By Mylene Chan
The Beijing Arbitration Commission/Beijing International Arbitration Center, the China International Contractors Association, and Tianjin University Department of Engineering Management jointly released a report on the use and nature of dispute resolution mechanisms in Belt and Road Construction Projects (BRI Report).
The report provides interesting insights into the ADR preferences of the many players involved in the project, including on the types of disputes, arbitrator selection, the availability of mediation, and more.
China initiated the Belt and Road Initiative (BRI) in 2013 to connect Asia with Africa and Europe through land and maritime networks. The BRI has spawned massive infrastructure investments. For more on the Belt and Road Initiative, see a researcher’s website here, and see Andrew Chatzky and James McBride, “Backgrounder: China’s Massive Belt and Road Initiative,” Council on Foreign Relations (Jan. 28, 2020) (available at https://on.cfr.org/3vfXhoX).
The April 2021 BRI Report (available in Chinese at https://bit.ly/3pHEDFj) examined the experiences of Chinese general contractors regarding the use of arbitration to resolve BRI disputes. From March 2020 to May 2020, the BRI Report interviewed more than 1,000 experts from 13 industries participating in BRI projects around the world, including trading companies, electrical contractors, financial institutions, investment companies, and general contractors. Respondents’ roles included insurers, suppliers, financiers, subcontractors, owners, and general contractors.
The interviews revealed a number of interesting data points. Disputes were mostly between general contractors and project owners. Disputes also arose between general contractors and subcontractors, among parties within joint ventures, and between general contractors and suppliers. The issues in dispute primarily involved project delay, change of construction, unforeseeable risks, payment issues, and suspension and termination of projects.
The main form of dispute resolution elected by BRI Chinese companies, according to the report, was negotiations/top-management discussions. The next four forms of dispute resolution in descending importance were commercial arbitrations, commercial mediations, dispute hearings, and litigation in local courts.
The top reasons given for choosing arbitrations, according to the BRI Report, were, in descending importance, independence and impartiality, enforceability of judgments, confidentiality, professionalism, and fairness. Top concerns when choosing arbitration included a lengthy process/high cost, an inability to reverse the judgement, a lack of understanding of arbitration institutions and arbitrators, the limitation of arbitration clauses in contracts, and low efficiency.
The interviewees indicated that the main reason for choosing a particular arbitration center was its reputation. Interviewees also considered independence and fairness, efficiency, location, and strength of specialties. The parties’ nationality and the contract’s governing law played a role as well.
The speed of arbitration was also cited as an important consideration. While the arbitrations generally lasted between one to three years, most interviewees deemed an arbitration duration of less than one year as efficient. The greater speed of arbitration in China was a factor in preferring Chinese arbitration centers.
The main consideration in selecting arbitrators was arbitration experience in the relevant industry. The next four top selection considerations in descending importance were legal and specialized knowledge, industry experience, familiarity of law, independence and impartiality.
Interviewees cited the application of non-Chinese law, the use of non-Chinese languages in arbitration processes, unfamiliarity with the arbitration process, the high cost of arbitration, and uncertain arbitration results as major frustrations during the arbitration process. Factors affecting the cost and efficiency of arbitration included the professionalism of arbitrators, complexity of evidence, management of arbitration centers, difficulty of disputes, and professionalism of lawyers.
The top three services sought by BRI Chinese companies in the survey results, in descending importance, were a speedy arbitration process, independent mediation services outside of the arbitration process, and mediation within arbitration centers. The top three dispute resolution skills and knowledge in which BRI Chinese companies hoped to see improvements were international arbitration practice, contract negotiations, and knowledge of U.S. and British contract law.
Because Chinese culture favors dispute resolution outside of courts, the BRI, populated by Chinese companies, has a great need for alternative dispute resolution. To minimize value-deflating conflicts, the BRI Chinese companies should consider incorporating dispute prevention at the outset of contract formation—the January 2021 CPR Dispute Prevention Provisions are a good example. The provisions supplement traditional dispute resolution clauses, rather than replace them, by calling for, for example, parties’ commitment to the principle of early identification and discussion of disagreements, and flexible options to use the services of a third-party as facilitator or neutral as disagreements arise in contract performance.
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The author, an LLM candidate, at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, is a 2021 CPR Summer Intern.