China Dispute Resolution Clauses
A written contract with a Chinese company has little practical value if you cannot enforce it where the company has assets or obtain the relief your business needs. Foreign companies often choose foreign law and an offshore forum because they distrust China’s legal system. That choice sometimes makes sense, but it should follow an assessment of the likely dispute, the remedy you need, and where enforcement will occur.
Three Common Dispute Resolution Mistakes
1. A Foreign Court Without a Collection Plan
A Chinese supplier ships defective goods. The contract requires litigation in the United States, where the buyer obtains a default judgment. The supplier has no reachable U.S. assets, so the buyer must seek recognition and enforcement in China.
Chinese courts can recognize and enforce qualifying U.S. judgments under reciprocity, and China’s amended Civil Procedure Law provides a more detailed framework for doing so. Recognition requires a separate Chinese proceeding, with scrutiny of jurisdiction, service, and the defendant’s opportunity to defend itself. A convenient U.S. forum can therefore produce an expensive route to recovery. The bottom line is that taking a United States judgment to China for enforcement is slow and expensive. Our guide to enforcing U.S. judgments in China explains the requirements.
2. Arbitration Without Access to Urgent Relief
A Chinese manufacturer uses its customer’s molds to make products for a competitor. The customer needs the production stopped and the molds returned immediately. An eventual damages award does little to solve the immediate business problem.
Arbitration outside mainland China does not automatically provide access to mainland court preservation. Under the Mainland–Hong Kong interim measures arrangement, parties to qualifying Hong Kong-seated arbitrations administered by designated institutions can apply to mainland courts to preserve assets or evidence, or to order a party to do or stop doing something. Both the seat and institution must qualify, and the court decides whether the application meets the requirements for relief. The bottom line is that Chinese courts can usually move faster than an arbitral body and they usually have more power as well. Before choosing arbitration, establish how you will seek the orders needed to protect your tooling.
3. Foreign Law That Adds Cost and Delay
A foreign company chooses U.S. law for a contract it expects to enforce against a Chinese supplier in a Chinese court. When a dispute arises, the court needs to determine what that law requires. Establishing its content adds work and expense and can delay the case.
Chinese courts can apply foreign law and enforce English-language contracts. Neither choice automatically invalidates the agreement. But when performance, assets, and enforcement are concentrated in China, Chinese law and a Chinese controlling text usually make the contract easier to use. A foreign-law clause also does not displace mandatory Chinese rules. The bottom line is that Chinese courts are not comfortable with foreign law or foreign language contracts and forcing them to deal with these is usually a bad idea.
Choose the Forum Around the Remedy
For many manufacturing contracts, we favor litigation in a Chinese court under Chinese law because the supplier and its assets are there. Arbitration deserves consideration when neutrality, confidentiality, or enforcement across several countries matters. Qualifying foreign commercial awards benefit from the New York Convention, while Hong Kong awards use separate Mainland–Hong Kong arrangements. Enforcement is not automatic in either case.
Foreign court litigation can also make sense when the defendant has reachable assets where the judgment will be enforced. The absence of a judgment-enforcement treaty with China does not, by itself, make that choice futile. Compare the available routes against the relief you need and the cost of obtaining it.
What the Clause Needs to Address
Before drafting, identify the actual contracting company, its assets, and the disputes most likely to threaten your business. Its location within China matters, particularly when local influence is a concern. Then address:
- Forum: Name the court or arbitral institution precisely. For arbitration, specify the legal seat, language, and number of arbitrators.
- Governing law: Choose it deliberately; choosing a forum does not automatically choose the substantive law.
- Contract language: Identify the controlling version of a bilingual agreement.
- Urgent relief: Confirm the route for freezing assets, preserving evidence, or stopping harmful conduct.
- Notice and related agreements: Make service and notice provisions workable, and align the clause with purchase orders, guarantees, and separate tooling or confidentiality agreements.
Our international contract lawyers often consult our international litigators before settling on these provisions. The right clause depends on what the client will need when the relationship fails. Work that out before signing, while you still have the ability to negotiate it.
