Chinese Law Prof Blog

Editor: Donald C. Clarke
George Washington University Law School

Sunday, July 23, 2006

More on Hong Kong-Mainland China agreement on mutual enforcement of court judgments

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.

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That is a great question. I am heading to China this week and will pose it of the lawyers I meet.

Certainly one of the biggest mistakes (and virtually always the easiest to spot) made by domestic lawyers dabbling in the international realm is to put in a provision calling for exclusive jurisdiction in the hometown of the company they are representing. I don't know how many times we have had to tell someone who has come to us on an international litigation matter that their lawyer has set things up so the following is true:

1. We have to sue in the United States and spend 6-12 months and a lot of money serving the defendant under the Hague Convention.

2. 90% chance the defendant will not show up and we will then get a default judgment.

3. We will take that default judgment to [fill in the blank] and they will basically laugh in our face and make us start all over.

I then ask if their lawyer ever discussed arbitration with them.

Dr. Clarke -- This is a serious question. When do you think putting in these provisions will begin to be viewed as legal malpractice?

Posted by: China Law Blog | Jul 23, 2006 10:28:15 PM

Hi - my serious answer about the malpractice question is that I don't know nearly enough about professional responsibility issues to be able to opine responsibly on this. It's hard enough keeping up on Chinese law!

By the way, I can't claim to be a Dr. unless a JD counts.

Posted by: Don Clarke | Jul 28, 2006 11:03:19 PM

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