Business and Commerce
Read whole topic Back Print Forward

E. Resolving commercial disputes in Mainland China

The following information gives a general introduction to the resolution of commercial disputes by legal means. Settling disputes through the legal process in Mainland China should not be carried out without the advice of a lawyer who specialises in the laws of the People's Republic of China (PRC).

Generally speaking, there are three ways of resolving commercial disputes in Mainland China: consultation and mediation, arbitration, and litigation.

Consultation and mediation

Consultation can be facilitated by a third party if agreed on by the disputing parties. It is largely an informal way of dispute settlement, but the result can still be legally binding if it is properly recorded in an agreement between the parties.

Mediation that is presided over by a judge is a required step during litigation procedures according to the PRC Civil Procedure Law《中華人民共和國民事訴訟法》. The judge who hears the case will usually conduct mediation after the initial presentation of the case in court with evidence and argument by both parties.

If the mediation process is conducted out of court, then the parties will try to reach an agreement to settle the dispute before an impartial third party. The Beijing Conciliation Centre of the China Council for Promotion of International Trade (CCPIT) conducts formal mediation between Chinese and foreign parties in accordance with its own mediation rules.

However, the choice of mechanism for dispute resolution is usually between arbitration and litigation.

Arbitration

In simple words, arbitration is a legal process in which the dispute of the parties is heard by a private individual or panel of several private individuals (qualified arbitrators), rather than the courts. Arbitration results in an award or decision being made by the arbitrator(s).

Arbitration between Chinese and foreign parties in China is usually conducted by the China International Economic and Trade Arbitration Commission (CIETAC) in Beijing, Shanghai or Shenzhen in accordance with its own Arbitration Rules and subject to the PRC Arbitration Law 《中華人民共和國仲裁法》 and other relevant laws.

Most foreign investors prefer to resolve commercial disputes by international arbitration. As in this way, arbitrators with expertise at international level can be appointed and the local favouritism of the courts in Mainland China can be avoided. It is important to have a well-drafted arbitration clause in the contract to ensure that international arbitration is the choice that is implemented.

There are also some special provisions regarding the resolution of certain types of dispute in Mainland China. For instance, attempts to settle labour disputes should be made through arbitration by the relevant local labour arbitration committee (with or without prior mediation) in the first instance. If either party is dissatisfied with the arbitral award, then the case can be brought to the relevant People's Court.

Litigation

The basic framework for civil litigation in Mainland China is laid down in the PRC Civil Procedure Law. Other relevant sources of authority include various judicial interpretations by the Supreme People’s Court or the Supreme Procurate (最高人民檢察院), the PRC Contract Law, the laws and regulations that govern foreign investment enterprises, and the Foreign Investment Enterprise Winding Up Measures《外商投資企業清算辦法》.

There are four levels of court in Mainland China, each of which has specified jurisdiction over certain kinds of litigation.

Supreme People's Court


Higher People's Courts


Intermediate People's Courts


Basic Level People's Courts

Most of the cases that involve commercial disputes are heard in the first instance (at the first time) by the Basic Level People's Courts with the relevant territorial jurisdiction. For contractual disputes that involve foreign elements (for example, one of the parties to the contract is a foreigner or foreign company, or the place of performance of the contract is in a foreign country), cases may be heard by the Intermediate People's Courts with the relevant territorial jurisdiction. The Higher People's Courts of the relevant territorial jurisdiction hear cases that have a substantial impact in the respective jurisdictional territory. Cases that have a substantial nationwide impact or that are deemed to be appropriate are heard in the first instance by the Supreme People's Court.

Any party that disagrees with the decision of the court of first instance (which heard the case at the first time) may appeal once to the court immediately above.

Judicial review

Under the PRC Administrative Review Law 《中華人民共和國行政復議法》, foreign investors also have the right to seek a judicial review of sanctions and decisions that are made by the Chinese government organisations.

Accidents, loss of identity documents and criminal matters

If you (as a Hong Kong resident) have met with an accident or are arrested or detained for involvement in a criminal case in the Mainland, you can seek help from the Office of the Hong Kong Special Administrative Region in Beijingor the Hong Kong Economic and Trade Office in Guangdong. The Immigration Department of the HKSAR Government provides a summary of such assistance services at http://www.gov.hk/en/residents/immigration/outsidehk/assistmainland.htm.

Top