November 29, 2022

Tips for Safely Navigating International Air Service Disputes

Jhis case involved two airlines, one registered in China and the other in Thailand. The plaintiff was a large domestic airport company located in the Pearl River Delta region, and the defendant was a Bangkok-registered airline company, which operated several international passenger and cargo air routes, including those to from the applicant’s airport. In order to facilitate the business of the Thai-registered company in Mainland China, the Respondent has appointed “Mr. X” as an agent stationed at the Plaintiff’s airport.

Between March and May 2017, Plaintiff, as a domestic service provider, and Respondent executed a Standard Ground Service Agency Agreement (Summary Procedure) pursuant to the Framework Agreement and Schedule A of International Air Transport Association (IATA) Standard Ground Agreement January 2008. Support Agreement.

In the Ground Services Agreement, the parties have agreed that the Applicant will provide the services listed in Schedule A as follows: Section I Representation, Management and Oversight; section II passenger services; Section III ground services; Section IV Load Balancing, Communications and Aviation Services; section V freight and mail; section VI auxiliary services; section VII safety; and Section VIII Aircraft Maintenance.

Based on the Ground Services Agreement, the parties have further entered into the Global Ground Agency Services Agreement, Supplemental Ground Services Agency Agreement, Aircraft Withdrawal Agreement out of order and the aviation service extension services agreement. Each of the agreements together constitutes the content of the cooperation between the two parties, and the places where the applicant provides the services of the agreements are all within the territorial scope of its own airport.

With respect to dispute resolution, the Ground Services Agreement, Global Ground Agency Services Agreement, Supplemental Ground Services Agency Agreement, Aircraft Removal Agreement Damaged and the Aviation Extension Services Agreement all provide for an arbitration clause that, “in the event of a dispute, the dispute shall be submitted to the Shanghai International Arbitration Center.” In addition, both parties also signed an air services contract, specifying that Mr. X, appointed by the Respondent, was the Respondent’s agent stationed at the Applicant’s airport.

After the signing of each of the aforementioned agreements, the service provider submitted the invoice for the services to MX for signature as agreed. From the end of March to August 2018, the plaintiff sent four reminders to the Thai company because the defendant was late in paying the service fees from September 2017 to March 2018. At the end of August 2018, the defendant replied with a plan of payment for unpaid amounts.

As the deadline for payment of arrears proposed by the defendant was too long, the plaintiff sent a letter to the Thai company in September 2018, asking the defendant to settle all the arrears before December 31, 2018. The defendant then sent a plan claimant, promising to pay the outstanding amounts in three installments totaling RMB 2,108,288 (USD 300,896) by October 25, November 25 and December 25, 2018.

On November 2, 2018, after the defendant failed to pay the first installment as promised, the plaintiff instructed his lawyer to send the Thai company a letter requesting the defendant to settle all arrears within 15 days of the receipt of the letter. However, the Respondent did not settle all arrears within the grace period. The Claimant then filed a request for arbitration with the Shanghai International Arbitration Center in accordance with the arbitration agreements, demanding that the Respondent pay the unpaid service fees of RMB2,108,288, together with interest, arbitration and the costs of the case.

The Respondent did not respond to the facts alleged by the Claimant and to the requests for arbitration made by the airport company, nor provided any evidence to refute them.

OPINION OF THE COURT

Pursuant to the provisions of Article 34 of the Arbitration Rules of the Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Center), the Arbitral Tribunal issued a default award in the case.

Since the defendant is a foreign company, the matter is a foreign-related arbitration matter. Regarding the application of the law in foreign related cases, the parties have not agreed on the applicable law in the agreements, in particular in the ground services agreement. The arbitral tribunal concluded that, according to Article 41 of the Law of Implementation of the Foreign Related Civil Relations Law of the People’s Republic of China, “the parties may agree to choose the law applicable to the contract . If the parties do not choose, the law of the place of habitual residence of the party whose performance best reflects the characteristics of the contract or other laws most closely related to the contract apply”.

Considering the fact that the place where the parties provided and received the services was in the claimant’s airport, i.e. the place of performance of the contract was in China, the arbitral tribunal considered that the law most closely related to the agreements in question was the law of the People’s Republic of China, and therefore Chinese law must be applied in this case. At the same time, since the signing of the agreements and the disputes took place before the implementation of the Chinese Civil Code, on January 1, 2021, the laws and regulations before the implementation of the Civil Code should be applied in this case.

With regard to the execution of the disputed agreements, in particular on the observation that the respondent accepted the services of the plaintiff, the latter produced the “signed receipt” bearing the signature of Mr. X, agent of the Respondent, as well as the invoices, notices of payment, payment lists and information sheets on the take-off and landing of the flights, which prove that the Plaintiff provided the Respondent with the agreed services.

The plaintiff also submitted the reimbursement plan sent by the defendant on his own initiative, which further proves that the defendant acknowledged that he had defaulted on the service charges and confirmed the amounts of the unpaid services. Based on the agreements and evidence submitted by the Claimant, the arbitral tribunal finally upheld the Claimant’s requests for arbitration and decided that the Respondent should pay the service fee of RMB 2,108,288.

With regard to damages, the agreed standard of damages was one thousandth per day. The plaintiff took the initiative to adjust it to 24% per year during the arbitration process, which was also approved by the court.

BRIEF COMMENTS

The standard ground handling agreement issued by IATA consists of the Master Agreement, Schedule A and Schedule B. The Master Agreement contains the Terms and Conditions, including the Arbitration Clause . Annex A specifies the content of the agreed services. Standard terms and conditions regarding price of services and settlement matters are generally agreed upon in Schedule B. The Standard Ground Services Agency Agreement (Summary Proceedings) executed by the parties in this matter was entered into on the basis of the Master Agreement and Appendix A of the IATA Standard Ground Handling Agreement. The arbitral tribunal relied on the Standard Ground Handling Agency Agreement (Summary Proceedings) and other contracts for the settlement and payment of the ground handling charges in dispute between the parties.

It should be mentioned that the arbitration clause in the master agreement of the standard IATA ground handling agreement provides for ad hoc arbitration. However, alongside the development of commercial arbitration in China, particularly the successful establishment of the Shanghai Court of International Aviation Arbitration, the aviation industry has begun to consciously include institutional arbitration clauses in its agreements. Services.

For example, some companies insert an arbitration clause providing for “submission of disputes to the Shanghai International Aviation Court of Arbitration”. The nature of the arbitration clause concluded between the parties and included in the service agreements should be a special arrangement concluded by the parties regarding the dispute resolution mechanism. According to the basic legal principle that the special clause prevails over the general clause, the special clause of institutional arbitration between the parties must prevail over the general clause of the framework agreement, and this precedence must also apply to the arrangement of the dispute resolution mechanism between the parties.

Another point is the notification of documents to a foreign company. In principle, the notification of legal acts to a foreign company must be made at the registered office or at the main business address of the foreign company. However, if the foreign company has appointed an agent in China, the relevant legal documents can also be served at the agent’s valid address in China. In this case, the Claimant provided the Secretariat with the registered address and contact address of the Respondent in Thailand, as well as the address of the Respondent’s appointed agent, MX, in China.

The Secretariat has served the arbitration documents at these three addresses and has fulfilled the document service obligations under the SHIAC Arbitration Rules. Although the respondent was absent from the hearing, the arbitral tribunal conducted the hearing in absentia in accordance with these rules and rendered the arbitral award in default in the circumstance that the secretariat had fulfilled its obligation to serve the documents in accordance with the SHIAC Arbitration Rules. This balanced treatment between procedural efficiency and the right to procedural knowledge of a party, has been recognized by the law of the judicial seat, that is to say the Chinese law on arbitration.


Li Tingwei is Senior Case Management Secretary of SHIAC