For Better Court Ruling Enforcement: Civil Procedure Law Amended

The standing committee of the National People’s Congress adopted (in Chinese) a draft amendment to the Civil Procedure Law of China on October 28, 2007, and the amendment will come into effect on April 1, 2008.

Aimed at solving persistent problems with the enforcement of civil judgments, the Amendment has been expected to improve the execution of court rulings. The following sheds some light on the background of the adoption of the Amendment:

Chinese courts found that in 2006, 2.13 million civil case rulings had not been carried out by the due date. Almost half of those rulings have still not been implemented, and the verdicts remain empty words on a piece of judicial paper.

The amendment multiplies by a factor of ten fines for those who refuse to execute a civil court ruling -- fines climb from 1,000 yuan to 10,000 yuan (1300 U.S. dollars) for individual offenders, and from 30,000 yuan to 300,000 yuan (39,000 U.S. dollars) for companies.

The law also said that those who refuse to cooperate with civil courts in making sure a ruling is executed may be detained.

Hopefully, the Amendment will give the Civil Procedure Law some sharp teeth, and one can only hope those charged with the authority and duty to carry out enforcement duties will actually “bite” hard.

Read this for more background info regarding the Amendment.

Calling China “Names”

I have read or heard many labels used to describe China lately.

For example, some call it “the country of contradictions” while others conventionally label it the “Asian Dragon.” Still others view it as “strategic competitor” or “the China Threat.” Meanwhile, the Chinese government calls its country “socialism with Chinese characteristics.”

The latest one I read comes from the governor of the State of Tennessee, Gov. Phil Bredesen, who just wrapped up a nine-day business trip to China along with some 100 strong business delegates. On his way home somewhere in the Pacific Ocean, he wrote down his thoughts about China, which can be shortened to four items:

First, an insight about America: The Chinese are willing to do big things; we need to rediscover that audacity here at home. I've felt for a long time that we confine ourselves far too much to frittering around the edges of opportunities — in infrastructure, in transportation, in health care.

Second, China is enormous; 1.3 billion people is a quarter of the world…wealth is definitely there and growing exponentially. China is having its coming-out party.

Third, the political system in China is unique and defies labels…

And fourth, we need to work hard to open more doors to China. I want more trade missions, and I especially want more Chinese students here and more American students to go to China…

Despite Governor’s comment that China “defies labels”, he defines China as, “A one party capitalist country with no Bill of Rights.” I thought that is a pretty good one.

Read the Governor’s report here.

Amendments to Lawyer's Law Adopted

China's top legislature, the Standing Committee of the People's Congress, adopted amendments to the Lawyer's Law. The amendments should, as reported, bring some much needed good news to criminal lawyers.

One distinct change in the new Law will "make it easier for lawyers to meet criminal suspects and obtain evidence", because "Chinese attorneys have long complained of difficulties in meeting criminal suspects and having access to files and evidence when defending criminal cases."

Attorney-client privilege, a long coveted luxury for Chinese criminal defense lawyers, might become a reality to a certain extent. As reported, "[d]efense attorneys and criminal suspects will not be monitored when they have a conversation ... and defense lawyers are entitled to look up all files and materials relating to the case."

The amendments will also provide immunity to defense lawyers for their in-court comments and remarks. But the immunity can be had to the extent that the comments and remarks "do not threaten national security or slander others." But, as many know, the concept of "national security" is a very fluid one in China.

As the practice of law has gradually become more and more important to the Chinese society, these amendments represent yet another step forward in building a national under the "rule of law."

I will examine the amendments more closely and report other significant changes to the existing Lawyer's Law. Please check out my previous posts (I and II) on the anticipated amendments.

Interesting Blog about Life and Law in China

I have been reading posts at a new blog out there called the Boulder2Beijing (砬到北京). It is written by two lawyers who just moved to Beijing, and they describe their blog as "chronicles the life of two American attorneys moving along the 40th parallel from Boulder, Colorado to Beijing, China for a year." Any time you link your experience with earth's parallel, it just sounds intelligent, somehow.

The authors, Katie and Micah Schwalb (not sure if they are related), write about their encounters in China, observing life with their acute lawyers' eyes. For a sampling, the following is an excerpt of a confession written to the Beijing police for "violating" Chinese law:

Under prompting by the female officer, Katie wrote the following:

I have lived at Yicheng Dongyuan Garden and did not re-register at the local police station as I was unaware of the necessity to do so. I understand that I have been given a warning. I apologize for not complying with the requirement, and will comply this afternoon.

The officer really wanted Katie to write, "I know I was wrong to break the law and apologize for doing so," but Katie just couldn't bring herself to take the dictation of that last sentence. She got pretty close, though.

Imagine an American lawyer admitting that she violated the law in a written confession handed to the police...Her constitutional criminal procedure prof would not be happy had she succumbed to the officer's demand.

The blog has been added to my blog roll.

Italian Pasta Makers: Under Investigation for Price Fixing

This title has nothing to do with Chinese law, but it does resemble a previous post here on noodle price fixing in China.

According to a BBC report, the Italian authorities have initiated an investigation into suspected price collusion on pasta by Italian pasta makers. Microscope has been placed on the “members of the Industrial Union of Pasta Makers, which represents about 85% of the market, [allegedly] colluded to fix the price of spaghetti, fettuccine and other favourite pasta dishes.” A sharp rise of about 20% in pasta price and angry consumer reactions to the price surge prompted the government to take regulatory action.

Responding to suspected price collusion, the pasta makers blame rising cost of durum wheat for the surge of price in pasta. Ramen noodle makers in China presented similar arguments while under investigation for price fixing, claiming that rising cost of flour and cooking oil was to blame.

Never thought a low profile food like noodles could be in the spot light like this, in China and Italy.

China and the WTO: Six Years of what?

It has been almost 6 years since China ascended into (or shall I say onto) the WTO. And what a six years it has been for China and the other member countries of the WTO! For optimists, the six years have been a period of remarkable progress in terms of regulatory reformation and unprecedented market access into China. A recent report brought forth by China Trade Gateway rings such an optimistic tone, yet with restrained hope for more reforms to be undertaken by China.

First off, the report shows some notable benefits that China has harvested from its entry into the WTO. Contrary to fears of many Chinese, foreign competition resulting from the WTO has increased domestic companies ability to survive an ever more competitive market. For example:

[T]he price of imported vehicles are getting lower but at the same time cars made in China are increasing their market share more, banking reforms are coming into place, the insurance sector is finally improving, the entertainment industries are opening up to the West, but also Chinese movies and music are targeting Western audiences.

Along the same line, many Chinese companies have “selectively adopted” Western practices, such as “management principles and customer service, which leads to a beneficial integration in companies, and in the long term into the consciousness of Chinese people.” I agree with this observation and believe the Chinese will catch up with some Western companies soon, adopting and adapting to skills, methods, and technologies brought by foreign firms.

Second, WTO member countries have also mutually benefited from China. Most obviously, improved market access means more opportunities to invest in sectors and industries previously inaccessible. Retail, franchising and other means of distribution have become bright spots for investment due to more friendly governmental regulations. In all, according to this report, “China has reviewed more than 2,000 trade related laws and regulations…and has abolished over 700 of them, amending others to bring the country into compliance.” As reflected in figures released by the World Bank, “the Chinese economy contributes to 13 percent of the world's economic growth.” Furthermore, the report cites that a total of “USD 57.94 billion was remitted out of China as profits” in a span of five years following China’s entry to the WTO. These are impressive figures and presumably rewarding profits.

Third, areas of outstanding concerns exist despite the mutually beneficial relationship between China and other member countries. Cited by the Europeans and the Americans, the following areas remain problematic and contentious:

China's enforcement, the transparency and consistency of Intellectual Rights Protection, the currency evaluation of the renminbi, existing trade barriers in China for agricultural products through Sanitary and Phytosanitary measures, continuous interferences of the state in certain industries, such as telecommunications and for example the steel industry, as well as recent import tariffs on foreign auto parts. On the other hand, China still faces protection from the US and European governments in industries they feel threatened by, leading to high anti-dumping cases.

Finally, looking beyond the haze of remaining issues, the author of the report sees promising opportunities ahead in many major industries and areas. Examples include banking & financial services sector, telecommunication, distribution and retail sectors, services as well as mergers and acquisitions.

The future sure looks good in the eyes of this report, does it? Read the full article here.

A Delicious Case of Moon Cakes for Hong Kong

For many westerners, moon cakes, a traditional Chinese dessert consumed during the Mid-Autumn Festival, are much like fruitcakes (if you get my drift).

For the Chinese, moon cakes, however, are an integral part of the wonderful traditions surrounding the Mid-Autumn Festival.

And for a Hong Kong moon cake maker, Wing Wah Moon Cake Co. (“WWMC” Co.), a recent victorious lawsuit in the Dong Guan Intermediate Court brought an extra measure of sweetness.

WWMC Co. has had many problematic encounters with infringers in the mainland over its trademark. It began selling its delicious moon cakes in the mainland in 1987, and established a factory in Dong Guan, Guangdong Province subsequently. Infringing moon cakes bearing WWMC Co.’s trademarks soon followed its presence in China. Unfortunately, WWMC Co. did not register its signature moon cake trademark, which significantly limited its options in term of protecting its trademark rights.

After waiting for more than a decade (and probably swallowing the dire consequences of not registering its trademark prior to entering China), WWMC Co. finally slammed its infringers with a lawsuit in Dong Guan, claiming trademark infringement and unfair competition. Notwithstanding the unregistered status of its trademark, WWMC Co. wisely predicated its request for trademark protection on the provisions regarding famous trademarks provided in the Chinese Trademark Law. Defendants in the case included many large retail supermarkets and small companies.

The Court agreed with WWMC Co. It found confusion between the infringing moon cakes and those of the plaintiff because the packaging and appearance of the alleged infringing cakes were the same as or similar to the plaintiff’s. Given the similarities, consumers, as the Court reasoned, could be easily confused as to the source of the moon cakes. (I would have liked a copy of the opinion to see how exactly the court reached this conclusion since most moon cakes do look pretty much the same to me. I guess the Court mostly focused on the packaging.)

With respect to trademark protection, the Court stated that registration of a trademark is not a necessary condition to protection in China under the Trademark Law. A trademark could gain the “famous trademark” status in a given market if its owner has conducted continuous, extended advertising and marketing, and if its owner has established brand recognition among consumers in a given market. Since WWMC Co. has met the above requirements, the Court held that its trademark is legally “famous”, thus deserving protection in spite of the fact that it is not registered.

Of course another important factor is that the infringement occurred in the same category of products—moon cakes. Had the usage of the trademark in question been in a totally unrelated industry, the result would be very different. Got to remember that protection for unregistered famous trademark is only limited to instances where illegal use occurred in the same or similar products/goods.

This case is significant for a few reasons. First, many trademark owners have an alternative way to protect their intellectual property rights if somehow their trademark is not registered in China, and I do see an increasing number of cases where plaintiffs take the “famous trademark” route for relief. In fact, that is what inspired WWMC Co. to sue in this case.

Second, the strategic choice of venue in Dong Guan Intermediate Court was a shrewd move. WWMC Co. has a factory in Dong Guan, and presumptively this factory generates good tax revenue for the city, and making this venue a friendly place, even though WWMC Co. is an outsider. Of course, the Court seemed competent in arriving at the right decision.

Third, I kept wondering whether a Hong Kong plaintiff has a distinctive advantage over its western counterparts in “famous trademark” cases. In Southern China, especially in Guangdong, certain famous marks in Hong Kong will probably gain consumer recognition easily due to the affinity in culture and language. However, western famous trademarks might not because of the huge cultural and language barriers. To overcome the barrier, western companies will have a higher bar to meet in terms of the requisite advertising, establishing consumer recognition with their brands. Therefore, I think that Hong Kong trademark owners have an edge over their western counterparts in famous mark lawsuits. (as a side note, this is purely based on my instinct and limited understanding of doing business in Southern China.)

So, your comments are welcome.

China's New Property Law--Common Ownership Dispute Surfaces

Another interesting case involving the new property law is pending in the Beijing Intermediate People’s Court for er sheng (court of second instance).

Briefly, plaintiff Ms. Ji sued her three sons to regain ownership of real property gifted to them. The property in question had been transferred by plaintiff and her late husband, but following his death, plaintiff wanted to retract the gift because her sons did not properly fulfill their filial obligations to her. The trial court held the defendants did not substantially violate the rights of the transferors, thus the gifted property stays with defendants. Plaintiff appeals the judgment, citing the new Property Law’s treatment on common ownership.

Common ownership, in the Property Law, is divided into two forms: ownership by shares and undivided common ownership. For a concise yet accurate rendition of the law, I quote in full China Law Blog’s post:

Division 8: Common Ownership

There are two forms of common ownership: ownership by shares and undivided common ownership. Absent a specific agreement, common ownership is assumed to be ownership by shares except in the case of a family relationship, where the opposite assumption is made.

1. The basic attributes of ownership by shares is:

Each common owner has a percentage ownership in the undivided property. The amount of each share is based on the amount contributed by the party to purchase the property. If this amount cannot be determined and there is no express agreement, the common owners will all have equal shares.

The common owners share in income and expenses in proportion to their share interest. However, with respect to third parties, common owners have joint liability.

Each common owner has the right to sell his share in the property, subject to the right of first refusal of the other common owners to purchase that share.
Each common owner has the right to petition for partition of the commonly owned property.
******
2. The basic attributes of undivided common ownership is:

Each common owner has an undivided ownership interest in the entire property.

Each common owner has a right to the income of the property and also the obligation for the expenses of the property. The common owners have joint liability with respect to third parties.

No common owner has a right to sell any portion of the property absent the consent of all of the other common owners.

As a general rule, a common owner does not have the right to petition for partition of the property. However, partition is
permissible if a) there is a compelling reason or b) the underlying relationship is terminated. A compelling reason is not defined in the statute, but the commentaries suggest a major medical expense would be such a reason.

Termination of the relationship most commonly would be divorce.
As with ownership by shares, the default rules for undivided common ownership can be modified by agreement.
******

In the present case, a presumption of undivided ownership applies to the property at bar because of ownership by a wife and her deceased husband. If plaintiff’s assertion of undivided ownership prevails, the plaintiff has the right to alienate the property with the consent of her co-owner, who is now dead. So the sticky issue is whether she has the sole authority to withdraw the gift.

Of course, the plaintiff can argue in the alternative that she owns the property by shares, presumably equal shares, thus she has the right to alienate her half of the property. But she has the burden to overcome the presumption of undivided ownership.

A fascinating case, and I will track its progress in the Court.

“Corruption Threatens China’s Future”

Just read Dr. Pei Minxin’s article titled Corruption Threatens China’s Future published under the auspices of the Carnegie Endowment for International Peace. This comprehensive piece details the extent, causes, impact of corruption in China.

A. Extent of corruption in China

People generally know that corruption is rampant in China, but how bad is it? How much does it cost China? According to Dr. Pei’s research, China’s National Audit Agency measured misused governmental funds at a whopping $170 billion (yes, that is in U.S. dollars) from 1996-2005, representing about 8% of “on-budge spending for this period.” While acknowledging the difficulty of accurately measuring the exact dollar amount of corruption, Dr. Pei did come up with a unique formula to arrive at a concrete number.

To estimate roughly the direct cost of corruption, we can suppose that 10 percent ofgovernment spending, contracts, and transactions is used as kickbacks and bribes or is simply stolen. The Chinese government’s procurement budget in 2005 was 300 billion yuan. The so-called administrative spending in China’s official budget, about 20 percent of the total spending (470 billion yuan in 2003), is another juicy target. If 10 percent of the procurement budget and administrative spending is stolen or misused, this would amount to
0.65 percent of gross domestic product. Sales of land user rights by the government generated 580 billion yuan in 2005. Bribes to local officials could easily amount to 10–2percent of the revenues generated (58–116 billion yuan, or 0.5–1.0 percent of GDP). In 2003, the state-owned entities spent 2.1 trillion yuan (19 percent of the GDP) on fixed asset investments. If 10 percent were stolen, it would cost nearly 2 percent of GDP. Based on the conservative assumption that 10 percent of the land lease revenues, fixed investments, and government spending is stolen or misused, the direct costs of corruption in 2003
could be 3 percent of GDP, roughly $86 billion, an amount exceeding the government’s entire spending on education in 2006.

Based on his formula, the direct cost of corruption in 2003 to $86 billion, an amount larger than the Chinese government’s entire spending on education in 2006 (emphasis added). [all I can think of is how many schools could have been established, how many teachers in rural China could have been paid on time, and how many first rate research labs could be set up…]

B. Causes of corruption in China

Dr. Pei then pointed out some characteristics of corruption in China, to wit:

Corruption in China is concentrated in the sectors with extensive state involvement: infrastructural projects, sale of land user rights, real estate, government procurement, financial services, and heavily regulated industries. The absence of a competitive political process and a free press in China makes these high risk sectors even more susceptible to fraud, theft, kickbacks, and bribery.

In other words, wherever governmental control and interferences are the greatest, corruption is likely to result for lack of political transparency. In addition, a “partially reformed economy”, lack of enforcement of laws and regulations, and the government’s inability to adopt an effective regime to combat corruption all contribute to the festering of corruption in China. His analysis on the root causes of corruption in China is the most incisive that I have read so far.

C. Impact of corruption

Dr. Pei argues that corruption affects China and the rest of the world. Domestically, corruption fuels “China’s rapid increase in socioeconomic inequality and the public’s perception of social injustice.” And, “the indirect costs of corruption—efficiency losses; waste; and damage to the environment, public health, education, the credibility of key public institutions, and the morale of the civil service—are incalculable.” Additionally, the impact of corruption in China could spill over to foreign countries, and it could be manifested in areas such as global public health and the environment. Therefore, Dr. Pei calls on western countries to assist China in fighting corruption, specifically by urging it to reform its political and legal systems, sharing information with China, and increasing legal cooperation with China.

A great read if you care about this stuff, but I doubt that the situation will improve unless fundamental changes occur within China’s political system. Until then, anything done by the Chinese government is like a band-aid on a malignant tumor. For example, the newly established cabinet level—The National Corruption Prevention Bureau of P.R. China.

China’s New Property Law Put to Test

Many have either mused about or questioned the true color of China’s new Property Law. Will it provide adequate protection to private owners of real property? Will it be seriously enforced to safeguard the burgeoning private ownership of property? Will it be sophisticated enough to cover myriad legal problems that surface in a growing market economy (assuming that all agree that China has a market economy already)? Will Chinese courts be knowledgeable enough to interpret the law to protect property owners? Will the courts withstand the ultimate test of judicial independence to adjudicate property disputes between private citizens and the government? Or, will the Property Law be just another “decoy” masterminded by the Chinese government to legitimize its continuous rein of the People’s Republic? These are tough questions, and the answers to which will unfold a telling map of China’s progress to establish a systematic institution of the rule of law.

Systematic changes do not occur overnight in China. As the Chinese firmly believe that “Rome was not built in one day”, they will likely continue with the experiment with establishing their version of the rule of law at their own pace. Therefore, answers to the above-posted questions will not come in one neat package. I think the Chinese government will afford extra caution to the Property Law given the political sensitivity of currently competing views on property ownership (government ownership versus private ownership).

Nonetheless, the great test on the new Property Law has begun. No sooner did the week-long national holiday end than a slew of case got filed under the new law. Two representative cases are particularly interesting and will be discuss here.

In the case of Shen v. Beijing Zhongjiaxin Auction Ltd., the central issue is whether the Property Law is applicable to disputes predating the effective date of the new law. Briefly, the facts of the cases are as follows in the form of an outline:

1998
Plaintiff Mr. Shen purchased 6 condos for 120,000 Yuan from Mr. Yan.

06/10/1999
Plaintiff received titles to the 6 units. Plaintiff leased the units to various tenants.

2002
The Shijiazhuang Intermediate People’s Court convicted Mr. Yan for illegal business activities and bribery.

The Court also ruled that the 6 condos then in Mr. Shen’s possession were Mr. Yan’s property, and it subjected them to judicial auction. Beijing Zhongxiaxin Auction Ltd. was the court-appointed auctioneer.

09/2007
Defendant Auction company evicted the lessees of Mr. Shen’s units, and auctioned the condos.

09/2007
Plaintiff sued the defendant at the Chang Ping People’s Court (Chang Ping is a district in Beijing), claiming the defendant violated article 4 and 64 of the Property Law (governmental, collective and private ownership of property is protected by law).

The general rule is that a law is applicable to disputes following its effective date. But the plaintiff is petitioning the Court to apply the new law regardless of the general rule. What do you think the Court should do here?

--to be continued.

PROPERTY? IT IS MINE…

As it is reported, commented, and known by many by now, China’s new Property Law became effective as of October 1, 2007. Promulgated in context of growing private property ownership and changing political views regarding same, the Property Law has become a focus of academic discussions and has fused a flurry of lawsuits in China. In my 1L (first year law school) property class, Professor Tate introduced me to the Toddler’s Property Law, and it has since stuck with me. Before I introduce a few interesting cases freshly filed in China, I figure that sharing the Toddler’s Property Law could help people understand what Chinese litigants might be arguing about in terms of their views on property ownership.

Here it goes:

1. If I like it, it's mine.
2. If it's in my hand, it's mine.
3. If I can take it from you, it's mine.
4. If I had it a little while ago, it's mine.
5. If it's mine, it must never appear to be yours in any way.
6. If I'm doing or building something, all the pieces are mine.
7. If it looks like it's mine, it's mine.
8. If I saw it first, it's mine.
9. If I can see it, it's mine.
10. If I think it's mine, it's mine.
11. If I want it, it's mine.
12. If I "need it, it's mine (yes, I know the difference between "want" and "need"!).
13. If I say it's mine, it's mine.
14. If you don't stop me from playing with it, it's mine.
15. If you tell me I can play with it, it's mine.
16. If it will upset me too much when you take it away from me, it's mine.
17. If I (think I) can play with it better than you can, it's mine.
18. If I play with it long enough, it's mine.
19. If you are playing with something and you put it down, it's mine.
20. If it's broken, it's yours (no wait, all the pieces are mine).

(See May It Please the Court Weblog)

In my next post, I will blog about a few cases involving joint ownership and whether the new law is applicable to disputes predating its promulgation.

Please check back later.

China’s Judiciary: Past, Present, and Future

China Law Professor Blog’s recent post alerted me to the video recording and outline of a speech delivered by Justice Wan Exiang (万鄂湘) at the Organization of American States.

Justice Wan Exiang had his legal training in Wuhan University in China and at Yale Law School, and he is recognized as an expert in international law. He is a Grand Justice of the Supreme People’s Court of China, and teaches at the Wuhan University Law School. Here is his resume in Chinese; here in English.

On September 25, 2007, he delivered his speech, in his own words, as a law professor so as to promote open discussion on the reforms of China’s judiciary. The speech last about an hour, but he did a nice job of sketching out the grand schemes of reforms undertaken by China as well as work that remains to be done.

It is well worth the time to listen to the speech in its entirety. I advise you to read the outline first so that you don’t miss anything in listening to it.

“Mandarinize” Your Arbitration Clause for China

Someone once analogized international arbitration in China to playing the Chinese Chess. Here it goes:

Chinese Chess or Xiangqi has been played for thousands of years. The game shares common ancestry with the more familiar International Chess, but it also has differences that make it unique. Likewise, resolving disputes by arbitration in China is similar to that conducted at any major international arbitration centre - except that there are some features unique to China.

Despite the Chinese government’s grand visions for improving China’s legal system and the actual incremental progress in its judicial process, most international investors still prefer arbitration to solve their disputes arising out of their China-related transactions. Arbitration, undoubtedly, can be an efficient, private, and economical way to solve disputes that preserves cross-border relationships and confidentiality. However, satisfactory arbitration results very often hinge on the content of the arbitration clause/agreement itself. To reduce the risk of arbitration proceedings going awry in China, foreign investors must know the rules of the game in China and adjust their strategies accordingly.

A. To gauge whether an arbitration clause/agreement is China ready, it is very important that one includes the following provisions:

1. Clear expression of intention to arbitrate

2. Specification of an arbitration institution

For example, Shanghai sub-branch of the CIETAC

3. Scope of the matters to be arbitrated

Note that certain matters are not arbitrable in China, such as labor issues, family law related issues, and other administrative disputes.

In the recent disputes between Wahaha v. Danone, one of the arguments made by Wahaha to arbitrate in China was that there was a labor dispute between Mr. Zong and Danone, despite on-going parallel arbitration proceedings in Stockholm.

4. Language with which to arbitrate

For foreign parties, the most convenient language might be English, but make sure it is specified in this provision.

5. Governing law

To avoid uncertainties, parties should specify the substantive laws governing the interpretation of their agreement. It is, however, important to select laws of a jurisdiction with close reasonable connection to the transactions, and the governing law should be one sufficiently sophisticated to resolve the disputes. Additionally, make sure that the selected law allows the disputes to be arbitrated.

6. Situs/Location of Arbitration

The seat of arbitration should be specified (See above # 2). The CIETAC has multiple branches in China.

Some foreign investors, who want to skirt arbitration in China, should note that an attempt to arbitrate outside China will fail if such “foreign” parties are in fact organized under the Chinese law, i.e. wholly foreign-own enterprises. Nonetheless, parties, one of whom is foreign in the eyes of the Chinese courts, can agree to arbitrate outside China.

7. Choice and number of arbitrators

This is probably one of the most important provisions in the arbitration clause because the panel controls and determines the outcome of the arbitration. At the same time, this is probably the area about which foreign parties feel most uneasy about arbitration in China. Professor Jerome Cohen’s thoughts on Time to Fix China’s Arbitration, although a little outdated, shed light on the very issue. Subsequent to complaints and criticism regarding the formation of an arbitral tribunal, the CIETAC revised its rules (Chinese here; English here, giving parties more freedom in choosing the presiding arbitrator outside CIETAC’s list of arbitrators (subject to confirmation by the president of the commission).

To maximize neutrality, parties should agree to jointly appoint a presiding arbitrator from a neutral country. As is the norm, three arbitrators will suffice to constitute a panel.

B. Optional provisions for a China-ready arbitration clause:

1. Procedural rules

The CIETAC allows the parties to under rules of other arbitration institution, i.e. the ICC. However, ad hoc arbitration is not permitted in China.

2. Confidentiality

Article 40 of the Arbitration Law and Article 33 of the CIETAC’s Rules address confidentiality of the proceedings. Regarded as hallmark of arbitration, confidentiality is extremely important to parties involved, so a provision detailing the parties’ duty of confidentiality is neither excessive nor repetitive in spite of the above statutory and institutional guarantee of confidentiality.

3. Interim Relief

Only courts in China have the authority to grant interim relief in a pending arbitration. Typically, a party seeking relief must submit its request to the arbitration commission, which will in turn refer the request to a court with proper jurisdiction. A provision regarding interim relief is enforceable to the extent that it comports with the Chinese law.

4. Discovery

Recognized as another characteristic of arbitration, discovery is very limited to evidence supporting proponent's claims and refuting those of opponent's. Generally, written evidence is preferred in China, but parties may agree to have live testimony, which is probably better for a U.S. party. For an excellent read on this, check this out.

Dispute resolution should be a key component of planning for any international transaction, no matter how unlikely disputes may seem from the outset. As it is often said in China, one should always 未雨绸缪, meaning to prepare for a rainy day. In China-related transactions, one should prepare for resolving disputes in the contracting stage; and more importantly, one should prepare a China-ready method of dispute resolution. A careful examination of one’s arbitration clause might just save a lot of trouble in the future.

For additional reading materials on arbitration in China, I recommend this.

Crimes against a Chinese Lawyer

As reported by the New York Times and elsewhere today, Mr. Li Heping (picture), a Beijing lawyer and human rights activist, was abducted and beaten repeatedly by a group of thugs last Saturday. Based on his own descriptions of the event, he was threatened to leave Beijing with his family, and not surprisingly, he returned home to find his law license stolen.

Without venturing to speculate the hows and whys, I only wanted to express my admiration for his dedication to his profession, his conviction to his beliefs, and his courage to withstand known and unknown dangers ahead. As can be seen, privileges, plush life style, and security do not always accompany the practice of law. I guess lawyers are “hated” everywhere, at times.