Sunday, July 23, 2006
In a follow-up post on the above agreement, the China Law Blog kindly endorses one of my comments in my earlier post on this, so let me return the favor by quoting the following practice tip, with which I completely agree:
I am of the view that in almost all cases, the best strategy for foreign companies doing business in China is to negotiate an arbitration provision. Two main reasons for this. One, arbitrators are usually more knowledgeable about international commercial disputes than the courts. Two, arbitration awards are generally much easier to enforce internationally than court judgments.
Indeed, I would add that arbitration awards - especially foreign arbitration awards from a signatory country to the New York Convention - are easier to enforce domestically in China than Chinese court judgments (at least as far as the applicable rules are concerned), since losers have fewer grounds for seeking relief. Under the Supreme People's Court's 1995 Notice on Issues Concerning the Handling by People's Courts of Matters Related to Arbitration Involving Foreign Interests and Foreign Arbitration (最高人民法院关于人民法院处理与涉外仲裁及外国仲裁事项有关问题的通知), a court decision not to enforce a domestic "foreign-related" arbitration award or an award from New York Convention country would ultimately have to be approved by the Supreme People's Court.
Note: There is an interesting drafting quirk in this rule, as there is in the relevant section of the Civil Procedure Law. The relevant language speaks not of a Chinese foreign-related arbitration award, but of an award issued by a Chinese institution for foreign-related arbitration (我国涉外仲裁机构裁决). In other words, the key is the issuer of the award, not the nature of the award itself. In 1995, this meant CIETAC and possibly the Maritime Arbitration Commission, at that time the only bodies that could hear foreign-related arbitration, so it made no difference. Since 1995, however, other arbitration bodies such as municipal arbitration commissions have achieved jurisdiction to hear foreign-related arbitration cases, and CIETAC can now hear non-foreign-related arbitration cases. Is an award issued by the Beijing Arbitration Commission in arbitration between a foreign entity and a Chinese entity subject to the rule? It would be a stretch to call the BAC an "institution for foreign-related arbitration". Comments based on actual experience welcome.