Drafting an international arbitration agreement with Chinese suppliers is a crucial step when formalizing commercial contracts. Such an agreement establishes a dispute resolution mechanism, offering assurance to both parties. Key considerations include:
1. Choosing an Arbitration Institution
The most widely recognized institution in China is the China International Economic and Trade Arbitration Commission (CIETAC).
Alternatively, if your supplier agrees, international institutions like the International Chamber of Commerce (ICC) or the Hong Kong International Arbitration Centre (HKIAC) can be considered, despite the high cost.
It’s important to note that ad hoc arbitrations seated in China are only recognized in Shanghai.
2. Seat of Arbitration and Rules
The choice of the arbitration seat, a legal concept referring to the jurisdiction in which the arbitration is deemed to take place, determines the law of arbitration clause governing the arbitration’s validity and procedures, but not governing the substantive contract. Practically, we will indicate a neutral third city in China as the seat for proceeding. Also, we advise choosing the laws of China as the law of the substantive contract.
Additionally, specify the arbitration rules that will govern the proceedings, such as CIETAC Rules, ICC Rules, or other recognized regulations.
3. Scope of Arbitration
The arbitration clause should not only be broadly defined as disputes “arising from”, but also “in connection with” the contract, including ALL matters like intellectual property infringements from an IP license agreement.
Narrowly defined scopes can lead to disagreements over whether a particular dispute is subject to arbitration.
In China, the following disputes are not arbitrable:
- Arbitration applications submitted with respect to labor disputes and agricultural contract disputes within agricultural collective economic organizations;
- Dispute over marriage, adoption, guardianship, custody, inheritance;
- Administrative disputes.
4. Number of Arbitrators
Decide whether to appoint a single or group of arbitrators. Complex disputes often warrant three arbitrators, while smaller transactions may opt for a single arbitrator to reduce costs.
5. Language of Arbitration
Specify the language to be used during arbitration proceedings. Agreements with Chinese suppliers typically designate both Chinese and English for communication and document submission.
Given that Chinese arbitrators are generally proficient in both languages, specifying the arbitration language may not be necessary.
6. Using Model Arbitration Clauses from Chinese Institutions
CIETAC Model Clause:
“Any dispute arising from or in connection with this Contract shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC)___________Sub-Commission (Arbitration Center) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.”
China Maritime Arbitration Commission Model Clause:
“Any dispute arising from or in connection with this contract shall be submitted to China Maritime Arbitration Commission
(CMAC) for arbitration in accordance with CMAC Arbitration Rules currently in force at the time of applying for arbitration. The
arbitral award is final and binding on all the parties.
Recommended additions:
The arbitral tribunal shall be composed of […] arbitrator(s).
The seat of arbitration shall be […].
The language of the arbitration shall be […].
This contract shall be governed by the law of […].”
Guangzhou Arbitration Commission Model Clause:
“Any dispute, controversy, divergence, or claim arising out of or relating to this contract, including the existence, validity, interpretation, performance, breach, or termination thereof, or any non-contractual dispute arising from or in connection with it, shall be submitted to the China Nansha International Arbitration Center for arbitration in accordance with its arbitration rules in effect at the time of applying for arbitration.
The number of arbitrators shall be [one or three].
The arbitration shall be conducted in [specify language].”
HKIAC Model Clause:
“Any dispute, controversy, difference or claim arising out of or relating to this contract, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration administered by the Hong Kong International Arbitration Centre (HKIAC) under the HKIAC Administered Arbitration Rules in force when the Notice of Arbitration is submitted.
* The law of this arbitration clause shall be … (Hong Kong law).
The seat of arbitration shall be … (Hong Kong).
The number of arbitrators shall be … (one or three).
The arbitration proceedings shall be conducted in … (insert language).
The fees and expenses of the arbitral tribunal shall be determined on the basis of … (Schedule 2 or Schedule 3) of these Rules.“
Further information
See more about the arbitration law of China
see more about how to retain a Chinese to conduct litigations in China if you want to submit the case to a court instead of an arbitration.
For legal advice on arbitration clauses or guidance on choosing between litigation and arbitration, feel free to reach out to us at contact@gbaiplawyer.com.
