Can there be a second bite of the arbitral cherry? PRC Court gives guidance on repeat arbitration proceedings. Mr Xu Jinglin v Beijing Kingstar Fortune Co. Ltd
In a recent judgment welcomed by arbitration practitioners, the Beijing No. 4 Intermediate Court issued an important judgment setting out the circumstances in which it would be permissible for there to be a second arbitration in a single dispute.
The applicant, Mr Xu Jinglin ("Mr Xu") was the sole shareholder of Beijing Guoheng Insurance Agency Co. Ltd ("BGI"). In 2012, BGI purchased liability insurance from the PICC Beijing Branch ("PICC") in respect of its insurance agency business. In September 2014, Mr Xu and the defendant, Beijing Kingstar Fortune Co. Ltd ("BKF Co") entered into a share transfer agreement, in which Mr Xu agreed to transfer all its BGI shares to BKF Co. The agreement provided that:
- Where BGI was liable for any third party loss due to acts occurring prior to the execution of the share transfer agreement, Mr Xu would reimburse BKF Co .
- Any dispute arising from the share transfer agreement would be determined by arbitration by the Beijing Arbitration Commission.
In May 2017, BGI was held liable and ordered to pay Beijing Xintai Life Insurance Corporation's ("BXL Corp") approx. RMB700,000 following the breach of a bonus and penalty clause in a Premium Collection contract concluded prior to the share transfer agreement, in December 2012. BKF Co asked Mr Xu to proceed with the reimbursement of the payment, in accordance with the agreement. Mr Xu refused and BKF Co commenced arbitration proceedings against Mr Xu at the Beijing Arbitration Commission (BAC).
The first arbitration
In October 2017, the tribunal issued an arbitral award (“1st Arbitral Award”) whereby it dismissed BKF Co's claim on the grounds that BKF Co had failed to address whether PICC's liability insurance policy had been triggered, and neither BGI's loss nor the quantum of the claim had been clearly established.
The first litigation
BGI filed court proceedings against PICC claiming the insurance indemnity to cover BXL Corp's claim. In March 2018, the court found that BGI's breach of the Premium Collection contract bonus and penalty clause fell outside the scope of the insurance policy.
The second arbitration
Later, BKF Co filed arbitration proceedings with the BAC against Mr Xu seeking reimbursement for BGI's losses. Mr Xu challenged the application on the grounds this constituted a second set of arbitration proceedings about the same dispute, however, the second arbitral tribunal issued an arbitral award (“2nd Arbitral Award”) in favour of BKF Co ordering Mr Xu to comply with the terms of share transfer agreement and reimburse BKF Co.
The second litigation
Mr Xu, subsequently, applied to the Beijing No.4 Intermediate Court to revoke the 2nd Arbitral Award on the ground that the second arbitration violated article 9 of PRC Arbitration Law, which states that an arbitral award shall be final and binding, and where a party commences arbitration or litigation in respect of the same dispute, the arbitration tribunal or the court shall reject the case.
The Beijing No. 4 Intermediate Court dismissed Mr Xu's application and found that:
- The key issue was to determine the test for what constitutes "the same dispute" under article 9 of PRC Arbitration Law. The court found that articles 247 and 248 of the Interpretation of the Supreme People's Court on the Application of the PRC Civil Procedure Law (“PRC CPL Law on Interpretation”) provide clear rules on the issue of repeat litigation proceedings, and should be considered in determining the test for repeat arbitration proceeding.
Article 247 provides that if a litigation satisfies the three criteria below, simultaneously, it shall be treated as repeat litigation:
a. the parties to the current litigation proceedings and those in the previous one are the same; b. the subject matter of the current and previous litigations are the same; c. the claims in the current and previous proceedings are the same, or the claim in the current litigation stands in contradiction to the ruling of the previous litigation.
- Article 248 PRC CPL Law Interpretation provides that if new facts arise after a judgment has been handed down, and a party commences litigation anew, the court shall accept the case in accordance with the law.
The court concluded as follows: the first litigation, which took place after the 1st Arbitral Award, found that BGI's claim fell outside the scope of PICC's insurance policy. This confirmed BGI's inability to recover the sum of RMB 700,000 and clearly established their loss. BGI's loss, as established by the court in the first litigation, constituted a new fact. For this reason, the second arbitration presented at the Beijing Arbitration Commission in 2018, did not constitute repeat arbitration proceedings, and did not violate article 9 of PRC Arbitration Law.
PRC courts will invoke articles 247 and 248 of the PRC CPL Law on Interpretation to determine whether a claimant may commence a second set of arbitration proceedings on the same matter. Following this judgment, if a claimant intends to commence arbitration proceedings in circumstances where their first claim is dismissed by the arbitration tribunal, they may compare their second claim with the test provided in the above PRC legal provisions to avoid the risk of being dismissed directly by the court on the ground of repeat arbitration proceedings.