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How business conflict resolution is being practiced in China and Europe.

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Thomas J. Stipanowich
International Institute for Conflict Prevention & Resolution
Russ Bleemer
Susan E. Lewis
John Wiley & Sons, Inc.
Production Editor:
Chris Gage
VOL. 23 NO. 9 OCTOBER 2005
Jossey-Bass Editor:
David Famiano
Alternatives to the High Cost of Litigation (Print ISSN 1549-4373, Online ISSN 1549-4381) is a newsletter published 11 times a year by the International Institute for
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VOL. 23 NO. 9
How Business Conflict Resolution Is Being Practiced
In China and Europe
For the first time, Alternatives presents together highlights of events at two different CPR Institute members’ meetings.
On the bottom left are excerpts from the fifth of eight continuing legal education seminars at the CPR European Business
Mediation Congress held a year ago, in the Hague, Netherlands. Details on CPR’s second members meeting to be held in Europe,
later this month, are in the CPR News on page 160.
The other seven sessions from the Hague meeting were excerpted in the April 2005, through July/August 2005, issues of
Alternatives, and are available at, where they are free for individuals at CPR Institute members. They
also are available in full text on Lexis and Westlaw.
Below, on the right, are highlights of the first session from last January’s CPR Annual Meeting. The 2006 meeting will be held
at the Essex House in New York; details will be available in the CPR News column and at later this fall.
In future issues, Alternatives will present the remainder of the summaries 2005 CPR Annual Meeting sessions, and June’s Spring
Meeting, which was held in Chicago.
The second day of the first annual CPR European Business MeThe CPR Institute’s annual meeting opened last January with
diation Congress opened with a discussion of two studies examan international session focus, examining conflict resolution for
ining mediation use in European Union nations.
businesses operating in China.
First, moderator Nancy Nelson, of CPR, led a
Former CPR senior vice president Kathleen M.
discussion previewing the CPR European CommitScanlon, who is special counsel in the New York oftee’s investigation into attitudes toward mediation.
fice of Heller Ehrman LLP, moderated a session that
Then, the Centre for Effective Dispute Resoluexplored mediating in the Far East.
tion, a London ADR provider and advocacy group
Using the facts in a hypothetical dispute between
better known as CEDR, debuted its research on mea Chinese company and a non-Chinese corporation,
diation resources. CEDR’s study was conducted with
Scanlon led four panelists through a discussion of
the London-based international law firm of CMS
the current state of international dispute resolution
Cameron McKenna.
taking place in the world’s largest country.
Regarding the CPR report, Nelson said that the CPR EuroFirst, panelist Joseph A. McLaughlin, a Heller Ehrman
pean Committee wants to see what work needs to be done to
shareholder who is chairman of the firm’s New York office, desupport the spread of commercial mediation “to foster more
scribed the hypothetical. It involved a U.S. company setting up
routine use.”
a Bermuda subsidiary, which in turn set up a Chinese Foreign
Nelson said that various CPR European Committee memInvested Enterprise, or “FIE.” The corporate entity and subbers’ research reports constitute the study, “Better Solutions for
sidiaries were in conflict over a 10-year goods-and-services supBusiness: Commercial Mediation in the EU,” which CPR exply contract with a Chinese energy company which is partially
pects to publish in book form. (See the Europe page at
government owned. The deal also involves Chinese for chapter excerpts.) The results show that
tors and suppliers, all of whom have come together to develop
there isn’t much mediation experience in European Union
a mine.
countries, she said, but there is enthusiasm. Nelson explained
The dispute over sales and expenses has the parties “trying
that “there is good news in that there seems to be a relatively
to think ahead,” explained McLaughlin, who is a CPR Institute
large awareness of the existence of mediation—and even more
board member and is chairman of CPR’s executive committee.
important, most of the survey responses indicated that people
“They are trying to think about how they want to maintain
were interested in learning more about mediation.”
their relationship for many, many years to carry out a project
(continued on next page)
(continued on page 150)
VOL. 23 NO. 9
She said that the book’s goal was to increase comfort levels for
European executives who want to mediate by showing where
mediation has been useful, and how they would benefit if they
deployed it.
The book, Nelson said, also provides extensive process and
system design tips too.
She said that the CEDR-CMS McKenna book—“EU Mediation Atlas: Practice and Regulation,” written by CMS Cameron
McKenna solicitor Jayne Singer—provides specific details of
practice for 15 European Union countries, including the mediation environments and how they interrelate to the countries’ civil
court structures.
Panelist Tim Hardy, who heads the litigation department of
CMS Cameron McKenna, in London, said that litigators have a
hard time making the transition to mediation from their accustomed roles. “The truth,” he said, “is that for years and years [litigators] have been paid to disagree, and suddenly we’re being expected to be paid to agree.”
He said that when his law firm researched the EU mediation
book with CEDR, it found similar attitudes across Europe. He
said the book’s goal was to distill the essence of mediation in each
jurisdiction—something, he added, which often isn’t agreed
upon by lawyers in the particular jurisdiction.
Hardy, a CEDR-accredited mediator, edited Singer’s book
with Karl Mackie, who is CEDR’s chief executive, and a CEDR
director, Graham Massie.
One example of a problem in reconciling practices across the
continent, Hardy pointed out, is that conciliation means a facilitated process to English speakers, while in many others it’s a
“court-led, judge-led initiative to resolve the dispute using very
evaluative methods.”
Hardy provided anecdotes about some localized processes.
Greece, he said, has a mandatory mediation requirement for disputes valued at more than 80,000 Euros, but attorneys have
“imaginatively” devised a form sign-off saying that the parties
disagree, despite attempts at resolution. The agreement lets them
file the case in court.
Italy “has probably more legislation than any other country
requiring and directing and encouraging mediation,” Hardy
said. He added, however, that the lawyers surveyed for the
CEDR-CMS Cameron McKenna book believe that the country
hasn’t established the civil justice resources to support the extensive mediation use the laws contemplate.
Panelist Ronald Bradbeer, who heads the ADR services practice of Eversheds in the firm’s Newcastle, England, office, focused
on United Kingdom ADR development, material on which he
and his firm contributed to the CPR book. Bradbeer noted that
“mediation is not growing fast enough for those who believe in
it as strongly as I do. . . .” He added, “We need more leadership; we need more drive; we need more initiatives.”
The good news, Bradbeer said, is that well-trained U.K. mediators are plentiful. “[T]he availability of quality mediators is
there,” he said, “and the mediation marketplace is available to
meet the demand which we’re waiting to see arise.”
More good news, he said, is that judges are recognizing the
validity of mediation and the settlements it produces, regularly
backing the agreements with court orders. Citing Lord Woolf,
England’s highest ranking justice, he said that “litigation should
be the dispute resolution method of last resort,” adding, “coming from the Lord Chief Justice, this is a very powerful statement.” [Lord Woolf presented a keynote address, and participated in a panel discussion, at the CPR European Business
Mediation Congress a day earlier. Those sessions were excerpted,
respectively, at 23 Alternatives 67 (April 2005), and 23 Alternatives 81 (May 2005).]
Bradbeer said the CPR book’s United Kingdom survey
showed that proposing mediation in the United Kingdom is
now seen as an indication of a party’s strong position, not
weakness. “It’s a sign of competence, ability, skill, [and] understanding,” he said. A refusal to mediate, he said, can be read as
a sign of weakness.
He concluded, “I think the system is working. It is growing—but I’d love to see it grow faster.”
Giuseppe De Palo, who heads the ADR Center in Rome, discussed survey results his organization—which promotes and
conducts conflict resolution in Italy—collected for a section of
the CPR book. The 55 Italian respondents perceived strong benefits from ADR use.
More than 40% of the respondents cited their use of mediation to limit arbitration and overall resolution costs, and
to avoid arbitration procedures, De Palo reported. He said
that the reasons for mediation square with the ADR Center’s
practice, where, he said, “the most important mediation
comes one day after the parties are requested to make a deposit for arbitration.”
Of those companies with mediation experience, the highest
percentage response for “subjects mediated” was in the “transactional” category, according to De Palo.
The Rome ADR Center’s section of the CPR study also
asked companies why they don’t use mediation. Of the 25 respondents, 68% had not been asked by their outside counsel to
call a third-party neutral or mediator before going to court. That,
explained De Palo, makes Italy’s statutory mandatory mediation
provision “very welcome.”
The survey asked the companies what they seek in ADR
providers. The three biggest categories of responses were, in order from the largest response, the credibility of the organization’s mediators; the costs; and the organization’s experience
level. The three factors were well ahead of the other choices,
which included whether the organization was a for-profit or
nonprofit entity.
De Palo said that future Italian ADR practice will contain a
lot of deal mediation. He provided two examples of its use in
Italy—the first involving the U.S. Navy’s enlistment of “partnering services” to help negotiate with construction contractors, and
the second, a settlement in a dispute over payments to Italian
holders of Argentinian bonds.
Mediation, De Palo explained, was used “as a tool to craft
better deals,” adding, “It’s much more attractive to people
than it is . . . as a way of resolving disputes. My own sense [is]
that 30% of our cases now in Rome are more about deal mediation in terms of revenues . . . than it is about solving actual
disputes. And this is something that I think is what the future
may hold for us.”
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VOL. 23 NO. 9
New York Meeting: Resolving Business Disputes in China
(continued from page 148)
successfully to their mutual benefit. But they recognize that
they have . . . to choose various dispute resolution approaches
to try to minimize the risk of conflict, but also recognize that
some conflicts are bound to occur. Some may be unimportant,
but irritating. Others may be more material to the outcome of
the project.”
The starting points, suggested McLaughlin, are the low-level
grievance disputes. A goal should be to resolve such disagreements locally, he said, without third parties.
Mediation—“a time-honored tradition in Chinese society
under various names”— should be added for the grievances that
can’t be resolved “at the job or field level,” he said. Mediation
implementation topics to be considered are the third party’s
identity; institutional involvement; rules, and enforcement of
both a mediation provision and an agreement.
Mediation choices, said McLaughlin, also invoke a discussion of the next “step-ADR” option, arbitration. He said choices
must be made on forums; ad hoc versus administered arbitration; rules, and award enforceability.
On enforceability, McLaughlin pointed out that China is a
signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, better known as the New York Convention. But he added that the
status is “only the beginning” of an enforceability analysis.
He strongly supported international arbitration, calling it
“our ultimate failsafe mechanism.” He cited the ability to tailor
processes by choosing rules and arbitrators, and the process’s
But, said McLaughlin, in looking at all resolution options,
the parties would need to prepare for litigation too. The standard international legal practice rule applies to China, he said,
explaining that “there are clear disadvantages to litigating in
someone else’s home country or home state, and we’re going to
have to talk about those in an open way.” He added, “But understand that this is not a problem unique to China. This is a
problem all [of ] our societies face.”
McLaughlin concluded with statistics showing soaring arbitration case filings with Chinese providers during the past
decade. He said, however, that use and satisfaction aren’t equal:
“[T]his doesn’t necessarily mean that these are all fair and efficient proceedings and that the parties were always satisfied. And
it certainly doesn’t mean that the parties were always able not
only to enforce, but to collect, on the arbitration.”
Panelist Martin Downey, a partner in Heller Ehrman’s
Hong Kong office, discussed the statistics mentioned by
McLaughlin, which were measurements of filings with the twodecades-old Hong Kong International Arbitration Center. The
center grew to about 300 cases filed annually, in 2002, from
175 a decade earlier. Downey said Hong Kong’s growth as a financial center helped spur the number of cases, noting that
most standard government contracts in Hong Kong provide for
arbitration. He said that the process works, and mediation has
been effective, too.
Panelist Randall Peerenboom, a UCLA law professor, briefed
the meeting on arbitration emanating from the China International Economic and Trade Arbitration Commission. Cietac is
based in Beijing, but has offices throughout the country.
He said that obtaining arbitrators in international cases is
difficult. He said that the “number of arbitrators foreign or Chinese who are actually competent and knowledgeable and have
the expertise in particular foreign investment laws [and] in foreign investment disputes in China are relatively limited.”
He said that the foreign arbitrators often don’t have China
practice experience or language skills, while Chinese arbitrators
often are former government officials and judges who “may
bring baggage of their past with them and . . . may have very little practical experience in foreign investment. . . .”
Peerenboom said that the Cietac revises its arbitration rules
“every couple of years,” but it has been looking to the Beijing
Arbitration Commission, another provider, with regard to cutting-edge arbitration developments. For example, he said, the
smaller provider doesn’t allow its members to arbitrate, but Cietac permits commission members to sit on panels. “They don’t
get paid enough to live really just on their Cietac wage so they
need to supplement it by arbitrating,” he said.
Cietac, explained Peerenboom, gets a fixed amount from
each case, and turns the balance over to the China Ministry of
With regard to arbitration
award enforcement problems
in China, actual cases
of fraudulent conveyances
are rare.
Finance, which oversees the Cietac budget. The amount Cietac
retains covers its operations expenses.
Panelist Kelly S. Austin, General Electric Co.’s compliance
and litigation counsel in Hong Kong, emphasized that there is
a big difference in award enforcement rights in China under domestic arbitrations, and enforcement under international arbitrations that are conducted in China. A foreign arbitration
award, she said, “is reviewed basically under the same sorts of
consideration . . . for a New York Convention award.”
“But,” continued Austin, “if you have a domestic award, [it]
is subject to a much more rigorous, much more open series of
review[s] when you get into the enforcement stage. And so . . . if
you are a multinational based in China, or you have multinational operations in China, often you really want it to be a foreign award.”
VOL. 23 NO. 9
Multinationals, she explained, often try to inject a “foreign
element” into disputes so that under the Chinese Supreme People’s Court law, the contract is viewed as having been entered into
outside of China. She later said that doing so can be “a tricky situation” where you have China entities in arbitration, but one or
both are foreign subsidiaries of multinational corporations.
“You need to make sure you get your foreign element,” she
said, “but also that you’ve done it correctly.”
She pointed out that Cietac and the Beijing commission
now have a lot of competition, with more than 170 commissions authorized by the Chinese government to hear foreign arbitrations. Still, Austin said that most international arbitrations
end up before Cietac. The Beijing commission is the default
choice for Olympics-related contracts, she said, and is growing
a little faster than Cietac.
Some contracts require parties using the Chinese arbitration
entities’ panels to choose foreign arbitrators. But Austin said
those lists are limited as a practical matter because the arbitrators often won’t agree to appointments. Though they are paid
more than Chinese national panelists, she said, they still don’t
earn as much as they do in private practices in other countries—
resulting in frequent declines to offers of employment.
Martin Downey said that foreign arbitrators are readily
available for Hong Kong appointments.
Moderator Scanlon asked Joseph McLaughlin about strategizing for arbitrator selection in Hong Kong and China. He said
that it depends on the parties’ bargaining power “and how badly
each side wants to contract with the other side,” because the
non-China parties will push for a forum outside of China.
McLaughlin reemphasized that the decision should be based
on enforceability. He said that Cietac statistics show that foreign
parties win 54% of the cases before the administrator, but “prevailing and winning isn’t the same as collecting.”
He explained that the protectionist situation has improved.
In 1995, said McClaughlin, the Chinese Supreme People’s
Court issued a notice prohibiting lower courts from refusing Cietac or New York Convention arbitration award enforcement,
unless authorized by a higher court.
He added that the New York Convention allows enforcement outside of China. “But chances are, depending on the
company in China,” said McLaughlin, “they won’t have assets—
at least material assets—outside of China, unless you really get
lucky and find bank accounts. . . .”
GE’s Kelly Austin said that questions have been raised about
Cietac arbitrators’ practices, and fairness generally. “[T]hat’s sort
of why foreign parties come into it looking at Cietac arbitration
as a place you don’t want to be,” she said.
She said that some of her company’s cases were not “a particularly great experience, . . . but on the whole we’ve found
Cietac arbitrations to be fair and efficient. . . .” She said Cietac cases in which GE is involved are “fairly small commercial matters.”
Prof. Peerenboom discussed enforcement and collection. He
studied 89 cases of Chinese arbitration, 72 of which had
reached final results. About half of the final results “were enforced in the sense that the parties got something.”
In one third of those cases, he said, parties got 75% or more
of their awards, and in about 40% of the cases they received
about half of the award.
The reasons for refusal to enforce, Peerenboom explained,
include improper arbitrator appointments; the tribunal lacked
jurisdiction; lack of a valid arbitration agreement; lack of notice, and the respondent wasn’t a party to an arbitration agreement, which often occurs where a company has changed its
corporate form.
But the biggest reason for the failure to enforce—40% of
the cases, said Peerenboom—was that the party was judgment
proof. He said that arbitration users complain about local protectionism, but many awards ultimately are enforced. He explained that such protectionism acts more subtly on the process:
“It can delay the enforcement process,” he said. “It can make it
more expensive. . . . It can ultimately force you to settle and
get less. In the vast majority of the cases there’s some settlement
going on to, ultimately, get the award enforced.”
Kelly Austin said that the failure to find assets to execute
against has been GE’s biggest barrier to recovery in China arbitration processes. Responding to Peerenboom, she said, “Sometimes I think that local protectionism actually plays a role in
that, because the execution division in the location where you’re
trying to identify assets isn’t particularly motivated to help you
with that process.”
Austin said it’s also her side’s fault, for failing to have “done
a good job with due diligence as to the particular customer that
we’re dealing with.” She suggested that because GE’s Cietac
matters are small commercial disputes, the inquiries might have
been limited from the outset.
Austin said that GE has suspected situations of fraudulent
conveyances. Perenboom responded that actual fraudulent
conveyances are rare. “I would have thought it would have
been higher,” he said, adding that he expects the problem to
worsen since assets increasingly are harder to conceal due to
wide discovery.
Martin Downey discussed Hong Kong arbitration’s efficiency, pointing out that Hong Kong and Singapore arbitration
centers will consolidate arbitrations for large projects. Court enforcement of arbitration, he said, is granted in almost every
Hong Kong case. The rare denials, he explained, are usually for
procedure irregularities.
Moderator Scanlon asked the panel to reflect on mediation
options. The panel agreed, generally, that the reasons for mediation in China are the same as they are elsewhere—minimizing
costs, agreement rather than adjudication, etc. The panel members cited the effectiveness of the existing Beijing Mediation
Center, which handles commercial disputes, and the year-old
U.S.-China Business Mediation Center, which is a joint project
of the Conciliation Center of the China Council for Promotion
of International Trade/China Chamber of International Commerce, and the CPR Institute for Dispute Resolution, which copublishes Alternatives.
A question-and-answer period closed the session, with Scanlon concluding that the panel didn’t provide the answer to the
hypothetical . . . but instead provided the information needed
to address clients in similar situations.
DOI 10.1002/alt.20095
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