China

How To Win A China Arbitration

Chinese companies are increasingly requiring their commercial contracts with American companies provide for disputes to be resolved by arbitration in China. How can you prevail?

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Chinese companies are increasingly requiring their commercial contracts with American companies provide for disputes to be resolved by arbitration in China. This is especially true of China’s State Owned Entities (SOEs).

Though most American companies believe that their nationality precludes them from getting a fair shake in such arbitrations, my own law firm’s experiences (mostly before CIETAC) have not borne this out. Our lawyers have generally felt that their arbitrators in China arbitrations have sought to be fair to both sides, without regard for the nationality of the parties.

Here are some takeaways from the arbitration actions we have handled in China, with a focus on what it takes to prevail.

1. Do not be fooled by the rules suggesting that the arbitration procedure will be informal. The arbitrators will run the arbitration proceeding in a manner very similar to a trial in a Chinese court. In particular:

  • Witness testimony is generally assumed to be false.
  • Emails and informal communications, especially internal communications, are also generally treated as unreliable.
  • Claims should be supported by clear and unambiguous formal written documents.

2. The Chinese side will often attempt to confuse matters by seeking to enter endless amounts of emails, phone records, unsubstantiated meeting minutes, and the like into evidence even though the arbitrators usually ignore these.

3. Evidence should be prepared for admittance in accordance with standard Chinese trial procedure. That means formal presentation of each document with support for its authenticity.

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4. Though the arbitration rules usually give broad leeway on who can represent a foreign party in China arbitrations, this flexibility is an illusion. The attorney representing the foreign side must be completely familiar with the case, with Chinese law, with Chinese court procedure, and with the Chinese language. Even though the rules allow for legal representatives to use interpreters, this does not work in practice; the legal representative should be able to conduct the entire proceeding in Chinese.

5. The legal representative must gain the respect of the arbitration panel. This requires that he or she understand China’s legal system and the constraints under which the arbitrators work. Many foreign lawyers treat the Chinese arbitrators and the Chinese system with contempt. This does not work.

4. The arbitration panel usually consists of three arbitrators with each side choosing one of the three and the two chosen arbitrators or the arbitral body choosing the third. The foreign company’s choice of arbitrator will be critical. It must be willing to spend the money for a foreign arbitrator who can make a difference. It should appoint a foreign arbitrator with a total command of both the Chinese language and the Chinese legal system. The other (Chinese) arbitrators must respect the foreign arbitrator such that they believe that they will lose face if they issue a bad decision. The foreign arbitrator cannot be a pushover.

5. The arbitrators will carefully study the documents submitted, and how they do or do not fit in with the parties’ claims. They will find all the weaknesses in both parties’ claims and they will question both parties without mercy concerning those weaknesses. The side without clear and convincing answers to their questions is the side that usually loses.

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Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog. You can reach him by email at firm@harrismoure.com.

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