Factual Background
On 14 September 2014, Emphor FZCO (“Emphor”) signs a shipbuilding contract (“Shipbuilding Contract”) with Guangdong Yuexin Ocean Engineering Co., Ltd. (“Yuexin”) for the purchase of a 60.6 meters anchor handling tug supply vessel. They agree that Yuexin should fulfil its delivery obligations on or before March 3, 2016 and that if Yuexin fails to fulfill its delivery obligations due to the force majeure, Emphor can terminate the contract after an excessively delayed delivery of over 210 calendar days. As a consequence, Yuexin should refund all payment for bookings and pay the interests at an annual rate of 6%.
On December 3, 2013, their Contract comes into effect.
On October 10, 2016, as Yuexin fails to fulfil its delivery obligations, Emphor notifies Yuexin that Emphor is going to terminate the contract. Moreover, Emphor also requests Yuexin to refund US$ 2,780,000 that Emphor has prepaid for the vessel and the interests to Emphor.
The Article 13 of the Contract stipulates that any dispute arising out of or in connection with the Shipbuilding Contract shall be referred to arbitration in Singapore in accordance with the Arbitration Rules of the Singapore Chamber of Maritime Arbitration (“SCMA”) for the time being in force at the commencement of the arbitration, if it cannot be resolved by parties on their own. The SCMA Arbitration Rules are deemed to be incorporated by reference in this clause. The Tribunal shall be constituted by a sole arbitrator as jointly nominated by parties or be appointed by the Chairman of the SCMA at the request by either party if parties cannot reach agreement.
On December 13, 2016, as disputes arose, the parties decide to solve their disputes through arbitration before the SCMA pursuant to their Shipbuilding Contract.
On March 8, 2017, the Chairman of the SCMA nominates the sole arbitrator for the case.
On April 10, 2017, Yuexin serves Emphor with a written Notice of Arbitration.
On May 9, 2017, in response, Emphor serves Yuexin with its response and the counterclaims against Yuexin, which consist of a claim for the expenses for inspecting a shipyard in the amount of US$ 7,262. However, Emphor did not claim for the interest on this amount.
On 20 July 2018, the sole arbitrator rendered the final award (“Award”), under which Yuexin is ordered, inter alia, to pay Emphor such US$ 7,262, as well as its interest at the rate of 6% per annum from the interest accrual date to the date of actual receipt of such expenses payable to Emphor. Under the Award, the sole arbitrator has also provided his reasoning as to the Tribunal’s discretion to award interest.
On 2 January 2020, Emphor applied before Guangzhou Maritime Court to recognize and enforce the Award.
Yuexin argued, inter alia, that Emphor only claimed for USD 7,626 for the relevant expenses. However, the Tribunal awarded not only the expenses but also the interest on it. Therefore, the Award contains decisions beyond the scope of the arbitration claims. The decisions regarding the interest shall not be recognized and enforced pursuant to Article 5 (1) (c) of the New York Convention.
Main Issues to Analyse
Can the Court recognize and enforce fully the SCMA arbitral award which awarded interest that Emphor did not claim?
Court’s Analysis
Firstly, China has made the following two declarations and reservations upon the ratification of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”):
- China will apply the Convention, only on the basis of reciprocity, to the recognition and enforcement of arbitral awards made in the territory of another Contracting State;
- China will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial according to the laws of China.
In the present case, both Singapore and China are the contracting states of the New York Convention. Furthermore, the relationship between Emphor and Yuexin is considered as commercial according to the laws of China.
Therefore, according to Article 283 of the Civil Procedure Law of the People’s Republic of China, the Court held that it would render its decision on the recognition and enforcement of the Singaporean arbitral award pursuant to the New York Convention.
Secondly, Article 37.2 of the SCMA Arbitration Rules stipulates that “the Tribunal may award simple or compound interest on any sum awarded at such rate or rates and in respect of such period or periods both before and after the date of the Award as the Tribunal considers just”.
Thus, the Court held that even if Emphor did not claim for interest on the US$ 7,262 that they spent on inspecting the shipyard in Zhongshan City, Emphor did counterclaim for the US$ 7,262. According to Article 37.2 of SCMA Arbitration Rules, the Court held that the Tribunal has indeed large discretion to award simple or compound interest on any sum awarded as the Tribunal considers just.
Therefore, the decision on the relevant interest in the Singaporean Arbitral Award does not exceed scope of the counterclaims.
The Guangzhou Martime Court of China decides to recognize and enforce the Arbitral Award.
Conclusion: Main Takeaways
1. Article 37.2 of the SCMA Rules allows the arbitral tribunal to award interest not claimed by a party in Singapore.
2. However, in China, there is no specific guidance on this issue under the Arbitration Law of the People’s Republic of China. I have not found any specific rules about the tribunal’s power on awarding interest not claimed by a party in the arbitration rules of renowned arbitration institutions, such as CIETAC and BAC. According to my research, the arbitration practice in China is that, if the lex arbitri does not expressly empower the tribunal to award interest proactively, then the tribunal should not do it.
3. It is worth to note that the time limit applicable to applications to execute a foreign arbitral award is two years in China according to Article 239 of the Civil Procedure Law of the People’s Republic of China. Furthermore, it is recommended to submit the Chinese translation of the foreign arbitral award certified by the Chinese embassy or notarized by the Chinese notary agency when you apply to recognize and enforce a foreign arbitral award in China.
(Reminder: The purpose of this article is to provide general legal information. It does not contain a full analysis of the law nor does it constitute a legal advice on the points of law discussed. To minimize the legal risk for your business, you must take specific legal advice from a lawyer on any particular matter which concerns you. Thanks for your attention.)