Arbitration in China: Get Used to It

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 and our China lawyers would usually respond to that request by making clear that only complete suckers would ever agree to such a provision and now that the Chinese company had put that request out there to test the waters, we can all get back to being serious. The Chinese company would nearly always immediately back down. (Note though 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.)

Oh, how times have changed.

Chinese companies today frequently call for arbitration in China and they increasingly are refusing to back away from this. So if you are going to be doing business with China, you 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 far worse than it actually is. One 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.
  • Choose the language of the arbitration. If you fail to specify a language other than Chinese, the arbitration will be in Chinese. You can specify English, Spanish, French, German or whatever.
  • Choose the number of arbitrators.
  • Choose the city in which the arbitration will take place.
  • Choose the law the arbitrator(s) will be applying.
  • Choose 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. We sometimes even go so far as to specify the exact person who will be the chief arbitrator.
  • Choose 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 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 more of a 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?