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Hong Kong’s new legislation encourages mediation
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Negotiations leading to an out-of-court settlement seem to be the least damaging and inexpensive route for Chinese mainland traders to take in contractual disputes.
That’s because Chinese businesses prefer a less confrontational approach to disagreements than in the west, where executives are quick to call their lawyers. Mediation is more than a harmonious approach to settling disputes and keeping relationships going; it also keeps trade secrets and the dispute and resolution confidential, legal advisers say.
The problems arising from contractual risks in commercial relations on the mainland are among the more severe hurdles to be crossed by companies doing business there.
It’s not difficult to see why. The legal emphasis on the mainland is through codes, statutes and policies, which are often intimidating to foreign traders and investors more accustomed to legal precedent and transparency. Foreign businesses are challenged by the sudden change of policies and lack of references in interpretation of law and regulations, when precedents are followed in a common law system, according to firms specialising in mainland contracts.
It’s the reason why Hong Kong law firm Oldham, Li & Nie has been holding seminars, acquainting clients with the principles and best courses of action, targeting small- and medium-sized firms worried about their legal rights and obligations.
Quality Control
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Alfred Ip, Partner, Oldham, Lie & Nie, says it’s vital to have mutual understanding in resolving disputes on the mainland |
Parties relying on contracts involving international trade with the mainland have to look out for regulations that involve import and export controls, says Alfred Ip, a Partner with Oldham. “Failure to observe controls such as quota systems and foreign exchange regulations could well render a contract unenforceable.”
With the ongoing volatility on currency exchange rates, there’ll be many traders who might wish they took such advice in advance. Buyers are particularly advised to arrange upfront provisions in contracts with mainland suppliers. For example, before placing orders the buyer should have reached agreement on technical specifications, standards and quality; quite often such provisions don’t appear in standard documents.
Among other tips, the buyer is advised to specify in purchase orders that quality inspections should take place prior to shipment, to ensure goods are up to standard.
Mr Ip emphasises that it’s vital to have mutual understanding in resolving disputes on the mainland. “That’s most often a case of looking at the terms and conditions of a contract, but it could also involve evidence of correspondence where there’s no written document – or indeed by recourse to purchase orders, pro forma invoices and invoices.”
Protecting Intellectual Property
As a merchandiser, it’s important to follow the right steps to protect intellectual property rights (IPR), says Vera Sung, another Partner with Oldham, Li & Nie. This is particularly so for registering trademarks (with the China Trademark Office) or design patents (with the State Intellectual Property Office).
Protecting a brand on the mainland could also involve registering merchandise for export via the China Customs Authority, while a confidentiality agreement with an assignee could be pursued in license agreements. Ms Sung says trademark piracy remains a rampant problem for brand holders on the mainland despite the highly effective and speedy raid procedures available to trademark owners there.
An aggrieved party can also institute proceedings with the People’s Court at the place of the infringer’s domicile or where the infringement took place, with the possible option of requesting the People’s Court to freeze the infringer’s assets. Ms Sung suggests that it’s easier to protect IPR in major cities than in secondary cities or smaller communities, making on-the-spot, competent legal advice indispensable in more obscure jurisdictions.
“See you in Court?”
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It’s easier to protect IPR
in major cities on the
Chinese mainland than in secondary cities or
smaller communities
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Although litigation is open as a means of resolving disputes on the mainland, it shouldn’t usually be the first resort where the supplier disputes a contractual term, says Adam Hugill, a solicitor with Oldham.
“There’s always a chance that the buyer and supplier can resolve their disputes out of court; both parties can negotiate to settle disputes directly or, if not, via a solicitor’s firm.”
For litigants in Hong Kong, there is now the territory’s Civil Justice Reform legislation, which came into effect last April, says Mr Hugill.
It’s expected that under the legislation’s terms, parties that refuse to consider mediation or alternative resolution provisions may not be able to recover their legal costs in any subsequent litigation.
Mr Hugill says that beyond the provisions of standard contractual terms, certain administrative procedures will be available on the mainland through the offices of the State Administration for Industries and Commerce, including warnings, orders, confiscation and fines.
But there would likely be more comfort if contracts were signed in Hong Kong, with the city providing greater adherence to tested standards of proof, procedures and arbitration expertise, and with decisions enforceable.
Indeed, says Mr Ip, it may well be better for contracting parties to insert a mediation clause in the contract, following its provisions for action when disputes arise. At the very least, that could provide greater certainty in uncertain times.
For more details, please see the December issue of HKTDC Trade Quarterly, which can be ordered at: www.hktdc.com/bookshop.
