As we already exposed when considering to penetrate this market a business entity should learn more about its unique rules for doing business, but also how to solve disputes.
As we will have other entries on this topic, today my intention is only to illustrate and introduce the theme. The most popular methods to solve dispute are through consultation/mediation or conciliation
Most business contracts in China contain a clause stipulating that negotiation should be employed before any other dispute settlement mechanisms are pursued.
Negotiation (i.e. consultation) play 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.
Several forms of mediation are available, including formal and informal commercial mediation through private professional organizations, judicial mediation, and even hybrid mediation-arbitration options.
China has a relatively institutionalized system of court and arbitration-related conciliation.
Court conciliation is expressly provided for in the PRC Civil Procedure Law (
http://www.lehmanlaw.com/resource-centre/laws-and-regulations/civil-proceedings/law-of-civil-procedure-of-the-peoples-republic-of-china-1991.html
) and provision is made for giving legal effect to any corresponding settlement reached by the parties.
Arbitration
If parties to the contract wish to choose arbitration as a mode of dispute resolution, they must indicate in their contracts that disputes will be resolved through arbitration. (
http://www.lehmanlaw.com/resource-centre/laws-and-regulations/civil-proceedings/arbitration-law-of-the-peoples-republic-of-china-1994.html
).
Arbitration is a private dispute resolution procedure based in contract in which an arbitrator (or a panel of arbitrators) hears a dispute and render a decision known as an “arbitration award”.
Agreements to arbitrate usually specify a choice of arbitration body, which may be located in China or abroad, and a choice of law to govern the dispute. For foreign-related disputes, parties to the contract may specify the nationality of members of the arbitration panel in the contact.
In 1994 China promulgated its Arbitration Law, establishing a general framework for arbitration, its purpose was to consolidate the laws on arbitration and to bring them more into line with international standards. Arbitration is also considered in the Civil Procedure Law, where it is stated that in the case of a dispute arising from the foreign economic, trade, transport or maritime activities of China, if the parties have had an arbitration clause in the contract concerned or have subsequently reached a written arbitration agreement stipulating the submission of the dispute for arbitration to an arbitral organ in the People’s Republic of China handling cases involving foreign element, or to any other arbitral body, they may not bring an action in a people’s court.
There are two Chinese government-sponsored arbitration bodies for handling cases involving at least one foreign party: the China International Economic and Trade Arbitration Commission (‘CIETAC’ visit web-site at:
http://www.cietac.org/index.cms
) and, for maritime disputes, the China Maritime Arbitration Commission (‘CMAC’ visit web-site at:.
http://www.cmac-sh.org/en/home.asp
).
Contracts involving foreign companies doing business in China often provide for CIETAC arbitration.
China acceded to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the ‘New York Convention’) in 1987. Under the New York Convention, arbitral awards rendered in other signatory countries are recognized and enforceable in China. Arbitral awards by Chinese arbitration bodies are enforceable in other countries signatory to the New York Convention.
Litigation
In case using the aforesaid methods it is not possible to reach an agreement, it is always possible to submit the case to a Chinese Court. Foreign individuals and companies can in fact bring action(s) in court in the same manner as Chinese citizens and companies.
To choose litigation means adopting the most formal approach to dispute resolution, as it would involve the parties coming before a Court seeking a determination of their respective rights and obligations under the relevant agreement.
China has four levels of courts: (i) basic courts, (ii) intermediate courts, (iii) high courts, and (iv) the national Supreme People’s Court.
Only Chinese nationals working for Chinese law firms may appear in court.
The Civil Procedure Law in its Chapter 14 regulates the procedure of second instance (the “Appeal”). As a general rule, if a party disagree with a judgment rendered by local people’s court of first instance, he/she shall have the right to file an appeal with the people’s court at the next higher level within 15 days from the date when the written judgment is served. A people’s Court of second instance shall review the facts and the law used in the an appellate case.
The use of “Litigation” should be the last/final resource. In fact, inevitably this method will definitely interrupt the business relationship with your Chinese counterpart, impeding any further contact or cooperation.
– Cristiano Rizzi