Almost every aspect of China’s society is based, in some way, on the Confucian and Daoist principles of harmony and understanding. It is unsurprising, therefore, that their judicial system offers a form of arbitration distinct from Western conceptions which contract solicitors and entrepreneurs looking to expand into China should be aware of. Whilst international commercial contract disputes with Chinese parties may follow the Western model, Chinese arbitration commissions will typically push to combine mediation with arbitration.
Where both parties agree, arbitration of a legal contract can be temporarily suspended in favour of mediation. There are several reasons why this is desirable:
Non-confrontational approach
Mediation involves a neutral third party helping the contractual parties reach an agreement between themselves, in contrast to the imposition of a finding by an arbitrator. As such, mediations often occur between the executives, rather than the lawyers, of the parties. These facts mean that information may be brought up in mediation that would otherwise not be raised before an arbitrator for fear it would be misconstrued. Ultimately, this means solutions are better tailored to the individual needs of the parties.
Efficiency and cost
Whilst a mediator still has several powers, such as the ability to set the time, place and lay-out of a meeting, their role is a facilitator, not a decision-maker. As such, the process is less forma: there is no need to constrain the proceedings by quasi-judicial regulations. The corrolary of this is a faster, and a cheaper, result. Where international or online contracts are concerned, both cost and efficiency are crucial factors.
Legal validity
Any agreement reached through mediation, even if agreed upon by the parties outside the aid of the mediator, has the same legla force and validity as an arbitration award. In turn, this means it has the same legal force and validity as a court’s judgement. Where a successful agreement is reached through this process, then, there are no downsides compared to the legal or arbitration process, and as outlined above, several benefits.
Success rate
Mediation is used in about 50% of CIETAC arbitrations. Of those cases, 40-50% reach a satisfactory conclusion, and no complaints have been received from the parties or lawyers involved in the process (Tang Houzhi, The Use of Conciliation in Arbitration).
The reason for the success of this Confucian approach, however, is often seen as a weakness in the Western world. The same party who acts as the arbitrator, also assumes the role of the mediator when mediation is requested. This ensures efficiency: the mediator does not need to be briefed on the legal contract, the dispute the parties’ positions as that information is already known. In theory, where mediation breaks down, the third party simply reverts to the position of an arbitrator and ignores any evidence they received as mediator. In practice, this may be difficult to promise and harder to enforce, but it is the only real downside to this Eastern approach to conflict resolution.
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