Perspective | The Realistic Challenges and Coping Strategies for Chinese Companies in Drafting International Arbitration Clauses

The fallacy of the "arbitral or judicial" clause persists: This is the most common and costly mistake. A typical statement reads: "Any dispute arising out of this contract shall be submitted to the XXX Arbitration Commission for arbitration, or, alternatively, brought before the people's court with jurisdiction." Such clauses are deemed invalid in the vast majority of jurisdictions—including China—because they contravene the fundamental legal principle that arbitration excludes judicial litigation. As a result, the dispute-resolution mechanism collapses, forcing the parties to either renegotiate or resort to court proceedings, leading to significant delays and inadvertently giving the party deliberately stalling on performance an opportunity to exploit the situation.

Strategic Neglect and Negotiation Apathy: In many project contract negotiations, front-line business personnel tend to focus more on commercial terms such as price, payment, and delivery schedules, while treating legal clauses—especially dispute-resolution provisions—as easily negotiable or even insignificant. Driven by the urgency to close deals, they often passively or actively accept entirely the text provided by the other party. This shortsighted mindset, which prioritizes commerce over law and substance over procedure, inadvertently sets the stage for substantial future disputes. At its root lies a lingering gap in legal awareness among senior corporate managers, particularly regarding cross-border legal risks, preventing them from elevating dispute-resolution clauses to the level of strategic risk management.

The selection of the arbitration institution is unclear: In practice, it is common to see agreements simply stating "arbitration in Beijing," "arbitration in China," or "arbitration through CIETAC," without specifying a particular branch. Such ambiguity can easily become grounds for the opposing party to challenge jurisdiction early in the proceedings, leading to unnecessary delays and costs as they attempt to resolve procedural disputes that could have been avoided altogether.

The Passive and Misguided Approach to Arbitration Venue Selection: The legal significance of the arbitration seat extends far beyond its geographical location—it determines the judicial oversight and legal framework governing the arbitration proceedings. Unfortunately, many Chinese companies fail to recognize this importance and readily agree to have the arbitration held in their home country or at a venue that appears neutral but may, in reality, pose potential inconveniences or biases for the Chinese party involved. Such decisions not only lead to substantial travel and legal costs but also risk exposing the arbitration process to undue interference from an unfriendly local court.

The Confusion and Neglect of Substantive Law and Procedural Law: Many contracts only specify the seat and institution for arbitration, but fail to explicitly define the governing law that will govern the substantive rights and obligations under the contract. As a result, the arbitral tribunal will have to determine the applicable law based on conflict-of-laws rules, potentially leading to the application of a legal system that is entirely unfamiliar—and even unfavorable—to Chinese companies, thereby creating significant uncertainty in substantive matters.

Cost Underestimation: International arbitration is an extremely costly judicial process—beyond the administrative fees charged by arbitration institutions and the remuneration of arbitrators, substantial international legal fees, expert witness costs, evidence translation expenses, notarization fees, travel expenses, accommodation costs, and more leave businesses feeling overwhelmed. Many companies fail to adequately assess the potential costs of disputes or set aside sufficient financial reserves when negotiating contracts.

Program unfamiliarity and maladjustment: International arbitration procedures, particularly those in common-law systems that are heavily adversarial—such as extensive document disclosure, lengthy witness testimonies, and intense cross-examinations—often leave Chinese companies and lawyers, who are accustomed to the inquisitorial litigation environment of civil law systems, feeling profoundly uncomfortable. As a result, they tend to find themselves easily caught off guard and at a disadvantage throughout the proceedings.

Deep-rooted Cause Analysis: The emergence of the above issues is the result of multiple factors overlapping:

(1) At the corporate level: There is an insufficient pool of high-quality, internationally-minded legal professionals; corporate legal teams lack sufficient early involvement in the negotiation of major projects; and internal risk management processes still contain vulnerabilities.

(2) At the industry level: The capacity to provide high-quality, internationally-oriented legal services still needs improvement, and the collaboration model between Chinese and foreign lawyers remains immature.

(3) At the national level: The legal framework supporting enterprises "going global"—including public awareness campaigns on the law, promotion of standardized contract templates, and provision of public legal services—still requires further strengthening and greater precision.

Based on the aforementioned issues, this paper constructs a multi-level, systematic model for optimizing arbitration clause design. The model encompasses seven core elements, aiming to provide Chinese enterprises with a clear and actionable guide for negotiation and drafting.

The choice of arbitration seat is the cornerstone of clause design.

The First Strategic Formation: Firmly advocating that mainland China serve as the arbitration venue is the most direct and powerful manifestation of putting into practice the principle of "coordinating and advancing both domestic rule of law and foreign-related rule of law." The rationale behind this stance is robust and continues to grow stronger.

(1) The judicial environment is steadily improving: In recent years, Chinese courts have demonstrated an increasingly supportive stance and higher level of expertise in judicial reviews of arbitration. The Supreme People’s Court has established the International Commercial Court ( CICC ), establishing a “one-stop” diversified mechanism for resolving international commercial disputes, and significantly enhancing China’s predictability and attractiveness as an arbitration venue through the issuance of judicial interpretations and typical cases.

(2) Convenience and Cost Advantages: For cases where the primary place of performance is in China and evidence and witnesses are concentrated domestically, choosing a domestic arbitration venue can significantly reduce the costs and time associated with cross-border travel, evidence transfer, and document translation.

(3) Dispelling concerns about "fairness": As Chinese arbitration institutions like CIETAC gain increasing international recognition, coupled with Chinese courts' steadfast adherence to the principles of judicial independence and impartiality in their legal reviews, the longstanding Western skepticism toward the fairness of China's arbitration system is rapidly fading. During negotiations, the Chinese side should confidently highlight these significant advancements.

The Second Strategic Formation: Carefully selecting a mature and "neutral yet friendly" arbitration venue: If, after evaluation, reaching an agreement for arbitration in China proves unfeasible, strategically opt for an internationally recognized arbitration center with a well-established judicial system and a neutral or favorable stance toward China. Singapore and Hong Kong, China, are the top choices in the Asia-Pacific region, thanks to their comprehensive legal frameworks, clear judicial support for arbitration, and geographical and cultural proximity to China. Other strong alternatives include traditional European neutral countries such as Switzerland and Sweden. Whenever possible, avoid choosing jurisdictions that have close ties with the opposing party or have recently demonstrated overt biases against Chinese enterprises in their judicial practices.

Actively promote and select China's international arbitration institutions: Chinese enterprises should become promoters of "China Services." During negotiations, they should systematically introduce CIETAC. SHIAC , BAC's advantages:

(1) Modernization of the Rules: Its rules—such as the "CIETAC Arbitration Rules (2015 Edition)" and subsequent amendments—fully incorporate international best practices, including mechanisms like emergency arbitrators, multi-party arbitration, and consolidated arbitration.

(2) Transparent and Competitive Pricing: Its fee structure is typically more cost-effective than that of Western institutions.

(3) Efficient Management: Proficient in both Chinese and foreign cultures, ensuring smooth communication. For projects involving countries along the Belt and Road, Chinese institutions have a natural advantage.

Delve deeply into and flexibly agree upon arbitration rules: Even when opting for a foreign institution in certain cases, one must never have only a superficial understanding of its rules. Instead, you should thoroughly examine the details of their regulations and may even fine-tune them through special agreements. For instance, you could agree to shorten specific procedural deadlines or explicitly exclude certain undesirable processes. For contracts involving potentially smaller dispute amounts, it’s advisable to mandate the application of the institution’s “fast-track procedure” rules, helping to effectively manage both time and costs.

Language rights are directly linked to the fairness and cost of the process.

Principles: Strive to make Chinese the sole arbitration language. For projects where contracts are executed in Chinese, performance primarily takes place in China, and all official correspondence between the parties is conducted in Chinese, advocating for Chinese as the arbitration language is most justified. This approach ensures that Chinese companies remain fully comfortable throughout evidence preparation, legal arguments, and courtroom proceedings, thereby preventing miscommunication and unnecessary costs caused by language barriers.

Strategy: Using "Chinese-English bilingualism" as a bargaining chip and compromise solution. If the other party strongly opposes, the "bilingual approach" can be adopted as a compromise—but this must be clearly stated in the terms and conditions:

(1) Which language shall prevail? It may be agreed that "the arbitration proceedings shall be conducted in Chinese, and all English documents must be accompanied by certified Chinese translations. In case of any discrepancies, the Chinese text shall take precedence."

(2) Which languages will be used in which stages? For example, written statements can be submitted in both languages, but the courtroom proceedings will primarily be conducted in Chinese, with simultaneous interpretation provided. This approach not only respects the other party’s sense of involvement but also effectively safeguards our own linguistic advantage.

Determining the governing law for the substantive rights under a contract with agreed jurisdiction is a more fundamental issue than choosing the arbitration venue.

Preferably governed by the laws of the People's Republic of China: China's "Civil Code of the People's Republic of China," particularly its section on contracts, is rich in content and features a comprehensive legal framework—it is indeed a modern commercial law. For contracts where the Chinese side serves as the primary designer, contractor, or supplier, applying Chinese law is both logical and reasonable. Corporate legal teams and external lawyers should strengthen their research into the advantages of Chinese law and enhance their ability to effectively communicate these benefits externally, thereby dispelling the outdated perception held by foreign parties that Chinese law is "opaque and unpredictable."

The secondary option applies internationally recognized, neutral commercial law: If the contract has an international character (e.g., when both parties collaborate on a project in a third country), internationally recognized legal systems such as UK law or Singapore law may be acceptable. It is strongly recommended to avoid applying the laws of the other party’s home country, unless you have an exceptionally deep understanding of those laws.

Whoever serves as the arbitrator holds the power to determine the standard of the decision.

Agree on the number of arbitrators: Depending on the project amount and complexity, clearly agree on the number of arbitrators. For high-value, complex disputes, a three-member panel is typically agreed upon to mitigate the risk of decision-making by a sole arbitrator.

Refine the specified mechanisms and qualification requirements: In the arbitration procedure involving three arbitrators, in addition to the standard arrangement—where "each party appoints one arbitrator, and the chief arbitrator is jointly appointed by both parties or designated by the institution"—we can include provisions favorable to our side.

(1) Nationality Requirement: "The chief arbitrator shall not hold the nationality of any of the parties and must possess extensive experience in handling complex international commercial disputes of a similar nature."

(2) Qualification Requirements: "All arbitrators must have a thorough understanding of the [selected legal system] and be fluent in the [chosen arbitration language]." This ensures that we can effectively prevent the opposing party from appointing an arbitrator who, while prestigious, may harbor strong cultural biases or linguistic limitations.

To make the clauses more forward-looking and enforceable, consider incorporating the following enhanced provisions:

Emergency Arbitrator Provision ： Clearly stipulate that a party may, prior to the formal constitution of the arbitral tribunal, apply to the arbitration institution for urgent interim relief (such as asset preservation or evidence preservation) in accordance with the institution's rules, to prevent the other party from transferring assets or destroying evidence before the proceedings commence.

Multi-level dispute resolution clause: Agree on a "mandatory period for amicable negotiations (e.g., 60 days)" → "mandatory mediation (with the option to appoint a mediation body)" → "arbitration." By making mediation a prerequisite to arbitration, this approach offers a more cost-effective and user-friendly pathway to resolving disputes—though it’s crucial to clearly outline how arbitration can seamlessly kick in immediately after mediation fails.

Cost Allocation and Guarantee Clause: To enhance cost predictability, beyond the rule-based principles, it can be explicitly agreed that "the arbitral tribunal shall award the losing party the obligation to compensate the prevailing party for reasonable attorney fees, expert fees, travel expenses, and other costs incurred as a result of the arbitration." Moreover, when the creditworthiness of the opposing party may be questionable, it is even advisable to stipulate that "either party initiating arbitration must provide adequate security for the costs involved."

Program Schedule Agreement ： For projects focused on efficiency, the terms can include a general agreement on the approximate timeline for the arbitration process (e.g., a ruling to be issued within 6 months after the arbitral tribunal is formed), providing the tribunal with procedural guidance.

Considering the above factors, a model clause highly favorable to Chinese companies (taking CIETAC as an example) could be designed as follows:

“Article X Dispute Resolution

Any dispute, controversy, or claim arising out of or in connection with this contract (including but not limited to the formation, validity, interpretation, performance, breach, or termination of the contract) shall first be resolved through friendly consultation between the parties. Such consultation must take place within sixty (60) days after one party submits a written request. If the dispute remains unresolved after consultation, either party shall have the right to submit the matter to the China International Economic and Trade Arbitration Commission (CIETAC), where arbitration will be conducted in Beijing—in accordance with the commission’s then-current and effective arbitration rules at the time of the arbitration application. The arbitral award shall be final and binding on both parties.

This contract (including this arbitration clause) shall be governed by and interpreted in accordance with the laws of the People's Republic of China. The language of arbitration shall be Chinese.

The arbitral tribunal shall consist of three arbitrators. The claimant and the respondent shall each appoint an arbitrator within fifteen (15) days from the date of receipt of the arbitration notice. The presiding arbitrator shall be jointly selected by both parties; however, if no joint selection is made within twenty (20) days from the date of receipt of the arbitration notice, the presiding arbitrator will be appointed by the Director of CIETAC.

Both parties hereby agree that the arbitral tribunal may, in accordance with CIETAC Rules, adopt interim measures, including providing emergency relief through the Emergency Arbitrator Procedure.

This clause is clear and comprehensive, meticulously safeguarding all elements favorable to our side while effectively sidestepping all common pitfalls.

Finally, preventing and addressing international legal disputes is a strategic undertaking that directly impacts a company’s survival and growth in overseas markets—yet optimizing international arbitration clauses stands out as the most cost-effective and strategically valuable cornerstone of this effort. We must fundamentally shift our mindset, making dispute-resolution provisions the central focus of contract negotiations, and ultimately transforming ourselves from "passive recipients" into proactive "designers."

By precisely planning, strategically securing, and flexibly combining core elements such as the seat of arbitration, arbitral institution, rules, language, applicable law, and arbitrators, it is entirely possible to craft arbitration clauses that not only align with international practice but also offer greater advantages to Chinese companies—thereby establishing a robust risk-prevention framework right from the outset.

(This article solely represents the author's personal views and does not constitute legal advice for any organization, institution, or individual.)