The China International Commercial Court: Establishment and Development in a Global Context

Abstract

International commercial courts have proliferated in the past 20 years. ¹ In 2018, China established specialized international commercial courts in Shenzhen and Xi’an. They are the two branches of the China International Commercial Court (CICC). Since then there has been a proliferation of literature on the CICC. This article provides insights into the recent development of the CICC. The first part of the article explores the background against which the CICC was established. The second part narrates its recent development. The challenges the CICC faces to improve its attractiveness and competitiveness are discussed in the third part and the fourth part considers possible competition between international commercial courts in different jurisdictions. The article closes with a few concluding remarks on the place of the CICC in the global transnational commercial dispute resolution community.

The Formation of the CICC: The Background

The Belt and Road Initiative and the Economic Drive

During a visit to Kazakhstan in 2013, Chinese President Xi Jinping initiated the Belt and Road Initiative (BRI) in order to propel economic growth and communal development. ² This grand project has the aim of building a road of prosperity by enhancing connectivity between the Eurasian continent and Africa, the Americas and Oceania, producing a high-quality platform for international trade and investment ³ which is leading to tremendous fruition. China has played an important role by building infrastructure and investing in connectivity, which has bolstered sustainable development in the BRI partners. ⁴ In this context, China expects cross-border business activities to thrive and multilateral investments to increase. ⁵

However, China has been focusing on enlarging global transactional cooperation over the 40 years of its opening-up policy. Consequently, the volume of its cross-border trade and financial activities continues to grow and China has become the world's second-strongest economy. As a result, the number of foreign-related commercial disputes in China is increasing. ⁶ In 2021, the China International Economic and Trade Arbitration Commission accepted 4,071 arbitration cases, 12.61% more than the previous year. Of these, 636 cases involved foreign countries, Hong Kong, Macao, or Taiwan, and 136 cases involved other BRI countries. ⁷ The significant rise in cross-border disputes and the particular skills and knowledge required to resolve them create new requirements for effective dispute-resolution mechanisms. ⁸ The Chinese government has recently announced a plan called “Rule of Law China” and it emphasizes that the rule of law creates the best environment for doing business. Accordingly, it is vital to support transnational commerce by improving judicial adjudication and providing specialized professional business-friendly dispute settlement mechanisms.

The Limits of Arbitration

International commercial arbitration institutions have flourished worldwide since the twentieth century. Under the 1958 New York Convention, arbitral awards can be recognized and enforced in the vast majority of countries (171 contracting states to date). ⁹ In comparison with international commercial litigation, arbitration has tremendous advantages: in particular confidentiality and finality. ¹⁰ Nevertheless, arbitration is not an authoritative way to promote the development of global business. However, its lack of transparency makes arbitration of little help in promoting international rule of law and good governance. From the perspective of business, arbitration may not be the best-preferred option either due to its high cost, inadequate supervision and lack of coercive power. ¹¹ It also has other technical weaknesses, such as limited subjective jurisdiction (arbitrability) and difficulty in handling multiparty disputes.

Establishing the CICC and Its Innovativeness

To provide high-quality international commercial dispute resolution in the BRI, two International Commercial Courts of the Supreme People's Court (SPC) with seats in Shenzhen and Xi’an were therefore established. ¹² They are the two branches of the CICC. While the CICC was founded following the BRI, its jurisdiction is not limited to cases arising among BRI partners. The CICC has jurisdiction over international commercial cases if the parties have chosen it in their contract, if the subject matter exceeds RMB 300 million, if a higher court has transferred the case with the permission of the SPC, if an international commercial case of the first instance has a significant impact in the country, if the case relates to preliminary measures or invalidation or enforcement of awards of international arbitration, or if the SPC considers the case should be tried by the CICC. ¹³ So far, in three batches 18 judges from the SPC have been appointed as CICC judges. ¹⁴ Currently, there are 13 judges on duty. Since the acceptance of its first batch of cases at the end of 2018 and the beginning of the first trial, in the “Red Bull Drink” case in Xi’an on 29 May 2019, ¹⁵ the CICC has accepted 27 cases, 12 of which have been concluded. ¹⁶ In addition, in 2018 the CICC launched a unique ground-breaking institute, the International Commercial Expert Committee (ICEC). ¹⁷ This committee consists of leading experts in specialized areas and from diverse backgrounds. They serve as mediators in individual cases, provide opinions on international legal issues, assist the SPC in issuing judicial interpretations and provide advice on the development of the CICC. ¹⁸

The CICC is also working to improve international communication on the development of Chinese law and theory. It runs a bilingual website in Chinese and English, which provides updates on the latest developments in Chinese legal dynamics and offers valuable legal resources and academic materials for practitioners and researchers worldwide. ¹⁹

Recent Developments

Overview of the Performance of the CICC

The world today is undergoing major developments, transformations, and readjustments in many fields. A new round of scientific and technological revolutions and industrial transformations is taking place, and new drivers of economic growth are allowing it to gather momentum. Effective settlement of international disputes is essential to collectively build “a community with a shared future for mankind.” For both legal academics and practitioners, establishing an international commercial court that can better facilitate business and create a business-enabling environment are key issues that China is making unremitting efforts to address. As of 1 March 2023, the CICC has received 27 international commercial cases with parties in Japan, Italy, Thailand, the British Virgin Islands, and Anguilla, among others. These cases have been decided with a variety of rulings, testing predefined case sources, with expert mediation and consultation, and a one-stop platform operation. Judges at the CICC have visited and exchanged knowledge and best practices with other fora like the London Commercial Court and the Singapore International Commercial Court (SICC). CICC judges have also participated in all four of the conferences organized by the Standing International Forum of Commercial Courts (SIFoCC) and many other similar conferences and webinars, discussing the structure and development of international commercial courts, and sharing best practices on broad topics ranging from video technology, jury trials, case management and an integrated system of dispute resolution to manage the complexity of commercial disputes. ²⁰

The Rise of Local ICTs

One significant recent development in international commercial courts in China is that local international commercial tribunals (ICTs) have mushroomed. ²¹ The opening of ICTs in Suzhou, ²² Beijing, ²³ Changchun, ²⁴ Chengdu, ²⁵ Xiamen, ²⁶ Quanzhou, ²⁷ Wuxi, ²⁸ Nanning, ²⁹ Ningbo, ³⁰ Nanjing, ³¹ Qingdao, and Hangzhou ³² has received publicity and they are affiliated with their relevant intermediate courts. The CICC and the local ICTs share the following similarities: their names are basically the same; they serve the same purpose of supporting high-level opening up policy and creating a friendly environment for doing business; and they implement a high-quality strategy to provide equal, efficient, convenient and intelligent services for Chinese and foreign litigants. While some local ICTs have established international commercial expert committees and one-stop litigation service platforms, others have not. There has been no evaluation of the operation of the ICTs yet. However, the CICC and the local ICTs have some important differences. First, the CICC implements voluntary jurisdiction and discretionary jurisdiction as specified in the Provisions of the Supreme People's Court on several issues regarding the establishment of the International Commercial Court (PICC). ³³ It can use its discretion to assume jurisdiction over cases with a significant impact on the whole country. The local ICTs do not have similar discretionary power. Second, the CICC enjoys a series of procedural innovations. For example, the formal requirements for foreign evidence have been simplified. If both parties agree, documents originally in English do not need to be translated into Chinese. Notarization and certification of English evidence material from abroad is not compulsory. The parties can also benefit from the finality of a CICC judgment even though it is a judgment of the first instance. These procedural rules that streamline and speed up processes do not exist in the local ICTs. They still need to follow complicated rules on evidence and their judgments are subject to appeal. And third, the CICC only accepts high-value cases (minimum RMB 300 millions) of utmost legal importance and cases with a significant national impact, of which there are normally few, while the local ICTs accept a large number of cases as they have a lower threshold.

The Expansion of the ICEC

Furthermore, the pioneering ICEC system is continually expanding. In order to boost the level of internationalization of the CICC in China’s current legal system, the SPC set up the ICEC by first appointing 31 expert members from 14 countries and the Hong Kong, Macao, and Taiwan regions of China in August 2018, ³⁴ by second appointing another 24 members from 11 countries in December 2020 ³⁵ and by third appointing further 14 members from six countries. After some resignations and removals, there was a total of 61 expert members in March 2023. ³⁶

The Development of the One-Stop Platform

An innovative “one-stop” platform was developed. This integrates the diverse dispute resolution mechanisms of litigation, mediation and arbitration with the purpose of settling international commercial disputes. ³⁷ At the end of 2018, the SPC confirmed the first batch of arbitration and mediation institutions had been accepted in the one-stop dispute resolution platform. These were the China International Economic and Trade Arbitration Commission, the Shanghai International Economic and Trade Arbitration Commission, the Shenzhen Court of International Arbitration, the Beijing Arbitration Centre, the China Maritime Arbitration Commission, the Mediation Centre of the China Council for the Promotion of International Trade and the Shanghai Commercial Mediation Centre. ³⁸ To further promote the high-quality development of the BRI and to better utilize the one-stop mechanism for diversified settlement of international commercial disputes, on 22 June 2022, the SPC issued a Notice on Identification of a Second Batch of International Commercial Arbitration Institutions to be Included in the “One-Stop.” Mechanism for the Diversified Resolution of International Commercial Disputes. ³⁹ This stated that the Guangzhou Arbitration Commission, the Shanghai Arbitration Commission, the Xiamen Arbitration Commission, the Hainan International Arbitration Institute (Hainan Arbitration Commission) and the Hong Kong International Arbitration Centre were to be included in the one-stop platform.

This one-stop platform can enable prestigious Chinese arbitration institutions to work more effectively to resolve international commercial disputes and so better serve the BRI. Although Chinese courts support and supervise international commercial arbitration by providing evidence, preserving assets and reviewing and enforcing arbitral awards, different courts may assume jurisdiction for different tasks. Applications for property preservation should be submitted to the intermediate court in the place where the respondent is domiciled or where the property is located, ⁴⁰ evidence preservation should be heard by the intermediate court in the place where the evidence is located, ⁴¹ arbitral awards should be reviewed by the intermediate court in the place where the arbitration institution is located ⁴² and enforcement rulings should be made by the intermediate court in the place of the respondent's domicile or of the location of the respondent's property. ⁴³ The arbitration institutions included in the platform no longer need to apply for assistance from different courts in the process and can have all the judicial review and support provided by the CICC. ⁴⁴

The one-stop platform also helps uphold the good reputation of Chinese mediation institutions among the international community for resolving international commercial disputes. International commercial mediation institutions can assist parties to settle their disputes by voluntary agreement, which is called a “mediation settlement agreement.” A settlement reached by mediation is only a contract between the parties which has no better legal status than an ordinary contract. If a party refuses to honor a mediation settlement agreement, the remedy for the other party is to sue for breach of contract, which is inconvenient and time-consuming. Settlements reached in the CICC or in mediation institutions included in it can be confirmed as judicial settlement agreements, or judgments, which gives them the mandatory enforcement power of court judgments. ⁴⁵

Smart Proceedings

The CICC has taken full advantage of modern technology to facilitate the dispute resolution process. On the one hand, the SPC is vigorously promoting the development of the CICC's information infrastructure, making it possible to carry out filing, hearings, cross-examinations and other services online and to reach the goal of “smart trials.” ⁴⁶ On the other hand, during 2022 and early 2023 the SPC was building a world-class conference room for the ICEC in the First International Commercial Court, Shenzhen, together with a brand-new internet courtroom, a spacious lobby and an immersive conference system in the Second International Commercial Court Xi’an. On 21 July 2021, the online version of the one-stop international commercial dispute resolution platform was launched, making online processing of the entire dispute resolution process, including filing, mediation, exchanging evidence and court sessions, become possible. ⁴⁷ Following that, the CICC can offer effective services for Chinese and foreign parties to conveniently access justice at a distance.

Challenges Ahead

A Case Study

The CICC has successfully operated to resolve complicated high-value foreign-related disputes. For example, in a recent case, Yufang Zhang v Yuming Xie, Aoxinlong Co., etc. (Zhang case), ⁴⁸ a contract dispute arose between Zhang, a Belizean Chinese (plaintiff) and Xie, Aoxinlong Co., etc. (defenders). The dispute focused on whether the transfer of a shareholding in Meidafei Co., the targeted company, based on an Equity Repurchase Agreement (Agreement) was a guarantee of debt performance or a transfer and repurchase of equity interests. The CICC rejected the plaintiff's claim that the equity interests in Meidafei Co. registered in the name of the Aoxinlong Co. was a transferring guarantee measure provided by Zhang and Meidafei Co. and confirmed the transfer of a shareholding in Meidafei Co. was a true transfer on the ground that the distinction between a transferring guarantee and a transfer of equity interests should be made primarily in terms of the purpose of the contract and whether the contract has a subordinate character. Specifically, the CICC made the decision based on the facts that (1) the contractual terms in the Agreement did not contain any wording regarding a guarantee, and neither did it reflect the character of an accessory contract; (2) the Agreement involved detailed arrangements for the repurchase of equity interests, which should be regarded as the most prudent consideration and arrangement for the parties’ own interests in a commercial transaction; (3) the Agreement also imposed certain restrictions on the shareholder rights of Aoxinlong Co. during the repurchase period while Aoxinlong Co. had formally held the equity interest in Meidafei Co. and enjoyed full shareholder rights after the expiry of the repurchase period; and (4) the parties had entered into further agreements.

This case involved a transaction in excess of CNY 2 billion (US$ 0.3 billion) and had an impact on the operations of several companies. The successful resolution of this case reflects respect for commercial transaction agreements based on the true intentions of the parties and maintains a stable context for commercial activities. The judgment provides guidance for subsequent cases of similar commercial disputes. The case also demonstrates four unique points in the operation of the CICC. First, in this case, the CICC excised its discretionary jurisdiction to elevate the case from a local court, instead of a consensual choice of forum according to Article 2(1) of the PICC. This case was complicated, the disputed value was large, it had a significant impact on the whole country and it attracted social attention. It was therefore considered necessary for the CICC instead of the local higher court to adjudicate it. Second, although the CICC presiding judge informed the parties of the option to use the one-stop diversified mechanism, the parties were reluctant to opt for either arbitration or mediation and insisted on continuing with litigation. Third, although the case was very complicated, the procedure was conducted efficiently. From filing the case to the judgment entering into force, the whole process was done within 21 months even though it was affected and delayed by the COVID-19 pandemic. Fourth, the facts of the case were related to several other cases, given that basic facts are not required to be proven if they are confirmed in effective judgments, ⁴⁹ and other related cases could be ruled on more efficiently based on these facts.

Current Challenges

It seems that the CICC generally operates successfully. Furthermore, the establishment of over 10 local ICTs adds dynamics to the international commercial court. Nevertheless, there is still room for further improvement of the CICC and local ICTs.

First, the relationship between the CICC and local ICTs and their position in the hierarchical jurisdictional system needs to be clearer. Although CICC decisions are final, first-instance decisions by the ICTs and by intermediate courts can be appealed in provincial High Courts. No ICTs are set in High Courts, a decision which has been appealed to the SPC. As a result, decisions of specialized ICTs are reviewed by unspecialized higher courts. A major problem is how to integrate the advantages of the CICC and the ICTs in international commercial adjudication. The ICTs have a large caseload and may undertake a pilot project to try out relevant procedural innovations. For example, Suzhou ICT has made insightful explorations with expert members. With the participation of an expert member, the parties in a high-value case involving the dissolution of a biomedical company reached a settlement. In a dispute on a sale of goods contract between Chinese and Polish parties, an expert member provided advice and explained the different concepts of a declaration of contract nullity in the United Nations Convention on Contracts for the International Sale of Goods and termination of the contract in Chinese law. In a dispute involving the transfer of equity in an Ethiopian company, an expert member helped the parties consult the latest Ethiopian Commercial Code. ⁵⁰ Under Article 6 of the PICC, the CICC may designate a lower people's court to enforce a preservation ruling it has made and it is likely an ICT will enforce it. ⁵¹ Overall, the CICC and the ICTs have common achievements in promoting the business environment and incorporating best practices, but more academic research is needed on the division of tasks and coordination between the two.

Second, the ICEC should play a greater substantive role in the CICC and its one-stop platform should be upgraded. Over the years, most expert members have rarely taken part in few cases and have only attended biennial conferences. ⁵² Furthermore, the constitution of the ICEC needs to be more balanced and diverse, and needs to include more members from the Middle East, which is the location of the weakest BRI countries in terms of judicial systems and rule of law. ⁵³ Finally, it may be possible to share the expert members of the ICEC with local ICTs.

Third, the CICC's adjudicators need to meet basic international expectations. Proficiency in transnational commercial law, fluency in English (if not in more languages) and understanding of international protocols are the principal requirements for adjudicators in international commercial courts. Other international expectations are good morals, professional ethics and unbiased decisions without political or personal interference. However, it is necessary to point out that appointments of judges of foreign nationality, which may facilitate internationalization, are only made in a few smaller jurisdictions such as the Dubai International Financial Centre (DIFC) courts and the SICC. Appointing foreign judges in the CICC's pool is not essential according to international opinion.

Fourth, the scope of cases acceptable by the CICC should be expanded. According to the definition of international commercial cases in Article 3 of the PICC, in order for a case to be accepted by the CICC it needs to have a practical connection with China and meet other requirements. ⁵⁴ The current Chinese Civil Procedure Law requires a practical connection between disputes and China to be a prerequisite for valid choices by Chinese courts, including the CICC. It has been proposed that in the future parties should be allowed to choose to settle their international commercial disputes at the CICC by agreement even if the disputes have no actual connection with China. ⁵⁵ For such cases, the CICC may learn from the practice of the SICC's offshore case system, which allows a court to hear disputes without substantive connections with Singapore on the choice of the parties. ⁵⁶ Such a system would not only help promote the CICC among the international community but would also enable a neutral court to make the necessary decision. Technically, this can be realized by amending Article 35 of the Civil Procedure Law of the PRC (2021) by explicitly providing that the rule in this article does not apply to foreign-related disputes. Meanwhile, as the CICC already gathers the best international legal talents on one platform, it can exert discretionary jurisdiction to select significant cases and accordingly is capable of delivering impactful judgments on major legal issues with the aim of authoritatively developing the content of commercial law. Several complex cases have been decided by the CICC, including Guangdong Bencao v Bruschettini ⁵⁷ and the Zhang case. ⁵⁸ The CICC needs to exercise more discretionary jurisdiction to adjudicate influential cases and make a big impact on Chinese judicial practice.

Last but not least, it is necessary to operate the CICC at full scale. The CICC plays a pioneering role in China, not only as the court specialized in handling significant international commercial cases but also as it experiments with innovative procedures which may be employed throughout the legal system. Importantly, the CICC provides a means of capacity-building among the Chinese judiciary. As they frequently attend international conferences, such as those of the SIFoCC, UNCITRAL working group meetings and The Hague Conference on Private International Law, CICC judges intensively discuss a great deal of cutting-edge legal issues with their foreign counterparts and promote the popularity and influence of the CICC. One retired CICC judge has been selected to work at the SICC and Qatar International Court and Dispute Resolution Centre, one has gone to the Administrative Tribunal of the International Labour Organization (ILOAT) as an administrative judge, and two others have gone to the United Nations Appeals Tribunal and United Nations Dispute Tribunal as administrative judges, which in turn will inspire younger legal talents in the Chinese judiciary. ⁵⁹ However, substantial operation means more influential cases have to be decided, and reputation- and creditability-building need many more years. In this sense, the CICC needs a more open mindset toward the rest of the world. The next aim for the substantial operation of the CICC is to promote multiple dispute resolution mechanisms to enable more effective dispute resolution. The Zhang case shows that although mediation and arbitration are available in the one-stop platform, litigants are reluctant to utilize these mechanisms and insist on litigation. As was discussed at the fourth SIFoCC conference in October 2022, integration is a challenge but it is necessary. Only courts can authoritatively draw together different mechanisms. ⁶⁰ Once this is done, more promotion and education are needed to increase parties’ understanding of this system and their trust in it.

A Specific Debate: Global Competition for Justice?

Some believe that competition between international commercial courts exists as part of a broader trend of competition between countries. ⁶¹ Others consider that courts do not compete with each other, as legal systems are not and should not be in competition. ⁶² This is because no justice system is superior and there are no direct incentives to stimulate courts to compete. A second argument is that creating international commercial courts has the purpose of promoting a business-enabling environment to benefit international trade and commerce. Delivering justice is regarded as a public service. International commercial courts are created to provide the best possible public service, so they are a public good. Better service offered by international commercial courts does not necessarily constitute competition per se but it facilitates the delivery of justice. As Sir William Blair noted, if international commercial courts can prove that they perform a useful role, they will survive and thrive. ⁶³

Regardless of whether competition exists or not, most existing international commercial courts enhance international litigation through their use of the English language, their considerable expertise and experience in business law, and procedural innovations, which are described as a “pro-business” approach. ⁶⁴ In terms of language, ⁶⁵ English is the world language widely used in international commerce due to a combination of historical, political and economic factors. 57 common law countries are former British colonies, and English is their official language. In order to better serve the international business community, some civil law jurisdictions also adopt English in their international commercial courts. ⁶⁶ The CICC also uses English as a working language. In terms of expertise and experience, ⁶⁷ renowned international commercial courts, such as the SICC and the DIFC courts, have appointed foreign judges with very strong expertise and reputations. The CICC only appoints judges who are highly experienced in international business law, and the ICEC constitutes a think tank of foreign experts to improve the quality and expertise of the CICC. Regarding procedural innovations, the CICC is committed to being more efficient by vigorously introducing procedural innovations, including the simplified evidence rule for foreign documents and the finality of its judgments. As a result, most foreign-related cases can be decided in a timely manner.

Concluding Remarks

The CICC was established because of the BRI, the economic drive and the limits of arbitration. Recently, there have been four developments to modernize the CICC: setting up of ICTs; expanding the ICEC; more arbitration and mediation institutions in the one-stop mechanism; and better infrastructure and technological support. However, the CICC requires continual improvement. It is necessary to rely on the wisdom of the expert members of the ICEC and the one-stop service leveling units to better make a joint effort to deal with international commercial disputes. To be accepted by the global transnational commercial dispute resolution community, the CICC should cement its judicial reputation on the performance of exceptional judges. It may expand the scope of the cases that it accepts and focus on significant and tricky legal issues. The full operation of the CICC should be based on open-minded thinking.

Overall, it is imperative to adhere to the original aim of the International Commercial Court to discuss and build together with stakeholders a fair, efficient, convenient and cost-effective international dispute settlement mechanism, so as to highlight the soft power of China's rule of law and foster an appropriate international business environment under the rule of law. On the other hand, it is essential to always benchmark international best practices and learn from them to create an international commercial solution suitable for China's local resources. Regardless of whether competition exists between the CICC and other international dispute resolution centers, most international commercial courts embrace the pro-business approach, and the CICC also follows this path.