China's 'belt and road' courts move is innovative

Out-Law Analysis | 03 Jul 2018 | 9:36 am | 4 min. read

ANALYSIS: The establishment of two specialist courts for resolving disputes stemming from China's 'belt and road' initiative is innovative.

The move will broaden the options for businesses in terms of how they make provision for resolving disputes when engaged in 'belt and road' projects.

The 'belt and road' initiative

The 'belt and road' initiative, which is more properly known as the Silk Road Economic Belt and 21st Century Maritime Silk Road Initiative, is a development strategy that focuses on land and sea based connectivity from China to major markets in Europe, Asia and the Middle East.

The 'belt' refers to land-based routes, with several 'transport corridors' identified to reach key markets in 64 countries, while the 'road' refers to a maritime route through the South China Sea, South Pacific Ocean and Indian Ocean.

China plans to work with countries along each of these transport routes to finance and deliver projects, with a focus on energy and transport infrastructure. The policy was first outlined in 2013 by Chinese president Xi Jinping during a state visit to Kazakhstan, and work began on the first related projects in 2015. 

China's plans for 'belt and road' courts

Two new international commercial courts were inaugurated by China's Supreme People's Court (SPC) late last week, according to state news agency Xinhua.

One of the courts will focus on disputes arising from on land-based Silk Road projects and the other maritime Silk Road projects.

The move came after initial plans for a new dispute settlement mechanism were reviewed and approved in January by the Central Leading Group for Comprehensively Deepening Reforms, which is headed by China's president Xi Jinping, and the release of a more detailed guideline and the staging of a press conference earlier last week.

The courts are expected to operate as international judicial institutions designed in accordance with international rules and laws. Legal experts and professionals from outside of China are expected to be invited to participate in their operation.

Increasing 'belt and road' litigation

According to Gbtimes, Chinese companies are reportedly facing an increasing number of foreign-related lawsuits as they step up investment and business in countries covered by Beijing’s belt and road initiative.

An official from the China Council for the Promotion of International Trade reportedly said that China and many other countries covered by the belt and road initiative do not adapt well to the current way of dispute settlement, which often is based on US and English common law and conducted in English language.

The option for domestic courts in China to handle cases is limited. In the past five years, the total amount of foreign-related commercial disputes has exceeded 200,000, showing the load being placed on the court system in the country. The increasing cost, difficulties in collecting evidence and the complicated procedural issues have made it even more difficult for Chinese courts to deal with relevant cases. The professionalism of Chinese judges has been questioned during this period.

Compositions and jurisdictions

The new belt and road dispute settlement mechanism is aimed at protecting both Chinese and foreign parties’ legal rights and interests and creating a stable, fair, transparent business environment with rule of law.

The new mechanism will be 'one-stop' dispute resolution service encapsulating litigation, arbitration, and mediation. One of the most important parts of this mechanism will be the new international commercial court.

The two new international commercial circuit courts will be set up in Xi’an and Shenzhen.

The Shenzhen court will cover cases arising on the Maritime Silk Road, a sea route that links China’s coastal parts to Europe and Africa through the South China Sea and the Indian Ocean, South Pacific and the Arctic.

The court in Xi’an will deal with commercial disputes along the Silk Road Economic Belt, a land-based route that runs from China’s western part through Central Asia towards Europe and the Middle East.

The jurisdictions of those circuit courts are subject to special guidelines made by the SPC – however, the international commercial courts' jurisdictions only extend to trade and commercial disputes between equal commercial entities. Disputes between states or between investor and states will exceed the jurisdictions of those two international commercial circuit courts.

According to an earlier report by SPC Monitor, China’s SPC appears keen to promote mediation to resolve belt and road disputes. Reports by Gbtimes noted that the Chinese have recently signed cooperation agreements with the Singapore’s International Commercial Court and Dubai’s International Finance Centre Courts and suggested that the new international commercial courts may adopt rules that are similar to these two courts.

International commercial expertise

An important component of the new mechanism is the Committee of International Commercial Experts.

The committee will help litigants in international commercial disputes mediate with each other, and it will offer advice to Chinese courts when they encounter difficulties with foreign laws during trials.

The SPC is actively looking for experienced foreign experts who have expertise both in international law and in their domestic legal systems. Those experts must have excellent reputations and extensive experiences in practice.

The committee will adopt a system of rotation but duration of terms has not been disclosed yet.

Given that this mechanism mainly focuses on the disputes in relation to belt and road projects where the main focus is on infrastructure, transport and energy, it is safe to infer that the SPC will be seeking experts with particular specialisms in those industries.

Businesses should review their options

Ultimately all players in the belt and road projects will need to recognise and embrace different forms of resolving disputes, whether these be the specialist courts with a belt and road focus, or other international institutions and arbitration centres with rules and procedures that are reasonably well established.

As more details about these specialist courts become available, there will need to be a more informed discussion about the various proposals for resolving disputes.

Sydney-based Victor Lau of Pinsent Masons, the law firm behind Out-Law.com, is an expert in infrastructure contracts and dispute resolution. The article was produced with the assistance of Christina Zhang.