How foreign companies resolve dispute with Chinese Companies or Individuals

There are four primary ways to resolve a commercial dispute in China:

A. Negotiation

Simple negotiation with your partner is usually the best method of dispute resolution. It is the least expensive and it can preserve the working relationship of the parties involved. In fact, most business contracts in China include a clause stipulating that negotiation should be employed before other dispute settlement mechanisms are pursued. Companies should specify a time limit for this process. Unfortunately, negotiations do not always lead to resolution.

B. Mediation

The principle of mediation is that the parties may present their proposals to the mediator who suggests a solution based on those proposals. Mediation is by definition non-binding and has achieved great success as a means of settling commercial disputes between foreign and Chinese parties. In both the arbitration and litigation contexts, mediation represents an early step in the resolution of the dispute. In arbitration before a Chinese arbitral tribunal or in litigation before the Chinese courts, parties are encouraged to participate in mediation with mediators. The less confrontational nature of mediation may also help preserve the commercial relationship.

C. Arbitration

 Arbitration is the preferred method of dispute resolution in China. Since it is rare for the parties to agree on arbitration after the dispute has arisen, the underlying contract or separate agreement must expressly provide that disputes will be resolved through arbitration. In China, a valid arbitration agreement must reflect a clear intent to arbitrate and clearly identify the arbitration institute that will administer the case. If so, arbitration will be the only available binding means of dispute resolution available under the contract; otherwise, the dispute must be resolved by the courts.

In China, arbitration offers many advantages over litigation. A major advantage is the finality of the rulings. Court rulings are subject to appeal, which means litigation may continue for years. Arbitration panels are made up of a panel of experts, which improves the quality of the hearing. In addition, the proceedings and rules of arbitration are often more transparent than litigation.

D. Chinese Litigation

A final resort to resolve a commercial dispute in China is through litigation in Chinese courts. In China, foreign individuals and companies have the same ability to bring action in court as Chinese citizens and companies. There are four levels of courts in China. Every major city has basic (county) courts and intermediate courts. Supervising these courts are the provincial high courts. The Supreme People's Court, located in Beijing, has appellate jurisdiction over all courts in China. Cases involving foreign interests can be filed in either the basic-level courts or intermediate courts, depending on their nature.