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Overview

Company D is a leading global professional networking platform with talent data resources covering more than 1 billion members across over 200 countries and regions. One of its principal business lines is to leverage massive volumes of raw user data to provide clients with specialized big-data services, including data extraction, integration, and visual analysis. Company B (the "Respondent") is Company D’s authorized operating entity in China. Company A (the "Claimant") is a comprehensive human resources service provider.

To enhance the core competitiveness of its executive search and digital recruitment businesses, the Claimant entered into a contract with the Respondent, under which the Respondent would provide customized and localized services to the Claimant. The contract provided that, over a 12-month period from February 2018 to February 2019, the Respondent would deliver 400 customized talent data reports in four batches, for a service fee of more than RMB 1.7 million. Under the contract, the talent data reports were to be prepared on the basis of ten categories of data, including total talent supply, the top ten cities by talent supply, annual percentage changes in talent data by country and industry, schools, majors and degrees, five to ten skills identified from talent profiles, and five to ten skills identified from demand-side requirements. The Claimant was entitled to provide feedback on draft reports and request corresponding revisions, and could adjust up to three skill indicators per quarter. The Respondent was also required to provide localized insights.

After the contract was executed, the Claimant paid the full contract price in accordance with the contract. After the Respondent delivered the first batch of 100 reports for Q1, the Claimant raised objections to the content of the reports. The Respondent thereafter submitted a Report Interpretation Note and then delivered the second batch of 100 reports for Q2. As disputes subsequently arose between the parties regarding the specific content and quality of the reports, the Claimant did not provide any further skill-indicator requirements, and the Respondent ceased further performance of its obligation to deliver the remaining reports.

The Claimant contended that the Respondent had failed to deliver the reports in the quantity required by the contract and in conformity with the agreed quality standards, thereby constituting a fundamental (material) breach. The Claimant therefore commenced arbitration, seeking termination of all contracts at issue and a full refund of the contract price already paid.

1.Whether the reports delivered by the Respondent satisfied the contractual requirement of "localized insights", and on what basis the breach should be determined;

2.How should the commercial value of data in data processing services be determined upon termination of the contract; and

3. What are the legal consequences if the notice of contract termination is not served in accordance with the contractual terms.

I. "Localized Insights" and the Determination of Breach

The Claimant argued that "localized insights" referred to deep processing of Company D’s raw data, which required the service provider to define key concepts such as the meaning and scope of keywords, accurately describe the meaning of the data, and identify the patterns and value embedded therein. Under the contractual requirement of "localized insights", each report delivered by the Respondent should have included interpretative analysis. However, among the 200 reports delivered by the Respondent, only one was accompanied by a written Report Interpretation Note at the Claimant’s request, while the remaining reports merely presented charts and figures generated from data, without professional analysis or localized service content. On this basis, the Claimant contended that the Respondent had failed to perform its obligations in accordance with the agreed quality and quantity standards, thereby constituting a fundamental breach, and that the Claimant was therefore entitled to terminate the contract pursuant to Article 94 of the Contract Law of the PRC.

The Respondent argued that "localized insights" referred to the selection, calculation, and analysis of Company D’s exclusive customer data, followed by the provision of the resulting information to users. Since Company D’s data was stored outside China, the Respondent had localized the reports by translating and editing them into Chinese. The contract did not require provision of a separate written interpretation of the reports, and that delivery of the initial reports should therefore be deemed completion of its contractual performance. On this basis, the Respondent denied that it had committed any breach.

The arbitral tribunal held that the contract did not clearly define the meaning of "localized insights", and that the term should therefore be interpreted in accordance with provisions of relevant laws.

First, from the wording of the contract, the term "insights" denotes penetrating observation and a thorough understanding capable of revealing the underlying meaning, significance, or essence of the data. As such, the mere selection, calculation, or summarization of data could not be regarded as "insights".

Second, from the relevant contractual provisions, the reports were to be generated from aggregated public profile information of Company D’s members and were to include, inter alia, documents, charts, numbers, and text so as to meet the Claimant’s business needs. In the tribunal’s view, localization at a minimum required Chinese-language editing so that Chinese clients could read and use the reports with ease. Meanwhile, the delivered reports were expected to contain in-depth analysis of the relevant data, enabling clients to understand the significance of the information presented to them. However, the talent data reports delivered by the Respondent were largely presented in English. Apart from the separate "Report Interpretation Note", the remaining reports did not contain any substantive "insight findings". The arbitral tribunal therefore found it difficult to conclude that those reports satisfied the contractual requirement of "localized insights".

Third, from the perspective of contractual purpose, the Claimant entered into the contract in order to use the Respondent’s talent data reports to provide Chinese clients with meaningful career and recruitment references. When compared with the "Report Interpretation Note", the reports delivered by the Respondent were basically data extraction, summary, and brief indication, but lacked interpretative analysis and deeper insights. Without such analysis, clients would have difficulty understanding the content conveyed by the reports or using them as a meaningful reference for decision-making, with the result that the contractual purpose could not be achieved.

Further, there was no evidence showing that the parties had agreed that the "Report Interpretation Note" would serve as the template for all talent data reports, nor that the parties had subsequently reached a new agreement on the quality standards for the reports. Accordingly, the provision of "Report Interpretation Note" could not serve as the sole basis for determining whether "localized insights" had been furnished. Therefore, the arbitral tribunal did not accept the Claimant’s argument that the Respondent should be deemed to have delivered only one qualified report.

In summary, the arbitral tribunal found that the talent data reports delivered by the Respondent failed to comply with the contractual requirement of "localized insights", and that such non-compliance frustrated the contractual purpose. The Claimant was therefore entitled to terminate the contract.

II. The Commercial Value of Data

The Claimant argued that, upon termination of the contract, the Respondent should refund the full contract price. The Respondent, by contrast, contended that even if the contract was terminated due to its breach, any refund should be made only on a pro rata basis in accordance with the contractual arrangement.

The arbitral tribunal held that, in determining the amount to be refunded following termination, it was necessary to take into account the following factors on a comprehensive basis:

(1) The Respondent has already delivered 200 talent data reports, and those reports did provide data corresponding to the indicators specified in the contract. There was no evidence showing that the Claimant could have readily obtained such data through public channels. Nor was there evidence establishing that the reports already delivered were of no value or significance whatsoever to the Claimant or its clients.

(2) In order to meet the Claimant’s requirements, the Respondent had repeatedly communicated with the Claimant regarding the content of the reports, delivered one written "Report Interpretation Note" that was largely accepted by the Claimant, and provided on-site explanation services.

(3) All the relevant work including data extraction and summary, communication with the Claimant, and drafting of reports, required corresponding investments of manpower, material resources, and financial resources.

(4) The data already provided to the Claimant was by its nature non-returnable.

On the basis of the foregoing, the arbitral tribunal partially upheld the Claimant’s claim for refunding of the price.

III. Termination of the Contract

The Claimant argued that the contract was terminated when the Respondent received the attorney's letter giving notice of termination. The Respondent contended, however, that under the contract all notices issued by the Claimant were required to be served at the Respondent’s designated address. The attorney's letters sent by the Claimant were not delivered to that agreed address, but instead to other locations, and therefore did not constitute valid notice under the contract. The Respondent further argued that, pursuant to the contract, termination of the contract or any order thereunder required that the breaching party fail to cure its breach within 30 days after receipt of the relevant notice. Since no notice satisfying the contractual requirements had been validly served, the 30-day cure period had not commenced.

The arbitral tribunal held that the Respondent constituted a fundamental breach, and that the Claimant was therefore entitled to terminate the contract. However, the address to which the Claimant sent its notice of termination was not the address designated in the contract, and the contract expressly provided for a 30-day cure period after receipt of the notice. Therefore, the arbitral tribunal did not support the Claimant’s position that the contract had been terminated upon service of the attorney's letter. In the absence of any other evidence showing that the Claimant had validly served the notice of termination on the Respondent, the arbitral tribunal held that the contract was terminated only upon expiration of the 30-day cure period calculated from the date of service of the Notice of Arbitration on the Respondent.