Cross-Border Dispute Resolution in China: Successful Enforcement Strategies
In a globalized economic world, conflicts of interest and resulting disputes are inevitable. Especially in China, attracting an increasing number of companies and investors. Actors regularly find themselves confronted with costly legal disputes with risks of impacting their efficiency and reputation. From breaches of contract to competition violations to intellectual property infringement. To address these challenges and achieve effective dispute resolution, companies are increasingly turning to alternative methods of conflict resolution. Especially within the framework of commercial law, such mechanisms are gaining importance and can become a significant factor for business operations in the People’s Republic. This article provides an overview of methods of dispute resolution in commercial matters, including arbitration, as well as state jurisdiction and enforcement in China.
Approaches to Conflict Resolution in Commercial Disputes
Depending on the situation and need, various instruments of conflict resolution are available. Starting from mere negotiations as the most cost-effective option to litigation, which provides a clear structure and high legal certainty.
Arbitration in China
The foundation of arbitration lies in the arbitration agreement. It provides the legitimacy for the arbitration tribunal to act and contains the agreement of the parties to submit their disputes to a tribunal. The conflict must arise from contracts and asset relationships between private parties. Cases from family and inheritance law, as well as administrative or labor disputes, are not arbitrable.
Important foreign arbitration institutions are located in Paris (ICC), Singapore (SIAC), London (LCIA), Hong Kong (HKIAC), Berlin (DIS), and Vienna (VIAC).
Arbitration in China is subject to the relevant provisions of the China International Economic and Trade Arbitration Commission (CIETAC). It is the central commission for resolving economic disputes in China. There is no hierarchical or territorial jurisdiction of the various institutions. The Arbitration Law of the People’s Republic of China only recognizes institutional arbitration and not ad-hoc arbitration, where the parties conduct the proceedings independently.
In disputes involving contracts with foreign elements, parties can choose between a Chinese arbitration commission (e.g., CIETAC) and international arbitration commissions (e.g., ICC).
State Jurisdiction and Enforcement in China
Chinese courts are divided into four levels:
- Supreme People’s Court (SPC),
- High People’s Courts,
- Intermediate People’s Courts, and
- Basic People’s Courts.
Additionally, there are specialized courts for proceedings involving matters such as the military, maritime law, or intellectual property.
The amount in dispute, location and other circumstances determine the first instance of the court of jurisdiction (similar compared to Germany).
When recognizing foreign judgments in China, the court first examines the validity of the judgment. If there is no bilateral agreement between China and the relevant country, recognition is decided based on reciprocity between the foreign state and China. „Reciprocity“ means that the recognition and enforcement of a foreign judgment in China should not encounter significantly greater difficulties than the recognition and enforcement of a comparable Chinese judgment in the corresponding foreign country. If reciprocity is lacking, recognition is refused. The court also rejects recognition if the judgment violates fundamental legal principles of China or impairs national interests. Upon recognition, the court may issue an enforcement order upon request. Since there is currently no enforcement agreement with the Federal Republic of Germany, the recognition of German judgments in China, according to the principle of reciprocity, depends on the enforceability of judgments of Chinese people’s courts in Germany. The enforcement of a recognized foreign judgment then proceeds analogously to the enforcement of a domestic judgment.
Conclusion
Overall, a proactive approach to dispute resolution is advisable. While negotiations are recommended, clear deadlines should be set to ensure efficiency. Filing lawsuits can promote willingness to negotiate, with a combination of negotiation and litigation possible. In the realm of arbitration, companies should pay particular attention to effective arbitration agreements, either through model clauses or through legal review. In state court proceedings, the enforceability of the judgment is crucial. It is advisable to consider dispute resolution methods before entering into contracts to be prepared for potential conflicts.