What can a foreign party expect in relation to dispute resolution when doing business in China? If a dispute arises, negotiation is the best initial method of resolution. Most business contracts in China will include a clause requiring negotiation before other dispute settlement mechanisms are pursued. Negotiation might require attempts to enlist the help of local government officials by emphasising the importance of the foreign company’s investment.

If negotiation fails, it is arbitration that has for many years been the preferred method of resolution for foreign-related commercial disputes in China. Arbitrators have, at least until recently, been more experienced and better qualified in the subject matter than judges, and procedures have been more flexible and predictable. Arbitration also has the advantage of finality, in that awards are not subject to appeal whereas court rulings may result in a lengthy appeal process.

Arbitration in China is governed principally by the Arbitration Law 1995 and the Civil Procedure Law 1991. The most striking characteristic is that only institutional arbitration is recognised in China and it is unlikely that there will be any change in the near future to allow ad hoc arbitration. Parties are therefore bound to choose an institution and are restricted by some aspects of Chinese institutional practice. There is still considerable reluctance to allow foreign arbitral institutions to set up within China.

The China International Economic and Trade Arbitration Commission (CIETAC) is the best known institution for foreign-related disputes, but there are over 170 other arbitration commissions. CIETAC re-issued its panel of arbitrators in May this year and this included over 200 foreign arbitrators.

The procedure is normally inquisitorial although CIETAC now authorises adversarial procedures such as cross-examination. Documentary disclosure orders are rare. Hearings tend to be short, often only a day.

“The scale of the court system is staggering: 8.1 million cases were decided by China’s 220,000 judges in 2006”

One of the most frequently cited difficulties is enforcement of foreign-related awards made in China and international arbitration awards sought to be enforced in China under the New York Convention – to which China acceded in 1987. In response to international concern, the Supreme Court introduced a reporting procedure for courts intending to refuse enforcement. This and other measures have greatly improved matters although there are still residual difficulties in transparency and delay in the enforcement process.

How do foreign parties fare in court proceedings? The scale of the court system is staggering: 8.1 million cases were decided by China’s 220,000 judges in 2006 in the 3,234 courts. The four levels of courts comprise in ascending order: basic courts, intermediate courts, provincial high courts and the Supreme People’s Court in Beijing. Cases involving foreign interests will be heard by either a basic court or an intermediate court depending on subject matter and size.

The procedure involves a first instance trial and the possibility of one level of appeal. The process is subject to review by higher courts, with widened criteria introduced by a new Civil Procedure Law. This may increase safeguards in the process but at the expense of delay in achieving finality.

Part of the article writted by Adrian Hughes is a foreign panel member of China International Economic and Trade Arbitration Commission (CIETAC) in Building.

China‘s top legislature started to read the draft law on labor dispute mediation and arbitration amid an increasing number of labor disputes that emerged in the country. The draft law was submitted Sunday to the seven-day 29th session of the Standing Committee of the National People’s Congress (NPC), or China’s top legislature, for the first reading. Arbitration in labor dispute cases will be important because in China are continuously increasing in recent years. Statistics show that labor dispute arbitration organizations at various levels dealt with 1.72 million labor dispute cases involving 5.32 million employees from 1987 to the end of 2005, with a growth rate of 27.3 percent annually.

Xin Chunying, vice Chairman of the Legislative Affairs Commission of the NPC Standing Committee said on the legislative session that excepting the increasing number of labor disputes, other problems also exist. For instance, the personnel in arbitration organizations are not professional and thus lack credibility and the process of arbitrating labor disputes is long, making the cost of arbitration high.

China resumed the labor dispute arbitration system in 1987 and formed the procedures for coping with labor disputes as “mediation, arbitration and trial” after the regulation on handling corporate labor dispute and Labor Law were promulgated in 1993 and 1994. The procedure and practice for dealing with labor disputes have been widely accepted by the public.

The draft bill is for strengthening mediation and improving arbitration so as to help fairly solve labor disputes without going to court and thus safeguard employee’s legitimate rights and promote social harmony. The draft bill said corporate itself is entitled to establish labor mediation committee to solve the labor disputes occurred in its own corporate so as to solve disputes at grassroots level. The corporate labor mediation committee should consist of employees and representatives of managerial level. When labor disputes occur, litigants can turn to the corporate mediation committee, or grassroots people’s labor disputes mediation organization, the draft bill said.

The draft bill said labor disputes concerning pay, medical fee of job-related injuries, compensation, pension whose relevant sum do not exceed 12 months of local minimum monthly wages could be solved by arbitration. The arbitration documents have legal effects upon being handed out. Labor disputes on working time, holidays, social insurance and collective contracts could also be solved by arbitration with legal effects, said the draft bill.