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Arbitration and Asia – opportunities and challenges

Serious thought should be given to what BRI arbitrations really look like beyond the popular headlines, says Swee Im TAN, international arbitrator and member of 39 Essex Chambers

Asia and the Belt and Road Initiative (BRI) feature large in the arbitration scene, especially in the construction and energy fields where infrastructure projects capture headlines on a regular basis.

However, one pauses to consider what the BRI is really all about. The popular view of the BRI is large infrastructure projects funded by the People’s Republic of China (PRC), utilising Chinese equipment and Chinese manpower. However, when one looks a little more closely on the ground, the reach of the BRI is in fact much wider, including in types of projects and manner of involvement. It may come as a surprise to some that BRI projects encompass all manner of diverse developments from tourist resorts to high-speed railways.

In terms of involvement, the participation of PRC contractors is prevalent in many domestic economies; Malaysia, as an example, has seen a large number of domestic private sector developments built by PRC contractors. Often these PRC contractors are not the main contractor but are nevertheless a significant part of the engine room that constructs the project, acting as ‘main’sub-contractors to the local main contractor and as suppliers of equipment installed in the developments as well as construction equipment. This is not to mention the extensive use of ‘Made in China’products in every activity.

“Any ambiguity in the arbitration clause would result in uncertainty, possibly fuelling cross border court actions as to what parties meant by the clause parties had apparently ‘agreed’!”

These projects and involvement being contractual in nature, are often entered into between locally incorporated entities. Where there are Investee States involved, it is common operating procedure for them to nominate a local government agency as the contracting party, or even a locally incorporated company owned or controlled by the government agency. In turn, the PRC party will usually operate as a locally incorporated subsidiary. Joint ventures are also often between locally incorporated entities.

Being in essence domestic contracts, there is a tendency for such construction main/sub/supply contracts and joint venture agreements to apply the local governing law and to include ‘standard’arbitration clauses which refer to local statutes and local arbitral institutions. Such a scenario results in the rise of domestic arbitrations, applying local law, between locally incorporated entities. There is a substantial body of such type of domestic disputes which may have escaped widespread public attention.

Taking cognisance of this, counsel and parties would do well to pay close attention to dispute resolution clauses, especially in such ‘domestic’contracts. The moniker of ‘midnight clause’is not without reason and often the drafter is not a seasoned disputes practitioner. Experience shows us that parties may make concessions on arbitration provisions in order to protect headline commercial terms, which may well be a costly choice if a time comes for dispute resolution and cross border enforcement.

The divide between international and domestic arbitration regimes in various jurisdictions also give rise to the need for parties to consider in greater depth the reference to arbitration legislation, which may have opt-in, opt-out provisions depending on whether it is an international or domestic arbitration, and which has significant consequences on how the law of the seat is applied and court intervention on questions of law, interim measures, and enforcement of awards.

Rules of arbitral institutions may in the large part be quite similar, with many adopting the UNCITRAL model. However, the variance may be greater on how institutional rules deal with matters such as consolidation, emergency arbitrators, interim measures, and fast track arbitrations. These are the sort of matters which parties may not consider deserving of attention in the headiness of securing a contract, but would hit them at the crucial moment when they need to rely on them.

The venue may be different from the seat, and if not yet considered, ought to be. Costs are a major consideration in arbitration proceedings, as are aligning the diaries of numerous counsel, witnesses of fact, expert witnesses and tribunal members. The fewer long-haul flights needed to convene physical hearings, the greater the ability to expedite proceedings and save costs. Some jurisdictions have strict work permit requirements, limited flight connectivity or expensive accommodation, all of which may impact the ease and cost of convening physical hearings.

Any ambiguity in the arbitration clause would result in uncertainty, possibly fuelling cross border court actions as to what parties meant by the clause parties had apparently ‘agreed’!

All this said, there is much to be commended in giving serious thought to what BRI arbitrations really look like beyond the popular headlines.

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