Summary: Welcome to BLP’s ‘Belt and Road Insights’. With several high-profile projects already in full flow, our focus now shifts to examine in detail the key legal considerations associated with these major projects, and their potential implications on how they can shape trade and investment opportunities along the Belt and Road Route.
China announces new courts for resolving Belt and Road disputes
China has recently announced the establishment of a new institution for resolving commercial and investment disputes arising out of projects forming part of the Belt and Road Initiative (the "Court"). The Court will have three branches – one in Shenzhen, to hear disputes arising from the Maritime Silk Road, one in Xi’an to hear disputes from the overland “Belt”, with a Beijing branch to oversee and manage the Court. The Court will also offer arbitration and mediation.
The establishment of the Court appears to be an intriguing step by China to stake its claim as a jurisdiction for resolving large international disputes. Whilst China is home to a number of arbitral institutions, which are commonly used for resolving disputes involving at least one Chinese party, at present China does not have the pre-eminent reputation of international dispute resolution hubs such as London, Singapore and Hong Kong.
At present, numerous questions hang over the Court. Perhaps the most important is, how will it work? The Court is to be set up by the Supreme People’s Court ("SPC"), China’s highest domestic court, but it is hard to know how closely the Court will resemble the SPC. The Court is described as an “international commercial court”, a term which suggests parallels with the Singapore International Commercial Court ("SICC"). The SICC, a division of the Singapore High Court, was established specifically to resolve international disputes, even those which have no connection with Singapore and are not governed by Singapore law.
Indeed, Zhou Qiang, President of the SPC, and Sundaresh Menon, Chief Justice of Singapore, signed a memorandum of understanding on legal and judicial cooperation following bilateral meetings in August 2017, indicating that the SPC may look to draw on Singapore’s experience. However, a key feature of the SICC is that it maintains an international bench of judges, and is often addressed directly by foreign counsel. Given that foreign lawyers are subject to strict controls (for example, they cannot advise on PRC law in China), it seems unlikely that the Court would be willing to allow non-Chinese judges or counsel to play such a role.
Another unanswered question is: what disputes will the Court have jurisdiction over? Although targeted at Belt and Road disputes, its jurisdiction will not be automatic; it is hard to see how a Chinese court could assert jurisdiction over disputes arising from projects in other countries, unless the parties to that dispute have so agreed. However, without some form of government-to-government agreement to this effect, it is highly unlikely that international counterparties would agree to submit to the jurisdiction of a Chinese court.
That said, would Chinese companies wish to use the Court? Arguably, there is a perception that arbitration, which is commonly used for resolving disputes arising out of international projects, is unnecessarily complex, expensive and time-consuming, as well as disproportionately “Western” in its use of law, language and practitioners. The prospect of submitting disputes to an institution in China (presumably with proceedings in Chinese) could therefore be more attractive to Chinese companies. But if the Court does not offer an advantage in terms of cost, speed and simplicity, or if the quality of judges is perceived to be significantly less good than in other dispute resolution forums, the Court may lack a distinct competitive advantage.
A third concern relates to enforceability. There is little doubt that judgments of the Court will be enforceable in China. However, the assets against which a judgment would be enforced may be located abroad; for example, in the country where the project is based. Whereas international arbitration awards are widely (although by no means universally) enforceable under the New York Convention, there is no international convention with the same wide application governing the enforcement of court judgments. The enforcement of court judgments is therefore dependent on the attitude of the local courts to enforcement of foreign judgments in the jurisdiction where enforcement is sought, as well as the existence of any reciprocal enforcement treaties between the jurisdiction in which the judgment is given and the jurisdiction in which enforcement is sought. Whilst there are many such treaties in place, their coverage is far from universal, meaning that enforcement of a judgment of the Court could be significantly more difficult than enforcement of an arbitral award.
Lastly, there is the question of the independence of the Court. International parties involved in Belt and Road Projects may have doubts (whether unfounded or justified) as to the neutrality of the Court. This is perhaps the most significant obstacle to the Court’s success. Overcoming these doubts will require substantial efforts by the Court and the Chinese government to build goodwill and confidence before international parties are comfortable submitting to its jurisdiction.
For the time being, it remains to be seen what form the Court will take and how successful it will be. The Belt and Road Initiative is intended to involve significant long-term investment in projects across many corners of the globe. If disputes arising from those projects are increasingly settled though the Court, rather than through other institutions, then China (and potentially Chinese law) could come to play a substantial player in international dispute resolution. However, at present that seems a long way off.