Arbitration in China

Chinese companies (especially SOEs) increasingly require their contracts with foreign companies provide for disputes to be resolved by arbitration in China. Our China lawyers are seeing mostly CIETAC and 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. But, in the experience of our international dispute resolution attorneys who have arbitrated before Chinese arbitration panels, the nationality of the parties to a Chinese arbitration is less important to the ruling than the overall way in which Chinese arbiters (both judges and arbitrators) view cases.

Chinese courts tend to focus much more on the equities of a case (as opposed to the law) than American or European 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 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 lost 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 deciding 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. Foreign companies are not always treated fairly in China, but it is important to distinguish between China actions that stem from bias and those that stem from misunderstandings of how China operates.

Litigation and arbitration in China are very different from litigation and arbitration in the United States and in Europe, but if you understand and account for those differences, you will find bias to be far less of a problem than you would expect.