ADR - Law Firms Arbitration In China: Developments And Trends

Monday, August 1, 2005 - 01:00

Editor: Mr. Tao, would you tell our readers how you came to a career in law?

Tao: I went to Peking University with the intention of studying philosophy. I was selected to study political science and law by the University's law faculty, however. Following my studies in China, I went to France for the purpose of preparing for a career in the civil service. During my time in France I was in a training program at a law firm, and I became very interested in a career as a lawyer. Since 1985, I have spent my professional life in private practice.

Editor: How did you come to Coudert Brothers?

Tao: I was interested in opening an office in China on behalf of the firm I was working with in France. Because of the event in Tiananmen Square in 1989, however, the firm had reservations. I knew that I wanted to spend my professional life in China. A friend in Paris asked me to interview with Coudert Brothers, which already had a presence in Beijing and Hong Kong, and I came to be hired at that time.

Editor: Please tell us about Coudert's Beijing office. When was it established?

Tao: Coudert established a presence in Beijing in 1979, but this was on an unofficial basis. Prior to 1992, there were no regulations permitting foreign law firms to have an office in China. The government permitted the firm to have a presence in Beijing, in part because of the support it provided a number of agencies in their dealings with foreign corporations and governments.

Editor: And your practice? How has it evolved over the course of your career?

Tao: When I was in Paris, I represented Chinese companies doing business overseas, particularly on general corporate and litigation matters. During the first three years after my return to China, I worked for many Chinese companies on European-related trade matters. Since 1993, however, I have worked almost exclusively for foreign investors entering the Chinese market. This includes joint ventures, wholly-owned subsidiaries, licensing arrangements, and so on. In recent years, I have seen a dramatic increase in my dispute resolution practice for foreign companies, both in China and elsewhere.

Editor: Would you share with us the ways in which your practice has been affected by China's accession to the World Trade Organization?

Tao: China has become much more of an open door since its entrance into the WTO. In order to conform with WTO requirements, the country has restructured the ways in which foreign corporations may conduct their operations. For instance, prior to accession to the WTO, foreign corporations were allowed only a limited interest in enterprises engaged in distribution activities. Today, they are permitted to own 100 percent of such enterprises. Much of what we do in my practice concerns helping foreign investors acquire equity interests in Chinese enterprises and in integrating such enterprises into the operations of the investor.

With the WTO, trade-related issues have become a major aspect of our practice. We do a considerable volume of work with respect to credit issues in China. And now that there are no trade barriers - high tariffs and duties - we are engaged in helping companies navigate their way through non-tariff barriers for their goods into China.

Joining the WTO has also resulted in a change in the country's IP laws. We assist foreign companies in the protection of their intellectual property as they enter the Chinese marketplace.

Editor: You are the author of a treatise entitled Resolving Business Disputes In China and a book entitled Arbitration Law And Practice In China. What do these works seek to accomplish?

Tao: Since China opened its doors, there has been a great increase in the number of foreign companies entering China. Many look to arbitration agreements to help in the resolution of their disputes with Chinese partners. The treatise deals with the evolution of the arbitration process within a changing legal framework over the past 20 years and reviews the issues that need to be covered in an arbitration agreement with a Chinese partner.

The book is an attempt to provide a panoramic view of the disputes a foreign corporation may encounter in China and a discussion of how to deal with them. These include disputes with Chinese partners where a contract is in place, as well as disputes in the absence of a contract. Intellectual property infringement disputes would be an example of the latter. The book also addresses tax disputes with the Chinese government.

Editor: Is ADR practice different in China from elsewhere in the world?

Tao: Yes. Everywhere else in the world there is a clear distinction between arbitration and mediation. In China, the arbitration and mediation procedures are intertwined and, if the parties agree, arbitrators act as mediators at the same time.

Editor: Please tell us about developing trends in arbitration practice in China.

Tao: The major change involves the establishment of arbitration institutions for contract arbitration in China. This development is serving to erode the distinction that formerly existed between domestic and foreign-related arbitration. Until recently, domestic institutions dealt only with domestic disputes, and foreign-related or international disputes had to be taken to international forums. This distinction appears to be disappearing with the new system to deal with international disputes.

There is, in addition, a growing concern over the role of foreign lawyers in arbitration procedures in China. There is at present a restriction on foreign lawyers practicing in China which relates to their involvement in arbitration procedures in the country, and this restriction is now being examined with some care.

Another developing trend concerns ad hoc arbitration. The current law states that ad hoc arbitration is not allowed, but this may be revised in the near future.

In 2007, China will attempt to amend its arbitration laws, and there is a possibility that it may adopt the Model Law of UNCITRAL. If it does so, this would clearly be the most important development in arbitration practice in the country.

Editor: What are the principal pitfalls that the non-Chinese practitioner ought to be alerted to with respect to arbitration practice in China?

Tao: It is essential to know whether an arbitration is domestic or foreign-related. For example, arbitration between a Chinese enterprise and a company wholly-owned by a foreign corporation is nonetheless required to engage in domestic arbitration. The question then becomes whether the foreign owner may retain foreign representation or nominate a foreign arbitrator. For domestic arbitration, there is an established list of arbitrators, and the foreign owner must select from that list.

Language may also create problems for foreign counsel. It is important that the arbitration clause be drafted to specify English as the language to be utilized for the proceeding.

In most international arbitration proceedings, a party may request the arbitration tribunal to issue an injunction while the arbitration is underway, but in China such an order can only be issued by Chinese courts.

Editor: What forums do you utilize for arbitrations in China?

Tao: The most important forum is the China International Economic Trade Arbitration Commission (CIETAC). Others include the Beijing Arbitration Commission and the Shanghai Arbitration Commission.

CIETAC just revised its arbitration rules in May to be more aligned with those of the American Arbitration Association, the London Court of International Arbitration, the International Chamber of Commerce, and so on. This represents an interesting blend of common law and civil code principles, and it is meant to enhance the flexibility of the CIETAC arbitration process.

Editor: Have you encountered what is called the "Americanization" of arbitration proceedings?

Tao: Yes. The ever increasing presence of American lawyers in the international arena has spread American legal concepts throughout the world. China is not excepted from this development, so we see an increasing number of requests for formal discovery, the production of documents, and so on.

Editor: Would you share with us some of your recent experiences in handling arbitrations in China?

Tao: We encountered difficulty in a recent CIETAC arbitration where the other party's counsel attempted to challenge our ability to represent the client because Coudert is a foreign law firm. Our argument was very simple. Since 1956, when China adopted its first arbitration rules, foreign lawyers have been permitted to represent parties in Chinese arbitrations. I went on to point out that I serve as an arbitrator in some cases and that it would be something of a contradiction if I were not permitted to represent a client in an arbitration proceeding.

There was a time when only foreigners and foreign companies utilized arbitration. Today, an increasing number of Chinese lawyers and law firms are involved in the process, and it is not unusual to see two foreign companies arguing in a CIETAC proceeding with a Chinese law firm representing each side.

Editor: How does the Beijing office fit into Coudert's worldwide arbitration and litigation practice?

Tao: Multijurisdictional litigation involving a number of Coudert offices is ongoing. At the moment, we represent a company, listed on the Hong Kong Stock Exchange, which conducts a great deal of business in China. The matter involves bonds issued in the U.S. market, and we in Beijing are drawing upon the resources of three of the firm's other offices, including New York.

Arbitration is international by nature, so I work closely with a number of Coudert offices on a regular basis. Just recently, I asked our Paris arbitration attorneys to help with the submission of a request on behalf of a British client based in Paris to the Stockholm Chamber of Commerce Arbitration Institute. We also send our associates to train in different Coudert offices around the world to acquire expertise and a familiarity with the various locations from which they will conduct a multijurisdictional practice over the course of their careers.

Editor: How do you see your practice evolving over the next few years?

Tao: I believe we will see more mergers and acquisitions in China, as well as Chinese companies acquiring other businesses overseas - in the U.S., Europe and elsewhere. WTO-related trade work is on the increase, and I believe eventually we may represent foreign companies in their WTO disputes. We also anticipate representing Chinese companies in their WTO disputes in foreign countries.

Editor: What about the future? Where would you like to see Coudert's Beijing office in, say, five years?

Tao: I hope that we will be able to have a merger with a Chinese law firm, when Chinese law permits. Our operation employs 80 people, and I am hopeful that we will be able to double this in five years. There are so many business opportunities today, and so many different practice areas are necessary to address those opportunities, that growth is essential. Most of the Fortune 500 companies are interested in China, and they require a great diversity of expertise. As trade between China and the U.S. and with the rest of the world increases, the more work there is going to be for lawyers in this particular arena. It is an exciting time to be with an international law firm of the stature of Coudert Brothers and, in particular, the Managing Partner of Coudert's China Practice.