Since January 2026, China International Economic and Trade Arbitration Commission (“CIETAC”) officially launched a regular publication of selected cases. Through its official website and WeChat official account, CIETAC will periodically and continuously publish representative arbitration cases, presenting arbitration “in action” with broad coverage and in-depth content, helping enterprises enhance risk prevention capabilities, promoting exchanges between China and the world in arbitration culture, and leading to an overall improvement in the credibility of arbitration. CIETAC will, through institutional innovation, unleash the energy of seventy years of arbitral practice and provide reliable solutions for global commercial dispute resolution with “China’s arbitration wisdom”.

The Claimant is a company incorporated in the Hong Kong Special Administrative Region, specializing in the promotion and organization of sports, cultural and entertainment events. The Respondent is a non-profit organization headquartered in Germany, which operates a well-known racing series and holds the primary rights to all commercial development of the event. It was supported by three major German automobile manufacturers (i.e., the main sponsors) at the relevant time.

In 2013, the Claimant and the Respondent entered into a Promotion Contract. The Contract stipulated that the Respondent authorized the Claimant to promote and organize the racing series in China from 2014 to 2016. The Claimant was obligated to pay a license fee of EUR 3 million to the Respondent each year, and was entitled to sponsorship rights, ticket sales rights, as well as exclusive merchandise sales rights and television broadcasting rights in the Chinese market. The event was to be held in the form of a city street race, and the specific date and venue of each race were to be jointly confirmed by both parties on November 25 of the preceding year. The Contract further provided that the Claimant shall invest no less than EUR 1 million in 2013 or 2014 to produce television programmes for broadcast on China Central Television (CCTV) or major first-tier cities in China, and ensure the full live broadcast of the event on the CCTV Sports Channel.

During the performance of the Contract, the Claimant, being unable to obtain dedicated sponsorship from the German main sponsors for the China leg to cover the high costs of the street race, proposed changing the event to a circuit race with relatively lower costs.

In May 2014, representatives of both parties and the main sponsors held consultations on the aforesaid proposal put forward by the Claimant, and signed a supplementary agreement to amend the Promotion Contract. It was confirmed that the 2014 event would be held from 26 to 28 September in Shanghai; provided that if the Claimant could prove by May 13 that the renovated Zhuhai International Circuit met the European standards, the event could alternatively be held in Zhuhai. The supplementary terms also revised the schedule of installment payments and strengthened liability for breach of contract, stipulating that if the event failed to be held for any reason, the Respondent should be entitled to retain the EUR 3 million license fee paid by the Claimant.

After the Claimant confirmed Zhuhai as the event venue, the Respondent sent an email to the Claimant in June 2014, requesting an official press conference to be convened as soon as possible to confirm the race venue and explain the adjustment from a street race to a circuit race, which was declined by the Claimant on the ground that it was still negotiating the venue renovation contract. On 18 July 2014, the Claimant emailed the Respondent stating that it would sign the circuit renovation contract and hold a joint press conference within the following week, and prior thereto, it needed to obtain dedicated sponsorship support worth RMB 9.8 million from the main sponsors for the event by 22 July.

On 21 July 2014, the Respondent requested the Claimant to provide evidence of its performance of obligations under the Promotion Contract, including marketing and media activities for event promotion, effective event broadcasting agreements and valid venue lease agreements, and to specify the measures the Claimant would take if the main sponsors continued to refuse to provide dedicated event sponsorship. On the following day, the Claimant replied by listing the marketing and media activities it had carried out as well as its cooperation with CCTV, but failed to respond directly to its contingency plan in the absence of dedicated sponsorship from the main sponsors. It emphasized that it was willing to negotiate dedicated sponsorship with the main sponsors based on their interests, and hoped to be given the opportunity to conduct sponsorship negotiations with the main sponsors’ Chinese affiliates. The Claimant further stated that refusal of such opportunity would adversely affect its revenue and the staging of the event. On the same date, the Claimant also requested the Respondent to allow it to conduct undisturbed sponsorship negotiations with the Chinese joint venture of the main sponsors for the success of the event.

On 23 July 2014, the Respondent issued a notice of contract termination to the Claimant on the grounds of the Claimant’s failure to complete the preparation of the Zhuhai event venue in a timely manner, delayed payment, failure to open a performance letter of credit as agreed, failure to complete the production of television programmes, and failure to confirm the live broadcast of the event on the CCTV Sports Channel. On the next day, the Respondent announced that the 2014 event would be held at an alternative venue.

As the parties failed to reach a settlement through negotiation, the Claimant initiated arbitration, claiming repayment of the paid license fee of EUR 2.1 million by the Respondent and compensation for various costs and losses incurred by the Claimant in an amount exceeding RMB 10 million. The Respondent filed a counterclaim, requesting the Claimant to pay the outstanding license fee of EUR 900,000, the sum of EUR 1 million corresponding to the unfulfilled television programme investment obligation, together with accrued interest thereon.

Upon hearing the case, the Arbitral Tribunal held that the Respondent was entitled to terminate the Contract, dismissed all arbitration claims of the Claimant, partially upheld the Respondent’s counterclaim regarding the allocation of arbitration costs, and dismissed the remaining counterclaims of the Respondent.

1. Whether the Respondent is entitled to terminate the Contract, and whether exerting commercial pressure constitutes a ground for non-performance of the Contract.

2. Whether the Respondent is entitled to the outstanding license fee, and how the liquidated damages shall be reduced and adjusted.

3. Whether the Claimant has completed the investment of EUR 1 million for television programme production, and whether the Respondent is entitled to claim such expenses in the present dispute.

I. Contract Termination and Exertion of Commercial Pressure

The Respondent contends that the Claimant failed to commence arbitration within three months after the contract termination, and therefore forfeited the right to challenge the termination of the contract pursuant to Article 96 of the Contract Law. Due to the Claimant’s repeated breaches of contract, the Respondent is entitled to terminate the Contract in accordance with the contractual terms and Paragraphs 2 and 3 of Article 94 of the Contract Law (now embodied into Article 563 of the Civil Code).

The Arbitral Tribunal holds that the prerequisite for the application of Article 96 of the Contract Law is that a party objects to the contract termination and requests a court or arbitral tribunal to invalidate the termination. Although the Claimant initially refused to accept the contract termination, it subsequently accepted the termination and initiated the present arbitration on the ground that the Respondent’s termination constituted a repudiatory breach and should compensate the losses incurred by the Claimant. In such circumstances, only the statutory arbitration limitation period shall apply, and the three-month time limit prescribed by Article 96 of the Contract Law and relevant judicial interpretations shall not be applicable.

The Arbitral Tribunal briefly examined each ground relied on by the Respondent for termination and found that delayed payment, failure to open a performance letter of credit as agreed, failure to complete television programme production, and failure to confirm the live broadcast of the event on the CCTV Sports Channel did not constitute fundamental breach of contract. The Arbitral Tribunal conducted a detailed analysis on the core dispute between the parties: whether the Claimant was able to complete the event venue preparation, and in particular whether the Claimant’s email dated 18 July 2014 sufficiently evidenced its inability or refusal to perform the Contract, thereby entitling the Respondent to terminate the Contract.

The Arbitral Tribunal finds that the overall contractual arrangement, as well as the agreed time, venue and performance standards, shall be taken into account when determining whether the Respondent was entitled to terminate the Contract. Under the Promotion Contract, the Claimant had the exclusive right to organize and promote the event in China, and bore the primary responsibility for preparatory work to ensure the smooth holding of the event at the designated venue and time. The correspondence between the parties shows that the Claimant failed to respond directly to the Respondent’s concerns or demonstrate that its event preparation was proceeding as scheduled, thereby leading to the Respondent’s growing concerns over whether the event could be held as planned.

The Claimant failed to confirm the event date and venue by 25 November 2013 as contractually required, and made no progress in this regard during the early months of 2014. It was not until April 2014 that the Claimant proposed replacing the contractually stipulated street race with a circuit race. The supplementary agreement signed by both parties in effect afforded the Claimant a second opportunity, while signaling that the timeline for event preparation was already extremely tight with no room for further delay. After the event was scheduled for the weekend of 26 to 28 September 2014 and Zhuhai was confirmed by the Claimant as the host venue, the minimum criterion for assessing whether the Claimant could complete event preparation became the timely execution of the venue renovation contract and commencement of renovation works.

In response to the Respondent’s requirement to provide venue confirmation by 5 June 2014 failing which the event would be cancelled, the Claimant did not submit the venue renovation plan until 13 June 2014, specifying that renovation would commence on 1 July 2014 and be completed one week prior to the event. Meanwhile, the Claimant declined the Respondent’s request for a joint press conference on the ground that negotiations on the renovation contract were still ongoing.

Although the Claimant asserted that its email of 18 July 2014 was merely intended to impose moderate commercial pressure on the Respondent and seek greater support, rather than explicitly making the acquisition of dedicated sponsorship from the main sponsors a precondition for its continued performance of event preparation obligations, it was reasonable for the Respondent to conclude from the course of performance that the Claimant had in fact imposed such a precondition. In particular, the Claimant consistently avoided giving a direct response to the Respondent’s inquiry as to what measures it would take if dedicated sponsorship from the main sponsors was unavailable, which further convinced the Respondent that the Claimant had effectively tied its ongoing contractual performance to the provision of such dedicated sponsorship.

In the absence of any express contractual stipulation imposing on the main sponsors an obligation to provide additional sponsorship or imposing on the Respondent an obligation to persuade the main sponsors to provide further sponsorship, the Claimant’s act of imposing such a precondition demonstrated its unwillingness or inability to perform its event preparation obligations under the Contract, constituting a fundamental breach of contract. Accordingly, the Respondent was entitled to terminate the Contract pursuant to the contractual provisions and Paragraphs 2 and 3 of Article 94 of the Contract Law.

II. On Liquidated Damages

The Respondent claims that under the Supplementary Agreement, if the 2014 event failed to be held for any reason, it was entitled to retain the EUR 3 million license fee already received. Since the Claimant still owed EUR 900,000 of the license fee, the Claimant shall make further payment thereof to compensate the Respondent’s losses.

The Claimant, by contrast, argues that the sum of EUR 3 million stipulated under the Supplementary Agreement is far in excess of the losses actually sustained by the Respondent as a result of the breach, and the Arbitral Tribunal shall adjust and reduce such amount pursuant to Article 114 of the Contract Law.

The Arbitral Tribunal acknowledges that the retainable license fee stipulated in the Supplementary Agreement constitutes compensation for losses arising from breach of contract, and upholds the Claimant’s contention that the liquidated damages should be reduced. In adjusting the liquidated damages, the Tribunal shall take into account the performance status of the Contract, the degree of fault of the breaching party, the expectation interest of the non-breaching party, and the principles of fairness and good faith.

As regards to the Respondent’s actual losses, the Respondent admitted during the arbitration that its “sunk costs” relating to the 2014 event were less than EUR 300,000, a figure already including the expenses for holding the alternative event. In respect of the Respondent’s claims for reputation loss and loss of market opportunities in China, the Arbitral Tribunal holds that the Respondent failed to adduce sufficient evidence in support thereof. Further, the cancellation of the China event did not cause lasting harm to its reputation in the Chinese market, nor did it deprive it of future opportunities to host events in China. After comprehensive consideration of all relevant factors, the Arbitral Tribunal decides to reduce the liquidated damages by 30%, and the Claimant is not required to settle the outstanding EUR 900,000 license fee.

III. On the Expense of Television Programme Production

The Respondent submits that the Claimant failed to invest EUR 1 million in producing event television programmes as contractually required. Such investment constituted a payable sum owed by the Claimant under the parties’ previous cooperation contract and shall therefore be refunded to the Respondent.

The Claimant contends that the Respondent’s claim for television programme production fees is based on outstanding amounts under the prior cooperation contract, over which the Arbitral Tribunal has no jurisdiction. The present Contract does not mandate an actual capital investment of EUR 1 million, and the value of the television programmes already produced and broadcast by the Claimant has exceeded EUR 1 million.

The Arbitral Tribunal holds that although the parties intended to incorporate outstanding amounts under the previous cooperation contract upon the conclusion of the present Contract, the Respondent advances the present arbitral claim based on the terms of this Contract. In effect, the obligations under the prior contract have been transformed into a new and independent obligation under the present Contract, and the Respondent’s counterclaim falls within the scope of “disputes arising out of or in connection with this Contract” as stipulated in the arbitration clause.

The Contract only requires the Claimant to provide the Respondent with evidence of the investments made and activities undertaken. The Arbitral Tribunal accepts the Claimant’s argument that the Contract does not require an investment of exactly EUR 1 million, and it suffices to prove that the programmes reach a value equivalent to EUR 1 million. The series of event programmes arranged and broadcast by the Claimant on various television stations have satisfied the contractual requirements. Accordingly, the Respondent’s claim against the Claimant for payment of EUR 1 million is dismissed.