Chinese Arbitration Concerns Some U.S. Companies
Some U.S. companies and their lawyers are concerned about arbitration of business disputes in China.
In one high-profile case, an arbitrator who sided with PepsiCo Inc. against a Chinese bottler was detained in 2006 on charges of committing financial improprieties within the arbitration organization that hired him, a Chinese-sponsored group known as CIETAC. Some fear his ruling was the real reason for the arrest, the Wall Street Journal (sub. req.) reports. The arbitrator is still awaiting trial.
Other worries are related to the way arbitrations are conducted in China, the story says.
Arbitrations based on business in a foreign country typically take place on neutral ground. But often Chinese companies stipulate that disputes be resolved in a proceeding in mainland China, and their position often wins the day because of corporate competition to do business in the country, the article says.
Selection of arbitrators also differs in China, where about 40 percent of foreign arbitrations are handled by CIETAC. Under its typical selection system, both sides in a business dispute get to choose one of three members of the arbitration panel, a practice that resembles the method used in the U.S.
But when the parties can’t agree on a third candidate, CIETAC chooses the arbitrator. “That’s an extraordinarily risky proposition,” said Frances Kao, a lawyer at Skadden, Arps, Slate, Meagher & Flom, in an interview with the newspaper. Here the third person is usually selected by the two arbitrators if the parties can’t agree.
Western companies also have concerns about the way arbitrators are paid. Arbitrators’ pay can vary widely, and Western arbitrators often make more than Chinese arbitrators. This can breed resentment, the story says.
Wang Chengjie, CIETAC’s deputy secretary-general, told the Wall Street Journal that Chinese arbitrators act responsibly, no matter what their pay. And he said there is no evidence of bias. “We’ve done our own surveys of cases,” he said. “Foreign parties who apply for arbitration win the case about 80 percent to 90 percent of the time.” The same is true of Chinese companies seeking arbitration.
He doubts the arbitrator detained after the PepsiCo dispute was arrested because of his ruling. “There are so many arbitration cases where the Chinese side loses,” he told the newspaper.
