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This article explores three features in Chinese construction arbitration. The first is about the conduct of the hearing. Unlike the evidentiary hearing conducted at the final stage in international arbitration, there are often multiple hearings in Chinese construction arbitration. The second is about a unique type of the tribunal’s power, the right of clarification. The third is about the appraisal mechanism in construction arbitration. These three features point to the fact that the arbitration practice is striving in China and there is still room for it to further develop. On one hand, the arbitration community has grasped more international characteristics into their working practice. On the other hand, these practices are at the same time tailored to meet up with the domestic needs.
I. The Hearing
International arbitration features evidentiary hearing. The counsels usually spend extensive time and efforts on cross-examining the witnesses. Apart from those bifurcated proceedings, one hearing would be held for the Tribunal to examine all issues.
It is acknowledged that every tribunal has its own way to organise proceedings. Meanwhile, in China, for most construction disputes at least two rounds of hearing will be held. The first one is more of educational purpose. The tribunal takes this opportunity to provide guidance on how they wish the parties to prepare and present their cases.
Usually, the first hearing is held after the exchange of the Notice of Arbitration and the Answer to Notice of Arbitration. At that stage, the parties have not yet fully elaborated their positions on law and facts. Only a general understanding of the dispute was communicated to the opposing party and the tribunal. Therefore, a hearing held at this stage is not supposed to be very productive in reaching the final decision. Its function lies more with advancing the case. It is an occasion to make the parties agree on what they are actually disputing and how the case will proceed.
Some may argue that holding multiple hearings is not cost-efficient in view of the organisation of the whole arbitration proceeding. On the face it may seem so, but it is not the reality. The average duration of a Chinese construction arbitration is shorter than an international arbitration. This may result from the higher efficiency achieved by face-to-face communication. At the same time, the Chinese arbitration community is still thriving to optimise the process. A growing trend is the increment in utilising techniques common in international arbitration, such as procedural orders. This may explain why having multiple hearings is the mainstream for Chinese construction arbitration.
The author is of the position that this aligns with the current situation in China. The arbitration practice is not fully developed in China. While there are sophisticated counsels, the average expertise is still undergoing a growing period. What adds more difficulty to the situation is that construction arbitrations are always of high complexity. It is a challenge for both the counsels and the tribunals to figure out the best way to coordinate between the experts and the legal submissions. Therefore, it is necessary to hold the first hearing in an educational manner. This is a true reflection of the present needs in the Chinese arbitration community. Such a way can also help nurture more skilled counsels in the future in this field.
II. The Right of Clarification
The “right of clarification” (in German: Aufklarungsrecht) is a product of the inquisitorial method of hearing. It refers to a judge’s right to ask, suggest to or require the parties to clarify or supplement their ambiguous, insufficient or improper claims, submissions or evidence. In international arbitration, which is strongly influenced by the adversarial system, arbitral tribunals are usually cautious and reluctant to exercise the right of clarification. In comparison, for arbitrations seated in China, due to the influence of the inquisitorial system on Chinese courts, it appears common for arbitral tribunals to provide clarification to the parties at hearings. This is even more commonly seen in construction arbitrations. The construction industry is a heavily regulated industry in China. Therefore, there are many cases in practice where the underlying contract should be deemed as invalid because it violated mandatory rules of law. This is a typical scenario where the tribunal exercises its right of clarification.
Except for situations within the scope of the judicial interpretations, the decision of whether to exercise the right of clarification is largely at the discretion of the judge or arbitrator. Clarification by an arbitral tribunal might concern both procedural and substantive issues including legal and factual components. In exercising the right of clarification, the arbitral tribunal should observe two main principles.
First, the purpose for the arbitral tribunal in exercising the right of clarification is to balance the rights of the parties to present evidence and engage in argument with each other. In exercising this authority, the arbitral tribunal should keep in mind principles of impartiality and due process and avoid showing favouritism toward a party or making a decision in place of a party.
Second, when deciding whether to exercise the right of clarification, if there are no directly applicable laws or regulations, the arbitral tribunal can refer to basic legal principles. For example, in a dispute over a subcontract, the general contractor and the subcontractor have agreed that the project payment shall be made only when the general contractor has passed the final completion acceptance test and the subcontractor has already passed the completion acceptance test for the subcontracted project but is unable to prove whether the conditions for payment of the overall project have been satisfied, nor can it calculate the interest on late payment due to lack of information. As the subcontractor is not a party to the general contract, it cannot be reasonably expected to provide evidence about the completion date of the general project. Based on the principle of privity of contracts, the tribunal should allocate the burden of proof to the general contractor to prove that the general project has not passed the overall completion acceptance test.
III. The Appraisal Mechanism
Unlike in international arbitration where the parties tend to engage their own experts and ask them to issue individual reports, in China, the usual model is that the arbitration institution will engage an appraiser (sometimes appraisers) at the parties’ request to issue an appraisal opinion on the disputed issues. Overall, the appraisers can opine on a wide range of issues from the delay analysis to the quality control of the project. According to the expertise in need, the appraiser is selected from the list of appraisers provided by the arbitration institutions. Under the circumstances that the arbitration institution does not possess such a list, the parties and the tribunal will refer to the list of appraisers provided by the court of the seat of arbitration or the court of the place where the underlying project is located.
After reviewing all the materials, the appraiser will issue a first draft of its opinion. The Tribunal will then invite comments from the parties. The appraiser will then make amendments accordingly to finalise the Appraisal Opinion.
It can be clearly seen that this is in stark contrast from the frequently adopted adversarial style in international arbitration. In a way, the appraiser works like the tribunal-appointed experts, e.g., as provided in Article 29 of the UNCITRAL Arbitration Rules.
It is clear in international arbitration that the expert’s role and duty is to assist the tribunal. It should be noted that it is the same case in Chinese construction arbitrations– the appraiser cannot override the tribunal’s adjudicative power. Sometimes the tribunal needs to be very cautious about where the line should be drawn when relying on appraisal opinions.
These above three features point to the fact that the arbitration practice is striving in China and there is still room for it to further develop. These Chinese specialities answer to the need at the current stage of arbitration in China and are of potential to further transform into the Chinese experience to be shared with the international community.
ABOUT THE AUTHOR
Sun Wei is a dual qualified dispute resolution lawyer (China Mainland and the State of New York) and partner at Zhong Lun Law Firm. Over the years, he has built up a broad practice including arbitration, litigation and civil enforcement on construction, energy, finance, and corporate equity disputes. Sun Wei also possesses extensive experience in international arbitration and litigation, having assisted clients in commercial disputes covering various jurisdictions. He is also frequently appointed as an arbitrator in domestic and international matters. Aside from legal practice, Sun Wei is a prolific writer and academic, a member of various international dispute resolution organisations and a Representative of China to UNCITRAL Working Group II.
Find more data-backed insights in our 2023 Construction Arbitration Report