Alternatives to the High Cost of Litigation (Vol. 28, No. 7 and 8)

Date: Aug 2010

Planning for Commercial Dispute Resolution:

The View from the People’s Republic of China

Resolving disputes arising out of crossborder agreements can be enormously costly and ultimately destructive of what was once a mutually beneficial business relationship. Chinese companies entering into cross-border agreements have critical choices to make with respect to the procedure by which disputes with the counterparty will be resolved.

China has a long and successful history of using mediation and arbitration to resolve disputes in China. When a Chinese company has the economic leverage to do so, it may well insist on arbitration in China under the well-known China International Economic and Trade Association Commission—better known as Cietac—Arbitration Rules.

The first part of this article explores alternative dispute resolution in all its forms in China.

And if a Chinese company is required or persuaded by its counterparty to choose arbitration outside China under the rules of an international institution, there are many fair and efficient sets of rules applicable in a variety of forums from which to choose. The second part of this article will explore factors to be considered in drafting such arbitration agreements and indentify several international institutions which administer arbitrations.

Mediation’s Longstanding Influence in China

Deeply rooted within Chinese culture is the importance of compromise as a means to resolve disputes and preserve harmony. The ancient Chinese philosopher Confucius observed that “Li,” or natural hierarchy, is on a higher plain than “Fa,” the rule of law. This view cuts across all relationships, including business relationships.

Within the Chinese business community, the conventional wisdom is that respect and compromise generate business. Because of this respect for harmony, the concept and use of conciliation—i.e., mediation—within China are deeply engrained. Nevertheless, when business disputes arise between Chinese parties and foreign parties, the use of onciliation, surprisingly, is not particularly welldeveloped. Randall Peerenboom & Kathleen Scanlon, “An Untapped Dispute Resolution Option: Mediation Offers Companies Distinct Advantages in Certain Cases,” 32 China Bus. Rev. 4, 36 (2005).

For business disputes between a Chinese entity and a foreign company (or its foreign investment enterprise counterpart), there are three basic conciliation options within China: (1) private mediation administrated under the auspices of an institutional provider;(2) settle the dispute outside the authority of a judicial body.

Before the protectorate era—see “The Basics” box on page 139—Moroccans used to submit their disputes to Oulemas or Fkihs— Muslim jurists—whose knowledge came from the Chraa, which is Muslim law. They were accredited due to their full knowledge and experience of professional uses and customs, and they were of good morality.

Also, tribal representatives, appointed due to their ethical qualities and their knowledge, discussed issues relating to disputes between community members within a Jmaa, or meeting, and proposed conciliation or arbitration as they saw fit.

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While arbitration use is now fairly extensive in Morocco, particularly at the international level, mediation use is not. Moroccan citizens do not trust this “private” mode of settling disputes, and there is lack of trust in the independent third party mediator, as opposed to a stateappointed judge. This distrust has even applied to some extent to arbitration.

But in both areas, the Moroccan government and various public and private organizations are currently working on increasing awareness of alternatives to litigation and on training professionals. Along with the recent changes in the law, therefore, there is reason to be optimistic about the future of alternatives to litigation in Morocco.

* * *

Next month, Worldly Perspectives moves to Eastern Europe and sets its sights on Romania.
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