Sino-ASEAN arbitration panel proposed to tackle Belt and Road disputes

• Sep 28, 2017

THE head of Brunei’s arbitration association called for a panel of ASEAN and Chinese arbitrators to be established in order to create a dispute-resolution system which covers private companies involved in projects related to the Belt and Road Initiative (BRI). Contract disputes are inevitably a risk in large-scale infrastructure projects between jurisdictions which are at different stages of development and legal maturity.

Dr Colin Ong, president of Arbitration Association Brunei Darussalam (AABD), made the comments during a panel session about infrastructure dispute resolution in a Belt and Road Summit.

Belt and Road Summit 2017 was jointly organised by the Hong Kong government and the Hong Kong Trade Development Council (HKTDC), on September 11. A lot of focus was on ASEAN. In one of the sessions, a panel of arbitrators and legal professionals discussed the future of cross-border infrastructure investments related to the BRI.

In Thilawa Special Economic Zone (which is not a BRI project), for example, some investors have used Singapore as the dispute resolution platform, because of the lack of confidence in the legal system in Myanmar. With an upsurge in investments and development of large-scale infrastructure brought about by the Belt and Road Initiative (BRI), the HKTDC expected that infrastructure disputes will increase significantly in the coming years. When the legal system in the host country is not sufficiently advanced to cope with all the aspects of the projects and contracts, especially projects involving cross-border collaboration, there are risks.

Contract disputes are an inevitable risk in large infrastructure projects between countries which have significantly different development levels and legal systems. Litigation is expensive and “may very well destroy relationships between the two parties involved”, the panel noted. Mediation and arbitration offer a more cost-effective way of managing dispute resolution.

Rimsky Yuen, Secretary for Justice at the Hong Kong government, repeated the Asian Development Bank’s report that developing Asia will need to invest US$1.7 trillion per year in infrastructure to maintain growth, reduce poverty and cope with climate change. This includes investment in power, transport, water, sanitation and telecommunications infrastructure.

The official emphasised that there is a pressing need to propose legal risk management with legal due diligence and contract drafting with risk-avoidance provisions and arbitration clauses. The BRI countries comprise over 60 jurisdictions with diverse legal systems, so there is a need for legal risk management. “Robust dispute-resolution mechanisms and professional legal advice are essential,” according to Mr Yuen.

Joint Sino-ASEAN panel

Dr Colin Ong, AABD president, focused on some of the complex legal issues involving cross-border transactions. He emphasised that, for any BRI-led projects, a legal framework and dispute-resolution system must be in place from the start. He pointed out that there are no international standards for resolving legal disputes and that Belt and Road countries are at different stages of development and legal maturity.

With contracts often involving three or more countries, the question becomes whose laws are applied, Dr Ong said. He argued that it is highly unlikely that a mature and reliable forum will be established to deal with complex disputes involving all Belt and Road countries, but that it was possible for a smaller bloc of countries to do this.

“ASEAN, for example, is getting serious about harmonising laws and legal systems within the bloc,” he added. He suggested that this could be extended to include Hong Kong and, in theory, China.

He argued against waiting for ASEAN to harmonise all of its laws because that would take too long, so it would be better to focus on establishing a common dispute-resolution mechanism.

Dr Ong explained that the present dispute-resolution system focuses on government-to-government (G2G) contracts, but that this system needs to be extended to private enterprises. He proposed setting up a panel of arbitrators – 60 from ASEAN countries (six from each country) and 40 from China.

Dispute resolution

Justin D’Agostino, head of disputes and managing partner in Asia for Herbert Smith Freehills, shared his firm’s findings of a decade of client research that his firm conducted to determine what their clients want in terms of dispute resolution. The findings showed overwhelmingly that they want more assistance with dispute avoidance, management and resolution, and that corporations with these systems in place can avoid disputes to begin with.

His findings revealed that early case assessment (ECA) was common in the US and the UK, but not in Asia. Clients wanted more ECA to avoid escalation of disputes. With ECA, at the beginning of a dispute, a company estimates the money, time and human capital required to fight a case. It also engages an in-house legal team to assess the facts, legal issues and commercial interests at stake.

ASEAN, for example, is getting serious about harmonising laws and legal systems within the bloc.

– Dr Colin Ong, Arbitration Association Brunei Darussalam

Additionally, companies his firm conducted research on want more structured project management running disputes, not just lawyers, and they want more opportunities for meditation. The research indicates that mediation works, but that it is not yet as common in Asia as it is in the West.

Mr D’Agostino presented a toolkit for managing bigger, highly complex BRI-related contracts and disputes which may arise. This involves mapping out all the tasks and activities involved in a dispute to determine the people, time and money required to manage the case. He pointed out that information technology was what he called “the big disruptor” because, very recently, new tools have become available in terms of digital platforms, which allow clients to see the work process much more clearly. Hence, they can buy into the dispute-management process more easily.

The Herbert Smith Freehills partner argued that dispute resolution must be improved because when you get it right you resolve the dispute in a much more cost-effective manner for your clients than through litigation.

The only drawback to arbitration is that there is very limited appeal against arbitral awards, according to Mr D’Agostino. But he believed that “the benefits far outweigh this [drawback]”, as arbitration allows more flexibility, ease of cross-border enforcement of arbitral awards, and more privacy as well as confidentiality.

Contract details

Paul Starr, partner and practice leader of Dispute Resolution and Infrastructure at King & Wood Mallesons in Hong Kong, brought up a case study to highlight the problems companies encounter because they pay insufficient attention to contract details. The firms fail to look closely at the “what-if” clauses – clauses which determine what happen if things go wrong. In this case a clause had been cut and pasted from one contract to another, but the information was not corrected. Thus, a badly drafted contract was secured, which resulted in the company potentially losing hundreds of millions of dollars.

Mr Starr then suggested that Asian countries can be considered as a neutral platform for dispute resolution for Belt and Road countries. He observed that Hong Kong Kong as a neutral, independent centre for mediation and arbitration has its obvious legal and geographical strengths, as well as the quality of life that makes it a desirable destination for both work and pleasure.

Source: https://www.mmtimes.com/news/sino-asean-arbitration-panel-proposed-tackle-belt-and-road-disputes.html