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An important nature of the forum choice clause is the consent of the parties. Such consent could be expressed by the parties, and may also be inferred from the contents of the contract, e.g. the choice of law clause, or from the conduct of the party or parties. In China, an inference of the choice of forum may not be made from the terms of the contract, but may be presumed from the conduct of defendant. In accordance with Article 255 of the CPL, in a civil action, if the foreign defendant raises no objection to the jurisdiction of a people’s court and answers to the complaint or otherwise appears in response there to, the defendant shall be deemed to have accepted the people’s court’s jurisdictional competence.52 The idea is that a party’s attending the litigation in a court constitutes a surrender or waiver of the defense to the personal jurisdiction of the court, from which the consent of the party will be implied.

For a foreign lawyer, it is important to bear in mind that in Chinese judicial proceeding there is no such process as “special and limited appearance” as in many foreign courts for the purpose of challenging personal jurisdiction of the court or quashing service. If the jurisdiction becomes an issue in a Chinese people’s court, it should be raised along with the submission of the answer to the complaint. In accordance with Article 38 of the CPL, after the people’s court accepts the case, if a party disagrees to the jurisdiction of the court, it shall raise its objection during the time the answer is submitted, and then the court will make a decision on the objection.53

3. Dispute Settlement Mechanism

The disputes related to an international contract could be dealt with in different ways. The most ideal way, of course, is for the parties to negotiate a deal and to reconcile the differences between them. The advantages of the negotiation for a dispute resolution are obvious. At most, it will help settle the dispute amicably

52See id. art. 243.

53It is important that a defendant raises a jurisdictional objection timely. Under Article 38 of the CPL, if a party to a civil action objects to the jurisdiction of a people’s court, the objection must be raised within the time period prescribed for the filing of answers. According to Article 248, defendant who is not domiciled with the territory of China shall have 30 days to file his answers upon receipt of plaintiff’s complaint. Thus, if defendant wants to challenge a people’s court jurisdiction, he must do so within this statutory 30-day period. According the Supreme People’s Court, a third party to the litigation may also challenge the jurisdiction of a people’s court if the third party has an independent claim. Once the jurisdiction is challenged, the court shall have 15 days to review the challenge and make a decision in the form of court order. The court order on jurisdictional matter is appealable.

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and consequently the business relations between the parties will remain unaffected. At least, the negotiation will provide a platform for the parties to communicate directly with each other and help find out what problems are. As a practical matter, negotiation is also a cost-efficiency means to resolve disputes in business transactions. But in most cases, the successful negotiation requires satisfactory compromise from both of the parties.

Unfortunately, however, because of different business interest concerns or conflicting motivation, the contractual parties some times are unwilling or hard to yield to each other or they could not reach a consensus on compromise. In this situation, the parties would have to employ other means to resolve the disputes. Alternatively, the parties may engage a third party to help mediate the disputes or submit their disputes to an agreed body for arbitration. The parities may also choose to litigate the disputes in a court. Thus, as far as the contractual dispute settlement is concerned, four options are generally available to the parties, they are, negotiation, mediation, arbitration or litigation. But the use of these options in terms of forms and conditions may differ from country to country.54

The four-option dispute settlement mechanism is a common practice in China as well, and the mechanism is also incorporated into the provision of the Contract Law to cope with contractual disputes. Under Article 128 of the Contract Law, the parties may settle their disputes concerning the contract through conciliation or mediation. If the parties are unwilling to settle the dispute by reconciliation or mediation, or the conciliation or mediation fails, they may apply to an arbitration institution, Chinese arbitration institution or a foreign one, for arbitration according to their arbitration agreement. If there is no arbitration agreement between the parties or the arbitration agreement is null and void, a lawsuit may be brought to a people’s court.55

3.1. Reconciliation

For the purposes of the Contract Law, reconciliation primarily refers negotiation, which is, of course, the most desirable means to amicably settle any disputes the may arise out of the contract between the parties. In general, the reconciliation is conducted between the parties or through their legal representatives (e.g. lawyers) without participation of any third party. Through negotiation, the parties in disputes reach a settlement agreement on the basis of mutual understanding and benefits. Note that negotiation, though highly

54In the U.S., the dispute settlements by the means other than litigation are collectively called “alternative dispute resolutions” or ADR.

55See the Contract Law, art. 128.

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desirable, is not mandatory. In other words, the parties may directly choose other means other than negotiation to solve their disputes.56

Also as being the case sometimes, the reconciliation may involve the aid of a third party on whom the parties both have trust and confidence. In this situation, however, the role of the third party is limited, and in most cases the third party only serves as the negotiation facilitator. During the course of reconciliation, the third party normally will not put forward any proposal for the settlement of disputes between the parties, but will make efforts to bring the parties in disputes to the negotiation table.

3.2. Mediation

Mediation is used where the parties could not reach a settlement themselves but are willing to have their disputes heard by a third party. In contrast to reconciliation, there is a third party in mediation who has a role of making proposal for the parties in disputes. Keep in mind that mediation is widely employed in China as an effective way to “melt” the differences between the disputing parties without hurting either one. At present, there are four kinds of mediations that are being used in China, namely civil (non-judicial) mediation, administrative mediation, arbitral mediation (or mediation in arbitration) and judicial mediation.

Civil mediation is the mediation conducted by local community, usually by neighborhood committee or township committee. The purpose of the civil mediation is to help settle the dispute at a grass-root level. But because of its civil nature, the settlement agreement reached as a result of the civil mediation does not have the binding effect on the parties. If a party repudiates the settlement agreement of the civil mediation, the other party may not ask the court to enforce the agreement. Nevertheless, the civil mediation is greatly favored by the government because its obvious advantage is to help minimize the potential instability by diminishing the disputes at very basic level. But it may not be desirable to foreign lawyers in an international contract due to the concerns about local bias and non-binding characteristics of the settlement.

The administrative mediation, in the context of helping resolve the contractual disputes, is the mediation conducted by the administrative authority, mostly the authority of commerce and industry management. Under the

Methods of Administrative Mediation of the Disputes Concerning Contracts, which was issued by the State Administration of Commerce and Industry on November 3, 1997,57 the administration mediation will be instituted upon the

56See Li Guoguang, supra note 8 at pp. 568–569.

57See the State Administration of Commerce and Industry, Methods of Administrative Mediation of the Disputes Concerning Contracts, articles 3 and 5.

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request of the contractual parties in disputes on a voluntary basis, and will be conducted non-publicly unless otherwise asked by the parties. A successful mediation will produce a settlement agreement between the parties.

But once again, like the civil mediation, the administrative arbitration has no binding effect as to the enforcement of the settlement as agreed by the parties in the mediation. Thus the aggrieved party may have to resort to arbitration under the arbitration clause or to file a lawsuit if the other party repudiates the settlement agreement.58

Arbitral mediation involves mediation conducted by the arbitration body during the process of arbitration. Although mediation is not required in the arbitration, it is strongly preferable that the mediation be conducted before the arbitral award is made. According the Arbitration Law of China, the arbitration tribunal may conduct mediation prior to making an arbitral award. If the parties are willing to seek mediation, the arbitral tribunal shall conduct the mediation.59 The striking difference between the arbitral mediation and civil or administrative mediation is that a settlement agreement reached as a result of successful arbitral mediation shall have the same legal effect as an arbitral award.60 If a party fails to perform the settlement agreement reached through arbitral mediation, the aggrieved party may ask the people’s court to enforce.

Judicial mediation concerns the mediation made by the court. Since the government policy in China is strongly in favor of mediation, the court is required by the law to conduct the mediation at any stage if possible before the judgment is rendered. Under the Article 85 of the CPL, during the trial of civil cases, the people’s court shall distinguish between right and wrong on the basis of clear facts and mediate the disputes between the parties on a voluntary basis.61

It is further provided that if mediation is possible prior to rendering judgment, the court may still conduct mediation. But if mediation efforts prove to be unsuccessful, a judgment shall then be made without delay.62 If through mediation the parties reach an agreement to settle the disputes, the court shall issue a document of settlement. The document shall be deemed as the court judgment, and will bind the parties unless a party changes mind before the document of settlement is handed down.63

58See id., art. 20.

59See the Arbitration Law of the People’s Republic of China, art. 51. An English translation is available at http://www.gip.net/chinalaw/lawtranl.htm.

60See id.

61See the CPL, art. 85, supra note 26.

62See id., art. 129.

63See id., art. 89, 91.