- Shenzhen Intermediate People's Court & Guangdong High People's Court
- Shenzhen Zhonghang Walls Ltd. v. Shenzhen Shenhua Real Estate Co.
MEDIATION AGREEMENT - BETWEEN TWO CHINESE COMPANIES - GOVERNED BY CHINESE LAW
"COMMENT" BY CHINESE JUDGES ON THEIR DECISIONS - NOT LEGALLY BINDING - REFERENCE TO ARTICLE 2.1.1 OF UNIDROIT PRINCIPLES [2004 EDITION] AND ARTICLE 18 OF CISG IN A "COMMENT" WRITTEN BY MEMBERS OF THE COURT
Plaintiff, a Chinese company, and Defendant, a Chinese company, concluded a contract for a construction project. Later, disputes arose out of the performance of the contract, and Plaintiff brought an action against Defendant before Shenzhen Intermediate People's Court, claiming payment of a sum of money by Defendant. Through the court's mediation, the parties reached a mediation agreement under which the Defendant agreed to pay in six monthly instalments, each instalment to be paid before the thirtieth day of each month. Failing timely payment, Plaintiff would apply to the court for enforcement of the mediation agreement. While the first three instalments were paid in a timely manner, Defendant failed to pay the fourth and fifth. Consequently, Plaintiff applied to Shenzhen Intermediate People's Court for enforcement of the mediation agreement. One month later Defendant paid all the three outstanding instalments at one time and Plaintiff accepted that payment without objection. Nevertheless, the Shenzhen Intermediate People's Court ruled that since Defendant had breached the mediation agreement by delaying payment of two instalments, the court was empowered to enforce the mediation agreement and accordingly seized Defendant’s real estate. Defendant challenged the court's enforcement before the Guangdong High People's Court which was responsible for the review of enforcement. The Guangdong High People's Court held that Defendant's failure to pay the two instalments in good time did not amount to a fundamental breach of the mediation agreement and did not therefore lead to termination of the agreement. It further held that Defendant's later payment of all the three outstanding instalments and Plaintiff's full acceptance of it had resulted in an agreement to modify the mediation agreement. It therefore concluded Defendant, by making the later payment, had discharged its obligations under the modified mediation agreement so that the intervention of the Shenzhen Intermediate People's Court was not necessary.
This purely domestic case was later selected for a "Case Comment" written by the judges of Guangdong High People's Court. In this "Comment", the judges referred to Article 36 of the 1999 Contract Law of P.R. China in conjunction with Article 2.1.1 of the UNIDROIT Principles of International Commercial Contracts (2004 edition) and Article 18 of the United Nations Convention on Contracts for the International Sale of Goods – all of which permit conclusion of contracts by conduct of the parties that is sufficient to show agreement - to support their ruling that the parties' conduct modified the mediation agreement in the case at hand. Here, it is not clear whether the UNIDROIT Principles were indeed taken into account by the judges in making the decision, or they were referred to after the decision had been made for the purpose of the persuasiveness of the "Comment" (and the decision). Nevertheless, the reference to the UNIDROIT Principles in the "Comment" indicates that the Principles have attracted the attention of the judges, and are considered as having some degree of persuasive value. Finally, although "Case Comments" of this type are often published and intended as guidelines to the judges (particularly those of lower courts) who may be in charge of similar cases, it should be noted that they are not legally binding under the current Chinese legal framework.