Seeking justice in dispute resolution procedures when conflict arises in European Belt and Road projects
 With freight trains running to and from China and Europe and growing European Belt and Road activity involving joint infrastructure projects and financing, disputes between parties are bound to arise.
For 50 years, the standard dispute resolution among business partners was the "rent-a-judge" method of commercial arbitration. This allowed the parties to choose their own tribunal, especially useful when the subject matter of the dispute is highly technical.
But with the growth of cross-border projects, the range of difficulties extended well beyond the law and custom of any one country and has since been replaced by international arbitration under different rules.
International arbitration is a hybrid between the common law and civil law. For example, the International Bar Association (IBA)'s Rules on the Taking of Evidence in International Commercial Arbitration, revised in 2010, does not adopt common law broad disclosure procedures, but "blends common and civil systems" so that parties can tailor disclosure to the agreement's particular subject matter.
But even this advance was found inadequate to suit the needs of the China-EU situation, which has grown in extent and complexity in recent years, notes the Asia Times.
Then the EU proposed a reform to the investor-state-dispute-settlement system, a move that could further complicate already difficult negotiations with Beijing over a bilateral investment protection agreement, as well as their dialogue on the Belt and Road Initiative’s implementation in Europe.
The EU laid out a blueprint for the creation of a multilateral investment court, a permanent body to settle cross-border controversies arising under existing and future investment treaties, reported the Asia Times. And that should, so it was thought, supersede the current system based on ad hoc commercial arbitration, which it said did “not fit for purpose”.
The EU proposal is modelled on the investment deal it has with Canada, Singapore, Vietnam and Mexico. Even then though, it was clear that China would consider promoting its own form of dispute resolution, particularly those projects related to President Xi Jinping’s Belt and Road scheme to boost Eurasian integration and connectivity.
But in the West, investment disputes between foreigners and host countries are usually regulated by bilateral and multilateral agreements under investment tribunal established under rules set by the United Nations or the World Bank.
Not to be outdone, the Supreme People’s Court of China (SPC) established two tribunals to resolve international commercial disputes, the first in Shenzhen and the second in Xi’an. They supposedly provide services and protection for the realisation of the New Silk Roads, even though their jurisdiction, namely the type of cases they can accept, is greater than that of Belt and Road deals.
Susan Finder, an expert on Chinese law at Peking University’s School of Transnational Law and a member of the SPC’s Expert Committee to the China International Commercial Courts said: “China International Commercial Courts’ operating rules have not been issued yet, so it is early days to say something about its operations.”
She stressed that the governing law for Belt and Road projects “depends on what the parties select and what local law requires, not necessarily English common law. For many of the deals already done, especially with more sophisticated parties, they will likely have an arbitration clause.”
The question is whether Belt and Road partners will agree to resolve a controversy through the two Chinese international commercial courts. Ms Finder said that “what arbitration forum is selected depends on the bargaining power of the parties and where the deal is.”
She touched a raw nerve, as some speculate the jurisdiction of the Chinese international commercial courts will probably be accepted by those countries involved in the Belt and Road Initiative that have heavily benefited from Chinese loans and investments, including those in Europe.
David Yu, adjunct professor of finance at Shanghai’s New York University, said China’s international commercial courts should be judged in the long term, as they are new venues for dispute resolution, and like all new endeavors, it will take some time to bring concerned parties to use them.
“The objectives and genesis of the new courts are to mainly ease the time and cost to come to a resolution. Some of this stems from the complexities of getting the infrastructure and construction expertise to adequately handle the disputes in a timely manner,” said Prof Yu.
“It will be difficult to bring folks in the beginning as there is no track record of rulings, but with more time and cases resolved, foreign partners will hopefully be more comfortable with the Chinese courts,” he said.
The same happened with other China-based arbitration centres, such as the Shenzhen Court of International Arbitration, which has now gained acceptance, according to Prof Yu.
As to whether China should support the EU’s bid for a multilateral investment court, Prof Yu said that newer and better systems of resolution were always a good thing and should be supported.
Some suggest the new Chinese international commercial courts could coexist with a permanent multilateral investment tribunal, as only commercial disputes would be within their jurisdiction.
This means that investor-state dispute settlement cases arising from treaties would be excluded, and only cases arising out of contracts between an investor and a host government could be covered by the courts in Xi’an and Shenzhen.
But Chinese investments in Europe under Belt and Road, and disputes arising from them, are nonetheless a problem for the EU group, which only the finalisation of a bilateral investment agreement could help to solve.
The 19th round of talks on the issue took place in Beijing last October. The two sides said they had made progress on both state-to-state and investor-to-state dispute settlement, but the reality is that this process has been dragging on since 2013.
Legal systems are unlikely to welcome innovation except in the rarest of circumstances, and then usually to solve an immediate vexatious problem. Innovation is often likely to introduce error accidently, the source of which is typically a lack of foresight and proper oversight unforeseen by the innovators.
In the very beginning of commercial arbitration, when the "rent-a-judge" slur was bandied about, it was greatly feared that bypassing the courts would result in catastrophic injustice. It did not, of course, but that can only be said in retrospect.
Eventually, disputes among business partners arose from their being in two jurisdictions. This could happen within one country if provincial jurisdictions differed. In Britain, Scotland has its own law quite separate to that of England's. And in Canada, the civil code in Canada follows English Law in most of the country, but the Code Napoleon prevails in French-speaking Quebec.
Then there is fear of chicanery and bullying that the Chinese, whose loans and loan guarantees have made projects possible, may use this clout to lever parties into undesirable positions. To be fair, at the very beginning of commercial arbitration, it was feared that arbitrators, if they wanted to get on the A List would be advised to favour the most powerful and influential of the litigants.
But most agree that once a system is in place and litigants become accustomed to its ways, it grows in reputation and trustworthiness. Sadly, the China-EU system has not been settled, much less been given time to mature into solid respectability. |
