Five years ago, it was the rare contract between a Western company and a Chinese company that called for arbitration in China. Maybe 25% of Chinese companies would suggest arbitration in China back then. We would usually respond to that request in such a way as to make clear that only a complete sucker would ever agree to such a provision and now that they had put that request out there to test the waters, we could all get serious.
Nine times out of ten, the Chinese company would immediately back down. (Note that even five years ago many of China’s State Owned Entities (SOEs) would not back down because they were required to have their disputes resolved within China. We would then put in a U.S., a London, a Hong Kong, a Canadian, or a Singaporean arbitration provision and move on.
Oh how the times have changed.
Chinese companies today frequently call for arbitration (or sometimes litigation) in China and they increasingly are refusing to back away from this. So if you are going to be doing business with China, you had better get used to dealing with arbitration in China, like it or not. So far, virtually all of our clients hate this, but I think they perceive it as being worse than it really is. One clear advantage of winning an arbitration in China against a Chinese company is that the Chinese courts will almost certainly enforce your arbitration award by converting it into a court judgment.
If you are going to be signing a contract that calls for arbitration in China, you should consider the following to make such a provision as palatable as possible:
- Choose a good arbitrable body. All Chinese arbitral bodies are allowed to handle foreign arbitrations but CIETAC and the Beijing Arbitration Commission (BAC) and the Shanghai Arbitration Commission (SAC) handle most of those involving foreign companies and they are considered the best for such cases.
- The language of the arbitration. If you fail to specify a language other than Chinese, the arbitration will be in Chinese.
- The number of arbitrators.
- The city in which the arbitration will take place.
- The law the arbitrator(s) will be applying.
- From where the arbitrators will come. We generally fight hard for at least one of the arbitrators to come from a country other than China.
- The nature of discovery and document exchanges. Chinese arbitrations tend to be very light on exchanging evidence before the hearing and so we sometimes put in a provision mandating that the parties turn over all relevant documents within a month or so of the arbitration being filed.
- China’s arbitration law generally requires that the contract express the wish of the parties to arbitrate, that it set out the matters which are arbitrable and that it provide for the arbitral body before whom the arbitration will take place. I have heard conflicting reports as to whether arbitration can go forward if the contract calls for some portion of it to be litigated, but this is something of which you must be aware.
Though arbitration in China is becoming the norm, there are still plenty of things you can put in your contract to help ensure your chances of receiving a fair hearing.
What do you think?