Chinese law and Chinese courts are often excluded from the
international commercial dispute resolution arena because of
uncertainty occasioned by China's underdeveloped legal system
including a lack of precedential authority of Chinese courts
judicial decisions, fear of local participants' undue influence
on judges and arbitrators, and broadly rumored corrupt courts. As a
result, Western companies include in their contracts with Chinese
companies provisions requiring litigation or arbitration in their
home countries or in a third country, rather than in China. But,
even the victorious litigant may have a "now what?"
moment as it seeks to collect its award using Chinese courts or
Chinese law provides that a foreign court judgment may be
enforced in China only if China and the country of the court
issuing the judgment are both parties to an international treaty
concerning the reciprocal enforcement of court judgments or if
there is de facto reciprocity between the two jurisdictions. Many
international litigants find out to their dismay that China and the
United States, and China and many European countries, are not
parties to reciprocal international treaties and that de facto
reciprocity does not exist between such countries and China.
Establishing reciprocity in the absence of an international treaty
has been virtually impossible. In fact, there is no reported case
in which a foreign court judgment has been enforced in China on
"reciprocity" grounds, in lieu of an international
"There are no time frames requiring the Chinese Supreme
Court to act in the context of an enforcement petition ...
In the absence of an international treaty, better-informed
foreign companies seek to require dispute resolution by arbitration
under the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, also known as the New York Convention. The New
York Convention, to which China and many Western countries are
signatories, together with Chinese law, enable foreign petitioners
to have foreign arbitral awards enforced by Chinese Intermediate
Courts with jurisdiction over the respondents. But arbitration too
has its flaws. Chinese law gives the Chinese Intermediate Courts
two months to make a decision on an enforcement petition, and if
the Intermediate Court decides not to recognize and enforce the
award, the case must be referred to the Chinese Supreme Court for
review. Unfortunately, there are no time frames requiring the
Chinese Supreme Court to act in the context of an enforcement
petition, so if an arbitration award is taken up by the Supreme
Court for review, it may languish in the Supreme Court
indefinitely. Arbitration of a China-related dispute in a
non-Chinese jurisdiction may present another impediment that is
occasionally overlooked by practitioners. Arbitrators are not
traditionally given the power of granting equitable relief, such as
an injunction. Consequently, if equitable relief is necessary or
desirable, an arbitration tribunal's exclusive jurisdiction
over a dispute may frustrate a party's attempt to seek this
irreplaceable form of remedy against a Chinese party. For this
reason, if equitable relief is sought, Western counterparties are
forced to seek dispute resolution in the Chinese courts with the
attendant risks noted above.
In reaction to this legal and political maze, a "defense
mechanism" was fashioned to shield Western litigants from the
risks often imbedded in traditional dispute resolution clauses for
But even well-crafted dispute resolution provision with a
"defense mechanism" in place may be confounded in China.
If an arbitration petition for economic reparation and a court
proceeding for equitable relief are pending simultaneously in
connection with a dispute of the same issues, a litigant may
petition for a stay or consolidation. Therefore, any dispute
resolution provision should also include a stipulation waiving each
party's right to move, stay or consolidate parallel arbitration
and court proceedings so as to ensure that all remedies remain
available to the litigants.
The Hon'ble High Court of Bombay has held that where a Scheme of Amalgamation is executed between two companies registered in two different states [...], then the said two orders are two independent instruments.
Lawyers are pretty good at figuring it out quietly and amicably among themselves, without recourse to a public courtroom.
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