In China, the word “arbitration” can be labor dispute arbitration, which is unique to China. That is a compulsory prepositional procedure for lawsuit in Chinese court for any dispute between the employer and employee. But in business transactions, arbitration generally refers to the resolution of dispute, opposite to litigation at court.
Arbitration has a lot of advantages over litigation, speedy, confidential, convenient and so on. Of course, it is more expensive than litigation. But considering the cost of time and energy, I think in any event the arbitration is a better option for foreign parties.
In fact, a lot of clients have noticed this point and include an arbitration clause in their agreement with Chinese party. But most of time, these arbitration clause turns to be invalid as our foreign clients don’t understand the specific requirements for a valid arbitration, especially when they choose Chinese arbitral tribunal. Here the following is the typical one which can not be enforceable.
- “Any dispute difference or question which may arise at any time hereafter between the Seller and the Buyer touching the true construction of this Agreement or the rights and liabilities of the parities hereto or any matter arising in connection with this Agreement shall be referred to the decision of a single arbitrator to be agreed upon between the parties hereto, or in default of agreement for fourteen days after one party has requested the other to agree to an appointment, to be appointed at the request of either party hereto by ____.”
The flaws in this article:
Ad hoc arbitration. Since China has been a member of New York Convention, the ad hoc arbitration award in the other contracting states can be enforced by Chinese court. But as the provision is so simple and concise in this clause, once the parties can’t make an agreement with regard to the procedures, it is quite hard for the arbitration to proceed.
Institutional arbitration. As ad hoc arbitration can’t move on, the parties may intend to resort to institutional arbitration. In this case, our client guessed it would be convenient to arbitrate in China because the seller is a Chinese business. However, Chinese Arbitration Law and CIETAC arbitration rules don’t support ad hoc arbitration. China’s arbitration law is substantially different from the UNCITRAL Model Law, and generally provides for a lower level of party autonomy. Under China’s arbitration law, only a standing arbitral organ can suffice, and that means such a clause can’t meet the requirement of a binding arbitration clause in China. Thus, neither CIETAC nor any other Chinese tribunal can accept this case.
Another example:
- Any dispute or controversy arising from or in connection with this Contract shall be settled through friendly consultations between both parties. In case no settlement can be reached through consultations, the disputes shall be submitted for arbitration or to the court with competent jurisdiction. (“凡因执行本合同所发生的或与本合同有关的一切争议，双方应通过友好协商解决，如果协商不能解决，应提交仲裁机构进行仲裁或提交有管辖权法院进行审判。”)
- JURISDICTION：All disputes arising under or in connection with this Bill of Lading shall be determined by Chinese Law in the courts of，or by arbitration in，the People’s Republic of China．[i](中译文为：“管辖权：所有因此提单产生的争议应按照中华人民共和国法律在中华人民共和国法院审理或在中华人民共和国仲裁。”)
As the first sample, the second one and the third one also lack the specific arbitration institution. Moreover, the above clauses contain both arbitration and litigation. If the parties would hold conflicting opinion with regard of the settlement, they would make supplementary agreements further. But if they could not reach any agreement, Chinese law would just render it noneffective as the principle in China is “the obscure arbitration agreement is invalid unless the parties could make it clear through construction and amendment.” However, in international practice, the arbitral organs or the courts with competent jurisdiction would construe the arbitration agreement as far as possible to make it applicable.
We shall notice the differences in the standards between international arbitration and China’s arbitration and try to prevent the problems of arbitrability arising from the ambiguities when we review the agreement for clients.