what we think

By Maarten Roos

Selecting the right dispute resolution mechanism is one of the most consequential decisions in cross-border contracting with Chinese counterparts. Arbitration, litigation, and jurisdictional choices directly affect enforceability, asset protection, cost, and practical outcomes—yet many international parties treat the clause as boilerplate. In practice, it often determines whether a legal victory can be translated into a commercial one. This article outlines the factors that consistently shape our recommendations when advising clients on how and where their disputes should be resolved.

Dispute Resolution Clauses

When reviewing their commercial contracts, international clients often ask our input on whether disputes should be resolved through arbitration or litigation, and where – in China, in their home jurisdiction, or in a third jurisdiction such as Hong Kong or Singapore. There is no standard answer; our advice will depend on the circumstances of the matter at hand, including what kind of dispute is most likely to arise. But there is little variation in some of the key factors that we will always consider:

Enforceability

A judgment in the US generally does not get recognized and enforced in China against (the assets of) a Chinese counterpart; so if the Chinese party has no money or other major assets outside China, then litigating in the US becomes rather problematic. Key is to remember that Chinese courts enforce the judgments of other Chinese courts, and they recognize and enforce international arbitration awards (if they meet certain standards). China has also entered into a number of treaties with other countries, for the mutual recognition and enforcement of arbitral awards.

Asset Preservation

In disputes (in China and elsewhere), it is crucial to make sure that at the end of the ride there are assets against which a judgment or award can be enforced. The good news is that Chinese courts are relatively easy about granting asset preservation measures (e.g. the freezing of a bank account) pending the outcome of a case. However, they will only entertain applications that come through another Chinese court, an arbitration tribunal within China (such as the SHIAC or CIETAC), or (in some case) a Hong Kong court.

Perceived Fairness

In negotiations, the option of a third jurisdiction is often raised because there is a perception that an arbitral tribunal may somehow favors the party that is operating in its own jurisdiction – in substance or for procedural reasons. True or not, it is undeniable that some foreign parties are reluctant to submit their disputes to a Chinese jurisdiction – especially where the amount in dispute is very high, or the Chinese counterpart has a lot of influence.

Expertise

Arbitrators can be selected on specific expertise, but there is no guarantee that an appointed court judge – including a Chinese court judge – has the expertise to fully grasp a certain business or dispute. This can be an advantage or a disadvantage, depending on which side you are on and how your lawyers are able to represent you. Whether this is an important factor, also depends very much on how complex your contract really is.

Procedure & Speed

Every plaintiff wants his dispute dealt with as quickly as possible, while many defendants will prefer a slower pace and process. So not every party gains with efficient procedure and a fast handling of the case. The general perception however, is that fast (and simple) is good. Compared to courts in other jurisdictions, Chinese courts seem to be relatively efficient (see for example the World Bank's survey on Enforcing Contracts); and litigation costs are generally lower than the cost of an arbitration (or the costs of a lawsuit in Europe or the US).

An Example

To give an example, in a relatively straightforward purchasing deal whereby a US company buys from a mid-sized Shanghai trading company and must make payment up front, leaving any disputes to a Shanghai court probably makes the most sense: If a dispute arises, it will likely be the US party claiming against the Shanghai company for performance issues (delivery time, quality), so property preservation + enforcement may well take place in Shanghai. Moreover, Shanghai courts have a good reputation on cases with an international aspect, and procedures can be quite speedy and cost-effective.

Conclusions

The key to remember, is that most deals are not as straightforward, and so the right dispute resolution mechanism may be a clause worth fighting over. We all prefer to avoid disputes, but if things do wrong it is best to have a clear route to a good result.

R&P's litigators represent clients before courts and arbitration tribunals across China. Our expertise and experience in negotiations as well as formal dispute resolution give us a strong basis to advise clients on dispute mechanisms in contract clauses. For more information, legal advice and support, contact Maarten Roos at [email protected] or reach out to your usual contact at R&P.