In a recent ruling with broad implications for cross-border contract enforcement, a Chinese court confirmed the invalidity of an arbitration clause in a standard-form agreement due to lack of proper disclosure. The decision provides critical insights into how procedural fairness in contract formation is interpreted under Chinese law, especially regarding the enforceability of arbitration agreements — a point of concern for foreign businesses, including Indonesian entities, engaging with Chinese partners or clients.
In November 2022, a student named Xiao signed an online contract with Xinyan Company for Japanese language training. The agreement, sent via PDF, included a clause that required any future disputes to be resolved through Chongqing Arbitration Commission. Xiao signed the document using a digital pad and returned it to the company. However, the contract had been drafted in advance by Xinyan Company, and Xiao was not given the opportunity to negotiate or receive any explanation regarding the arbitration clause.
Following the signing, Xiao paid the tuition in several transfers, totaling over ¥17,000, and began attending classes as scheduled and completed by December 2023. However, when a dispute later arose, Xiao challenged the validity of the arbitration clause, arguing that he had not been made aware of it in any clear or explicit way before signing.
The court reviewed the case under Article 496 of China’s Civil Code and Articles 16 and 20 of the Arbitration Law. It determined that the arbitration clause in question met the definition of a “standard clause”—a contractual term pre-drafted for repeated use and not open to negotiation. The law requires companies to give clear notice of such clauses, especially when they affect fundamental rights like dispute resolution procedures.
In this case, Xinyan Company failed to fulfill that obligation. There was no evidence that the arbitration clause had been highlighted, explained, or discussed with Xiao before he signed the contract. As a result, the court found that Xiao was not adequately informed and ruled that the arbitration clause was null and void. This case underscores the heightened standard applied by Chinese courts when assessing the validity of arbitration clauses in standard-form contracts, especially those executed online.
In an era where cross-border digital contracting is the norm, this case serves as a timely reminder that arbitration only works when parties knowingly and willingly agree to it — and courts will not assume consent where clarity is absent.
To avoid similar pitfalls, both Chinese and Indonesian companies are highly recommended to avoid overreliance on “boilerplate” arbitration clauses in standard agreements, as well as seek legal review of dispute resolution provisions to ensure enforceability across multiple jurisdictions.
If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of the leading corporate law firms in Indonesia, with extensive experience handling similar matters. Our team of professional corporate and civil lawyers makes us one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.
Author:
Budhi Satya Makmur