Editor's Note: The Third Seminar of the International Commercial Expert Committee of the Supreme People's Court and Reappointment Ceremony of the First Group of Expert Members was held successfully on Augest 25, 2022. Over 40 experts from more than 20 countries and regions focused on the theme of the Development, Challenges and Countermeasures of Cross-Border Commercial Disputes during the seminar. Extensive and in-depth discussions were held within the framework of four specific issues. The texts of speeches delivered by the participants would be posted on the CICC's website. 

RESOLVING COMPLEX COMMERCIAL DISPUTES

Colin Ong

Chairman of International Advisory Board of Thailand Arbitration Centre, 

President of Arbitration Association Brunei Darussalam (Brunei)

First of all, I am most honoured and grateful to the Supreme People's Court for the kind invitation given to me to present my keynote speech for this Seminar of International Commercial Expert Committee of the Supreme People's Court. I have been entrusted to deal with the subject of Resolving Complex Commercial Disputes along the Belt and Road Initiative countries. My talk shall not cover State-to-State disputes arising from BRI projects as such disputes are supposed to be resolved through established international institutions and agreements such as the WTO and its covered agreements. I shall instead deal with transactional and performance agreements involving parties and companies from different countries. Such companies may involve State owned companies who have agreed to resolve their disputes through mediation and arbitration.

It is clearly important for contracting parties to resolve disputes in commercial situations where there is a contractual relationship that is intended to last for a long period. This need for harmonious cooperation is important in large scale construction contracts as well as in other contracts such as distribution, IP/IT licensing, and sales contracts. A breakdown in a relationship will only hurt contracting parties and cause unnecessary damages, expenses and delay to the intended project.

Mitigation of Relationship Breakdown through good drafting of Contracts 

There is a first opportunity to mitigate this problem if it is addressed in the correct way in the contract. When drafting a long term or complex contract, efforts will need to be made to identify and foresee possible risks for disputes in the future. One should create a dispute resolution process in the contract that assures a resolution to any disputes as smoothly as possible throughout the project so that the impact is as little as possible. It is important to safeguard trust, fairness and to ensure a good business environment between the parties so that long term projects can be performed smoothly and successfully into the future. 

Parties who are involved in long term or complex high value contracts should always find a good way to resolve any disputes in a way that preserves the parties' ability to continue performing the contract without failure or undue delay and costs despite any dispute.

In the case of construction contracts, an effective way to achieve this is to introduce a dispute resolution process that applies throughout the term of the Contract. For complex construction contracts, a dispute adjudication board (DAB) can be set up where three independent and impartial persons are selected by the contracting parties to sit on the DAB Board. The DAB Board can then assist the parties in resolving disputes and, ideally prevent such disputes from escalating to international arbitration. 

As dispute boards are purely created by contract between the Parties, the DAB agreement has to be carefully drafted to cover all possible eventualities. DABs issue binding decisions that must be complied with immediately, but these decisions can be subsequently referred to international arbitration for final and conclusive resolution at the end of the project. As a general rule, if the contract provides for a dispute board phase, such a procedural step cannot be circumvented, unless both parties agree to do so. It is important to note that the winning party has no effective legal remedy to practically force the losing party to comply with a DAB decision other than suing for an ordinary action for breach of contract. International bodies, including FIDIC and the ICC have produced draft DAB agreements and guidelines for parties in the construction industry.

Mediation clause to be inserted into the Contract

It is much harder to set up a DAB in non-construction matters. However, contracting Parties still need to ensure that any disputes can be resolved in a way that preserves the parties ability to continue performing the concerned contract without undue delays and costs despite a dispute. Contracting parties may have to rely upon independent mediators to assist them to try to resolve disputes quickly and fairly. The main advantages of mediation are the cost and speed of the process, as well as the rapport that is created between the parties during mediation. In addition, the parties have control over the mediation process.

Mediation offers an independent party that acts as the intermediary in order to find a solution that can be accepted by both parties. It is often an excellent way to resolve a dispute and at the same time preserve a business relationship. It will also, amongst other advantages, save process time, costs and loss of face.

Contrary to arbitration or litigation, the parties remain in control of the dispute resolution process at all times, and are free to leave the mediation if they wish to. In practice, as both parties share information, and exchange offers, with the assistance of a mediator, whose role is specifically to facilitate communication. Collaboration between the parties is important as they try to reach a settlement that is acceptable to them. Mediation is therefore a very informal process, which differs immensely from the formality of arbitration and litigation.

Mediation is not a binding process unless the Parties are able to enter into a Settlement agreement as a result of the mediation. If so, such Settlement becomes binding and enforceable in any State that has adopted and ratified the Singapore Convention on International Settlement Agreements Resulting from Mediation.

The Singapore Convention is an effective alternative to litigation in resolving cross-border disputes. It currently has 55 signatory states of which 8 states, to date, have ratified the Convention.

Arbitration as a final recourse to dispute settlement

The strict rules of national court processes are not designed solely to prevent justice and fairness. They are designed to provide certainty and consistency for all parties.  Enforceability and efficiency have been the strongest arguments in favour of commercial arbitration over litigation for the resolution of cross-border disputes.

There are major differences in legal regimes practiced across the BRI region. These include common law (examples being the South Asian countries and also South East Asian countries like Malaysia and Singapore), civil law (found in Central Asia) and Islamic law (in the Middle East). Both Chinese and non-Chinese contractors may commit to projects that carry significant delay risk, especially in frontier developing countries. Governments may change half way through construction. Because balances of power shift, governments change and new policies come into play. 

There are major differences in legal regimes practiced across the BRI region. This makes it challenging to replicate projects and countries between different countries. Undeveloped legal regimes may create barriers to investment and judicial corruption pose further problems when legal disputes arise. In dealing with the evolution of commercial conflicts, parties have increasingly found the national court systems inadequate for reasons, ranging from cost, delay, and inability of state judges to handle the technicalities of international disputes. There is also a perception, rightly or wrongly, that national courts are perceived to be more favourable towards their own nationals and companies.

International Commercial Arbitration enables contracting parties to settle disputes confidentially, through neutral national arbitrators in order to reach final and binding decisions. Parties can select arbitrators who possess the required industry-specific knowledge and are specialists in dealing with cross-border disputes. There is a very limited possibility to appeal an arbitral award and this eliminates concerns about long drawn out procedures in litigation. When taking the appeal process in a litigation into consideration, arbitration works out cheaper and faster.

The New York Convention has been described by the UNCITRAL Secretary as "one of the most important and successful United Nations treaties in the area of international trade law, and the cornerstone of the international arbitration system". To date, there are 169 signatories to the New York Convention. 

As awards are easier to enforce in other jurisdictions than local court judgments, most countries in Asia have become signatories to the New York Convention. Arbitration is the main dispute settlement mechanism used in Asia to resolve contractual disputes. As Asia is very diverse in terms of legal systems which may emanate from common law or civil law, arbitration is often the only common system that is understood by cross-border contractual parties.

Contracting parties will need to seek advice from their lawyers to understand the governing law of the contract and the place of arbitration that is to be agreed between themselves. They will need to understand how each arbitral institution will be likely to act in the event of a default situation, and whether it is likely to appoint an arbitrator who will be familiar with and uphold the principles of the governing law of the contract that has been agreed by the parties. 

Parties need to understand "Soft Law" that is adopted in International Arbitration

The IBA Rules on the Taking of Evidence in International Arbitration (the IBA Rules) are the most widely used soft law instrument in international arbitration practice. Deciding the procedures in arbitration is a key issue that parties, counsel and the tribunal must resolve from the outset of any arbitration hearing. This includes settling the evidence gathering procedure. The 2010 IBA Rules are a neutral set of procedures for the presentation of witness and documentary evidence that is equally fair and now familiar with both Civil Law and Common Law parties. This is important in terms of cost savings and a uniform approach to gathering of evidence as the parties and their counsel from BRI regions come from different legal regimes with different expectations as to how the evidence gathering and presentation process should be carried out in the course of the arbitration.

Conclusion

It is clear that the Parties will need to retain the option of international arbitration in case attempts of conciliation or mediation to settle future disputes fail. Both sides would need to have a final and binding decision to their future disputes and arbitration is the only system that would allow both finality and the ability to enforce awards in the 169 member states of the New York Convention.

With the continued expansion of the Belt and Road Initiative across Asia, Africa and Europe, it is very likely that there will be more commercial disputes involving Asian parties. This will continue to increase the appeal of arbitration as the preferred dispute resolution option. In turn, the New York Convention and international arbitration will continue to be of increasing importance across Asia.

My time is now at an end. I wish all of you a fruitful and productive conference. Thank you.

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*The original text is Chinese and has been translated into English for reference only. If there is any inconsistency or ambiguity between the Chinese version and the English version, the Chinese version shall prevail.