Today, after having explained and exposed how to “litigate” in a Chinese Court, it is necessary to spend a few words on administrative proceeding, and then briefly examine advantages and disadvantages of the various dispute resolution mechanisms.
Relevance of Administrative Proceedings
Administrative proceedings do not represent a valid alternative option, but it is worth mentioning and treating them because there is always the possibility that in a business entity will encounter “administrative difficulties.”
Under PRC law, an administrative act of an administrative authority may be challenged either by way of administrative review or administrative litigation. Under the procedure for administrative review (see:
http://www.lwtlawyer.com/LawsView.asp?id=1208
), the relevant administrative review agency may review an action of an administrative authority if such action infringes the legal rights of the complainant. (In fact, according to the
Administrative Reconsideration Law of the People’s Republic of China
, adopted at the Ninth Session of the Standing Committee of the Ninth National People’s Congress on April 29, 1999, citizens, legal persons, or other organizations may apply for administrative reconsideration of certain “concrete administrative acts” that infringe upon their lawful rights and interests). According to the
Administrative Procedure Law
, (i.e.
Administrative Procedure Law of the People’s Republic of China
, adopted at the Second Session of the Seventh National People’s Congress on April 4, 1989, available at:
http://www.npc.gov.cn/englishnpc/Law/2007-12/12/content_1383912.htm
) citizens, legal persons, or other organizations have the right to file lawsuits against administrative organs for “concrete administrative acts” that infringe upon their lawful rights and interests. Specifically, they may undertake administrative litigation if they do not want to accept the following “concrete administrative acts”: (i) administrative punishment, such as detention, a fine, the revocation of a permit or license, an order to stop production or business, or confiscation of property; (ii) coercive administrative measures, such as the restriction of personal freedom and sealing up, seizure, or freezing of property; (iii) infringement of autonomy in business operations; (iv) failure to issue permits or licenses or to respond to an application, despite the fulfillment of a legal requirements; (v) failure to execute the statutory duties of protecting the person or property of the applicant or to respond accordingly; (vi) infringement of personal or property rights. Nonetheless, the people’s court will not accept a case if the subject matter concerns an administrative regulation or government rule, or an administrative decision or order that has a general binding force. The people’s court will also not accept a case if the “concrete administrative act” is finally to be decided by an administrative organ as prescribed by law. Moreover, if the only claim is the amount of compensation, the administrative organ should first handle the case. If the claimant does not accept the disposition of the administrative organ, it may then file an administrative lawsuit.
Apart from the laws mentioned above, to provide more transparency, China has also enacted the Administrative License Law (
Administrative License
Law of the People’s Republic of China
, adopted at the Fourth Session of the Standing Committee of the tenth National People’s Congress on August 27, 2003 and effective: July 1, 2004, available at the following web site:
http://www.lawinfochina.com/display.aspx?lib=law&id=3076&CGid
). This law sets forth the substantive rules for the establishment and implementation of administrative licenses as well as the procedural rules for the application of administrative licenses. Article 7 of the Administrative License Law provides that as regards the implementation of administrative licenses by administrative agencies, citizens, legal persons and other organizations are entitled to make statements, defend themselves, apply for administrative reconsideration, or institute administrative litigation in accordance with the law.
This theme was a little bit boring, I have to admit, however some business people would like to know these detail in fact some businesses might encounter administrative difficulties so I hope these pieces of information can be of some help.
Factors to Be Considered in Choosing One Method of ADR
Turning now to the factors to be considered when choosing one particular method of ADR it is necessary to stress the following:
– assuming that none of the agreements entered with the Chinese counterpart stipulate or contain a particular dispute resolution method, there are some factors to be considered as to which options to pursue. The most important considerations which should take into account when choosing an option are: (i)
Cost
.
Clearly certain options will be more expensive than others. For example litigation and arbitration will inevitably be more expensive than trying to solve questions through negotiation or mediation; (ii)
Time
.
The time it takes to resolve a dispute is also an important factor. In fact, all other considerations being equal, the more quickly a method leads to a resolution, the more attractive it will be; (iii)
Flexibility
.
This refers both to the flexibility of the process for resolving the dispute, and to the flexibility of the means by which the particular process can achieve a resolution. (iv)
Confidentiality
.
Confidentiality is also a factor which is regarded by parties as being important, particularly in sensitive matters where parties wish to keep confidential some or all aspects of their dispute.(v)
Fairness
. To some extent this factor relates to the perception either party may have as to whether a third party, such an arbitrator or the judge) is carrying out his/her task impartially and fairly. (vi)
Effectiveness
.
Effectiveness of various options may well be the most important factor. Not only is of basic importance the determination or resolution of the dispute, but also its enforceability. There would be little point choosing an option which, although it might result in a determination, would nevertheless be unenforceable.
Clearly, a dispute resolution procedure which does not impair the business relationship will be particularly valuable.
Advantages and Disadvantages of the Various Dispute Resolution Mechanisms
Negotiation not only is the cheapest method for resolving disputes, but it is also the quickest means of settling the dispute, provided that parties are willing to communicate with each other and more importantly, willing to reach a compromise. There should also be less risk of publicity, given that negotiations would be conducted privately. Moreover negotiation offers the advantage that it is fair, in the sense that the parties themselves would be in the best position to know the strengths and weaknesses of their own case, and are in the best position to discuss and work out a compromise that all parties find acceptable.
Turning to mediation (or conciliation), this form of dispute resolution will offer the same advantages as those associated with negotiation, in fact, again, the process will be relatively cheap, as the only substantial fees likely to be incurred by parties will be the mediator’s and institution’s fees, and those of the lawyers for each party. Mediation too is a relatively quick process; procedures are informal and parties will be able to control and choose the particular procedures to be followed. As such, this method of resolving disputes can minimize the drain on management time and the associated corporate disruption involved in dealing with a long drawn-out litigation or arbitration. The mediation will also be carried out in private, avoiding the possibility of adverse publicity and minimizing the risk of confidential information becoming public. The involvement of a neutral expert individual also has the advantage of focusing the proceedings more clearly, freeing the parties to focus on the facts, and not to be distracted by disputes over procedure. However, despite these advantages, there are significant disadvantages to mediation: for instance, as in the case of negotiation, it will only really work if the parties are interested in reaching a settlement. The other main disadvantage with mediation is that even if it were to result in a settlement, this would simply mean yet another agreement unless the agreement has been recorded as an arbitral award. In addition, for institutional mediations in the PRC, parties may well be bound to select their mediators from a panel of mediators, most of whom will likely be Chinese nationals.
If we consider “litigation,” the most obvious advantage in using this method is that the outcome will result in a binding determination as to the rights and obligations of each party. However, there are some major disadvantages to litigation: not only the procedure is expensive, but the whole process would likely be slow and time consuming. Moreover, the litigation process mat well attract adverse publicity, and it would not be possible to keep the dispute out of the public eye; in fact, once the dispute becomes public it may also become much more difficult to reach a settlement. Other disadvantages associated with the litigation option are that any judgment may still be subject to appeal. Any court judgment, therefore, nay not immediately produce finality. Furthermore, given the adversarial nature of the proceedings, litigation is very likely to have an adverse impact on the business relationship. Not to mention the fact that it is necessary to rely on Chinese lawyers only; in fact, foreign lawyer are not allowed to act in Court.
As it was underlined, arbitration is the most formal mechanism, and there are a number of advantages associated with this process that should be stressed. For instance, the ability for parties in arbitration to be able to choose a neutral tribunal is seen as one of the most important aspects of arbitration. Unlike court proceedings, arbitration would be confidential, such that the proceedings would be conducted in private, and award made by relevant tribunal would not be published. In addition, given that some of the issues involved are complex and may require technical knowledge, arbitrators could be chosen who have the necessary specialist background and expertise to address such questions. Arbitrators with the requisite commercial experience could also be chosen; in contrast, in litigation before the local People’s Court, the judges may not be as familiar with such matters. Arbitration also has the advantage of providing procedural flexibility, such that the parties, together with the tribunal, are free to agree on a procedure that takes account of the nature of the dispute, and of the parties’ backgrounds. The flexibility of arbitration procedures could also lead to a savings of both time and money. However, it is important to keep in mind that arbitration may not necessarily be cheaper than litigation. In practice, the time and cost involved often depends on the procedure adopted, the degree of cooperation between the parties and their counsel, the chosen arbitration institution and the fees payable to the institution and the arbitrators. In general, arbitration will be the most attractive option in most China-related disputes, but it is not always possible to use arbitration to resolve all the issues (i.e., working issues).
It is important to bear in mind that all these options are not mutually exclusive. Thus, it is possible, and in fact very common, in foreign-related agreements in China, for either or both negotiation and mediation to be combined with arbitration.
What I have exposed above should have clarified the differences between all this differend methods of solving a dispute. In the next entry I will expose some simple rules to limit dispute in China.
Cristiano Rizzi
(I did not mentioned before, however, some of my entries are extracted from my work titled M&A and Takeovers in China, so if some of you is interested in having the complete work, please visit:
http://www.kluwerlaw.com/Catalogue/titleinfo.htm?ProdID=9041140484
).