NNN Agreement Dispute Resolution: We Usually Recommend Chinese Courts over Arbitration

When foreign buyers put NNN agreements in place with Chinese manufacturers, the dispute-resolution clause — often drafted by counsel abroad — frequently provides for arbitration, whether at a Chinese arbitration institution or one seated in Hong Kong or Singapore. The choice feels natural: arbitration is what international contracts do, and arbitration clauses are drafted every week in cross-border deals.

For this contract type, in the usual configuration, we would draft it the other way: PRC court litigation, at the forum closest to the manufacturer’s assets. This article explains our reasoning — and, just as importantly, when arbitration is still the better answer, because there are real configurations where it is.

This expands on the dispute-resolution discussion in the complete NNN guide and the enforcement FAQ in Part 5 of the FAQ series.

Where the dispute will actually take place

Before weighing a forum, it helps to look at what an NNN dispute against a Chinese manufacturer actually involves:

• The manufacturer is in China. The moulds and tooling are in China. The bank accounts, equipment, and premises a judgment must reach are in China. The infringing conduct — production for a third party, use of your drawings, a trademark filing — happens in China.
• What is usually needed within days, not months, is coercive: freeze the accounts, seize the evidence before it disappears, stop the shipment.
• What is needed at the end is enforcement against Chinese assets.

Every road that matters runs through the Chinese courts. The question is whether the dispute takes that road directly, or reaches it through an arbitral detour.

Five reasons courts usually serve a foreign party better

1. Speed to coercive relief — the remedy NNN breaches demand

In an NNN dispute, time is usually the enemy. Once a supplier starts producing for a third party, every week means inventory leaving the factory, records being cleaned up, and moulds being worn or moved.

Chinese courts offer pre-suit and in-suit asset preservation (freezing bank accounts before the defendant has even answered) and pre-suit evidence preservation. These are the tools that turn a demand letter into a settlement — the credible threat of seizure is where an NNN agreement does its deterrence work.

An arbitral tribunal does not issue these measures itself. Under Chinese procedure, preservation in aid of a mainland-seated arbitration is applied for through the arbitration institution, which refers the application to the competent court — the accounts can absolutely be frozen, but the route runs through two doors instead of one. The emergency-arbitrator mechanisms in modern institutional rules help, but the order still comes from a judge, and in practice this route responds more slowly than a preservation application made directly to a Chinese court in litigation. And for arbitration seated outside mainland China, interim-measure rulings of the arbitral tribunal cannot be enforced through the mainland courts at all — the significant exception being Hong Kong-seated arbitration under the 2019 Arrangement on interim measures.

The practical sequence tells the story. Litigation: preserve assets → file → the freeze holds while the case runs. Arbitration: constitute the tribunal (or trigger the emergency arbitrator) → route the application through the institution → wait for the court. In the scenario NNN agreements exist for — a breach in progress — that difference matters most.

2. A judgment is already inside the enforcement system; an award has to knock on its door

A first-instance Chinese judgment executes through the court’s own enforcement machinery — and it can be appealed, from a basic-level court to the intermediate court (and, where an intermediate court has heard the first instance, to the provincial High Court). For a foreign party, that instance-by-instance review is protection against a bad first-instance outcome.

An arbitral award takes a different path to the same place. Before it executes against mainland assets, the award passes through a set-aside or enforcement-challenge layer in court: the losing party can attack it on procedural grounds. Most awards survive, but the layer adds months, and it gives the losing party a structured second front. A mainland-seated arbitral award is enforced as a domestic matter (no New York Convention step needed) — but domestic enforcement still means court review.

When collection is expected in China from a Chinese company, the judgment route is simply shorter.

3. Cost, at the scale of typical NNN disputes

Institutional arbitration is priced for commercial disputes an order of magnitude larger than most NNN claims. Filing and arbitrator fees at China’s arbitration institutions — and a fortiori at institutions seated in Hong Kong or Singapore — frequently exceed the entire amount realistically in dispute between a small foreign buyer and its factory, before counsel fees.

Chinese court litigation is not free, but it is inexpensive by Western standards. Preservation security has its own cost profile — generally capped at 30% of the preserved amount for in-suit preservation, full security for pre-suit, with insurance and guarantee-company bonds available — but that security is recoverable leverage, not a fee.

None of this makes arbitration poor value in a large, genuinely cross-border dispute. It makes it the wrong price point for the dispute an NNN clause is actually designed to fight.

4. The New York Convention advantage usually has nothing to do

Ask why the clause says arbitration, and the answer is usually some version of: awards are enforceable in 170+ states under the New York Convention; judgments are not.

That is true — and usually irrelevant here. The Convention matters when the respondent’s assets sit outside the forum country: an award from a mainland-seated arbitration can be enforced in Singapore or California; a Chinese judgment largely cannot. But the typical NNN scenario is the mirror image: a Chinese manufacturer whose assets, moulds, and bank accounts are all in China. Enforcement happens in China whichever route is chosen — an award through domestic enforcement proceedings, a judgment through the courts’ own machinery. The Convention is not doing any work, so the clause pays arbitration’s costs without collecting arbitration’s signature benefit.

The flip side cuts against the other common mistake: a clause naming a US or other foreign court produces a judgment that China generally will not recognise (enforcement rests on a narrow set of bilateral judicial-assistance treaties or case-by-case reciprocity, with poor realistic prospects). Designing for a Chinese forum from the start avoids both errors. Part 5 of the FAQ series covers the treaty landscape for foreign judgments and foreign awards.

5. One forum for the whole contract stack

An NNN agreement rarely travels alone. The full stack — NNN agreement, tooling-ownership agreement, and the manufacturing agreement — exists precisely because real disputes do not respect document boundaries: the mould the factory will not return, the quality claim on the last order, and the drawings that surfaced at a competitor are usually one story.

Giving all three documents the same Chinese court lets that story be told in one proceeding. Arbitration fragments it: the tribunal hears only the claims of the parties to the arbitration agreement, only under that agreement, and cannot consolidate with court litigation. Multi-party, multi-document disputes are exactly the configuration arbitration handles least well.

The confidentiality question — and the answer that surprises people

The best argument for arbitration in a trade-secret dispute is confidentiality: arbitral proceedings are private; court proceedings are public in principle. For an agreement whose subject matter is proprietary technology, that is a serious consideration.

Chinese procedure answers it: cases involving commercial secrets may be heard in camera at a party’s request, and materials can be redacted in filings. In practice, trade-secret litigation is routinely heard behind closed doors. From a confidentiality standpoint, a party can achieve in court litigation the same protection arbitration provides — the option simply has to be exercised.

The court route’s real cost: language

Litigation in a Chinese court is conducted in Chinese: pleadings and evidence are translated, and the hearing takes place in Chinese. For a foreign buyer without Chinese-speaking management or counsel, this is a genuine cost of the court route — and in our experience it is the single most common reason clients still choose arbitration after seeing the enforcement analysis above.

Arbitration at a Chinese arbitration institution can be conducted in English, with an English-controlling contract text to match. Where English proceedings matter to an organisation, that is a legitimate basis for choosing arbitration — best made with a clear eye on the trade-offs described here.

What this means for Chinese arbitration institutions

None of the above is a comment on any particular institution. China’s arbitration institutions are professionally run; several offer English-language proceedings, multinational rosters, and a mainland-seated award that enforces domestically without Convention formalities. Where the configuration favours arbitration, a clause naming a Chinese arbitration institution is a defensible choice.

The recommendation for most NNN agreements is structural, not institutional: interim relief and enforcement run through the Chinese courts either way, the award carries a challenge layer a judgment does not carry, and the Convention advantage usually has no assets to reach. A stronger institution narrows none of these gaps. The route comes first; the institution only matters once arbitration is the route.

When arbitration is the right answer

Four configurations genuinely favour it — the same list we give clients, and none is rare:

1. The counterparty refuses local courts. State-owned enterprises and some large manufacturers will accept arbitration but resist a designated Chinese court. Arbitration is then the forum that can actually be signed.
2. The counterparty has meaningful assets outside China. A manufacturer with an overseas subsidiary, warehouse, or receivables changes the enforcement map — a Convention award can reach those assets; a Chinese judgment largely cannot.
3. English-language proceedings matter. Arbitration can be conducted in English with an English-controlling text, as described above. For parties without Chinese-speaking management or counsel, this is a real, not cosmetic, advantage.
4. Multi-party, multi-jurisdiction structures. Where the dispute matrix spans several countries and non-Chinese parties, a single consolidated arbitral forum can beat a web of parallel litigations.

Where arbitration is the route, the clause deserves careful drafting: under the revised PRC Arbitration Law (effective 1 March 2026), an arbitration agreement missing essential terms that the parties cannot cure may be void, and ambiguous “arbitrate in China”-style clauses have a long history of generating jurisdictional litigation of their own.

Drafting the court clause

Where litigation is the route, several drafting points tend to decide how the clause performs:

• A specific, connected forum. The natural choice is the court at the manufacturer’s domicile — typically a basic-level court, where ordinary first-instance commercial cases begin. A forum with an actual connection to the defendant or to performance of the contract avoids jurisdiction objections that cost months.
• Exclusivity. An exclusive-jurisdiction clause forecloses the argument that some other court should hear the case first.
• No mixed clauses. A clause that permits either arbitration or litigation is, in effect, no arbitration agreement at all: because arbitration requires a clear and exclusive expression of intent, the “option” clause leaves the parties with court litigation only. Parties who draft a fallback thinking they have preserved arbitration discover the opposite.
• Controlling language. Litigating in China means the Chinese text controls. The bilingual versions are best kept disciplined, with the Chinese version prepared or checked by the lawyer who will litigate it — not a translation agency.

The clause that does the real work is not the forum clause

A final calibration, whichever forum is chosen. Chinese courts are powerful against money — freezing accounts, seizing assets, executing judgments — and weaker against conduct: orders to stop doing something are hard to police and reluctantly issued.

The drafting consequence inverts common-law instinct: the clause that usually protects a foreign buyer is not the arbitration clause or even the forum clause, but liquidated damages — each prohibited act priced in advance, calibrated within roughly 30% of realistically provable loss (the working benchmark under the Civil Code’s breach-damages framework, Art 585, as applied by the SPC’s 2023 contract interpretation), anchored to an asset-preservation application the day a breach appears. The forum clause decides where the dispute is fought; the damages clause is usually what resolves it before it has to be.

See the complete NNN guide for the full drafting framework, Part 4 of the FAQ series on language, governing law and execution, and Part 5 on damages and enforcement. If a supplier has registered your mark, see the trademark squatting guide.

Summary

• In the usual configuration — a Chinese manufacturer with its assets in China — our default recommendation is litigation at a connected Chinese court, with exclusive jurisdiction and the Chinese text controlling.
• Arbitration tends to be the better answer where the counterparty refuses local courts, where assets sit abroad, where English-language proceedings are important, or where multi-jurisdiction consolidation is needed.
• Arbitral tribunals do not issue freezing orders directly; the application routes through the arbitration institution to the court, which takes longer — though the freeze itself is available in both routes.
• The court route’s main cost is language: litigation is conducted in Chinese; arbitration can be conducted in English.
• Confidentiality is achievable in court: commercial-secret cases can be heard in camera at a party’s request, to the same effect as arbitration.
• A clause offering a choice between arbitration and litigation leaves only litigation — arbitration requires an exclusive expression of intent.
• Liquidated damages within roughly 30% of realistic loss, plus readiness to apply for asset preservation, do most of the practical work.