Visitors to the Mercedes at Auto China Booth: German companies should avoid in court processes in China. Source: AP
COLOGNE. In the German-Chinese business arbitration agreements are widespread. In fact, parties often have little confidence in the legal system of the contractor. No German entrepreneur fights voluntarily before the courts in the People’s Republic. The process risks are considered totally unpredictable. For the same reason Chinese companies oppose a German court. Moreover, the verdict of a local court in China would be completely worthless – it can not be enforced there. In order to enforce their rights effectively, they need to know German companies the special rules of the Chinese arbitration.
But for arbitration in China do not apply the international standards that foreign firms are used to. It eliminates the company’s most pleasant so-called ad hoc arbitration, in which the parties are free to choose, by whom and under what rules they can settle their dispute, not recognized in China.
The dispute resolution before international arbitration organizations in the German-Chinese business has no legal security. "China itself accepts the decisions of the recognized arbitration institutions are not without exception," says Patricia Nacimiento, partner at the law firm White & Case in Frankfurt. An example: "Although the Court of Arbitration of International Chamber of Commerce (ICC) has developed a specially tailored to Chinese requirements model clause, their arbitration awards in China are often not enforceable." The same applies to decisions of the German Institution of Arbitration (DIS).
Such arbitration agreements but are considered when an execution in China is not required. "Companies should consider prior to closing if, the Chinese business partners in foreign offices or other property," Jan K. Schaefer, Attorney recommends the Frankfurt office of Allen & Overy. "Then the claims may be enforced there."
To convince the Chinese company of arbitration outside their home country, Schaefer recommends Asian arbitration institutions such as the International Arbitration Centre in Hong Kong or Singapore. Because: "These organizations offer arbitration in accordance with internationally accepted standards, such as the Arbitration Rules of the United Nations Commission on International Trade Law, UNCITRAL." Thanks to the place of arbitration Chinese contractors have still the feeling of home advantage.
Otherwise, as an alternative to proceedings under the rules of the Chinese International Economic and Trade Arbitration Commission (remains short CIETAC) – now one of the major arbitration institutions in the world. Their decisions can be enforced by foreign companies in China. That lurk other sites: "The parties can freely determine the language," says Nacimiento. "By this vote, the parties have to explicitly make use of. If the arbitration clause, this is no agreement, negotiated solely in Chinese."
Although hampered the impact of foreign firms to the procedure considerably, they do not think often of such a dispute – in the current international arbitration agreements wordings are usually not necessary.
Equally important is the selection of the arbitrators. The parties can choose their mediator from a list given by the Arbitration Institute. Then there are also some foreigners, so that the parties may agree to an international composition of the Panel. Also in the procedural rules require an explicit scheme in the contract – otherwise, the arbitral tribunal shall determine the CIETAC by yourself.
"The arbitration agreement for CIETAC process must be formulated very carefully," concludes Schaefer. "The recommendation to adopt the model clause is unchanged, this expressly." German companies should use all possibilities to make the process as they wished. They must, however, ensure that the clause met the requirements of the Chinese Arbitration Law. For an invalid arbitration agreement with the result that the case ends up before a state court – exactly what the company wanted to avoid absolutely.
Tags: business arbitration, allen overy, german entrepreneur, arbitration agreements, arbitration of international chamber of commerce
