BRI: Dispute Resolution and Jurisdictional Issues

The Belt and Road Initiative, one of the largest infrastructure and investment projects ever envisioned, offers interesting opportunities for non-Chinese participation. However, even knowledgeable investors know that with rewards come risks and count on readily-available and fair access to courts in order to resolve disputes. Thus, the question of how to effectively manage disputes that are not only cross-border but also high-capital, multi-party and multi-contractual have made legal resolution processes a priority.

The primary concerns of contractual parties litigating in foreign courts include the nature of applicable law and international recognition and enforceability of local court judgments. As the BRI extends to many nations with different degrees of economic and political development, project participants face the possibility of dealing with underdeveloped and possibly-unreliable systems of law as well as having to cope with the absence of specialized intermediaries, regulatory systems and contract-enforcing mechanisms. If contractual commitments cannot be enforced, BRI projects or partnerships could be placed in jeopardy.

Multinational & Multiparty BRI Projects – Complex by Nature

BRI agreements often require that local companies are involved in projects, which means establishing joint ventures. If technical expertise is required for large and complex projects, the JVs may invite further foreign companies to participate. Foreign consultants and experts may also be needed to conduct comprehensive research such as feasibility studies and environmental impact assessments. The growing need for additional parties to a project increases the risk of disputes, particularly if the contractual parties are not properly aware of the implications of their commitment.
Understandably, when disputes arise the parties involved will be most comfortable with the laws of their home country – a challenging situation when determining which laws will govern specific contracts with their multiple parties and preferences. The parties’ primary challenge in establishing a BRI project will be to secure joint commitments through comprehensive and enforceable contracts. Legal contracts are weaker if the laws and regulations keep shifting, which happens in many emerging markets along the Belt and Road Initiative. Apart from ensuring the tightness and clarity of the contract terms themselves, parties need to understand the legal environment of the relevant BRI partner country or the chosen system of law as agreed upon in the contract. Contracts need to be based on an agreed, stable and understandable system of laws from the outset.

Applicable Jurisdictions

In order to manage disputes and minimize litigation associated with projects along the Belt and Road, currently the most proactive and well-utilized method has been through arbitration. It has thus become imperative that contracts should include an arbitration or court jurisdiction clause providing for a place of arbitration in a jurisdiction which is a party to The New York Convention on the Recognition and Enforcement of Arbitral Awards 1958 (the Convention). This Convention sets out the mechanism for reciprocal recognition and enforcement of arbitration awards between contracting states.

Approximately 92% of the countries currently participating in the BRI are signatories to the Convention, with only 5 countries being non-signatories at the time of writing. The right to obtain an award from an arbitration tribunal in a Convention state which will be enforced in another Convention state will minimise the risks that parties may otherwise face in enforcement. Convention jurisdiction will help companies avoid local law issues that might impede enforcement.
The Hong Kong International Arbitration Centre (HKIAC), which has specific BRI arbitration clauses and rules to deal with BRI disputes, is a primary venue for adjudicating disputes. Since 2013, the HKIAC has accumulated extensive experience in handling arbitrations involving parties and countries along the BRI.

However, there are circumstances in which it will be impossible to avoid becoming subject to local law and the jurisdiction of local courts. In such scenarios there is also an emerging dispute-resolution method developed by China’s Supreme People’s Court (SPC) in order to handle disputes arising from BRI projects. On June 29, 2018 the SPC formally launched two branches of the International Commercial Court of China (CICC), one in Shenzhen, Guangdong and the other in Xi’an, Shaanxi.

The courts consist of eight judges, all drawn from the SPC bench who shall be assisted by a panel of experts from jurisdictions that form part of the BRI, including China and the UK. While the expert panel will advise on disputes as well as provide mediation services, the final decision in any case will rest with the judges. As the CICC practices the “First Instance Being Final” principle, all judgments and rulings are final and binding on the parties with legal effect.

The Shenzhen Court will deal with disputes arising from the BRI Maritime Road while the Xi’an Court will deal with land-based BRI disputes, although the question remains, in the long run, will international parties to BRI cases submit to the jurisdiction of CICC or continue to avail of the more traditional avenues of international arbitration?

Concluding Thoughts

While the establishment of the CICC marks the start of an ambitious attempt to enhance the appeal of Chinese courts to international businesses (especially regarding BRI arbitration proceedings), it remains to be seen whether its establishment will effect international legal experts drafting BRI agreements and offshore arbitration. However, in cases where international arbitration is unavailable to the parties (particularly where the location stipulated in the contract is outside the jurisdiction of The New York Convention) the CICC could be well-placed to resolve disputes emerging from BRI situations, especially regarding developing countries with less-sophisticated legal systems.