Expert Speak Raisina Debates
Published on Aug 28, 2020
BRI projects cut across various countries with different legal systems — the legal and regulatory differences across different jurisdictions increases the chances of projects running into legal risks and uncertainties.
The inconvenient truth about China’s International Commercial Courts

Launched in 2013, China’s multi-trillion dollar Belt and Road initiative (BRI) continues to thrive as an ambitious infrastructure project and a powerful geopolitical initiative. Now covering over 60 countries, the BRI is expected to play a larger role in creating an alternate model of economic integration and global governance. The impact of these developments can also be felt across the development of law — specifically, dispute resolution.

BRI projects cut across various countries with different legal systems, including English common law, Anglo-American civil law and Islamic law — to name a few. The legal and regulatory differences across different jurisdictions increases the chances of projects running into legal risks and uncertainties. Naturally, as the BRI grows — with the ample support of Chinese investments — the number of international commercial disputes involving Chinese State Operating Enterprises (SOEs) and private companies will increase manifold. Several projects have already run into legal quagmires; for instance, the Belgrade-Budapest high-speed railway was been delayed for over a year when the Hungarian part of the project bypassed European rules on public bids.

As the BRI grows — with the ample support of Chinese investments — the number of international commercial disputes involving Chinese State Operating Enterprises (SOEs) and private companies will increase manifold.

Given the complexity of these cases, a question arises about which forum would be most suitable to hear a dispute: should it be foreign courts, or Chinese courts, or international arbitration centres? Much depends on the contract between parties, treaties, international arrangements, as well as relevant facts of the case (such as, where the companies are situated, or where the contract was signed). However it is important to note that Chinese parties feel that they are genuinely disadvantaged in disputes arising out of overseas investments. In a 2018 interview, the Chinese Council for the Promotion of International Trade (CCPIT) — a trade body of the Chinese government—revealed that Chinese enterprises that chose foreign arbitration institutions to resolve disputes lost 90% of these cases. In order to resolve this grievance and retain the confidence of local companies participating in the BRI, Beijing proceeded to establish the China International Commercial Courts (CICC).

The CICC was first proposed in January 2018 by the Central Committee of the Chinese Communist Party, while examining options for BRI dispute resolution. By August 2018, an Opinion issued by the Supreme People’s Court (SPC) on international commercial dispute resolution, which created the CICC in the cities of Shenzhen and Xi’an. The two cities correspond with the maritime “road” and overland “belt” of the BRI, respectively. To be sure, International Commercial Courts (ICCs) are a fairly recent innovation and are situated in major cities like Singapore, Dubai, Qatar and Abu Dhabi. They aim to provide an alternative to national courts and international commercial arbitration. The ICCs are a part of the national judicial order (wherever they are established), with specialised and flexible rules. A primary aim of such institutions is to facilitate dispute resolution by providing a transparent, accessible and impartial method for international parties. As such, the CICC is an attempt to provide a Chinese alternative for dispute resolution — given how BRI disputes are only likely to increase in the future.

Foreign judges help establish the credibility and impartiality of International Commercial Courts, since there is always a concern that domestic courts and judges — influenced by local protectionism — may decide in favour of local interests and domestic enterprises.

The CICC is a permanent body under the Supreme People’s Court (SPC)—the highest Court in China. It will function as a “one stop shop,” which encompasses all methods for dispute resolution, namely mediation, arbitration and litigation. It has jurisdiction to try international commercial disputes with a specific monetary threshold, as well as commercial cases with a “significant nationwide impact.” It will only hear international civil and commercial disputes between equal parties, and will not hear state-state trade or investment disputes or investor-state disputes. The rules of procedure of the CICC — running into 40 articles — draws from China’s procedural laws instead of international arbitration procedures.

The CICC aims to project itself as an institution with an international character—a quality that is considered integral to the BRI as well. A closer look at the CICC, however, reveals its conservative design in comparison with other global counterparts. Table below draws a comparison between the CICC and other major ICCs. The biggest flaw of the CICC is that, under its rules, only Chinese citizens can be appointed as judges and not foreign judges. There is no provision for appointing international judges who have had had experience of adjudicating foreign laws in foreign jurisdictions. Foreign judges help establish the credibility and impartiality of ICCs, since there is always a concern that domestic courts and judges — influenced by local protectionism — may decide in favour of local interests and domestic enterprises.

Table: A comparison of the major International Commercial Courts

Institution Size of Bench International Judges Language of the court
Singapore International Commercial Court 36 16 English
Dubai International Financial Centre 8 5 English
Qatar International Court 12 10 English and Arabic
China International Commercial Court 16 0 Mandarin

Source: Wei Cai and Andrew Godwin, Challenges and Opportunities for the China International Commercial Court

Another factor that distinguishes the CICC from other ICCs is that its working language is Mandarin, as opposed to English. ICCs generally conduct proceedings in English, in order to enhance accessibility for international parties. Conducting proceedings in Mandarin can severely restrict the ability of a party to participate and understand court proceedings. Further, only lawyers that have a license to practice in China can represent parties before the CICC. This is also a departure from the practice prevalent in other ICCs, where foreign lawyers have easier modes of obtaining registration to practice before these courts. The language of the court plays an important role here as well, as the number of international lawyers who can practice in English would far surpass those who can do so in Mandarin. In this regard, foreign parties would need to approach lawyers and law firms in China to represent their case before the CICC.

The language of the court plays an important role here as well, as the number of international lawyers who can practice in English would far surpass those who can do so in Mandarin.

These features have been criticised and are considered antithetical to the ‘global’ nature of the BRI. In order to offset some of the criticism, the CICC also constituted an International Commercial Expert Committee (ICEC), comprising foreign legal experts. They will mediate cases, and provide advice and assistance to the CICC judges on the content of foreign laws and judgments. However, the precise nature of the ICEC’s role and their relationship with the CICC judges lacks clarity. For instance, there is no guidance as to whose opinion would prevail in the case of conflict between the ICEC and the CICC judges.

The CICC is also established as a permanent adjudicative body under the SPC. This in itself raises larger questions about its independence, autonomy and freedom from the politico-legal influence exerted by Beijing. China’s ranking in Transparency International’s Corruption Perception Index — which measures perception of corruption in public institutions — has improved by seven ranks to 80 out of 198 countries. However, specific factors, such as keeping decision making out of public scrutiny, have hindered efforts to tackle corruption and lack of transparency. On the other hand, in the 2020 Rule of Law Index, China scores significantly below regional and global averages on civil justice and criminal justice.

There is an obvious concern that the CICC (China International Commercial Courts) has a deeper strategic objective to protect local companies from risks, uncertainties and unfavourable legal regimes.

The CICC marks an important development, as China establishes new mechanisms to preserve rule of law and foster legal cooperation along BRI projects. However, the institution falls short of global standards, which in turn can impact its credibility and legitimacy with international parties. There is an obvious concern that the CICC has a deeper strategic objective to protect local companies from risks, uncertainties and unfavourable legal regimes. It has been described as an ‘insurance policy’ that can underwrite risks for Chinese companies participating in the BRI — by providing them with a familiar, China-centric dispute resolution mechanism.

There is also a concern that China, because of its financing capacity, could pressure foreign entities to accept the jurisdiction of the CICC. As Beijing embraces its role as an assertive economic power and a possible rule-maker for global governance, platforms like the CICC can establish new jurisprudence on trade, economy and governance. For now, it is important to closely follow these developments to fully understand the nature of the institution and see if they will adapt to standards that go beyond paying lip service to the ‘global’ nature of the BRI.

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.

Contributor

Aarshi Tirkey

Aarshi Tirkey

Aarshi was an Associate Fellow with ORFs Strategic Studies Programme.

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