Comments on China’s international commercial courts

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photo from the First International Commercial Court’s opening ceremony (the grey suits are the new court summer uniforms)

At the end of June, the Supreme People’s Court (SPC) held ceremonies to mark the establishment of its international commercial tribunals (国际商事法庭)(this post will use the phrase “international commercial court,” or “CICC” as the official media are using both terms). The provisions establishing the international commercial courts went into effect on July 1. As I wrote earlier this year,  political and technical requirements shaped the CICC, as will be explained below.

These (partial) comments do not set out an overview of the court, as that has already been done by several law firms (and there are likely to be more), including Zhong Lun (published on the Kluwer Arbitration blog) and Herbert Smith Freehills.

Comments

In my view, those drafting the structure of the CICC were constrained by Chinese law, the nature of the Chinese court system and related regulatory systems. Although some Chinese commentators have referred to the CICC privately as a “mini-circuit court,” the CICC incorporates innovations, some of which have not been recognized by commentators thus far and provisions from the latest round of judicial reforms. The brief judicial interpretation establishing the CICC leaves related questions unanswered, some of which I will raise below.  I expect some of those questions to be gradually answered as regulations underpinning the CICC are issued.

The small team of judges and limited jurisdiction of the court are likely to mean that overall trends in Belt & Road dispute resolution are unlikely to be significantly affected by its establishment.  As a court focused on international commercial issues staffed by some of China’s most knowledgeable judges in that area, the court is likely to have a positive effect on the competence of the Chinese judiciary regarding international trade and investment issues, particularly as the SPC leadership knows that the international legal community is monitoring the court’s operation.  It is unclear from recent reports whether the SPC will allocate additional resources to support its operation, which to this outside observer would be a shortsighted approach to take, as even something as apparently simple as translating judgments into English (as appears to be the intention of the court) is time-consuming.

Structure of the court

From Judge Gao’s press interview earlier this year (the subject of that earlier blogpost, a full English translation of which is found on the CICC website,) it is clear that she and her other colleagues involved in drafting the judicial interpretation were well aware of international commercial courts that had been or were being established elsewhere in the world.  This research was provided by the China Institute for Applied Jurisprudence, the SPC’s in-house think tank (briefly described in this earlier blogpost).

However, the political imperatives of establishing the CICC as a priority matter meant that the SPC was constrained by the realities of current Chinese law.  Because judicial interpretations of the SPC cannot contravene the civil procedure, judges and other national law (National People’s Congress legislation) [and there appeared to be insufficient time and possibly appetite for promulgating legislation piloting exceptions to these provisions]. This meant that the language of the court could not be English, the procedural law had to be Chinese civil procedure law, and the judges had to be judges so qualified under current Chinese law.

Jurisdiction of the court

As has explained elsewhere, under Article 2 of its Provisions, the CICC has jurisdiction over five types of cases, three of which are rather flexible (cases under a higher people’s court jurisdiction that it applies to have the SPC hear; first instance international commercial cases that have a nationwide significant impact; any other international commercial cases that the SPC considers appropriate to be tried by the CICC).  This enables the CICC to control its caseload, as the eight judges on the CICC are likely to have their existing caseload in the SPC division or circuit court in which they are working, plus major obligations in drafting judicial interpretation or analogous judicial guidance.  I am personally unaware of cases in which a higher people’s court has required the SPC to hear a case within its jurisdiction (please contact me if you have such information) but it can be anticipated that a higher people’s court may prefer to rid itself of a difficult case (either legally or more likely institutionally) to avoid a mistaken decision.

Judges of the court

As has been noted elsewhere, the eight judges appointed to the CICC are all SPC judges, although Article 4 of the CICC provisions appears to permit qualified judges from the lower courts to be selected.  Those provisions do not mention whether a selection committee (one of the current judicial reforms) was used to select the current CICC judges, or whether a selection committee will be used for future appointments.  There are in fact experienced judges in some of the lower courts who are able to use English as a working language.  However, the exigencies of needing to appoint judges in a brief period of time (and possible SPC headcount restrictions, after the SPC has cut headcount under the quota judge system) meant that all CICC judges are from the SPC.  This means a number of judges are relatively junior.

Expert committee

The expert committee to be established (rules yet to be issued) is an innovation under Chinese court practice.  Unlike many other major jurisdictions, the Chinese courts lack user committees or advisory committees.  This could be a useful way of bringing international input before the Chinese courts in a formal way. although the usefulness of the institution may depend on how often the committee meets and how familiar its members are with the Chinese court system.  Presumably acting as a mediator or providing an expert opinion on a matter of foreign law will be optional (further details to be revealed when those rules are issued).  Some persons may prefer to provide general advice to the SPC rather than involve themselves in the specifics of a particular dispute.

Evidence before the court

The CICC will not require translations into Chinese of evidence, if the parties so agree, or require evidence to be notarlized and legalized. As I wrote previously,  China has not yet acceded to the Hague Convention Abolishing the Requirement of Legalization for Foreign Public Documentsso in Chinese court litigation, notarization and legalization of documents is often required., starting when a party files suit or when a foreign party responds. It is not clear whether the CICC will require notarization and legalization of foreign party authorization of counsel.  It is an innovation possible within the constraints of current law, that the CICC will consider evidence even if evidence from outside of China has not been notarized and legalized. Notarization and legalization costs time and money and a great deal of effort. It is understood that China is considering acceding to the Hague Legalization Convention.

Mediation and arbitration linking mechanism

The mechanism to link mediation, arbitration and litigation is an important part of the judicial reform measures (mentioned in this blogpost on diversified dispute resolution).  Which mediation and arbitration institutions will link to the CICC are unclear (and the rules for selecting those institutions), but the policy document underpinning the CICC refers to domestic rather than foreign or greater China institutions.  The Shenzhen Court of International Arbitration and Hong Kong Mediation Centre have entered into a cooperative arrangement to enable cross-border enforcement of mediation agreements, so presumably, this is a model that can be followed for Hong Kong.

Enforcement

The CICC provisions do not add new content on the enforcement of their judgments. As this earlier blogpost mentioned, enforcement of its own (and that of Chinese lower courts abroad) and foreign court judgments in China is on the SPC’s agenda.  As I have written (and spoken about) previously, China (with SPC participation in its delegation) has been taking an actively part in negotiations on the Hague Convention on the Recognition & Enforcement of Foreign Judgments, (the link includes the draft convention) and has signed but not yet ratified the Hague Convention on the Choice of Courts Agreements.

Borrowing beneficial ideas from abroad

It appears that the drafters of the CICC provisions considered some of the practices of Frankfurt High Court International Commercial Chamber in their draft: No translation of documents which are drafted in the English language (if there is consent); witnesses can be heard in English;and extensive use of video conferencing or other electronic means.

Some outstanding questions

  1. Will the mediation and arbitration linking mechanism be able to link with jurisdictions outside of mainland China?  Under Chinese law, preliminary measures (interim measures) such as injunctions, property or evidence preservation are not available for offshore arbitration. Will the CICC mechanism be able to change this, or will changes to current law be required, as seems more likely?
  2. Will difficult issues before the CICC be referred to the SPC’s judicial committee or other institutions within the SPC?  As I wrote about a year ago, the SPC has adopted new judicial responsibility rules, setting out guidance under which cases heard by a collegiate panel are referred to a professional judges committee or the SPC’s judicial committee.  Query whether difficult cases that have been discussed by the entire body of CICC judges will be referred further. The CICC includes several of the SPC’s most knowledgeable judges on cross-border matters (as well as the head  (chief judge) and deputy heads of the #4 Civil Division, the division focusing on cross-border/international matters).  These details are likely to be worked out over time.
  3. Will the two CICC courts have their own support staff?  Will it have its own case acceptance office?  Is the intention to give more work to existing staff, or will there be an increase in headcount to support the new institution?  The CICC judges need resources to support their work, whether it be in translation or research assistance.  If the consequence of the establishment of the CICC is to give additional work to existing personnel, it is not out of the question that someone involved may collapse from overwork.  SPC President Zhou Qiang noted in his most recent report to the NPC that there have been deaths from overwork in the lower courts. Some of the Chinese courts’ most experienced and knowledgeable judges in the area of cross-border commercial law have been appointed to the court.

Concluding Comments

The establishment of the court and its English language website gives foreign outside observers a chance to monitor how a Chinese court deals with and decides commercial cases, creating even greater pressure on the SPC and a small team of its most competent international commercial judges.

In my view, the establishment of the CICC will not affect how highly sophisticated lawyers draft dispute resolution clauses for large-scale Belt & Road projects. Many of those lawyers will still draft clauses providing for offshore arbitration because of the New York Convention (and the corresponding arrangement between Hong Kong and the mainland) and some concern about Chinese arbitration institutions.  I have personally found it is difficult to get an accurate grasp of what current practice is with Belt & Road related dispute resolution clauses, given the range of deals under the Belt & Road Initiative. It is difficult to predict how the CICC may change those practices. The CICC and its associated dispute resolution mechanism provide an alternative to existing dispute resolution mechanisms. Will it show itself to be a more attractive way to resolve international commercial disputes, efficient and cost-effective, while maintaining high quality? We will need to monitor how it develops.

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Many thanks to those who commented on earlier drafts of this blogpost.

 

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