Dispute resolution risks for overseas investment

Company A (the claimant in the arbitration) is a Chinese domestic traditional thermal power generation enterprise, while company B (the respondent in the arbitration) is a large power generation equipment manufacturing enterprise with experience in overseas projects. In July 2009, Indian company J (the owner) purchased 10 units of 135MW generator sets from company B to be installed at the project site in India.

Company J wanted company B to provide operation, maintenance instruction and training services for these units, as well as services for compiling training materials, operation and maintenance procedures, plant system diagrams and other documents. Since there was long-term business co-operation between company A and company B, and company A also wished to promote its business overseas, company A contacted company B and proposed that company B would introduce it to company J so that it could undertake the services of the above-mentioned unit.

At the same time, due to the internal compliance requirements of the group to which company A belongs, it could not sign an overseas project contract alone, nor could company J sign the tripartite agreement due to compliance considerations under Indian Law. Therefore, company A, company B and company J discussed and decided to adopt the following plan:

(1) Company B, in the name of the main contractor, enters into an English version of the main contract with company J. Although company A does not stamp this contract, the main contract contains that company A is a joint contractor, and all disputes arising from this contractual agreement are submitted to arbitration in Singapore by the Singapore International Arbitration Centre.

(2) Meanwhile, company A enters into a separate Chinese version of the service contract with company B. Under this contract, it is specified that company A is the actual provider and performer of the contractor’s obligations under the main contract, while company B’s job is to pay company A the contract sum it receives from company J based on the main contract, hold regular co-ordination meetings with company J and company A, supervise company J to provide accommodation and transportation facilities for company A’s on-site personnel, monitor the implementation of the contract at company A’s site, provide feedback on company J’s evaluation of company A’s work, and co-ordinate the relationship between company A and other subcontractors at company J’s site. All disputes arising from the service contract shall be submitted to arbitration in Shanghai by the Shanghai International Arbitration Centre.

Zhihe Xu is the deputy head of the department of research and information at SHIAC