Shared justice

As the Belt and Road initiative advances, China is gradually establishing a “community of shared dispute-resolution mechanism” consistent with its Commitment to connecting the world in such a field, writes Frankie Wang

This year is the fifth anniversary of the Belt and Road initiative’s (BRI) implementation, but it is still too early to say that it has taken shape. At a press conference the State Council Information Office held in late August, Zhang Jun, the assistant to the Foreign Minister, responding to a reporter’s question said implementing a high-quality BRI was more than ensuring the class of specific projects. It also reflects the need to advocate compliance with laws of various countries, as well as recognized international standards and market rules.

It is true that, with the BRI’s continuous advancement, China’s determination to open its markets further and actively bring itself up to international norms also extends notably to the field of dispute resolution. In the past year, China has taken exciting new steps from mediation to arbitration or litigation, though various participants are still exploring possible future approaches to dispute resolution.

BRI is large in scale, with a variety of projects and transactions. May Tai, Hong Kong-based managing partner of Herbert Smith Freehills’ Greater China offices, says it is difficult to give a “one-size-fits-all” definition to relevant disputes. “It is still early days in the life of the initiative; arguably too early to identify a discernible increase in disputes,” she says. “However, we share the market’s expectation that Belt and Road will lead to a spike in commercial disputes. We may also see more claims against the states that host Belt and Road projects.”

As for their nature, cross-border financial disputes have always been the focus. Shaun Wu, partner and chief representative of Shanghai office at Kobre & Kim, says he has seen many financing and shareholder disputes arising out of related infrastructure projects. “Such matters typically involve parallel proceedings with HKIAC [Hong Kong International Arbitration Centre] arbitration in Hong Kong, special-purpose vehicles in the BVI, parent holding companies registered in the Cayman Islands, and financing arrangements governed by the US law,” he says. “Chinese clients often need an integrated advocacy team to advise on litigation across the US, Hong Kong and offshore jurisdictions like the Cayman Islands and the BVI.”

Besides, this year, China has started to strengthen its global anti-corruption cooperation along the BRI to build a “clean Belt and Road”. Wu has noticed that regulatory and compliance investigations, in support of the BRI, have started to increase. “Many Chinese clients are also increasingly aware of international legal norms and regulatory standards,” he says.

Meanwhile, increasing awareness of compliance of both Chinese and foreign parties may bring about new types of disputes. “Many such disputes may increasingly be related to international fraud or misconduct … there will be increasing demand for practitioners like us, who can equally manage multi-jurisdictional litigation proceedings and cross-border asset-tracing recovery work,” says Wu.

FURTHER OPENING UP

With the Singapore Mediation Convention expected to open next year, mediation is drawing increasing attention. However, arbitration remains a popular approach to resolving disputes because it is especially suitable for BRI-related projects involving foreign elements, given the extensive adoption of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), which allows better enforcement of arbitral awards across the world. In recent years, China has been more open to international arbitration, both at government and investor levels.

According to HKIAC and Singapore International Arbitration Centre (SIAC) statistics from last year, parties from China remain top users of both of them. “As Chinese outbound investors gain more experience in cross-border disputes, they are relatively more receptive than before to offshore arbitration in the popular seats of Asia, such as Hong Kong or Singapore,” says Shi Lei, a consultant at Clifford Chance in Hong Kong.

China is also showing a more positive attitude on enforcing arbitral awards. Several judicial interpretations that the Supreme People’s Court recently issued to supplement existing laws are expected to facilitate enforcement of arbitral awards in China. These include the Regulations on Issues concerning Application for Verification of Arbitration Cases under Judicial Review of December 2017, which upgrades the “internal application system” previously applicable only to arbitration cases involving foreign or Hong Kong, Macau or Taiwan elements and extends its application to PRC cases not related to any foreign elements. According to the system, a court decision denying the validity of, or overrules, an arbitral award must be escalated, one level at a time to the Supreme People’s Court for final decision. This is expected to result in a much better enforcement of arbitral awards.

Things are also changing when it comes to enforcing foreign court judgments. Whether the foreign court judgements can be enforced in China has always been the key consideration for foreign companies. “Traditionally, Chinese courts had been quite conservative in enforcing foreign court judgments,” says Shi. “In the absence of international treaties, they seldom relied on the principle of reciprocity as ground for enforcing foreign judgments.”