ADR for commercial disputes in China

By Quan Zhaohui and Mo Xinying, ETR Law Firm
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It is a common understanding to deal with cross-border commercial disputes through alternative dispute resolution (ADR), which is compliant in advance, and timely, effective and low-cost during the process and afterwards. Under the previous system, the settlement agreement reached through mediation is generally regarded only as a contract between the parties to the dispute and cannot be enforced automatically. To enforce it, the commercial arbitration or civil litigation procedure needs to be initiated on the ground of breach of contract.

Since China formally signed the Convention on International Settlement Agreements Resulting from Mediation (including the Model Law) (the convention) in August 2019, it is of far-reaching significance to ensure that these settlement agreements can be included under the convention, and can be enforced in foreign jurisdictions like those enforced under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the Convention on the Choice of Court Agreement, and the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters.

Intervention of commercial mediation

dispute
Quan Zhaohui
Senior Partner
ETR Law Firm

From the perspective of commercial conduct and lawyer’s business, the escalation from non-litigation to litigation is as follows: (1) starting event, negotiation → preparing documents and performance; (2) argument → consultation; (3) disputes → mediation or conciliation, settlement; and (4) arbitration, litigation.

If facilitative mediation, which is more commonly used in international commercial mediation, can be made good use of, compared with the non-neutral and aggressive evaluative mediation, it may be better for mediators to facilitate the parties to the dispute into mediation and a state of settlement agreement. This is because the convention places more emphasis on exploring the internal causes of disputes and the participation in the mediation process to ensure that the parties to the dispute accept the substantive effect of the settlement agreement. Here is a brief analysis of the important roles of mediators and other parties in the above escalation process from a practical dimension.

dispute
Mo Xinying
Associate
ETR Law firm

Transaction arrangements. The transaction lawyer must analyze and summarize all kinds of ADR cases in advance, and communicate and negotiate with the counterparty’s lawyer or dispute lawyer to strive for win-win co-operation. According to escalation logic, it is necessary to prepare documents, start events, negotiate and further arrange relevant implementation.

Dispute resolution. In the face of argument and disputes, relevant lawyers, mediators, their affiliated institutions and mediation advocacy need to have the cognitive and behavioural competencies of negotiation and commercial mediation, as described in the convention, and the more unified standards for qualification training, review, follow-up education and supervision are required.

The above-mentioned facilitative negotiation and mediation are applicable to general commercial disputes (especially foreign-related) with a high degree of information symmetry between the parties to the dispute. Evaluative mediation is applicable to the disputes in the workplace, medical treatment, finance, professional engineering and maritime affairs, with a low degree of information symmetry. There is also mixed mediation, which refers to the appropriate use of the above two or more methods, dependent on various situations or cultural differences.

The trend of integration in an increasingly open legal service market. The integration modes of “mediation – litigation – mediation – litigation” and “mediation – arbitration – mediation – arbitration” are the more recognized ADR integration modes in the world today. At present, a system of pretrial mediation, and that the winning party who does not accept mediation is required to bear the costs, is in place in some courts in the UK, Hong Kong and mainland China.

However, the issue of neutrality and confidentiality arising from the fact that the positions of arbitrators, mediators and mediation advocacy in the same dispute are held by the same person/ same institution, as well as the issue of whether the settlement agreement and/or it’s award resulting from improper integration can be successfully enforced, cannot be ignored. The early education, guidance and supervision of relevant ADR institutions are also indispensable.

Diversified dispute settlement

The application of mediation in cross-border commercial and investment disputes. China has promulgated the Opinions on Improving Alternative Dispute Resolution, and the Opinions on Further Deepening the Reform of Alternative Dispute Resolution, aiming to give priority to the promotion of mediation. However, there are still some differences between the relevant mediation system and the scope of application of the convention and its subsequent implementation. In order to give full play to the role of commercial mediation in cross-border economy and trade, it is necessary to identify the escalation stage, and nature of argument and dispute, and to make good use of commercial mediation organizations with high credibility and their relevant rules.

Establish a more unified mediation mechanism as soon as possible. At present, there are many mediation organizations in China. In addition to the people’s mediation committees involved in general civil disputes such as marriage, family and labour, there are no unified entry and exit standards for commercial mediation skills training in other industrial and commercial mediations. Therefore, it is necessary to establish and improve the internal mechanism of relevant mediators, and their mediation institutions, based on the requirements of commercial mediation services under the framework of the convention, so as to ensure that the “settlement agreement” has judicial effect and can be smoothly enforced in the future.

Strengthen co-operation and exchanges, and gradually establish “Chinese mediation standards”. As for the mediation code of conduct, especially the internal construction of specific procedures, methods and skills, which may involve more psychological, social and other disciplines, as well as the experience accumulation of mediators and their mediation institutions, there is no general and consistent conclusion internationally. Therefore, the convention does not list the qualifications and mediation methods of commercial mediators and mediation institutions.

China should effectively classify and sort out a set of mediation codes of conduct conforming to its cultural background and legal inheritance, according to the abundant practical cases and in combination with the provisions of the convention, establish and improve mediation and ADR-related academic and research organizations, and special service institutions, and carry out exchanges regularly so as to help establish Chinese mediation standards in the process of development.

Quan Zhaohui is a senior partner at ETR Law Firm. He can be contacted on +86 20 8351 0051 or by email at [email protected]

Mo Xinying is an attorney at ETR Law Firm. She can be contacted on +86 20 3718 1333 or by email at [email protected]