The Reform of International Commercial Dispute Resolution

 

 

Authors[1]:

 

Cody Chen  

codychen@qinlilegal.com 

 

Sean Qu 

seanqu@qinlilegal.com 

 

 

 

 

 

The Reform of International Commercial Dispute Resolution 

 

Previously parties in dispute resolution for international commercial transactions typically chose arbitration. While this trend was due to the fact that the transaction parties have less confidence and knowledge of other nation's judicial systems, but we also understand that arbitration awards, in comparison to judicial judgments, are more efficient and convenient for worldwide recognition and enforcement. The inception of two international conventions, relating to international commercial dispute resolution is anticipated to deliver a disruptive worldwide impact.

 

The Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters

 

On 2 July 2019, the 22nd Diplomatic Session of the Hague Conference on Private International Law adopted the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters ("Judgment Convention"). During the closing ceremony Uruguay signed the Judgment Convention, becoming the first and currently the only state signatory. The Judgment Convention will come into effect in accordance with its provisions upon the signing of one another country.

 

The Judgment Convention and the Convention on Choice of Court Agreements ("Choice of Court Convention"), which was adopted on the 20th Diplomatic Session of the Hague Conference on Private International Law on 30 June 2005, are intended to establish the global uniform rules regarding the jurisdiction of international civil and commercial litigation, as well as the recognition and enforcement of foreign judgments.

 

Since the Choice of Court Convention went into effect on 1 October 2015, the European Union has formally acceded to it while China, the United States, and several other countries have also signed on to the convention, they are currently awaiting domestic ratification for official accession.

The Choice of Court Convention is applicable to international civil and commercial cases in which the parties have entered into an exclusive choice of court agreement on the disputed matters. A judgment made by the chosen court of contracting states shall be recognized and enforced among other contracting states under the Choice of Court Convention. The Judgment Convention is an effort made by the Hague Conference on Private International Law, building upon the Choice of Court Convention, aiming to fully establish a worldwide uniform legal framework of recognition and enforcement of civil and commercial judgments among the contracting states.

The Judgment Convention is a milestone for the international civil and commercial dispute resolution system. Take China as an example, at present, there are only two ways for Chinese courts to recognize and enforce judgments made by a foreign court. First, through bilateral treaties on judicial assistance executed by China, or second, according to the principle of reciprocity. Currently, China has established bilateral treaties on judicial assistance with over 30 countries on mutual recognition and enforcement of court judgments, nevertheless, the United States and those European Union countries that have frequent business dealings with China are not included. The existing bilateral judicial assistance treaty system is arduous to provide sufficient support for the recognition and enforcement of foreign court judgments. For countries that have not signed bilateral treaties with China on judicial assistance involving mutual recognition and enforcement of court judgments, Chinese courts will determine whether to recognize and enforce a court judgment based on the principle of reciprocity. Under the current judicial practice, Chinese courts generally adopt the standard of "factual reciprocity", i.e. Chinese courts will only consider to recognize and enforce a foreign court judgment if that country has already recognized and enforced a Chinese court judgment, even so there will be substantial uncertainty on the final ruling. The inception of the Judgment Convention will open up the possibility of creating an extensive network of mutual recognition and enforcement of court judgments of contracting states, and make recognition and enforcement of foreign court judgments more effective and accessible under the unified international standard and rules.

 

 The United Nations Convention on International Settlement Agreements Resulting from Mediation

 On 20 December 2018, the 73rd General Assembly of the United Nations passed the United Nations Convention on International Settlement Agreements Resulting from Mediation ("Singapore Convention"). The initial signing ceremony of the Singapore Convention will be held in Singapore in August 2019, and will come into effect in accordance with its provisions after it has been executed by three countries.

Mediation is an alternative dispute resolution means apart from litigation and arbitration. Compared to litigation and arbitration, mediation is more flexible, to the extent that it emphasizes resolving disputes by means of concluding the settlement agreement based on voluntary and amicable negotiation, without the need of any judgments, rulings, nor awards to be made by a mediation organization or mediator(s).

Despite relatively fewer mediation cases, we have seen an increase in cases choosing mediation in lieu of litigation and arbitration. Organizations such as Singapore International Mediation Centre (SIMC) and Hong Kong Mediation Centre (HKMC) have become experienced in mediating international commercial disputes. As for Mainland China, arbitration organizations such as China International Economic and Trade Arbitration Commission (CIETAC), as well as commercial mediation organizations such as the Mediation Centre of China Council for the Promotion of International Trade (CCPIT)/China Chamber of International Commerce, Shanghai Commercial Mediation Centre (SCMC) have already engaged in mediation for commercial disputes.

The Singapore Convention aims to build up an international commercial dispute resolution mechanism under which settlement agreements concluded upon mediation can be directly and transnationally enforced without the need for prior review and recognition by litigation or arbitration proceedings.

The Singapore Convention may stimulate the development of mediation in the field of international commercial dispute resolution. From the perspective of current law and practice in China, mediation as a promoted means of alternative dispute resolution would certainly face difficulty, for the reason that even if disputing parties have reached the consensus in resorting to mediation (mediation agreement or mediation clause), such consensus may not legally form exclusivity against  litigation or arbitration. Uncertainty in dispute resolution means and procedures would possibly impede commercial transaction parties from choosing mediation.

 

The influence of the Judgment Convention and Singapore Convention on International Commercial Dispute Resolution System

Litigation, arbitration, and mediation comprise the three major methods of international commercial dispute resolution. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention") has exceedingly promoted arbitration in the field of international commercial dispute resolution, in the sense that foreign arbitral awards can be recognized and enforced in 159 countries including China, the United States, and major countries within the European Union. This amounts to a great advantage of arbitration and has made arbitration the favoured means of international commercial dispute resolution.

Compared with arbitration, mediation has similar advantages of flexibility, privacy, and efficiency. Subject to specific circumstances and on a case by case basis, parties may prefer mediation as a more flexible dispute resolution option. For example, in an overseas EPC project related dispute, both litigation and arbitration may easily delay the construction completion, while mediation may amicably resolve the dispute between the parties without suspending construction.

In the field of international commercial dispute resolution, arbitration is usually considered to be more convenient and efficient compared to litigation. However, in practice, commercial parties find there are certain circumstances where litigation has its advantageous over arbitration. Take the Chinese civil proceedings law and practice as an example, arbitration organizations have no power to take property and evidence preservation measures against any civil party, but need to pass on to a court for preservation rulings. In practice, we have seen quite a few cases where clients face problems caused by the timing gap between arbitration application and preservation procedures. Subsequently, if a party foresees that a prompt property and/or evidence preservation against the counterparty is critical when there is a dispute, litigation would be preferred over arbitration with regard to efficiency and effect of preservation. In addition, the fact that courts generally adopt two-instance for civil lawsuits is not necessarily a disadvantage for litigation, instead, this to some extent provides additional remedies to a losing party compared with arbitration, which usually is agreed by the parties to be binding.

The birth of the Judgment Convention and the Singapore Convention, will hopefully reduce the gap between arbitration and litigation/mediation. Parties to international commercial transactions will have an opportunity to re-visit the pros and cons among litigation, arbitration, and mediation, and to choose the most appropriate means of dispute resolution upon comprehensive consideration of each individual case.

The reform of the international commercial dispute resolution system has been unveiled. It still needs to be seen whether the Judgment Convention, the Choice of Court Convention, and the Singapore Convention will become the expected revolutionary drive to the international commercial dispute resolution system, and whether litigation, arbitration, and mediation will become neck to neck as future favoured choices for international commercial disputes.


Legal Analysis is published for the clients and professionals of Shanghai Qin Li Law Firm. The contents are of a general nature only. Readers are advised to consult their advisors before acting on any information contained in this newsletter. For more information or advice on the above subject or analysis of other issues, please contact: 

 

Patrick Yip

Senior International Advisor

patyipqinli@qinlilegal.com 

 

 

 

Cody Chen

codychen@qinlilegal.com 

 

Alexander Fischer

alexfischer@qinlilegal.com 

 

Weiheng Jia

weihengjia@qinlilegal.com 

 

Clare Lu

cllu@qinlilegal.com 

 

Ron Ma

roma@qinlilegal.com 

 

Jolin Song

jolsong@qinlilegal.com

 

Xiangyang Ge

xyge@qinlilegal.com 

 

Zhen Han

zhenhan@qinlilegal.com 

 

Ping Liu

liuping@qinlilegal.com 

 

 

 

 

 

 

 

 

 

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[1] Jude Zhou, Erin Yang, and Doris Peng have also made contributions to this Paper.