What to do when things go wrong?

Shipping has a long and not-so-proud history of disputes and arbitration among business partners, and that tradition is alive and well for shippers doing business in China. One of the best things shippers can do to avoid problems, according to Philip Yang, chairman of the Hong Kong International Arbitration Centre, is to start with a thorough understanding of the rules and terms of an agreement. But, he adds, include an arbitration clause that defines how disputes will be resolved and, if arbitration is to be used, where that arbitration will take place.

Called venue shopping in U.S. legal circles, litigants will often look for a jurisdiction that has a history of favorable decisions for their position. Another element may be to make defense difficult for the other party. Thus, international companies may each want to file a court case in their own country. Selecting a venue for arbitration can avoid some of these problems.

In issues involving Asia trade and shipping claims, says Yang, Hong Kong or Singapore are the best places for arbitration because they are common-law systems in a region where business is largely governed by civil law. Common law is based on the English system, explains Yang, and is used in the U.S. and in most international disputes.

Hong Kong's unique position — one foot in China and another in the West — suggests a good understanding of both systems. The goal when Hong Kong reverted to Chinese rule in 1997 was one country, two systems. Under that structure, Hong Kong retained its legal system, form of government and currency. But a long history of trade with Mainland China has provided a foundation in those legal systems and culture.

In addition to specifying where arbitration will take place, sales contracts and shipping documents should indicate the "governing law." In other words, according to Yang, which country's legal system will be used to govern the contract.

Facts and sufficiency of evidence are also important to dispute resolution, says Yang. Many decisions in shipping disputes will be based on documents, but the location of physical evidence will also come into play. If you can get your way on the venue for dispute resolution, do what is in your best interest, but if you have to choose a location for arbitration, Yang feels Hong Kong offers the best venue. One reason, he points out, is that the Final Court of Appeal in Hong Kong is international in its make up.

Yang's comments are encouraging for shippers who have import or export relationships with China. China is moving closer to international practices as it grows in its role as a member of the global economy.

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