Drafting a clause of a broader contract or an independent agreement with Chinese suppliers is a crucial step to establishing a dispute resolution mechanism, offering assurance to both parties. Key considerations include:
The most widely recognized institution in China is the China International Economic and Trade Arbitration Commission (CIETAC). Alternatively, if your supplier agrees, international institutions like the International Chamber of Commerce (ICC) or the Hong Kong International Arbitration Centre (HKIAC) can be considered, despite the high cost.
Under Chinese law, failure to designate a specific institution causes the clause invalid.
The arbitration clause should not only be broadly defined as disputes “arising from”, but also “in connection with” the contract, including ALL matters like intellectual property infringements from an IP license agreement. Narrowly defined scopes can lead to disagreements over whether a particular dispute is subject to arbitration.
Arbitration is generally available for contractual and commercial disputes, including:
Breach of contract
IP disputes (e.g., licensing agreements, trademark infringement)
Joint venture disagreements
Construction and engineering disputes
However, in China, the following disputes are not arbitrable:
Labour disputes and agricultural contract disputes within agricultural collective economic organizations;
State the governing law of the contract (e.g., “This agreement shall be governed by the laws of the People’s Republic of China”).
Seat of Arbitration
The choice of the arbitration seat, a legal concept referring to the jurisdiction in which the arbitration is deemed to take place, determines the law of arbitration clause governing the arbitration’s validity and procedures, but not governing the substantive contract.
Practically, we will indicate a neutral third city in China as the seat for proceeding.
Arbitration Rules
State the rules of the chosen arbitration institution (e.g., “The arbitration shall be conducted in accordance with CIETAC Rules, ICC Rules, or other recognized rules”).
Number of Arbitrators
Decide whether to appoint a single or group of arbitrators. Complex disputes often warrant three arbitrators, while smaller transactions may opt for a single arbitrator to reduce costs.
Language of Arbitration
Specify the language to be used during arbitration proceedings.
Given that Chinese arbitrators are generally proficient in both languages, specifying the arbitration language may not be necessary.
Finality of Award
Mention that the arbitration award shall be final and binding on both parties.
Legal Fees
In international arbitration, cost-shifting (e.g., “loser pays”) is more common and accepted. Here is an example:
“The prevailing party shall be entitled to recover its arbitration fees, attorney fees, expert witnesses fees, translation fees, and other reasonable expenses incurred in connection with the arbitration from the non-prevailing party, as determined by the arbitral tribunal”.
Model Arbitration Clauses from Chinese Institutions
CIETAC Model Clause:
“Any dispute arising from or in connection with this Contract shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC)___________Sub-Commission (Arbitration Center) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.”
China Maritime Arbitration Commission Model Clause:
“Any dispute arising from or in connection with this contract shall be submitted to China Maritime Arbitration Commission (CMAC) for arbitration in accordance with CMAC Arbitration Rules currently in force at the time of applying for arbitration. The arbitral award is final and binding on all the parties.
Recommended additions:
The arbitral tribunal shall be composed of […] arbitrator(s).
The seat of arbitration shall be […].
The language of the arbitration shall be […].
This contract shall be governed by the law of […].”
Guangzhou Arbitration Commission Model Clause:
“Any dispute, controversy, divergence, or claim arising out of or relating to this contract, including the existence, validity, interpretation, performance, breach, or termination thereof, or any non-contractual dispute arising from or in connection with it, shall be submitted to the China Nansha International Arbitration Center for arbitration in accordance with its arbitration rules in effect at the time of applying for arbitration.
The number of arbitrators shall be [one or three].
The arbitration shall be conducted in [specify language].”
HKIAC Model Clause:
“Any dispute, controversy, difference or claim arising out of or relating to this contract, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration administered by the Hong Kong International Arbitration Centre (HKIAC) under the HKIAC Administered Arbitration Rules in force when the Notice of Arbitration is submitted.
* The law of this arbitration clause shall be … (Hong Kong law).
The seat of arbitration shall be … (Hong Kong).
The number of arbitrators shall be … (one or three).
The arbitration proceedings shall be conducted in … (insert language).
The fees and expenses of the arbitral tribunal shall be determined on the basis of … (Schedule 2 or Schedule 3) of these Rules.“
Frequently Asked Questions (FAQs)
What is the key difference between arbitration and litigation in China?
Arbitration is more confidential, while litigation is conducted in open court.
Arbitration decisions are final and binding with limited grounds for appeal, unlike litigation, which allows multiple appeals.
Arbitration is more flexible, allowing parties to have the freedom to choose their arbitrators and institution.
What are the steps in the Chinese arbitration process?
Filing the Arbitration Request: Submit an arbitration application to the selected institution.
Selection of Arbitrators: Parties choose arbitrators or rely on the institution’s default appointment.
Preliminary Hearings: Procedural matters are addressed.
Evidence Exchange: Both parties submit and exchange evidence.
Hearings: Oral arguments are presented before the tribunal.
Award Issuance: The arbitral tribunal issues a binding award.
Can arbitration awards in China be enforced internationally?
Yes, under the New York Convention (1958), China’s arbitration awards are enforceable in over 170 member countries. Likewise, foreign awards can be enforced in China, provided they meet certain requirements.
What are the costs of arbitration in China?
Costs typically include arbitration fees, administrative fees, and legal representation fees.
Arbitration fees are often calculated based on the amount in dispute, as per the rules of the chosen institution.
Some institutions allow for cost-shifting, where the losing party pays part or all of the costs.
How long does arbitration in China take?
Arbitration is typically faster than litigation. Most cases are resolved within 6–12 months, depending on the complexity and institution.
Can the parties appeal an arbitration award in China?
No. Arbitration awards in China are final and binding, with limited grounds for challenge, such as:
Lack of jurisdiction.
Procedural irregularities.
Public policy violations.
However, challenges made through Chinese courts are very rare.
Is it mandatory to appoint a Chinese-registered lawyer for foreign parties?
No, it is not mandatory.
Parties can represent themselves or appoint any legal representatives, such as foreign lawyers, legal consultants, company employees, or other legal representatives who can represent a party, provided the arbitration rules and institution allow it.
