Using shields as weapons: third-party funding assisting China-related arbitration under belt and road investment

• Author: Using shields as weapons: third-party funding assisting China-related arbitration under belt and road investment
• Pages: 274-303

FRONTIERS OF LAW IN CHINA

VOL. 14 JUNE 2019 NO. 2

DOI 10.3868/s050-008-019-0013-1

ARTICLE

USING SHIELDS AS WEAPONS: THIRD-PARTY FUNDING ASSISTING

CHINA-RELATED ARBITRATION UNDER BELT AND ROAD INVESTMENT

HOU Peng∗

Abstract In the summer of 2017, Hong Kong became the first jurisdiction in China to

codify formal financing arbitration and to make it clear that third-party funders with no

legitimate interest in the disputes could be allowed to inject capital to support funded

parties in arbitration cases. With the latest Code of Practice coming into effect in the

spring 2019, Hong Kong is ready to guide the funders in detail on delivering investments

into the arbitral procedures in the harbor seat. By examining these legislative processes

in Hong Kong, it can be proved that financing arbitration will enable enterprises to

dispose of their disputes with easier access to justice, promote the quality and efficiency

of dispute resolution, and improve the welfare of society as a whole. Therefore, it is

justifiable to adopt third-party funding in China-related arbitration to promote the

Chinese mainland’s arbitration practices and support the international proceedings

involving Chinese parties, particularly the international ones arising from investments

related to the Belt and Road Initiative.

Keywords third-party funding (TPF), China-related arbitration, outward investment

INTRODUCTION .................................................................................................................... 275

I. FINANCING ARBITRATION LANDS IN CHINA: HONG KONG AS A PILOT ................... 277

A. Overview of Hong Kong’s Legislative Reform and Code of Practice................ 278

B. Motivation to Apply TPF: Inspiration from Hong Kong’s Reform.................... 280

C. Growing Demand for Dispute Resolution and Financing in China’s

Mainland........................................................................................................... 282

1. Sharply Growing Demand for Arbitration and Vast Potential for TPF......... 283

∗ (侯鹏) Ph.D. Candidate, School of International Law, China University of Political Science and Law,

Beijing 100088, China; Jointly Doctoral Candidate, School of Law, Boston University, Boston, MA 02215,

USA; Visiting Researcher, Washington College of Law, American University, Washington, DC 20016, USA.

Contact: hp@TPFChina.org

The paper is interim research of the Study on Legal Methods of Judging Foreign-Related Civil and

Commercial Disputes (涉外民商事裁判的法律方法研究) supported by the Ministry of Education Project of Key

Research Institute of Humanities and Social Sciences at Universities (Project No. 2007JJD810161). Professor

William W. Park, Professor Horacio Grigera Naón, Professor Mari Nagata, Ms. Jara Minguez Almeida, and Dr.

Bjorn Arp have provided insightful suggestions to expand the preliminary idea of this paper. I also benefited

from the comments to presentations made at the School of Law of Osaka University on Mar. 6, 2018. Finally, I

thank Ms. Iris Wu for her assistance in performing data research and proofreading the manuscript.

2019] USING SHIELDS AS WEAPONS 275

2. Welcoming Gesture Shown to International Alternative Dispute

Resolution ..................................................................................................... 284

3. Provision of More Opportunities for TPF Application by Newly Established

Chinese Courts.............................................................................................. 286

II. CAUTIOUS REFORMATION OF THIRD-PARTY ARBITRATION FUNDING.................... 287

A. Shadows of Shysters in History: Not for Vultures’ Values .................................287

B. Considerations of Due Process and Ethical Factors........................................ 288

C. Rules and Regulations for Financing Arbitration............................................. 291

1. Eight Essential Issues in the Legal Framework of Financing Arbitration..... 292

2. Importance of Proposing Parallel Regulations on Ethical and Financial

Standard s....................................................................................................... 293

3. Light-Touch Regulation Approach Implemented in the Initial Period.......... 295

III. POSSIBILITY AND PROSPECT OF FINANCING CHINA-RELATED ARBITRATION....... 297

A. Global Practices and Platforms for Chinese Parties ...................................... 298

B. Justifiable and Efficient Approach to Ensure Public Interests ........................299

1. To Obtain Easier Access to Justice through Reducing Financial Burdens... 299

2. To Promote the Quality and Efficiency of Arbitral Rulings ........................ 299

3. To Benefit for the Social Welfare and Mediate the Damages...................... 300

C. Channels and Chances to Enhance China-Related Arbitration ...................... 300

1. Tailoring Arbitration Law and Refining It with Amendments.....................301

2. Identifying Judicial Interpretations and Legal Precedents ..........................302

3. Initiating Self-Regulation of TPF by China’s Arbitration Institutions ........ 302

CONCLUSION........................................................................................................................ 302

INTRODUCTION

QIN Guan (秦观), a Chinese military theorist of Song dynasty, pointed out the idea of

“taking defense as attack” (以守为攻) in his book of Strategies of Frontiers Defense (边防

策下) a thousand years ago, which illustrates how powerful shields can be used as

effective weapons to protect people in trouble. After fourteen years of continuous growth,

China’s outward investments for the first time encountered a slight decline in the total

outbound investments by the end of 2017.1 Meanwhile, benefiting from the Belt and

Road Initiative,2 the gross stock of Chinese outbound direct investment reached a new

high, a record 1,809.04 billion USD, which was one-third more than the corresponding

value for the previous accounting year, as well as hundreds of billions of U.S. dollars

1 See Ministry of Commerce of the People’s Republic of China, 2018 中国对外投资合作发展报告 (Report

on Development of China’s Outward Investment 2018), at 4 (2018).

2 The “Belt and Road Initiative” is the shortened name of the “Vision and Actions on Jointly Building the

Silk Road Economic Belt and the 21st-Century Maritime Silk Road” issued by the National Development and

Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce of the People’s Republic of

China, with State Council authorization on Mar. 2015, available at https://eng.yidaiyilu.gov.cn/qwyw/

qwfb/1084.htm (last visited Nov. 11, 2017).