PRC Model Maritime Case Enforcing Arbitral Award against Offshore Company

Among the “model maritime” cases recently selected by China’s Supreme People’s Court (“SPC”) is a ruling with the potential to undermine a strategy that some businesses with connections to China have used to frustrate enforcement of foreign arbitral awards.

The case, Oriental Prime Shipping Co., Limited v. Hong Glory International Shipping Company Limited, was adjudicated by the Shanghai Maritime Court, with the final ruling issued on 26 February 2021. At the end of 2022, the SPC selected the case as one of the “Top Ten Model Maritime Trial Cases across the Country in 2021”.

The core of the case is in the determination about the “principal office” of the respondent, who challenged the jurisdiction of the court to hear the applicant’s request to enforce a foreign arbitral award. Ultimately, the jurisdictional challenge was dismissed and the award was ordered enforced.

Factual and Procedural Background

In September 2018, Oriental Prime Shipping Company Limited (“Oriental Shipping Co.”), incorporated in the British Virgin Islands, and Hong Glory International Shipping Company Limited (“Glory Shipping Co.”), incorporated in the Republic of the Marshall Islands, entered into a time charter party (under the widely used model agreement NYPE1946) for Glory Shipping Co. to charter Oriental Shipping Co.’s vessel “ORIENTALPEARL” for the carriage of cargo (“Charter Party”). The parties had also entered into a fixture recap (which included the key terms of the Charter Party) (“Fixture Recap”).

Hongda Shipping Company Limited (“Hongda Shipping Co.”), incorporated in China and with registered address of Room 1203, 12th Floor, Ruifeng International Building, No. XXX Yangshupu Road, Shanghai, was an affiliate of Glory Shipping Co. but not a party to the Charter Party or the Fixture Recap.

At some point, a dispute arose between Oriental Shipping Co. and Glory Shipping Co. and they submitted it, under the dispute resolution clause of the charter party, to ad hoc arbitration under the rules of the London Maritime Arbitrators Association. The tribunal rendered an arbitral award, dated 10 October 2019, finding Oriental Shipping Co. entitled to the full amount of its claim, USD 90,790.28, plus interest (“Award”).

On 1 April 2020, Oriental Shipping Co., as applicant, requested the Shanghai Maritime Court (“Court”) to recognize and enforce the Award. Glory Shipping Co., as respondent, raised an objection to jurisdiction on the grounds that it was a foreign company registered in the Marshall Islands and had no principal office or property in mainland China. On 13 July 2020, the Court ruled to dismiss the objection, after which Glory Shipping Co. appealed to the High People’s Court of Shanghai Municipality, which affirmed the Court’s ruling on 22 January 2021.

Issues

To enforce a maritime arbitral award in mainland China, an application must be filed with the maritime court at the place where the domicile or the property of the person subject to enforcement is located.[1] Under PRC company law, a company’s domicile is its “principal office”, but where that cannot be determined, the domicile is at its address recorded in the relevant corporate registry.[2]

Given that the respondent in this case, Glory Shipping Co., challenged the Court’s jurisdiction by showing that its registered address was outside China and claiming it was not domiciled in China (nor had property there), the main issue before the court was whether or not the respondent’s principal office was in Shanghai, China.

Arguments

The parties focused their arguments on two facts:

1. The Fixture Recap recorded Glory Shipping Co.’s address as Room 1203, 12th Floor, Ruifeng International Building, No. XXX Yangshupu Road, Shanghai, China (i.e., the registered address of Hongda Shipping Co.).
2. The Award stated (according to the court ruling): “The Charterers are corporation [sic] registered in the Marshall Islands, carrying out business in Shanghai, China”.

I. The Interpretation of the Address Recorded in the Fixture Recap

The respondent argued that the Fixture Recap recorded the address of Hongda Shipping Co., because the former entrusted the latter with the operation of business under the Charter Party and Hongda Shipping Co.’s address was more convenient as a business contact. The respondent maintained that there was no evidence to prove the address in Shanghai was its own office address. Moreover, in the appellate case, it submitted a copy of an “Entrustment Agreement” executed with Hongda Shipping Co., intending to prove the existence of the relationship between them.

The applicant countered that there was no indication that the address recorded in the Fixture Recap was that of an agent or other party – or anything other than the principal office of the respondent. Moreover, it argued, contact in charter matters is customarily done via the internet, and thus contrary to the respondent’s contention, there was no need to leave any particular physical address “for convenience”. As for the Entrustment Relationship, the applicant challenged its authenticity, pointing out procedural defects such as the lack of notarization and the fact that it was not introduced in the trial.[3]

ⅠI. The Interpretation of “carrying out business in Shanghai” in the Award

The respondent argued that the phrase “carrying out business in Shanghai, China” in the Award should not be interpreted as indicating a place of business in Shanghai, but rather only as indicating it carried out transactions or business there.

The applicant maintained that the phrase indicated the respondent’s principal office, as jointly confirmed by the parties and also as basic information for an arbitral award.

Findings and Rulings

The Court made the following key findings:

• The respondent, who was challenging the Court’s jurisdiction, was a foreign company and registered in the Marshall Islands. However, both the Fixture Recap and the Award indicated that Shanghai, China, was the place where its principal office was located.
• The address in the Fixture Recap was identical to the registered address of Hongda Shipping Co. Certain mail of the parties reflected that the respondent and Hongda Shipping Co. were in practice the same business. In fact, an employee of the latter, in an email, explicitly wrote that they were the same.

Based on the above, the Court found that the respondent (Glory Shipping Co.) had a principal office in Shanghai, China, which thus was its domicile for purposes of this case. Therefore, the Court ruled that it had jurisdiction over the respondent, hence dismissing the jurisdictional objection.

The High People’s Court of Shanghai Municipality supported the above findings and ruling, while also making an additional finding, on the new evidence the respondent submitted on appeal:

• The authenticity of the Entrustment Agreement involved could not be confirmed by notarization or any other method. Since there was an affiliation or business relationship between the respondent and Hongda Shipping Co., it is possible for them to have conspired to enter into a false agreement. Therefore, the Entrustment Agreement was not sufficient to counter the indications in the Fixture Recap and Award.

Finally, after examining the other particulars of the enforcement application per PRC law, the Court ruled to enforce the Award.

Takeaways

In this case, in determining the principal office of the respondent (against whom enforcement of a foreign arbitral award was sought), the court took into consideration indications in the following: (a) a document serving as an agreement between the parties, specifically, a fixture recap; (b) the arbitral award; and (c) correspondence between the parties, particularly emails.

This case may reflect a trend. For example, in the 2019 case of Mansheng Shipping Co. Limited v. Zhuolian Shipping Co. Limited, where the High People’s Court of Tianjin Municipality ruled to enforce a foreign award over a similar jurisdictional challenge, in determining the principal office of the respondent, the court also considered the e-mail and physical address used during the parties’ negotiations, and also found that a third party was in effect the same as the respondent. Specifically, a letter of guarantee from the respondent to the applicant was sent via the third party’s email, and certain payments under the charter party were effected under the third party’s physical address. However, in that case, there was an additional factor: the sole shareholder and director of the respondent and the legal representative of the third party were the same individual.

The SPC’s recent selection of Oriental Prime Shipping Co., Limited v. Hong Glory International Shipping Company Limited as a special “model” case suggests an endorsement of this trend, which therefore will likely grow, though even a “model” case does not have any strictly binding force on subsequent cases. Businesses would do well to consider the factors that courts use to determine domiciles and therefore jurisdiction, whether seeking to limit liability under foreign arbitral awards in China or seeking to round up evidence and arguments for successful enforcement.

[1] Article 11 of the Special Maritime Procedure Law of the People's Republic of China (《中华人民共和国海事诉讼特别程序法》), promulgated by the Standing Committee of the National People’s Congress on 25 December 1999 and effective as of 1 July 2000.

[2] Article 10 of the Company Law of the People's Republic of China (《中华人民共和国公司法》), promulgated by the Standing Committee of the National People’s Congress on 29 December 1993, most recently revised on, and effective as of, 26 October 2018; Article 3 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China (最高人民法院关于适用《中华人民共和国民事诉讼法》的解释), promulgated by the Supreme People’s Court on 30 January 2015, most recently revised on 1 April 2022, effective as of 10 April 2022.

[3] According to the appellate ruling, Oriental Shipping Co. further claimed that, in the trial, Glory Shipping Co. had stated that it was not in partnership with Hongda Shipping Co.