China is a flourishing platform for international business expansion. As it opens its doors to foreign investors and businesses, domestic and multinational companies are starting to plan how to seize opportunities presented by this marketplace. This article provides an overview of options for dispute resolution in China along with strategy and timeline considerations.
Dispute resolution strategies are similar to those in the United States and typically include negotiation, arbitration and lawsuit in court.
1. Negotiation & Mediation
The first step in resolving a dispute with a Chinese counterpart is mediation or negotiation. This is an informal step as parties work towards a peaceful resolution.
Unlike the formal mediation process in the United States, this option does not require a mediator and parties typically focus on negotiation strategy to achieve a mutual resolution. However, to ensure parties carry out the actions and tasks agreed upon during this process, the resolution agreement should be in writing and signed by both parties.
2. Legal Demand Letter
The second step is the issuance of a demand letter, often written by an attorney. This step precedes formal dispute resolution steps and lays out the issuer’s intent and demands. Such a letter serves as a warning letter for the pending arbitration or litigation.
The third step, often an alternative to litigation in court, is arbitration. Similar to arbitrations in United States, in order for the results to binding, both parties need to agree in writing.
Such an agreement is often reflected in the contract at issue, or written in a separate agreement prior to arbitration.
However, arbitration is not suitable for some types of disputes, such as those that involve intellectual property. It is essential to consult an attorney when drafting dispute resolution processes in an international contract.
4. Lawsuit & Litigation in Court
The last step is litigation in court. Trial in China typically takes place within six months. During this time, briefs and evidences are submitted to the court.
Parties may apply for a six-month extension for special situations, and another three months if it is approved. During this process, parties may also choose to have the court as a mediator to settle the dispute prior to trial.