Transnational Notes

On 16 March 2019, the Center for Transnational Litigation, Arbitration, and Commercial Law alongside NYU’s International Arbitration Association will host the 8th Annual NYU Vis Practice Moot.

The 8th Annual Vis Practice Moot will welcome 12 teams from selected law schools from the United States and Europe as well as many distinguished professionals and academics, who agreed to act as arbitrators, including Professor Franco Ferrari, the Center’s Director.

The Practice Moot rounds aim to provide a helpful forum for the Willem C. Vis International Commercial Arbitration Moot participants to practice their oral advocacy skills by pleading before, and receiving constructive feedback from, panels of experienced arbitrators from all around the world. The Practice Moot also enables the participating teams to meet and have a chance to plead against each other before the rounds in Hong Kong and Vienna, where more than 3000 students from about 370 law schools from around the world will compete.

The Center will once again host Italian Supreme Court Justice Francesco Cortesi, a two-time scholar-in-residence at the Center, for this coming week. Justice Cortesi, who graduated in 1994 cum laude from Bologna University School of Law, and specialized in international commercial law at Tilburg University School of Law (Netherlands) under the supervision of Professor Franco Ferrari, the Center’s Director’s who at the time was professor at Tilburg University, was appointed Judge at Court of Bologna in 1999. In 2001, he was assigned to the Court of Rimini, where he mainly dealt with disputes regarding contracts, consumer law issues and professional malpractice torts. In 2007, he moved to the Court of Forlì, where he was able to focus on those very same areas of law. During his tenure there, he also rendered some of the most relevant decisions concerning the United Nations Convention on Contracts for the International Sales of Goods, many of which have been translated into various languages, including English. In 2006, Justice Cortesi was appointed to the Government Committee for the revision of the Italian Civil Code. In January 2016, Justice Cortesi was appointed to the Italian Supreme Court, thus becoming one of the two youngest justices ever appointed to the Italian Supreme Court. Over the years, Justice Cortesi has been lecturing at the Bologna University School of Law mainly on “Commerce and the law of consumers” and “Methodology of law”.

On 21 February 2019, Professor Franco Ferrari, the Director of the Center, and Dr. Friedrich Rosenfeld, a former scholar-in-residence at the Center, currently a Global Adjunct Professor at NYU Law in Paris, a visiting Professor at the International Hellenic University in Thessaloniki and Lecturer at Bucerius Law School in Hamburg, will speak at a conference entitled “How international should international arbitration be? International standards v. domestic law in international commercial arbitration”. The event, which is co-sponsored by the Singapore International Arbitration Centre, will be hosted by Norton Rose Fulbright (Asia) LLP. For the event’s flyer, please click here.

On Monday, February 25, 2019, the Center for Transnational Litigation, Arbitration, and Commercial Law will host the February session of the Center’s Forum entitled “The Draft Hague Convention on the Recognition and Enforcement of Judgments: Light at the End of the Tunnel?”. The event, which will take place at NYU School of Law’s Furman Hall, 245 Sullivan St., Lester Pollack Colloquium Room, 9^th floor, from 6:00-8:00 pm, and will be moderated by Professor Linda Silberman, the Charles D. Ashley Professor of Law at New York University and the Co-director of the Center.

The event will be an opportunity to discuss the Hague Conference’s proposal for a world-wide Judgment Convention (the latest version of which you can find here).

On the occasion of this session, Professor Ronald Brand and Mr. David Goddard will comment on the Hague Conference’s proposal. Their comments will be based on their papers, which you may download by clicking here and here.

Ronald A. Brand is the Chancellor Mark A. Nordenberg University Professor of Law, John E. Murray Faculty Scholar, and Academic Director of the Center for International Legal Education at the University of Pittsburgh School of Law.  He has taught and lectured in many countries, and in 2011 delivered a special course on private international law at the Hague Academy of International Law.  He is a former Fulbright Scholar in Belgium, a former Fellow of the Institute of Advanced Studies at the University of Bologna, a recipient of the ABA Section on International Law’s Leonard A. Theberge Award in Private International Law, and a recipient of a Dr. Jur. honoris causa from the University of Augsburg.  Brand was a member of the U.S. Delegation to the Special Commissions and Diplomatic Conference of The Hague Conference on Private International Law that concluded the 2005 Convention on Choice of Court Agreements, and has been a member of the U.S. Delegation to the Hague Conference Special Commission on Judgments, which is preparing a Convention on the Recognition and Enforcement of Judgments in Civil and Commercial Matters.

David Goddard is one of New Zealand’s leading barristers. He specializes in appellate advocacy, appearing frequently before the Court of Appeal and the Supreme Court. His more than 30 appearances in the Supreme Court include major public law and Treaty of Waitangi cases, in many of which he was counsel for the New Zealand Government. He also acts as an arbitrator in commercial disputes. In 2011, he was appointed as a member of the Commonwealth Secretariat Arbitral Tribunal. He is currently the Acting President of that Tribunal. David has an extensive involvement in law reform in New Zealand and overseas. He advises ministers and government agencies on a wide range of policy issues. He has represented New Zealand in bilateral and multilateral negotiations. He has drafted legislation and treaties in a number of fields including company law, contract law, private international law, and regulation of cross-border commercial activity. He was chair of the HCCH Judgments Project Special Commission that prepared the 2018 Draft Convention to be discussed on the occasion of the February session of the Forum. He was a drafting committee member and Vice-President of the Diplomatic Conference that adopted the Choice of Court Convention in 2003. He was one of the architects of the trans-Tasman regime for service of court proceedings and enforcement of judgments, which came into force in 2013. David is spending the 2018/2019 academic year at the NYU Hauser Law School as a Senior Global Fellow from Practice and Government.

Linda Silberman is the Charles D. Ashley Professor of Law at New York University and the Co-director of NYU’s Center for Transnational Litigation, Arbitration, and Commercial Law. Professor Silberman also holds an Honorary Professorship at Queen Mary University of London in the Centre for Commercial Law Studies.  She is a member of the U.S. Department of State Advisory Committee on Private International Law and has served on numerous U.S. State Department delegations to the Hague Conference. Professor Silberman has served as an Adviser on four different projects of the American Law Institute (ALI): the Restatement Third of the US Law on International Commercial Arbitration, the Restatement Fourth of the Foreign Relations Law of the United States, the Restatement Third on Conflict of Laws, and Intellectual Property : Principles Governing Jurisdiction, Choice of Law and Judgments in Transnational Disputes. Previously, she was co-reporter for the ALI’s Project on Recognition and Enforcement of Foreign Judgments: Analysis and Proposed Federal Statute. Professor Silberman teaches and writes in the areas of Civil Procedure, Conflict of Laws, Comparative Procedure, International Litigation, International Arbitration, and International Child Abduction. She is the 2018 recipient of the “Leonard J. Theberge Award for Private International Law” from the ABA Section on International Law.  Professor Silberman has been invited to give the general course on Private International Law at the Hague Academy of International Law in 2020.

On Monday, 18 February 2019, Professor Ferrari, the Center’s Director, will speak on “Economic Hardship under the CISG: A Hard Issue”. The talk, co-sponsored by the Center, the City University of Hong Kong, and the Hong Kong Commercial and Maritime Law Centre, will focus on how the economic crisis has affected long-term international sales agreements. Plummeting prices led to importers wanting to get out of these long-term agreements. Professor Ferrari’s talk will address the issue of whether the United Nations Convention on Contracts for the International Sale of Goods deals with economic hardship and what consequences the answer to this question triggers. For the event flyer, please click here.

I. Background

Historically, arbitration has been regarded as a flexible, efficient and cost-effective means to resolve international disputes.[1] However, the White & Case and Queen Mary University of London 2018 International Arbitration Survey concluded that high cost and lack of speed now rank as the first and fourth worst characteristics, respectively, of international arbitration. [2] Thus, while international arbitration was once renowned for swift proceedings at low costs, which made arbitration the most viable alternative to litigation before state courts, these features have now become arbitration’s main disadvantages. [3]

Improving the evidence taking and procedure control of international arbitration will be crucial to increase its efficiency. Traditionally, the IBA Rules on the Taking of Evidence in International Arbitration (the “IBA Rules”) [4] have gained wide acceptance within the international arbitration community as a mechanism to bridge the gap between the common law and civil law traditions of taking evidence. Nonetheless, a rival to the IBA rules has recently arisen in the form of the Rules on the Efficient Conduct of Proceedings in International Arbitration (the “Prague Rules”) [5], which has incited much controversy.

The working group of the Prague Rules has criticized the fact that the IBA Rules are still closer to common law traditions for taking evidence and follow a more adversarial approach regarding document production, fact witnesses, party-appointed experts and cross-examination, which causes inefficiency. The Prague Rules intend to create an inquisitorial model of procedure and facilitate more active role of arbitral tribunals to increase the efficiency of international arbitration. [6] Furthermore, they provide alternative techniques to enhance efficiency and embrace flexibility, while bestowing arbitrators with strong case management powers to heal due process paranoia. [7] However, some practitioners argue that the causes of inefficiency do not arise from common law features, but rather from the lack of robust case management. Therefore, the active role of arbitral tribunals in the Prague Rules is unlikely to increase the speed or decrease the cost of arbitration, and will, most likely, result in a lower quality of arbitral awards. [8]

“The Prague Rules are the newcomers in arbitration; and they entered the ballroom with noise.”[9] Before coming to any premature conclusion on the influence of the Prague Rules on the usage of the IBA Rules and international arbitration practice, it will be necessary to identify where precisely the rules differ.

II. The Major Comparisons between the Prague Rules and the IBA Rules

Article 2 of the Prague Rules specifies that the arbitral tribunal’s role in case management conferences will be more proactive. Its responsibilities will include clarifying with the parties disputed and undisputed facts, the legal grounds, and the burden of proof, and sharing preliminary views with the parties.By contrast, the consultation process in article 2 of the IBA Rules focuses more on evidentiary matters, including witness statements, expert reports, oral testimony and the production of documents. Article 2 of the IBA Rules also emphasizes the importance of efficiency and encourages the arbitral tribunal to identify any issues that it considers relevant to the case and material to the outcome.[10]

Regarding documentary evidence, article 3 and article 4 of the Prague Rules set up the default rule that the arbitral tribunal has the power to request parties to produce documentary evidence, and the extensive production of documents should be avoided, including any form of e-discovery. [11] Still, the articles reserve any party’s right to request arbitral tribunals to order another party to produce specific documents. However, the article 3 of the IBA Rules specifies that any party may submit a request to produce directly to the other party and the arbitral tribunal. If the other party has an objection, the arbitral tribunal has the final say to resolve that dispute. Article 3.10 of the IBA rules also gives arbitral tribunals the power to request parties to produce documents.

With respect to fact witnesses, article 5 of the Prague Rules states that arbitral tribunal has the power to decide which witness is to be called for examination, and it may decide not to call the witness for examination if it considers the testimony of the witness to be unnecessary for the resolution of the dispute, or if the witness statement has already been submitted. Article 5 also does not stipulate an unconditional cross-examination approach for fact witnesses. Instead, the examination is subject to the direction of the arbitral tribunal. On the contrary, article 4 of the IBA rules requires the fact witness to appear for testimony at the evidence hearing. Otherwise, such witness’s statement shall be the disregard if such witness has no valid reason for absence.

For experts, article 6 of the Prague Rules formulates the default rule that arbitral tribunal will first appoint the expert, but the appointment will not preclude a party from submitting reports by its own appointed expert. Without mentioning the priority, Article 5 and article 6 of the IBA Rules state that both party-appointed experts and tribunal-appointed experts are permissible. [12]

Article 7 of the Prague Rules contains a noteworthy principle called Iura novit curia, which allows the arbitral tribunal to apply legal provisions not pleaded by the parties if it finds it necessary, including but not limited to public policy rules. In so doing, the arbitral tribunal shall seek the parties’ views on the legal provisions it intends to apply. The IBA Rules do not have any such principle.

Regarding hearings, article 8 of the Prague Rules encourages the arbitral tribunal to resolve the dispute on a document-only basis and organize the hearing in the most cost-efficient manner. Conversely, article 8 of the IBA Rules specifies that the witness requested should appear for testimony as well as for the direct and cross-examination process, unless the arbitral tribunal allows the use of videoconferencing or similar technology. Also, article 8.2 of the IBA Rules emphasizes that arbitral tribunal shall have complete control over the hearing. In addition, article 9 of the Prague Rules encourages the arbitral tribunal to assist in amicable settlement of dispute at any stage of the proceedings, including by acting as a mediator. This is not stipulated in the IBA Rules.

Notwithstanding the above comparisons, there are many similarities between the Prague Rules and the IBA Rules. [13] However, significant differences still exist. The mindset of the Prague Rules is to strengthen the proactive role and general power of the arbitral tribunal throughout the proceedings in a more inquisitorial manner[14], such as (1) control case management conference generally; (2) request production of documents and avoid extensive production of documents; (3) decide which witness is to be called for examination and subject the examination to the direction of arbitral tribunal rather than regular cross-examination; (4) apply legal provisions not pleaded by the parties under certain conditions; (5) first appoint the expert; (6) resolve the dispute on a document-only basis; (7) assist in amicable settlement of dispute.

Although the IBA rules reserve many characteristics of common law system, they still embrace some approaches of civil law system and emphasize the arbitral tribunal’s complete control over the hearing. The rules and procedures that commonly apply today in international arbitration reflect a mixture of common law and civil law norms; nonetheless, the system appears to be evolving more in a common law direction.[15] Actually, the reason for such circumstance is not due to the IBA Rules themselves, but the practitioners who use the IBA Rules in a more common law approach. This has become the mainstream approach in proceeding with international arbitration, given the fact that the world’s largest law firms engaged in representing parties in international arbitration proceedings tend to be Anglo-American law firms that follow the common law tradition. [16]

However, international arbitration may suffer if arbitrators become overly cautious to allow parties unlimited opportunities to present their cases, instead of trying to proactively manage the cases from the beginning. This reluctance may decrease efficiency. [17] Therefore, the controversy between the Prague Rules and the IBA Rules is not just about the competition between the common law and civil law system, or the inquisitorial and adversarial approach. The controversy also involves striking a balance between party autonomy and the arbitral tribunal’s power to enhance the efficiency of international arbitration. This efficiency issue depends on how the arbitrators choose to apply above rules and how they otherwise conduct the proceedings. [18]

III. The Influence of the Prague Rules on the Usage of the IBA Rules and International Arbitration Practice

The advent of Prague Rules is meaningful. It reminds the parties that there are different ways to structure their arbitration and there is no golden standard of one-size-fits-all kind of approach. [19] The Prague Rules have also compelled arbitration practitioners and academics to reflect on whether their usage of the IBA Rules has fallen into the trap of the common law adversarial approach, characterized by passive arbitral tribunals and due process paranoia. Thus, arbitration practitioners should avoid assuming that particular procedures under IBA Rules should be applied to all cases regardless of the individual circumstances. [20] Although party autonomy is the cornerstone of arbitration, the arbitral tribunal must not become a captive of the parties’ will and accept every bargain that it is presented with. [21] By choosing the arbitration, the parties have chosen to yield their powers to the arbitral tribunal, and they have authorized it to resolve their dispute as appropriate.

The Prague Rules provide some inspirations for international arbitration practice. When the arbitral tribunal first decides which document is necessary and requests parties to submit relevant evidence, no time-consuming and expensive pre-trial investigation and document production is needed.[22] When arbitral tribunal rather than parties examine the witnesses, the costs and time of preparation and coaching of witnesses would be saved. If the arbitral tribunal first appoints the expert, as long as neither party shows objections to the qualification of the expert, the arbitral tribunal can follow the expert opinion and no time and cost related to party-appointed expert will occur. [23] Finally, if the parties can amicably settle the dispute through a process such as mediation, this would substantially enhance efficiency for international arbitration.  

Granted, the Prague Rules will not be appropriate for every case. Their application should depend on specific factors, such as the amount in dispute and complexity of the case. Meanwhile, it sets a high standard for arbitrators to get familiar with the case materials as soon as possible and the tribunal’s front-load costs for parties may increase due to tribunal’s more devotion to proceedings. [24] The Prague Rules would adopt a more paternalistic or authoritarian approach with which the drafters, most of them from Central and Eastern Europe may be comfortable, but others may not. [25]

Whether the proactivity of the arbitral tribunal would violate party autonomy and affect the quality of arbitral award is also a cause of concern. Some practitioners may refuse to accept that under the Prague Rules the arbitral tribunal is allowed to not to call the witness for examination during the hearing but only rely on written witness statements, without giving the other party the opportunity to question the witness during examination. [26] In addition, the Prague Rules allow the arbitral tribunal to apply legal provisions not pleaded by the parties under certain conditions, which is controversial. Although many countries recognize that arbitral tribunals have the inherent power to investigate and apply legal provisions not invoked by the parties, some national courts may annul such award. [27] Furthermore, when the arbitrators disregard an express choice of law clause, it is possible that courts may set aside or refuse recognition of the award. [28]

IV. Conclusion

The Prague Rules are not the foes of the IBA Rules and they are not intended to replace the IBA rules but to supplement them. [29] The Prague Rules play a fundamental role in giving the parties more options with a tailor-made process to fit their interests and needs. More options in international arbitration is, of course, a way to promote its use. [30] The Prague Rules were formally released on 14 December 2018. It remains to be seen to what extent they will become popular. [31]

The Prague Rules are also thought-provoking. Should the current international arbitration practice under IBA Rules be a standard approach for all cases? Does the civil law approach represented by the Prague Rules contribute to the efficiency? Where to strike the balance between party autonomy and the arbitral tribunal’s power? These questions deserve serious reflections from each arbitration practitioner and academic. Also, “there is much to gain from a joint effort of arbitration practitioners and academics from different cultural and legal backgrounds, as long as their shared goal is to put all their might at the service of a more reliable, legitimate and cost-effective international arbitration.”[32]

Charles Tian

Charles Tian is an LL.M. Candidate in the International Business Regulation, Litigation and Arbitration Program at the NYU School of Law. Before coming to NYU, Charles had practiced law in Shanghai for almost four years, focusing on domestic and foreign-related arbitration and litigation.

[1] Inka Hanefeld & Aaron de Jong, Inherent Powers to Streamline the Proceedings, in INHERENT POWER OF ARBITRATORS 247, 247 (Franco Ferrari & Friedrich RosenfeldInka, eds., 2018).

[2] White & Case LLP and Queen Mary University of London 2018 International Arbitration Survey: The Evolution of International Arbitration (9 May 2018), https://www.whitecase.com/sites/whitecase/files/files/download/publications/qmul-international-arbitration-survey-2018-18.pdf.

[3] Klaus Peter Berger & J. Ole Jensen, Due process paranoia and the procedural judgment rule: a safe harbour for procedural management decisions by international arbitrators, 32 Arbitration International 415, 415–416 (2016).

[4] Rules on the Taking of Evidence in International Arbitration (29 May 2010),
https://www.ibanet.org/Publications/publications_IBA_guides_and_free_materials.aspx.

[5] Rules on the Efficient Conduct of Proceedings in International Arbitration (Prague Rules)(Draft, 1 September 2018), http://praguerules.com/upload/medialibrary/b2e/b2e26123ac310b644b26d4cd11dc67d8.pdf. (Official, 14 December 2018), https://praguerules.com/upload/medialibrary/9dc/9dc31ba7799e26473d92961d926948c9.pdf.

[6] Id.

[7] See Andrey Panov, Why the Prague Rules may be needed?, Practical Law Arbitration Blog (11 October 2018), http://arbitrationblog.practicallaw.com/why-the-prague-rules-may-be-needed/.

[8] See Michal Kocur, Why Lawyers from Civil Law Jurisdictions Do Not Need the Prague Rules, Kluwer Arbitration Blog (19 August 2018), http://arbitrationblog.kluwerarbitration.com/2018/08/19/why-lawyers-from-civil-law-jurisdictions-do-not-need-the-prague-rules/.

[9] Paula Costa e Silva, Arbitration, Jurisdiction and Culture: Apropos the Rules of Prague, Kluwer Arbitration Blog (16 July 2018), http://arbitrationblog.kluwerarbitration.com/2018/07/16/arbitration-jurisdiction-culture-apropos-rules-prague-part/.

[10] See Guilherme Rizzo Amaral, Prague Rules v. IBA Rules and the Taking of Evidence in International Arbitration: Tilting at Windmills, Kluwer Arbitration Blog (5 July 2018),
http:///2018/07/06/prague-rules-v-iba-rules-taking-evidence-international-arbitration-tilting-windmills-part-ii/.

[11] Id.

[12] Id.

[13] Id.

[14] See Duarte G. Henriques, The Prague Rules: Competitor, Alternative or Addition to the IBA Rules on the Taking of Evidence in International Arbitration? 36 ASA Bulletin 351, 354 (2018).

[15] Javier Rubinstein, Reflections at the Crossroads of the Common Law and Civil Law Traditions, 5 Chicago Journal of International Law 303, 303 (2004).

[16] Andreas Respondek, How Civil Law Principles Could Help to Make International Arbitration Proceedings More Time and Cost Effective, Singapore Law Gazette (February 2017),
http://www.praguerules.com/upload/iblock/af3/af3352da3709e3340951a38dfe8d7f61.pdf.

[17] See Alexandre Khrapoutski & Andrey Panov, The Prague Rules – an alternative way of conducting international arbitration? (September 2018), http://praguerules.com/upload/iblock/142/142ae6cc924c6a2ac7959fa335ca7ad1.pdf.

[18] Michael McIlwrath, The Prague Rules: The Real Cultural War Isn’t Over Civil vs Common Law, Kluwer Arbitration Blog (12 December 2018), http://arbitrationblog.kluwerarbitration.com/2018/12/12/the-prague-rules-the-real-cultural-war-isnt-over-civil-vs-common-law/.

[19]  Khrapoutski & Panov, supra note 17.

[20] Peter Rees QC, Arbitration, elastic or arthritic? Asian Dispute Review (July 2017), https://www.harbourlitigationfunding.com/wp-content/uploads/2017/07/Peter-Rees-ADR_July2017.pdf.

[21] Henriques, supra note 14, at 353.

[22] Respondek, supra note 16.

[23] Respondek, supra note 16.

[24] Craig Tevendale, Are the Prague rules the answer?, Global Arbitration Review (7 January 2019), https://globalarbitrationreview.com/article/1178803/are-the-prague-rules-the-answer.

[25] Lawrence W. Newman & David Zaslowsky, The Russians Are Coming, and They Want to Change How We Conduct International Arbitration, New York Law Journal (23 May 2018), https://www.law.com/newyorklawjournal/2018/05/23/the-russians-are-coming-and-they-want-to-change-how-we-conduct-international-arbitration/.

[26] Kocur, supra note 8.

[27] Henriques, supra note 14, at 359.

[28] Linda Silberman & Franco Ferrari, Getting to the Law Applicable to the Merits in International Arbitration and the Consequences of Getting it Wrong, in CONFLICT OF LAWS IN INTERNATIONAL COMMERCIAL ARBITRATION 257, 312 (Franco Ferrari & Stefan Kröll, eds., 2019).

[29] Vladimir Khvalei, The Prague rules – dispelling misconceptions, Global Arbitration Review (22 November 2018), https://globalarbitrationreview.com/article/1177181/the-prague-rules-%E2%80%93-dispelling-misconceptions.

[30] Henriques, supra note 14, at 355.

[31] Khrapoutski & Panov, supra note 17.

[32] Amaral, supra note 10.

On Monday, 28 January 2019, the Center will host a seminar entitled “International Commercial Arbitral Awards: What They Are and What They Are Not.” On the occasion of this session, Professor Saadet Yüksel (from Istanbul University), Ms. Cecilia Carrara (from Legance Avvocati Associati), Professor José E. Alvarez (from NYU) as well as Dr. Friedrich Rosenfeld (from Hanefeld Rechtsanwälte) and Mr. Brian King (from NYU) will speak on issues ranging from whether arbitral awards are “possessions” under ECHR case law, whether investment tribunals and parties to investment arbitrations refer to ECHR case law, whether arbitral awards are “investments” for the purpose of investment arbitration, to whether court decisions can be turned into arbitral awards subject to the NY Convention.

The event will take place this coming Monday, 28 January 2019, from 6.00 – 8.30 pm, in the Faculty Club, NYU School of Law, D’Agostino Hall, 110 West 3rd Street.

Professor Ferrari, the Director of the Center, and Dr. Friedrich Rosenfeld, currently a Global Adjunct Professor at NYU Law in Paris, a visiting Professor at the International Hellenic University in Thessaloniki and Lecturer at Bucerius Law School in Hamburg, have just published a paper in German on “Limits to Party Autonomy in International Arbitration”. The paper is published in a book in honor of Professor Juergen Basedow, on of the former directors of the Max Planck Institute for Comparative and International Private Law and two-time scholar-in-residence at the Center.

On 12 October 2018, Professor Franco Ferrari, the Director of the Center, and Dr. Friedrich Rosenfeld, a former scholar-in-residence at the Center and currently a Global Adjunct Professor at NYU Law in Paris, a Visiting Professor at the International Hellenic University in Thessaloniki and Lecturer at Bucerius Law School in Hamburg, will give talks at a seminar on “Limitations to party autonomy in international arbitration”. The event, which is hosted by the Istanbul Arbitration Centre and moderated by Professor Ercüment Erdem, the Founder and Senor Partner of Erdem&Erdem, will focus on a paper co-authored by Professor Ferrari and Dr. Rosenfeld to be published in the forthcoming Cambridge Compendium of International Commercial and Investment Arbitration. For the event’s flyer, please click here.

One of the goals of the Center is capacity building in the areas on which the Center focuses. Over the years, the Center has hosted many capacity building events around the globe. From 11 to 15 June, the Center, together with the Thailand Arbitration Center, will once again host such an event, this one aimed at practitioners and government lawyers operating in Thailand and surrounding countries. The speakers include Professor Franco Ferrari, the Center’s Director, Dr. Friedrich Rosenfeld, a Global Adjunct Professor at NYU Law in Paris, as well as Ms. Vanina Sucharitkul, and Professor David Halloway from City University of Hong Kong.

Professor Franco Ferrari, the Center’s Director, and Professor Diego P. Fernandez Arroyo, a professor of law at Sciences-Po Law School as well as a former Global Professor at the NYU Paris Campus, convened a conference on “Soft Law in International Adjudication” that will take place this coming Wednesday in Paris. The speakers included NYU professors Jose E. Alvarez, the Herbert and Rose Rubin Professor of International Law, and Benedict Kingsbury, the Murry and Ida Becker Professor of Law and Faculty Director of NYU’s Guarini Institute for Global Legal Studies. For the full program, please click here.

Tomorrow, Professor Franco Ferrari, the Center’s Director, will give a talk on “Bridging the Gap between International Commercial and Investment Arbitration” at a two-day conference to take place at the City University of Hong Kong entitled “Conference on Dispute Resolution in Asia and Beyond: Progress and Trends” (for the full program click here). The presentation by Professor Ferrari will be based on a paper co-authored by Professor Ferrari and Dr. Friedrich Rosenfeld, a Global Adjunct Professor at NYU Law in Paris, a Visiting Professor at the International Hellenic University in Thessaloniki and Lecturer at Bucerius Law School in Hamburg, published  in the NYU Journal of Law & Business (vol. 12: 295) analyzing the interaction of between the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (New York Convention) and international investment law. The starting point of their analysis are the cases in which the domestic authorities in the country where enforcement of an arbitral award is sought unduly interfere with the enforcement instead of taking the arbitration-friendly stance required by imposed by the New York Convention. In these instances, a success in arbitration proceedings may turn out to be a mere pyrrhic victory. This holds true, in particular, where all of the debtor’s assets are located in one jurisdiction. Here, a contracting state’s compliance deficit with the New York Convention cannot be mitigated by seeking enforcement in a different contracting state. In response to these shortcomings, investors have begun to exploit the linkages between the New York Convention and the regime of international investment law.

Both the promise and the peril of modern communication systems lies in the ease of information transfer: although technology has facilitated information access and sharing, it has also created opportunities to illegally obtain private or privileged information. An evidentiary dilemma arises when information thus obtained falls into the hands of a party, who thereafter seeks to use it in arbitration. How should an arbitrator regard this evidence, in light of the fact that it was illegally obtained at some point? The question of whether to admit this evidence is uniquely vexing in international arbitration. Contrary to the relative uniformity of evidence-taking rules in domestic litigation, the rules in arbitration may change depending on the parties’ agreement or choice of arbitral institution, creating a higher degree of variation.[1]

This is not merely a theoretical problem. In the wake of the WikiLeaks[2] scandal, several tribunals in investor-state arbitrations have been faced with parties seeking to use evidence initially obtained through a large-scale data breach.[3] The traditional approach under most countries’ domestic rules would hold such communications inadmissible. However, the question is less clearcut in international arbitration, where the tribunal is not bound by national law, but has the final authority over admitting evidence.[4]

This paper takes a threefold approach to examining this issue: first, it will outline the basic rules on evidence-taking in international arbitration. Second, it will turn to recent cases that have dealt with the issue of hacked or leaked information being presented as evidence. Finally, it will analyze whether this evidence should be considered or not in future cases.

Rules on Taking of Evidence in International Arbitration

Party autonomy, being a key feature of arbitration, grants the parties broad latitude to determine the rules under which their dispute will be resolved. Often, parties exercise this autonomy to determine the rules for both the taking and presentation of evidence in the arbitration.[5] However, there is significant diversity in the modes of evidence-taking in international arbitration, and where the parties do not specify the rules, the taking and presentation of evidence will be analyzed pursuant to the parties’ arbitration agreement, any applicable institutional rules, the lex arbitri; and the discretion of the arbitrator.[6] It should be noted, however, that even where the parties have spoken to the issue, in practice the arbitral tribunal will have substantial discretion to control the process of evidence taking.[7] It should be noted, of course, that it is highly unlikely that the parties would design a rule ex ante that explicitly allowed for the presentation of unlawfully obtained evidence.

One source of guidance may be the background rules on discovery. It is not common that the parties will include a provision in their arbitration agreement dealing expressly with discovery.[8] If a provision regarding discovery is included, typically it would be through incorporation of some set of institutional rules.[9] The most common set of rules used in international arbitration—such as the London Court of International Arbitration (LCIA) Rules[10] or the UNCITRAL Model Law[11]—embrace broad, permissive admissibility standards. In the investor-state context, International Centre for Settlement of Investment Disputes (ICSID)[12] adopts a discretionary approach, granting total authority to the tribunal to decide which evidence shall be admitted.[13] On the other hand, more specific guidance is found on the International Bar Asociation (IBA) Rules on the Taking of Evidence, specifically in its article 9(2) (3):

Article 9

2. The Arbitral Tribunal shall, at the request of a Party or on its own motion, exclude from evidence or production any Document, statement, oral testimony or inspection for any of the following reasons:

(b)  legal impediment or privilege under the legal or ethical rules determined by the Arbitral Tribunal to be applicable;

…

(f)  grounds of special political or institutional sensitivity (including evidence that has been classified as secret by a government or a public international institution) that the Arbitral Tribunal determines to be compelling;

3. In considering issues of legal impediment or privilege under Article 9.2(b), and insofar as permitted by any mandatory legal or ethical rules that are determined by it to be applicable, the Arbitral Tribunal may take into account:

(d) any possible waiver of any applicable legal impediment or privilege by virtue of consent, earlier disclosure, affirmative use of the Document, statement, oral communication or advice contained therein, or otherwise; and

(e) the need to maintain fairness and equality as between the Parties, particularly if they are subject to different legal or ethical rules.[14]

 

In light of the aforementioned rules, prima facie we could affirm that hacked or leaked emails would not be accepted by an international arbitral tribunal unless one of the parties were to issue a waiver. Of course, this considers only the case of a party coming into possession of information that was previously illegally obtained by another party. If the hacking or leaking had been perpetrated by one of the parties directly, it would likely be considered a bad faith action on the part of that party, pursuant to the logic of article 9(7) of the IBA Rules:

If the Arbitral Tribunal determines that a Party has failed to conduct itself in good faith in the taking of evidence, the Arbitral Tribunal may, in addition to any other measures available under these Rules, take such failure into account in its assignment of the costs of the arbitration, including costs arising out of or in connection with the taking of evidence. [15]

This could have a range of consequences, and pursuant to this provision, would likely result in the party bearing the cost of the arbitration in light of its bad faith.

Although international tribunals are not prone to exclude evidence on the basis of confidentiality, there is case law from the Permanent Court of International Justice in which it elected to do so.[16] For instance, in the Danube case,[17] the Court declined the admission of the history of certain articles of the Versailles treaty, since those were confidential and had not been placed before the Court by, or with the consent of, the competent authority.[18] Likewise, in the Chorzow case,[19] the Court refused to consider declarations, admissions, or proposals made by the parties in the course of prior, abortive negotiations in order to preserve the confidentiality of earlier efforts at settlement.[20]  Both of these cases represent the PCIJ’s responsiveness to certain policy concerns even when it comes to confidentiality—a normally disfavored basis for exclusion.

Having laid out some of the legal rules that prohibit the parties from using confidential information as evidence, and having discussed other circumstances under which parties may be prohibiting from using evidence, we come to the question of whether an arbitral tribunal should admit or exclude now-public information that was initially obtained via WikiLeaks.

Cases Dealing with Hacked or Leaked Emails

In the Conoco Phillips case,[21] after issuing the award, the tribunal had to deal with new evidence presented due to information available in WikiLeaks.[22] This case concerned the expropriation of oil and gas assets by the Venezuelan government. Conoco Phillips claimed that Venezuela illegally forced it to cede its majority holding in certain oil and gas projects and was unwilling to negotiate fair compensation for the government’s taking.[23] The tribunal found that Venezuela breached its obligation to negotiate in good faith in order to reach an acceptable settlement between the parties.[24] After the award was issued, Venezuela sent a letter to the tribunal contesting this decision, in which Venezuela requested a new hearing to address the ruling on lack of good faith.[25] Specifically, the letter cited new evidence, obtained via WikiLeaks, including communications between diplomatic officials in the United States Embassy in Caracas and Conoco Phillips’ executives discussing the Venezuelan government’s offer to compensate the company for expropriation using market value standards instead of their previous offer of book value.[26]

Venezuela argued that this contradicted the tribunal’s conclusion that Venezuela negotiated in bad faith.[27] Ultimately, however, the tribunal addressed neither the merits nor the admissibility question raised by this evidence: instead, it found that it did not have the power to reconsider its decision.[28] However, one of the arbitrators issued a dissenting opinion which relied on the revelations contained in the WikiLeaks cables,[29] effectively opening a new window by considering leaked information as evidence in an arbitration procedure.

In a more recent case involving the Kazakhstan government, the tribunal reached an admissibility decision that could come to be seen as a watershed. The arbitral tribunal basically stated that documents protected by legal professional privilege cannot be admitted as evidence, but others could be.[30] Caratube International Oil Company and American-national Devincci Salah Hourani, who were suing Kazakhstan over the alleged seizure of their oil exploration and production rights, wanted leaked documents that were now publicly available due to the WikiLeaks page to be considered by the tribunal as evidence.[31]

The Tribunal reasoned as follows: first, it noted that the plaintiffs alleged the documents were material and relevant to the dispute; second, it observed that the documents were now in the public domain.[32] Thus, the tribunal found that the balance tipped in favor of admitting the documents,[33] placing special emphasis on the fact that they were “lawfully available to the public.”[34] In the view of the tribunal, this precluded them from being considered privileged information.

From these decisions, one can appreciate that although the Conoco Philips tribunal avoided the analysis of the leaked emails on procedural grounds, the dissenting opinion stated that this evidence should be considered; and in the most recent decision in Caratube, the Tribunal accepted the leaked information as evidence, on the basis that this information is now public, and thus is no longer privileged or confidential.

Conclusion

Since the WikiLeaks scandal, the legal parameters for admissible evidence seem poised to change: evidence that would have been considered inadmissible due to its privileged or confidential character is now admissible because it is considered to be public information. Nevertheless, this boundary should be carefully policed, due to the fact that this evidence was unlawfully obtained at some point. Therefore, in a prima facie analysis, the fact of the evidence having been obtained illegally would weigh against admissibility in light of on public policy grounds. Under the reasoning in Caratube, what would happen if one of the parties hacks the other parties’ emails and then asks a third entity which is not part of the dispute to publish this information in order to gain publicity for the purpose of using it in an arbitration procedure (based on the argument public availability destroys the privileged or confidential status of information)? In light of the foregoing concern, evidence that was unlawfully obtained and becomes public should only be accepted by an international arbitral tribunal on the consent of both parties. This will prevent any party from trying to unlawfully obtain information and will maintain fairness and equality among the parties in the process.

 

Ricardo Calvillo Ortiz, Licenciado en Derecho (Law Degree) July, 2010 Universidad Iberoamericana, Mexico City, Mexico. Candidate for LL.M in International Business Regulation, Litigation and Arbitration in New York University School of law, May 2016.

[1] Gary Born, International Arbitration Cases and Materials, (Aspen Publishers 2011). p. 768.

[2] WikiLeaks is an international, non-profit, journalistic organization, that publishes secret information, news leaks, and classified media from anonymous sources. Its website, initiated in 2006 in Iceland by the organization Sunshine Press, claimed a database of more than 1.2 million documents within a year of its launch. https://en.wikipedia.org/wiki/WikiLeaks.of Evidence. Jessica O. Iretoni  ernational Arbitrationr diregarded.alidity of Wikileaks Cables as Evidence. Jessica O. Iretoni

[3] In 2010, WikiLeaks began disclosing over 250,000 private cables written by US diplomats, divulging candid comments from world leaders and detailing occasional US pressure tactics aimed at hot spots in Afghanistan, Iran, and North Korea. https://www.bostonglobe.com/metro/2015/11/28/this-day-history/Ahim2PrVK2h30km5V4dEFN/story.html.

[4] Jessica O. Ireton, The Admissibility of evidence in ICSID Arbitration: considering the validity of WikiLeaks Cables as Evidence. ICSID Review, Vol. 30, No. 1 (2015) p.1.

[5] Gary Born, International Arbitration Cases and Materials, (Aspen Publishers 2011). p. 768.

[6] Id.at p. 769.

[7] Id.

[8] Id at p. 775.

[9] Id.

[10] LCIA Rules Article 22.1:  The Arbitral Tribunal shall have the power … (vi) to decide whether or not to apply any strict rules of evidence (or any other rules) as to the admissibility, relevance or weight of any material tendered by a party on any issue of fact or expert opinion; and to decide the time, manner and form in which such material should be exchanged between the parties and presented to the Arbitral Tribunal.

[11]Uncitral Model Law Article 19: (1) Subject to the provisions of this Law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.  (2) Failing such agreement, the arbitral tribunal may, subject to the provisions of this Law, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence.

[12] ICSID Arbitration Rules, Article 34(1): “The Tribunal shall be the judge of the admissibility of any evidence adduced and of its probative value” (These Rules are applicable to investment arbitration cases).

[13] Jessica O. Ireton, The Admissibility of evidence in ICSID Arbitration: considering the validity of WikiLeaks Cables as Evidence. ICSID Review, Vol. 30, No. 1 (2015). p.5.

[14] International Bar Association (hereinafter the IBA Rules) Rules on the Taking of Evidence in International Arbitration, adopted by a resolution of the IBA Council 29 may 2010. Article 9

[15] Id.

[16] W. Michael Reisman, and Eric E. Freedman, “The Plaintiff’s Dilemma: Illegally obtained Evidence and admissibility in international Adjudication” (1982). Faculty Scholarship Series Paper 730. http://digitalcommons.law.yale.edu/fss_papers/730, p. 742.

[17] Id at 743 (citing Jurisdiction of the European Community of the Danube between Galatz and Braila, 1927 PCIJ, ser. B, No. 14.)

[18] Id.

[19] Id.

[20] Id.

[21]ConocoPhillips Petrozuata BV, ConocoPhillips Hamaca BV and ConocoPhillips Gulf of Paria BV v Bolivarian Republic of Venezuela, ICSID Case No ARB/07/30, decision on Jurisdiction and the Merits (3 September 2013).

[22]Jessica O. Ireton, The Admissibility of evidence in ICSID Arbitration: considering the validity of WikiLeaks Cables as Evidence. ICSID Review, Vol. 30, No. 1 (2015) p. 2

[23] Id at p.1 (Citing the ConocoPhillips Petrozuata BV, ConocoPhillips Hamaca BV and ConocoPhillips Gulf of Paria BV v Bolivarian Republic of Venezuela, ICSID Case No ARB/07/30, Decision on Jurisdiction and the Merits (3 September 2013) para. 212.)

[24] Id. at p. 2.

[25] Id. at p. 9 (citing the Conoco Phillips, Curtis letter, September 8, 2013. p. 5).

[26] Id. at p. 9 (citing the Conoco Phillips, Curtis letter, September 8, 2013. p. 5).

[27] The Conoco Phillips, Curtis letter, September 8, 2013, p. 5: “We do not endorse everything reported in these cables, but the notion that the Republic did not negotiate in good faith because it never discussed fair market value is patently false, as both ConocoPhillips and the U.S. Government are fully aware.”

[28] ConocoPhillips Petrozuata BV, ConocoPhillips Hamaca BV and ConocoPhillips Gulf of Paria BV v Bolivarian Republic of Venezuela, ICSID Case No ARB/07/30, decision on respondent’s request for reconsideration, (10 march 2014) para 24. The reasoning for this desicion is stated in paras.19- 23: “The overall structure and the detailed provisions of the ICSID Convention were plainly designed to provide for review or actions in respect of decisions of a tribunal only once the Award was rendered…. Section 3 of Part IV of the ICSID Convention sets out the Powers and Functions of the Tribunal, with nothing among its provisions even hinting at such a power… [I]n Section 5 … powers are conferred on the Tribunal to interpret and revise the Award and on an ad hoc Committee to annul an Award on prescribed grounds. It is in those ways and those alone that decisions such as that in September 2013 can be questioned, changed or set aside. Those provisions and that structure exclude the possibility of the proposed powers of reconsideration being read into the Convention.”

[29] Conoco Phillips, Dissenting Opinion of Georges Abi-Saab, paras. 24 and 65. “However, with the revelations of the Wikileaks cables submitted to the Tribunal as annexes to the Respondent’s letter of 8 September 2013… the ground or cause for reconsideration changes radically in dimension and importance.” “…Here we have a full narrative of the negotiations, with a high degree of credibility, … It is a narrative that radically confutes the one reconstructed by the Majority, relying almost exclusively on the assertions of the Claimants throughout their pleadings that the Respondent did not budge from its initial offer.”

[30] Alison Ross, Tribunals Rules on admissibility of hacked Kazakh emails. 22 September, 2015, Global Arbitration Review http://globalarbitrationreview.com/news/article/34166/tribunal-rules-admissibility-hacked-kazakh-emails/

[31] Id at p.3. (Citing the unpublished decision of the Caratube International Oil Company LLP v. The Republic of Kazakhstan case).

[32] Id. (Citing the unpublished decision of the Caratube International Oil Company LLP v. The Republic of Kazakhstan case).

[33] Id. (Citing the unpublished decision of the Caratube International Oil Company LLP v. The Republic of Kazakhstan case).

[34] Id. (Citing the unpublished decision of the Caratube International Oil Company LLP v. The Republic of Kazakhstan case).

Professor Ferrari, the Center’s Director, will give a talk on the occasion of a conference held in Oslo and hosted by Professor Giuditta Cordero-Moss, a former scholar-in-residence at the Center. The Norwegian Ministry of Justice has requested Professor Giuditta Cordero‐Moss, a professor at the University of Oslo, to submit a proposal for a statute on choice of law rules for contractual and non‐contractual obligations. The conference Professor Ferrari will attend is organized to ensure that the proposal will reflect state‐of‐the‐art knowledge in the area of conflict of laws at the international level. As for Professor Ferrari, he will address the relationship between conflict of laws rules and uniform substantive rules and propose a statutory provision aimed at ensuring the primacy of uniform substantive law.

The Center will host Italian Supreme Court Justice Francesco Cortesi, a two-time scholar-in-residence at the Center, for this coming week. Justice Cortesi, who graduated in 1994 cum laude from Bologna University School of Law, and specialized in international commercial law at Tilburg University School of Law (Netherlands) under the supervision of Professor Franco Ferrari, the Director’s Center who at the time was professor at Tilburg University, was appointed Judge at Court of Bologna in 1999. In 2001, he was assigned to the Court of Rimini, where he mainly dealt with disputes regarding contracts, consumer law issues and professional malpractice torts. In 2007, he moved to the Court of Forlì, where he was able to focus on those very same areas of law. During his tenure there, he also rendered some of the most relevant decisions concerning the United Nations Convention on Contracts for the International Sales of Goods, many of which have been translated into various languages, including English. In 2006, Justice Cortesi was appointed to the Government Committee for the revision of the Italian Civil Code. In January 2016, Justice Cortesi was appointed to the Italian Supreme Court, thus becoming one of the two youngest justices ever appointed to the Italian Supreme Court. Over the years, Justice Cortesi has been lecturing at the Bologna University School of Law mainly on “Commerce and the law of consumers” and “Methodology of law”.

Introduction

Liu Li v. Tao Li and Tong Wu[1] (the Liu Li Case) caused a sensation in both China and the U.S. in 2017. It was the first time that a People’s Republic of China (PRC) court recognized and enforced a judgment rendered in the U.S. This paper aims to examine the Reciprocity Principle under the PRC law by reviewing the Liu Li Case. The paper includes five sections: (I) A brief review of the Liu Li Case; (II) How foreign court judgments are enforced under the PRC law; (III) A background of the practice of reciprocity before the Liu Li Case in China; (IV) An analysis of why the Liu Li case was enforced in a Chinese court; and (V) the problems remain to be solved after the Liu Li Case.

I. A Brief Review of the Liu Li Case

The Liu Li Case sprung from a commercial dispute between Liu Li (the Applicant) and Tao Li and Tong Wu (the Respondents). The Applicant signed a share transfer agreement with the Respondents. After the Applicant paid $125,000 to the Respondent for shares in a California company, the Respondents did not transfer anything to the Applicant. Subsequently, the Applicant filed a lawsuit against the Respondents for fraud before the Los Angeles Superior Court (the L.A. Court). The respondents were served with summons, but they were ignored. Consequently, the L.A. court rendered a default judgment in favor of the Applicant (the L.A. judgment).

The Applicant then applied to the Wuhan Intermediate People’s Court (the Wuhan Court) for recognition and enforcement of the L.A. Judgment. In order to prove that reciprocity existed between the U.S. and China, and that the U.S. had recognized Chinese judgements in the past, the Applicant submitted to the Wuhan Court a case report of Hubei Gezhouba Sanlian Indus. Co. v. Robinson Helicopter Co[2] (the Robinson Case). After the Wuhan Court reviewed the materials submitted by the Applicant, they found that the Robinson Case was a precedent as to recognition and enforcement of civil rulings of Chinese courts in the U.S. Thus it was determined that reciprocity for mutual recognition and enforcement of civil rulings existed between the two countries, which led to the Wuhan Court to recognize and enforce the L.A. Judgement.

II. How Foreign Court Judgments are Enforced under the PRC Law

In Article 281 and 282 of the PRC Civil Procedure Law (the CPL) and other relevant rules,[3] there are six requirements for enforcement of a foreign judgment in China which includes the basis requirement and five other requirements[4]. For the purpose of this paper, I will only focus on the basis requirement, which includes two bases. It requires that either (1) the country where the deciding court is located has a treaty with China, or is a signatory to an international treaty to which China is also a signatory; or (2) there is reciprocity between the countries.

With respect to the first basis, China is not a signatory to any international convention on recognition and enforcement of foreign court judgement. Meanwhile, although China has entered into bilateral judicial assistance treaties on enforcement of foreign judgment with 33 countries[5], there exists no such bilateral treaty signed between the U.S. and China.

With respect to the second basis, the PRC laws do not clearly define “reciprocity”. Theoretically speaking, there are two types of reciprocity, which includes the de facto reciprocity and the de jure reciprocity. The De facto reciprocity requires actual precedents demonstrating that the foreign country has recognized and enforced Chinese judgments in the past. The De jure reciprocity does not require actual precedents. If, by examining the foreign law there is a possibility that Chinese judgments may be enforced in the foreign court in principle, the reciprocal relationship then exists[6]. Previous PRC judgments indicate that the Chinese courts have adopted the de facto reciprocity approach.

III. A Background of the Practice of Reciprocity before the Liu Li Case in China

In the past, the De facto reciprocity had resulted in obstacles to recognize and enforce foreign judgments in China due to its strict requirements. In practice, many foreign judgements were refused because of the lack of evidence of de facto reciprocity. For example, in Gomi Akira v. Dalian Fari Seafood Ltd. (Gomi Case), a Japanese party applied to the Dalian Intermediate People’s Court (the Dalian Court) for recognition and enforcement of a judgement rendered by a Japanese court. The Dalian Court refused to enforce the Japanese judgement, holding that there existed no reciprocity relationship between Japan and China[7]. This decision was later reaffirmed by the Supreme People’s Court of China. Similarly, a Korean company petitioned to Shenzhen Intermediate People’s Court (the Shenzhen Court) for enforcement of a Korean judgment in 2011. Similarly, the Shenzhen Court refused to enforce the judgment for the same reason[8]. Up till now, PRC courts refused to recognize and enforce judgments rendered in Japan, Korea, Germany[9], England[10] and Australia[11] due to lack of evidence of de facto reciprocity.

The Chinese court’s approach to the reciprocity principle has led to other problems. The countries that were refused by the PRC courts have taken revenge on the principle of reciprocity by following suit to not enforce judgement rendered by the PRC Court. For example, Japan also adopts the principle of reciprocity for enforcement of foreign judgments. In 2004, the Osaka High Court refused to enforce and recognize a judgment rendered in China because it found the Dalian Court had previously refused to enforce the Japanese judgement in the Gomi Case[12].

However, before the Liu Li Case, the PRC courts had recognized and enforced two foreign judgments based on the reciprocity principle. The first case occurred in 2013 by the Wuhan Court, which is the same court that enforced the U.S. judgment in the Liu Li Case. In that case, the Wuhan court enforced a German judgment rendered by Montabaur District Court of Germany because the court found that Berlin High Court recognized and enforced a judgment made by the Wuxi District Court of China in 2006[13]. The second case occurred in 2016, in which the Nanjing Intermediate People’s Court (the Nanjing Court) rendered a decision to recognize and enforce a Singapore judgment based on reciprocity. The Nanjing Court held that the principle of reciprocity should be applied because the Singapore High Court enforced a civil judgment made by the Suzhou Intermediate Court in 2014[14].

IV. An Analysis of Why the Liu Li Case was Enforced in a Chinese Court

Although the Liu Li case is not the first foreign judgment enforced by the PRC court based on reciprocity, it is the first time that a PRC court ruled that mutual reciprocity exists between the U.S. and China. Given the fact that U.S. and China are the world largest and second largest economy with huge trade volume with each other, the Liu Li Case is a great significance to both countries.

It is worth mentioning that several attempts had been made to enforce U.S. judgments in China before the Liu Li case, but they all were unsuccessful. For example, in 2015, a U.S. applicant petitioned to the Nanchang Intermediate People’s Court (the Nanchang Court) for enforcement of a U.S. judgment. The applicants also claimed there was reciprocity between the U.S. and China because of the Robinson case. However, the Nanchang Court, after reviewing the Robinson case, held the U.S. and China had not established reciprocity and thus refused to enforce the U.S. judgments[15].

There comes a problem: why can the Liu Li Case get recognized and enforced? In my view, it was because the Applicant in the Liu Li case petitioned at the right place at the right time.

First, the Applicant applied for enforcement before the Wuhan court. As mentioned above, the Wuhan court was the first court which recognized and enforced the foreign judgment in China back in 2013. The Wuhan Court has been known for its enforcement of the German judgment at the time Liu Li filed his case. Therefore, the Wuhan Court, as one of the most open-minded courts in China, was more likely to keep its tradition of enforcing foreign judgments provided that it found the other country had previously enforced any PRC judgment.

Secondly and more importantly, Liu Li filed the case at the right time. The Chinese government launched “Belt and Road Initiative” in 2013. In the past four years, China has already invested billions of dollars in several South Asian countries, focusing on infrastructure investment, construction materials, railway and highway. As a result, China has emerged as one of the fastest-growing sources of foreign direct investment. This policy has been reshaping the mindset of the Chinese legislators and legal practitioners, driving them to embrace more open-minded ideas to keep in line with the international practice. As the fastest growing investor, China is more likely to get involved in litigations as the plaintiff in the future. If China keeps on sticking to the conservative and isolated view on its foreign judgment enforcement rules, it will inevitably and severely damage its domestic investors.

This advancement is encouraged by the legal professionals in China. Justice Hongyu Shen, who is one of the presiding judges in the Supreme People’s Court of the PRC (SPC), once said in her speech that “the standard of de facto reciprocity discouraged the enforcement of foreign judgment in China, which had led to numerous international parallel proceedings. In solving this problem, we could consider adopting the de jure reciprocity, by which courts can recognize reciprocity by examining the foreign law there is a possibility that Chinese judgments may be enforced in that country. In this way, we can pave the way for establishing judicial assistance with other countries[16]”.

Some newly-issued judicial opinions also point to the trend. In a judicial opinion released in 2015, the SPC suggested that courts should create a better legal environment for the Belt and Road Initiative. Courts should “accurately apply international treaties,” “enhance the credibility of PRC judgment,” and “effectively protect the lawful rights and interests of Chinese and foreign parties”.[17] With regards to judicial assistance, it indicated that “if the countries in the Belt and Road region have not concluded judicial assistance agreements with China, but promised to offer judicial benefits to us, courts may consider offering judicial assistance to the party from that country first, paving the way for the formation of reciprocal relationship.” [18] In addition, the SPC also reviews foreign-related cases tried by lower courts on regular basis and publishes those cases it deems appropriate as “Model Cases” for lower courts’ reference. The Kolmar Group case (the Singapore judgment which was enforced by Nanjing Court in 2016) was one of the Model Cases published by the SPC on May 15, 2017.

The above evidence demonstrates that Chinese law and practice, being driven by the new economic policy are evolving towards a more sophisticated level. As evidenced, China is trying to integrate itself more into the world with a view to meeting its new needs. In the process of the evolution, the PRC courts are encouraged to enforce the foreign judgments. The Liu Li case is one of the indicators of that trend. I believe we will see more foreign judgments to be recognized and enforced in China in the near future.

V. The Problems that Remain to be Solved after the Liu Li Case

While the trend of enforcing foreign judgments based on reciprocity seems to be building momentum in Chinese courts, there remains several problems to be solved. This part identities three questions arising from the Liu Li Case which deserves attention. The questions include: (1) Was the reciprocity formed between the U.S. and China or between the state of California and China? (2) If one PRC Court ruled that the reciprocity exists between the U.S. and China, are other PRC courts obligated to make the same ruling? (3) If U.S. Court refuses to enforce other PRC Judgment in the future, can PRC court revoke its recognition of the reciprocity?

1. Was the Reciprocity Formed between the U.S. and China or between the state of California and China?

In the Liu Li Case, the Wuhan court favored the view that reciprocity had been formed between the U.S. and China. First, Wuhan Court did not mention California state in its judgment. When addressing the reciprocity issue, it only referred to the U.S. as whole[19]. Second, in the Liu Li Case, the court which recognized and enforced the PRC judgment was a U.S. federal court in California. The U.S. judgment which was enforced by the Wuhan Court was in fact made by a state court in California. It is suggested that since the Wuhan court did not address this difference, the Wuhan court deemed all the U.S. courts as a whole and not by the state of California.

However, this issue is not as simple as it appears to be. It could get complicated if the state which enforces the PRC judgment is different from the state which renders the judgment to be enforced in China. For example, can I enforce a New York judgment in China on the basis that a California court used to enforce a Chinese judgment?

This problem arises out of the form of government. Contrary from China or Singapore (which are unitary countries), the U.S. is composed of federal states. Each state can enjoy considerable independence and great legislative power. In terms of enforcing the foreign judgment, states have the power to adopt any law they deem appropriate[20]. That is to say, different state may apply different rules governing the enforcement of the foreign judgment which may lead to contradict ruling on the same issue. As the enforcement standards differ from state-to-state, it is not a good idea to treat all U.S. courts as a whole. China needs more sophisticated rules defining reciprocity when dealing with a federal country like the U.S.

2. If One PRC Court Ruled that the Reciprocity Exists between U.S. and China, are other PRC courts Obligated to Make the Same Ruling?

Generally speaking, a court’s judgement is not a source of law in China and thus has no binding effect on other courts (including its lower courts). Therefore, even if the Wuhan Court clearly ruled that there exists reciprocity between the U.S. and China, it is still possible that other PRC court rules the opposite by applying the same law as the Nanchang Court did. Hence, it would be too quick to conclude that the reciprocity between these two countries is (widely) recognized in China.

However, if SPC makes the Liu Li Case as a Model Case (like what SPC did to the Kolmar Group Case) or as a Guiding Case[21], then we may deem such reciprocity is (widely) recognized all over China. But I do not think the SPC would do that in a short period. Given the complicated relationship between the U.S. and China in terms of politics and economy, China needs more time to consider this issue.

3. If U.S. Court Refuses to Enforce Other PRC Judgment in the Future, Can PRC Courts Revoke its Recognition of the Reciprocity?

There is no answer to this question under the PRC law because it lacks a clear definition of reciprocity. However, PRC courts will have to face this question sooner or later. In my view, court’s recognition on the reciprocity should be revocable, otherwise it would defeat the purpose of reciprocity. If a PRC court finds very few number of PRC judgments having been enforced in the U.S. (compared to the number of the cases that have been refused to enforce), it would be unreasonable and inappropriate for China to keep the view that reciprocity exist between the two countries. However, if such ruling is revocable, it will also lead to many unanswered questions. Some questions include: When shall we revoke the ruling? Is it based on the judge’s general feeling that greater judgments are enforced than those that are refused in the U.S., or is it based on a particular enforcing rate? These uncertainties should be figured out by China before we draw any further conclusion on the certainty of Chinese court’s enforcement of the U.S. judgment.

 

Suni Gong

Suni Gong is an LL.M. Candidate in the International Business Regulation, Litigation and Arbitration Program at the NYU Law School. He received his Juris Master degree from Tsinghua Law School in 2014 and enrolled in the International Commercial Arbitration and Dispute Resolution Program. Before coming to NYU, Suni had practiced law in Shanghai for three years, focusing on foreign-related arbitration and litigation.

 

[1] (2015) E Wuhan Zhong Min Shang Wai Chu Zi No. 00026.

[2] In Robinson case, two Chinese companies, Sanlian and Pinghu (“SP”), bought helicopters from a California company Robinson Helicopter Co. (“Robinson”). After one of the helicopters crashed in China, SP sued Robinson in the LA Court. Robinson sought to say the action on forum non conveniens grounds, arguing that the Chinese courts should rule on the case and agreed to abide by any final judgment rendered in China. The LA court granted Robinson’s motion. SP then sued Robinson in the Hubei Higher People’s Court and got a judgment in favor of it (Hubei Judgment). SP applied for enforcement of the judgment in the U.S. District Court for the Central District of California (the District Court). The District Court ruled for SP, enforcing and recognizing and the Hubei Judgment. Robinson appealed. The U.S. Court of Appeals for the Ninth Circuit affirmed. Hubei Gezhouba Sanlian Indus. Co. v. Robinson Helicopter Co., 425 Fed. Appx. 580 (9th Cir. 2011).

[3] Article 543 of the Supreme People’s Court Interpretations concerning the PRC Civil Procedural Law (2012)

[4] The other five requirements are: (1) Effectiveness: the foreign judgment has taken legal effect in the jurisdiction in which it was rendered; (2) Non-violation of Public Policy: the foreign judgment does not violate any basic principles of Chinese law, national sovereignty, security, or social public interest; (3) Proper Notice: in case of a default judgment, whether the defendant were served with proper notice of the proceedings; (4) No Conflicting Judgment: whether there is any conflicting domestic or foreign judgment; and (5) Foreign Court’s Jurisdiction: whether the foreign court has jurisdiction over the case.

[5] In fact, China has signed bilateral judicial assistance treaties with 37 countries. These treaties usually contain the provision of recognition and enforcement of judgment made in the other country. However, there are 4 exceptions: China’s bilateral treaties with Singapore, Korea, Thailand and Belgium do not include the enforcement of foreign judgement. This information was found on the official website of Ministry of Foreign Affairs of the PRC: http://www.fmprc.gov.cn/mfa_eng/

[6] Zheng Sophia Tang et al., Conflict of Laws in the People’s Republic of China 162 (2016).

[7] Gomi Akira v. Dalian Fari Seafood Ltd., (1995) Min Ta Zi No. 17.

[8] Spring Comm Ltd. V Piao Zonggen, (2011) Shen Zhong Fa Min Yi Chu Zi No.45.

[9] (2010) Min Si Ta Zi No. 81.

[10] (2010) Er Zhong Min Tezi No. 10324.

[11] (2004) Ning Min Wu Chu Zi No. 7.

[12] Osaka High Court decision of April 9 2003, Hanrei Jiho, No. 1841.

[13] (2012) E Wu Han Zhong Min Shang Wai Chu Zi No.16.

[14] Kolmar Group AG v. Jiangsu Textile Industry Import and Export Corporation, (2016) Su 01 Xie Wai Ren No.3.

[15] (2016) Gan 01 Min Chu No. 354.

[16] Hongyu Shen, Belt and Road Initiative and the Enforcement and Recognition of Foreign Judgment, 2017 Vol. 15.

[17] The Supreme People’s Court concerning Providing Judicial Services for “Belt and Road” by People’s Courts. (2015)

[18] Please note that this provision only applies to countries in the Belt and Road region, which covers some countries in Asia, Europe and Africa.

[19] The wording Wuhan Court used was: “because the court found there existed precedent enforcing a PRC judgment in the U.S., it could be deemed there exists reciprocity in terms of enforcement civil judgment”.

[20] In fact, 32 states in the U.S. have adopted the Uniform Foreign-Country Money Judgments Recognition Act as their law regulating the enforcement of foreign award while the rest states still keep their own “homemade” common law governing the recognition of foreign judgment.

[21] Since 2012, the SPC has published 87 cases tried by lower courts as the “Guiding Cases”. Under the PRC law, if PRC courts deal with a case which is similar to a Guiding Case, the courts “shall refer to the ruling of the Guiding Case”. In contrast, Model Cases do not have such legal effect.

Professor Franco Ferrari, the Director of the Center, and Professor Marco Torsello, professor of law at Verona University School of Law and Global Professor of Law (Paris), have just published the second edition of their book on the 1980 United Nations Convention on Contracts for the International Sale of Goods. The Convention, which covers more than 3/4 of world trade, is in force in 87 States, including the United States and its most important trading partners. The book, which is part of West’s Nutshell series and is aimed at both practitioners and scholars, covers the Convention’s basic rules one should be aware of, so as to avoid surprises when doing business with parties having their place of business in other countries. For more information, please click here.

Professor Ferrari, the Center’s Director, has just published the third edition of a book entitled “international contract law” in German. Like the previous two editions, the book contains article-by-article commentaries of the most important conflict of laws and substantive instruments addressing international contracts applicable in Europe, namely the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), the 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG), the 1956 Convention on Carriage of Goods by Road, and the 1988 UNIDROIT Convention on International Factoring.  The 1750 page book allows practitioners and scholars to find guidance on how to solve the most intricate conflict of laws and substantive law problems falling under the purview of the aforementioned instruments. This is also why the courts of several countries, including the German Supreme Court (most recently in its decision of 7 December 2017, docket n. VII ZR 101/14), and the Austrian Supreme Court (most recently in its decision of 29 November 2017, docket n. 8Ob12/17y), have had resort to the earlier editions of the book. For more info, please click here.

Professors Linda J. Silberman, the Clarence D. Ashley Professor of Law and Co-Director of the Center, and Franco Ferrari, the Center’s Executive Director, two experts on conflict of laws, have just published an anthology on the recognition and enforcement of foreign judgments. This anthology offers a 24-article tour of the history, principles and future of the recognition and enforcement of foreign judgments. The collection of seminal pieces selected reflects the viewpoints of authors from different countries and legal systems and explores different approaches to, and comparative perspectives of, judgment recognition and enforcement. Topics covered include the special issues of the revenue rule and the role of public law, the effects of fraud, the scope of preclusion, and the impact of class actions. The collection also looks to the future, considering possible solutions to harmonizing recognition and enforcement and assessing how the development of human rights may impact judgement recognition and enforcement. Prefaced by an original and informative introduction by the editors, the anthology is an essential resource for those studying, researching or practicing in this area. For more information, please click here.

Professor Ferrari, the Center’s Director,  has just published a paper (in the Italian Rivista di diritto civile (2018), 280) on a decision by the Italian Supreme Court, rendered on 5 July 2017,  which for the first time ever recognized a US decision awarding punitive damages. In his paper, Professor Ferrari, an expert inter alia on European conflict of laws, compares the Italian decision with decisions rendered both in Germany and France and concludes that the Italian Supreme Court’s decision is basically in line with those of the Supreme Courts of Germany and France, even though the Italian Supreme Court expressly sets forth certain requirements for the recognition that prima facie are required neither under German nor under French case law.