IBA - International Bar Association

08/21/2018 | Press release | Distributed by Public on 08/21/2018 11:14

The Arbitration Initiative under the Belt and Road Initiative

Tuesday 21 August 2018

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The Arbitration Initiative under the Belt and Road Initiative

Gan Khong Aik

Gan Partnership, Malaysia

[email protected]

Ashley Lee Sze Ching

Gan Partnership, Malaysia

[email protected]

The Belt and Road Initiative (BRI), which was launched by President Xi Jinping of People's Republic of China in 2013, has offered ample international trade opportunities to Chinese entrepreneurs with over 60 countries in Europe, Africa, Middle East and Asia. However, the BRI has also come with a significant issue in term of practicality, which should not be overlooked: there is no common culture and legal system among the countries in the BRI. This can be political hindrance to the establishment or initiation of common legal institutions in the event of commercial disputes arising out of cross-border projects or international trade. What, therefore, is the dispute resolution option that these cross-border entrepreneurs could possibly resort to?

It is inevitable that some disputes arising from BRI agreements will be referred to the national judicial resolution mechanism. For example, where a dispute only involves Chinese parties in the BRI project, it may well be heard in the Chinese Courts. On the other hand, where there is a Chinese party on one side and another third country on the other side, they parties may agree to submit their disputes to the courts and laws of their preferred jurisdiction, such as Hong Kong, Singapore, London or New York. However, it is interesting to note that some entities may be unwilling to accept theChinese 'choice-of-forum' clause due to the perceived political interference in judicial decision-making.

It is therefore a step forward to have a one-and-for-all dispute resolution mechanism for those potential commercial disputes arising from BRI trade which is the focal point of negotiation under the Belt and Road Initiative. In this regard, China has endorsed arbitration as the appropriate means of dispute resolution for BRI projects. Measures have been taken by both the Chinese Government and Chinese arbitral institutions to facilitate the holding of BRI-related arbitration in China. This approach is appealing to the Chinese parties to BRI contracts because it makes them feel at home to appear in institutions which are more familiar with Chinese business practices and which are used to conducting proceedings in Chinese.

Since then, there have been movements and steps taken to make China the ideal location or seat for the conduct of arbitration. These movements and steps have been necessary so as to be in line and keep up with arbitral development and their core purpose is to enhance and internationalise arbitration activities in China.

More often than not, it has been a recurring concern that, as China has not adopted UN Commission on International Trade Law (UNCITRAL) Model Law and the UNCITRAL Arbitration Rules, China may not be the best place to conduct arbitration. This also explains why, in the past, foreign counterparts have not opted to undergo arbitration proceedingsin China.In order to address this and overcome this unwanted hindrance, some of the arbitration institutions in China have revised and re-structured their respective institutional rules, so that those rules have become more foreign-friendly. In this instance, China is better able to reach out to its foreign counterparts, since the rules are now more accommodating to the expectations and requirements of those foreign counterparts. The International Arbitration Court in Ganjiang New District (IACG) is one of the said arbitration institutions.

IACG was established in accordance with the provisions of the Arbitration Law of the People's Republic of China and obtained its official approval from the Management Committee in Ganjiang New District on 28 October 2017. On 7 November 2017, it was also registered with the Department of Justice of Jiangxi Province,in accordance with the official procedure. Needless to say, the IACG is an independent body led by an impartial board of directors, modelled upon and mirroring the system of presidential responsibility which the public may call for.

It is worth mentioning that the IACG has structured its institutional rules in such a manner as to give significant effect to, and place great emphasis on, the concepts of party autonomy, kompetenz-kompetenz(competence-competence) and the tribunal-dominated model.

The concept of party autonomy refers, in short, to the parties' power and discretion to make their own decisions freely and independently, in relation to the arbitration seat, language, and number of arbitrators etc.

It is believed that this is one of the key values entrenched in the UNCITRAL Model Law and the UNCITRAL Arbitration Rules, which foreign counterparts value in choosing the seat of arbitration. Reflecting this very important element in the arbitration rules of the IACG is undeniably a way forward in attracting foreign counterparts to China to commence arbitration proceeding.

Furthermore, the IACG has provided a chapter that specifically governs international commercial arbitration. Under the arbitration rules of the IACG, parties are entitled to select their own arbitral tribunal based on their own accord and decision without interference. The chosen arbitral tribunal, arising from the parties' intention and agreement, shall have jurisdiction and the right to determine whether the dispute between the parties falls under international arbitration. Speaking of the jurisdiction of the arbitral tribunal, it is also important to highlight that the arbitral tribunal does have jurisdiction to resolve issues which challenge the jurisdiction of the arbitral tribunal.

Another point of party autonomy can be seen in the provision under the IACG arbitration rules which gives the parties liberty to choose whichever substantive law of country they prefer as the law for determining a dispute between them, should one arise. In the event that the parties do not make an agreement or reach consensus on this, the arbitral tribunal of the parties' choice shall then have the power to determine the choice of law for the parties. Ultimately, it is the parties' decision in all aspects.

The use of language in the arbitration proceeding before the arbitral tribunal is also subject to the parties' own decision. For example, Chinese parties, who are comfortable with having the Chinese language as the medium for arbitration proceedings may happily make this choice without having to regardany rigid and mandatory language requirements. Similarly, should the parties fail to determine the language to be used in the arbitration proceedings, the arbitral tribunal may step in to choose the proper language suitable for all parties.

Although the IACG arbitration rules originated inChina, they do take into account the will of foreign counterparts who might want their arbitration to take place outside China. In this case, the rules provide that parties have all freedom to determine the seat of arbitration. This means that the seat of arbitration can also fall in anywhere in the world outside of China.

Another benefit provided by the IACG is that it permits parties to follow another set of arbitration rules as agreed between the parties, so long as they are enforceable and not inconsistent with the mandatory arbitration law.

Having said all of the above, the development of arbitration in China has become increasingly interesting given the recent announcement by the Chinese government. It is reported that the Supreme People's Court will establish 'international commercial courts' in three cities, namely the historic Silk Road city of Xi'an, to cover the cross-continental land portion of the BRI; Shenzhen, Guangdong's booming seaside metropolis, to cover the BRI's maritime routes; and Beijing, to serve as the courts' headquarters. It is said that alongside these three courts, the Chinese Council for the Promotion of International Trade will also establish a 'Belt and Road International Dispute Management Centre' to assistthearbitration centres. However, there isn't yet any formal clarity in relation to the mechanism of rules to be applied and used by the international commercial courts. The world is therefore looking forward to witnessing how arbitration in China evolves in line with the BRI.

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