How to negotiate a purchase contract with China suppliers properly? Part 3

Filed Under:Contract & Dispute   |   Viewed by: 15811 Persons

(6) dispute settlement

a. Lawsuit or arbitration
The question for dispute settlement is lawsuit or arbitration. When I just graduated from law school and joined a big import & export company, I was asked by the general manager to review their sales contract. The first thing I noticed on the contract was that the dispute settlement clause said that both parties can choose litigation and arbitration as dispute resolution methods.

According to article 5 of Arbitration Law of People's Republic of China, Whereas the parties concerned have reached an agreement for arbitration, the people's court shall not accept the suit brought to the court by any one single party involved, except in case where the agreement for arbitration is invalid.

So if you choose arbitration as dispute resolution method, you can't file a lawsuit with the same claim, and vice versa. You either choose lawsuit, or arbitration, but you can't choose both. A big manufacture company with a deep root here in China like my first employer can make such a mistake, I think many of our fellow users(mostly small and medium sized companies that don't have a connection in China) will probablly make the same mistake too.

b. why arbitration?
We suggests our customers choose arbitration instead of lawsuit as dispute settlement method based on the following:

Reason No. 1 Lawsuit is lengthy and expensive
According to the Civil Procedure Law of People's Republic of China, there are two instances(first instance and second instance) for a civil case. Normally an international purchase contract related lawsuit will last more than one year, it is money and time-consuming. While for arbitration, the arbitration award is final, it is easy and fast.

Reason No. 2 Territorial Jurisdiction
According to the Civil Procedure Law of People's Republic of China, A civil lawsuit brought against a legal person or any other organization shall be under the jurisdiction of the people's court of the place where the defendant has his domicile. So the independence of the court of jurisdiction, the logistically inconvenience are the issue we should never neglected.

Related resources:
China International Economic and Trade Arbitration Commission(CIETAC)

Related articles:
How to negotiate a purchase contract with China suppliers part 1
How to negotiate a purchase contract with China suppliers part 2

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