1.
A Leading PRC Law Firm
Foreign Investment Dispute Resolution Between Chinese and European Parties
Peiming Yang

2. EU investment in mainland China

3. PRC Legal System mainland China Macao Taiwan Hong Kong Mainland
One Country Two System
Mainland
Hong Kong
Macao
Taiwan
Dispute Resolution Methods:
Litigation
Arbitration
ADR
For convenience, the laws of mainland China hereinafter referred to as “PRC Laws”

4. Judicial Interpretation
The Legal Sources of PRC Arbitration System
Law
PRC Arbitration Law
PRC Civil Procedural Law
Judicial Interpretation
Judicial Interpretation of PRC Arbitration Law
Judicial Interpretation of PRC Civil Procedural Law
Law
Judicial Interpretation
Multilateral Treaty
Multilateral Treaty
The New York Arbitration Convention
on the Recognition and Enforcement of
Foreign Arbitral Awards
(“New York Convention”)
Bilateral Treaty
Bilateral Treaty
Arrangements of the Supreme People’s Court on the Mutual Enforcement of Arbitral Awards between the mainland China and the Hong Kong Special Administrative Region …

5. The Arbitration in mainland China
Arbitration Commission
As of 2015, there are 244 arbitration commissions in mainland China.
Arbitration Commission
Arbitration Cases
Disputed Amount
The disputed amount of cases settled by arbitration commissions in mainland China in 2015 is billion RMB in total.
Arbitration Cases
The arbitration commissions in mainland China settled 136,924 cases in 2015.
Disputed Amount
The Arbitration in mainland China

6. The Arbitration Commission in mainland China
Shanghai International Economic And Trade Arbitration Commission (“SHIAC”) 1 2 3 4
South China International Economic And Trade Arbitration Commission (“SCIA”)
China International Economic And Trade Arbitration Commission (“CIETAC”)

7. 1 2 3 4 The Procedures under PRC Arbitration Law
Proceeding
The arbitration proceeding is specified in the Arbitration Rules formulated by the Arbitration Commission.
Confirmation of the validity of Arbitration Agreement
If the Intermediate People’s Court confirms that the arbitration agreement is invalid, the arbitration shall be dismissed. 2
In principle, only procedural issues shall be examined and reviewed by the Intermediate People’s court.
Application for the revocation of Arbitral Award 3
In principle, only procedural issues shall be reviewed.
Application for the suspension of the enforcement of Arbitral Award 4
The Procedures under PRC Arbitration Law

8. The Arbitration Proceeding
Submission to Arbitration Commission for Arbitration B
Acceptance of
the Case C
Formation of the Arbitral Tribunal D
Oral Hearing E
Arbitral
Award
The Arbitration Procedure of main Arbitration Commissions in mainland China is similar to that of international commercial arbitration institutions, such as ICC.

9. The reservation of public order
The Governing Law
General principle
The parties may explicitly choose the laws governing the foreign-related civil relationships, however only PRC Laws can be chosen as the governing law of domestic civil relationships.
Note: The Equity Joint Venture, Cooperative Joint Venture and Wholly Foreign-owned Enterprise shall be regarded as PRC legal person.
Principle
The reservation of public order
Where the rights and interests of the labors are related;
Where the foreign exchange control or other financial safety issues are related;
Where anti-monopoly or anti-dumping issues are related.
If the application of foreign laws will damage the social public interests of mainland China, the PRC Laws shall apply.
Public Order
Mandatory provisions
Chinese-foreign equity joint venture contract;
Chinese-foreign contractual joint venture contract, or
Contract for Chinese-foreign joint exploration and development of natural resources which is performed within the territory of the People's Republic of China
If there are mandatory provisions on foreign-related civil relationships in the PRC Laws, these mandatory provisions shall directly apply.
Mandatory
Provisions

10. arbitration agreement
The Validity of Arbitration Agreement
The Expression of Intention to Apply for Arbitration
If litigation and arbitration are simultaneously chosen, such arbitration agreement will be invalid. 02
The Matters for Arbitration
Contractual disputes and other disputes over proprietary right between equal parties may be arbitrated, except marriage, adoption, guardianship, support, succession disputes and other administrative disputes that shall be handled by administrative organs. 03
Validity of
arbitration agreement
The governing law of contract itself can not be automatically regarded as that of the arbitration agreement under the PRC Laws.
The Governing Law of Arbitration Agreement
The parties concerned may choose the governing law of the arbitration agreement. If the parties did not choose, the laws where the arbitration commission or the place of arbitration locates shall apply. 01 04
The Designated Arbitration Commission
Only one arbitration Commission can be designated.

11. The Matters May Not Be Arbitrated
The disputes arising out of the administrative agreements
The government franchised management and compensation agreement to the expropriation or requisition of land and buildings are explicitly defined as administrative agreements, and the disputes under such agreements shall be filed to Court for administrative litigation.
The anti-monopoly disputes
The anti-monopoly disputes arising out of the agreements such as distribution or patent royalty agreements cannot be arbitrated, even though both parties have equal status.
Corporation dissolution dispute
Although the Shareholders’ Agreement or the articles of association with the arbitration terms stipulates the conditions where the corporation shall be dissolved, corporation dissolution dispute can not be arbitrated.

12. Case Study 2015 2015 2016 The execution of the agreement 2012 2013
Party A (Distributor) and Party B (Producer) respectively entered into the distribution agreement in 2012 and According to such agreement, all the disputes arising out of the agreement shall be resolved by arbitration.
2015
Filing of the lawsuit
Party A filed a lawsuit to Court against Party B due to its abuse of market dominant position and restrictive competitive behavior in the performance of the distribution agreement, and claimed for cease of infringement behavior and compensation.
2015
Jurisdiction Challenge
Party B applied to Court for jurisdiction challenge of this case due to the arbitration agreement specified in the distribution agreement.
2016
The rejection to challenge
The Court rejected Party B’s jurisdiction challenge, and held that the anti-monopoly disputes shall not be arbitrated.

13. Case Study
2005
The establishment of the joint venture company
Party A, Party B, and Party C established a joint venture company in 2005, and entered into the Joint Venture Agreement. According to this Agreement, the Company shall be dissolved under specific circumstances.
2008
Application for arbitration
Party B and Party C jointly submitted to CIETAC for arbitration against Party A according to the arbitration agreement specified in the Joint Venture Agreement, and claimed for the dissolution of the company.
2009
The arbitral award
The arbitral tribunal awarded the dissolution of the company.
2011
The revocation of the arbitral award
Party A applied to the Court for revocation of the arbitral award, and the Supreme People’s Court held that the corporation dissolutions are not arbitrable, and ruled the revocation of the arbitral award.

14. Mediation Procedure before Arbitration
Sample I
Sample II …
In the event of a dispute arising in connection with the Agreement, the parties shall seek settlement of the dispute by mediation first. If the dispute cannot be settled by mediation within 30 days, the parties may submit to [ ] for arbitration. …
In the event of a dispute arising in connection with the Agreement, the parties shall seek settlement of the dispute by mediation first. If the dispute cannot be settled by mediation, the parties may submit to [ ] for arbitration.
If a mediation before arbitration and some specific procedures such as the term of the mediation are stipulated, the parties shall conform such procedures, otherwise the arbitration award maybe revoked by courts.

15. Ad Hoc Arbitration Ad Hoc Arbitration in mainland China
Domestic Arbitration
PRC Arbitration Law only admits institutional arbitration, which means domestic disputes cannot be arbitrated by ad hoc arbitral tribunal.
Foreign-related Arbitration
According to New York Convention, a court shall decide whether or not to recognize and enforce the arbitral award ruled by ad hoc arbitration tribunals beyond the territory of the PRC.

16. Valuation Adjustment Agreement
The Disputes Between Chinese and European Parties A
The disputes arising out of transaction contract entered into during the establishment of a corporation, such as the equity joint venture contract and shareholders’ agreement.
The shareholders’ right to know
The objection to resolutions
The disputes arising out of a contract which is entered into during the business activities C B
The disputes arising out of the management of the corporation
Call Option Agreement
Valuation Adjustment Agreement

17. 01 02 The Valuation Adjustment Agreement Valid Invalid
The valuation adjustment agreement among shareholders is valid under the PRC Law. 02
The validity of the valuation adjustment agreement between the shareholder and the target company may be challenged.
Valid
Validity
Valuation Adjustment Agreement
Courts and arbitral tribunals hold different opinions on the validity of the valuation adjustment agreement between the shareholder and the target company.
The People’s Court holds:
The Arbitral Tribunal holds:
The valuation adjustment agreement between the shareholder and the target company is valid, because it is agreed by parties through friendly negotiation.
The valuation adjustment agreement between the shareholder and the target company is invalid due to violation of the mandatory provisions of PRC Company Law,
Invalid

18. The Call Option Agreement
The call option agreement is valid under the PRC Law.
The enforcement of call option agreement is difficult due to the prerequisite of MOFCOM’s approval of transfer of shares.
According to the modification of PRC Wholly Foreign-owned Enterprises Law, the administrative approval system has been changed into record-filing system.

19. Confirmation of the invalidity of the resolution
The Objection to Resolution
The resolution of Shareholder Meeting and Board Meeting (“Resolution”) shall be invalid if violating the mandatory provisions of laws and administrative regulations.
The limitation of action to above litigation is 2 years.
Confirmation of the invalidity of the resolution
If the procedure of deciding resolution violates the articles of association, the resolution may be revoked.
The application for revocation must be filed to courts, within 60 days from the day when company resolution is made.
Revocation of the resolution

20. Shareholder’s Right to Know
The Shareholder’s Right to Know
The exercise manners of the shareholder’s right to know
The scope of the shareholder’s right to know
Statutory scope provided by Article 33 or 99 of PRC Company Law
Agreed scope provided by articles of association
Limited Liability Company: review and duplicate
Company limited by shares: review 1 2
Shareholder’s Right to Know
Engagement of auditor
Exception 3 4
The professional auditor can be engaged to review the company file for the shareholder.
Only when the company has reasonable grounds to believe that shareholder reviewing the account is out of improper motivation, which may damage the legitimate interests of the company, the company has right to reject the shareholder’s request.
If agreed by articles of association, the auditor can be engaged by the shareholder to audit the company.

21. Thanks！