Foreign Arbitration: No Little Whitey Lie
Fri May 02, 2008 at 5:39 pm By Matt
You’re looking at Zhou across the negotiating table, hashing out joint venture contract details.
Things are going so-so. You’re retaining majority ownership. You get to choose most of the board of directors but not the general manager. Your Chinese speaking gringo friend says it’s not the ideal situation, but it’s definitely doable.
Zhou keeps giving you an all-too-toothy grin. He clearly needs braces. It’s not like you’re interested in hooking up with him – not until after a bit more baijiu anyway. You just feel like you’re seeing the beginnings of a drool drop. He’s totally uncool, and way too eager to get your John Hancock.
But you’re on the line to make the deal. The big boss is eager for some serious contract inkage.
Something comes to gringo’s mind. You could ask for arbitration outside of China should anything go really sour. Yeah, maybe it’s better for a real rule-of-law country to have jurisdiction if deer penis hits the fan.
Then something else comes to your mind. Is it a bird? Is it a plane? No, it’s Steve Dickinson, a Shanghai-based attorney with Harris & Moure, who recently preached a relevant China business tip that you suddenly remember. So it’s better than a bird. And better than a domestic plane ticket. Maybe not a private plane.
Anyway, you remember Mr. Dickinson saying at J.P. Morgan’s China Conference 2008 (which ended just last week) NOT to rely on arbitration of disputes outside of China.
You dive into your laptop and recover some notes J.P Morgan published on Mr. Dickinson’s presentation.
You read voraciously:
The next mistake foreign investors make when they lose the battle for control is to provide for arbitration of disputes outside of China. As with separate guarantees, many foreign investors will say that they are not worried about the fundamental problems with their joint venture structure because they have provided for arbitration of disputes in a neutral third country such as Sweden or France. This is also a mistake.
As your brow starts to frown, Zhou’s drool drop dries up.
Arbitration or litigation outside of China is not likely to resolve any problems that result from fundamental issues related to management of the joint venture company. Arbitration outside of China is cumbersome and expensive, and is therefore not a really practical alternative. More important, when critical issues arise concerning the management of a Chinese joint venture, it is important that the foreign partner have a legal forum within China that will allow the foreign party to make its case in China. By taking action outside of China, the foreign partner actually makes it difficult or impossible directly to confront the issues in China with staff, media and the courts…. Many foreign investors insist on foreign arbitration because they are concerned about receiving fair treatment in the courts or arbitration panels in China. For the most part these concerns are misplaced. China now has reasonably capable and fair courts and arbitration panels.
You’ve read enough, and bid Zhou adieu.
He’s had enough too and spits something on the table.
It’s not your usual China spittle.
No, it’s Zhou’s teeth with canines and premolars clearly out of whack. Apparently he had been wearing an uncomfortable set of false teeth, probably a no-good pirated copy.
Poor guy was drooling for false – not eager – reasons.
With an uncomfortable sense of too-close-for-comfort, you bite down on your own set of false teeth and get the hell out of there.
Editors’ Note: This is the fifth and final article in a series about J.P.
Morgan’s China Conference 2008.
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May 3rd, 2008 at 1:32 pm
Whoa, whoa, whoa. Choosing whether to have a foreign arbitration clause should definitely be made on a case by case basis. All Steve said at the JP Morgan conference was that foreign arbitration is not usually a good way to get control of your joint venture back. Generally, and I mean VERY GENERALLY, foreign arbitration is good for securing damages, but not so good for securing injunctive relief (getting someone to be ordered to do something. For example, foreign arbitration is not so good for getting a Chinese company to have to stop manufacturing your product, but it might be the best way to get that company to have to pay you damages for having engaged in that manufacturing. So in this example, the contract might call for foreign arbitration (where?) but have a “carve out” provision calling for litigation in China for injunctive relief. These things are hugely complicated and at least 9 out of 10 times it is done wrong by those putting in these provisions without lawyers. In fact, many years ago I spoke at an end of year Continuing Legal Education conference where about ten of us from different areas of law were given about 15 minutes to speak on one thing in our area of law that we thought it most important for all lawyers to know and I spoke on the uses and abuses of arbitration provisions in international contracts. I chose this topic because non international lawyers nearly always get it wrong too.
May 4th, 2008 at 6:36 pm
Hi China Law Blog,
Thanks for your comment - yours always are intriguing.
Let’s clarify where our quotations come from, though, since you suggest Mr. Dickinson did not report what we published here.
In the first part of this story series, “Thanks to a Spy, Off-The-Record J.P. Morgan Conference is Sort-Of On-The-Record,” we noted that our material from the J.P. Morgan conference came from “J.P. Morgan’s most recent Hands-On China Series briefing booklets, given to investors at the conference.”
In this story, “Foreign Arbitration: No Little Whitey Lie,” like each story in our five-part series on the J.P. Morgan conference, we used one of these booklets.
Mr. Dickinson’s in particular, called “Pitfalls in Establishing Joint Ventures in China,” is specifically where we quoted from.
Further, lest anyone think these booklets and the conference are unrelated, Mr. Dickinson’s begins:
“As part of the JPMorgan China Conference 2008, Mr. Steve Dickinson, Attorney, Harris Moure Plc, prepared the following paper on the pitfalls associated with the classic Sino-Foreign joint venture.”
In our story here, we never said Mr. Dickinson literally “said” anything here. Rather, we said Lan dove into his laptop to recover some notes “J.P. Morgan published on Mr. Dickinson’s presentation.”
We would have loved to cover Mr. Dickinson’s walking-and-talking presentation at the conference, but we were told it was off-the-record to media and were refused entrance by J.P. Morgan. This is all too typical of groups with the best China business insight, and thus, as part of our mission within the bounds of proper editorial conduct, we tried to infiltrate the conference to get what we could. This conference was by invitation only, and a lot of small and medium-sized enterprise missed out as an unfortunate result.
We would like to extend an invitation to Mr. Dickinson, or any speaker at China business conferences, to contact us to explain their viewpoints in great detail. We are always happy to get the thoughts of prominent business speakers on-the-record, and we would encourage this especially since there are so many closed-door China business proceedings.
But again, Mr. Dickinson’s written thoughts about his presentation were were extremely detailed, and we did not misquote. Mr. Dickinson, in this briefing, also mentioned no benefits of foreign arbitration - and certainly not the ones China Law Blog outlines.
“It is simply a delusion to think that arbitration in a foreign jurisdiction according to foreign law will resolve the matter,” Mr. Dickinson reported.
We have no opinion on foreign arbitration, and so we defer to the attorneys at Harris & Moure.
But we do not misquote them.