Resolution of Conflicts, Options under Mexican and Chinese Laws Associate Professor Alan Kirtley University of Washington School of Law Seattle, Washington U.S.A. kirtley@uw.edu 4/25/2017

Doing Business in China Panel 1 – Trade and Investment Patterns between Mexico and China Panel 2 – Mexico and China in the WTO Panel 3 – Negotiating Successfully with the Chinese Panel 4 – Chinese Structures and Government Procedures Panel 5 – Resolution of Conflicts

Program Outline Discuss the problem of domestic litigation to resolve international business disputes Review of available alternative dispute resolution mechanisms Consensual vs. Adjudicative Processes Considerations when selecting a provider and for drafting ADR clauses Panel discussion, with audience participation, best practices for resolving international disputes

Anticipating Future Conflicts Conflicts arising out of business transactions are inevitable Lawyers must anticipate those conflicts Include mechanisms for resolving for resolving future conflicts in the contract itself

Pitfalls of Litigation in International Business Key questions for litigation – What choice of governing law? Where should a dispute be handled? What venue? Can assets be reached? Are court judgments enforceable? Is the dispute resolution clause in a contract unambiguous? Have parties taken the necessary formalities to have an enforceable contract?

Dispute Resolution Processes Continuum of ADR Processes: Negotiation Mediation or Conciliation Mini-Trial Mediation > Arbitration Arbitration > Mediation Arbitration

Dispute Resolution Processes University of Washington Mediation Skills Training, Day 1 Dispute Resolution Processes Court Arbitration Rights-based or Interest-based Adjudication Mediation Negotiation Hybrid Processes Mini-Trial, Med-Arb, Arb-Med, Julia Ann Gold, January 2008

International Dispute Resolution Arbitration is the dominant process for resolving international commercial disputes There are good reasons to consider other forms of alternative dispute resolution Parties may craft dispute resolution clauses that fit their particular transaction and needs Parties may use a series of processes

International Dispute Resolution Benefits of consensual processes Disputes can be resolved: Faster Less expense Less adversarial setting Privately and confidentially While maintaining a good business relationship

International Dispute Resolution Benefits of consensual processes: Disputes can be resolved based on the parties business interest rather than legal rights Parties can design the process(es) that fit their particular needs Parties can chose a third-party neutral with Substantive law expertise Technical expertise Process expertise

International Dispute Resolution Benefits of consensual processes: Parties are more likely to comply with an agreed upon resolution than one imposed by an arbitrator Parties maintain control of the outcome Culturally the Chinese prefer to resolve disputes consensually rather that reverting to formal processes

International Dispute Resolution Shortcomings of consensual processes: Resolution may not be rights based Information may be revealed in consensual that could harm arbitration Lack of finality Extra expense and time of unsuccessful consensual process

International Dispute Resolution Benefits of arbitration: International arbitration is well developed Organizational providers of arbitration services have rule and procedures in place Process will end with an enforceable decision – arbitral award

International Dispute Resolution Short comings of arbitration: Arbitration process is: Very complex Very time consuming Very expensive Adversarial setting damages business relationships Parties lose control of the outcome Concerns about recognition and enforcement of the award by a domestic court

International Dispute Resolution A series of dispute resolution process steps may be desirable: First Step – Negotiation After notice of dispute Executives meet within 30 days to negotiate Second Step – Mediate or conciliation If negotiation is unsuccessful Parties agree to mediate or conciliate within 45 days Third Step – Arbitration If mediation or conciliation is unsuccessful Parties agree to arbitrate

International Dispute Resolution Benefits of a step process: Dispute can be resolved quickly Resolution can be based on business considerations Business relationship can be maintained Short comings of a step process: Multiple processes can be Time consuming Expensive

Arbitration Between Chinese and Mexican Entities Global Arbitration Review http://globalarbitrationreview.com China (1987) and Mexico (1958) are signatories to the Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)

Arbitration Between Chinese and Mexican Entities Mexican arbitration law incorporates the UNCITRAL Model Law on Arbitration China has its own arbitration law that varies significantly from the UNCITRAL Model Law on Arbitration

Arbitration Between Chinese and Mexican Entities Chinese arbitration law requires that the parties choose arbitrators from lists provided by one of the Chinese designated arbitration commissions (180 commissions in China) Mexican arbitration law allows for more flexibility

Arbitration Between Chinese and Mexican Entities Chinese arbitration bodies (180 commissions) e.g.: China International Economic and Trade Arbitration Commission (CIETAC) Shanghai International Arbitration Center (SIAC). Beijing Arbitration Commission (BAC).

Arbitration Between Chinese and Mexican Entities Mexican arbitration bodies e.g.: Mexican Chapter of the International Chamber of Commerce Arbitration and Mediation Commission of the Mexico City Chamber of Commerce (CANACO) Mexican Arbitration Center (CAM)

Agreement Formalities Chinese law requires that the arbitration agreement include: Expression of parties’ desire to submit dispute to arbitration Scope of the matter(s) to be arbitrated Selection of the arbitration commission to administer the arbitration An arbitration agreement that fails to name the institutional arbitration provider is likely to be invalid under Chinese law.

Arbitration Between Chinese and Mexican Entities Mexican law requires that the arbitration agreement include: In writing signed by the parties Underlying contract has a legal purpose Parties consent was not due to error, fraud or duress Parties had legal capacity to sign

Considerations in Selecting the Arbitration Provider Rules and procedures Cost Arbitration Panel Place of arbitration Language of proceeding Representation by foreign lawyers Law to be applied Enforceability of the award Appeal rights

Choice of Substantive Law Both Chinese and Mexican law: Allow the parties to a foreign-related contract to choose the governing substantive law for any controversy arising under their contract

Recognition and Enforcement of Awards China and Mexico are increasingly integrating their economies with the rest of the world As a result, both Chinese and Mexican courts are trending toward greater enforcement of foreign arbitral awards

Where to Arbitrate Nonetheless, avoid arbitrating in Mainland China Chinese courts have greater authority to review and overturn arbitration awards rendered inside Mainland China Compromise would be to arbitrate in Singapore or Hong Kong Arbitral awards are treated as rendered by a signatory of the New York Convention

Model Dispute Resolution Clause Hong Kong International Arbitration Rules http://www.hkiac.org/en/arbitration/model-clauses#2 Following UNCITRAL rules Mexican International Chamber of Commerce http://www.iccwbo.org/products-and-services/arbitration-and-adr/dispute-boards/standard-icc-dispute-boards-clauses/

Model Dispute Resolution Clause International Chamber of Commerce: http://www.iccwbo.org/products-and-services/arbitration-and-adr/arbitration/standard-icc-arbitration-clauses/

Model Dispute Resolution Clause Center for Public Resources (CPR) http://www.cpradr.org/RulesCaseServices/CPRModelClauses.aspx American Arbitration Association: https://www.clausebuilder.org/cb/faces/index?_afrLoop=718555635514284&_afrWindowMode=0&_adf.ctrl-state=e6k0qail6_71

Questions for the Panel From the Mexican prospective: What are the greatest concerns regarding dispute resolution? What process have been most successfully used to resolve international commercial disputes? Which dispute resolution providers have been most helpful?

Resolution of Conflicts, Options under Mexican and Chinese Laws Associate Professor Alan Kirtley University of Washington School of Law Seattle, Washington U.S.A. kirtley@uw.edu