Chapter 9

Force Majeure and Arbitration

Objectives

After studying this chapter，you should be able to

1. explain what force majeure is.

2. describe ways of stipulating force majeure clause.

3. explain what arbitration is.

4. describe the contents of arbitration clause.

5. describe the function of thearbitration agreement.

Key terms

Force majeureArbitration institution

Arbitration Effect of award

Arbitrator Arbitration rules

Arbitration clause Arbitration agreement

9.1Force majeure

9.1.1 Definition of force majeure 

Force majeure also called act of god，is an event that can be neither anticipated nor controlled，and it can be resulted from natural reasons and social reasons，such as fire，storm，flood，heavy snow，earthquake，war，strike and so on.

9.1.2 Clause of force majeure

The contents of the force majeure clause

• （1）The scope of force majeure events.

• （2）Time limit of notifying the other party.  

• （3）The certificate and agencies who issue them.  

• （4）Principles and methods of treating force majeure

 Ways of stipulating force majeure clauses

• （1）Stipulate the force majeure clause in a general way.

• （2）Stipulate the force majeure clause in a listing way.

• （3）Stipulate the force majeure clause in a comprehensive way.

• Example：If the shipment of the contracted goods is prevented or delayed in whole or in part due to force majeure，the seller shall not be liable for non⁃shipment or late shipment of the goods of the contract. However，the seller shall notify the buyer by cable or telex and provide the latter within 15 days by registered airmail with a certificate issued by the China Council for the Promotion of International Trade attesting such event or events.

• Example：If the shipment of the contracted goods is prevented or delayed in whole or in part by reason of war，earthquake，flood，fire，storm，heavy snow，the seller shall not be liable for non⁃shipment or late shipment of the goods of the contract. However，the seller shall notify the buyer by cable or telex and provide the latter within 15 days by registered airmail with a certificate issued by the China Council for the Promotion of International Trade attesting such event or events.

• Example：If the shipment of the contracted goods is prevented or delayed in whole

 or in part by reason of war，earthquake，flood，fire，storm，or other causes of force

 majeure，  the seller shall not be liable for non⁃shipment or late shipment of the goods of

the contract. However，the seller shall notify the buyer by cable or telex and provide the latter within 15 days by registered airmail with a certificate issued by the China Council for the Promotion of International Trade attesting such event or events

Case analysis：One Chinese company in the south signed a rice contract with one Japanese client. The goods will be shipped during October and November. Severe flood occurred in the south of the summer, so the Chinese company requested for exemption from the obligation of delivery. The client refused and lodged a claim against the Chinese company for the loss for failure to deliver the goods because the price of rice has risen. Who is reponsible for the loss?

Questions

（1）What is force majeure？ 

（2）Distinguish force majeure and normal trade risks.

（3）What are the main contents in force majeure clause？ 

（4）How many ways can be used to stipulate the force majeure clause？

Terminology practice 

The following terms appeared in the text. Select one correct term for each of the following statements.

VerificationForce majeureSuspendResume

（1）An unexpected or uncontrollable event.

（2）The process of some organization that supplies the evidence documents.

（3）Begin something again or continue something after stopping for a time.

（4）Postpone something or delay something；hang something up.

9.2.1 The solutions to disputes 

In international trade practice，in case of disputes，the two parties should try to settle the disputes through amicable negotiations. In case no settlement can be reached through negotiation，the case shall then be settled through conciliation，arbitration or even litigation.

Consultation 

In actual practice，we often settle the disputes through friendly consultation，i.e.，settle the disputes directly through amicable negotiation. Amicable negotiation will be resorted to when both parties realize that it is beneficial to both of them，if they make some concessions in the light of the concrete circumstances and seek a fair and equitable solution to the problems.

Litigation 

Litigation means making a claim at a court of law. Plaintiff and defendant are engaged in a lawsuit.

Arbitration 

Arbitration is a means of settling disputes between two parties through the medium of a third party who is not partial to either of the parties to the dispute. And his decision on the dispute is final and binding upon two parties. That the award is final means neither party shall bring an appeal for revision before a court of law or any other organizations.   

Advantages claimed for arbitration over a court trial include the following： 

• （1）An arbitrator who is familiar with the technical or social setting of the dispute may be chosen.

• （2）Compared with trial that may sometimes take several years to get the disputes settled in court，there is less delay in disposing dispute through arbitration.

• （3）Since procedure is more informal than in court，the parties may choose not to be represented by lawyers.

• （4）Privacy can be maintained in both the arbitration hearing and the award.

• （5）The parties concerned may choose the arbitrator from the arbitration organization.

• （6）The arbitration procedure is simpler and the cost of arbitration is cheaper.

• （7）The arbitration award is final and has binding force upon the parties concerned.

• 9.2.2 The form and functions of arbitration agreement 

• The form of arbitration agreement

• The arbitration agreement is a written agreement in which the two parties declare that they are willing to submit to arbitration. There are two types of arbitration agreement，one is called arbitration clause that is concluded before the disputes arise，in which the two parties declare that in case of disputes，they are willing to submit to arbitration. This type of agreement is generally included in the contract. The other type is called submission that is concluded after the disputes arise，in which the two parties declare that they are willing to submit to arbitration. This type of arbitration agreement is independent of the contract.

Functions of arbitration agreement 

• （1）Arbitration agreement is the basis for settlement of disputes，and is binding upon both parties.

• （2）It is the warranty for arbitration authorities and arbitrators to obtain the jurisdiction.

• （3）The arbitration agreement eliminates the jurisdiction of the court over the relative case. In case an arbitration agreement is reached，the interested parties can't appeal to the court anymore

9.2Arbitration

• （1）Application for arbitration.  

• （2）Composition of arbitration tribunal.

• （3）Hearing.  

• （4）Award.

• （5）Enforcement of an award

9.2.4 Arbitration clause 

Place of arbitration 

Since applicable laws concerning arbitration differ from country to country，and different applicable laws differ in their interpretations in respect of the rights and obligations of the parties concerned，therefore parties concerned are always making efforts to choose an arbitration place they trust and know quite well.

Institution of arbitration 

In international trade，disputes may be either referred to a permanent arbitration organization which should be stipulated in the arbitration clause or an agreement by parties concerned or submitted for arbitration to a provisional organization formed by the arbitrators agreed by two parties. At present，most of the countries and some of the international organizations in the world have their permanent arbitration organization specialized in the settlement of commercial disputes.

Arbitration rules 

The place of conducting arbitration is a matter of importance because the place of arbitration has much to do with the application of country's arbitration rules and laws. Thus，the country where the arbitration is going to be made and relevant applicable arbitration rules should be specified in the contract

Effect of award

An arbitration clause must provide that the arbitral award is final. This is the incarnation of excluding the jurisdiction of litigation of courts by the arbitration clause. If an arbitration clause has not concluded that the arbitral award is final，CIETAC will not accept the case.

Arbitration fees

An arbitration clause shall provide that the arbitration fees shall be borne by the losing party.

9.2.5 An example of arbitration clause in the contract 

The following is an arbitration clause in contract.

Example：All disputes in connection with this contract or execution thereof shall be settled by negotiation between both parties. If no settlement can be reached，the case in dispute shall then be submitted for arbitration in the country of defendant in accordance with the arbitration regulations of the arbitration organization of the defendant country. The decision made by the arbitration organization shall be taken as final and binding upon both parties. The arbitration expenses shall be borne by losing party unless otherwise awarded by the arbitration organization.

Questions

（1）What are advantages of arbitration？ 

（2）How do trading companies select arbitration place，arbitration body，and arbitration rules？ 

（3）What are the procedures of arbitration？

Terminology practice 

The following terms appeared in the text. Select one correct term for each of the following statements.

Arbitration  Claimant  Arbitrator  Award  Tribunal  Litigation

（1）The process by which the parties in a dispute submit their differences to the judgment of an impartial person or group appointed by mutual consent or statutory provision.  

（2）A person chosen to settle the issue between parties engaged in a dispute.

（3）A decision，such as one made by a judge or arbitrator.

（4）Court action.

（5）Group of officials with the authority to settle certain types of disputes.

（6）A party that makes a claim.

Key words，phrases and special terms

n Appealn. v.诉求，求助

n Arbitral Tribunaln.仲裁庭

n Arbitrationn.仲裁

n Attorneyn.律师，代理人

n Awardn.判决结果

n Chamber of Commerce商会

n Claimantn.原告

n Clausen.条款

n Collegiate Tribunal合议仲裁庭

n Concessionn.让步

n Conciliationn.调解

n Consultationn.协商

n Counterclaimn.反诉

n Defendantn.被告

n Deferv.推迟

n Disposaln.处理

n Disputen.争议

n Enforcementn.执行

n Executionn.执行

n Exemptn.免除

n Force Majeuren.不可抗力

n Generalizationn.概括，普遍性

n Hearingn.听讼

n Jurisdictionn.权限

n Litigationn.诉讼

n Maritime Arbitration Commission海事仲裁委员会

n Partialn. adj.部分的，偏袒的

n Performancen.履行

n Provisionaladj.临时的

n Secretariatn.秘书处

n Settlementn.解决

n Solutionn.解决方案

n Summary procedure简易程序

n Verificationn.证明