According to the European Commission (EC), economic ties between the EU and China – despite the concerns raised by the Belt and Road initiative – are getting more frequent and stronger. In this economic and political scenario, since 2013, the EC is conducting negotiations with China for a Comprehensive Agreement on Investment (CAI), aiming “to remove market access barriers to investment and provide a high level of protection to investors and investments in EU and China markets” [1].
Once entered into force, this treaty will replace the 27 currently existing bilateral investment agreements between 27 EU member states – all but Ireland - and China. On the one hand, a tailor-made regulation for EU-China investment relations will probably lead to an increase in economic exchange; on the other hand, it will also pose challenges in terms of judicial cooperation. Speaking of judicial cooperation in the context of CAI negotiations, it is possible to distinguish between two levels of disputes and two corresponding different jurisdictional systems. The first level concerns investors-States disputes over the treaty interpretation and application. The EC will probably push for applying the Investment Courts System (ICS) already experimented in the context of CETA concluded with Canada. In fact, CETA foresees the institution of an independent Tribunal responsible for the interpretation of its provisions. This judicial system stands aside the EU internal one: in fact, the above-mentioned Tribunal only rules on investor-State disputes when it comes to treaty violations. This system has been deemed compatible with the EU primary law by the CJEU[2] and might, therefore, be replicated in the CAI.
The second level regards the disputes between private parties. It is a direct consequence of the CAI’s implementation. In fact, if the CAI will succeed in improving market access, making foreign direct investment (FDI) easier and more frequent, the result is likely to consist in a faster flow of money, goods, and people between the EU and China. A stronger economic relationship with China is likely to amplify litigation between European and Chinese private parties, not on the CAI provisions but on other matters, for example contractual. That is why, besides the ICS, negotiators should also take the chance to devise international private law rules to answer three main questions: Which court has jurisdiction in disputes between private parties?; Which law is applicable?; and Under what circumstances are the decisions rendered in one legal system recognized and enforced in the other? [3]. Regarding this second level of judicial cooperation issues, this post is meant to explore if the 1991 agreement between Italy and China can provide an answer for these questions. Further, after a brief comparison with the EU Regulation n. 1215/2012, this post will try to asses if this treaty may serve as a model for the ongoing negotiations of the CAI.
The treaty signed by Italy and China on 20 May 1991 applies to both individuals and legal entities. It covers all civil law matters, included commercial, family and labor disputes. Furthermore, the agreement regulates three areas of judicial cooperation: notifications requests, legal information exchange and recognition, and enforcement of judicial decisions. As already said, this blog post focuses on this last topic, covered by Title III of the treaty. It is important to notice that the agreement not only provides rules on judgment recognition and enforcement but also foresees criteria to award international jurisdiction (art. 22). The reason is that recognition and enforcement are only possible if the decision is rendered by a court with international jurisdiction. Nonetheless, jurisdiction is not the only requirement for recognition and enforcement. The decision must also comply with the requirements set out by art. 21: it needs to be final and it has to respect the adversarial process principle and the priority rules. Regarding this last requirement, it is important to point out that a claim concerned with the same underlying facts – the same as an already commenced claim – cannot be brought before a different court. The result is a system that does not tolerate parallel proceedings in the Italian and Chinese legal system. Furthermore, in order to be recognized and enforced, the decision cannot pose a threat to national sovereignty and security.
The main criteria to award jurisdiction relates to the defendant’s residence or domicile principle. Alternative grounds of jurisdiction are specifically provided for commercial-, contractual-, non-contractual-, status-, maintenance obligations-, succession-, and property rights matters. Also, art. 22, lit. c) and d) establish that there is jurisdiction if the defendant does not raise an objection of lack of jurisdiction or the defendant already had accepted the place of jurisdiction.
The treaty does not expressively foresee a specific rule regarding the substantial applicable law: it is, therefore, to be concluded that each court should identify the applicable law according to its international private law. The treaty, however, does intervene on the law that shall be applied to the enforcement proceeding, which is regulated by the law of the enforcement place (art. 25).
To obtain recognition and to enforce the decision, the interested party shall then lodge a request to the competent judicial authority, which can only refuse it if the already mentioned criteria provided by art. 21 are not met. The decision rendered according to the Agreement has, in fact, the same force in Italy and in China (art. 26).
After this brief overview, it seems to me that – at least to some extent – the 1991 treaty is rather close to the basics of the EU regulatory environment [4].
In fact, the articles mentioned above set out rules to award jurisdiction, recognize and enforce foreign decisions. As pointed out, the treaty also intervenes on the specific topic of parallel proceedings in order to avoid jurisdiction overlapping. Same as in the European system, the treaty foresees a priority-in-time rule.
However, to some other extent, the treaty also differs profoundly from the EU regulations and in particular from the Regulation (EU) No 1215/2012.
The treaty does not provide specific rules on the substantial applicable law – art. 25 only refers to the law that applies to the enforcement procedure.
Moreover, according to the agreement, foreign decisions need to be recognized through a specific process of exequatur before the judicial authority where the enforcement shall take place. Conversely, in the EU decisions circulate freely, given that they are automatically recognized across the Union, with the small limitation set by art. 45 of Regulation (EU) No 1215/2012.
The Italy-China agreement presents rather surprising features. Besides the jurisdiction criteria – which are quite detailed and cover a wide range of legal matters – the priority-in-time principle stated by art. 25 to avoid jurisdiction overlapping is an advanced achievement, considering the differences between the Italian and the Chinese legal systems. This principle reveals a deep mutual trust towards the respective judicial authorities.
That same mutual trust does however not exist when it comes to recognizing foreign decisions. There is no free circulations of judicial decisions between Italy and China – recognition and enforcement still require an exequatur proceeding which results to be expensive and time-consuming [5].The treaty also does not provide rules on the substantial applicable law but that is – with much probability – not a big issue to solve.
A challenging obstacle that might arise in the negotiations between the EC and China is that of willingness – on the political level – to show mutual trust to the other party’s judicial authorities. On a strictly legal ground, “trust” means a priority-in-time rule to avoid parallel proceedings and the free circulation of judicial decisions.
It is going to be interesting to see if – and in what terms – the treaty between the EU and China will set rules on jurisdiction, applicable law, recognition, and enforcement of European and Chinese decisions. Given that it will replace the existing bilateral treaties it is legitimate to expect more advanced rules on these matters and maybe even a system based on mutual trust. The Italy-China agreement is 28 years old by now, but it probably still provides an accurate snapshot of the current negotiations between EU and China.
[1] European Commission, OVERVIEW OF FTA AND OTHER TRADE NEGOTIATIONS Updated July 2019, https://trade.ec.europa.eu/doclib/docs/2006/december/tradoc_118238.pdf.
[2] CJEU, Opinion 1/17 of the Court, rendered on April the 30th 2019.
[3] The urge for rules to avoid jurisdiction overlapping is considered by Scholars as a direct result of the globalization process. See regarding parallel proceedings, AHMED, The Enforcement of Settlement and Jurisdiction Agreements and Parallel Proceedings in the European Union, in Jour. Int. priv. law, 2015, p. 410: “The rise in the incidence of parallel proceedings worldwide is driven by the demands of globalization, technological advancements and the movement of persons, companies and property across borders with little or no hindrance”. Also, see LUPOI, Il coordinamento tra giurisdizioni nello spazio di giustizia europeo: an update, Bologna, 2018.
[4] The reference goes, in particular, to Regulation (EU) No 1215/2012; Regulation (CE) No 593/2008; Regulation (EU) No 864/2007.
[5] According to the business lawyer Laura Saccone (head of the legal department of GWA Greatway Advisory) it is however not impossible for an Italian decision to get recognized in China. She refers to the B & T Ceramic Group S.r.l. case, in which an Italian company was able to enforce in China a declaration of bankruptcy rendered in Italy. See SACCONE, Legge applicabile e foro competente negli accordi commerciali Italia - Cina: conservativismo contrattuale vs realtà, in Diritto 24, 27.06.2017, http://www.diritto24.ilsole24ore.com/art/avvocatoAffari/mercatiImpresa/2017-06-27/legge-applicabile-e-foro-competente-accordi-commerciali-italia--cina-conservativismo-contrattuale-vs-realta-122717.php