This article was featured in our 2023 Construction Arbitration Report, which is part of a series of industry-focused arbitration reports edited by Jus Connect and Jus Mundi.
This issue explores the construction industry and presents a goldmine of information based on data available on Jus Mundi and Jus Connect as of May 2023. Discover updated insights into construction arbitration and exclusive statistics & rankings, as well as in-depth global and regional perspectives on construction projects, disputes, & arbitration from leading lawyers, arbitrators, experts, arbitral institutions, and in-house counsel.
THE AUTHORS:
Ms. WANG Weijun, Secretary-General of Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Center (“SHIAC”) and Secretary-General of Shanghai Arbitration Association
Mr. LI Tingwei, Senior Manager in the Research Department of SHIAC
Shanghai International Arbitration Center (“SHIAC”) started with the specialty in foreign-related arbitration in China. Unlike the majority of Chinese arbitration commissions that mostly deal with local transactions including infrastructure, real estate and construction disputes, construction arbitration was historically not in the top three of the caseloads in SHIAC. With this being said, as the Chinese constructing industry goes overseas for international projects, the caseload for construction arbitration is on the rise in recent years, especially between 2019 and 2022. The change reflects the institution’s inherent and well-founded strength in dealing with foreign-related disputes including construction arbitration.
Between 2019 and 2021, the Covid pandemic caused disruption to the normal pace of real estate development and the continuity of businesses. Resultantly, the range of claims spread from compensation against contractor’s delay, mutual compensation on concurrent delay to owner’s payment claims on overdue rents and tenant’s request for rent deduction pertaining to governmental measures, etc. In this three-year period of time, the construction arbitration in SHIAC saw a mild growth, with the annual case number for construction arbitration kept around 8% of the total caseload. The phenomenon reflects the market players’ resilience against economic hardship and the success of the government schemes in maintaining the operation of the businesses. The situation changed in 2022, with a number of giant real estate players suffering from broken financial chains, which lifted the number of construction arbitration up to 27% (703 out of 2,576) of SHIAC’s yearly caseload in 2022.
The rising of construction arbitration in SHIAC resonates with the expansion of the Chinese capital on contracting overseas project, e.g,. under the One Belt, One Road Initiative, with Asia and Africa being the most popular destination for Chinese contractors. Nevertheless, in recent years, with the impact of the Covid pandemic and the restructuring of the global supply chain, the disturbance to the global market has also been seen in the construction business. The situation with the Chinese contractors for international projects has been two-fold:
(a) The accumulation of Chinese contractors’ successful management of international projects has led to a growing number of EPC (Engineering, Procurement and Construction) contracts, usually by adopting the FIDIC suits with necessary variations, where the Chinese contractors independently engineer, procure and construct (EPC/Turn-key) the targe project;
(b) The complexity of EPC disputes, particularly in cross-border setting, yields more challenges than usual when it comes to design and operate the multiple aspects of the arbitral proceeding.
On one hand, the tendency for Chinese contractors to submit the EPC contract concluded with their foreign owners to the jurisdiction of SHIAC is more alive than before. For one example, in one SHIAC proceeding for construction arbitration, a Chinese contractor successfully bid for and EPC contract for a construction project located in Dubai and submitted the claim forms to SHIAC for nonpayment after the contractor’s completion of the works. For another example, in the South-Eastern Asia, a group of Chinese suppliers were engaged by the foreign owner in the same petroleum project. The supplies were delivered on site without delay but the progress of the project was disrupted by the Covid pandemic. The Chinese suppliers initiated a dozen of arbitration in SHIAC against the foreign owner for overdue payments. Most of the arbitration ended up by amicable settlement with the mediation services from the arbitral tribunal.
Apart from the payment claims, there is also a growing number of claims or allegations on construction delay. This trend is mostly attributable to the Covid pandemic for the past years, but in the proceedings, construction delay is more used as a defense than as a cause for monetary compensation. Two reasons have been observed for this phenomenon: (a) Construction delay is complicated and requires the assistance of experts during the analysis, thus the maturity of the construction marks plays an importance role in the popularity of claims on delay; (b) Due to the external factors like the Covid pandemic, delays are almost inevitable, thus no party may be held absolutely not liable for the costs of delay. In this situation, the defense or allegation of defense can still serve as a bargaining chip in the mediation procedure. Regarding the design of settlement procedure, it should be mentioned that Article 41 of the SHIAC Arbitration Rules allows the combination of Arbitration-Mediation-Arbitration, thus providing the flexibility needed for case scenarios like concurrent delay.
On the other hand, the international nature of overseas contracting disputes requires the procedures to be more flexible than in traditional cases. Some typical challenges in international construction arbitration include the stringent demand for suitable arbitrators with industry/technique background, the growing trend for using language other than Chinese, and/or determining the applicable law to be non-Chinese law in the proceeding, etc. In order to tackle these procedural issues, SHIAC gives its best efforts to maintain the proceeding as flexible as possible and answer to the procedural needs of the disputants. One particular emphasis should be made to the evidentiary rules for construction arbitration, as this type of case often shows to be extensive with facts. In SHIAC proceeding, the disputants in construction arbitration may determine whether to adopt the IBA Rules for Taking Evidence in International Arbitration when related evidentiary question like “the fixation of the quantity of works short of contractor’s records” arises; or, the arbitrators in SHIAC proceeding for international construction arbitration may appoint independent third-party experts to provide expert opinions on issues like quantity, quality or delay pertaining to Article 39.1 of the SHIAC Arbitration Rules, etc.
In addition to the flexibility of arbitral procedures, SHIAC also pays attention to the use of alternative dispute resolution (ADR) mechanism in order to more swiftly and fairly resolve construction disputes. For one example, SHIAC encourages the parties to use mediation to resolve their disputes. For that purpose, SHIAC maintains a panel of mediators, in which nearly 30% of the panelist mediators possess specialty in construction dispute settlement. For another example, SHIAC has participated and contributed to the themed program organized by the Permanent Forum of Chinese Construction Law (PFCCL) to jointly introduce and build the consensus for SOP (Security for Payment) mechanism among the Chinese domestic entities.
The year of 2023 marks the 35th anniversary of SHIAC since its establishment in 1988. Insofar, SHIAC has managed over 17,000 arbitration cases, in which parties from 85 countries and regions have participated. The success of SHIAC in commercial arbitration including construction arbitration involving projects in and out of China, should pay tribute to our elite panels of arbitrators and mediators. In the current panel of arbitrators, over 300 arbitrators are specialized in construction arbitration, including 100 international arbitrators.
In the next ten years, SHIAC will continue to build our image and enhance our capacity for Chinese and international construction arbitration. We look forward to frequent dialogue with the international construction arbitration community to bridge the gap between Chinese practices and international practices. All in all, SHIAC pledges to provide the disputants from China and abroad with just, impartial, professional and efficient arbitration services.
ABOUT THE AUTHOR
Ms. WANG Weijun, Secretary-General of Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Center (“SHIAC”)) and Secretary-General of Shanghai Arbitration Association is also the vice-Chair of the Permanent Forum of China Construction Law (PFCCL). She possesses unparalleled experience in Chinese and foreign-related commercial arbitration through her successful career built over 1,150 arbitration cases during the past decades and currently sits on the panels of arbitrators maintained by a number of arbitration institutions. She is an active promotor for the development and innovation of arbitration mechanism. Her dedication to the institutionalization of commercial arbitration has resulted in the establishment of China (Shanghai) Pilot Free Trade Zone Court of Arbitration, China-Africa Joint Arbitration Center Shanghai Center, the promulgation of Free Trade Zone (FTZ) Arbitration Rules, and the launch of Shanghai International Aviation Court of Arbitration, etc. She is the member of Shanghai Law Society Arbitration Law Research Association, Aviation Law Research Association and serves as a part-time graduate tutor in Fudan University, East China University of Political Science and Law, etc.
Mr. LI Tingwei, Senior Manager in the Research Department of SHIAC, holds a masters’ degree in law from the Law School of Fudan University and a bachelor degree in law from the Law School of Nanjing University. He joined in the Secretariat of SHIAC since August 2014 and has managed around 560 Chinese and foreign-related commercial arbitration cases so far. He is an active follower and contributor to the development of the academics for Chinese arbitration and international arbitration.
Find more data-backed insights in our 2023 Construction Arbitration Report
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