What Actually Is Arbitration?

• Pages: 3-3

2. What Actually Is Arbitration?

Arbitration is a private method of resolving disputes. It is

a way alternative to litigating in front of a state court. In

arbitration, arbitrators selected by disputing parties, aer

hearing the parties’ arguments, render an arbitral award that

is nal and binding upon the parties.

Arbitration is consensual. This means that for arbitration to

happen, parties have to reach an arbitration agreement, in

which they clearly specify that they wish to submit their disputes

to arbitration. Such an agreement is normally a part of the

whole contract addressing the business transaction. If you nd

arbitration to be a good way to resolve your future disputes,

you should think about it already at the stage of negotiating

the contract. The arbitration agreement can theoretically be also

concluded once a dispute occurs. However, when parties are

already in dispute, it is usually dicult to reach any consensus,

especially if your counterpart nds it more convenient to resolve

the dispute in front of a state court, and not in arbitration.

When preparing an arbitration agreement, there are a few

important elements that it should include:

• Parties should clearly stipulate which disputes they want

to resolve through arbitration. A typical arbitration clause

says broadly: “All disputes arising out or in connection

with this contract should be resolved via arbitration […].”

• If arbitration is to take place in China, it is essential to

designate a specic, domestic arbitration institution, as

it is required by Chinese law. Otherwise, the arbitration

agreement may be found invalid and the dispute may

then land in front of a state court.

• There is a number of additional elements that the parties

can include in their arbitration agreement. This could be,

for example, the number of arbitrators that will resolve

the dispute (usually one or three arbitrators) or arbitration

proceeding language.

In order to avoid problems where the poor draing of an

arbitration agreement leads to doubts whether it is valid, it

is recommended to use sample arbitration clauses oered

for free by arbitration institutions on their ocial websites.

Here is how a sample arbitration clause can look like:

“All disputes arising from or in connection with this contract

shall be submitted to Beijing Arbitration Commission / Beijing

International Arbitration Center for arbitration in accordance

with its rules of arbitration. The arbitral award is nal and

binding upon both parties.”

The sample clauses provided by institutions have been tested

over the years. As such, they should not lead to problems

in practice. Using a model clause not only helps to prevent

potential diculties with the validity and the need to interpret

the clause, but also can signicantly reduce the time that

would be otherwise spent on the negotiation of its content.

3. The Most Important Features of Arbitration

Arbitration has a number of advantages, in particular when

comparing it to resolving a dispute in front of a state court.

Arbitration can, however, also have some drawbacks. Both are

discussed below.

Advantages of Arbitration

Neutrality

One major advantage of arbitration is increasing the neutrality

in resolving disputes. Fairly commonly, European SMEs are

concerned when their dispute is to be resolved in front of

a Chinese court. This typically relates to the fear of local

favoritism of the opponent by its own local court. In addition,

parties may worry about their lack of understanding of Chinese

court procedures and Chinese language, in which the proceeding

would be conducted.

Arbitration, to a great extent, can help eliminate these fears. In

arbitration, generally, parties have quite a wide range of choices

that they can make. As such, specically in the Sino-foreign

context, parties may choose to arbitrate in front of a particular

arbitration institution, which they see as credible. Furthermore,

parties can choose arbitrators that will resolve their disputes. By

way of example, in a scenario where there are three arbitrators,

each of disputing parties normally selects one arbitrator, and the

third one is selected by both parties together or by an arbitration

institution. If, further, the neutrality of arbitrators is still of

3