China establishes international commercial courts to handle Belt and Road Initiative disputes

On 1 July 2018, the Supreme People’s Court of China’s 'Regulations on Several Issues regarding the Establishment of International Commercial Courts' (the Regulations) came into effect. The Regulations set out the scope and operation of two new international commercial courts in China (the CICCs): one in Xian and the other in Shenzhen.

The establishment of the CICCs is driven by China’s desire to facilitate the resolution of disputes related to President Xi Jinping’s Belt and Road Initiative. It is envisioned that the CICC in Xian, Shaanxi Province will focus on disputes arising from projects on land as Xian is the starting point of the ancient Silk Road. The CICC in Shenzhen, which is in the Guangdong-Hong Kong-Macau Greater Bay Area, will focus on disputes arising from infrastructural developments along the coastline of the maritime routes.

In recent years, several States have set up 'international commercial courts' within domestic legal systems, each with their own distinctive features. In 2015, the Singapore International Commercial Court (the SICC) was officially launched. In 2016, the Abu Dhabi Global Market Courts opened for international business. A similar court system exists in Dubai—the Dubai International Financial Centre courts. By the end of 2018, the Netherlands and Belgium also plan to establish courts within their respective domestic legal systems to resolve international disputes and issue judgments in English—the Netherlands Commercial Court and the Brussels International Business Court, respectively. The CICCs follow this line of international commercial courts launched elsewhere in the world.

The establishment of the CICCs—and their English language website—is a bold innovation. It has the potential to enhance the appeal and accessibility of Chinese courts to foreign parties. In particular, the establishment of an International Expert Committee comprised of foreign experts to provide expert and legal advice to the CICC judges, opens the door to international input into CICC judgments.

At the same time, the changes brought about by the CICCs are relatively modest at this stage. At present, the CICCs are subject to Chinese law, which restricts (i) the language of the court proceedings to Chinese; (ii) the procedural law to Chinese civil procedure law; and (iii) the panel of judges to Chinese nationals and current judges of the Chinese courts.

As with any new initiative, much remains to be clarified regarding the jurisdiction and procedure of the CICCs.

Key features of the CICCs

The CICCs are part of the existing Chinese court system, within the Supreme People’s Court of China. The practical consequence is that judgments of the CICCs will have the same status as judgments of the Supreme People’s Court of China.

The judges appointed to the CICCs will be restricted to: (i) current judges of the Chinese courts; and (ii) Chinese nationals. The judges must have experience in international commerce and investment, along with the ability to work in both English and Chinese, although the proceedings must be conducted in Chinese. Consistent with these requirements, the first eight judges appointed to the CICCs are all existing judges of the Supreme People’s Court of China and are Chinese nationals.

The CICCs will have an 'International Commercial Expert Committee', which it is reported will consist mainly of foreign nationals with a particular emphasis on experts from other jurisdictions along the 'Belt and Road'. With the establishment of the International Commercial Expert Committee, the Supreme People’s Court of China seeks to involve foreign experts in the dispute settlement process, despite its restriction on foreign nationals serving as judges on the CICCs.

The International Commercial Expert Committee will provide expert advice and legal advice, and will aid judges sitting on the CICCs in ascertaining the content of foreign laws. The International Commercial Expert Committee may also mediate cases when the parties agree to mediation. More detailed rules on the selection and working procedures of the International Commercial Expert Committee are expected to be issued soon.

Parties to a dispute before a CICC can only be represented by Chinese law-qualified lawyers. This stands in contrast to other courts such as the SICC where foreign-qualified lawyers who are registered with the SICC are entitled to make submissions on issues of foreign law.

Jurisdiction

Under Article 2 of the Regulations, the CICCs have jurisdiction to hear five categories of disputes:

•  international commercial cases with an amount in dispute of at least RMB 300,000,000 (approx. USD 50,000,000) when the parties have chosen the jurisdiction of the Supreme People’s Court of China under Article 34 of the Civil Procedure Law. Under Article 34 of the Civil Procedure Law, the parties may refer a dispute to a court in a place with a connection to the particular dispute such as where the defendant is domiciled, where the contract is performed, where the contract is signed, where the plaintiff is domiciled or where the subject matter is located; 
• international commercial cases that should be litigated in a high court but the high court believes they should be heard by the Supreme People’s Court of China and the Supreme People’s Court of China has approved the transfer of the case to the CICC;
• international commercial cases that have a 'nationwide significant impact';
• applications for interim measures in aid of arbitration, for setting aside or enforcement of international commercial arbitration awards when they involve an arbitration conducted by arbitral institutions cooperating with the CICCs under Article 11 of the Regulations (discussed below);
• other international commercial cases that the Supreme People’s Court of China considers appropriate to be heard by the CICCs.

Under Article 3 of the Regulations, an 'international commercial case' is defined as any case in which at least one of the following criteria is present:

• one or both parties are foreign nationals;
• one or both parties reside outside China (even if they are both Chinese nationals);
• the object in dispute is outside the territory of China; and/or
• 'legal facts' that create, change, or terminate the commercial relationship have taken place outside China.

The CICCs judgments are binding on the parties and not subject to appeal. However, similar to other final judgments issued by the Chinese courts, parties may apply for a rehearing if certain specified conditions are met, for example, if there is: (i) new evidence sufficient to overturn the original judgment or ruling; or (ii) an error in the application of the law.

'One-stop' commercial dispute resolution mechanism

The Regulations on the CICCs are unique in that they call for the CICCs to work with international arbitration and mediation institutions to make the CICCs what the Regulations characterize as a “one-stop” international commercial dispute resolution mechanism.

Under Article 11 of the Regulations, the Supreme People’s Court of China seeks to 'link' mediation, arbitration and litigation. When a dispute is referred to the CICCs, the parties will be given a choice between mediation, arbitration and litigation. If the parties choose mediation and come to a mediation agreement, the CICCs may issue a judgment based on that mediation agreement and thereby convert it into a binding judgment. If the parties choose arbitration, it is envisioned that the parties may seek interim measures from the CICCs or apply to the CICCs to set aside or enforce the arbitral award.

It is unclear, however, which mediation and arbitration institutions will be 'linked' with the CICCs. Commentators have suggested that they may be limited to domestic rather than foreign institutions.

Enforcement

The Regulations do not address enforcement of CICCs judgments in foreign jurisdictions. Given the international character of the Belt and Road Initiative, CICCs judgments may need to be enforced in jurisdictions outside China. Since judgments of the CICCs will have the same status as judgments of the Supreme People’s Court of China, they may be enforced in other jurisdictions through existing mechanisms for the enforcement of other Chinese court judgments. For example, Chinese court judgements may be enforced in Hong Kong under the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap 597).

It has been reported 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. In addition, it has been reported that China is considering ratifying the Hague Convention on the Choice of Court Agreements, which it signed in September 2017.

The potential enforceability of a CICC judgment is likely to be of interest to international commercial parties. By way of comparison, awards rendered by arbitral tribunals seated in a New York Convention State may be enforced in any of the more than 150 States that are party to the New York Convention.

We will continue closely to monitor this development as we assess the potential benefits of the CICCs as a dispute resolution option.

This post comes to us from Freshfields Bruckhaus Deringer, and was originally published here. It is authored by Nicholas Lingard, John Choong, Robert Kirkness, Kate Apostolova and Xin Liu.