You are here: Home Law Topics Legal Counsel A Brief Introduction to China International Arbitration

China Lawyer Blog - We answer your questions

A Brief Introduction to China International Arbitration

A business contract, lease or other written contract may contain an arbitration clause. By using such a clause, the parties to the contract agree to arbitrate any future disputes. As with any clause, all parties must agree to it's use in the contract before the contract is signed. Arbitration is an out-of-court proceeding in which a neutral third party called an arbitrator hears evidence and then makes a binding decision. Arbitration is the most commonly used method of alternative dispute resolution (ADR), and you'll find an arbitration clause in the fine print of all kinds of contracts these days. Read on to find out whether you should include an arbitration clause in your agreement.

Binding or Nonbinding Arbitration

Arbitration can be binding (which means the participants must follow the arbitrator's decision and courts will enforce it) or nonbinding (meaning either party is free to reject the arbitrator's decision and take the dispute to court, as if the arbitration had never taken place). Binding arbitration is more common.

Who Can Arbitrate Disputes?

Arbitration can be voluntary (the parties agree to do it) or mandatory (required by law). Most contract arbitration occurs because the parties included an arbitration clause requiring them to arbitrate any disputes "arising under or related to" the contract. If a provision like this isn't included in the contract, the parties can still arbitrate if they both agree to it (although it's tough to reach an agreement to arbitrate once a dispute has arisen).

Advantages and Disadvantages of Arbitration

For simple contract disputes in which the matter can be heard in one day, arbitration is usually a good choice. However, if in doubt, consider the advantages and disadvantages, below.

Advantages. Arbitration is usually faster, simpler, more efficient, and more flexible for scheduling than litigation. Also, it avoids some of the hostility of courtroom disputes, perhaps because it's a private proceeding versus the public drama of the courtroom. And if the subject of the dispute is technical--for example, about a patent--the parties can select an arbitrator who has technical knowledge in that field, rather than a judge who may not be familiar with the issues.

Disadvantages. Unlike a court ruling, a binding arbitration ruling can't be appealed. It can be set aside only if a party can prove that the arbitrator was biased or that the arbitrator's decision violated public policy. Unlike a court case, there is no automatic right to discovery (the process by which the parties have to disclose information about their cases to the other party). (However, you can include a requirement for discovery in your arbitration clause or agree to it under arbitration rules.) The costs of arbitration can be significant; in some cases, they may even exceed the costs of litigation (see below).

Still weighing the good and the bad when it comes to arbitration?

What Does Arbitration Cost?

According to a survey by Public Citizen, a consumer watchdog group, the cost of initiating an arbitration is significantly higher than the cost of filing a lawsuit. On average, it costs about $9,000 to initiate a claim to arbitrate a contract claim worth $80,000 (versus about $250 to file that action in state court). Keep in mind that the people in the dispute pay the arbitrators, and arbitration fees can run to $10,000 or more. Add in administrative costs and your own attorney fees (if you hire one) and the process might even cost more than litigation.

Sample Arbitration Clauses

If you want to include an arbitration clause in your contract, below are some examples to take a look at. Example 1 shows a simple no frills arbitration clause; Example 2 offers more conditions and obligations.

"Any dispute arising from or in connection with this contract shall be submitted to China International Economic and Trade Arbitration Commission South China Sub-Commission for arbitration which shall be conducted in accordance with the Commission's arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties."
The parties may also agree on the following matters in the arbitration clause/agreement as required:
● The allocation of fees
Agree, for example: the losing party shall bear the reasonable expenses incurred in resolving the dispute including, but not limited to, arbitration fees and attorney’s fees (Note: a party who wants the other side to bear the legal and other reasonable expenses should state so in the request for arbitration or counterclaim).
● Place of arbitration/place of hearing
Agree, for example: The place of hearing is ______ (Shenzhen, Guangzhou, Beijing, Shanghai, Hong Kong and so on).
● Language of arbitration
Agree, for example: The language for the arbitration shall be English.
● The number of arbitrators (usually one or three).
● The nationality of the arbitrators
● Summary procedure shall be applied, etc.
To fasten resolution of a dispute by arbitration, cases originally applying ordinary procedure may adopt the summary procedure by agreement.
 
  • Goal

  • Fees

The law blog is running by a China lawyer working for a full-service law firm, offering practical, results-driven advice on employment law, divorce, company law, and other legal issues. Our goal is to manage these issues effectively so that our clients can focus on what they could do best.

China Lawyer Blog will charge you under your specific circumstances in the following styles:
(1) Hourly fee arrangements
(2) Contingency fee arrangements
(3) Flat fee arrangements
(4) Percentage fee arrangements

Learn More...

ACCREDITED BY

China Lawyer Blog China Lawyer Society

China Lawyer

I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

Latest Comments

AWARDINGS

China law society award


Style of Service

This China Lawyer Blog is aiming at providing better knowledge and understanding of Chinese law for foreigners. Should you have any legal issue in China, do not hesitate to contact China Lawyer Blog for consultation. Preliminary consultation is free. Further legal service, however, will be charged in due rate and in due course.

You are welcomed to ask for a quotation pursuant to your specific circumstance.

About author

China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.