The Arbitration-or-Litigation Clause in the Warehouse Contract

Clause 17 is not a valid arbitration agreement. It suffers from two independent defects. First, it provides for arbitration at the project location but, if no commission exists, allows a lawsuit. An arbitration agreement that gives the parties a choice between arbitration and litigation is invalid under Arbitration Law art. 16 and the judicial interpretation, unless one party applies for arbitration and the other does not object before the first hearing. Here no arbitration was commenced, so that exception does not apply. Second, the clause fails to designate a definite arbitration commission. Under Arbitration Law art. 18, if the arbitration commission is not agreed or is unclear, the parties may supplement the agreement; if they cannot, the arbitration agreement is invalid. Anxian has no arbitration commission, and the parties did not agree on another one. The developer’s argument that the clause should be read as choosing the provincial capital’s commission is not convincing because the clause refers to the place where the project is located, not the provincial capital. A court will not invent a commission that the parties did not choose. The fact that the developer did not participate in arbitration also means there is no waiver by conduct.

Construction contract disputes are treated as real estate disputes for jurisdiction purposes. Under the Civil Procedure Law and the judicial interpretation, such disputes fall under the exclusive jurisdiction of the people’s court at the place where the construction project is located. The project is in Anxian, so territorial jurisdiction belongs to the court at Anxian. Which court within that location depends on the level-jurisdiction threshold for a RMB 12 million claim: it may be the Anxian Basic People’s Court or the Intermediate People’s Court of the city that has Anxian within its territory. The contractor’s filing in the Intermediate Court is not automatically correct merely because the amount is large; the court must apply both level and territorial jurisdiction rules. The developer’s objection does not convert the dispute into arbitration because clause 17 is invalid. If the court finds that it lacks jurisdiction, it should transfer the case to the court with jurisdiction rather than dismiss the claim on the merits. The exclusive-jurisdiction rule also means the parties cannot validly choose a different court by agreement.

Yes. A ruling on a jurisdiction objection is appealable. Under the Civil Procedure Law, a party dissatisfied with a ruling on jurisdiction may file an appeal within 10 days from service of the ruling. The appeal goes to the next higher court, and the second-instance ruling is final. The developer raised the objection before the first hearing, so it preserved the point; if it had waited until after the first hearing, the objection would generally be treated as waived and the court could proceed. If the court instead finds the arbitration agreement valid, it should rule to reject the lawsuit, and the contractor would have the same 10-day appeal right. The appeal does not turn the invalid clause into a valid arbitration agreement; it only challenges the court’s jurisdictional ruling. The developer should focus the appeal on the proper interpretation of clause 17 and on whether any arbitration commission was sufficiently designated, not on the merits of the RMB 12 million claim.