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A centralized court for the EAPO Regulation in the Czech Republic?
Carlos Santaló Goris, Researcher at the Max Planck Institute Luxembourg for International, European and Regulatory Procedural Law and Ph.D. candidate at the University of Luxembourg, offers a summary and a compelling analysis of the Czech domestic legislation regarding the EAPO Regulation.
Introduction
On 22 January 2021, the Czech Chamber of Deputies approved “the government act amending Act No. 6/2002 Coll., on courts, judges, lay judges and the state administration of courts and amending certain other acts (the Courts and Judges Act), the wording of later regulations, and other related laws, according to the Chamber of Deputies 630 as amended by the Chamber of Deputies”. The reform is now pending before the Czech Senate.
The first legislative implementation of the EAPO Regulation in the Czech national law
This act introduces the very first amendment of the Czech domestic legislation regarding Regulation No 655/2014, establishing a European Account Preservation Order (“EAPO Regulation”).
The act foresees the concentration of all the applications for EAPOs in one single court, and namely the Prague 1 District Court (Obvodní soud pro Prahu 1). Nowadays, based on the information available in the e-justice portal, the competent court corresponds to the territorially competent court in the debtor’s domicile. However, if the debtor lives outside the Czech Republic, the competent court is the one of the district where the debtor is domiciled.
The upcoming reform envisaged with the act will also affect the application mechanism to gather information on the bank accounts established in Article 14 of the EAPO Regulation. Creditors can also request to investigate if debtors hold bank accounts in the other Member States. Each Member State has an information authority which is charge of searching for the information on the bank accounts. Member States had to notify the Commission with the names of the information authorities by 16 July 2016.
Currently, there is no central information authority in the Czech Republic. Any district court with territorial competence over the debtor’s domicile is an information authority for the purposes of the EAPO Regulation. When the debtor is not domiciled in the Czech Republic, the information authority is the competent court in the district where the bank, which holds the accounts, is located. This can result in challenges for the courts of other Member States searching the information. In case the creditor even ignores the name of the debtor’s bank, how can the competent authority to provide the information on the bank accounts be identified? One Luxemburgish judge has experienced this very dilemma.
The information on the bank accounts is obtained directly from the banks. Czech courts submit a request to “all banks in its territory to disclose, upon request by the information authority, whether the debtor holds an account with them” (Article 14(5)(b) of the EAPO Regulation).
Eventually, if the reform is approved by the Czech Senate, the information authority will also be centralized in the Prague 1 District Court.
The reasons behind the implementation
According to Dr. Katerina Valachová, the member of the Czech Chamber of Deputies who sponsored the amendments concerning the EAPO Regulation, the reform is due to “the complexity of the legislation on the EAPO, as well as the short deadlines set by the EAPO Regulation”. Having a single court for all the EAPO applications will help in terms of specialization. Furthermore, since most of the headquarters of the banks that operate in the Czech Republic are located within the area of the Prague 1 District Court when the court acts as an information mechanism, it can obtain the information on the bank accounts from the banks faster.
The Czech reform in the European context
Establishing a central authority to gather information on the bank accounts is the most common solution followed among those Member States in which the EAPO Regulation applies. Only four out of the twenty-six Member States (France, Finland, Latvia, and the Netherlands), have opted for a complete decentralized information authority. Two other Member States, Austria, and Italy adopted a hybrid approach: they have a central authority when the debtor is domiciled abroad and a decentralized authority when the debtor is domiciled in the country.
However, establishing a centralized court to handle all EAPO applications is a less common choice among other Member States. Only three countries have appointed centralized courts to issue EAPOs: Austria, Slovakia, and Finland.
The Czech Republic’s two neighbouring Member States, Slovakia and Austria, introduced a partial centralization of the EAPOs applications. In Slovakia, the Banská Bystrica District Court (Okresný súd Banská Bystrica) handles all the EAPO applications when the debtor’s “general territorial affiliation cannot be determined” within the Slovakian territory. In Austria, the Vienna Inner City District Court (Bezirksgericht Innere Stadt Wien) is responsible for issuing all the EAPOs when requested before initiation of the proceedings on the merits and before the enforcement of the judgment on the merits of the claim.
Finland has gone a step further than Austria and Slovakia. Similarly, to the ongoing Czech reform, it appointed one sole court – the district court of Helsinki – responsible for issuing all EAPOs.
Outside the EAPO Regulation scheme, we can also find examples of domestic “centralized courts” responsible for other European civil proceedings. For instance, in Germany the European Payment Order (“EPO”) was centralized in the Local Court in Wedding, Berlin. In 2019, France the French legislator approved the creation of a centralized court, which will handle all the EPO applications.
A more efficient application of the EAPO Regulation
Establishing a centralized court for the EAPO Regulation in Czechia is very welcome among those of us who want the EAPO Regulation to become a successful instrument. The future central court will become specialized with the EAPO Regulation, an instrument that can result too complex and requires a certain amount time for its adequate understanding. The centralization will also assure a coherent and uniform application of the EAPO Regulation at the Czech national level. Moreover, in case an issue on the interpretation of the text of that Regulation arises, that centralized court might be more willing to make a preliminary reference to the European Court of Justice (“ECJ”) than regular judges who might not encounter many applications for EAPOs. The ECJ has itself expressly acknowledged the benefits of the centralization in the context of the Maintenance Regulation. In fact, in C-400/13, Sanders and Huber, the ECJ affirmed that “a centralization of jurisdiction, such as that at issue in the main proceedings, promotes the development of specific expertise, of such a kind as to improve the effectiveness of recovery of maintenance claims, while ensuring the proper administration of justice and serving the interests of the parties to the dispute” (C-400/13, Sanders and Huber, 18 December 2014, ECLI:EU:C:2014:2461, para. 45).
Hopefully, in the future more Member States will follow the example of Czechia or Finland and will concentrate the application of the EAPO in a sole court in their territories.
Review of the AJIL Unbound symposium: Global Labs of International Commercial Dispute Resolution
By Magdalena Lagiewska, University of Gdansk
This post reviews the symposium issue of the American Journal of International Law Unbound on “Global Labs of International Commercial Dispute Resolution”. This issue includes an introduction and six essays explaining the current changes and developments in the global landscape for settling international commercial disputes. The multifarious perspectives have been discussed to show tendencies and challenges ahead.
Overall, the AJIL Unbound special issue is, without doubt, one of the most impactful contributions on changes in international commercial dispute resolution landscape. It is a successful attempt and a fascinating analysis of recent developments in this field. This is certainly a must-read for anyone interested in reshaping the landscape of dispute resolution worldwide. Beyond the theoretical context, it includes many practical aspects and provides new insight into the prospects of its development and potential challenges for the future. I highly recommend it not only to the researchers on international commercial dispute resolution, but also to legal practitioners—lawyers, arbitrators, and mediators among others. Below, I have outlined each of the symposium’s contributions.
As mentioned in the introduction by Anthea Roberts [1], instead of the previous bipolarity and centralization around New York and London, international commercial dispute resolution is facing a new process of decentralization and rebalancing. Today, we are all witnessing the adaptation to a new reality and the COVID-19 pandemic is speeding up the entire process. “New legal hubs” and “one-stop shops” for dispute resolution are springing up like mushrooms in Eurasia and beyond. Therefore, due to the competitiveness between the “old” and “new” dispute resolution institutions, these new bodies are more innovative and thus are expected to attract more and more interested parties.
The main aim of this symposium was to outline the new challenges of the international commercial dispute resolution mechanism around the world. New dispute resolution centres not only influence on the current landscape, but also they offer “fresh insight” in this field.
The first essay by Pamela K. Bookman and Matthew S. Erie, entitled “Experimenting with International Commercial Dispute Resolution” [2], pays attention to the new phenomena on emerging “new legal hubs” (NLHs), international commercial courts and arbitral courts worldwide. This new tendency has recently appeared in China, Singapore, Dubai, Kazakhstan and Hong Kong. All of these initiatives affect the international commercial dispute settlement landscape and increase the competitiveness among these centres. Those centres bravely take advantage of “lawtech” and challenge themselves. As a result, they are experimenting with legal reforms and some institutional design to attract more interested parties and to become well-known platforms providing high-quality dispute resolution services. The Authors set forth the challenges and threats that may exist in this respect. They also provide an insightful analysis of the impact of these new initiatives on the international commercial dispute resolution, international commercial law, and the geopolitics of disputes.
Further, Giesela Rühl’s contribution focuses on “The Resolution of International Commercial Disputes – What Role (if any) for Continental Europe?” [3]. The author pays attention to the Netherlands, which took the initiative to establish a new court exclusively devoted to international cases, and Germany and France, which took more skeptical efforts to establish international commercial chambers both before and after the Brexit referendum in 2016. Rühl believes that the far-reaching reform should be implemented at the European level. Therefore, she advocates the establishment of a common European Commercial Court. This seems to be an interesting approach that would certainly strengthen Europe’s position in the global dispute resolution landscape.
Julien Chaisse and Xu Qian outline the importance and key features of the recently established China International Commercial Court (CICC) [4]. Given its foundation, this court should operate as a “one-stop shop” combining litigation, arbitration, and mediation. It is dedicated to solving Belt and Road Initiative (BRI) related disputes. The Authors point out that this court is much more akin to a national court than a genuine international court. Therefore, they challenge its importance with respect to BRI-related disputes and attempt to determine whether the Court will play a significant role in the international dispute settlement landscape. These considerations are especially important given the primary sources in Chinese which bring the reader closer to Chinese legislation.
The following essay, by Wang Guiguo and Rajesh Sharma, addresses the International Commercial Dispute Prevention and Settlement Organization (ICDPASO) established in 2019 [5]. It is another global legal hub that offers “one-stop” services in China. At first glance, the ICDPASO seems to be an interesting body with an Asian flavour, however, the Authors shine a spotlight on some practical challenges ahead and its limited jurisdiction. This body differs significantly from the aforementioned CICC. Whether the ICDPASO will be a game-changer in the BRI-related disputes and will influence importantly on international dispute resolution landscape seems to be a melody of the future. It is ultimately too soon to answer those questions now, but it is certainly worthwhile to watch this institution.
Further, S.I. Strong brings attention to the actual changes in international commercial courts in the US and Australia [6]. Although Continental Europe, the Middle East, and Asia try to reshape the current international dispute resolution landscape, common law jurisdictions, such as the United States and Australia, are less inclined to changes in establishing international courts specialized in cross-border disputes. Compared to the US, Strong believes that Australia has made more advanced efforts to establish such courts. Nevertheless, aside from the traditional international commercial courts, the newly emerging international commercial mediation services are gaining popularity, most notably due to the entry into force of the UN Convention on International Settlement Agreements Resulting from Mediation (the Singapore Convention).
Last but not least, Victoria Sahani contribution’s outlines third-party funding regulation [7]. While third-party funding remains a controversial issue in litigation or arbitration, whether domestic or international, it is becoming much more popular globally. There are already over sixty countries experimenting with regulatory questions about third-party funding. In this case, we also deal with some “laboratories” that try out different methods of regulation.
The entire symposium is available here.
Can China’s New “Blocking Statute” Combat Foreign Sanctions?
by Jingru Wang, Wuhan University Institute of International Law
- Background
A blocking statute is adopted by a country to hinder the extraterritorial application of foreign legislation.[1] For example, the EU adopted Council Regulation No 2271/96 (hereinafter “EU Blocking Statute”) in 1996 to protest the US’s extraterritorial sanctions legislation concerning Cuba, Iran and Libya.[2] Since Donald Trump became the US president, the US government officially defined China as its competitor.[3] Consequently, China has been increasingly targeted by US sanctions. For example, in 2018, the US imposed broad sanctions on China’s Equipment Development Department (EDD), the branch of the military responsible for weapons procurement and its director for violating the US law on sanctions against Russia.[4] In 2020, the US announced new sanctions on Chinese firms for aiding North Korea’s nuclear weapons program.[5] A number of “Belt and Road” countries are targeted by US primary sanctions, which means that Chinese entities may face a high risk of secondary sanctions for trading with these countries. In these contexts, Chinese scholars and policy makers explore the feasibility to enact blocking law to counter foreign sanctions.[6] On 9 January 2021, China’s Ministry of Commerce (hereinafter “MOFCOM”) issued “Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures” (hereinafter “Chinese Blocking Rules”), which entered into force on the date of the promulgation.[7]
- Analysis of the Main Content
Competent Authority: Chinese government will establish a “Working Mechanism” led by the MOFCOM and composed of relevant central departments, such as the National Development and Reform Commission. The Working Mechanism will take charge of counteracting unjustified extraterritorial application of foreign legislation and other measures (Art. 4).
Targeted extraterritorial measures: The Chinese Blocking Rules target foreign legislation and other measures unjustifiably prohibit or restrict Chinese parties from engaging in normal economic, trade and related activities with third state’s parties (Art. 2), which is the so-called “secondary sanction”. Namely, if China considers sanctions unilaterally imposed by the US against a third country unjustified and violating international law, it may nullify such sanctions and allow Chinese companies to continue to transact with the third country. These Rules do not impact restrictions on business activities between China and the sanctioning country.
Unlike the EU Blocking Statute, the Chinese Blocking Rules do not provide an annex listing the legislation subject to the blocking but grant the Working Mechanism discretion. To determine whether foreign legislation or other measures fall within the application scope of the Chinese Blocking Rules, the Working Mechanism shall consider (1) the international law and fundamental principle of international relations; (2) potential impact on China’s national sovereignty, security and development interests; (3) potential impact on the legitimate interest of the Chinese party and (4) all other factors (Art. 6). On the one hand, the non-exhaustive list grants the Working Mechanism broad flexibility to analyse on a case-by-case basis. China has repeatedly become the target of US secondary sanctions. An exhaustive list of foreign legislation and other measures is insufficient to deal with the changing situations. On the other hand, China is prudent in confrontation with other countries. In a press conference, the MOFCOM spokesman stated that “the working mechanism will closely follow the inappropriate extraterritorial application of relevant national laws and measures.”[8] Therefore, the response of other countries will influence the enforcement of the Chinese Blocking Rules.
It is noteworthy the Chinese Blocking Rules will not affect China’s performance of its international obligations. These Rules shall not apply to such extraterritorial application of foreign legislation and measures as provided for in treaties or international agreements to which China is a party (Art. 15).
Information reporting system: A Chinese party prohibited or restricted by foreign legislation and other measures from engaging in normal economic, trade and related activities with a third state’s party shall report such matters to the MOFCOM within 30 days (Art. 5). Otherwise, the Chinese party may be warned, ordered to rectify or fined (Art. 13). To encourage the information report, Art. 5 of the Chinese Blocking Rules also provides that the competent authority shall keep such report confidential at the request of the Chinese party. The staff of the competent authority may undertake administrative penalties if they fail with such obligation (Art. 14).
Concerning the Information reporting system, when the report obligation is triggered is unclear. Should the Chinese party report within 30 days after the foreign legislation is published or other measures are taken or after its actual operation is restricted? Moreover, since the Chinese Blocking Rules do not list targeted foreign legislation and other measures, the Chinese party should rely on their judgment to report. Finally, who should report on behalf of the legal person remains to be answered.
Prohibition order: Once the unjustified extraterritorial application of foreign legislation and other measures is confirmed, the Working Mechanism may decide that the MOFCOM shall issue a prohibition order to ban the effect of relevant foreign legislation and other measures (Art. 7). A Chinese party that fails to observe the prohibition order will be punished (Art. 13). Therefore, Chinese parties are forced to comply with either Chinese or foreign laws. In other words, they will be punished by one or the other. To free the party from the dilemma, a Chinese party may apply for exemption from compliance with a prohibition order (Art. 8). China-based subsidiaries of foreign companies are formed under Chinese law. They are considered to be Chinese entities. Therefore, unless otherwise provided by law, they are subject to the prohibition order issued under the Chinese Blocking Rules and can apply for the exemption.
One major uncertainty is whether third state’s parties are subject to the prohibition order. These Rules do not stipulate that foreign entities will be punished by violating the prohibition order or can apply for the exemption. However, it is suggested that the prohibition order may bind the third state’s party for two reasons. Firstly, the US may issue secondary sanctions to prohibit Chinese parties from trading with third state’s parties (Iran as an example), or to prohibit third state’s parties (EU as an example) from trading with Chinese parties. According to Art. 2 of the Chinese Blocking Rules, both situations may obstruct the normal economic, trade and related activities between the Chinese party and the third state’s party. If the prohibition order merely applies to the Chinese party, it cannot protect Chinese businesses from being prejudiced by the US secondary sanctions in the latter situation. Secondly, a Chinese party can bring a lawsuit before the People’s Court against the party who infringes the legitimate interest of such Chinese party by complying with the foreign legislation and other measures covered by the prohibition order (Art. 9). This article does not limit the defendant to “a Chinese party.” Thus it shall include the third state’s party. If the prohibition order does not bind the third state’s party, it is doubtful that such third state’s party is liable for not complying with the prohibition order.
The prohibition order refrains relevant parties from complying with specific foreign legislation and other measures. A question is how should the prohibition order be observed. According to the European Commission’s Guidance Note, the purpose of the EU Blocking Statute is to ensure that business decisions on trading with third States remain free. It does not oblige EU operators to do business with Iran or Cuba. Also, the Chinese Blocking Rules cannot and should not oblige the Chinese party and the third state’s party to engage with each other. Therefore, it raises the worry that these Rules may apply better for breach of existing contract but be more difficult to “force” someone to enter into a contract or in terms of the pre-contractual obligation.
Judicial Remedy: A Chinese party can bring a lawsuit before the People’s Court of PRC against the party who infringes its legitimate interest by complying with the foreign legislation or measures covered by the prohibition order. A Chinese party may also suit the party who benefits from the judgment or ruling made under such foreign legislation or other measures before the People’s Court (Art. 9). Problems may arise if the losing party has no asset in China seized for enforcement by the Chinese court. Other countries may be reluctant to recognize and enforce such judgment.
Government support: Members of the Working Mechanism shall provide guidance and service to Chinese parties to deal with unjustified extraterritorial application of foreign legislation and other measures (Art. 10). Suppose a Chinese party that observes the prohibition suffers significant losses resulting from non-compliance with the relevant foreign legislation and measures. In that case, relevant government departments may provide necessary support based on specific circumstances (Art. 11). Which government department is responsible for these matters? Does “Necessary support” include financial compensation or support on litigation in the sanctioning country? These questions remain to be answered.
- Impact of the Blocking Statute
Considering that China has long suffered from secondary sanctions issued by the US government, promulgating the Chinese Blocking Rules is not a surprise. Overall, the Chinese Blocking Rules attempt to establish three core institutions anticipated by Chinese scholars: (1) blocking the effect and enforcement of specific foreign legislation in China; (2) prohibiting relevant parties from complying with specific foreign legislation and other measures; (3) enabling relevant parties to recover the damage from the party who complies with the foreign legislation and measures covered by the prohibition order. Therefore, a blocking statute serves as both shield and sword to fight against foreign sanctions.
But the function of blocking statute shall not be overemphasized. The same as the EU Blocking Statute, the Chinese Blocking Rules create a quandary for relevant parties.
For Chinese parties, if they comply with the Chinese prohibition order, they have to deal with US penalties. Chinese parties may invoke “foreign sovereign compulsion”[9] as a defence to insulate themselves from certain US sanctions penalties. In determining whether to buy such argument, US courts often consider whether foreign states actively enforce them.[10] The Chinese Blocking Rules can provide a legal basis for Chinese parties to exempt from the US sanctions by strategic enforcement actions. If so, Chinese parties will be relieved to transact with third state’s parties. But the Chinese government may not be willing to provide the same exemption. Out of self-interest, Chinese parties may be more likely to comply with the Chinese Blocking Rules.
These Rules have not yet stipulated the legal result if third states’ parties violate the Chinese prohibition order. In principle, prescriptive jurisdiction can be extraterritorial, but enforcement jurisdiction must be territorial. Therefore, China cannot always extend the effect of Blocking Rules to a third state’s party even if it has the will. However, it is reasonable to assume that third state’s parties may be added to the “unreliable entities list”[11] for disregarding the Chinese prohibition order. It may prompt third state’s parties to observe the Chinese prohibition order voluntarily to preserve their assets and reputation in China. But even if third state’s parties value the Chinese market, it is uneasy for them to choose China over the US.
China has become more active in exploring countermeasures against the US. On 19 September 2020, MOFCOM released provisions on establishing “unreliable entity list.”[12] Promulgation of the Chinese Blocking Rules is another proactive attempt. However, both are departmental rules, which are at a relatively low-level in the Chinese legal system. Predictably, higher-level legislation concerning the extraterritorial effect of foreign legislation and other measures will be enacted in the future. It may prompt China and the US back to the negotiating table.
[1] Menno T. Kamminga, “Extraterritoriality”, Max Planck Encyclopedia of Public International Law, November 2012, para. 26.
[2] COUNCIL REGULATION (EC) No 2271/96, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:01996R2271-20140220.
[3] White House, National Security Strategy of the United States of America, December 2017.
[4] CAATSA – Russia-related Designations, available at: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20180920_33. aspx.
[5] North Korea Designations, available at: https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20201208.
[6] Ye Yan, “On the EU Blocking Statute”, Pacific Journal, Vol. 28, No. 3, Mar. 2020, pp. 50-66; Huo Zhengxin, “Extraterritoriality of Domestic Law: American Model, Jurisprudential Deconstruction and Chinese Approach”, Tribune of Political Science and Law, Vol. 38, No. 2, Mar. 2020, pp. 173-191.
[7] Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures, available at: http://www.mofcom.gov.cn/article/i/jyjl/e/202101/20210103032421.shtml.
[8] The Head of the Department of Treaty of Law of Ministry of Commerce answers press on “Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures”, available at: http://www.mofcom.gov.cn/article/news/202101/20210103029779.shtml.
[9] “Foreign Sovereign Compulsion” means that if a party is obliged to do or not to do an act by a state, it may constitute a defence for not complying with the obligation specified by the US law before the US court. See American Law Institute, Restatement of the Law, Third, The Foreign Relations Law of the United States, American Law Institute Publishers, 1990, p. 341.
[10] M. J. Hoda, “The Aerospatiale Dilemma: Why U.S. Courts Ignore Blocking Statutes and What Foreign States Can Do About It”, California Law Review, Vol. 106, No. 1, 2018.
[11] The entity added to the list will be restricted on China-related trade, investment in China and travel or work permits. See “MOFCOM Order No. 4 of 2020 on Provisions on the Unreliable Entity List”, available at:
http://www.mofcom.gov.cn/article/b/fwzl/202009/20200903002593.shtml.
[12] Ibid.
News
Seminar information: U.S Extraterritorial Jurisdiction– Myths and Reality
Professor William S. Dodge, John D. Ayer Chair in Business Law; Martin Luther King Jr. Professor of Law, University of California, Davis, School of Law, will give a seminar entitled ‘U.S. Extraterritorial Jurisdiction-Myths and Reality’ at the Wuhan University School of Law on 15 Oct. at 15:00-16:30pm Beijing Time. This seminar will be chaired by Professor Sophia Tang, the Associate Dean of the Wuhan University Academy of International Law and Global Governance. Associate Professor Wenliang Zhang at the Renmin University, Associate Professor Xiongbin Qiao, Associate Professor Yong Gan, and Associate Professor Wenwen Liang at the Wuhan University will act as discussants. You can attend the seminar online through Tencent Meeting. Please follow the information below:
Time?2023/10/15 15:00-17:00 (GMT+08:00) Beijing Time
Meeting link?
https://meeting.tencent.com/dm/KADluwLhfmfc
Tencent Meeting ID: 991-898-184
Password: 89456
Call for abstracts: RIDOC 2023 Rijeka Doctoral Conference
A Friday in early December is reserved for RIDOC: Rijeka Doctoral Conference, organised by the University of Rijeka, Faculty of Law. Doctoral students in law or law-related area who wish to join colleagues from different countries to test their research hypothesis and arguments before the expert panel are welcome to apply for the 2023 edition.
The call is open until 20 October and abstracts should be sent to ridoc@pravri.uniri.hr. More information is available here.
Save the Date: German-French Symposium on the new German Sales Law (Heidelberg, 24 Nov 2023)
On 24 November 2023, the Institute for the History of Law at the University of Heidelberg (Institut für geschichtliche Rechtswissenschaft) is hosting a symposium on the new German Sales Law in cooperation with the Université de Lorraine. Further information can be found here (French version).