By Mauritius Nagelmueller
China is building a multi-trillion dollar trade and infrastructure network – a new silk road – and the legal world is preparing for the disputes that will inevitably arise. What is the Belt and Road Initiative all about, and what impact will it have on litigation finance?
Being one of the largest infrastructure and investment projects in history, the Belt and Road Initiative (BRI)[1] will alter the global economy and define China’s role in it. The initiative covers 65% of the world’s population in more than 68 countries, and 40% of the global GDP. An anticipated overall investment of USD 4-8 trillion will connect China with the rest of Asia, Europe and Africa, through six main geographic corridors and a Maritime Silk Road. China’s position is that BRI will improve the infrastructure along the route, providing a network of highways, railways, ports, energy and development projects for trade and cultural exchange. Chinese state-owned banks, the Asian Infrastructure Investment Bank (formed in 2015, but already encompassing 84 approved member states, and with a capital of USD 100 billion – half of the World Bank’s capital), the Silk Road Fund, and investors from the private sector are providing the necessary financing. About USD 1 trillion has already been invested.
It seems likely that BRI, if successful, will shift more economic and political power to China. Major concerns surround the environmental impact of the vast project, uncertainties regarding the exact parameters and how much local economies will actually benefit. Security risks along the Belt remain constant. Some even fear a new Chinese “empire”. It remains to be seen which of these fears are justified, but it is interesting to note that China’s president Xi Jinping, who unveiled BRI in 2013 and made the initiative a central tenet of his foreign policy agenda, will likely remain in power, as the Communist Party of China just announced plans to abolish the two-term limit on the presidency.
To predict that legal disputes will arise under BRI is to state the obvious, and the legal community in Asia and beyond is preparing accordingly. Jurisdictions are already competing for recognition as the prime venue for BRI related proceedings. In an effort to provide wide-ranging dispute resolution services, China plans to establish an international commercial court in Xi’an for disputes surrounding the land-based transport corridors, another in Shenzhen for the maritime route, and a central court headquartered in Beijing. All three bodies will provide arbitration and mediation services. China’s neighbors share its expectations regarding dispute resolution. In 2017, Hong Kong and Singapore permitted litigation finance in international arbitration, and the legalization for state court procedures may soon follow. Hong Kong passed its law shortly after a BRI Forum in Beijing, and partly also to strengthen its position as a go-to center for BRI related disputes, particularly for the maritime and construction fields. Arbitration institutions around the world, including the ICC (International Chamber of Commerce), SIAC (Singapore), and HKIAC (Hong Kong), encourage the adoption of their rules in BRI deals, and Malaysia’s KLRCA and Seoul’s KCAB are preparing accordingly. Chinese and Singaporean mediation centers (CCOIC and SIMC) have plans to cooperate for BRI related mediation proceedings, while Hong Kong is developing an online arbitration and mediation tool specialized on the initiative. Chinese officials have even publicly floated the concept of an innovative hybrid method combining aspects of arbitration and mediation, with courts playing a central role as well.
Many legislators view litigation finance as a vital component in their jurisdiction’s status as a prime dispute resolution center, and litigation finance firms are aggressively seizing on the new opportunities presented. Select funders have already opened offices in Asia, others will soon follow, or plan to be involved from abroad. Entities who plan to invest along the Belt, including many Chinese companies, will not only face complex regulatory challenges, but also disputes with foreign governments, possibly in multiple jurisdictions. In addition to first-rate legal advice, parties will sometimes require external financing to pursue their claims under BRI. Both investors and law firms will utilize the benefits of litigation finance, and seek tailored financing solutions for their cases arising under BRI related projects. This will include single cases, as well as multiple disputes from investments being bundled into portfolios of claims.
BRI will have a significant impact on litigation finance in the coming years, as a host of challenges and new opportunities present themselves. As has occurred previously, litigation finance will support meritorious claims which could not be brought without the assistance of external financing, help businesses and law firms diversify and boost their portfolios without increasing risk, and continue to promote access to justice. Litigation finance will benefit from this unprecedented trade and infrastructure initiative. It has already become part of the legal world, and it will soon be part of BRI.
[1] Originally called One Belt and One Road Initiative.
Mauritius Nagelmueller has been involved in the litigation finance industry for more than 10 years.
