Chinese outbound investment has grown rapidly in the last few years, particularly in the energy, mining, banking, IT and creative industries. On August 18, 2009 China Petroleum & Chemical Corporation (Sinopec) announced the USD 7.2 billion acquisition of the Swiss Addax Petroleum Corporation. This was the largest international acquisition by a Chinese company to date. Additionally, CNPC has made several large international acquisitions – for example, in May, 2009, CNPC acquired a 45% stake in Singapore Petroleum for USD 1.2 billion while companies such as China Minmetals, China Nonferrous Metals, Baosteel, and ICBC have also made significant outbound investments recently. With the increasing internationalization of Chinese companies, commercial disputes are almost inevitable. In our experience, when dealing with international arbitration and litigation proceedings, we see Chinese companies employing a number of different strategies:
By King & Wood’s Cross Border Dispute Resolution team
Evasion or Negative Response
Regardless of the size of the dispute or the size of the Chinese company involved, some take an evasive attitude when confronted by overseas disputes, either failing to respond at all or hiring cheap and inexperienced foreign lawyers. This can put the Chinese parties at a severe disadvantage and it was a common situation at the beginning of the reform of investment laws in China. Now it occurs less frequently.
Instructing a foreign law firm to form the legal team
Currently, when dealing with complicated international disputes, many Chinese companies instruct large international firms as their key legal advisors. These firms in turn hire well-known local lawyers in third countries as and when needed. The advantage of doing things this way is that the legal team has enough experience and, when fully prepared, may have the power to persuade foreign courts and arbitrators, increasing the success rate of the Chinese companies involved.
However, this strategy leads to two common problems. First, fees are relatively high. Lawyers in foreign law firms generally charge high rates. Second, communication can be an issue. While there are no obstacles to communication between foreign firms and the corresponding foreign courts and arbitrators, communication between foreign firms and their Chinese clients may not be so effective. Different legal cultures and dispute resolution practices sometimes make it difficult for Chinese clients and foreign lawyers to fully understand one another.
Normally litigation lawyers at foreign firms do not understand Chinese and are often not very well acquainted with the commercial practices of Chinese companies. Chinese lawyers hired by international firms do not face language obstacles, but they may lack experience in complex international arbitration procedure. Because of this, Chinese clients often encounter difficulties establishing truly effective communication with their foreign counsel.
Hiring a Chinese law firm with experience in international litigation and arbitration to create an international legal team
This is a new combination whereby a Chinese company involved in an international litigation or arbitration proceeding hires, a Chinese law firm with experience in international litigation and arbitration to be responsible for building a global legal team. The advantages of this new strategy are the efficient use of fees and the increased efficiency of lawyer/client communications. As Chinese lawyers with international experience can read Chinese and directly draft in English, this saves on document translation costs. In addition, as Chinese lawyers understand the thoughts and concerns of Chinese clients, they can more effectively communicate with their Chinese clients. Moreover, key Chinese litigation lawyers with international experience are based in China rather than abroad. This makes meetings and day-to day communication with Chinese clients easier.
When facing commercial disputes abroad, particularly in the areas of foreign investment or production, hiring an internationally experienced firm of Chinese lawyers to lead foreign counsel and build an effective global team can be an excellent choice for Chinese clients.
Certainly, when clients choose a team led by Chinese lawyers, the lawyer’s understanding of English is not enough. The Chinese lawyer should:
- Have a depth of experience in foreign litigation and arbitration
- Understand the workings of international firms
- Understand the needs and concerns of Chinese clients
- Have a sizable team of its own in order to cope with a large number of tasks in a short period of time and in a variety of urgent situations
For an example of King & Wood’s experience leading a global team in complex multijurisdictional litigation, follow this link.