Building a picture of disputes in construction cases

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Companies should treat with caution disputes arising from multinational construction projects. There are many international dispute resolution bodies providing parties with professional and diversified dispute resolution services, from which Beijing Arbitration Commission (BAC) stands out. As a result of the opening up of China’s market and the fast development of the overseas contracting business, the BAC has accumulated abundant experience in resolving disputes in international construction projects.

DD_BAC_picDuring the period from its establishment in 1995 to June 2013, the BAC has accepted a total of 4,074 cases regarding disputes in construction projects, with the total amount reaching almost RMB34 trillion (US$5.6 trillion), and an annual average amount of RMB1.8 trillion. There are 391 arbitrators in the BAC at present, 142 of whom are experts in the area of construction engineering. The conclusion rate of cases involving construction projects is 95.8%, and it takes an average of 98 days to conclude a case.

By analysing the practical cases handled by the BAC, we see the disputes in construction projects primarily focus on project funds, project quality and claims for extension of time, and involve highly professional issues, big amounts and complex legal relations. As a dispute resolution method with experts settling cases, a single and final award, strong confidentiality, flexible procedure and high efficiency, arbitration perfectly fits needs. Here we will provide suggestions to corporate counsel, other lawyers and related personnel on the procedural and process management of cases, in combination with the Arbitration Rules of Beijing Arbitration Commission.

Arbitration agreements

Arbitration agreements serve as a cornerstone of the arbitration system and the core of reflecting the autonomy of will of the parties. There can be either dispute resolution clauses agreed in the contracts (arbitration clauses), or separate arbitration agreements independent of the contracts.

During the conclusion of separate arbitration agreements, in order to ensure the certainty of arbitration matters, names of the parties and necessary information of the contracts giving rise to such arbitration matters (e.g. execution time, contract name and project name) need to be specified to avoid jurisdiction disputes due to unclear agreement. Effective arbitration agreements should contain a declaration of intention to submit to arbitration, arbitration matters and the appointed arbitration commission.

The parties may also negotiate and agree in the arbitration agreement on the arbitration procedure applicable to disputes, the mode and place of hearing, the applicable laws and rules, as well as the place of arbitration, creating customised and appropriate arbitration procedures to the extent permitted by laws and arbitration rules. For example, where the parties wish to simplify the procedure and resolve disputes rapidly, they may agree in the arbitration agreements that “in the event of a dispute, the parties agree to submit the dispute to Beijing Arbitration Commission for arbitration in accordance with the summary procedure under currently effective arbitration rules of the commission”.

Where the parties make arbitration agreements, they should avoid several common mistakes to prevent obstacles to claims: (1) the name of the arbitration institution is inaccurate – for example, Beijing Arbitration Commission is mistaken as “Beijing Economic and Trade Arbitration Commission”; (2) the extent of agreed arbitration matters is too narrow. For example, only “disputes regarding project funds” are submitted for arbitration, excluding quality disputes; (3) different dispute resolution clauses are agreed in several contracts under one construction project. For example, arbitration is agreed in the construction contract, while litigation is agreed in the service contract.

Agency and presence in hearing

Although cases regarding disputes in construction projects usually involve highly professional issues, detailed division of work and a huge amount of evidence material, there is no limitation to the number of agents in the arbitration rules. Lead lawyers, corporate counsel, relevant personnel in charge of a particular construction project, and middle and senior management may be present in the hearings at the same time, which is not only helpful for the arbitral tribunal to directly investigate and verify the facts, and increase the efficiency of cross-examination and court investigation, but it is also helpful for the parties to learn the conditions of trial.

Due to the principle of confidentiality, arbitration is conducted in private hearings. Where important members wish to be present in the hearings, they are advised to prepare a power of attorney affixed with the signature or seal of the party before the hearings (the authorisation may be limited to the presence in hearings).

Alternative methods

In addition to arbitration, the parties may also consider mediation and dispute review to resolve disputes in construction projects. The BAC has made independent rules for mediation and dispute review, and employed experts in the area of international engineering to serve as mediators and dispute reviewers, providing parties with a multi-layered dispute resolution service system.

The parties may choose independent mediation procedure or dispute review procedure, or enter into arbitration agreements with prepositive procedure (prepositive mediation and prepositive review) to realise the seamless connection between mediation and arbitration, or between dispute review and arbitration, for the resolution of disputes in construction projects. The parties may also submit to the BAC the settlement agreement reached through the mediation and dispute review, and the BAC will directly prepare the award in accordance with the contents of the agreement and endow it with enforceability.

The author, Guo Chao, is a case manager at the Beijing Arbitration Commission