Arbitration in China: It’s Just Fine, Thank You

Chinese companies (especially SOEs) increasingly require their contracts with foreign companies provide for disputes to be resolved by arbitration in China. In these situations, we are seeing mostly CIETACand BAC arbitration clauses.

Many of our American and European clients are uncomfortable with arbitrating against a Chinese company in China as they are convinced they cannot “get a fair trial” there. Our China lawyers explain how in our experience, the nationality of the parties to a Chinese arbitration is far less important to the ruling than the overall way in which Chinese arbiters (both judges and arbitrators) view cases. We then explain how Chinese courts focus much more on the equities of a case (as opposed to the law) than American courts and that is even more true of Chinese arbitrators.

With equity so central to China disputes, potential litigants should stop reviewing their cases strictly on the law and start looking at them from an equitable perspective as well. In determining the strength or weakness of your case, you should ask yourself who in all fairness should win this case and whose winning it would be best for the people of China?

Many years ago, an American company asked my law firm’s China international arbitration lawyers to compete for a China arbitration matter. We told this company that our strategy would be to try to settle the case as quickly as possible because we saw little likelihood of winning because the equities were so against it. The American company chose another law firm because that firm was “confident about winning based on the law.” The American company ended losing at arbitration.

My law firm’s international arbitrators not so long ago secured a seven figure arbitration award in a CIETAC arbitration conducted in Chinese on behalf of an American company against a Chinese company. Without a doubt, one of the keys to this victory was our lawyers (not me) accounting for the equities in making the decision to bring the case and then emphasizing the equities at the arbitration itself.

A couple years ago I testified before a Congressional Committee on how China treats foreign companies and on how American companies sometimes confuse “the Chinese way of doing things” with bias and I used China arbitration and litigation matters as  examples of this. I am not going to say that foreign companies are always treated fairly in China because they are not. But I am going to say that it is important to distinguish between China actions that stem from bias and those that stem from American misunderstandings of how China operates.

Litigation and arbitration in China are very different from litigation and arbitration in the United States and in Europe, of that there is no doubt. But if you understand and account for those differences, you will find bias to be far less of a problem than you would expect.

What have you seen out there?

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.