Arbitration law in China
Should a commercial dispute arise in China and negotiation fails, there are 2 remaining options: litigation or arbitration. In 2014, 24% of international commercial disputes utilized arbitration in place of litigation to resolve differences (Practical Law, Arbitration procedures and practice in China: overview, 2016).
It is important to know the advantages and disadvantages of arbitration. Arbitration is generally perceived as more neutral than the court system and from a procedural standpoint arbitration is more flexible than court proceedings. Additionally, arbitration is a private proceeding. Disadvantages include the result is only binding to parties signing the agreement and that decisions cannot be appealed. China is a member of the United Nations Commission on International Trade Law (UNCITRAL), but has only adopted the UNCITRAL Model Law on International Commercial Arbitration 1985 in Hong Kong and Macau. Generally, there are limitation periods associated with arbitration, for example, two years for the sale of substandard goods.
The China International Economic and Trade Arbitration Commission (CIETAC) is commonly used as the arbitration organization. It is important to anticipate arbitration as a method for dispute resolution and include such a provision in any and all contractual agreements. CIETAC recommends inserting the following clause “Any dispute arising from or in connection with this Contract shall be submitted to the China International Economic and Trade Arbitration Commission for arbitration which shall be conducted in accordance with the Commission’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.” (International Arbitration Attorney Network, A Practical Guide to Managing and Resolving Business Disputes in China, pg 6)
The following proactive recommendations are made to avoid commercial disputes in China. “Have clear contract terms. Make certain your project is economically viable by its own terms. Make sure you know your partner. Make sure you get paid. Do not enter into prohibited agreements. Be careful not to base your business on WTO non-compliant rules. Search for problems before they materialize. Do a thorough risk analysis. Limit your exposure. Mind the store.” (FindLaw, Dispute Avoidance and Dispute Resolution in China, 2016).