Case of the Day: CEEG (Shanghai) Solar v. LUMOS LLC

The case of the day is CEEG (Shanghai) Solar Science & Technology Co. v. LUMOS LLC (10th Cir. 2016). CEEG was a Chinese solar panel manufacturer. LUMOS was a solar energy company in Colorado. The parties had a co-branding agreement under which LUMOS agreed to purchase at least a minimum number of solar panels from CEEG over three years and CEEG warranted that the goods would conform to the contract specification. The agreement provided: “all documentation, notices, judicial proceedings, and dispute resolution and arbitration entered into, given, instituted pursuant to, or relating to, this Agreement be drawn up in the English language.” And it provided for arbitration before CIETAC. On the other hand, it provided that each order for goods would be subject to subsequent purchase contracts. The parties did enter into a subsequent contract, which again provided for CIETAC arbitration but did not provide for the use of English. The CIETAC Rules provide that if

the parties have agreed on the language of arbitration, their agreement shall prevail. In the absence of such agreement, the language of arbitration … shall be Chinese or any other language designated by CIETAC having regard to the circumstances of the case.

LUMOS paid a deposit for product that CEEG then delivered, but LUMOS claimed the product did not conform and refused to pay the balance due until its warranty claim was resolved. LUMOS, at CEEG’s suggestion, replaced the defective product from its own inventory, but CEEG never shipped a replacement product, and it demanded payment of the amount due. When the parties couldn’t resolve their dispute, CEEG demanded arbitration. CIETAC sent a notice of the arbitration to LUMOS, but it was in Chinese and LUMOS’s executives didn’t understand it. Eventually they learned of the arbitration and participated (the hearing was in Chinese), but not in time to participate in the selection of the arbitrators. The tribunal entered an award in CEEG’s favor, holding in part that the dispute arose under the later sales contract and not the earlier co-branding agreement, and CEEG sought confirmation. LUMOS opposed confirmation on the grounds that it had not been given adequate notice of the arbitration. On these facts, the Tenth Circuit affirmed the lower court’s denial of the motion to confirm.

The key passage in the decision, in my view, is buried in a footnote:

CEEG argues that CIETAC, and not CEEG, sent the arbitration notice. This argument is undermined by the fact that the notice letter appears to have been signed by CEEG’s counsel. Regardless, CIETAC’s rules plainly state that absent agreement between the parties, arbitration proceedings will be held in “Chinese or any other language designated by CIETAC having regard to the circumstances of the case.” CIETAC Rules art. 71 § 1 (emphasis added). Thus, CEEG could have moved for CIETAC to proceed in English. CEEG cannot avoid responsibility for insufficient notice by arguing that it assigned to a third party the duty to ensure that the notice was reasonably calculated to apprise LUMOS of the proceedings.

The problem is that the by agreeing to CIETAC arbitration, LUMOS agreed to the CIETAC rules, which provide that the notice is to be sent by CIETAC, not the claimant. Article 13(2). Now, if the parties had agreed that the arbitration should be in English, then there would be a strong argument that CIETAC should have sent the notice in the language of the arbitration. But as the award itself showed, the tribunal held that only the sales contract, which lacked the English-language provision, not the co-branding agreement, was implicated by the dispute. So I think there is a good argument that there was no English-language agreement between the parties. In light of Article 71, CIETAC had the right to decide to conduct the arbitration in Chinese (and in fact the hearing was conducted in Chinese). So I suspect this case was wrongly decided.

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