China: Legal Practice Of Dispute Resolution For Chinese Overseas Investment

Last Updated: 15 January 2018
Article by Harrison Jia

China's foreign investment has shown a steep rise in recent years and China has become one of the world's major outbound investment countries. According to the data of MOFCOM, Chinese investors have made non-financial overseas investments of USD 170.1 billion in 2016 (with a growth rate of 44.1% comparing with 2015) in 7,961 overseas enterprises in 164 countries/areas worldwide, and the turnover of overseas EPC projects was USD 159.42 billion (with a growth rate of 3.5% comparing with 2015). With the growth of outbound investments, the dispute resolution for overseas investment projects has become a major issue, which mainly involve litigation, international arbitration and mediation (ADR).

  1. Litigation

The disputes of many cross-border investment projects are resolved in their host country through local courts. Frequently, the problems that arise are the recognition and enforcement of the  judgments of foreign courts in China or vice versa. There are three elements for a court in China to recognize and enforce foreign court judgments: (1) a certain and valid foreign court judgment; (2) valid jurisdiction; (3) the public policy standard, i.e. whether the foreign court judgment contradicts with the sovereignty, security and social public interest of China. The recognition and enforcement of foreign court decisions will be subject to the existence of relevant international treaties or reciprocal relationship.

According to the statistics of the Ministry of Foreign Affairs of China, as of February 2017, China has concluded 135 agreements (108 in force) with 70 countries, including judicial assistance agreements, agreements on the return and sharing of assets, extradition treaties and the agreements on the fight against "three forces". The details are as follows: (1) 19 judicial assistance agreements on both civil and criminal matters (all in force); (2) 40 judicial assistance agreements on criminal matters only (32 in force); (3) 20 judicial assistance agreements on civil and commercial matters (17 in force); (4) 1 agreement on the return and sharing of assets(not yet in force); (5)48 extradition treaties (34 in force); and (6)7agreements on the fight against "three forces" (6 in force).

One Chinese client of DeHeng who was involved in a dispute over the investment into an Australian company was sued in an Australian court, which then triggered the issue of the recognition and enforcement of the judgment of an Australian court in China. We found that, according to the Reply of the Supreme Court of China on Application for Recognition and Enforcement of the Australian Court's Judgment by Applicant Fraser Power Engine Co., Ltd. ([2006] Minsitazi No. 45) (March 1, 2007), it is stated that there is no international treaty between China and the Commonwealth of Australia. Neither the two countries have concluded or participated in the mutual recognition and enforcement of the court's civil judgments or rulings, nor have them established any reciprocal relationship. Thus, the application for recognition and enforcement of the Australian court's judgment had no legal basis and therefore was rejected. There was another overseas lawsuit represented by DeHeng in a Singapore court, and DeHeng lawyers won the lawsuit by carefully studying the case and spotting the subject matter of the lawsuit and the statute of limitations. In the end, the court ruled that the other party bear litigation costs and the lawyer fee as well.

  1. International Arbitration

With an arbitration agreement, the parties of an international investment may also resort to the international arbitration tribunal to settle their dispute. An effective arbitration agreement usually requires three elements: (A) the application for arbitration; (B) certain arbitration matters; (C) a selected arbitration tribunal. However, Chinese enterprises did not win many international arbitrations in the past. Based on reports by China's Arbitration Law Research Institute, Chinese enterprises are now facing a very embarrassing situation that the ratio of their overseas arbitrations is about "nine failures out of ten cases", and ended with "huge compensation to the foreign party." The major reasons for these arbitration failures are as follows: (1) unfamiliar with foreign language; (2) most of the arbitrators are foreign arbitrators and they do not understand Chinese language, and may be inclined to favor the other foreign party; (3) the procedures are complicated, time-consuming and costly; (4) differences exist between China and other countries in respect of legal concepts, rules, cultural traditions and the way of thinking.

Although China has signed bilateral investment treaties (BITs) with more than 130 countries in the world, however, most of the BITs were concluded in the 1980s and 1990s. The definition of investment and the scope of arbitration matters under those BITs may need further revision. Chinese enterprises shall take all factors into consideration when making overseas investments and BITs with higher level of investor protection can be chosen through the establishment of holding companies in third countries so as to enjoy higher levels of treaty protection. In addition, China International Economic and Trade Arbitration Commission has firstly released the "International Arbitration Rules for Investment Disputes (Provisional)" in China which has come into force as of October 1, 2017 and could provide Chinese enterprises with guidance for settling investment disputes with host countries.

In one international arbitration case on overseas investment projects in UAE, DeHeng lawyers assisted Chinese companies in preparing experts' reports, hiring first-class expert witnesses to court and first-rate Queen's Counsel (QC), and examining documents weighed hundreds of kilograms. After four years of arbitration, the arbitration tribunal finally ruled in favor of the Chinese company in 2016. In addition to the arrears of payment and interests, the other party should also bear 80% of the lawyers' fees of the Chinese company.

  1. Mediation

Enterprises in China advocate the Chinese traditional principle that "harmony is most precious", which is conducive to resolving overseas investment disputes through mediation and other alternative dispute resolution methods. The settlement of international disputes through mediation has the following advantages: (1) it is easier to resolve disputes; (2) it is flexible, simple and efficient; (3) the results are flexible and diverse; (4) it can reduce confrontation and conflicts; (5) more confidential; and (6) lower cost.

On July 24, 2009, the Supreme Court of People's Republic of China issued the Opinions on Establishing and Improving a Mechanism to Solve Conflicts and Disputes Linking Litigation with Non-litigation, and pointed out the importance of giving full play to the people's courts, administrative organs, social organizations, enterprises and other institutions, and promoting the comprehensive development of all sorts of dispute resolution methods. The courts encourage and support the trade associations, social organizations, enterprises and other institutions to establish and improve the functions and mechanisms of mediation. On July 7, 2015, the Supreme Court issued the Opinions on Providing Judicial Services and Safeguards by the People's Court for the Belt and Road Initiative, which would provide support for the development of a diversified dispute resolution mechanism and the timely resolution of disputes related to the Belt and Road initiative.

On October 18, 2016, Ms. Wang Li, the director of DeHeng Law Offices, initiated the establishment of Beijing Retio Legal and Commercial Service Center for the Belt &Road Initiative and BnR International Commercial Mediation Center, aiming to meet the needs of the Belt and Road dispute resolution mechanism. Approved by Beijing Law Society, and permitted by Beijing Municipal Civil Affairs Bureau, Beijing Retio Legal and Commercial Service Center for Belt& Road Initiative was founded by Beijing DeHeng Public Welfare Foundation in association with China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters, China Industry Overseas Development Association and China Chamber of Commerce for International Economic Cooperation, and registered in accordance with the laws as a  non-governmental unit, to carry out investigation, study, cooperation and exchange, legal business consulting, training, commercial mediation, and other services regarding the Belt and Road initiative. BnR International Commercial Mediation Center was then established to undertake the mediation duties of Beijing Retio Legal and Commercial Service Center for Belt& Road Initiative and to assist the parties involved in the international commercial disputes through online and offline mediation. Under the direction of the Judicial Reform Office of the Supreme Court, BnR International Commercial Mediation Center is another new achievement for the construction of a more diversified dispute resolution mechanism in China. BnR International Commercial Mediation Center has now established overseas mediation offices jointly with many local law firms or chambers of commerce in Austria, Italy, Brazil, Spain, Peru, Kazakhstan and many other countries around the world, as well as Chengdu Shuangliu Free Trade Zone, Wuxi City and Zhuhai City within China.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions