What legal action to take, litigation or arbitration?
By Sun Jin(Marlow), Chinese attorney at Law, Zhejiang Xinmu Law Firm, All rights reserved, republishing this article please indicate author and source of this article. Nov. 30, 2010
Dear sir, recently we signed one international cargo sales agreement with one Chinese company, and they breached the agreement, hence we would like to file a case with CIETAC(China International Economic and Trade Arbitration Commission) against them, please let us know your professional opinion regarding this. Thanks.
In transnational/international trade business, when one party especially the foreign importer have dispute with a Chinese company, over theory, he can choose either litigation or arbitration. Over PRC laws, litigation and arbitration are two types of parallel (over some extent they are)dispute solutions. But there are many differences between litigation and arbitration.
1. The relationship between litigation and arbitration
First is the relationship between litigation and arbitration. Over law theory, these two type of solutions are in a relationship of “either… or ….”, that is whether two parties have one arbitration agreement will decide that what solution they can choose. If both parties have one valid arbitration agreement, then both parties would have to go to arbitrate the case but can not file the case in Chinese Courts, means even you will go to Court, Court will surely reject your case but request you to file the case with the arbitration organization. Even Court does not know the existence of the arbitration agreement and accept to file the case, later when the arbitration agreement is revealed to the Court, Court will cancel the case. One exception is, one party file the case in a Court, and another party shows no protest and accept the Court’s jurisdiction over the case, the Court will be entitled to hear the case, because both parties actually had revised and canceled the arbitration agreement ever existed between them. If both parties do not have any arbitration agreement, then one party can not file the case in one arbitration organization any more, but would have to go to a related Court to file one litigation case.
2. Arbitrations and Litigations in China
According to PRC ARBITRATION LAW, all area-level cities had setup one local arbitration organization, like Ningbo Arbitration Commission, Shanghai Arbitration Commission, Beijing Arbitration Commission, and so on. But these arbitration commissions mainly handle domestic arbitration cases. For international trade especially contractual nature international disputes, CIETAC is the right arbitration organization for them. And for such type of international contractual dispute, if go to Court, the local Intermediate Court of indictee’s location will be the right court who is entitled to hear the case. Most lowest-level of Chinese Court are not entitled to hear foreign-related cases, except some of them are appointed by PRC Supreme Court to hear foreign-related cases. So here we mainly compare the advantages and disadvantages between CIETAC arbitration and civil litigation.
3. Advantages and disadvantages
Advantages of choosing CIETAC arbitration
a. CIETAC Arbitration is more friendly; after all, CIETAC does not have public right like that of Court, and all arbitrator’s rights are coming from parties of arbitration cases, that is from their appointment and consignment.
b. In CIETAC Arbitration, the party who does not breached the agreement, may claim attorney charge and other expenses like traffic and documents notary expenses, i.e. all expenses to realize the debt of breaching agreement against counterparty who breached the agreement and this will be supported by arbitration tribunal, according to arbitration rules of CIETAC. But for litigation, generally the claim of these parts especially the attorney charge will not be supported by the Court. Maybe the legislator of Chinese civil laws and civil procedure laws believed in it that all parties of litigations can handle the case including law aspect by themselves, but no need to hire a lawyer. Anyway, this is the present laws in China. So the benefits of victim party who obey the agreement strictly will be protected fully by CIETAC.
c. Over some content and aspects, CIETAC are more professional. Court is also good, but CIETAC might be better.
d. CIETAC Arbitration case procedure will be accomplished after CIETAC make the award, and parties will have no chance to appeal it. But for litigation, in China, one party who does not agree with litigation judgment may at least appeal it once to the higher level Court, whose judgment will be final. So CIETAC is more economical over time.
e. Some CIETAC arbitrators can work in English and even other languages, because many of them are foreign professionals. But Chinese is the only working language of Chinese judges.
f. In CIETAC arbitration, evidence and documents formation are not that of high-requirement. According to PRC Civil Procedure Laws, all evidence and power of attorney came into being out-side of China mainland need to be legalized before they can be used as valid documents on Chinese Court, and this procedure is quite time-consuming and complicated. But in CIETAC Arbitration, no such requirement.
Disadvantages of CIETAC arbitration
When comparing above points of advantages
a. Arbitration organization does not have the public right like that of Courts, so some enforcement actions, CIETAC need to transfer it to local Court and let local to handle it, like freezing the bank account or properties of counterparty (mainly the indictee), and if CIETAC makes the arbitration award but the indictee refuses to follow it, then this party need to deliver the case to local Court to enforce the arbitration award. So some legal actions upon applications of one party, Court can carry it on very soon but for CIETAC arbitration it will take more time, because they need to transfer it to local Court.
b. Arbitration filing and hearing fee is higher than Court fee (at least CNY20, 000). The winning party can claim this fee against counterparty of losing finally, but the winning party still needs to prepay it.
c. Because CIETAC Arbitration case procedure will be accomplished after CIETAC make the award, and parties will have no chance to appeal it, so the CIETAC Arbitration case procedure will be very important, and this adds up parties risks.
d. If there are any blemishes over CIETAC Arbitration case procedure, the party who does not agree with the arbitration award may still with this excuse to file one litigation case, requesting Court to cancel the arbitration award, so only litigation judgment is more final.
Finally, CIETAC arbitration award could be enforced in most nations in this world, but Chinese Court judgment could only be enforced in a few nations in this world. It’s hard to say whether this is one advantageous point or one disadvantageous point. Maybe we can say, as long as you are the agreement-keeping side, CIETAC may protect your benefits more.