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Construction Management and Economics (1997) 15, 539 548

Amicable dispute resolution in the Peoples Republic


of China and its implications for foreign-related
construction disputes
EDWIN H.W. CHAN
Department of Building and Real Estate, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong

Received 15th August 1996; accepted 5 March 1997

A combined mediation/arbitration process is unique to the Peoples Republic of China (PRC). This paper
looks at how this amicable, out-of-court dispute resolution system works if the dispute is foreign-related, as
de ned under the Foreign Economic Contract Law. First, it outlines Chinese culture and its relation to the
PRC legal framework and also to the amicable dispute resolution system discussed. Second, the system is
appraised in the context of the uncertainty of the local judicial system. Third, distinctive features of domestic
and foreign-related dispute resolution mechanisms are discussed by comparison with international practice.
Finally, the amicable dispute resolution system for resolving construction disputes and its enforcement mech-
anisms are analysed, with statistical data to explain their implications for foreign investors in the construc-
tion industry of the PRC.

Keywords: ADR, arbitration, award enforcement, China, construction dispute, enforcement, mediation,
foreign economic contract law, Peoples Republic of China, PRC

Introduction Since the PRC adopted the `Open Door policy in


the 1980s, opportunities for foreign trading and
In the Peoples Republic of China (PRC), the term property development have attracted many foreign
`amicable dispute resolution mechanism includes investors. Those accustomed to assertion of rights
`friendly negotiation, conciliation and mediation, both through legal means have reason to be apprehensive
before and during arbitration proceedings, but stops of the legal system in dealing with disputes in the PRC.
short of the full hearing in an arbitration. Flexible out-of-court dispute resolution mechanisms
The Chinese preference for an internal model of law are the preferred options for locals and foreigners
(li) rather than the rules of law (fa) in maintaining wishing to bypass the uncertainties associated with the
social order traditionally has encouraged people to PRC judicial system. Even in countries like the UK
settle disputes through amicable mechanisms (Li, and the USA, with their well-tried and familiar judi-
1970). This encouragement, and sometimes manda- cial systems, parties to a dispute may be dissatis ed
tory provisions, are built into the PRC legal system. with litigation and the `judicialized arbitration process
The attitude of Chinese peasants towards litigation (Brooker and Lavers, 1994).
can be summed up in an old Chinese saying: avoid a Although PRC law allows the parties to agree to
law court while alive and never go to hell after death. arbitrate disputes outside the country, most Chinese
This obsession is due to a combination of factors: business partners will insist on arbitration in the
an inadequate judicial system, the enormous costs PRC. The China International and Economic Trade
incurred in litigation, social pressure and the parties Arbitration Commission (CIETAC) has the exclusive
ignorance. right to deal with foreign-related disputes as de ned

0144 6193 1997 E & FN Spon


540 Chan

under the 1985 Foreign Economic Contract Law submission to their clan and to dispute resolution
(FECL), discussed in detail below. Among the foreign- through amicable means. Open confrontation or liti-
related cases submitted to CIETAC, 90% are disputes gation in a law court is the last alternative.
between a Chinese and a foreign entity (Cheng, 1994).
Because of the nature of the construction business and
the location of properties, most construction disputes Socialist morality in the PRC
have to be resolved under the PRC domestic dispute
Chinese communist ideology does not diverge dramat-
resolution system; they cannot be referred to CIETAC.
ically from classic Chinese culture: `Socialist morality
Despite there having been so much foreign-involved
replaces `Confucian morality. However, commitment
construction activity and real estate transactions in the
to society and emphasis on collective ways of living
PRC in recent years, nearly half the cases submitted
require more self-policing and community action.
to CIETAC were concerned with sales contracts; the
Disputes are resolved by members of a community, for
remainder covered a broad range of contracts, and
example, by a mediation committee.
construction and real estate contracts are only a small
In addition to using ideological education to avoid
part of it (Cheng, 1994).
and resolve disputes, the regime realizes the impor-
A summary of the institutional legal framework in
tance of a legal system. It emphasizes that the masses
the PRC sets the scene for understanding its unique
must be able to understand and utilize the law fully.
amicable dispute resolution mechanism. A study of the
Hence it favours a simple and exible legal system (Li,
system in comparison with international practice high-
1970). Practice guidelines and systems are established
lights the characteristics of the PRC mediation mech-
for resolving disputes by amicable means.
anism. Its claimed merit is re-assessed through analyses
Like many other countries, the PRC adopts bifur-
of limited statistical data published by the CIETAC
cation between domestic and foreign dispute resolu-
Secretariat, and backed up with speci c enquiries to
tion mechanisms.
the Secretary General of CIETAC and interviews with
local practitioners.
Published materials about law and the construction
An informal and exible legal system
industry in the PRC are not widely available in English;
some of the references in this paper are based on The PRC legal system is marked by its informality and
reputable Chinese texts. exibility, which imply low expectations on the part of
of cials concerning any particular legal rule (Li, 1970).
Based on underlying principles pronounced in sub-
stantive legislation, particularly in the 1987 General
Cultural background
Principles of Civil Law, informal negotiation for a
required solution may be possible for a civil case.
Classic tradition
Likewise, informality can be seen in Art.9 of the 1991
Chinese culture is deeply in uenced by Confucian and Civil Procedural Law (CPL) which, in domestic cases,
Taoist philosophies. The Confucian teaching of li requires the court to explore mediation to resolve
concerns self-cultivation, human dignity and respect. disputes before judgment. With such a legal system,
Individuals are expected to ful l obligations appro- foreigners have to learn non-confrontation and less
priate to their social position and to respect the social visible ways to resolve disputes.
hierarchy. Harmony is built on loyalty, family identity
and preservation of the clan. Leadership comes from
a morally superior individual who does righteous acts.
All these features ask for the submergence of individ-
The development of a dispute resolution
ualism in favour of harmony in a community. Taoism, mechanism
ourishing in parallel with Confucianism, also places
a high esteem on individual integrity and social Before the PRC era
harmony. It opposes the use of force and punishment In the mid-19th century, Western powers entering
and treasures a natural way of living. It is therefore China for large scale trade insisted on using their
not a surprise to see Low (1996) drawing many exam- commercial law in extra-territorial courts. After the
ples of teaching from the Taoist book Tao Te Ching establishment of the Republic of China, the Nationalist
and correlating their application to mediation or concil- government attempted to create a Western style legal
iation. system to avoid resolving foreign-related disputes in
Both Confucian and Taoist teaching are said to have extra-territorial courts. Power struggles and civil wars
conditioned Chinese individuals to a social norm of did not give the plan a chance to materialize.
Amicable dispute resolution 541

The PRC era in a foreign country. Only when a contract has passed
these qualifying hurdles can subsequent disputes
Since the PRC government came into power, its atti-
arising out of it be subject to a whole set of special
tude towards law has been different from that of the
rules for resolving foreign-related disputes under PRC
capitalist Western powers. In 1954, building upon the
law. Special procedures are also provided in Part IV
work of revolutionary mediation committees, rules for
of the Civil Procedure Law for dealing with foreign-
the Peoples Mediation Committees were promulgated
related cases if a dispute or the enforcement of an
to resolve domestic disputes (Feinerman, 1995). These
award is referred to a People s Court.
rules were not for formal court procedures, and most
The deeply rooted mediation culture in China has
civil disputes were resolved under the informal system,
always been part of the foreign-related dispute resolu-
involving settlement by compromise rather than by
tion mechanism which is the CIETAC. Art.37 of the
judicial decision.
1985 FECL requires that any dispute arising out of a
Although the 1954 Constitution of the PRC had
foreign-related contract ought, if possible, to be settled
provisions for court administration in principle, the
by the parties through consultation or mediation by a
Organic Law of the Peoples Court (Organic Law of
third party. If it cannot be resolved, the dispute can
PC) was adopted in 1979; the Civil Procedure Law
be submitted to CIETAC or another arbitration body
(Provisional) was not enacted until 1982. With the
in accordance with a written arbitration agreement.
growing importance of foreign trade and market
CIETAC operates a combined mediation/arbitration
economy, pursuant to the `Open Door policy in the
system to resolve disputes. Hence the PRC arbitration
1980s, a legal framework for resolving foreign-related
legal provisions have signi cant implications for
disputes was established gradually. The basic approach
amicable dispute resolution mechanisms.
was to retain the informal system widely used for
resolving domestic disputes and to apply the same prin-
ciples to foreign-related disputes, although the latter Criteria for foreign-related contracts
were governed by a structured institutional and legal
A domestic transaction involving a foreign party is not
framework more in line with international practice.
automatically regarded as a foreign-related contract. If
the foreign party s rights and duties are only ancillary
to the `main object of the contract, it will be treated
Bifurcation between domestic and foreign-
as a domestic contract. Under PRC law, most joint
related disputes resolution
ventures and foreign- nanced property development
The PRC keeps domestic and foreign-related matters enterprises are classi ed as a Foreign Invested
carefully differentiated and controlled by separate Enterprise (FIE), which is a legal entity registered in
legislative and administrative measures. To govern the PRC. In China International Construction Consultant
economic contracts in the PRC, there are the 1983 Corp. v Beijing Lido Hotel Company (1992), the Beijing
Economic Contract Law (ECL) for domestic contracts Intermediate Peoples Court ruled that the FIE did not
and the 1985 Foreign Economic Contract Law have the required foreign-related elements for its
(FECL) for foreign-related contracts. disputes to be accepted by CIETAC (Lewis and Ip,
Domestic economic contracts are governed exclu- 1995). Para.1(3) of the 1987 Response of the Supreme
sively by PRC law and may not be arbitrated outside Peoples Court to Certain Questions Concerning the
the PRC. Until the domestic arbitration commission Application of the Foreign Economic Contract Law
is set up under the new 1995 Arbitration Law, (Response of SPC concerning FECL) also con rms
domestic disputes can be mediated by a local that the provisions of the 1985 FECL shall not apply
Mediation Committee under the supervision of basic to economic contracts involving an FIE established
Peoples Courts. within the PRC territory.
Art.2 of the 1985 FECL has laid down strict require- By virtue of Art.244 of the 1991 CPL and Art.5(1)
ments for an economic contract to be considered as of the 1985 FECL, the parties to a foreign-related
foreign-related. Art.304 of the 1992 Opinions of the contract are allowed to select the applicable law and
Peoples Supreme Court on Civil Procedure Law court jurisdiction of a place with a real connection to
(Opinion on CPL) explains that civil cases involving the dispute. If the parties have not agreed upon the
foreign parties are those `civil cases in which one party applicable law for resolving disputes, the Peoples
or both parties are foreigners, stateless persons, foreign Court will use the `closest connection test as laid down
enterprises or foreign organizations; or in which the in paras 2(6)(i) to (xiii) of the 1987 Response of SPC
legal fact for establishment, modi cation or termina- concerning FECL to determine the applicable law.
tion of the civil legal relationship occurred in a foreign However, disputes arising from a Chinese foreign joint
country, or in which the object of the action is located venture contract to be performed in the PRC will be
542 Chan

governed by PRC law and come under the jurisdiction Table 1 Statistical data on CIETAC cases
of the Peoples Court because of Art.246 of the 1991
1985 37 cases accepted in total
CPL and Art.5(2) of the 1985 FECL. Property devel- 1986 75 cases accepted in total
opment contracts which involve foreign parties but are 1987 129 cases accepted in total
executed in the territory of the PRC will fall within 1988 162 cases accepted in total
the scope of Art.243 of the 1991 CPL.1 This type of 1992 267 cases accepted in total; of these,
contract will most probably be subject to the PRC law 236 cases were concluded as follows
on domestic dispute resolution mechanisms. 196 cases in Beijing:
60% arbitrated and award made;
13% settled by mediation with consent
The consolidating 1990s award made
27% withdrawn before arbitration
In the rst half of the 1990s, under the Socialist Market
commenced (only one case
Economy, the workload for resolving foreign-related
construction related)
disputes in the PRC increased enormously. In terms 1993 486 cases accepted in total
of cases submitted in 1993, Beijing was the worlds 389 cases in Beijing
largest international arbitration centre after the ICC (only 1% construction related)
(Cheng, 1994). The accumulation of experience in 57 cases in Shenzhen
dispute resolution in the PRC prompted the enactment 40 cases in Shanghai (only 1 case
of the Arbitration Law, effective since September 1995. construction related).
One of the key intentions of the new legal provisions of the 486 cases, 294 cases were concluded
is to separate the administration of both domestic and as follows
foreign-related arbitration commissions from direct 217 cases concluded in Beijing
70% arbitrated and award made
government control. Under the new Arbitration Law,
(only 1 case construction related)
a non-governmental organization called the China
11% settled by mediation with consent
Arbitration Association will be set up to oversee award made
domestic and foreign-related arbitration commissions. 19% withdrawn before arbitration
CIETAC is con rmed as the sole institution to handle commenced (only 1 case
foreign-related disputes. This foreign-related dispute construction related)
resolution mechanism is subject to the CIETAC 1994 829 cases were accepted in total
Arbitration Rules made under the 1995 Arbitration 600 cases in Beijing
Law in line with international practice. 141 cases in Shenzhen
The dramatic increase in workload and the corre- 88 cases in Shanghai
sponding importance of mediation within an arbitra- of the 829 cases, 615 cases were
tion process can be seen in Table 1 (extracted from a concluded as follows
75% cases arbitrated and award made
publication in Chinese by the CIETAC Secretariat
(only 3 cases construction related);
(1995), and also based on responses from CIETAC 7% cases settled by mediation with
Secretary General, Mr. Zhu Jianlin, to the authors consent award made
enquiries in September 1996). 18% cases withdrawn before arbitration
The statistical data in Table 1 also reveal that commenced (only 1 case construction
construction-related cases rarely fall within CIETACs related)
jurisdiction. This is consistent with the legal analysis 1995 902 cases were accepted in total; of these,
in the previous section, viz. that property development 892 cases were concluded as follows
contracts with foreign investment in the PRC seldom 81% cases arbitrated and award made
are classi ed as foreign-related under PRC law. (only 3 cases construction related)
7% cases settled by mediation with consent
award made
Special features of the amicable dispute 12% withdrawn before arbitration
resolution mechanism commenced

`Stand-alone mediation
Apart from the CIETACs combined mediation and Alternatively, `joint conciliation can be carried out
arbitration process, mediation can be a `stand-alone according to the mediation rules at a centre agreed
process for resolving disputes at the Beijing Con- between the Chinese and the foreign party.
ciliation Centre created under the China International The setting up of mediation centres and rules which
Chamber of Commerce or at its provincial centres. closely resemble international practice is primarily
Amicable dispute resolution 543

based on trust and mutual respect among the parties 1. To suspend the arbitration proceedings and
involved. Such rules include the Conciliation Rules of commence mediation at any time during arbitration
the Beijing Conciliation Centre, the Beijing Hamburg if both parties agree to settle their dispute by medi-
Conciliation Rules of the Beijing Hamburg Concilia- ation.
tion Centre, the Beijing New York Conciliation Rules 2. To facilitate communication between the parties,
and the UNCITRAL Conciliation Rules. including holding `caucus sessions.
3. To investigate actively and understand the parties
underlying problems and intentions. Without being
Combination of mediation and arbitration under any obligation to give reasons, the mediator
may suggest solutions to the parties, wherever
Combining mediation and arbitration to resolve civil
possible.
disputes is unique to the PRC, with characteristics built
4. Information obtained during the mediation
into CIETACs foreign-related dispute resolution
process must not be disclosed or re-used by the
mechanism. The following sections discuss the com-
mediator or the parties on other occasions, including
bined CIETAC mediation/arbitration mechanism (see
subsequent arbitration if the mediation fails to
CIETAC Secretariat, 1995).
produce a result, as this would contravene Rule 51
The combined mechanism is governed by the PRC
of the CIETAC Arbitration Rules. Para. 3 of Art.58
law specially drafted to deal with foreign-related
of the 1995 Arbitration Law provides for the
disputes. Legal provisions can be found in the above
aggrieved party to apply to the Intermediate Peoples
mentioned Arbitration Law, Civil Procedure Law and
Court for revocation of an arbitration award.
Foreign Economic Contract Law. Detailed procedures
5. To assist in drafting a settlement agreement and
are laid down in Art.46-51 of the CIETAC Arbitration
hand it down as an enforceable arbitration award if
Rules. The characteristics of the combined mechanism
settlement is agreed between the parties.
can be summarized as follows.
6. If settlement is unlikely, or if the parties do not
1. Mediator and arbitrator are the same person want to continue further, the mediator will conclude
(which is not the case in a `stand-alone mediation). the mediation stage and revert to an arbitration
2. The mediation is an integral part of the arbitra- process, with the same tribunal (note that under the
tion, in the same tribunal. A mediated settlement UNCITRAL Model, this is prohibited).
will be handed down as an enforceable arbitration
The quali cations required of a mediator in a
award. If no settlement is reached, the same tribunal
combined mediation/arbitration process are the same
automatically will revert to arbitration proceedings.
as those of an arbitrator under Art.13 of the 1995
3. Mediation will be carried out only at the request
Arbitration Law.4 Art.67 provides that foreigners with
of both parties, without obligation.
the right quali cations can be appointed; in 1994, there
4. The mediation process will be extremely informal
were 86 foreigners and 213 Chinese arbitrators on the
and exible. As re ected in Art.47 of the CIETAC
CIETAC panel.
Arbitration Rules, there is no set rule to be followed;
a tribunal may conduct mediation `in any way it
deems appropriate. Advantages of the combined mediation/
5. The aggrieved party can apply to the Peoples arbitration mechanism
Court for revocation of an award under Art.58 of
The combined mediation/arbitration mechanism has
the 1995 Arbitration Law.2 If the winning party
been producing successful results in the PRC, at least
applies for enforcement of the award, the aggrieved
for domestic cases. This `oriental experience has
party can apply to the People s Court for refusal of
attracted much attention in the international dispute
enforcement on grounds set out in Art.260 of the
resolution community.
1991 CPL.3
The PRC arbitration institution reckons that the
combined mediation/arbitration mechanism offers the
following advantages (CIETAC Secretariat, 1995).
The mediators role
1. Time and resources are saved by avoiding the
The role of a mediator is to investigate the facts and need to proceed through a different tribunal if medi-
set out clearly to the parties the weaknesses and ation fails.
strengths of their claims. The parties are encouraged 2. The success rate is higher than in `stand-alone
to reassess each others underlying problems and mediation.
compromise wherever possible. The mediators role 3. The mediation settlement will be handed down
can be summarized as follows. as an enforceable arbitration award, in contrast to
544 Chan

`stand-alone mediation awards which constitute be forced upon the other party for delaying purposes.
only a contractual obligation. With the combined mediation/arbitration practice in
4. After the mediation process, whether settlement the PRC, if a party doubts the other party s sincere
is achieved or not, the parties will understand each wish to mediate, it can switch to arbitration without
other better. This tends to preserve good relation- wasting time and money to instigate another arbitra-
ships after the nal award. tion tribunal; this will improve the parties sincerity
when mediating for a settlement.
For domestic disputes, Art.9 of the 1991 CPL is not
Evaluation of the combined mediation/
clear regarding voluntary requirements for mediation.
arbitration mechanism
In a recent discussion with delegates from the PRC,
A research report on Alternative Dispute Resolution it was con rmed that even for domestic dispute reso-
(ADR) services in the United States (Brett et al., 1996) lution mediation is only a recommended option for the
indicates that about 78% of cases referred to media- parties.5 To say that mediation is compulsory or consti-
tion are resolved, and mediation has a number of other tutes a prerequisite to commencement of arbitration of
advantages over arbitration: mediation participants are PRC domestic disputes is an overstatement. Indeed,
more satis ed than arbitration participants with the Art.51 of the new Arbitration Law states expressly that
process, its implementation and outcome, as well as `an arbitration tribunal shall mediate when both parties
with its effect on the parties relationship. The study voluntarily seek mediation.
also concludes that, when interest-based mediation is Another query concerning the combined process is
combined with an advisory opinion, the advisory whether the arbitrator can really disregard all the infor-
opinion leads to an additional 20% increase in the mation gathered during a mediation process and retain
success rate. The PRC combined mediation/arbitration the objectivity needed to discharge fairly an arbitrators
practice allows a mediator to assume an advisory role. duties in the subsequent proceedings. Whether this
This may be one of the reasons why it is effective. criticism is valid depends on whether one accepts
However, as pointed out by Fellows and Hancock resolving disputes by arbitration with an acceptable
(1994), culture has a signi cant impact on domestic level of `rough justice for commercial survival, rather
issues and disputes. The success in resolving domestic than points of law and rules of evidence. The infor-
disputes in the PRC with the combined mediation/arbi- mation gained during mediation de nitely will help the
tration practice has much to do with Chinese culture, arbitrator to understand and process a case faster. It
and with a lack of alternatives for locals. seems that the PRC exible and informal legal system
Both the popularity and the effectiveness of applying lends itself to such `rough justice , with good reason
the same combined mediation/arbitration mechanism in this respect.
for resolving foreign-related disputes are cast into
doubt by many (Feinerman, 1995). Sceptics think that
Implication for foreign-related construction
if friendly settlements were an easy option for foreign
disputes
investors in the PRC, the parties would have settled
before their disputes were taken to the formal channel
Policy overrides law
under the CIETAC monopoly. CIETAC also concedes
that the role of mediation within the arbitration process The Preamble of the 1982 Constitution of the PRC
is losing its signi cance. The success rate of settling con rmed that the Chinese Communist Party s lead-
CIETAC cases through mediation within arbitration ership in China on the road to socialist modernization.
processes dropped from 50% in pre-1984 to 30% in Li (1984) mentions `. . . that the laws of the state must
post-1984 years (CIETAC Secretariat, 1995). The be guided by the policies of the Party is a basic condi-
CIETAC statistical data in Table 1 show that the tion in guaranteeing that the laws of our country are
contribution of mediation within arbitration towards in keeping with the interests of the people and do not
facilitating a settlement is diminishing: disputes deviate from the socialist track. It is also an important
resolved by methods other than arbitrated awards means of guaranteeing that the Party exercises polit-
dropped from 40% in 1992 to 19% in 1995, and ical leadership over the state .
consent awards through mediation dropped from 13% The PRC leadership accepts that Party policies can
in 1992 to 7% in 1995. only guide the law in principle, not take its place. In
The mediation process may be used, by an reality, new policy often overrides laws by way of inter-
unscrupulous party, as a delaying tactic (Brooker and pretation by the local Judicial Committee set up under
Lavers, 1994). However, for foreign-related disputes Art.11 of the 1979 Organic Law of PC and by the
in the PRC, mediation is not a prerequisite to local Party political-legal committee (Finders, 1995).
commencing arbitration; mediation therefore cannot The cumulative effect is uncertainty in the legal and
Amicable dispute resolution 545

dispute resolution which was criticized by Lubman, using the law as the basis of their decision and were
(1983). partial to local parties.
That `local protectionism is operating to a damaging
extent has been recognized by the central leaders in
Local judicial system and `local protectionism
the PRC. Different organizations place vested interests
Under Art.62(7) of the 1982 Constitution of the PRC, above any others. In order to safeguard their economic
the President of the Supreme Peoples Court is elected interests, local administrators retain power over, and
by the National Peoples Congress (NPC). Art.67(11) are reluctant to co-operate with, other administrative
provides the Standing Committee of the NPC with the departments. This bewilders Chinese leaders, not to
power to appoint and remove vice presidents and mention foreigners, as to where and with whom power
judges of the Supreme Peoples Court and members lies. Delay in and denial of enforcement of arbitration
of its Judicial Committee, at the suggestion of the awards are often due to `local protectionism. Because
President of the Supreme Peoples Court. According of site location of real estate property development,
to Art.101, local Peoples Congresses above county construction disputes suffer more directly from the ill
level can elect and have the power to dismiss presi- effects of `local protectionism. In the National
dents of Peoples Courts at a corresponding level. The Conference on Politics and Law held in December
Standing Committees of local Peoples Congresses 1992, Supreme Court Justice Mr. Ren Jianxian
have similar powers to those of the Standing acknowledged the problem and delivered his ` ve
Committee of the National Peoples Congress, i.e. to prohibitions 6 to counter `local protectionism(Cheng
appoint and remove key personnel of local People s et al., 1995).
Courts at the corresponding level. The Courts judi-
cial independence is provided in Art.126 which lays
Enforcement of awards
down that the Peoples Court shall, according to law,
exercise judicial power independently. Art.30 of the The main objective of the winning party after media-
1979 Organic Law of PC also con rms the Court as tion/arbitration is to see to it that the award is
the state s highest judicial organ which supervises the honoured, voluntarily or through enforcement by the
administration of justice by local People s Courts at Peoples Court. The enforcement provisions of the
various levels. CIETAC Rules have not changed much between 1956
However, as Finder (1995) points out, Party and and 1995. During this period, the majority of appli-
state of cials customarily discuss the handling of cations for enforcing international arbitration awards
important local issues. For legal issues, the forum for were granted. Table 2 presents the results of a very
discussion is the local Party political-legal committee, limited survey carried out by the CIETAC Secretariat
which is established at all levels of government. This on a random sample of Intermediate Peoples Courts
is intended to ensure that central policy is implemented decisions in 21 major cities (CIETAC Secretariat,
correctly at all levels of local government. The 1995). According to the limited statistical data, only 3
committee discusses only very important cases, partic- out of 28 enforcement applications were refused. One
ularly those involving prominent persons. Since the of the refused cases was lodged at the wrong level of
reform in the 1980s, the central government has dele- the Court and thus rejected. The two others were
gated much of its power to local government; many refused because enforcement would be against the
government controls also have been transferred to public interest of the PRC. According to the statistics,
semi-government or private enterprises, and rely on in theory, foreign parties need not worry about the
market forces. However, this well-intended decentral- enforcement provisions. However, it is precisely the
ization of power has been exploited by the unscrupu- lack of clarity of the `against public interest rule that
lous for local- and self-interest. Moreover, the budgets worries them. Because of the legacy of the PRCs
of the local courts and the job security of their centrally planned economy to its current socialist
personnel are dependent on the local authorities. Local market economy, very often the Chinese side of the
judicial systems are gradually being subjected to indi- contracting parties would be a semi-privatized arm of
rect control by local governments with local economic a government department or a joint venture with links
interests (Shi, 1995). Mr. Ren Jianxian, the President to government bodies. The business survival of the
of the Supreme Peoples Court in his 1991 address to Chinese party can be vital to a locality s whole
the National Peoples Congress, said (Bersani, 1992) economy. This is particularly the case for large
`In recent years, local protectionism has seriously construction projects. When disputes and enforcement
affected the judicial work of the courts. In order to issues arise, it is unclear how the `against public
protect local interests, some courts deviated from the interest rule will be interpreted (CIETAC Secretariat,
principle of basing their judgement on the facts and 1995).
546 Chan

Intervention from local putes.


Peoples Courts According to Chornenki (1995), the three As of
selection for mediation are adjudication, attitude and
The 1995 Arbitration Law allows the parties to a
alternative. For the PRC scenario, one could argue
dispute to select their preferred arbitration venue.
that the emphasis on mediation is attributed to the fact
However, application for enforcement of an arbitration
that, under the circumstances, the parties have no
award has to be made to the local Intermediate
`alternative more attractive than the amicable dispute
Peoples Court where the respondent resides or has
resolution mechanism available there. The combined
property. The Chinese respondent may have its
mediation/arbitration mechanism in the PRC is there
strongest political and economic ties at a local base,
for the `adjudicative sort who genuinely needs it. Used
from where it can in uence the court. Enforcement
with a sincere `attitude , the combined mediation/
cases may simply be delayed while the respondent is
arbitration system can provide all its inherent advan-
busy diverting assets, as alleged in the `Rev Power
tages.
Dispute case (Mora, 1995).
Disputes involving foreign- nanced construction
projects will have to rely on the PRC domestic medi-
ation/arbitration system. The damaging effect of `local
protectionism and the interference with the local judi-
Conclusion
ciary by local government in the name of protecting
the local economy are acknowledged at leadership level
The cause of disputes is closely related to the culture
in the PRC. To improve the legal framework, new
of a society. This agrees with the proposition advanced
legislative measures, such as the Civil Procedure Law
by Ridgeway (1994) that `the cause for disputation is
and the Arbitration Law, have been introduced grad-
cultural. The culture of a society is not a constant: it
ually, and concrete efforts are being made by the
changes with the societys social and economic envi-
Supreme Peoples Court to ensure that local judicia-
ronment. Different methods for resolving disputes also
ries are consistent and under strict supervision by the
are social phenomena closely associated with a societys
central authority. This suggests that the country is
unique culture. Chinese culture is said to be in favour
taking steps in the right direction.
of using amicable mechanisms to resolve disputes, and
In Hong Kong and Singapore, which have a similar
the deeply rooted informal mediation culture is incor-
Chinese culture, the dispute resolution methods have
porated in the more structured arbitration process
been changing from the traditional informal amicable
dictated by legal rules. The combined mediation/arbi-
way to the more formalized Western style (Brooker and
tration mechanism is popular and successful in the
Lavers, 1994). In the PRC, commercial activity is
PRC because of its unique legal system and the social
being globalized and the legal framework for dispute
obligations of its people.
resolution is improving. The CIETAC statistical data
However, this culture is changing with the political
on cases of recent years seem to suggest that a trend
economic transformation of the PRC. It is doubtful
towards a more formalized dispute resolution system,
whether this brand of `oriental attitude can be found
similar to what has happened in Hong Kong and
consistently within international communities: each of
Singapore, is emerging also in the PRC.
them has a different culture and comes together for busi-
On the other hand, it is interesting to see that
ness reasons only. It is sensible that PRC law does not
Western communities, increasingly too tied up with
impose a prerequisite of mediation before com-
legal rules, are fascinated by and are exploring the
mencement of an arbitration for foreign-related dis-
amicable dispute resolution method. One can wonder
whether we are chasing round a circle between informal
amicable and `judicialized dispute resolution.
Table 2 Statistical data of enforcement of awards in the
PRC Courts

1990 1991 1992 1993 Sept. 1993 Total Acknowledgements


Enforcement The author is very grateful to Mr. Zhu Jianlin,
applications CIETAC Secretary General of the PRC for providing
2 6 4 6 10 28
some of the CIETAC statistical data for this paper.
Refused Thanks are also due to the authors colleagues at the
enforcement Hong Kong Polytechnic University, Dr. Eddie C.M.
cases
Hui and Mr. Y.H. Chiang for their patience in reading
0 1 1 1 0 3
through the draft and advising on the paper.
Amicable dispute resolution 547

Endnotes tion of an arbitral tribunal or arbitration procedures


failed to comply with the rules of arbitration; or (4)
1
Art. 243 of the CPL: `Where an action is instituted matters decided in an award fell beyond the scope of
against a defendant without a domicile inside the terri- an arbitration agreement or the arbitral authority of an
tory of the PRC concerning a dispute over a contract arbitration institution.
or rights and interests in property, if the contract was
4Art.13
executed or performed within the territory of the PRC, of the Arbitration Law: `Arbitrators engaged by
or the subject matter of the action is located within the the arbitration committee should be just and have moral
territory of the PRC, or . . . the action may come under integrity. Arbitrators should meet one of the following
the jurisdiction of the Peoples Court of the place where requirements: (1) have been engaged in arbitration
the contract was executed . . . Note that if parties insist works at least eight years; (2) as a lawyer for at least
on having their action outside the PRC, the PRC eight years; (3) as a judge for at least eight years; (4)
Peoples Court could carry on and try the case. The have been engaged in law research or teaching and have
problem will arise when a party seeks enforcement of the senior titles concerned; or (5) be equipped with
an award in the PRC People s Court. legal knowledge and have been engaged in economic or
trade work with senior titles or the same quali cation.
2
Art. 58 of the 1995 Arbitration Law: `where the The arbitration committee should have a list of arbi-
parties concerned provide evidence to testify that the trators in different specializations.
arbitration award has one of the following circum- 5In
September 1996, the author discussed the media-
stances, they may submit an application to the inter-
tion topic with Mr Xu Song-lu, one of the 10 dele-
mediate Peoples Court in the place where the
gates from the PRC Ministry of Construction to Hong
arbitration committee is located for the revocation of
Kong. Mr Xu is a domestic arbitration practitioner in
the arbitration award: (1) no arbitration agreement was
Beijing and a Deputy Secretary-General of the China
reached; (2) matters decided in the award fall beyond
Construction Association, Ministry of Construction.
the scope of an arbitration agreement for the authority
of an arbitration institution; (3) the composition and 6The
ve prohibitions are: (1) prohibiting local party
procedure of the arbitration tribunal are against the cadres from interfering with the judicial process in an
procedure stipulated by the law concerned; (4) attempt to protect local interest; (2) prohibiting
evidence on the basis of which the award was made government of cials and other parties from making
had been forged; (5) the other party withheld evidence threats or launching campaigns against judicial of cers
suf cient enough to produce an impact on the impar- carrying out the execution of a court order; (3)
tiality of an arbitration; or (6) in the course of arbi- prohibiting judicial organs from practising favouritism
tration, the arbitrators demanded and/or accepted towards local parties by making unfair rulings or
bribes, practiced graft or made an award that perverted avoiding their proper responsibilities; (4) prohibiting
the law. Where the examination and veri cation of an of cials of the public security and procuratorial organs
award by a collegiate bench formed by the Peoples from interfering with the adjudication of economic
Court involve any of the circumstances set forth in the cases by treating contract and debt disputes as offences;
preceding paragraph, the Peoples Court shall rule to and (5) prohibiting any organ or individual from
vacate the award. Where the Peoples Court deter- obstructing the execution orders of the Peoples Courts
mines that the award is contrary to the public interest, in any other way.
it shall rule to vacate the award .

3Art.260
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