Two for the Road: China’s International Commercial Courts

The Supreme People’s Court of China in June launched two specialist courts for commercial disputes arising from projects along the Belt and Road Initiative. We highlight some of the issues that have come up in the last one month.

First things first, the facts:

  1. The China International Commercial Courts (CICC) are permanent organisations of the SPC. There are two: one in Shenzhen; the other in Xi’an. Eight Chinese judges have been appointed[i].
  2. The Court is a one-stop shop for disputes, meaning it hears litigation cases, conducts arbitration and offers mediation services.
  3. Only international commercial disputes between private businesses are heard; it does not address disputes between states or public-private partnerships.
  4. The value of dispute must exceed RMB300m (USD 44m).

 

The Significance

The CICC is part of China’s strategy to reform and strengthen its dispute settlement mechanism. The plans were approved in January this year by the Central Leading Group for Comprehensively Deepening Reforms, and has strong backing from the central government.

It is aimed at providing effective judicial protection for investments along the Belt & Road Initiative as companies who do business along this modern-day Silk Road currently find it difficult to seek settlement for their commercial disputes. Since the current means of dispute resolution are often based on U.S. or English Common Law, and often conducted in English, it puts non-native English speakers at a disadvantage.

With the CICC, there are two main differences in how disputes will be settled in future: Previously in international commercial cases where the dispute amount exceeded RMB300m (USD 44m), parties could only settle at a High People’s Court; now they may bring their case directly to the SPC as the jurisdiction court.

Before, enforcement of foreign-related arbitration cases was within the jurisdiction of the intermediate court; parties may now apply directly to the CICC.

How international is international?

Although the courts are expected to function as international judicial institutions, it could take a while before foreign institutions are allowed to actively work with the Courts (the scope and depth of involvement is unclear). For now, it appears that “international” refers to Chinese institutions that have reach and a reputation for international dispute resolution, for example CIETAC.

Despite the restriction on foreign judges, China is open to establishing an International Commercial Expert Committee comprising about 30 or so eminent professionals well-versed in international and Chinese domestic law.

Since BRI projects are mostly infrastructure-, transport- and energy-related, the SPC is likely to be seeking specialist experts in these areas. They may also be activated to be mediators if parties opt for mediation.

Who’s law?

Enforceability of a CICC judgment is a question mark. Freshfields notes that given the international character of the BRI, CICC judgments may need to be enforced in jurisdictions beyond China. Since these judgments have the same status as judgments of the SPC, they may be enforced in other jurisdictions through existing mechanisms for the enforcement of other Chinese court judgments.

It also highlights that “China is actively negotiating the Hague Convention on the Recognition and Enforcement of Foreign Judgments in an effort to improve the enforcement of its court judgments. It is also considering ratifying the Hague Convention on the Choice of Court Agreements, which it signed in September 2017.”

Mediation as a key tool in the ADR process

The SPC appears keen to promote mediation for dispute resolution. If parties choose mediation, the International Commercial Experts Committee or an international commercial mediation institute appointed by the CICC will carry out the mediation.

If a settlement agreement is reached, the CICC can issue a judgment (subject to parties’ consent) and convert it into a court order.

 

[i] Article 9 of the PRC Law on Judges states that only Chinese nationals are entitled to be judges of Chinese courts.