Editor's Notes
Ever since its establishment in 1988, SHIAC has accumulated a wealth of experience in dealing with international arbitration cases by keeping in step with the historical trend of Shanghai’s economy opening-up. A large number of typical international arbitration cases emerged, which contain foreign related elements, wide range of nationalities, typical disputed issues, diversified choice of laws, innovative proceeding designs and practice of oversea enforcement.
Under a new round of opening-up, as one of the key elements of the legal service market, international arbitration will play a vital role in further structuring a modernized system of international economic and trade laws, and improving the business environment in China. For this purpose, SHIAC has selected a series of representative international arbitration cases and summarized the opinions of the tribunal. Later on, SHIAC will release the cases to domestic and foreign legal practitioners under this column. We hope through our sharing, the common rationale and consensus of dealing with international arbitration cases in Chinese institutions would be sought. Chinese enterprises and legal practitioners may benefit from the case analysis to improve risk prevention.
SHIAC INTERNATIONAL
CASE SERIES
Episode 1
International Arbitration for Settling Disputes over Air Ground Services Agreements
01
Case Synopsis
The first edition of the SHIAC International Case Series selects one SHIAC international arbitration case, in which the arbitral tribunal, equipped with subject matter background and constituted in accordance with the SHIAC Arbitration Rules, resolved the disputes over the conclusion and performance of the Ground Services Agreement and Affiliate Agreement entered into by a foreign air transport company, as the buyer of services, and a Chinese domestic services provider, as the seller. It is widely acknowledged that the industry of aviation is featured by extensive engagement of professional knowledge and manifests the modern high-end services. The sophistication of the aviation industry demands that the neutrals appointed to arbitrate the disputes possess a plausible level of industrial background. To this end, the commercial arbitration with a roster of industrial experts, answers precisely to that particular demand. Meanwhile, the Ground Services Agreement and Affiliate Agreement are usually the standard contracts prepared by the trade associations, e.g. the International Air Transport Association. The standardized nature of the underlying contracts both requires and tests the arbitral tribunal’s capability in balancing the procedural and substantive rights and obligations of the disputants.
02
Basic Facts
The case involved two aviation companies, respectively registered in the People's Republic of China and the Kingdom of Thailand. The Claimant was a large domestic airport company located in the Pearl River Delta region, and the Respondent was an air transport company registered in Bangkok, Thailand, which operated several international air passenger and cargo routes, including those destined for the Claimant's airport. In order to facilitate the business of the Respondent in China, the Respondent appointed Mr.X as an agent stationed at the Claimant's airport.
Between March and May 2017, the Claimant, as a domestic services provider, and the Respondent signed the Standard Ground Services Agency Agreement (Summary Procedure) (hereinafter referred to as the "Ground Services Agreement") pursuant to the Master Agreement and Appendix A of the January 2008 version of the International Air Transport Association (“IATA”) Standard Ground Handling Agreement. In the Ground Services Agreement, the parties agreed that the Claimant would provide the services listed in Appendix A as follows: Section I Representation, Management and Supervision; Section II Passenger Services; Section III Ramp Services; Section IV Load Balancing, Communications and Aviation Services; Section V Cargo and Mail; Section VI Auxiliary Services; Section VII Security; and Section VIII Aircraft Maintenance. On the basis of the Ground Services Agreement, the parties further entered into the Comprehensive Ground Agency Services Agreement, the Supplemental Ground Services Agency Agreement, the Disabled Aircraft Removal Agreement, and the Aviation Services Extension Services Agreement. Each of the aforementioned agreements together constitute the content of cooperation between the two parties, and the locations where the Claimant provides the services content of the agreements are all within the territorial scope of its own airport. Regarding dispute resolution, the Ground Services Agreement, the Comprehensive Ground Agency Services Agreement, the Supplementary Ground Services Agency Agreement, the Damaged Aircraft Removal Agreement, and the Aviation Extension Services Agreement all provide for an arbitration clause that "in case of dispute, the dispute shall be submitted to the Shanghai International Arbitration Center". In addition, the two parties also signed an Aviation Services Agreement, specifying that Mr. X, who was appointed by the Respondent, was the Respondent's agent stationed at the Claimant's airport.
After each of the above agreements was signed, the Claimant handed over the bill for the services to Mr. X for signature as agreed. In late March to August 2018, the Claimant sent four reminders to the Respondent because the Respondent was overdue in paying the services fees from September 2017 to March 2018, and in late August 2018, the Respondent responded to the Claimant with a payment plan for the outstanding amounts. As the Respondent's proposed arrears payment period was too long, the Claimant sent a letter to the Respondent in September 2018, requesting the Respondent to settle the entire arrears by December 31, 2018. The Respondent then replied a repayment plan to the Claimant, promising to pay the outstanding amounts in three installments totaling RMB 2,108,288 Yuan by October 25, November 25 and December 25, 2018. On November 2, 2018, as the Respondent failed to pay the first installment as promised, the Claimant instructed its lawyer to send the Respondent a Letter from the Lawyer, requesting the Respondent to settle the entire arrears within 15 days after it received the Letter. However, the Respondent failed to settle all the arrears within the aforementioned grace period. Therefore, the Claimant filed an application for arbitration with the Shanghai International Arbitration Center in accordance with the arbitration agreements mentioned above, demanding the Respondent to pay the outstanding services fees of RMB 2,108,288 Yuan, and to pay the interests, the arbitration fees and the actual costs of the case.
The Respondent did not reply to the facts claimed by the Claimant and the arbitration requests made by the Claimant, nor did it provide any evidence to refute them.
03
Opinion of the Tribunal
In accordance with the provisions of Article 34 of the Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Center) Arbitration Rules (hereinafter referred to as “SHIAC Arbitration Rules”), the Arbitration Tribunal made a default award on the case.
Since the Respondent is a foreign company, the case is a foreign-related arbitration case. Regarding the application of law in foreign-related cases, the parties did not agree on the applicable law in the above-mentioned agreements, especially in the Ground Services Agreement. The Arbitration Tribunal found that in accordance with Article 41 of the Law of the Application of Law for Foreign-related Civil Relations of the People’s Republic of China, "The parties may agree to choose the law applicable to the contract. If the parties do not choose, the law of the place of habitual residence of the party whose performance best reflects the characteristics of the contract or other laws most closely connected with the contract shall apply." In view of the facts that the place where the parties provided and received the services was within the Claimant's airport, i.e. the place of performance of the contract was in the People's Republic of China, the Arbitration Tribunal finds that the law most closely connected to the agreements in question is the law of the People's Republic of China, thus the Chinese law should be applied in this case. At the same time, considering that the signing of the agreements in question and the disputes occurred before the implementation of the Civil Law Code of the People’s Republic of China on January 1, 2021, the laws and regulations prior to the implementation of the Civil Law Code should be applied in this case.
Regarding the performance of the agreements at issue, especially on the ascertainment of the fact that the Respondent accepted the Claimant's services, the Claimant submitted the "Signed Receipt" containing the signature of Mr. X, the Respondent's agent, together with the invoices, the payment notices, the settlement lists and the flight take-off and landing information sheets, which proved that the Claimant had provided the Respondent with the agreed services in accordance with the agreements at issue, and the Respondent has already confirmed them. At the same time, the Claimant also submitted the repayment plan sent by the Respondent on its own initiative, which further proved that the Respondent acknowledged that it has defaulted on the services fees and confirmed the amounts of the unpaid services fees. Based on the agreements and the aforementioned evidence submitted by the Claimant, the Arbitration Tribunal finally supported the Claimant's arbitration requests and awarded that the Respondent should pay the services fees of RMB 2,108,288 Yuan. As for the liquidated damages, the agreed standard of liquidated damages was one thousandth per day, and the Claimant took the initiative to adjust it to 24% per year during the arbitration process, which was also approved by the Arbitration Tribunal.
04
Brief Comments
The Standard Ground Handling Agreement issued by the International Air Transport Association (IATA) consists of the "Master Agreement", "Appendix A" and "Appendix B". The Master Agreement contains the general conditions, including the arbitration clause. Appendix A specifies the agreed services contents. The standard terms and conditions concerning the services price and settlement matters are usually agreed in the "Appendix B". The "Standard Ground Services Agency Agreement (Summary Procedure)" signed by the parties in this case was reached on the basis of the "Master Agreement" and "Appendix A" of the IATA Standard Ground Handling Agreement. The Arbitral Tribunal relied on the Standard Ground Services Agency Agreement (Summary Procedures) and the other agreements for the settlement and payment of the ground services fees in dispute between the parties.
It is worth mentioning that the arbitration clause in the "Master Agreement" of the IATA Standard Ground Handling Agreement provides for ad hoc arbitration. However, along with the development of commercial arbitration in China, especially the successful establishment of the Shanghai International Aviation Court of Arbitration, the aviation industry has started to consciously include institutional arbitration clauses in their services agreements, e.g., to insert an arbitration clause providing "to submit disputes to the Shanghai International Aviation Arbitration Court". At this point, the nature of the arbitration clause concluded between the parties and included in the services agreements should be a special arrangement made by the parties regarding the dispute resolution mechanism. According to the basic legal principle that the special clause takes precedence over the general clause, the special clause for institutional arbitration between the parties should prevail the general clause in the boilerplate "Master Agreement", and this precedence should also apply to the arrangement of dispute resolution mechanism between the parties.
Another point of concern in this case is the service of documents on the foreign company. In principle, the service of legal documents on an overseas company should be made at the registered or principal business address of the overseas company. However, if the foreign company has appointed its agent in the People's Republic of China, the relevant legal documents can also be served to the valid address of the agent in China. In this case, the Claimant provided the Secretariat with the registered address and contact address of the Respondent in Thailand and the address of the Respondent's designated agent Mr. X in China. The Secretariat served the arbitration documents on these three addresses and completed the service of documents obligations under the SHIAC Arbitration Rules. Although the Respondent was absent from the oral hearing of the case, the Arbitral Tribunal conducted the default hearing in accordance with the SHIAC Arbitration Rules and made the default arbitration award, under the circumstance that the Secretariat had completed its service of documents obligation in accordance with the SHIAC Arbitration Rules. This treatment balanced between the procedural efficiency and the right of procedural awareness of a party, and has been recognized by the law of the juridical seat, i.e. the Arbitration Law of the People’s Republic of China.
（Editor: Research Department of SHIAC）
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示范仲裁条款
Model Arbitration Clause
凡因本合同引起的或与本合同有关的任何争议，均应提交上海国际经济贸易仲裁委员会/上海国际仲裁中心进行仲裁。
Any dispute arising from or in connection with this Contract shall be submitted to Shanghai International Economic and Trade Arbitration Commission / Shanghai International Arbitration Center for arbitration.