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As China’s economic outlook becomes increasingly uncertain, businesses and their in-house legal teams face mounting pressure to operate cautiously and cut spending.
This reality has seen many seek cost-effective ways of handling commercial disputes, moving away from lengthy and expensive litigious processes. Dispute avoidance has emerged as a viable solution for the expeditious and efficient resolution of differences.
In this article, we explore why our commercial clients in China are increasingly adopting dispute avoidance strategies, and how the fact-finding capabilities of our investigators has become a pivotal first step in resolving commercial disputes.
As with many jurisdictions, engaging in long-running disputes in the Chinese court system carries financial, reputational and operations costs in the form of exorbitant legal fees, hours of management time and in high-profile disputes, political and reputational risks. Outcomes are also uncertain, and the final judgment may not always be favourable for the litigator.
This has bred hesitance among key decisionmakers to spend copious amounts of time and treasure on a formal legal claim or a zealous defence. Even when claims are filed, there is more pressure than ever to achieve faster outcomes at lower costs.
Although disputes vary from case to case, dispute avoidance has proven effective in meeting our clients’ needs. Even when claims are filed, we have seen that litigation can still be avoided.
In China, we are increasingly being engaged to support speedy dispute resolution strategies like these.
Case study: Dispute avoidance in practice
Credible early intelligence aids in convincing the counterparty to negotiate, particularly when both sides have a vested interest in avoiding litigation.
The purpose of any alternative dispute resolution mechanism is to provide effective means for reconciling differences. Experience has shown that success depends on attaining a full and early understanding of the dispute-related facts.
To give effect to dispute avoidance strategies, investigators should begin with a comprehensive fact-finding mission focused on determining:
Oftentimes, the full truth is intentionally obscured. To this end, early intelligence is the tool that pinpoints where liability truly lies, moving beyond surface-level accusations.
Intelligence also enables our clients to follow the money. Rather than a particular target – we often uncover unexpected motives at play. For instance, we once worked for a Chinese multinational being sued by a supposedly disgruntled former employee. Our investigation later revealed that the individual’s litigation fees were being quietly financed by a politician hoping to use the high-profile case against our client to boost his standing within his political party. The finding fundamentally changed our client’s dispute resolution strategy.
Early intelligence frequently uncovers factual inconsistencies or evidence that supports a rejection of the claim, providing leverage for securing favourable settlements or avoiding potential litigation altogether.
Even for clients considering filing a claim, early intelligence is pivotal in conducting the fit-to-sue assessment to determine whether the opponent has sufficient assets to satisfy a potential judgment. It also reveals whether formalising the dispute could trigger unintended political, financial or reputational repercussions.
Navigating disputes requires investigators to employ a plethora of methods, including drawing insights from open-source intelligence, human-source interviews and on-the-ground site visits. The effectiveness of these tools and methods depends not only on how they are used but importantly on when they are introduced to the dispute. Proactive investment in investigations at the earliest sign of conflict can significantly save time, costs and a business’ reputation.
Litigating through courts should be seen as a last resort. Business leaders should encourage their teams to rely on proactive early intelligence to ensure disputes are addressed with clarity and evidence.
Understanding the motivations and backgrounds of counterparties can inform a pre-filing settlement negotiation in the same way that it can inform negotiations in a commercial deal.
Discovering the involvement of a third party in the alleged wrongdoing is sometimes an unexpected consequence of the early engagement of a tenacious investigator. Sometimes lengthy litigation or arbitration proceedings are unavoidable. Even then, early fact-finding would not be wasted.
As Sun Tzu wrote, “He who knows both sides has nothing to fear in a hundred fights.” With early fact-finding, one can reduce the number of fights.