Planning for the Worst

Chinese companies have become significant players in many industries in the United States. For example, Chinese and American companies frequently collaborate in the entertainment sphere, including on the co-production, licensing, and distribution of international films. Likewise, the American real estate industry has seen Chinese investors and state-owned conglomerates invest tens of billions of dollars in American real estate over the last five years, purchasing iconic buildings and development projects in major cities such as New York, San Francisco, and Los Angeles. Meanwhile, in China the government has recently taken steps to encourage investment in advanced technology, leading to a dramatic surge in outbound Chinese investment in American biotechnology start-up companies in 2018. Moreover, Chinese manufacturing within the United States will likely become more common as the costs of land, electricity, distribution, and raw materials in China continue to rise.

The ensuing business relationships in these (and other) burgeoning industries will require Chinese and American companies to enter into a range of contracts, many of which will contain provisions that require mandatory arbitration of disputes arising out of that contract. As a result, more Chinese and American parties will end up resolving their disputes in private arbitration rather than before US state or federal courts.

While arbitration provisions are rarely an area of focus when negotiating contracts, they will certainly impact a company's rights and potential liabilities if a dispute arise. Considerations such as who will arbitrate your dispute, in what forum and under what rules or guidelines are generally included in an arbitration provision. In-house counsels will want to ensure that they draft and negotiate provisions that are tailored to their company's needs to ensure that the company is well-positioned if a dispute ever arise. It is also important to have in mind the key similarities – and differences – between arbitration in the United States and in China and Hong Kong.