HONG KONG SAR, CHINA Trends and Developments Contributed by: Lianjun Li, Matthew Townsend, Patrick Chong and Vanessa Fung, Reed Smith
Reed Smith Richards Butler LLP 17/f One Island East Taikoo Place 18 Westlands Road
Quarry Bay Hong Kong
Tel: 2810-8008 Fax: 2810-1607
Email: lianjun.li@reedsmith.com Web: www.reedsmith.com/en
Introduction The rapid expansion of Chinese outbound investment, including the ambitious programme contemplated by the Belt and Road Initiative (BRI), has reshaped the global economic landscape. This has further driven the need for an independent and reliable means to resolve disputes arising in large, long-term, cross-border projects. Such disputes are frequently triggered by regulatory and policy changes, or other state action. For investors seeking to avoid legal proceedings in the courts of the host state whose actions are under scrutiny, investor–state dispute set- tlement (ISDS) has emerged as a preferred dispute resolution mechanism. An investor’s rights to protection, and recourse to arbitration to enforce those rights, might be found in an international treaty, domestic investment law, or agreement. These are designed to foster favourable conditions for investments by investors of one con- tracting state in the territory of another state. Typi- cal protections include, but are not limited to, a right to fair and equitable treatment (FET), full protection and security, protection from expropriation without prompt, and adequate and effective compensation. As with private commercial arbitration, an investor– state arbitration proceeding may be administered by an arbitration institution or alternatively conducted on an ad hoc (ie, unadministered) basis. For administered arbitration, one prominent choice is the International Centre for Settlement of Investment Disputes (ICSID). This is popular: the ICSID Convention has 165 signa-
tory and contracting states, including China. For ad hoc investor–state arbitration, it may be that the par- ties choose the Arbitration Rules of the United Nations Commission on International Trade Law Arbitration Rules (“UNCITRAL Rules”) to govern the procedural aspects of the arbitration. Perhaps the key benefit of arbitration is the ease of enforceability across borders. ICSID awards may in principle be enforced under the ICSID Convention, which provides that, if a party fails to comply with an award, the other party can directly have the pecuniary obligations recognised and enforced in the courts of any ICSID member state as if it were a final judgment of that state’s court. By contrast, awards rendered by ad hoc arbitration tribunals are often enforced across borders based on the mechanism set out in the Con- vention on the Recognition and Enforcement of For- eign Arbitral Awards (the “New York Convention”). Investor–State Arbitration and the People’s Republic of China (PRC) At the time of writing, China has entered into 148 bilat- eral investment treaties (BITs) with other economies. A BIT often provides for a mechanism to resolve dis- putes between a contracting state and investors from another contracting state. For instance, the Agree- ment on the Reciprocal Promotion and Protection of Investments between the government of China and the government of the Bolivarian Republic of Vene- zuela provides that, if investment-related issues regu- lated by the agreement cannot be settled amicably, the investor may choose to submit such disputes to
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