Taking legal actions with respect to a contract dispute in an international transaction, where the counterparty resides in a different jurisdiction, can be challenging due to differences in law, judicial procedure, and enforcement of judgments. To minimize uncertainty and ensure contractual enforceability, counsel for each party often pushes to use the governing law and dispute resolution mechanism of their own jurisdiction. This negotiation can take on greater significance when one party is located in the People’s Republic of China (the “PRC” or “China”) and the other is not, due to often profound differences in legal systems. Selecting a foreign governing law and dispute resolution mechanism is not, however, always possible, or always the best choice for a foreign company.
This China Regulation Watch addresses the choice of governing law and dispute resolution clauses in commercial contracts between foreign companies and China companies, and explores the challenges foreign companies face with litigation or arbitration in China, compared to the obstacles that arise when foreign companies attempt to enforce foreign judgments and arbitration awards in China. Finally, this article also provides practical recommendations for foreign companies when selecting the governing law and dispute resolution mechanisms based on the cooperation context in international transactions that involve a China counterparty.