China
In your jurisdiction, are there any formal ADR procedures available for resolving commercial disputes other than litigating (or arbitrating) to a final hearing?
Mediation is the most common form of ADR, other than arbitration, in People’s Republic of China (PRA). Mediation is consistent with the traditional Chinese preference for amicable dispute resolution. Mediation of commercial disputes is primarily conducted by courts, arbitration tribunals and institutions, and commercial mediation institutions. Industry or trade associations and lawyers may also mediate commercial disputes.
Most commercial mediation in China is conducted within the context of litigation or arbitration proceedings. Recent statistics indicate that in 2023, more than 40% of civil and administrative cases filed in PRC courts, and approximately 13% to 22% of cases pending before key PRC international arbitration institutions, were resolved by mediation. Mediation may also be conducted by commercial mediation institutions. Key commercial mediation institutions authorized under PRC law to provide mediation services that focus on cross-border disputes include: Beijing Arbitration Commission (BAC) Mediation Center; China Council for the Promotion of International Trade (CCPIT) Mediation Center; China International Economic and Trade Arbitration Commission (CIETAC) Mediation Center; Hainan International Arbitration Court International Mediation Center; International Commercial Mediation Center for the Belt & Road Initiative; Shanghai Commercial Mediation Center; and Shenzhen Court of International Arbitration (SCIA) Mediation Center.
Mediation as standalone procedure is less common in China. This is largely due to the non-binding nature of mediation decisions, the efficiency of PRC litigation and arbitration proceedings, the prominence and efficiency of court and arbitrator-facilitated mediation, and the increased ease of enforcing a settlement agreement reached during litigation or arbitration proceedings, which we discuss in responses to questions below. For similar reasons, adjudication and expert opinions and determinations are also uncommon in China.
Does engaging in ADR have any effect on potential or existing litigation or arbitration?
ADR alone does not suspend or interrupt the running of limitation periods under PRC law. Under PRC law, the limitation period for commencing a civil or commercial action will be recounted which has the effect of restarting the limitation period: (1) if a party demands that the defaulting party perform its obligations; (2) if the defaulting party agrees to perform its obligations; (3) if a party commences litigation or arbitration proceedings; or (4) in circumstances that have the same effect under PRC law as commencing litigation or arbitration proceedings. PRC Civil Code, Article 195. Standalone mediation does not fall within the latter circumstance. The limitation period will, however, be recounted if a party seeks mediation before a commercial mediation institution authorized under PRC law to resolve commercial disputes. PRC Supreme People’s Court on Several Issues concerning the Application of Statutes of Limitations during the Trial of Civil Cases (2020 Amendment), Articles 11 and 12. Where parties agree to mediate during litigation or arbitration proceedings, the limitation period is recounted on the date the complaint or notice of arbitration is filed. Similarly, where parties agree to mediate using a commercial mediation institution authorized under PRC law to provide commercial mediation services and litigation or arbitration proceedings have not been commenced, the limitation period is recounted on the date the mediation application is filed. Where the limitation period is recounted due to the commencement of litigation, arbitration, or mediation proceedings, the limitation period restarts on the date the proceedings are concluded.
Is ADR compulsory and if so are there any consequences if a party fails to engage in ADR? If it is not compulsory are there any plans for this to change?
Mediation of commercial disputes is voluntary in China. PRC law does not require parties to mediate commercial disputes before or after commencing formal proceedings.
That said, the PRC government and the PRC Supreme People’s Court (SPC) strongly support mediation and have introduced a number of laws, regulations, and policies to encourage and facilitate commercial mediation. In 2009, the SPC released the Opinions on the Establishment and Improvement of a Mechanism for Dispute Resolution through a Combination of Litigation and Non-Litigation Strategies, which emphasize the importance of ADR and establish a framework for commercial mediation. In 2019, the SPC expanded upon the 2009 Opinions and released the Opinions on Building One-stop Diversified Dispute Resolution Mechanisms and One-stop Litigation Service Centers, which require PRC courts to establish mechanisms for mediation within the context of litigation proceedings, including court-facilitated mediation commencing at the case filing and later stages of litigation. In 2018, the SPC established the China International Commercial Court (CICC) to offer integrated dispute resolution services, including mediation, arbitration, and litigation, for significant international commercial disputes. In 2020, the SPC released the Provisions on Several Issues Concerning the Work of Civil Mediation by the People’s Courts, which provide specific rules for court-facilitated mediation. In 2021, the SPC released the Implementation Opinions on Deepening the Building of the One-stop Diversified Dispute Resolution Mechanism at the People’s Courts to Promote the Resolution of Conflicts and Disputes at their Source, which provide further guidance on court-facilitated mediation rules. In 2023, the PRC Civil Procedure Law (CPL) was revised to incorporate mediation at the case filing stage, a common practice where mediation occurs after a complaint is filed but before the case is formally accepted, into law.
Generally, there are no consequences for parties who decline to mediate. There may, however, be incentives for parties to mediate. For example, where parties settle their dispute through mediation and withdraw the complaint before case acceptance, court costs will not be charged. Where parties settle their dispute through court-facilitated mediation or withdraw the case after case acceptance, court costs may be reduced by 50% (Measures on the Payment of Litigation Costs, Article 15).
Arbitration costs may also be reduced where the parties settle their dispute during the course of arbitration proceedings, depending on the timing of their settlement. See, for example CIETAC Provisions on Refund of Arbitration Fee under the circumstance of Case Withdrawal, Articles 1 and 2; Provisions on Fees and Refunds under Special Circumstances for SCIA Arbitration Cases, Articles 2 and 3; SHIAC Provisions on Refund of Arbitration fee, Article 2.
Parties may be penalized for not mediating in good faith. Where a party agrees to court-facilitated mediation but fails to attend the mediation without justification or acts in bad faith leading to failure of the mediation, a court may order the party to compensate the other party for reasonable attorney fees incurred to participate in the mediation (PRC Ministry of Justice Circular 105/2017, Article 15).
Can the parties agree, in advance of any potential dispute, to engage in ADR?
Parties are free to agree, in advance of a dispute, to engage in ADR. Pre-dispute agreements to mediate and multi-tiered dispute resolution clauses providing for ADR other than friendly negotiations are less common in China, particularly in domestic transactions. These types of agreements and clauses are more likely to arise in cross-border transactions and offshore construction agreements.
When does ADR generally take place?
ADR can take place at any time of the dispute. In practice, mediation is conducted at multiple stages of the proceedings, starting from the onset of the proceedings.
In litigation, where the court considers mediation is appropriate and the parties agree, the court will organize a court-facilitated mediation session before the case is formally accepted. Mediation at this stage is very common and is now embedded in the PRC Civil Procedure Law. CPL, Article 125. After the case is formally accepted, the court will encourage the parties to mediate at multiple stages of the litigation before it renders a judgement (CPL, Article 9). The court may invite third parties, including active or retired judges, judicial clerks, and industry experts, to assist in the mediation.
Where a judge has been involved in the mediation before the case is formally accepted, the judge may not hear the case after formal case acceptance unless the parties agree. Where a judge is involved in mediation after formal case acceptance, he or she is not restricted from hearing the case. It is common for judges to act as mediator after case acceptance and to continue to hear the case if the mediation is unsuccessful.
If court-facilitated mediation is successful, the court will endorse the parties’ settlement agreement and issue a mediation statement, which has the effect of a non-appealable court judgment under PRC law. CPL, Article 100. Generally, the court will not issue a consent judgment based on the parties’ settlement agreement, unless requested by the parties in a foreign-related case or in other limited circumstances (SPC Interpretation of CPL, Article 528).
In arbitration, mediation is typically conducted by the arbitral tribunal. In some instances, the arbitration institution may assist with the mediation, such as by appointing a mediator where the parties seek mediation before the tribunal is formed. See, for example SHIAC Arbitration Rules, Article 54. Like PRC court practice, it is common for the arbitrator to act as mediator and to continue to hear the case if the mediation is unsuccessful.
If the parties settle their dispute during the arbitration, the tribunal will endorse the parties’ settlement agreement and if requested by the parties, will prepare a consent award or a mediation statement, both of which have the effect of an arbitral award under PRC law. PRC Arbitration Law, Article 51. Where offshore enforcement is contemplated, a consent award will usually be preferred.
If the parties settle their dispute through independent mediation by a commercial mediation institution, the parties’ settlement agreement is treated as a new agreement. The parties may jointly apply to a PRC court to recognize their settlement agreement within 30 days of the effective date of the agreement (CPL, Article 205).
Where a third party mediator is involved in a mediation, he or she is generally prohibited from acting as legal counsel, witness, appraiser, or translator in the subsequent proceedings in the same dispute (SPC Provisions on Specially-invited Mediation by the Courts, Article 16).
Is ADR subject to without prejudice privilege and/or confidential? If not, is there any other means to protect confidential information?
Without prejudice privilege is not a common concept in China. That said, mediation conducted during litigation proceedings is generally confidential unless the parties agree otherwise. The content of a mediation agreement may only be disclosed if a PRC court deems it necessary to protect national or public interest or lawful rights or interests of others (SPC Interpretation of PRC Civil Procedure Law (2022), Article 146). Mediation conducted during arbitral proceedings or by a commercial mediation institution is also generally confidential by virtue of the institutional rules. The parties may also incorporate express confidentiality provisions in their agreement, their mediation agreement, or a separate non-disclosure agreement to bolster the confidentiality of the mediation.
Party, court, or tribunal views, statements, or proposals for the purpose of attempting settlement may not be used against a party in subsequent court, arbitration, or other proceedings unless the parties agree or applicable law provides otherwise. See, for example SPC Interpretation of Civil Procedure Law (2022), Article 107; CIETAC Arbitration Rules, Article 47; SHIAC Arbitration Rules, Article 57; Shanghai Commercial Mediation Center Mediation Rules, Article 30. Confidentiality obligations typically extend to the mediator, the parties, their legal representatives, and other mediation participants.
Does the output from ADR create precedents?
Mediation statements and consent judgments do not create judicial precedent. China is a civil law jurisdiction. PRC courts are not legally bound by judicial precedent. Further, the content of a mediation agreement is generally confidential and is not disclosed in proceedings to enforce a mediation statement or consent judgment or award.
Who bears the costs of ADR?
Allocation of mediation costs depends on the forum in which the mediation is conducted. PRC court and arbitration costs, including tribunal fees, are typically charged based on the amount in dispute, paid in advance by the party asserting the claim, and born by the losing party. See, for example Measures on Litigation Costs, Article 29; BAC Arbitration Rules, Article 52. Mediation conducted during litigation or arbitration proceedings typically does not give rise to additional costs, except where arbitral tribunal fees are charged on an hourly basis or a third party mediator is engaged. Where a PRC court invites a commercial mediation institution to conduct mediation during the course of litigation proceedings, these costs are normally absorbed by the court and do not give rise to additional costs to the parties (SPC Provisions on Specially-invited Mediation by the Courts, Article 29).
Where the parties agree to mediation proceedings before a commercial mediation institution, the parties will typically share the costs. See, for example CCPIT Mediation Rules, Article 32; Shanghai Commercial Mediation Center Mediation Rules, Articles 23-24. In some cases, the party requesting mediation may be required to advance the mediation costs. See, for example SCIA Mediation Rules, Article 15.
The parties are typically responsible for their own attorney fees, subject to cost allocation by the court or arbitral tribunal, which is less common in China, and/or party agreement.
Is your jurisdiction subject to any specific rules for cross border ADR?
On August 7, 2019, China signed the United Nations Convention on the International Settlement Agreements Resulting from Mediation (Singapore Convention), which entered into force on September 12, 2020. China is one of the fifty plus signatories, including Australia, India, Japan, Singapore, South Korea, the UK, and the US. China has not yet ratified the Convention, which means a settlement agreement reached pursuant to standalone mediation proceedings does not yet benefit from cross-border enforcement under the Convention. When that happens it will make enforcement easier because, instead of first obtaining a judgment or award for breach of contract, the Singapore Convention will allow the enforcing party to go directly to a court in the country where enforcement is sought. That court will then enforce the settlement agreement, unless one of the limited grounds for refusing enforcement set out in the Singapore Convention applies. The Singapore Convention is modelled on the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards (New York Convention), and in effect will give mediation settlements the same currency and status as the New York Convention gives to arbitration awards.
In the meantime, a settlement agreement reached during the course of litigation or arbitration proceedings, if endorsed in the form of a mediation statement, consent judgement, or consent award may be enforceable internationally pursuant to international treaty or the laws of the place of enforcement. China has entered a number of mutual judicial assistance treaties that provide for the enforcement of mediation statements and court judgments, a list of which is available here. Consent awards are generally enforceable pursuant to the New York Convention.
Are there any particularly unusual features of ADR in your jurisdiction that you are aware are different to other jurisdictions?
A distinctive feature of mediation in China is the prominence of court and arbitrator-facilitated mediation conducted by judges and arbitrators, referenced previously. Parties are generally encouraged to resolve their disputes through mediation or arbitration, even if formal litigation or arbitration proceedings have been commenced.
The parties may agree or the court may invite a third party mediator to conduct the mediation. PRC law does not impose qualification requirements for mediators. In practice, most commercial mediation institutions require mediators to have mediation training, accreditation, and/or experience.
Most commercial disputes may be mediated, unless they are subject to special, supervisory, or public notice procedures or otherwise deemed inappropriate for mediation. (SPC Interpretation of the Civil Procedure Law (2022), Article 143).
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