The China International Commercial Court: Prospects for Dispute Resolution for the “Belt and Road Initiative”

Introduction

The People's Republic of China (PRC) is establishing an "international commercial court"[1] (guoji shangshi fating, CICC), marking the first time the PRC is creating legal institutions for the world.[2]

In April 1976, Harvard Law School Professor Frank Sander gave a lecture at a conference convened by U.S. Supreme Court Chief Justice Warren Burger on what Sander called, "The Multi-Door Courthouse." The central idea was that the courts of the future would provide parties with a menu of dispute resolution mechanisms, offering not just litigation but also mediation, arbitration, and ombudsmen.[3] Since Sander's address, the idea has been floated in the U.S. in the 1980s, in Africa in the early 2000s, and, most recently, in Latin America, but it may be in China where the idea of the multi-door courthouse finds its fullest expression. This Insight provides an overview of the CICC,[4] and assesses this new venue against the experience of existing international commercial courts, such as the Dubai International Financial Centre (DIFC) Courts.[5]

Background

Over the past four decades, the PRC has undergone a legal modernization program at breakneck speed, with results that are impressive but uneven. 

Whereas the PRC's legal institutions have been primarily oriented toward servicing domestic disputes, and, secondarily, those following inbound investment from foreign investors and overseas Chinese investors, the "Belt and Road Initiative" (BRI) marks a change of direction. In 2013, General Secretary of the Chinese Communist Party and President of the PRC Xi Jinping announced the BRI, a multi-trillion dollar effort to link China's economy with those of countries throughout the world, from Hungary to Vanuatu, through infrastructure and energy projects in what is widely seen as the most ambitious development project in history. It firmly cements China as a major source of outward international investment. 

The BRI is broadly viewed as a commercial and geo-political project to enhance China's international status and to export the products of its excess capacity. One dimension of the BRI that has received less media attention over the past five years relates to legal and regulatory concerns. The BRI covers most of the world's major legal systems—including Anglo-American common law, European civil law, Islamic law, various hybrids of the foregoing, and a dizzying collage of customary and local rules. The PRC has turned to bilateral investment treaties (BITs) to shield its outward investors from liability under foreign law, and has some 145 in the books,[6] including a large number with BRI partner states. However, BITs and their associated dispute resolution provisions may not provide complete coverage, especially over commercial disputes. Given the complex nature of project finance and construction deals, the BRI will generate an abundance of disputes, some of which will fall within the ambit of traditional BIT investor-state dispute settlement clauses, but many of which would be subject to a number of domestic and transnational jurisdictions and rules. The CICC is meant to streamline and control the flow of these disputes.

The China International Commercial Court

On July 1, 2018, the Supreme People's Court, pursuant to its power to set up "tribunals" (fating),[7] issued the "Supreme People's Court Regulations on Certain Issues in Establishing an International Commercial Court" (Regulations).[8] The Supreme People's Court is establishing three such tribunals—in Shenzhen, Beijing, and Xi'an. Opening ceremonies have already been held in Shenzhen and Xi'an, although it is unknown when the courts will start accepting cases. 

According to the Regulations, the core concept of the CICC is a "one stop shop" for international commercial dispute resolution services, including mediation, arbitration, and litigation that are "organically integrated."[9] The CICC features eight judges—all from the PRC—who have been selected for their experience in handling international commercial disputes, their knowledge of conflicts of law, and their bilingual Chinese-English capability.[10] A bench, comprised of three or more judges, hears cases. Unlike most Supreme People's Court decisions, CICC judgments may include dissenting opinions.[11] The CICC also features an International Commercial Expert Committee, comprised of twelve Chinese and twenty non-Chinese legal professionals who will further provide expert knowledge on mediation, arbitration, and litigation.[12] The CICC only hears commercial disputes and not state-investor disputes. More specifically, the Regulations define "international commercial disputes" as those whereby: 

1. one or both parties are foreign,
2. the domicile of one or both parties lies outside the PRC,
3. the object of the dispute lies outside the PRC, or
4. legal facts producing, changing, or destroying commercial relations in dispute occur outside the PRC.[13]

The Regulations establish groundwork for the CICC, but leave a number of questions unanswered:

Jurisdiction. As an initial observation, it is clear that the Supreme People's Court did not follow the approach of the DIFC Courts in creating a special jurisdiction for the CICC. There was no constitutional or legislative reform and it seems the Regulations were issued in advance of the Forum on the Belt and Road Legal Cooperation, held by the Ministry of Foreign Affairs from July 2–3, 2018, in Beijing. Unlike the DIFC Courts (or, Singapore International Commercial Courts, for that matter) that are a product of constitutional amendments, the jurisdiction of the CICC is still constrained by existing PRC law. Moreover, since the PRC operates on a modified civil law system, the CICC will have less discretion to develop its jurisdiction through its own judicial decisions. 

Second, it is uncertain whether the CICC has exclusive jurisdiction over all disputes falling under the BRI, itself a nebulous category. Article 2 of the Regulations specify that parties shall, in accordance with Article 34 of the PRC Civil Procedure Law, agree that, for any commercial dispute valued at RMB 300 million or more, the CICC has jurisdiction over "first-instance international commercial cases." This statement of jurisdiction raises several issues. First, it is unclear whether parties, going forward, must specify in their contracts that the CICC has exclusive jurisdiction for deals for the specified amount or if the CICC will be the default forum for such cases. Second, it is uncertain whether parties have the right to opt out of the CICC jurisdiction in their choice of forum clause. This question has implications for Hong Kong, Singapore, and Dubai, where international commercial courts and international arbitration centres have been advertising their dispute resolution services for BRI-related deals. Third, a question remains as to whether host states can opt out of the CICC altogether. In regards to these issues, it is likely that the CICC will not radically alter existing practices in terms of venue for dispute resolution. The outcome will likely vary depending on the parties involved, the Chinese investors' relative bargaining power, and the relationship of the host country with the PRC. 

Enforcement. Article 15 provides that the CICC may issue both judgments and arbitral awards, which marks another difference with the DIFC Courts that issue judgments exclusively. Whereas the PRC is party to the 1958 NY Convention,[14] which provides for recognition and enforcement of PRC arbitral awards in other state parties, China has not entered into treaties for mutual recognition and enforcement of its judgments abroad with its major trading partners, although it has entered into Sino-foreign judicial assistance treaties with some thirty-six countries of which thirty-three include enforcement of foreign judgments.[15] If the CICC mainly issues arbitral awards, then the conventional questions for international commercial arbitration remain, including cost and recovery of assets outside the seat of the arbitration. 

Language. Along with the DIFC Courts' implementation of English common law procedural law, another feature that makes these venues attractive to foreign parties is the use of English language. It is unclear whether the CICC would provide such facilities. When the CICC was announced, much was made of the bilingual capability of the judges, and the Regulations require that the judges be "able to use at the same time Chinese and English as their work languages"[16] and, further, that parties submitting materials to the CICC in English need not provide Chinese translations.[17] However, the Regulations leave unspecified the required language of the procedure of the CICC, which, pursuant to Article 240 of the PRC Civil Procedure Law, for trials touching on foreign elements, must be Chinese. 

Foreign Expertise. A defining characteristic of international commercial courts in Dubai or Singapore is international judges. The Chinese decided not to amend existing legislation[18] and appointed exclusively PRC judges to the CICC, with the International Commercial Expert Committee as an additional component. It is unclear how the former procedurally relates to the latter and vice versa in resolving disputes and what happens in the event of difference of opinion between the Chinese judges and the International Commercial Expert Committee. 

Intake. The CICC is potentially most innovative in providing multiple mechanisms for dispute resolution. Party autonomy determines which avenue to use for dispute resolution.[19] Sander's multi-door courthouse envisioned the role of an intake office to triage dispute as amongst mediation, arbitration, or litigation. Such an approach was a product of the heyday of ADR and was designed mainly for non-corporate actors who may have been unfamiliar with court procedures, and their alternatives. Thus, as the BRI features mostly (but not exclusively) corporate and institutional parties, it may be that parties, and specifically their lawyers and advocates, will not need assistance in "screening" their dispute. Yet, by outsourcing the selection of the dispute resolution mechanism to the parties, the CICC is implicitly acknowledging the role of the parties' counsels, a role that remains undefined. 

Conclusion

Although the Supreme People's Court has studied other international commercial courts, including the DIFC Courts, the CICC is less an "international commercial court" in the DIFC model and more a court of limited jurisdiction built within the existing hierarchy of PRC courts. Yet much remains unexplained about how the CICC will function in practice. PRC policies, domestically, often unfold through what Chinese officials refer to as "vision, guidance, demonstration," whereby "vision" refers to a broad concept, "guidance" means rules and regulations, and "demonstration" connotes implementation often through pilot projects. The BRI and CICC seem to be following the same progression. The Regulations provide guidance, but further rules, in the form of subsequent Supreme People's Court regulations or the CICC's procedural rules, will likely be issued in the near future. 

About the Author: Matthew S. Erie (J.D., Ph.D.), an ASIL member, is a lawyer and Associate Professor of Modern Chinese Studies at the University of Oxford.