How To Write A China Arbitration Clause. Badly. Really Badly.

Our China lawyers are detecting a trend. Years ago we talked of how most of the arbitration clauses we were seeing (not drafted by us) were bad. Now most of them are incredibly bad. And Chinese lawyers are laughing all the way to the bank.

We are more and more often seeing the following as the arbitration provision in contracts between US companies and their China manufacturers:

1. The agreement requires that the parties first try to resolve their differences on their own. It is silent on what this means. Even worse, it sometimes mandates that the parties must spend anywhere from 90 to 180 days doing this. Some even require that these discussions be in China.

2. The agreement requires that if the parties are unable to resolve their differences on their own, they then mediate. It is completely silent on what constitutes mediation and what the party seeking mediation should do to accomplish it. They do usually say that mediation must be in China.

3. If mediation fails, they then arbitrate before three arbitrators, with each party choosing one arbitrator and then those two arbitrators choosing the third. Again, completely silent on how to initiate arbitration or before what arbitral body, though they virtually also state that the arbitration will be in China and in Chinese.

An American company sent me one of these not that long ago and asked if the China lawyers at my law firm might be interested in taking on their case. My answer was essentially not in my lifetime. I figured that by the time we actually figured out what exactly we needed to do every step of the way and did it, we’d be about two years and many tens of thousands of dollars down the road. The amount of the American company’s claim simply could not support a case like this.

For more on China arbitrations, check out the following:

• China Contracts. Arbitration Versus Litigation. It’s Complicated.
• Forum Selection Clauses. Do NOT Try These At Home.
• Arbitration In China. Get Used To It.
• CIETAC Arbitration: Different But Fair
• LINKEDIN POST

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.