DISPUTE RESOLUTION AND GOVERNING LAW CLAUSES IN CHINA-RELATED COMMERCIAL CONTRACTS LEGAL GUIDE FIFTH EDITION

Transcription

1 DISPUTE RESOLUTION AND GOVERNING LAW CLAUSES IN CHINA-RELATED COMMERCIAL CONTRACTS LEGAL GUIDE FIFTH EDITION Published November 2012

2 01 DISPUTE RESOLUTION AND GOVERNING LAW CLAUSES HERBERT SMITH FREEHILLS

3 CONTENTS 03 Introduction 04 Definitions 05 Section 1 Governing law clauses 10 Section 2 Dispute resolution clauses 21 Section 3 Traps to avoid 26 Appendix A Recommended governing law clause 27 Appendix B Recommended arbitration clauses 33 Arbitration contacts

4 03 DISPUTE RESOLUTION AND GOVERNING LAW CLAUSES HERBERT SMITH FREEHILLS INTRODUCTION Chinese law restricts both the choice of law and the types of dispute resolution mechanisms that can be used in China-related commercial contracts. As a result, drafting the governing law and dispute resolution clauses in these contracts is not straightforward. WHAT IS THIS GUIDE? This guide will help you understand: when the restrictions apply; and how to draft so you do not fall foul of them. The guide also explains a number of common traps to avoid to ensure your dispute resolution and governing law clauses are effective. WHO IS IT FOR? This guide is aimed principally at multinational companies who negotiate China-related commercial contracts, and need to understand the basics of mainland Chinese law and practice that affect their choice of dispute resolution mechanism and governing law. WHAT ARE THE KEY POINTS? When choosing the governing law of your contract, the key point is that Chinese law restricts your choice in certain circumstances. These circumstances are set out in Section 1. Where any of them applies, Chinese law must govern the contract. When drafting the dispute resolution clause, the key points are: arbitration is generally better than litigation; arbitration outside mainland China is generally a better option than arbitration inside mainland China; but arbitration outside mainland China is not always an option Chinese law requires certain disputes to be arbitrated in mainland China. Section 2 explains these points in more detail and gives guidance on drafting effective dispute resolution clauses. A number of common traps and areas of confusion can lead to a clause being invalid. Section 3 explains these and how to avoid them.

5 HERBERT SMITH FREEHILLS DISPUTE RESOLUTION AND GOVERNING LAW CLAUSES 04 DEFINITIONS BAC The Beijing Arbitration Commission BAC Rules The Beijing Arbitration Commission Rules effective 1 April 2008 China-related contract A contract where one or more of the following applies: (a) one or more of the parties is an entity incorporated in mainland China or an individual with mainland Chinese nationality; and/or (b) some or all of the contract is to be performed in mainland China Chinese law The law of mainland China CIETAC The China International Economic and Trade Arbitration Commission CIETAC Rules The China International Economic and Trade Arbitration Commission Arbitration Rules effective 1 May 2012 Commercial contract A commercial contract negotiated between parties as opposed to a consumer contract or a standard form contract HKIAC The Hong Kong International Arbitration Centre HKIAC Procedures The Hong Kong International Arbitration Centre Procedures for the Administration of International Arbitration effective 1 March 2005 HKIAC Rules The Administered Arbitration Rules of the Hong Kong International Arbitration Centre effective 1 September ICC The International Chamber of Commerce ICC Rules The Rules of Arbitration of the International Chamber of Commerce effective 1 January 2012 Hong Kong law The law of the Hong Kong Special Administrative Region LCIA The London Court of International Arbitration Litigation Resolving the merits of a commercial dispute in the national court system Mainland China The mainland territory of the People s Republic of China (PRC), not including Hong Kong, Macau or Taiwan New York Convention The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 Offshore Outside mainland China Onshore Inside mainland China SAC The Shanghai Arbitration Commission SAC Rules The Arbitration Rules of the Shanghai Arbitration Commission, effective 1 May 2005 SCC The Arbitration Institute of the Stockholm Chamber of Commerce SIAC The Singapore International Arbitration Centre UNCITRAL The United Nations Commission on International Trade Law UNCITRAL Rules The UNCITRAL Arbitration Rules 2010 WFOE A wholly foreign-owned enterprise 1. HKIAC is reviewing the HKIAC Rules and is expected to publish an updated version in 2013.

6 33 DISPUTE RESOLUTION AND GOVERNING LAW CLAUSES HERBERT SMITH FREEHILLS CONTACTS Justin D Agostino Head of Greater China Arbitration Practice Hong Kong T justin.d agostino@hsf.com Jessica Fei Partner Beijing T jessica.fei@hsf.com Brenda Horrigan Partner Shanghai T brenda.horrigan@hsf.com May Tai Partner Beijing T may.tai@hsf.com Herbert Smith LLP (now known as ) is licensed to operate as a foreign law firm in China by the Ministry of Justice. Under Ministry of Justice regulations, foreign law firms in China are permitted, amongst other things, to provide consultancy services on non-chinese law and on international conventions and practices, and to provide information on the impact of the Chinese legal environment. Under the same regulations, foreign law firms in China are not permitted to conduct Chinese legal affairs, including rendering legal opinions upon Chinese law. The contents of this publication do not constitute an opinion upon Chinese law. We would be happy to coordinate with Chinese counsel if you require a legal opinion on Chinese law. The contents of this publication, current as at 1 September 2012, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.

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