2011-07-06 17:19:36
Whereas foreign companies carrying out business in China occasionally find themselves confronted with disputes with Chinese individuals, companies, or even the Chinese Government, I would like to talk about how to avoid business disputes and how to resolve business disputes (including conciliation, mediation, arbitration and litigation) in China. The information provided is by no means comprehensive, and is not legal advice. We suggest foreign enterprises considering entering the Chinese market should retain a local qualified business lawyers.
Good planning can help you avoid disputes. We recommend foreign companies consider the following:
1. Make sure you know your partner. Do your “due diligence" and do it well. Choose your partner carefully and only after a careful examination of experience and dependability.
2. Make sure you get paid. A contract with an insolvent partner or customer is worthless.
Pay careful attention to how you get paid, when you get paid, and in which currency. If you have agreed to be paid in Chinese Yuan, verify that you can convert profits to U.S. dollars. Use letters of credit or other financial instruments to protect yourself.
3. Do a thorough risk analysis. Be realistic about how much risk you are willing to accept in your business venture. Make sure you use reliable sources for this assessment. Use more than news media sources or your immediate partners to evaluate the risk.
4. Have clear contract terms. Specify exact terms of payment and performance standards. Set time lines. Include specific dispute resolution clauses, including details on the procedure and maintenance of operations during the pendency of a dispute. Pay careful attention to details, such as initialing pages of contracts and signing properly. Make sure the Chinese version of the contract is consistent with the English version. Do not attempt to enter into an agreement without sound legal advice.
There are four primary ways to resolve a commercial dispute in China:
A. Negotiation
Simple negotiation with your partner is usually the best method of dispute resolution. It is the least expensive and it can preserve the working relationship of the parties involved. In fact, most business contracts in China include a clause stipulating that negotiation should be employed before other dispute settlement mechanisms are pursued. Companies should specify a time limit for this process. Unfortunately, negotiations do not always lead to resolution.
B. Mediation
The principle of mediation is that the parties may present their proposals to the mediator who suggests a solution based on those proposals. Mediation is by definition non-binding and has achieved great success as a means of settling commercial disputes between foreign and Chinese parties. In both the arbitration and litigation contexts, mediation represents an early step in the resolution of the dispute. In arbitration before a Chinese arbitral tribunal or in litigation before the Chinese courts, parties are encouraged to participate in mediation with mediators. The less confrontational nature of mediation may also help preserve the commercial relationship.
C. Arbitration
Arbitration is the preferred method of dispute resolution in China. Since it is rare for the parties to agree on arbitration after the dispute has arisen, the underlying contract or separate agreement must expressly provide that disputes will be resolved through arbitration. In China, a valid arbitration agreement must reflect a clear intent to arbitrate and clearly identify the arbitration institute that will administer the case. If so, arbitration will be the only available binding means of dispute resolution available under the contract; otherwise, the dispute must be resolved by the courts.
In China, arbitration offers many advantages over litigation. A major advantage is the finality of the rulings. Court rulings are subject to appeal, which means litigation may continue for years. Arbitration panels are made up of a panel of experts, which improves the quality of the hearing. In addition, the proceedings and rules of arbitration are often more transparent than litigation.
D. Chinese Litigation
A final resort to resolve a commercial dispute in China is through litigation in Chinese courts. In China, foreign individuals and companies have the same ability to bring action in court as Chinese citizens and companies. There are four levels of courts in China. Every major city has basic (county) courts and intermediate courts. Supervising these courts are the provincial high courts. The Supreme People's Court, located in Beijing, has appellate jurisdiction over all courts in China. Cases involving foreign interests can be filed in either the basic-level courts or intermediate courts, depending on their nature.