How to Draft Arbitration Agreements with Chinese Suppliers

Drafting a clause of a broader contract or an independent agreement with Chinese suppliers is a crucial step to establishing a dispute resolution mechanism, offering assurance to both parties. Key considerations include:

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.

Under Chinese law, failure to designate a specific institution causes the clause invalid.

It’s important to note that ad hoc arbitrations seated in China are only recognized in Shanghai.

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.

Arbitration is generally available for contractual and commercial disputes, including:

• Breach of contract
• IP disputes (e.g., licensing agreements, trademark infringement)
• Joint venture disagreements
• Construction and engineering disputes

However, in China, the following disputes are not arbitrable:

1. Labour disputes and agricultural contract disputes within agricultural collective economic organizations;
2. Marriage, adoption, guardianship, custody, inheritance;
3. Administrative disputes.

Governing Law

State the governing law of the contract (e.g., “This agreement shall be governed by the laws of the People’s Republic of China”).

Seat of Arbitration

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.

Arbitration Rules

State the rules of the chosen arbitration institution (e.g., “The arbitration shall be conducted in accordance with CIETAC Rules, ICC Rules, or other recognized rules”).

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.

Language of Arbitration

Specify the language to be used during arbitration proceedings.

Given that Chinese arbitrators are generally proficient in both languages, specifying the arbitration language may not be necessary.

Finality of Award

Mention that the arbitration award shall be final and binding on both parties.

Legal Fees

In international arbitration, cost-shifting (e.g., “loser pays”) is more common and accepted. Here is an example:

“The prevailing party shall be entitled to recover its arbitration fees, attorney fees, expert witnesses fees, translation fees, and other reasonable expenses incurred in connection with the arbitration from the non-prevailing party, as determined by the arbitral tribunal”.

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:

Guangzhou Arbitration Commission Model Clause:

HKIAC Model Clause:

Frequently Asked Questions (FAQs)

What is the key difference between arbitration and litigation in China?

• Arbitration is more confidential, while litigation is conducted in open court.
• Arbitration decisions are final and binding with limited grounds for appeal, unlike litigation, which allows multiple appeals.
• Arbitration is more flexible, allowing parties to have the freedom to choose their arbitrators and institution.

What are the steps in the Chinese arbitration process?

Can arbitration awards in China be enforced internationally?

Yes, under the New York Convention (1958), China’s arbitration awards are enforceable in over 170 member countries. Likewise, foreign awards can be enforced in China, provided they meet certain requirements.

What are the costs of arbitration in China?

• Costs typically include arbitration fees, administrative fees, and legal representation fees.
• Arbitration fees are often calculated based on the amount in dispute, as per the rules of the chosen institution.
• Some institutions allow for cost-shifting, where the losing party pays part or all of the costs.

How long does arbitration in China take?

Arbitration is typically faster than litigation. Most cases are resolved within 6–12 months, depending on the complexity and institution.

Can the parties appeal an arbitration award in China?

No. Arbitration awards in China are final and binding, with limited grounds for challenge, such as:

• Lack of jurisdiction.
• Procedural irregularities.
• Public policy violations.

However, challenges made through Chinese courts are very rare.

Is it mandatory to appoint a Chinese-registered lawyer for foreign parties?

No, it is not mandatory.

Parties can represent themselves or appoint any legal representatives, such as foreign lawyers, legal consultants, company employees, or other legal representatives who can represent a party, provided the arbitration rules and institution allow it.

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 how to solve your legal dispute by arbitration, feel free to reach out to us at contact@gbaiplawyer.com.