The rise of China

Impacts for mining arbitration

Australia Publication November 2020

Introduction

In the past six years, China has vastly expanded its presence in the mining sector by establishing dominance in the export of mineral resources such as rare earth elements and processed chemicals. China’s Belt and Road Initiative (BRI) expansion has also created opportunities for new investments and acquisitions in mineral resource-rich hotspots overseas, such as in Africa and Latin America, through state-owned enterprises as well as state-linked private firms. China’s rapid acquisitions have also extended its footprint beyond the developing world to Australia and the United States. Accompanying this rapid expansion is the emergence of Chinese engineering and construction companies as frequent players in overseas mining-related projects. This rapid expansion is reflected in the rising number of corporate finance deals but also disputes. Increasingly, disputes relating to mining and construction projects involve Chinese counterparties. This article explores China’s increasing focus on enhancing its position as a key arbitration destination for mining disputes and beyond.

 

The Belt and Road Initiative and the CICC’s first cases

Anticipating an increased volume of high-quantum, foreign-party commercial disputes related to the BRI, in 2018 the Supreme People’s Court (SPC) announced a specialized tribunal, the China International Commercial Court (CICC), with two locations in Xi’an and Shenzhen. 

The CICC is described as a “one-stop shop” for dispute resolution. The CICC can hear cases referred by the SPC that are international in character (i.e., one or both parties is foreign) or of national importance, and where the amount claimed is over 300 million RMB ($42 million USD). The CICC also has jurisdiction to hear applications for preservation measures in arbitration, and for setting aside or enforcing international commercial arbitration awards. 

Parties are encouraged to resolve a dispute by way of mediation, arbitration or litigation with support from various well-established Chinese arbitration centres like CIETAC, Shenzhen International Arbitration Centre, Shanghai International Arbitration Centre, and Beijing Arbitration Centre. 

The CICC’s mandate is still developing, given that some parties may still choose to use arbitration or mediation centres directly without applying to the CICC. It is unclear whether an award rendered by a Chinese arbitration centre via the CICC would be considered an SPC judgment or a foreign-related arbitral award for recognition and enforcement purposes. Foreign-related arbitral awards rendered in mainland China are interpreted pursuant to China’s Civil Procedure Law and not the New York Convention.

In early 2019, The CICC accepted 11 SPC-referred cases and heard substantive arguments in two cases, although final decisions have not yet been rendered. The first, Guangdong Bencao Medicine Group Co., Ltd. v Bruschettini S.R.L., involved a product liability dispute brought against the Italian pharmaceutical company Bruschettini by its Chinese distributor. The second CICC proceeding was Ruoychai International Group Co., Ltd. v Red Bull Vitamin Drink Co., Ltd. from Thailand regarding multiple long-running shareholder disputes. In each matter, the CICC offered to conduct mediation with its International Commercial Expert Committee. The substantive hearings each lasted between three to four hours before a five-judge panel. 

Although these matters are not directly related to the BRI or to China’s foreign mining projects, and it remains to be seen whether the CICC will find acceptance by foreign parties to bring claims before it as plaintiffs, they reflect China’s developing commitment to servicing high-value claims in its domestic courts.

 

Positive changes in Chinese arbitration policy yielding greater success for arbitration awards on judicial review

Parties seeking to recognize or enforce foreign arbitral awards in China have seen rising success rates in recent years. Between 2011 and 2015, over 86% of foreign arbitral awards were upheld upon application for recognition and enforcement. In late 2017, the SPC provided clarity on the grounds for judicial review and expanded the Prior Reporting System so that intermediate courts could refer any matters where they intended to refuse recognition or enforcement of an arbitral award for judicial review. 

Related to this, the SPC appears to be expanding the CICC’s mandate to conduct judicial review of arbitration cases. On September 18, 2019, the CICC released its first jurisdictional ruling in the three interrelated Luck Treat Co., Ltd. matters against Zhongyuan Cheng Commercial Investment Holdings Co., Ltd. which the SPC were referred from the Shenzhen Intermediate Court. The CICC confirmed that the contract’s arbitration clause was valid, independent of whether the parties actually entered into the contract. 

Parties pursuing foreign arbitration awards should be mindful that Chinese courts will examine foreign arbitral awards (including those rendered in Hong Kong, Macau or Taiwan) under Article V of the New York Convention, but also as subject to the public policy exceptions in China’s Civil Procedure Law, articles 237 and 274. However, public policy exceptions are rarely applied; only two cases in the last ten years were declined on this basis. 

In 2016, the SPC rejected enforcement of an award where the arbitration clause had previously been found invalid by a mainland China court, since enforcing the award would effectively undermine the Chinese judiciary. In 2017, the SPC held that an apparent sham arbitration award must be rejected in the public interest because the parties had manipulated arbitration to obtain illegal interests by improper means; enforcing such an award would mislead the public and pose a serious threat to the credibility of the judiciary.

 

Other pro-arbitration developments 

China is taking a more pro-arbitration approach as reflected in the SPC’s three provisions in relation to judicial review and enforcement of arbitration awards implemented in 2018. Besides implementing the above-noted measures to facilitate arbitration awards, the Chinese courts have also in recent cases ruled in favour of arbitration. 

For example, the December 2018 case of Chinalight Tri-union Int’l Trade Co., Ltd. v Tata International Metals (Asia) Limited concerns a challenge of an arbitration clause that named a non-existent arbitration institution in Singapore. The Beijing Intermediate Court confirmed that the Law on Foreign-Related Civil Relations and the related SPC Judicial Interpretation on Law of Application applied where the defendant is a Hong Kong-incorporated entity, and so the Beijing Fourth Intermediate People’s Court (“Beijing Court”) had jurisdiction to determine the clause’s validity. Pursuant to those provisions, since the disputed arbitration clause did not include an express agreement on the applicable law, the Beijing Court determined that the law of the place of the arbitration institution or the juridical seat should be adopted instead. The parties’ intention to arbitrate in Singapore was clear, and so the Beijing Court decided that the arbitral seat was Singapore and the applicable law was Singapore law. The Beijing Court further opined on the SPC’s pro-arbitration position as expressed in the Judicial Interpretation.

The SPC does not stop there. In a recent case published in January 2020, three conflicting dispute resolution clauses were in place in one single contract – the first was a litigation clause (Art. 2), followed by an arbitration or litigation clause (Art. 7), with a further arbitration clause at the end of the Chapter. Pursuant to Article 7 of the Interpretation of the Supreme People’s Court on Certain Issues relating to Application of the Arbitration Law of the People’s Republic of China, an arbitration agreement shall be ineffective if it contains both a litigation and arbitration clause. As such, the Beijing Court intended to rule the arbitration clause invalid. The clause, however, was subsequently saved when the SPC applied the contract interpretation rule “latter stated clauses take precedence over earlier stated clauses.” 

In essence, the SPC ruled that although three dispute resolution clauses existed in the contract, the arbitration clause was placed last among the three (in the last paragraph of the Chapter), which “clearly” reflected the parties’ “latest” intention. As the arbitration clause was also found to be in full compliance with the PRC Arbitration Law, the clause should therefore prevail. This case illustrates the SPC’s willingness to promote arbitration through applying its own “last clause rule” to contract interpretation. The SPC applied this rule for the first time in a 2011 case involving multiple contracts and conflicts regarding business clauses, instead of dispute resolution clauses as in the current case. 
 
Another important development is that China entered into the HK-Mainland Arrangement Concerning Mutual Assistance in Court-Ordered Interim Measures in Aid of Arbitral Proceedings, which took effect on 1 October 2019. Pursuant to the Mutual Arrangement, Hong Kong would become the first jurisdiction outside China where parties to arbitral proceedings administered by designated Hong Kong arbitral institutions (such as the Hong Kong International Arbitration Centre and CIETAC HK) would be able to apply to the mainland China courts for interim measures. This arrangement makes Hong Kong a unique and important venue for parties that wish to have access to interim relief from a mainland Chinese court but do not wish to seat their arbitration in mainland China.

 

Concluding remarks 

While China’s expansion in the mining sector across the BRI is creating more business opportunities, it is also inevitable that more disputes will arise on the investment, construction or operation fronts. China has taken the initiative to promote its position as an arbitration-friendly destination, which should encourage foreign entities facing Chinese counterparties in mining-related disputes to consider choosing the numerous institutions available in China or Hong Kong as their arbitral seat. 
 

 

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