CIETAC Arbitrations: Foreign Companies Can Win

China racism

The international dispute resolution lawyers at my law firm recently won a substantial award in a CIETAC arbitration in Shenzhen.

Our client was a foreign entity. The defendant was a well established Shenzhen businessperson. Before we filed for the arbitration, a number of China lawyers told us it made no sense to bring such an action since the case would be heard less than ten miles from the headquarters of the defendant. However, we found just the opposite. The arbitration procedure was professional and fair and the resulting decision dealt fairly with an extremely complicated set of facts. We did not win everything we sought, but we did receive a fair decision. What is also important is that we at all times felt the arbitration panel desired to be fair to both sides in the action, without regard to the nationality of the parties.

Here are some takeaways from this arbitration action in China, and from those our international arbitration attorneys have done previously:

1. Do not be fooled by the rules that suggest the arbitration procedure is informal. The arbitrators will run the proceeding in a manner very similar to a trial in a Chinese court. If you do not understand Chinese trial procedure, you will be lost. In particular:

a.  Forget about using witnesses. Witness testimony is assumed to be false and the arbitrators generally ignore it. Any evidence that cannot be supported by a written document will be ignored.

b.  Forget about making a case out of a series of emails and related informal communications. If you cannot make your case based on more formal written documents, stay home.

c. This all means your claim must be simple and supported by a clear and unambiguous set of written documents. You cannot fill in with witness testimony and you cannot fill in with emails and correspondence.

d. The Chinese side often will seek to confuse things by entering endless amounts of emails, phone records, unsubstantiated meeting minutes and the like into evidence. Do not worry as all of this will be ignored by the arbitrators. The arbitrators pay attention only to the documents that set out the terms of the transaction and support the claim for damages. No documents, no case. It really is that simple.

d. You must prepare you evidence in accordance with standard Chinese trial procedure. This means formal presenting each document and positive support for the authenticity of each document.

2. Though the official rules allow virtually any person to represent the foreign party, this flexibility is an illusion. The attorney representing the foreign side must be completely familiar with the case, with Chinese law, with Chinese court procedure, and with the Chinese language. Even though the rules allow for legal representatives to use an interpreter, this simply does not work in practice. The legal representative must be able to conduct the entire proceeding in Chinese. Language ability, however, is not sufficient. The legal representative must gain the respect of the arbitration panel. This requires an understanding of the Chinese legal system and of the constraints under which the arbitrators work. Many foreign lawyers treat the Chinese arbitrators and the Chinese system with contempt. This does not work.

3. The arbitration panel will be made up of three arbitrators. As the foreign party, you typically will have the opportunity to choose only one of the three. Do not waste your choice. Spend the money to appoint an arbitrator who will make a difference. That means you should appoint a foreign arbitrator with full command of the Chinese language and the Chinese legal system. Most important is that the other arbitrators must view the foreign arbitrator with respect. It must be clear that they will lose face if they issue a bad decision. The foreign arbitrator you choose cannot be a pushover. Fully expect that your most relentless questioner during the arbitration will be the foreign arbitrator. If you are going to wilt under the questioning, you should stay home.

One of our arbitration lawyers is convinced the determinative factor in most CIETAC arbitrations is the foreign arbitrator. This lawyer has two foreign arbitrators he chooses for every China arbitration and because he wants at least one of those arbitrators to be available for our own clients’ arbitrations he never reveals their names to anyone other than other lawyers in our firm and to our own clients heading to arbitration.

4. Be prepared for hard questioning. The arbitrators will carefully study the documents you submit, your claims and how your documents do or do not fit in with your claims. They will find all the weaknesses in your case and they will question you without mercy concerning those weaknesses. If you cannot provide a clear and convincing explanation, you will lose. Many lawyers are used to passive judicial panels. Chinese arbitrators are the opposite: each arbitrator will aggressively chase down the holes in the case of each party. Be prepared and be sure your client’s legal representative is ready to take the heat.

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