Arbitrating your China Disputes

via Wikimedia Commons

China Law Blog published this month a series of three posts about “Arbitrating your China disputes”, by China arbitration expert Dr. Clarisse von Wunschheim. The posts discuss the current debate about where to arbitrate your China disputes, with two main schools of thought:
-Arbitration in China: in order to improve your chances of enforcement
-Arbitration outside China:in order to improve your chances of winning.

This is a summary of some key points in her posts: (but I recommend you read this very interesting series: post I, post II and post III)
-On the two schools of thought, Dr. Wunschheim believes that both of these approaches miss the point, and that the question of where to arbitrate is intimately linked to the parties’ expectations and needs and should therefore depend on a series of case-specific factors.

-Some legal context:
a) Under Chinese law only parties to a ‘foreign-related contract’ may choose a foreign dispute resolution forum.
b) For a case to be considered foreign-related, at least one of the parties involved must be of foreign nationality.
!! Foreign companies too often overlook the fact that their Chinese subsidiaries, including joint ventures or wholly owned entities, are considered to be Chinese entities established under Chinese law.
c) Under most modern arbitration laws, the law applicable to the arbitration clause is the law chosen by the parties (in the absence of an explicit choice, it is the law of the place of arbitration)
!! But, Dr Wunschheim states that enforcement of a foreign award rendered based on an arbitration agreement which disregards the forum selection restrictions runs a serious risk of being refused enforcement.

-So, what to do?
Dr Wunschheim does not believe this means you should refrain from entering into such arbitration agreements. She states that the key questions are: ‘What do the Parties want?’, and then ‘Which option is more likely to give them that?
She believes that lawyers focus too much on enforcement issues.
Studies show that in most cases, there is no need to resort to enforcement. The same seems to apply in China, where less than 10%of the total volume of arbitration cases are believed to result in enforcement proceedings.
There are a lot of other positive ‘endings’ to arbitration than enforcement, including amongst others:
-Amicable settlement before rendering of an award, (25% according to Queen Mary/PWC Survey 2008- and, with regard to China, 20-30% CIETACandBAC reports);
-Voluntary compliance with the award (50%, according toQueen Mary/PWCSurvey 2008 , and ‘high’ with regard to China according toCIETAC’s Secretary General);

Various studies conducted in recent years reveal that the parties firstly seek a fair and neutral process entitling them to resolve their dispute in a way that is acceptable to both of them. Sometimes, the parties just want a decision on a dispute:
-In order to move forward, and the expression of this dispute in monetary terms is more a ‘tool’ rather than an aim in itself
-A determination of the facts and liability for insurance or other similar purposes
-To create a basis for renegotiation of their business arrangements

So, it seems the expert feels there is no right or wrong.And I will finish with Dr. Wunschheim initial statement: the question of where to arbitrate is intimately linked to the parties’ expectations and needs and should therefore depend on a series of case-specific factors.

 What are your views?