Chinese Arbitration: A Guide for Foreign Companies

1. CIETAC: China’s Arbitration Hub 

In these situations, we are seeing mostly CIETAC arbitration clauses. The China International Economic and Trade Arbitration Commission (CIETAC) is a pivotal entity in the Chinese arbitration landscape. It’s one of the major forums where disputes involving foreign entities are resolved. Its clauses in contracts signify an agreement between parties to resolve any disputes through arbitration under CIETAC’s rules, providing a structured and neutral platform for conflict resolution.

2. Navigating China Arbitration Concerns and the Quest for Fairness

Many clients express concern over the potential for impartiality issues for foreign companies in China arbitration. My law firm’s international dispute resolution lawyers (who have won plenty of cases before CIETAC) usually explain how the fairness issue is less important than how Chinese arbiters (be they judges or arbitrators) view cases, as compared to American and European arbiters. We then usually  talk about how Chinese courts “tend to look much more at the equities of a case (as opposed to the law) than do American courts,” and that is even more true of Chinese arbitrators.

3. Chinese Arbitration is a Blend of Law and Equity

Unlike the often black-and-white legalistic approach in Western nations, Chinese arbitrators usually take a more equitable approach. This means they the fairness of a decision, the decision’s broader societal impact, and the benefits to the involved parties when deciding a case. It balances legal correctness with ethical fairness and social benefits as defined in China by the CCP.

4. Embracing China Equities

With equity so central, it is critical for potential litigants to not view cases strictly on the law and start looking at it them from an equitable perspective as well. This means you must ask who in all fairness should win and whose winning would be best for the people of China?

5. Learning from the Past: A Case Study on American Company Arbitration

Many years ago, an American company asked my firm to “compete” for a relatively large China arbitration matter by setting forth the strategy we would employ in their case. We set forth our strategy, which stressed trying to settle the case as quickly as possible because we did not see much likelihood of winning it. The American company gave the case to another law firm, explicitly telling us they would have hired us, but they could not get past the fact that the other firm was confident about winning while we were confident about losing. I argued a bit with the in-house lawyer of this American company, explaining how even though this other firm (and he himself) were convinced they would prevail because of the law, we were equally convinced they were going to lose because of the equities involved.

The case went to arbitration and the American company lost big.

6. China Arbitration Victories

Just this week my law firm secured a seven-figure arbitration award in a CIETAC arbitration (conducted in Chinese) on behalf of an American company against a Chinese company, helping us maintain a perfect record both in predicting the results of China arbitrations and in prevailing in them. Without a doubt, one of the keys to this victory was our lawyers accounting for the equities in deciding to bring the case and in emphasizing the equities at the arbitration itself.

7. My Upcoming Congressional Testimony 

I have been called to testify before Congress next month regarding how foreign companies are treated in China, and I will be discussing how American companies often mistake “the Chinese way of doing things” for bias. I will use China arbitration and litigation as an example of this. I will not claim foreign companies are treated fairly in China because they clearly are not. But I am going to talk about the importance of distinguishing between what stems from bias and what stems from American misunderstandings of how China operates for everyone, Americans and Chinese alike, such as heavily relying on equity in its arbitration decisions

8. Recommendations for China Arbitration Preparedness

For foreign companies venturing into the Chinese market, adopting a well-informed approach towards arbitration is crucial. Some recommended steps include engaging local legal experts familiar with Chinese arbitration, understanding CIETAC procedures, and being prepared to view disputes from an equitable perspective, aligning with broader societal and ethical considerations alongside legal correctness.