One need only google “The Belt and Road Initiative (BRI)” to see maps of Eurasia, crossed East to West with different coloured lines marking the contours of the world’s largest infrastructure project, determining the economic future of the continent for many decades to come. Each professional geographer, demographer, economist or historian, will have different thoughts looking at those maps. A question that may arise for lawyers specializing in international dispute settlement will be: how many project, construction and transportation (maritime, automotive and rail) disputes will arise on those routes? Probably, millions or a billion. And which forums will be in charge of settling them?
The “landscape of forums” for those disputes will have to serve, at least, three distinct areas of controversies:
- State-to-state trade disputes.
- Investment disputes between investors and states.
- “Pure” commercial disputes arising from transportation, loans, corporate finance, shareholders’ agreements, or supply of goods.
The rules of those forums will have to address, among other things, the difficulty of dealing with parties from many different legal systems and cultures, with different degrees of experience in using arbitration as a means of dispute resolution.
Most countries that will be connected by the BRI (for example, China, Mongolia, Kazakhstan, India, Turkey, Russia, Netherlands, Egypt and others) are already WTO members, and some, such as Iran and Azerbaijan, have “Observer” status. The WTO has a Dispute Settlement Body for trade disputes between states, and an Appellate Body seated in Geneva, Switzerland.
Since 1 January 2015 the Court of the Eurasian Economic Union has been resolving disputes between members of the Eurasian Economic Union, some of which, such as Belorussia, for example, are not WTO members.
From the investor state dispute settlement (ISDS) perspective existing forums, such as ICSID, should be considered since some of the main BRI participants, such as Kazakhstan, China, Pakistan and Netherlands, are signatories to the ICSID Convention. The Chinese Government has made the reservation that it would only submit disputes over compensation resulting from expropriation and nationalization to ICSID. This has led certain commentators to conclude that “neither Chinese membership of the ICSID Convention nor its entry into a large number of BITs has apparently provided any effective relief to aggrieved foreign investors“.
CIETAC has announced the adoption of special international investment arbitration rules aimed at promoting the effective and expeditious resolution of BRI related investorclaims. CIETAC’s Secretary General, Wang Chenjie, when presenting the rules, mentioned that international investment arbitration is the main way to resolve disputes between investors and host states, but that until now, no Chinese institution offered its own procedure, and there have been investment cases in which the Chinese side has been “treated unfairly because of a lack of understanding of Chinese laws and practice”.
According to those who have read the Chinese text of the new rules, investment cases will be heard by the newly established Investment Disputes Resolution Center in Beijing, but can also be referred and administered by CIETAC’s Hong Kong Arbitration Center if the parties so wish and choose Hong Kong as a seat. The rules permit the use of third party funding which must be disclosed upfront to the counter-party, arbitrators and CIETAC. The “default” mechanism for the appointment of arbitrators provides for appointment from a roster maintained by CIETAC; deviations from this may be approved by CIETAC’s Chairman. CIETAC will scrutinize draft awards and will have the right to draw the attention of the tribunal to “certain points” as long as that does not affect the tribunal’s independence.
SIAC was ahead of other institutions in revising its arbitration rules and adopted a sixth version of its rules on 1 August 2016. From 1 January 2017 investors and states may use the newly released SIAC Investment Arbitration Rules. For more than a decade there have been special rules for “niche users” for the expedited arbitration of disputes arising from derivative trading and derivative clearing. According to 2016 statistics, Indian companies form by far the largest user base among SIAC’s users (153) with Chinese entrepreneurs being in second place (76), and the USA (42) in third place. Apart from being a top arbitral institution, Singapore has an International Mediation Center (SIMC) and the Singapore International Commercial Court (SICC). In addition to the highly professional and experienced Singapore adjudicators, SICC also has international judges who are prominent foreign lawyers from civil and common law countries (USA, UK, Australia, Austria , France , China (Hong Kong), Japan). It took just four months for SICC to produce its first 114 page judgment.
In view of the fast growing competition from Singapore, the HKIAC has initiated revision of its arbitration rules. In contrast to SIAC, there are no Indian companies among the top 10 users of HKIAC arbitration. In 2016 HKIAC’s top three users were from Hong Kong, Mainland China and the BVI. Interestingly, Singaporeans are in fourth place. Among the various HKIAC rules one can find special rules for the administration of disputes under the UNCITRAL Rules, Rules for HKIAC as Appointing Authority, Rules for Securities Arbitration and Electronic Transactions, Small Claims/”Documents Only” Procedures and others. Domain names and IP dispute resolution services are among the unique features of the HKIAC. These disputes have accounted for 183 new cases out of a total 460 in 2016, which is amazingly high.
While Asian arbitration forums are growing more and more famous among users, competition from the ICC , SCC and LCIA , and other European institutions will not ease or disappear. Yes, it is not the 1970s when the ICC became the “key forum” for major arbitrations arising from huge construction projects, primarily, in the Middle East (See, Yves Dezay & Bryant G. Garth, Dealing in Virtue, International Commercial Arbitration and Construction of a Transnational Legal Order, The Univ. of Chicago Press, 1996, p.43). But in a field where “history is a key legitimator” (Yves Dezay & Bryant G. Garth , p.45) the ICC and SCC have a special “old school” advantage. Another competitive feature arises from the fact that, for example, hydrocarbons supply agreements between East and West containing arbitration clauses providing for Paris or Stockholm seated arbitration, can exist for decades. The same situation exists in respect of production sharing agreements or concessions signed with states or state-related parties which can be even longer-term running up to a half-century.
Will Russia participate in consuming BRI’s disputes pie? Well, the table is “served” with sufficient dishes, if significantly fewer than before. Russian arbitration reform has resulted in four arbitral institutions being currently available to users. These are the International Commercial Arbitration Court (ICAC) and the Maritime Arbitration Commission (MAC) at the Chamber of Commerce and Industry of the Russian Federation, whose ADR experience dates back to the 1930s, the Arbitration Center before the Russian Union of Industrialists and Entrepreneurs and the Arbitration Center at the Institute of Modern Arbitration, which aims to attract sophisticated users and has already established a presence in Vladivostok. Time will show if they will achieve the success of the HKIAC and SIAC.
Practical Law Arbitration blog, Thomson Reuters.
23 November, 2017