- Governing law and dispute forum are separate choices.
- Arbitration can be more portable across borders than a court judgment.
- The clause must be workable for the parties, the subject matter and the assets involved.
A contract between a Chinese company and an overseas counterparty may be governed by Chinese law, the law of the counterparty’s home state, or a neutral system such as English or Singapore law. The parties are generally free to choose, subject to mandatory rules and public policy.
The governing law determines how the contract is interpreted and what remedies are available. The dispute forum determines where and how a disagreement is decided. Choosing one without thinking about the other can leave a party with a favourable rule that is difficult to enforce.
Governing law
Chinese law is often the natural choice for contracts performed in China, particularly where a Chinese entity, licence or property is central. Foreign law may suit financing, distribution or technology arrangements with a stronger international centre of gravity.
Even where foreign law is chosen, Chinese mandatory rules may still apply to certain matters, and a Chinese court or authority may need to consider them. The contract should also address language versions, notices and the authority of signatories.
Court or arbitration?
A Chinese court is a sensible forum for disputes that are local in fact and where the defendant’s assets are in China. Court proceedings may be faster and less expensive for straightforward claims, but a Chinese judgment may be difficult to enforce abroad.
Arbitration is often preferred in cross-border contracts because awards are enforceable in many jurisdictions under the New York Convention. Institutions commonly chosen for China-related work include CIETAC and SHIAC in mainland China, and HKIAC and SIAC outside it. The seat, the institution, the language and the number of arbitrators all need to be specified.
A clause that says only that disputes will be “arbitrated in China” may be uncertain in practice. A well-drafted clause identifies the institution, the seat, the rules and the language.
Enforcement before the dispute
- Identify where the counterparty’s assets are likely to be and whether a judgment or award can reach them.
- Check whether the counterparty has a presence or assets outside its home jurisdiction.
- Consider interim relief, preservation measures and the time needed to obtain them.
- Confirm that the notice and service provisions will actually reach the right person.
The best clause is not the one that looks most aggressive. It is the one that produces a decision another jurisdiction will recognise and enforce.
Drafting points
Define the parties precisely, including any guarantor. Address the language of the contract and which version prevails. Include a clear notice clause with addresses and permitted methods. Set out the consequences of termination and the survival of clauses intended to continue after it.
Where the contract involves China, local law advice on validity, licensing and enforceability should be obtained before signature. A clause that is elegant under one legal system may be unenforceable under another.