Compared to court proceedings, arbitration is a commonly agreed convenient way to resolve commercial disputes. An Arbitral Award is final and binding, and cannot be appealed to court unless there is material defect in the award or a procedural defect in the arbitral proceedings described in the Arbitration Law.
When a dispute arises and one party has no intention to resolve it in a timely and efficient manner, such party can go to court challenging the validity of the Arbitration Agreement. This strategy which can be used to drag arbitral proceedings down, however not often used, as the Arbitration Law of the People’s Republic of China clearly stipulates and limits the factors making an Arbitration Agreement invalid. One of the factors we have seen a lot in practice is not having a chosen Arbitration Organization. In most cases, getting the chosen Arbitration Organization’s name wrong is the often seen cause, especially when such Arbitration Organization is a foreign facility. If there is a dispute over a wrongfully written name, it could be possible that the Arbitration Agreement is ruled invalid, if the dispute goes to court.
There is also choice of law issue when the arbitration agreement involves foreign factors. If there is no specific law chosen by both parties, the Arbitration Law of the PRC stipulates that the Arbitration Law of the chosen arbitration place should apply, in which case the applicable law could be foreign law. Many factors can impact the validity of the Arbitration Agreement, if you enter into an Arbitration Agreement with a Chinese company and choose the arbitration place within China, you need to have a Chinese lawyer to make sure the terms in such an agreement is valid under the Arbitration Law of the PRC, unless you have clearly chosen foreign law as the governing law.