China’s Maritime Courts: Defenders of ‘Judicial Sovereignty’

China’s creation of an international maritime judicial center was, to the foreign audience, one of the most controversial issues addressed in Supreme People’s Court (SPC) President Zhou Qiang’s work report to the National People’s Congress in March 2016.

What did Zhou mean by this? When a spokesman for the Foreign Ministry was asked about it, he referred his audience to the competent authorities for details.

This article drills down on what the “competent authorities,” that is Zhou Qiang, the SPC and more broadly, the Chinese government, have in mind.

First, the concept is not intended to replace the Law of the Sea Tribunal or other forums for resolving international legal disputes. None of the SPC documents on this topic have mentioned that, and regardless that would be an initiative coming out of the Ministry of Foreign Affairs. Their international lawyers have enough on their hands, and setting up a new international court would require other countries to agree to it.

From the statements by Zhou and Chinese experts on international law, as well as a recent SPC maritime court conference, promoting China to be an international maritime judicial center means that the Chinese government wants to increase the international influence and prestige of the Chinese maritime courts, rather than create a new institution. As his rationale, Zhou points to the fact that the Chinese maritime courts hear the most cases of any national maritime court system worldwide. In 2015, the maritime courts accepted about 17,500 cases, with cases involving foreign parties accounting for about 15 percent.

This initiative by the SPC is linked to larger Party/government policy, as well as issues of national sovereignty and security, but also raises a series of legal issues, such as the range of cases the Chinese maritime courts hear, China’s participation in international maritime conventions, and the challenges that the Chinese maritime courts face in improving their prestige.

The SPC’s Maritime Courts Initiative

Increasing the role of the Chinese maritime courts in international maritime dispute resolution is linked to broad language in the Fourth Plenum Decision, the government’s “One Belt, One Road” initiative, and China’s major role as a shipping power, as well as a 2015 SPC policy document on promoting the maritime courts and foreign-related functions of the courts.

The Fourth Plenum Decision contains the following sentence:

Vigorously participate in the formulation of international norms, promote the handling of foreign-related economic and social affairs according to the law, strengthen our country’s discourse power and influence in international legal affairs, use legal methods to safeguard our country’s sovereignty, security, and development interests.

Promoting the Chinese maritime courts as an international center for maritime dispute resolution is thus part of overall government policy to strengthen China’s voice and influence in international legal affairs and use law to protect and promote its sovereignty, security, and interests.

In a policy document issued last year that sets out the role the Chinese courts are to play in supporting the government’s One Belt, One Road initiative (the SPC OBOR Document),the SPC called on the maritime courts to promote the government’s maritime power strategy by focusing on port construction, shipping finance, marine cargo, marine ecological protection, and other maritime cases as the government promotes its Maritime Silk Road. The SPC OBOR Document also calls for Chinese courts to exercise their jurisdiction and protect it, while respecting the rights of foreign parties to select a dispute resolution forum.

A second SPC policy document sets out the goals for the foreign-related and maritime operations of the Chinese courts to support the national strategy of an open economy and a maritime power. It specifically mentions the creation of an international maritime judicial center, and greater positive international publicity about the Chinese courts.

The Chinese maritime courts assert jurisdiction geographically over all the marine waters that China claims, be they in the South China Sea or East China Sea. For that reason, a robust assertion of jurisdiction can be used to strengthen or assert national sovereignty. An example that Zhou used in his NPC work report illustrates this aspect very well. Zhou mentioned a case in which a Chinese maritime court had mediated a settlement between a Chinese fishing vessel and a Panama-registered freighter that had collided in the waters near the Senkaku (Diaoyu) Islands, waters over which China claims jurisdiction (despite Japanese government protests over the case).

Foreign Cases in the Maritime Courts

However, sovereignty issues aside, the growing number of foreign cases in China’s maritime courts are related both to China’s role as a major shipping power and Chinese law on related legal issues. The significant increase in maritime cases generally, according to one expert, is related to the downturn in domestic and international shipping markets, leading many business deals to go sour and crew unpaid.

There are many reasons that foreign parties find themselves in the Chinese maritime courts. Some have to do with parties voluntarily submitting their case to the Chinese courts, but other reasons are related to Chinese law. Foreign parties may find themselves in Chinese maritime court, or in both a foreign and Chinese maritime court, even when the parties had agreed to have their shipping dispute heard by a foreign court.

In international maritime practice, parties often include choice of court as well as choice of law clauses in the bills of lading or other agreements. Under Chinese law, however, a Chinese court sets aside the law to which the parties have agreed when looking at whether the choice of court is valid — and applies Chinese law in making its decision.

Chinese Civil Procedure Law requires the choice of court to have an “actual connection with the dispute.” In maritime practice, however, it is not unusual for parties that are not English or whose transaction has no connection with the United Kingdom to choose to have their documentation governed by English law and disputes resolved by the English courts. Additionally, Chinese law allows what is known as “parallel proceedings,” which means that a Chinese court may accept a case even if a foreign (including Hong Kong) court has jurisdiction and litigation is ongoing.

As a result of this interaction between international maritime practice and Chinese law, many cases have arisen in the Chinese maritime courts, as well as multi-jurisdictional litigation, in which the Chinese court decided that the choice of the English, Hong Kong, or other courts had no connection with the dispute and the Chinese court had jurisdiction. It is true that on a worldwide basis, shipping and maritime matters often give rise to forum shopping, conflicting litigation, and protective domestic legislation. China’s restrictive rules on the choice of a neutral forum and options for limiting forum-shopping, however, arguably provide a bulwark for the protection of what is referred to as “Chinese judicial sovereignty.”

Challenges For the Maritime Courts

Despite China’s stated wish to become an international maritime judicial center, Chinese maritime courts face several challenges in making themselves market leaders in maritime dispute resolution, including insufficient transparency, and judgments with less detailed reasoning than their counterparts overseas. Moreover, China is not a party to the principal international conventions on the carriage of goods by sea, although it has incorporated many of their provisions into its Maritime Code. Plus, the willingness of Chinese courts to take jurisdiction notwithstanding the parties’ choice of law and court, even when proceedings are ongoing elsewhere, gives the rest of the professional and business world a negative impression.

That being said, according to comments by at least one experienced maritime lawyer, international maritime lawyers (and their clients) have become more familiar with China as a jurisdiction and can anticipate the litigation risk premium of settling a case in China as compared to Hong Kong or London, thanks to the critical role played by competent Chinese maritime lawyers. The SPC is seeking to boost international confidence in its maritime courts through special initiatives, including: promoting greater transparency and more information in English, including English language maritime court websites with English language information on the docket and translations of cases or case summaries, white papers, as well as more “typical cases.”

The Way Forward

SPC President Zhou Qiang should recognize that an important hub for international maritime dispute resolution is already in China—the Hong Kong SAR. None of the statements by SPC leaders calling for a greater voice in international legal maritime matters or increasing Chinese maritime legal soft power have acknowledged the role of Hong Kong in international maritime dispute resolution.

Hong Kong’s independent judiciary, the high quality of the legal community in Hong Kong, and Hong Kong’s participation in international maritime conventions mean that international litigants look to Hong Kong as a reliable jurisdiction to have their dispute heard.

The Chinese Academy of Social Sciences, in a recent report evaluating the  transparency of the maritime courts, noted that London and Singapore are generally recognized as international maritime judicial centers because of their well developed legal systems and timely issuance of cases. Hong Kong should be added to that list as well, according to the maritime lawyer mentioned above.

As for the Chinese maritime courts, court reforms and special policies for the maritime courts are dealing with some of  their underlying issues, including providing greater judicial autonomy and greater transparency, regular publication of judgments, and more training for Chinese maritime judges, who are generally well regarded within China.

The deeper issues relating to choice of court clauses and parallel proceedings (which also affect Hong Kong) will require focused domestic review of these issues. A cross-border perspective from Hong Kong, Singapore, and London, and other major maritime jurisdictions could be helpful in that process.

Susan Finder blogs as the Supreme People’s Court Monitor. She is a Visiting Professor at the School of Transnational Law of Peking University and is affiliated with the Centre of Chinese Law of the University of Hong Kong, where she was a Visiting Professor in the fall of 2015.  She was in practice for many years with the international law firm Freshfields, Bruckhaus and Deringer, before which she published the first comprehensive analysis (in English) of the Supreme People’s Court, while teaching at the City University of Hong Kong.

By SUSAN FINDER Apr. 5, 2016 on The Diplomat

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