Incoterms_® and Commercial Contracts

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1. Introduction

Conciliation refers to the intervention of a third party designated by the parties in a dispute to assist them in achieving an amicable settlement.

Conciliation is not a required step in the dispute settlement process.

Conciliation must be conducted in accordance with the law, but otherwise its elements are determined by agreement of the parties.

Since conciliation is based on the voluntary participation of the parties, proceedings may be terminated at the behest of any of the parties.

Conciliation agreements are enforceable if they are written into arbitration agreements or are concluded before a people’s court. However, they are non-binding when concluded in other circumstances.

In China, the principal conciliation institute for international commercial affairs is the Conciliation Centre under the joint sponsorship of the China Council for the Promotion of International Trade (CCPIT) and the China Chamber of International Commerce (CCIC) and its sub-councils.

Conciliation is also conducted in a variety of contexts: on an ad hoc basis, under the framework of an institution, by arbitrators in the context of arbitration proceedings or by judges in proceedings before the courts.

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2. The CCPIT/CCIC Conciliation Centre

The CCPIT/CCIC Conciliation Centre is a permanent conciliation institution in China that independently and impartially practises conciliation to resolve disputes arising from domestic and international commercial and maritime transactions.

The CCPIT/CCIC Conciliation Centre, located in Beijing, was established by the CCPIT in 1987. To meet the development of the needs for conciliation, the CCPIT had by the end of 2001 established more than 40 centres under its sub-Councils. The conciliation centres of the CCPIT system are present in the main areas in China. All the centres apply the uniform conciliation rules. Under the leadership of the CCPIT/CCIC Conciliation Centre, they engage in vocational training.

Over the years, the success rate of CCPIT/CCIC conciliation has exceeded 80%.

CCPIT/CCIC conciliation has involved parties from more than 30 foreign countries and regions.

The CCPIT/CCIC Conciliation Centre has signed co-operation agreements with the Hamburg Conciliation Centre, the New York Conciliation Centre, the London Court of International Arbitration (LCIA), the Arbitration Institute of the Stockholm Chamber of Commerce, and the Hong Kong Mediation Centre. In January 1995, it joined the International Federation of Commercial Arbitration Institutes (IFCAI).

2.1. The CCPIT/CCIC Conciliation Rules

The current CCPIT/CCIC Conciliation Rules came into effect on July 1, 2005.

These rules are applicable when the centre conducts conciliation over disputes arising in connection with such matters as trade, investment, finance, securities, intellectual property, transfers of technology, real estate, projects, transportation, insurance and any other commercial or maritime issues.¹

In addition, the rules may be applied to domestic disputes and international or foreign-related disputes, to those concerning the Hong Kong Special Administrative Region (SAR), the Macau SAR and Taiwan, as well as to those among foreign-invested enterprises, natural persons, Chinese legal persons and any other organizations.²

Once the parties file for conciliation at a centre of the CCPIT system, and unless they otherwise agree with the approval of the centre, the parties are deemed to have accepted that the centre conducts conciliation according to the CCPIT/CCIC Conciliation Rules of 2005.³

Under these Rules, the parties may agree to select or to amend the provisions in the rules provided that there ensues no violation of the law.⁴ [Page1040:]

2.2. Conciliation proceedings under the CCPIT/CCIC Conciliation Rules

Conciliation centres accept cases on the basis of an agreement between the parties. Otherwise, the conciliation centre may accept a case upon petition by one or some of the parties and seek the response of the party with which conciliation is sought.⁵

Applicants for conciliation submit claims (in quadruplicate) stating basic information about the parties such as their names, addresses and postal codes, telephone numbers, fax numbers and e-mail addresses, and also including a copy of the conciliation agreement, a statement of the claims, the facts and supporting evidence, and any other relevant matters.

Representatives must submit proof of their authorizations.

Applicants must specifically designate the centre to act as conciliator. If there is a conciliation agreement between the parties, the applicant and the respondent must each prepay 50% of the conciliation fee. In the absence of a conciliation agreement or where the respondent does not follow up on the applicant’s invitation, the applicant must prepay 50% of conciliation fee.⁶

After examining the application for conformity, the conciliation centre sends a copy with relevant documents to the respondent. The respondent must confirm its consent to the conciliation, must designate, or authorize the centre to designate a conciliator, and prepay 50% of the conciliation fee within 15 days from receipt of the documents, otherwise it is deemed to have rejected the conciliation. Where consent is provided after the time limit, the conciliation centre has discretion to accept the case.⁷

Unless otherwise agreed, the parties must designate a conciliator from among the Panel of Conciliators proposed by the conciliation centre.⁸ The parties may request the centre to provide the educational and occupational backgrounds of the conciliators on the list.⁹

Unless they have otherwise agreed, the applicant and the respondent each designate a conciliator, or they may agree on a single conciliator. The conciliation centre may suggest the addition of a presiding conciliator.¹⁰

Either of the parties may entrust the conciliation centre to designate a conciliator on its behalf. Where a party fails to designate a conciliator within the time limit specified by the conciliation centre, or where the conciliation centre considers it advantageous to appoint a presiding conciliator, the centre makes the designation.¹¹

Upon accepting a designation, conciliators are obliged to carry out their responsibilities and disclose any situation that might impair their impartiality or independence in the conciliation proceedings.¹²

In general, conciliations are conducted on the premises of the conciliation centre. The parties may agree that the conciliation be conducted elsewhere but at their expense.¹³

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In principle, conciliation proceedings must be conducted while respecting the terms of the contract, abiding by the law, referring to international practice, and adhering to the principles of fairness and reasonableness so as to help bring about mutual understanding and concessions between the parties.¹⁴

Conciliators may conduct conciliation in the manner that they consider appropriate to reach an amicable settlement.¹⁵ They may for instance meet the parties and their representatives together or separately. They may request the parties to put forward proposals whether oral or written, or they may themselves advance suggestions based on the principles of fairness and reasonableness and their appreciation of the facts. With the approval of the parties, and at their expense,¹⁶ they may appoint experts to provide opinions. Where there is no agreement between the parties, the conciliator may make a final proposal for settlement.

Conciliation agreements are concluded in written documents bearing the parties’ signatures or seals. At the request of the parties, conciliators may issue conciliation statements on which appear their signatures and the seal of the conciliation centre. Except in the context of their execution or performance, neither conciliation agreements nor conciliation statements may be made public.¹⁷

The parties may insert arbitration clauses in their conciliation agreements.¹⁸

Once a conciliation agreement is concluded or the conciliation statement is issued, the conciliation proceedings are terminated. In addition, the conciliation proceedings cease if any of the following events occurs:¹⁹

• the conciliator considers that successful conciliation is impossible and pronounces in writing the closure of the proceedings;
• any of the parties notify in writing the conciliator to terminate the proceedings; Or
• the negotiated time limit for conciliation expires, provided that the parties may agree on extensions.

Where the conciliation fails, and unless otherwise approved by the parties, conciliators are forbidden from acting as arbitrators in any subsequent arbitral proceedings concerning the same dispute.²⁰

No proposal for settlement made or accepted by either party or by the conciliator in the process of conciliation may be invoked as grounds for a claim or as a defence in any subsequent arbitral proceedings, judicial proceedings or any other proceedings and, unless otherwise provided by law, parties are not allowed to request conciliators to serve as witnesses in any such proceedings.²¹

Unless otherwise agreed by the parties, conciliation fees are determined by the conciliator(s) in the light of the elements and results of the proceedings.²²

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3. Conciliation in other forums

3.1. Ad hoc conciliation

Ad hoc conciliation, which is also known as independent conciliation, is often used to settle a dispute before initiating arbitration or litigation.

An agreement concluded in the course of ad hoc conciliation is regarded as a new contract between the parties to the dispute.

Conciliation proceedings may be conducted according to procedures defined by the parties or according to a set of rules adopted by an institution such as the Conciliation Rules of the United Nations Commission on International Trade Law (UNCITRAL) or those of domestic institutes.

3.2. People’s conciliation commissions

People’s conciliation commissions are established in local areas for the settlement of civil disputes in domestic law. The work of people’s conciliation commissions is conducted under the guidance of governments and courts.²³ Conciliation agreements reached under the aegis of the commissions are regarded as contracts between the parties who are obliged to perform the stipulated obligations.²⁴ If either party fails to do so, the other may apply to the people’s courts for compulsory enforcement.²⁵

3.3. Conciliation in connection with administrative claims

In general, only cases concerning civil interests and rights can be resolved through conciliation in the people’s courts.²⁶

Except as regards claims for damages,²⁷ the people’s courts do not conduct conciliation in handling administrative cases.²⁸ But if a party claims administrative compensation, the court may conduct conciliation.

3.4. Conciliation within arbitration proceedings

At any time during the course of arbitral proceedings, if the parties agree to seek conciliation or where one party makes such a proposal and the other party accepts, the arbitration panel suspends its arbitral proceedings and offers its efforts toward achieving a resolution through conciliation. The conciliation should be clearly separated from the arbitral proceedings. If the conciliation fails, any statement, opinion, view or proposal that has been made or accepted by either party or by the arbitration panel in the process of conciliation may not be invoked as grounds for any claim, defence or counterclaim in subsequent arbitral proceedings, judicial proceedings or other proceedings.

The arbitration panel offers its conciliation efforts in the manner that it considers appropriate. In the course of conciliation, if the parties reach an amicable settlement, either inside or outside the arbitral tribunal, an arbitral award will be rendered in accordance with the agreed settlement.

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When either of the parties is unwilling to continue or when the arbitration panel believes that further efforts to conciliate will be futile, the conciliation proceedings are terminated and the arbitral proceedings then resume.

3.5. Conciliation within judicial proceedings

Conciliation in the course of litigation is conducted in accordance with the provisions of the Civil Procedure Law and the Provisions of the Supreme People’s Court (SPC) on Several Problems concerning Civil Conciliation by the People’s Courts.²⁹

Courts will conduct conciliation in the course of a trial if the parties so agree.³⁰ To the extent possible, efforts at conciliation begin on the spot and the court employs simplified methods of communication with the parties.³¹ The court has the power to summon witnesses to the conciliation proceedings.³² Courts may conduct conciliation at first or second instance or during revision procedures.

When a conciliation agreement is reached, the people’s court draws up a conciliation statement.³³ It clearly sets down the claims, the facts of the case, and the result of the conciliation. The conciliation statement is signed by the judge and the court clerk, sealed by the people’s court, and served on both parties. Once it is received by the two parties concerned, the conciliation statement becomes legally effective.³⁴

If the conciliation fails or is finally considered inappropriate, the court sets an early hearing date.³⁵

The people’s courts conduct conciliation in summary procedures for recovering debts, public invitations to assert claims, bankruptcies of enterprises or where the nature of a civil case is appropriate for conciliation.³⁶

Usually conciliation takes place after the period for submitting a defence has expired and before judgment is rendered.³⁷

Conciliation may be undertaken by a single judge or by a panel.³⁸ The court may also invite citizens, legal persons or other organizations that have special relationships with the parties or the case, or that possess expert knowledge or special experience, to participate in the pursuit of an agreement.³⁹

When the parties so agree, the people’s courts may also appoint citizens, legal persons or other organizations to conduct conciliation.

The people’s courts will give effect to conciliation agreements.⁴⁰

During judicial proceedings, parties may on their own initiative reach a compromise and then petition the people’s court for assistance in its formalization. At the request of the parties, the people’s courts will issue conciliation statements based on their agreements.⁴¹

Before conciliation commences, the court must inform the parties of their rights and obligations in the conciliation proceedings and identify the conciliation host and the clerk of record.⁴²

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If the parties request that conciliation be held in private, the court must implement the measure.⁴³

Conciliators meet the parties jointly or, if necessary, the parties may be met individually.⁴⁴ The parties may put forward conciliation proposals or the conciliator may propose a plan to guide them.⁴⁵

Conciliation agreements must result from the exercise by the parties of their free will and their content may not violate the law.⁴⁶ A conciliation agreement may be of broader scope than the statement of claims.⁴⁷

The parties may insert in their conciliation agreement a clause imposing liabilities for its breach. However, a party may not obtain orders from the people’s courts compelling a recalcitrant party to submit to conciliation.⁴⁸

The parties may stipulate that any of their number or a third party provide security for the agreement. Where the guarantors are third parties, the court will so note in the conciliation statement and serve them notice of the statement. The guarantor’s acceptance or rejection of the conciliation statement does not alter its legal effect.⁴⁹

If any of the following circumstances arise, the conciliation agreement is deemed to be null:⁵⁰

• the interests of State or the public interest are violated;
• the interests of a third party are infringed;
• the agreement is not the expression of the free will of the parties; and
• the agreement violates the compulsory provisions of laws or regulations.

Once the conciliation is concluded, the court will issue a conciliation statement, stating the claims, the facts of the case and the conciliation’s result. The judge(s) and clerk sign the statement, on which the court’s seal is affixed. Notice of the statement is served on the parties and once it is accepted, the parties are legally bound by it.⁵¹

According to article 90 of the Civil Procedure Law, the court may choose not to issue a conciliation statement in certain circumstances. For example, if both of the parties agree that the conciliation agreement will become effective only after they sign or seal it, the court will place it in the records. After the parties, the judge(s) and the clerk affix their signatures or seals, the agreement becomes legally binding. If one of the parties requests the court to issue a conciliation statement thereafter, the court must do so. In such circumstances, the rejection of the other party does not affect the legal effect of the statement. If one party fails to perform its obligations stipulated in the conciliation agreement, the other may apply for compulsory enforcement.⁵²

Whether the parties can reach an agreement on the allocation of the fees for the proceedings has no bearing on the effect of the conciliation agreement. In the event of disagreement, the people’s courts may determine the allocation and include it in the conciliation statement.⁵³

If the parties claim that the content of the conciliation statement does not comply with their agreement, the court may examine the problem and, where appropriate, it will render an order for amendment.⁵⁴

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If the parties reach a conciliation agreement on some of the claims, the court may issue an initial conciliation statement covering those claims. Where the parties have already concluded an agreement on the main part of the claims, if they request the court to put forward suggestions for the remainder of the claims and if they promise to accept the suggestions, the court will include them in the conciliation agreement and, where relevant, in the conciliation statement.⁵⁵

If no conciliation agreement is reached between the parties, or either of the parties withdraws before the conciliation statement is served, the court will render a judgment.⁵⁶

In addition, where the parties reach a compromise agreement by themselves or achieve an agreement through conciliation outside the judicial proceedings, the courts refuse to render judgments.⁵⁷

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