China’s Belt and Road Initiative (BRI) is arguably the largest infrastructure project ever. Consequently, there have already been and will continue to be a myriad of disputes that arise. These commercial and investor-state disputes are actually helping mainland China’s judicial climate evolve, and with that evolution may eventually come mainstream acceptance of litigation funding.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
China’s Belt and Road Initiative (BRI) is arguably the largest infrastructure project ever. Consequently, there have already been and will continue to be a myriad of disputes that arise. These commercial and investor-state disputes are actually helping mainland China’s judicial climate evolve, and with that evolution may eventually come mainstream acceptance of litigation funding.
According to Vannin Capital’s latest Funding in Focus series, China is indeed undergoing a rapid transformation when it comes to its legal system. The world’s most populous nation is taking steps to improve its capacity to resolve disputes, especially when in the area of international arbitration. The ICC, for example, is focusing on large-scale complex disputes, especially as relates to the BRI. And the Chinese Supreme People’s Court is placing a strong emphasis on upholding the arbitral rules set forth in the New York Convention. Mainland China has long-needed a reform of its legal system, and BRI may yet prove to be the spark that finally ignites the flame.
What’s more, China is keenly aware of the steps that Hong Kong and Singapore have taken to cement their status as the top arbitral centers of Asia, in part by welcoming the use of third party funding in international arbitration disputes. While the practice is recognized in China, it is not yet mainstream, and there are still many knowledge gaps around the benefits of third party funding as well as the various implementations (portfolio funding, for example). Yet China has shown great eagerness when it comes to competition, so it isn’t a far cry to assume that broader acceptance of the practice will soon arise.
Of course, there are still barriers to entry – enforceability being a key concern. And China’s dispute resolution culture is one that leans more towards mediation, hence legal professionals are less-experienced in areas of litigation and arbitration than many funders would like them to be. As Peter Hirst, Co-Chair of the Clyde & Co Global Arbitration Group noted, “For Chinese parties, there is a greater focus on building relationships of trust and confidence. I think it is best summed up in understanding that the contract is seen as the start of a relationship, not the culmination of it.”
While BRI won’t change the culture overnight, it is still forcing China’s hand, so to speak. China has no other choice but to update and reform its legal system, and as the years drag on (BRI was first implemented in 2013), Chinese legal professionals are gaining more and more experience in areas that matter most to funders – namely international commercial arbitration and investor-state disputes.
Of course, when it comes to BRI dispute resolution, mainland China will be competing with Singapore and Hong Kong, as well as major international arbitration centers such as New York and London. That said, no one expects China to reach the summit right away. It’s a long climb to the top of the mountain, and it seems that BRI is providing the first leg up.
