Dear members, our September 2017 newsletter is now available. Enjoy!

1. 1
CONTENT
1. Special Observer:
Prospects for China’s Economy in The Year Ahead………2-3
2. Guide to Arbitration in P.R.C.………………………………4-6
3. Case Study:
The Application of Art. 17 CMR in German Case Law……7-11
4. “One Belt One Road” Programme:
-- A Brief Analysis of A Guiding Case of OBOR………….12-15
-- The ‘Ice Silk Road’ Project………………………………..16-18

2. 2
1. Special Observer: Prospects for China’s economy
in the year ahead1
Authored By Richard Scott2
Just over a week ago the International Monetary Fund (IMF) published the results of
its annual talks with the Chinese authorities about how China’s economy is
progressing. Economic activity in China, measured by gross domestic product, is now
forecast to grow by 6.7% in 2017, the same rate as seen last year. But a slackening is
still expected to emerge in 2018, when 6.4% growth is estimated.
Previously, this year’s GDP growth was widely expected to be slightly slower than
seen in 2016, continuing the established pattern of a decelerating trend. Explaining the
reasons for a more optimistic outlook, the IMF says that the growth outlook for China
‘has been revised up reflecting strong momentum, a commitment to growth targets,
and a recovering global economy’.
Domestic demand within the economy (government, business and consumer
spending) has been strengthened by policy changes which lowered interest rates,
supported the housing market, and increased government borrowing. Nevertheless,
restraining measures have been introduced which may result in GDP growth
moderating during the second half of 2017.
Looking further ahead, IMF economists worry that large and continuous expansion of
private and public debt could prove problematical, and could intensify downside risks
for the economy. The Chinese authorities disagree, contending that the debt build-up
so far has been manageable and is likely to decelerate amid economic reforms
unfolding.
1
This article was first published in SOLENT Global Maritime Weekly Digest, 22 August 2017.
2
Richard Scott, senior consultant, CECCA; associate, China Centre Maritime, Solent University.

3. 3
There have been numerous signs of how China’s robust economic performance
(‘robust’ is a description used by the IMF) has benefited the global shipping market
this year. Major Chinese industries such as steel production and power generation
have derived support. These features were reflected in additional import demand for
iron ore, coal, oil and gas, although other more specific influences were also evident.
In the ‘longer term’ future, changes in the nature of Chinese economic growth seem set
to produce a resumed slowing trend. An intended shift away from investment-led
expansion towards consumption (particularly consumer spending), and the parallel
rebalancing from manufacturing towards services, remains a firm objective.
Overcapacity in the industrial sector is being reduced. When, and to what extent this
changing pattern will affect global seaborne trade movements remains unclear.
The new IMF report about China refers only briefly to the Belt and Road Initiative, and
does not attempt to assess the economic consequences of this scheme. However, the
report does acknowledge that the BRI ‘could foster multinational cooperation in trade,
investment and finance, bring much needed infrastructure and connectivity to the
region’.

4. 4
2. Guide to Arbitration in P.R.C.
Source: Helena H.C. Chen3; Edited by Xiangyi Zhang4
3
Helena H. C. CHEN, qualified in Mainland China, Taiwan Province and New York State acts as arbitrators and mediators in
cases administered by over 10 arbitration institutions around the world. This basic guide is derived from her presentation in the
Annual Arbitration Conference, London in June 2017.
4
Xiangyi Zhang, a Member of the CECCA editorial department, Master of International Commercial and Maritime Law in
Swansea University.

5. 5
Chinese Arbitration Law was promulgated in 1995 and amended in 2009. Over 20
years, the number of cases accepted each year has been increasing with an average
annual rate increase of 30%. The number of cases in 2016 has reached 208,545 which
increased 71,621 cases from 2015 with a growth rate of 52%. The total amount in
dispute is 469.5 Billion CNY, which is an increase of 58.3 billion CNY compared to
2015.Among these cases, foreign-related arbitration in China amounts to 3,141 with a
growth rate of 51% compared with 2015.The foreign-related arbitration involves
“Foreign elements”, such as one of the parties is foreign, the subject matter of dispute
isolated outside of China or the facts establishing, amending, or terminating the
parties relationship occur outside of China. However, there are two situations you
need to distinguish. For the one hand, when a foreign parent company sets up a
subsidiary or wholly foreign-owned enterprise(WFOE) in China, and no other foreign
elements involved. In accordance with the Chinese Arbitration Law, this is a domestic
arbitration. On the other hand, if a foreign headquarter establishes a branch in China
which constitutes a foreign-related arbitration.

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Traditionally, ad hoc arbitration is not allowed in China. However, over several years
there are two crucial changes in China. Firstly, since 22, August 2013, the Shanghai
Pilot Free Trade Zone (FTZ) has been established. Currently, a total of 11 FTZs have
been approved. Secondly, the Belt and Road initiative has created the “go global”
strategy. It is supposed that an opening-up arbitration is called for in China. Based on
this, the Supreme Court of P.R.C. in 2016 issued an important interpretation in
arbitration which is the Opinions on Further Deepening the Reform of the Diversified
Dispute Resolution Mechanism (Fa-Fa [2016] No. 14). In this interpretation, Paragraph
(3) of Article 9 provides that “where enterprises registered in the FTZs have agreed
with each other to submit relevant disputes to arbitration at a specific place in
mainland China in accordance with the specific arbitration rules by specific people,
the arbitration agreement should be deemed valid.” This provision has been
considered as the acceptance of ad hoc arbitration in the arbitrators’ circle.

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3. Case Study: The Application of Art. 17 CMR
in German Case Law5
Authored By Dr. Tobias Eckardt6
The provisions of Art. 17 CMR have brought forward a wealth of case law and commentaries.
The decision between the various alternatives of Art. 17 para. 2 CMR is, however, quite
unevenly distributed.
1. First Alternative: wrongful act/negligence of the claimant.
The position in Germany is that the claimant might be either the sender or the consignee.
It seems to be generally accepted7 that this is the case as either of these parties may be in
position to claim against the carrier.
The level of care or diligence that needs to be exercised by the “claimant” is that of what
could be expected by a diligent sender/consignee.8 It has, for example, been held that the
sender violated his duty in the following case: The sender was obliged to handle the
loading of the cargo on to the trailer. He had, however, left this task to the driver and did
5
Revised version of a presentation given at International Conference 60 years CMR, at Erasmus University Rotterdam, The
Netherlands; first published in Tijdschrift Vervoer & Recht <www.uitgeverijparis.nl/tijdschriften/tijdschrift/1/Tijdschrift-
Vervoer-Recht-TVR>, TVR 2017, 48-50. CMR refers to Convention on The Contract for the International Carriage of
Goods by Road (Geneva, 19, May, 1956), https://treaties.un.org/doc/Treaties/1961/07/19610702%2001-
56%20AM/Ch_XI_B_11.pdf.
6
Dr. Tobias Eckardt, Partner, Ahlers & Vogel Rechtsanwälte PartG mbB, Leer/Germany.
7
BGH, 15.1.2007, TranspR 2007, 314: “Mit dem Verfügungsberechtigten meint die CMR - wie sich den maßgeblichen
englischen und französischen Texten (Art. 51 CMR) entnehmen lässt - den Anspruchsteller ("the claimant") oder
Anspruchsinhaber ("l'ayant droit"); das sind der Absender und der Empfänger, die beide als Gläubiger des Ersatzanspruchs
in Betracht kommen ([references omitted]), hier also der Absender.”; Koller, Art. 17 CMR para. 31; MüKo Jesser-Huß,
Art. 17 CMR para. 29.
8
BGH, 9.9.2010, TranspR 2011, 178: “Das Verschulden im Sinne von Art. 17 Abs. 2 CMR setzt nicht voraus, dass der
Verfügungsberechtigte gegen echte Vertragspflichten verstößt. Es genügt vielmehr, dass er in vorwerfbarer Weise eine
Obliegenheit zur Schadensverhinderung verletzt, das heißt die verkehrserforderliche Sorgfalt nicht beachtet hat. Das dem
Verfügungsberechtigten anzulastende Verhalten muss zudem kausal geworden sein und kann sowohl den Eintritt als auch
die Höhe des Schadens betreffen ([references omitted]).”; Koller, Art. 17 CMR para. 31a; MüKo Jesser-Huß Art. 17 CMR
para. 30.

8. 8
then not check on whether the cargo was sufficiently secured within the trailer. It was
held9 that thereby the sender violated his duties.
As a near mirror image of this decision it has been held that the sender was not to be
blamed if he failed to take steps which should prevent a loss in a case where he had no
contractual obligation to take these steps but had simply been requested by the carrier to
do so.10
2. Second alternative: Losses caused by instructions given
It is generally accepted that the instruction needs to be binding on the carrier in order to
relieve him of liability.11 There does not seem to be any particular interesting case law on
this alternative.
3. Third alternative: inherent vice of the goods
Here the relationship to Art. 17 para. 4 lit. d CMR is unclear and subject to discussion. The
general approach seems to be that cases where the category of the goods generally makes
them prone to damage should be covered by Art. 17 para. 4 CMR whereas if a cargo that
is not usually and generally susceptible to losses (but only this particular consignment),
should be covered by Art. 17 para. 2 CMR. The line of distinction is drawn between a
9
BGH, 15.1.2007, TranspR 2007, 314: “ Für die Frage, ob die Haftung des Frachtführers für eine auf fehlerhaftes Verladen
zurückzuführende Beschädigung des Gutes (Art. 17 Abs. 1 CMR ) nach Art. 17 Abs. 4 lit. c CMR ausgeschlossen ist,
kommt es darauf an, wer das Transportgut tatsächlich verladen hat. Liegen danach die Voraussetzungen eines
Haftungsausschlusses nicht vor, ist ein vom Versender verschuldeter Schadensbeitrag - hier: Nichteinschreiten des an sich
zur Verladung verpflichteten Versenders bei einer vom Fahrer vorgenommenen unzureichenden Verzurrung des Gutes auf
einem Auflieger - im Rahmen der Haftungsabwägung nach Art. 17 Abs. 2 i.V. mit Abs. 5 CMR zu berücksichtigen.”.
10
BGH, 13.7.2000, TranspR 2000, 409 (“Hält der Frachtführer, der im allgemeinen für eine ordnungsgemäße Ablieferung
des Gutes bei dem bestimmungsgemäßen Empfänger verantwortlich ist, eine Mitwirkung des Versenders bei der Erfüllung
seiner Verpflichtung durch Vornahme bestimmter Sicherheitsmaßnahmen für erforderlich, so muß er dies zum Gegenstand
des Beförderungsvertrages machen. Die Nichtbefolgung eines einseitigen Verlangens des Frachtführers begründet in der
Regel weder ein Verschulden des Versenders i. S. von Art. 17 Abs. 2 CMR noch eine Obliegenheitsverletzung, die
grundsätzlich zu einer Mithaftung nach Art. 17 Abs. 5 CMR führen kann.”); BGH, 13.7.2000, TranspR 2001, 298 („Der
Frachtführer hat im allgemeinen dafür zu sorgen, daß das Gut sicher bei dem bestimmungsgemäßen Empfänger ankommt
und dort ordnungsgemäß abgeliefert wird. Welche Sicherheitsvorkehrungen er zur Erfüllung seiner Verpflichtung ergreift,
ist ihm überlassen. Hält der Frachtführer die Mitwirkung des Absenders in einer bestimmten Art und Weise für
erforderlich, muß er dies mit ihm grundsätzlich vertraglich vereinbaren. Denn die Vorschriften der CMR enthalten keine
Verpflichtung des verfügungsberechtigten Absenders, einem einseitigen Verlangen des Frachtführers nach bestimmten
Sicherheitsmaßnahmen nachkommen zu müssen. Demzufolge begründet die Nichtbefolgung eines einseitigen Verlangens
des Frachtführers weder ein Verschulden des Versenders i. S. von Art. 17 Abs. 2 CMR noch eine Obliegenheitsverletzung,
die grundsätzlich zu einer Mithaftung nach Art. 17 Abs. 5 CMR führen kann. Lehnt der Versender es ab, von ihm verlangte
Sicherheitsvorkehrungen zu ergreifen, hat der Frachtführer die Möglichkeit, den Abschluß eines Beförderungsvertrages
durch Nichtannahme des Auftrages des Versenders zu verhindern.“).
11
Koller, Art. 17 CMR para 32; MüKo Jesser-Huß, Art. 17 CMR para. 35.

9. 9
typical condition of the cargo and a non-typical condition, which is then considered a case
of the inherent vice. For example if a cargo can be expected to be cooled to a specific
temperature and this particular shipment is not so cooled this is a non-typical case and
might therefore qualify under Art. 17 para 2. CMR.12
It should be noted that a further distinction can be drawn in cases where the carrier has
been notified the non-typical properties of the cargo. It is discussed that in these cases
cargo forms its own category of cargo. In the above example: If the carrier is informed in
advance that the cargo is not cooled as it would usually be, the category would be
“insufficiently cooled cargo” and would thus constitute its own category and the fact that
the cargo is insufficiently cooled would not be an inherent vice under Art. 17 para. 2
CMR, but would fall under Art. 17 para. 4 CMR.13
4. Fourth alternative: unavoidable circumstances
When discussing the law to bring into force the CMR as German law, the legislator
considered Art. 17 para. 2, fourth alternative CMR, to contain a definition of force
majeure. It was thus considered that only external circumstance which were utterly
unforeseeable could relieve the carrier from liability. The Federal Supreme Court has
repeatedly held that the legislator misunderstood the convention and that the German
understanding of force majeure should not be relevant here. Rather, it was established
that the carrier has to prove that the loss could not have been prevented even if the
utmost care possible under circumstances had been taken. When the Federal Supreme
Court says utmost possible care it indeed means that. Based on the transport requirements
set out in the contract of carriage and the perceivable risks of that particular carriage all
steps need to be taken up to those which seem (from a commercial perspective) as absurd
or borderline absurd to prevent losses.14
German courts will consider the transport as a whole and not just the actual loss event. So
that – for example – the question will not (just) be whether the driver could withstand the
robbers at the truck stop, but whether the carriage should have been organised in such
way that the stop would not have been necessary.
12
Koller, Art. 17 CMR para. 33; MüKo Jesser-Huß, Art. 17 CMR paras. 37 et seq; Thume, „Verpackungsmängel und ihre
Folgen im allgemeinen deutschen Frachtrecht und im grenzüberschreitenden Straßengüterverkehr“, TranspR 2013, 8
further differentiates between too warm cooled (falling under Art. 17 para. 4) and deep-frozen goods (falling under Art.
17 para. 2); see also Abele, Transportrechtliche Haftungs- und Versicherungsfragen anhand von temperaturgeführten
Pharmatransporten, TranspR 2012, 391.
13
cf. Koller, Art. 17 CMR para. 33; MüKo Jesser-Huß, Art. 17 CMR paras. 37 et seq.
14
MüKo Jesser-Huß, Art. 17 CMR para. 41; Koller, Art. 17 CMR paras. 20 et seq.

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Examples:
A robbery of a truck parked at an autobahn rest stop in Italy was held to have been
avoidable as the truck/trailer should have been parked in secured location or two drivers
could have been used, given that Italy is known to be prone to be cargo thefts.15
If the driver is not provided with a road map or a precise description of how to arrive at
his destination and is therefore forced to stop several times after nightfall to ask for
directions and is consequently robbed in Sophia/Bulgaria (cargo: six cars in a total value
of over 84.000 USD) was found to have been avoidable.16
15
BGH, 29.10.2009, I ZR 191/07, TranspR 2010, 200: „3. Ohne Erfolg wendet sich die Revision gegen die Annahme des
Berufungsgerichts, der Beklagte sei nicht gemäß Art. 17 Abs. 2 CMR von seiner Haftung für den streitgegenständlichen
Schaden befreit, da der Raubüberfall - und damit der Verlust des Transportgutes - für ihn nicht unabwendbar im Sinne der
genannten Vorschrift gewesen sei.
a) Das Berufungsgericht ist zutreffend davon ausgegangen, dass Unvermeidbarkeit i.S. von Art. 17 Abs. 2 CMR nur
anzunehmen ist, wenn der Frachtführer darlegt und gegebenenfalls beweist, dass der Schaden auch bei Anwendung der
äußersten dem Frachtführer möglichen und zumutbaren Sorgfalt nicht hätte vermieden werden können ([references
omitted]). Diesen Nachweis hat der Beklagte, der nach Art. 3 CMR für das Verhalten seines Fahrers einzustehen hat, nicht
erbracht.
b) Das Berufungsgericht hat angenommen, der Beklagte habe den Verlust des Gutes mit zumindest leichter Fahrlässigkeit
verursacht. Bei Italien handele es sich um ein diebstahls- und raubgefährdetes Land für Lkw-Transporte, so dass
Veranlassung zu erhöhter Sorgfalt bestanden habe. Dem habe der Beklagte bzw. sein Fahrer nicht genügt. Es könne nicht
ausgeschlossen werden, dass der Überfall vermieden worden wäre, wenn der Beklagte und sein Fahrer weitere
Sicherheitsvorkehrungen getroffen hätten. Im Streitfall komme noch hinzu, dass der Beklagte gemäß Ziffer 3.3 der
zwischen ihm und N. geschlossenen Rahmenvereinbarung verpflichtet gewesen sei, beladene Transportbehältnisse
verschlossen auf einem gesicherten Grundstück, bewachten Parkplatz oder sonst beaufsichtigt abzustellen. Der dem
Beklagten obliegenden erhöhten Sorgfaltspflicht sei mit einem in der Fahrerkabine schlafenden Fahrer nicht entsprochen
worden. Als zusätzliche Sicherungsmaßnahmen wären der Einsatz eines zweiten Fahrers oder die Wahl einer Fahrroute, auf
der es bewachte Parkplätze gegeben hätte, in Betracht gekommen.
c) Entgegen der Auffassung der Revision hat das Berufungsgericht an die vom Frachtführer darzulegende und
gegebenenfalls zu beweisende Entlastung gemäß Art. 17 Abs. 2 CMR keine zu hohen Anforderungen gestellt. Die Revision
berücksichtigt nicht genügend, dass es sich bei der Haftung nach Art. 17 Abs. 1 CMR um eine verschuldensunabhängige
Haftung mit der Möglichkeit des Unabwendbarkeitsbeweises handelt ([references omitted]). Dem Frachtführer obliegt es,
mit der Gewissenhaftigkeit eines ordentlichen Kaufmanns für eine sichere Ankunft der zu transportierenden Güter beim
bestimmungsgemäßen Empfänger zu sorgen. Das Berufungsgericht hat mit Recht angenommen, dass die Anwendung des
Art. 17 Abs. 2 CMR im Streitfall daran scheitert, dass der Beklagte mögliche Sicherheitsvorkehrungen zur Vermeidung
eines Raubes oder Diebstahls des Transportgutes nicht ergriffen hat.“
16
BGH, 30.4.2000, I ZR 290/97, TranspR 2000, 407: „Der Verlust von - erkennbar besonders wertvollem - Transportgut
(hier: sechs PKW) infolge Raubüberfalls im Ausland (hier: Sofia/Bulgarien) ist in der Regel nicht unvermeidbar, wenn der
in der Dunkelheit eintreffende Fahrer deshalb gezwungen ist, anzuhalten und Dritte nach dem Weg zu fragen, weil er weder
mit einem Stadtplan vom Empfangsort noch zumindest mit einer genauen Wegbeschreibung zur Empfängeradresse
ausgestattet ist.“

11. 11
The Appellate Court of Hamm17 considered a case where a sender agreed with a haulier
to carry goods from A to B and another consignment from C to D. As the haulier
transported the goods from C to D he was too late to deliver the goods from the other
shipment at B. The court held that even though the sender had contracts to cover both
carriages the haulier could not rely on Art. 17 para 2 CMR as it was the haulier’s
obligation to ensure that all transport accepted by him could be carried out in a timely
fashion.
In cases of traffic accidents or other traffic related cases German courts demand that the
driver acted completely in accordance with all traffic laws and rules. If a slight violation of
the rules played a causative role in the damage/loss, Art. 17 para. 2 CMR cannot apply.18
One of the rare cases where this exception applied was decided by the Appellate Court of
Köln19: A person had thrown a stone from a bridge and the driver of the truck had to jerk
the steering wheel around to avoid being hit by that stone, leading to a crash of the truck.
17
OLG Hamm, 15.9.2008, 18 U 199/07, TranspR 2009, 167, see summary of the case in EJCCL 2009, 101: “ Ein
Haftungsausschluss gem. Art. 17 Abs. 2 CMR kommt nicht in Betracht. Das Überschreiten der Lieferfrist war für den
Beklagten vermeidbar. Es entlastet ihn nicht, dass er das Gut aufgrund eines anderen, ihm von der Klägerin erteilten
Auftrages am 24.11.2005 durch seinen Fahrer in N erst nach 20.00 Uhr und nicht zur vereinbarten Zeit um 17.00 Uhr
abholen lassen konnte. Die Verantwortung dafür, dass alle übernommenen Transportaufträge fristgerecht erfüllt werden
können, liegt beim Frachtführer, der die einzelnen Aufträge entgegennimmt.”
18
BGH, 10.4.2003, I ZR 228/00, TranspR 2003, 303 („Das Berufungsgericht ist im rechtlichen Ansatz zutreffend davon
ausgegangen, dass Unvermeidbarkeit i.S. des Art. 17 Abs. 2 CMR nur anzunehmen ist, wenn der Frachtführer darlegt und
gegebenenfalls beweist, dass der Schaden auch bei Anwendung der äußersten ihm möglichen und zumutbaren Sorgfalt
nicht hätte vermieden werden können ([references omitted]). Dies setzt bei Verkehrsunfällen voraus, dass sich der
Frachtführer völlig verkehrsgerecht verhalten, d.h. der Unfall für ihn ein unabwendbares Ereignis i.S. des § 7 Abs. 2 StVG
a.F. dargestellt hat ([references omitted]). Ein solches unabwendbares Ereignis liegt immer schon dann nicht vor, wenn ein
- sei es auch nur geringfügiges - Verschulden des Fahrers für den Unfall ursächlich gewesen oder ein solcher
Ursachenzusammenhang zumindest nicht auszuschließen ist ([references omitted]).“); OLG Köln, 13.1.2009, 3 U 203/07,
(„Unvermeidbarkeit im Sinne des Artikel 17 Abs. 2 CMR ist nur anzunehmen, wenn der Frachtführer darlegt und
gegebenenfalls beweist, dass der Schaden auch bei Anwendung der äußersten ihm möglichen und zumutbaren Sorgfalt
nicht hätte vermieden werden können. Dies setzt bei Verkehrsunfällen voraus, dass sich der Frachtführer völlig
verkehrsgerecht verhalten, das heißt der Unfall für ihn ein unabwendbares Ereignis im Sinne des § 7 Abs. 2 StVG a. F.
dargestellt hat; ein solches unabwendbares Ereignis liegt immer schon dann nicht vor, wenn ein - sei es auch nur
geringfügiges - Verschulden des Fahrers für den Unfall ursächlich gewesen oder ein solcher Ursachenzusammenhang
zumindest nicht auszuschließen ist“)
19
Köln, 13.1.2009, 3 U 203/07: “Der Senat hat sich durch eine erneute Vernehmung des Zeugen O., der für den
Subunternehmer der Beklagten den Transport durchgeführt hat, davon überzeugt, dass nach den vorgenannten Grundsätzen
der Schadenseintritt für den Zeugen unvermeidbar war. Der Zeuge konnte nach seiner Darstellung nur durch eine abrupte
Ausweichbewegung nach links vermeiden, dass der von der Brücke geworfene Stein das Führerhaus seines LKW in dem
Bereich traf, in dem er selbst saß. Dass der mit fast 24 t beladene LKW auf Grund dessen ins Schleudern geriet und gegen
die linke und rechte Betonleitplanke prallte, war unvermeidbare Folge des Ausweichmanövers.”

12. 12
4. “One Belt One Road” Programme
A Brief Analysis Of A Guiding Case Of OBOR
Authored By Chi Zhang20
Proposed by Jinping XI, the President of P.R.China in 2013, the ‘One Belt One Road’ (OBOR or
Belt & Road) initiative is an estimated $5 trillion infrastructure investment and trading
program that spans 60-plus countries across Asia, the Middle East, Europe, and Africa. The
implementation of OBOR requires a legal and constitutional structure that suits the complex
issues arising in such a cross-border and international undertaking. In a practical sense, the
legal disputes relating to the OBOR is crucially significant and helpful for those who are
interested in doing business or research in the context of OBOR. The Supreme People’s Court
of China (SPCC) has released the second issue of Guiding Judicial Cases in relation to the
20
Dr. Zhang is a member of CECCA Editorial Department, Ph.D. (University of Glasgow, UK); LL.M and LL.B
(Tsinghua University, China).

13. 13
OBOR Initiative in May 2017 which includes 10 typical judicial cases as practical directive for
practitioners.
As a significant achievement of the judicial reform in China, the guiding case pilot project was
firstly confirmed and clarified by the SPCC since 200421 and then a more practical and detailed
guideline of the Chinese guiding case was promulgated by the SPCC in 2010.22 From the
SPCC’s point of view, the guiding case pilot is actually expected to perform as a more flexible
judicial regime and legal technique to address practical problems of the Chinese society.
Therefore, such an ongoing reform has gradually influenced every domain of the Chinese
society and even the cross-border market including the international investment and trade
which form the core of ‘One Belt, One Road’ initiative.
Briefly speaking, the second release of the SPCC Guiding Cases of OBOR involves the
following aspects: the legal effect of international negotiable notes, legal effect of the contract
of intermediation in international consulting services, disputes regarding the valuation
adjustment mechanism (VAM provisions) in cross-border equity investment, the application
of the terms of ICC UCP 500 and legal issues in relation to the recognition and enforcement of
international commercial arbitration and so forth. We propose to pay high attention to the
most cutting-edge and real-time practical issues in relation to the OBOR initiative and make
effort to provide in-depth and critical case studies on the SPCC Guiding Cases of OBOR
successively in our CECCA MONTHLY.
Cases Studies on the SPCC Guiding Cases of OBOR Initiative (1):
Shandong HUALI Investment Co., Ltd v Lauritzknudsen electricco Co., PTE. Ltd23
Key Issues of This Case:
The first case study of the OBOR Guiding Cases is related to the legal effect of valuation
adjustment mechanism (VAM provisions) in cross-border equity investment. The VAM
provisions in direct equity investment have been widely applied in private equity and venture
capital, the function of which is to control and decrease uncertainty of the investment in the
future. VAM contracts commonly provides that the shareholders of the investee firm are
obliged to pay a pre-agreed amount of cash to the investor or to transfer a pre-agreed number
of shares to the investor without any cost, if the investee firm fails to satisfy given conditions,
21
Supreme People’s Court of China, The Second Five-year Plan of the Judicial Reform of China (2004-2008).
22
Supreme People’s Court of China, The Provisions on the Issues of Guiding Case Project (2010).
23
Case name in Chinese is “山东华立投资有限公司与新加坡 LAURITZKNUDSENELECTRICCO.PTE.LTD.股权转让合
同纠纷上诉案”.

14. 14
such as IPO or a certain level of annul net profit in a fixed period of time, etc. The accurate
connotation of the pre-agreed condition in which the VAM will be triggered, however, is still
vague and misleading in practice.
Case Brief:
Shandong HUALI Investment Co., Ltd, the claimant (HUALI) as a P.R.C-based shareholder of
Aierkay Co., Ltd (Aierkay), invested RMB 20 million in a Sino-foreign corporation holding
10% of the entire shareholding of the investee corporation. In December 2010, an agreement of
equity transferring was agreed between HUALI and Lauritzknudsen electricco Co., PTE. Ltd
(LKE), a Singapore-based shareholder of the investee company, which provided that once
Aierkay is re-organised as a public company limited by shares, HUALI is entitled to sell out all
of its shares in the investee company to LKE, and at any time after the above condition has
been met, the LKE is unconditionally obliged to buy all the shares that HUALI intends to sell.
Aierkay was re-organised as a public company in 2013, however, the LKE rejected to purchase
any shares held by the HUALI. As a result, the claimant filed a lawsuit before the court.
The High Court of Guangdong Provence held that the above provision in the Equity Transfer
Agreement between the shareholders of the investee company is actually not a VAM, because
it did not set the successful reorganisation of the investee company as a ‘operation target’.
Therefore, such a contractual term is just a ‘contractual provision with a condition’ under the
Chinese contract law rather than a VAM agreement. In other words, the ‘reorganising the
investee company to be a public company limited by shares’ is a condition in which the
defendant HAS THE RIGHT to buy the shares held by the claimant, instead of a contractual
condition in which an obligation of the defendant is triggered.

15. 15
Commentary:
The economic nature of the VAM contracts is actually a balancing mechanism between the
external investors and the incumbent shareholder of the target company, by which the
uncertainty of the valuation of the target company can be decreased. Therefore, the investors
or practitioners who intend to employ a VAM contract in cross-border investment of China
should particularly pay attention to choose a given condition which can accurately display the
‘achievement of operation’ such as IPO or a clarified amount of net profit, etc. Merely a
‘nonoperational goal’ of the company, such as the condition of ‘reorganisation of the target
company’ in the case discussed above may not be recognised as a VAM provision by the
Chinese court.
The application of new contractual instruments in financial investment is quite new in the
Chinese market. The judicial disputes regarding VAM contracts is increasingly emerging in
the Chinese market, especially the cases of cross-border investment, as quite a large number of
investors and entrepreneurs are unfamiliar with the detailed constitutive requirements under
the Chinese law and judicial practice. The SPCC again highly emphasise the legal issues of
VAM contract shows that the parties who are willing to sign VAM contracts must understand
what the economic function is of the VAM contract and how to accurately wording the
contractual intentions in a written contract. It can be prospected that similar legal disputes
may continue to emerge more and more, since the ‘Belt & Road’ policy has been providing a
huge international market of direct investment for supporting the infrastructure construction
projects in the ‘Belt &Road’ countries.

16. 16
The “Ice Silk Road” Project
By Janne Suokas24
Xi’s visit to Russia follows Beijing’s increased diplomacy in recent months with Arctic
countries, including Norway, Finland, Denmark and Iceland.
China and Russia are also cooperating in a liquefied gas project in the Yamal
Peninsula, which lies along the Northern Sea Route and has boosted cargo traffic on
the shipping lane.
24
The whole article has been published by http://gbtimes.com/world/china-russia-build-ice-silk-road-along-northern-sea-route.
CECCA uses this source for academic use only.

17. 17
The US$27bn project has received US$12bn in loans from China’s Export-Import Bank
and China Development Bank while the Silk Road Fund, set up by Beijing to fund
projects under the Belt and Road initiative, has a 9.9 percent share in the project.
For the oil resources, although China is not a littoral Arctic state, it has shown interest
in exploring and developing the region, which is estimated to hold 13 percent of the
worlds undiscovered oil resources and a third of its undiscovered natural gas
resources. As ice melts due to global warming, these resources as well as shipping
routes in the Arctic are expected to become easier to exploit and use.
In 2013, China secured a permanent observer status in the Arctic Council, where
Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the United States
discuss and decide on sustainable development and environmental protection in the
region. Professor Wang Yiwei from Renmin University in Beijing told gbtimes in a
recent interview that China may need to cooperate more with Russia in order to have
its say in the formulation of rules and standards in the Arctic.
For its part, Russia has promoted the Northern Sea Route as an alternative route that
would help cut shipping times from Shanghai to Rotterdam by about a week
compared to sailing through the Strait of Malacca and the Suez Canal.
Chinese state-owned shipping company Cosco was the first in the world to send a
container ship through the Northern Sea Route in 2013. It sent a record five ships
through the route in 2016, contributing to a total of 19 vessels that made the full route
that year.

18. 18
However, the legal status of the Northern Sea Route – which Russia’s maintains is part
of its internal waters – as well as Russia’s cautiousness about China’s increased role in
the Arctic may hinder further cooperation between the countries.
Source: gbtimes
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