be considered to have established a general rule that a guarantor is not, without more, bound by an arbitration clause in the underlying contract (which the guarantor is guaranteeing).
It is noted that the English courts may be seen to have adopted different approaches depending on the specific facts. For instance, in Stellar Shipping Co LLC v Hudson Shipping Lines [2012] 1 CLC 476, Hamblen J (as he then was) held that Stellar Shipping Co LLC, as the guarantor, was bound by the arbitration clause contained in a Contract of Affreightment entered between its wholly-owned subsidiary Phiniqia International Shipping (as Charterer) and Hudson Shipping Lines (as Owner). Critical to the Court’s reasoning was the fact that Stellar had “endorsed” the underlying Contract of Affreightment – Hamblen J held that Stellar’s endorsement of the underlying contract could only have meaningful effect if it involved Stellar’s own agreement to arbitration in respect of any disputes concerning its own obligations. This dovetailed with the approach in Fiona Trust v Privalov [2007] 2 CLC 553, where the House of Lords had held that it was reasonable to expect the parties to have agreed to a common method of dispute resolution in a single commercial relationship. It is not the purpose of this note to opine on whether the approach of the English or the Chinese Courts is preferable, particularly given the somewhat different factual backgrounds against which the relevant cases were decided, but the differences in approach nonetheless bear note.
It is further noted that, in the draft Amendment to the Chinese Arbitration Law, the legal draftsman suggested a different approach to the Supreme Court’s position in the China Oceanwide case. Article 24 of the draft Arbitration Law of the People's Republic of China (Revision) (Draft for Comments) dated 30 July 2021 provides, "If the dispute involves a main-accessory contract, and the arbitration agreement between the main contract and the accessory contract is inconsistent, the agreement of the main contract shall prevail. If there is no arbitration agreement in the accessory contract, the arbitration agreement of the main contract shall be valid against the parties to the accessory contract". Thus, it remains to be seen whether the position set out by the draftsman will be affected by the Supreme Court’s view in the China Oceanwide case.