Linklaters has challenged a Chinese client over unpaid legal fees in an arbitration case before the China International Economic and Trade Arbitration Commission (CIETAC).
The magic circle firm filed a complaint before CIETAC in May 2015 against its client Shanxi Gas Industry Group over unpaid legal fees, which were incurred in connection with work carried out for the Chinese company’s proposed acquisition of Australian listed company Sino Gas & Energy Holdings in 2011.
The case’s first hearing took place in Beijing in October last year and was concluded earlier this year. However, both sides declined to disclose the outcome of the case and the damages sought due to duty of confidentiality.
Details of the dispute and the arbitration case only emerged after a court decision was issued in relation to the arbitration claim at the end of 2015.
The court case was filed by the defendant, Shanxi Gas, before the Beijing Fourth Intermediate People’s Court, to challenge the validity of the arbitration clause in the engagement letter, which it had not signed.
The court hearing took place two days prior to the set date for the first arbitration hearing. The Beijing court dismissed its claim.
Shanxi Gas was represented by Shanxi Zhurong Wanquan’s head of litigation Cui Wangwei, who also acted for the client in the arbitration proceedings.
Linklaters was represented by Beijing corporate partner Ji Xiaohui and Shanghai counsel Zhou Zhirong without any external counsel in both cases.
Background to the dispute
According to the court document, Shanxi Gas’s former controlling shareholder Shanxi International Electricity Group (SIEG) instructed Linklaters via a verbal agreement to conduct due diligence for Shanxi Gas’ proposed acquisition of a stake in Sino Gas & Energy in September 2011 and the work was carried out by the firm as instructed in the following two months.
In December 2011, Linklaters agreed on the fees with SIEG for the services provided but an official engagement letter was not signed.
In 2012 and 2013, SIEG arranged for Shanxi Gas to take on the responsibility to sign the engagement letter and pay for the work already done by Linklaters. Consequently, Linklaters conducted many rounds of negotiations and email exchanges with Shanxi Gas to finalise the agreement and payment.
The agreed engagement letter was then signed by Linklaters on 5 July 2012 and was posted along with invoices and memos from the Australian deal to Shanxi Gas. But Shanxi Gas did not sign it or make the payment.
During the process, Shanxi Gas underwent a major restructuring and China Petroleum Pipeline Bureau (CPP) became a new shareholder. The company argued that its management decided not to sign the agreement on behalf of SIEG having taken into consideration its other shareholders.
“The instruction was given by SIEG and Shanxi Gas is not bound by the fee agreement reached between SIEG and Linklaters,” argued the company before the court. In addition, Shanxi Gas said the engagement letter, which was only signed by Linklaters, was invalid.
Linklaters claimed that the content and terms of the final engagement letter were mutually agreed by the firm and Shanxi Gas following rounds of negotiations and email correspondence. Although it was not physically signed by Shanxi Gas, the agreement had already been established.
The Beijing court dismissed the claim, ruling the claim bought by Shanxi Gas was petitioning for confirmation of invalidity of an arbitration clause and therefore it was not for the court to decide whether an arbitration agreement existed between the parties.