When Australian owners negotiate a contract with a Chinese supplier, manufacturer or partner, most of the energy goes into one question: will Australian law apply? It feels like the thing that matters. It is the wrong fight.
The clause that actually decides whether you can do anything when a deal goes wrong is not which law applies. It is where a dispute is heard and whether any decision can be enforced. Get that wrong, and you can win cleanly in an Australian court and still have nothing you can collect.
The gap between a judgment and your money
Here is the part that catches people out. You can have an Australian-law contract that says any dispute goes to an Australian court. You can go to that court, run the case, and get a judgment in your favour. And in China, that judgment can be close to worthless.
The reason is straightforward. China does not recognise a foreign court judgment unless there is a bilateral treaty between the two countries, and Australia and China do not have one. There is nothing in Chinese law actively blocking your judgment. There is just no mechanism that requires a Chinese court to honour it. So the piece of paper you spent time and money winning does not turn into anything you can enforce where the supplier and their assets actually are.
You can have your Australian law contract, take a dispute to an Australian court, and get a judgment. Unfortunately, that judgment is at best academic. China doesn’t recognise a foreign judgment unless there’s a bilateral treaty, and Australia and China don’t have one.
– Shan Lai, Special Counsel
What works instead: arbitration
The fix is to agree, up front, that disputes go to arbitration rather than a court. This is not a technicality. It is the difference between a decision you can enforce and one you cannot.
Australia and China are both parties to the New York Convention, the international treaty on enforcing arbitral awards, which covers more than 170 countries. That means an arbitral award made in the right place can be enforced in China, and a Chinese award can be enforced in Australia. The courts here have done exactly that: the Supreme Court of New South Wales has enforced an award made by CIETAC, China’s main arbitration body. The route runs both ways, and it works.
But putting the word arbitration in a contract is the easy part. Making the clause stand up is where a lot of agreements come unstuck, and there is more judgment in it than most owners expect. A few of the places it goes wrong:
- The clause is too loose to enforce. A clause that does not properly name the arbitral institution can be treated as invalid, which puts you back to square one. What counts as proper is more technical than it looks.
- The venue is chosen without thinking it through. Where the arbitration is seated, and which body runs it, changes how enforceable, and how fair, the result is. CIETAC, Singapore and Hong Kong each come with trade-offs, and the right call depends on who is on the other side and how much is riding on it.
- It is left until a dispute is already running. By then the clause is whatever you signed, and you cannot improve it.
None of this is one-size-fits-all. The wording that holds up depends on the deal, the other party, and where their assets actually sit, which is why it is worth having the clause looked at before you ever need it, rather than after something goes wrong.
This is not only a supplier problem
The same logic runs through any China-linked deal: importing goods, licensing a brand, a joint venture, or selling a business to a Chinese buyer. Wherever the other side’s assets sit in China, an Australian court order is hard to turn into money, and a well-drafted arbitration clause is what gives your contract teeth.
What to check, before you sign and after
On your next China contract, the dispute clause is worth getting right before you sign, while you can still negotiate it. It costs nothing extra to get right at the start, and it is close to impossible to fix once a dispute has begun.
For the contracts you already have, find the dispute clause. If it sends disputes to an Australian (or any foreign) court, assume you would struggle to enforce a win in China, and put fixing it on the list for the next renewal or variation. If it points to arbitration, check that it names a real institution and seat, because a vague clause can be as good as none.
A contract you cannot enforce is not really a contract. It is a hope.
What to do about it
The cheapest time to get this right is before you sign. Download our free checklist, Buying from, selling to, or manufacturing in China: the legal checklist every Australian business needs, and run your own contracts against it, or have us look at them directly. If you have a contract with a Chinese supplier or other counterparty on the table, we can review and negotiate the dispute clause so it actually protects you, instead of finding out it does not once a deal has already gone wrong. And for the contracts already sitting in your drawer, it is worth a look now, not the next time something comes up. We can do that as an individual contract review, or as a legal health check that goes through all your offshore contracts in one pass.
If you source from or deal with China: before you sign your next agreement, get the dispute clause reviewed and negotiated so it holds up where it counts. For the contracts you have already signed, book a review of the one that matters or a health check across the lot. Shan, who practised in Beijing for 15 years, and her team do exactly this. Book a free call and we will show you where the gaps are.
If you advise businesses that deal with China: the moment to raise this is before your client signs, while the clause can still be negotiated, and it is worth a second look at the contracts they already have. We can review an individual agreement or run a health check across their offshore contracts. If you have clients dealing with a Chinese supplier or other counterparty, book a call and we will work through it with them.
