Chinese companies are more and more often requiring a China venue dispute resolution clause. In other words, they are refusing to sign contracts unless they provide for disputes to be resolved in China. In some cases, you will be better off in a Chinese court and in other cases you will be better off arbitrating in China. We typically look at the following factors, among others, in deciding whether to go with arbitration or litigation:

  • The nature of likely disputes;
  • The importance of being able to preserve evidence;
  • The likelihood of needing injunctive relief’
  • The quality of the court being sought by the Chinese party or of the court most likely to hear the case;
  • The power/influence of the Chinese party.

In those instances in which we write arbitration in China clauses for our clients, we typically push for the following:

1) A CIETAC (China International and Economic Trade Arbitration Commission) or BAC (Beijing Arbitration Commission) arbitration.  These are the two most highly regarded and internationalized of China’s arbitration commissions. The Chinese companies virtually never fight us on this point.

2) That the arbitration take place in Beijing or Shanghai. These two cities generally have the most experienced commissions and arbitrators. The Chinese companies often fight us on this point, but usually not very hard. 

3) That the arbitration be conducted in English. Note that if you do not specify a language other than Chinese, it will be in Chinese. The Chinese companies often fight us on this point and sometimes they fight very hard on this point and sometimes they fight to the point that it can be a deal breaker.

4) That at least one of the arbitrators not be a Chinese national. Surprisingly, we usually do not get all that much resistance to this from the Chinese counter-party.

There are all sorts of other issues that can come into play when writing a China arbitration clause, but if you are at least sure to cover the above four, you likely will be giving yourself at least a fighting chance. 

What do you think?

  • William

    What are the advantages of conducting the arbitration in English? Any anecdotes to illustrate why it is better?

  • Louis

    I start an internship at the BAC next Monday; I’ll let you know what I think in a couple months. I have to admit that I haven’t read CLB in a while, but it looks like you’re going as strong as ever!

  • Dan

    The main reason is that it can be very difficult for a foreign company to go through an arbitration in a language it doesn’t know. It is possible, but it certainly can put that foreign company at a disadvantage. It also can mean that the foreign company has to hire a new lawyer for the arbitration, rather than being able to use a lawyer that already knows the company’s business and personnel.

  • Interesting discussion on Chinese vs English as the language used during arbitration. So many subtleties can be lost when relying on an outside translator or legal representative skilled in both languages. It would take a lot of experience and trial and error to get on the same page as your Chinese representative.

  • Jeff

    Curious how ability to preserve evidence, potential for needing injunctive relief, and power/influence factor into the decision to prefer arbitration or court?

  • Bob Walsh

    Very timely. Am about to go through this in agreement negotiations for the 2nd time this year. Previous (US) company wants arbitration in N. America, but can’t say exactly why. The Malaysian client has to be led through the reasons why Shanghai can be no worse (or better) that Singapore.
    In truth, neither company really anticipates having to resort to arbitration, ever, but someone told them that arbitration out of China is somehow better.

  • Lily Zhu

    As a Chinese National, I was also told that arbitration is better as its procedure is more simple and the arbitrators are more independent and neutral. However, I think the fee of CIETAC is very high compared to the courts.

  • Paul G

    I have a US based client that is negotiating with a Chinese company to provide certain products and services to that Chinese based customer. We’re down to the last issue, surprise, we want venue and dispute resolution procedure in a neutral location, London, but the Chinese counterpart insists on China. I’m concerned that there is no way the US company gets a fair resolution in the event of a dispute. It seems that a contract dispute if required to be in China would be better served having an English arbitration with at least one non-Chinese national as an arbitrator. Any thoughts? Thank you.

  • Ash

    I wonder, who would be responsible for the arbitration fees? Do both parties share it, or does the losing party pay?

  • OD

    Great information! I got this all wrong on my last contract and ended up not being able to sue at all because of it.