Commercial Litigation and Arbitration

Arbitration and New York Convention — Requisite Specificity of Arbitration Clause

The American plaintiff in Apple & Eve, LLC v. Yantai North Andre Juice Co., 2007 U.S. Dist. LEXIS 44645 (S.D.N.Y. June 20, 2007), signed a contract with the Chinese defendant which contained the following arbitration clause:

Arbitration: Any controversy or claim arising out of or relating to this contract or breach thereof, shall be settled by negotiation between two parties. If no settlement can be reached, the claim in dispute shall then be submitted or [sic] arbitration in the country of defendant in accordance with the arbitration organization of the defendant country.

The plaintiff had a substantial contract claim and had no desire to arbitrate it in China, even though the contract plainly required it. The plaintiff brought suit in New York state court. The defendant removed the action and moved to compel arbitration in China. In resisting the motion, the plaintiff focused its attack on the fact that the arbitration clause did not designate a city, just a country, in which the arbitration was to be conducted, and did not specify which Chinese arbitration organization was to be utilized. The plaintiff argued that, because the Arbitration Clause designates neither a specific situs for arbitration in China nor a specific arbitration organization in China, the Court was without power to compel arbitration in China pursuant to 9 U.S.C. § 206.

The Court rejected the arguments and held that an order compelling arbitration was required under § 206 because there was no dispute that (1) there was an agreement to arbitration and (2) the dispute fell within the scope of that agreement. The plaintiff attempted to invoke the "null and void, inoperable or incapable of being performed" provision of Article II of the New York Convention (see 9 U.S.C. § 201) on the theory that (a) the parties' failure to identify a situs other than "the country of defendant" failed to comply with § 206 and was a mistake, and (b) under Chinese law, if an arbitration agreement fails to designate an arbitration commission, the agreement is "null and void" and thus, "incapable of being performed." The Court rejected the situs argument, there being no requirement in the New York Convention that a city be specified and in light of the strong federal policy in favor of arbitration. As for the organization argument, the Court acknowledged the existence of numerous China Supreme People's Court cases holding arbitration clauses invalid where the clause did not identify an arbitration commission and no supplemental agreement was reached on the issue. The Apple & Eve Court, however, pointed to the recent promulgation by the Supreme People's Court of an Interpretation (No. 7), which, in certain circumstances, contemplated the judicial implication of an arbitration institution. Held, motion to compel arbitration granted; plaintiff relegated to the Chinese courts for any future relief.

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