Chinese territorial disputes

Home to a first-class legal infrastructure with a reputation for judicial impartiality and independence, London is a popular choice of arbitral seat for the resolution of international disputes. However, with Chinese companies increasingly influential in global trade, what are London’s prospects as a centre for the resolution of China-related disputes?

The UK Ministry of Justice is targeting economies such as China in its plan to make the UK the “lawyer and adviser to the world”. In fact, with growing numbers of Chinese parties choosing to resolve their disputes abroad, London’s prominence will depend upon at least three factors.

The first is whether Chinese law continues to restrict offshore dispute resolution. As China and the UK have not entered into a formal arrangement for the reciprocal enforcement of judgments, English court judgments are not readily enforceable in mainland China. Unless this changes, parties will continue to be reluctant to litigate their China-­related disputes in England.

Significantly, Chinese law also prohibits the offshoring of dispute resolution proceedings to a non-Chinese jurisdiction such as England unless the dispute is ’foreign-related’. Importantly, a locally incorporated subsidiary of a foreign company will be considered a domestic party for the purposes of Chinese law.

A second factor will be the evolving preferences of Chinese parties. Chinese and international entities entering into arbitration agreements are usually free to nominate a range of venues and institutions, their final choice a function of the preferences and bargaining powers of the parties.

Chinese parties are now more willing to submit their disputes to formal resolution procedures in foreign jurisdictions. UK lawyers may take heart, too, at the preference of Chinese entities for European arbitration venues over US equivalents.
Nevertheless, Chinese parties are using their increasing bargaining power to negotiate hard for Chinese, or at least Asian, venues.

A third key factor, then, is the development of Asian arbitration venues. Hong Kong and Singapore have emerged as popular arbitral seats, with the rules of their arbitration institutions increasingly adopted in China-related international contracts. This is partly down to the suitability of the jurisdictions as compromise venues in disputes between international and Chinese parties. Each has modern arbitration legislation and an arbitration-supportive judiciary with a geographic and cultural proximity to mainland China.

Hong Kong and Singapore, respectively, also host offices of the International Chamber of Commerce and the International Centre for Dispute Resolution, the latter being the international arm of the American Arbitration Association. Recently, it was announced that China’s leading ­arbitration commission, CIETAC, plans to open a sub-branch in Hong Kong in 2012.

Hong Kong and Singapore therefore present significant competition for London as venues for the resolution of China-related disputes. With CIETAC’s move looking to create yet another ’compromise’ option, London cannot afford to be complacent.