International Commercial Courts and the Interplay Between Realism and Institutionalism: A Look at China and Singapore

Mar 8, 2020 | Essays, Online Scholarship

International Commercial Courts and the Interplay Between Realism and Institutionalism: A Look at China and Singapore

By: Lance Ang

The following is an edited version of a paper presented by the author on November 14, 2019, at a conference titled “Dispute Settlement in the Belt and Road Initiative (BRI)” hosted in Singapore by the Faculty of Law, National University of Singapore and organized by the EW Barker Centre for Law & Business. The author wishes to thank Ewan Smith and Caroline Alix Lasthaus for their valuable comments.

Introduction 

International commercial courts represent the next frontier in international economic law and relations, with the rapid diffusion of such courts in several jurisdictions over the last decade. Most recently, the Singapore International Commercial Court (“SICC”) was established in 2015, followed by the China International Commercial Court (“CICC”) in 2018 as part of China’s ambitious Belt and Road Initiative (“BRI”). From the perspective of enhancing international dispute settlement and facilitating cross-border trade and investment, one may ask whether the international commercial courts are a realist or institutionalist response to international economic relations. Further, where are they situated in the dispute resolution framework of international economic law and governance? This Post will explore the differences in the constitution and structure of the CICC and the SICC and analyze how they reflect the interplay between realism and institutionalism in transboundary commercial dispute settlement. This Post will also consider the broader implications for the international legitimacy and credibility of the CICC in light of China’s BRI.

“International” Commercial Courts and International Relations

International commercial courts reflect the conflicting interplay between realism and institutionalism in the forum state’s transboundary economic relations. As international economic law and relations are historically built on a realist foundation centered on the traditional Westphalian concept of sovereignty, states have sought to cannibalize and extend their market share of trade and investment flows in what is perceived to be a zero-sum game. A corollary of this framework is the decentralized manner by which international commercial disputes between private actors have been largely resolved by domestic state courts with reference to the respective forum’s conflict of law rules or alternatively by commercial arbitration.

At the same time, the increasing integration of markets and regionalism has undercut the Westphalian system and fostered competition and cooperation amongst legal systems in the setting of “global governance” standards.[1] From an institutionalist perspective, the iterated game of economic interactions amongst states and private actors have fostered the need to adhere to, as Anne-Marie Slaughter puts it, “a set of rules, norms, practices and decision-making procedures that shape expectations.” This is particularly so in light of the commercial uncertainty arising from the rising volume of cross-border transactions, which trigger the regulatory interests of more than one state and catalyze jurisdictional conflicts amongst states. Particularly at a time when corporations increasingly rival states in economic power, dispute settlement under the international framework can no longer be seen to be the exclusive domain of states and international organizations. This globalization of the marketplace has generated a need for the “global governance” of transboundary private commercial dispute settlement between commercial parties in accordance with the institutionalist tradition in international relations. This is best exemplified by the conclusion of the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters and Hague Convention on Choice of Court Agreements in 2019 and 2005 respectively, which aim to promote international trade and investment by providing greater certainty for commercial parties involved in international litigation and encouraging judicial cooperation through uniform rules on jurisdictional agreements and the enforcement of foreign judgments.

At the same time, in the absence of an international treaty establishing a genuinely “international” (or supranational) commercial court in the truest sense of the word,[2] international (or what may be more appropriately termed “transnational”) commercial courts (“ICCs”) have been set up by individual states to fill in the void. Being “particularly attuned to the needs and realities of international commerce”, as the Singapore Chief Justice Sundaresh Menon has noted, ICCs purport to administer rules and decision-making procedures to mitigate the effects of economic anarchy in an otherwise realist framework. In theory, depending on how it is constituted, such an “international” or “transnational” dispute resolution framework can serve to overcome the transaction costs that undermine commercial cooperation between corporations across borders. Depending on the extent of their international capabilities, they potentially mitigate the transaction and litigation risks inherent in any cross-border commercial transaction,[3] in respect of their capacity to adjudicate disputes on the basis of the appropriate governing law by way of international jurists as a neutral preferred third-party forum in accordance with the parties’ expectations. This mitigates commercial uncertainty and contributes to the efficient supply of goods, services, and capital across borders. In this sense, ICCs are akin to the institutionalist school of thought in international relations insofar as they serve (or purportedly serve) to facilitate the governance of cross-border private transactional relations between state nationals and to indirectly enhance trade, investment, and welfare gains between states. As a rational economic actor, however, what is the forum state’s interest in assuming jurisdiction for disputes to which it would otherwise have little connection?

Strategic Objectives Of The China International Commercial Court

Observers have noted that the China International Commercial Court serves to safeguard local industries from legal risks by foreign competitors, and at the same time encourage trade and investment flows across its borders as part of the BRI’s objectives. These twin realist and institutionalist aims have filtered into the design and constitution of the CICC itself, which may be viewed in the context of a rising China as an increasingly assertive economic actor on the world stage. One may argue that the CICC, along with the BRI, is China’s institutionalist contribution to “global governance” by facilitating inclusive cooperation between public and private actors in the areas of policy coordination, facility connectivity, trade and investment, financial integration, and people-to-people bonds, which are the official objectives of the BRI. In 2015, the Supreme People’s Court of China (“SPC”) issued an opinion calling upon Chinese courts to improve their adjudicatory functions under the BRI; in particular, it committed the adjudication of international commercial disputes to the principle of “equal protection of the lawful rights and interests of Chinese and foreign parties.” On this basis, the CICC may thus be viewed as a Chinese institutional investment in view of its objectives of increasing regionalism in East Asia and Central Asia, and promoting interregional cooperation and coordination, both of which are integrated into the BRI.

At the same time, China – as an important economic player and exporter of capital – faces an increasing risk of international disputes and conflicts in the near future, in light of the BRI (and its discontents) and its experience with the U.S.-China trade war. Notably, China ranked second in foreign direct investment outflow in 2018 and needs to safeguard its economic investments and assets overseas. Consequently, the CICC has a strategic role for China in safeguarding the interests of domestic firms, particularly its SOEs, and relocating “the locus of China-related (and Belt & Road) dispute resolution to China.” As relatively new entrants to the international commercial litigation system, Chinese companies fear being placed in a disadvantageous position particularly as overseas investors have previously avoided submitting commercial disputes with Chinese firms to the jurisdiction of Chinese courts, and have instead relied on litigation or arbitration outside China. Short of an explicit policy pronouncement, the CICC, therefore, may be inferred to be part of the forum state’s initiative to underwrite the transaction risks of the large numbers of Chinese firms actively participating in BRI trade and investment projects, under which it can design rules and procedures suited for Chinese interests. In short, the CICC is an insurance policy to mitigate the legal risks for Chinese businesses arising from the BRI and to enhance their bargaining power in the litigation of disputes.

Comparison with the Singapore International Commercial Court

One may juxtapose the CICC with its Asian counterpart, the SICC, which was set up three years earlier in 2015 and served as a model for the CICC. As compared with the relatively opaque objectives of the CICC, the SICC was set up for the clear purpose of positioning Singapore as a center for commercial dispute resolution and as a reputable neutral forum that could serve as an alternative to international arbitration, in view of the surge in trade and investment in Asia. As a small trading state, Singapore has aimed to position itself as both a strident defender of the international rule of law and a beneficiary of the international dispute settlement process. Notably, while both China and Singapore are highly dependent on trade and investment, given the relative disparity in size between both economies, Singapore is much more vulnerable to protectionist measures and is highly dependent on the inflow and outflow of goods and services. Singapore, in fact, imports more services than it exports and is ranked as the most open and competitive economy in the world. The institutional design of the SICC itself reflects the open characteristics of Singapore’s economy and outlook.

Jurisdiction

A few observations may be made about the CICC’s jurisdiction which is as yet not entirely clear. Its jurisdictional ambit stems from a judicial interpretation issued by the SPC and is hence technically subject to the overarching civil procedural rules under the Chinese Civil Procedure Law. Under Article 2 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Establishment of the International Commercial Courts (CICC Provisions), the CICC has jurisdiction over five types of cases:

  • First instance international commercial cases in which the parties have chosen the jurisdiction of the SPC according to Article 34 of the Civil Procedure Law, with an amount in dispute of at least 300,000,000 Chinese yuan;
  • First instance international commercial cases which are subject to the jurisdiction of the higher people’s courts who nonetheless determine that the cases should be tried by the SPC, for which permission has been obtained;
  • First instance international commercial cases that have a nationwide significant impact;
  • Cases involving applications for preservation measures in arbitration, for setting aside or enforcement of international commercial arbitration awards according to Article 14 of these Provisions;
  • Other international commercial cases that the SPC considers appropriate to be tried by the CICC.

On a plain reading, these provisions reflect forum centricity by largely requiring cases to have an actual connection with China, notwithstanding the broad definition of an “international commercial case” under Article 3 of the CICC Provisions.[4] With respect to Article 2(1), notwithstanding a consensual agreement between the parties, the CICC is only seized of jurisdiction if Article 34 of the Civil Procedure Law is complied with. The latter provision requires the court chosen by the parties to have a connection with the dispute depending on “where the defendant is domiciled, where the contract is performed, where the contract is signed, where the plaintiff is domiciled or where the subject matter is located, etc.” Similarly, with respect to Article 2(2), the wording appears to presuppose that the high people’s court’s jurisdiction at the provincial level must be seized in the first instance. Hence, the CICC’s jurisdiction appears to be subject to the Civil Procedure Law, under which, in cases where a foreign defendant is involved, the people’s court must have a connection with the dispute depending on, inter alia, where the contract was executed or performed, or where the subject matter of the action is located. With respect to Article 3(3), it is not clear what “a significant impact on the country” is intended to refer to, but it similarly suggests an actual connection with the forum in line with similar language under Article 20 of the Civil Procedure Law. This departs from the position under the Hague Convention on Choice of Court Agreements, under which where the CICC is designated as the forum in an exclusive choice of court agreement, it shall have jurisdiction to decide a dispute to which it applies, unless the agreement is null and void under Chinese law, and shall not decline to exercise jurisdiction on the basis that the dispute should be decided by a court of another state.

In contrast, the SICC departs from the narrow conception of the forum non conveniens principle and does not require the dispute to have an actual connection with the forum, in view of its objective to compete with other courts for dispute resolution business. Under the Supreme Court of Judicature Act and the Rules of Court, the SICC has jurisdiction where:

  • all of the following requirements are met:
  • the action is international[5] and commercial in nature;
  • the action is one that the High Court may hear and try in its original civil jurisdiction;
  • the original plaintiffs and defendants have all submitted to the SICC’s jurisdiction under a written jurisdiction agreement; and
  • the parties do not seek any relief in the form of, or connected with, a prerogative order;
  • the case is transferred from the High Court;
  • an originating summons is sought for leave to commit a person for contempt in respect of any judgment or order made by the SICC; or
  • the case involves proceedings relating to international commercial arbitration that the High Court may hear and that satisfy such conditions as the Rules of Court may prescribe.

In particular, the SICC is restricted from declining to assume jurisdiction “solely on the ground that the dispute between the parties is connected to a jurisdiction other than Singapore, if there is a written jurisdiction agreement between the parties.” Further, the Singapore Court of Appeal has held that the possibility of transferring a case to the SICC is a relevant consideration for the Singapore High Court in determining whether it should exercise international jurisdiction under a broad application of the forum non conveniens principle. In principle, therefore, Singapore may assume international jurisdiction which it would not otherwise have had (such as in circumstances where Singapore law is not involved) based on the international capabilities of the SICC, which includes the presence of international judges and the possibility of determining foreign law on the basis of submissions instead of proof.

Foreign Judges

The judges appointed to the CICC are restricted to current judges of the Chinese courts and Chinese nationals, who must have experience in international commerce, along with the ability to work in both English and Chinese. Instead of foreign judges, the CICC has constituted an “International Commercial Expert Committee” (“ICEC”) consisting mainly of foreign legal experts from other jurisdictions along the “Belt and Road.” With the establishment of the ICEC, the SPC seeks to involve foreign legal experts in the dispute settlement process, who will provide advice and assist CICC judges in ascertaining the content of foreign laws and preside over mediation.

The SICC, by comparison, prides itself on its unique mix of eminent international jurists from common and civil law jurisdictions, along with judges of the Singapore Supreme Court. Currently, foreign judges make up 17 out of the 40 judges on the SICC panel of judges, including former Delaware Supreme Court Justice Carolyn Berger. They enjoy certain constitutional safeguards such as judicial immunity and restrictions on removal. This large proportion of foreign judges is intended to enhance the international credibility of the SICC and strengthen its ability to handle offshore matters.

Legal Representation and Procedure

Consistent with the international character of the SICC, parties to SICC proceedings may be represented by registered foreign lawyers who can make submissions on foreign law in offshore cases with no substantial connection to Singapore. In such cases, foreign law may be determined on the basis of submissions alone instead of formal expert evidence. If the parties agree, foreign rules of evidence may be substituted for Singapore evidence law. In comparison, the CICC’s procedural rules largely reflect forum-centricity insofar as they were drafted in accordance with the Chinese Civil Procedure Law, with the limited concession for evidence to be submitted in English without a Chinese translation where the parties agree. Parties to a dispute before the CICC can only be represented by Chinese law-qualified lawyers, as foreign lawyers do not have a right of audience in Chinese courts. In any event, Chinese procedural law restricts the language of court proceedings to Chinese, unlike most international commercial courts including the SICC, which uses English. As part of the SPC, CICC judgments cannot be appealed from, but are subject to possible “retrial” under the Civil Procedure Law. In contrast, as part of the Singapore High Court, SICC decisions at the first instance are generally appealable to the Court of Appeal, subject to any written agreement between the parties to waive, limit, or vary the right to appeal.

The following table provides a non-exhaustive summary of the salient differences between the CICC and the SICC.

Table 1: Summary of Key Differences between the SICC and the CICC

Jurisdiction International Judges Foreign Lawyers Language of Proceedings Appeal
SICC Not forum-centric Yes Yes English Yes
CICC Forum-centric No No Chinese No

Conclusion

The above are but a few of the salient differences between the CICC and SICC, and the scope of inquiry may be extended to include further issues such as judicial quorum and legal reasoning, the enforceability of judgments, the types of cases brought before the courts, and the relationship with the state’s arbitration and mediation processes. Broader questions may also be raised about whether the CICC meets “global governance” standards – particularly China’s WTO obligations under its Protocol of Accession to provide an impartial system of administration of laws and judicial review in trade and intellectual property matters. Further, foreign skepticism about the Chinese state’s intentions, as well as China’s rule of law and judicial system itself, remains entrenched and is difficult to assuage in the immediate future. Given its conservative design – particularly in comparison with the SICC – the CICC is arguably less of an international or transnational commercial court than an extension of its domestic court, which runs counter to the ostensibly globalist objectives of the BRI. While it is a step toward increasing integration of the Chinese judicial system with the international political economy, it is relatively parochial and protectionist, and is consistent with Chinese realist views of its sovereignty and foreign interference. While purporting to commit the adjudication of international commercial disputes arising from the BRI to the principle of “equal protection,” it remains to be seen if the forum-centric nature of the CICC, the relative lack of party autonomy in its procedures, and the challenges faced by China’s legal system go far enough in mitigating the transaction risks of international investors participating in the BRI, which may in turn affect investor confidence of whether to submit to the CICC’s jurisdiction. At the same time, the CICC is clearly a work in progress and its continuing reforms and greater internationalization would influence and determine the international legitimacy and credibility of the CICC and the BRI in the long term.

Lance Ang is currently a Research Associate at the Centre for Asian Legal Studies at the National University of Singapore Faculty of Law and an Associate Editor of the Asian Journal of Comparative Law. Ang has practised corporate law in the area of mergers & acquisitions and previously served as a legal counsel at an international bank.

[1] See Matthias Herdegen, Principles of International Economic Law 22-23 (2016).

[2] See Maren Heidemann, Transnational Commercial Law 19 (2019). The establishment of a “European Commercial Court” has been mooted by some in the post-Brexit era: https://www.law.ox.ac.uk/business-law-blog/blog/2018/11/towards-european-commercial-court

[3] See Richard Fentiman, International Commercial Litigation  3-4 (2015).

[4] A commercial case with one of the following circumstances may be determined to be an “international” commercial case as referred to in the CICC Provisions: (i) one or both party/-ies is/are (a) foreigner(s), stateless person(s), or foreign enterprise(s) or organization(s); (ii) the habitual residence(s) of one or both party/-ies is/are outside the territory of the People’s Republic of China; (iii) the subject property is outside the territory of the People’s Republic of China; (iv) the legal facts that generated, changed, or eliminated the commercial relationship occurred outside the territory of the People’s Republic of China.

[5] The action is “international” if (i) the parties to the claim have their places of business in different States; (ii) none of the parties to the claim have their places of business in Singapore; (iii) at least one of the parties to the claim has its place of business in a different State from — (A) the State in which a substantial part of the obligations of the commercial relationship between the parties is to be performed; or (B) the State with which the subject matter of the dispute is most closely connected; or (iv) the parties to the claim have expressly agreed that the subject-matter of the claim relates to more than one State.