Understanding the Legal Environment and an Overview on the Different ADR Mechanisms
I would like to devote this entry and the next ones to “Alternative Dispute Resolution” (ADR) methods. Although my colleague already spent some words on this important topic, it is necessary to examine more in detail the genesis of all this forms of alternative dispute resolution in order to better understand the basis and further development of the instruments adopted to solve regrettable situations.
ADR mechanisms are playing a fundamental role in China, not only because they can avoid timely and costly procedures in Court which sometimes are farraginous and not easy to follow, but also because Chinese business people would prefer not to confront his or her business counterpart in Court, this situation in fact might cause embarrassment.
Saving face and harmony is extremely important when dealing with Chinese counterparts. One cannot understand Chinese behavior without an understanding of the concept and role of face (i.e.,
mianzi
). Face is about one’s self-respect and prestige and about one’s standing in society. However, harmony (i.e.,
hexie/hemu
) is one of the primordial values of Chinese culture. The Chinese consider harmony as the universal path which we all should pursue, and it is also a key concept of Confucianism. Implicit in this idea of harmony is the concept of balance, which is derived from the
Daoist
concept of
Yin
and
Yang
, two opposite forces that need to be kept balance over time.
Why I spent these words in a law blog entry? Because the concepts described above also apply to the business environment in China. Therefore when solving a dispute in the Middle Kingdom, it is necessary not only to understand the legal framework governing a range of dispute resolution mechanisms, but also to choose the most appropriate way to solve questions considering all the options before turning to litigation which, for sure, will ruin the relationship (
guanxi
) (if you did not read yet my blog entry about this topic here is the link:
http://blawg.lehmanlaw.com/wordpress/?p=1673
) with the Chinese business counterpart. In fact, every relationship in China is more than a simple “relation” with your counterpart, but it is something more deep and considered.
Guanxi
, (another article available at:
http://blawg.lehmanlaw.com/wordpress/?p=1679
) or relationships, consist of connections defined by reciprocity, trust and mutual obligation. The notion is very much influenced by Confucian values of face and social harmony. For this reason, it is a must to develop a working understanding of the reality of Chinese culture in order not only to do business in China, but also to solve contingent business dispute. Given such preliminary advice, a wide variety of dispute resolutions are available to the parties. In general, these include: (i) negotiation; (ii) mediation or conciliation; (iii) arbitration; (iv) litigation; and (v) administrative proceeding, which shall be discussed in turn below.
Since the Han dynasty, Confucianism greatly influenced the ways in which disputes were resolved in traditional China. The emphasis was on prevention and peaceful resolution of disputes. The role of law was not so important; most disputes were settled without the intervention of government officials. In fact, bringing disputes before officials remained the last resort. It also gave final determination of the matter. As such, how officials handled disputes influenced to a great extent other institutions of dispute resolution. But more importantly, also reflects the peculiar Chinese culture. The ways officials handling disputes played the essential role in forming the culture of dispute resolution in traditional China. No matter how disputes would be resolved, harmony was disturbed whenever people were in dispute. The best way to maintain harmony was therefore dispute prevention. In traditional China, dispute resolution was closely linked to dispute prevention. In China, there exists a deep-rooted historical preference for informal and non-adversarial means of dispute resolution which has evolved on the basis of cultural tradition which extends from ancient times. By such non-confrontational dispute resolution procedures, face could be reserved and commercial relationships maintained. This has served to support a firm commitment to conciliation in dispute resolution process in China and may help to explain the existence of various forms of conciliation within litigation and arbitration proceedings.
Two Basic Options: Negotiation and Mediation (or “Conciliation”)
Negotiation plays a particularly important role in China-related disputes resolution and regardless of whether the parties are legally obliged to attempt to settle a dispute through negotiation, they will be expected to take part in some negotiation before they commence any formal dispute resolution procedure. Given the importance placed by most Chinese parties on negotiation and mediation (or “conciliation”), many Chinese parties will often insist upon including in their agreements a phase for parties to negotiate or engage in friendly consultations before either party is entitled to proceed to formal dispute resolution options, like arbitration or litigation. Several forms of mediation are available to the Chinese people, including formal and informal commercial mediation through private professional organizations, judicial mediation, and even hybrid mediation-arbitration options (combining features of both mediation and arbitration). In China,
tiaojie
—
whether it is translated as mediation or conciliation—has been an important means of resolving civil disputes since the 1959s. Since the early 1980s, mediation has been used to resolve minor civil disputes and to promote social cohesion, and thus, contribute to economic construction and modernization.
In China, it is widely accepted that a third-party intervention to a dispute, whatever the degree, is an indispensable factor to ADR. Therefore, negotiation without a third party’s intervention is not regarded as a form of ADR. Rather, Alternative Dispute Resolution has been regarded, as the name itself suggests, as a dispute resolution process which is used as an alternative to litigation and arbitration.
It is worthy to note that China has a relatively institutionalized system of court and arbitration-related conciliation, which is fairly unusual when compared to other countries. Court conciliation is expressly provided for in the PRC Civil Procedure Law (hereinafter CPL, which is available at the following web-site:
http://www.china.org.cn/china/2012-08/31/content_26392562.htm
), and provision is made for giving legal effect to any corresponding settlement reached by the parties. The conciliation is usually conducted by the arbitral tribunal; such widespread use of institutionalized conciliation process within an arbitration framework is a particularly unusual feature of arbitrations in China. Allowing the arbitrators to adopt a mixed role of both arbitrator and conciliator has been the subject of criticism, since arbitrators involved in a failed conciliation may find it difficult to remain impartial and to disregard, for example, admissions made in the course of the conciliation process. Notwithstanding these criticisms, the mixed conciliation-arbitration model has its supporters within the PRC legal community, who cite relatively high conciliation success rates in support of their position. Similar to the provisions for court conciliation, the PRC Arbitration Law allows parties to request a tribunal to render an arbitral award in accordance with any settlement reached.
What it has been exposed above should serve as a basis. In the next entry I will examine more in detail “Arbitration” then the other methods to solve amicably a controversial.
Cristiano Rizzi