In Issue 24 of the Digest we commenced a series of Articles on Arbitration in Asia, we also heard from Philip Harvey about dispute resolution under FIDIC, the international standard form of construction contact. In this issue David Scott looks at the broader picture of dispute resolution in the global market.

A LARGE western engineering company, let us call it Power Contractors Inc’, contracts with the State-owned utilities company of an emerging south-east Asian State, which we shall call Sea-State, to construct a new power plant in Sea-State. Consideration of the commercial risks is likely to dominate the thoughts of those negotiating the deal within PC Inc, but hopefully, prior to finalising the commercial terms of the contract, they also give sufficient consideration to the dispute resolution terms contained therein. These are often relegated in the contract negotiations to last minute cursory review, and yet may, ultimately, prove to be some of the most important provisions in the contract. It is, of course, highly unlikely that PC Inc would accede to the contract being subject to the jurisdiction of the Peoples Court of Sea-State. Quite apart from concerns as to the separation of the judiciary from the executive, and the manner in which differences between parties are resolved it may be highly inconvenient, for all sorts of practical reasons, for PC Inc to be involved in a dispute resolution procedure in Sea-State.

So what options are open for consideration by the parties? The most obvious, and indeed the most common, is international arbitration. Generally speaking, the ultimate compromise solution is usually that any arbitration be based in a third party jurisdiction, with the law of the State of either of the parties, or indeed of another third party jurisdiction, being chosen to govern the contract. The choice of venue (or "judicial seat") of the arbitration will be a vital consideration for two principal reasons:

• First, and most importantly, it may determine the enforceability of any award. If the venue State is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, any award made in that State will, subject to a number of stated defences in the New York Convention (as incorporated into the domestic legislation of any relevant member State) be recognised and enforced in any other member State. As the number of parties to the New York Convention currently stands at 121 this factor is of considerable importance;
 
• Second, notwithstanding the choice of substantive law governing the contract itself, the legal regime governing the process of the arbitration will be that of the venue State, and will dictate, amoung other things, the extent of the jurisdiction of the local courts to support the arbitration (for example by way of interlocutory relief) and the extent to which the award may be challenged. As is well known, the regime adopted by many States (currently 34, including Scotland, plus 4 US States) is the UNCITRAL Model Law, whereas other States rely on their own individual regimes (for example, the 1996 Arbitration Act in England).
Once it has been agreed that disputes should be referred to international arbitration, and a venue (and, consequently, a governing legal regime) chosen, the parties will then have to decide whether the arbitration should be administered by, and possibly also be made subject to the Rules of some established international arbitration institution/secretariat, alternatively whether it should simply be an ad hoc arbitration. The choice of the former can be extensive. Perhaps the more obvious and well known, however, are those of the LCIA, the ICC, the AAA, and the Arbitration Institute of the Stockholm Chamber of Commerce, but there are many more. As in our example, a State contracting with the national of another State, arbitration under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID) might also be possible, assuming both States to be party to the 1966 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States. As for ad hoc arbitration, perhaps the most common set of rules adopted are those promulgated by UNCITRAL. These are clearly designed to be most compliant in those jurisdictions where the UNCITRAL’s Model Law applies.

One final cautionary message for PC Inc., it would want to ensure that, in its contract, the State (in the guise of the utilities company) waives any sovereign immunity to which it might otherwise be entitled in any dispute resolution proceedings.

Of course, neither party may relish the prospect of every dispute or difference arising during the course of the project being referred to arbitration; and multi-tiered dispute resolution clauses are frequently encountered. A typical example may be:
• First, the parties must make reasonable endeavours to resolve the dispute amicably;
• Failing amicable resolution, the dispute should be sent to mediation;
• Only failing successful mediation should arbitration apply.

The construction by PC Inc. of the power plant in Sea-State is clearly a large project. The larger and more long-running the project, arguably the greater the need to focus on dispute management in preference to dispute resolution. This may, again arguably, best be achieved by the introduction into the project of what in the United States is referred to as a Dispute Resolution Board, or in the FIDIC forms as a Dispute Adjudication Board. The attraction of this facility is that the members of the DRB/DAB meet regularly throughout the project, acquire a detailed and in-depth knowledge of the project, and aim to "nip in the bud" any simmering differences between the parties, thus avoiding such differences escalating into disputes and requiring to be referred to a more formal dispute resolution procedure.

In any event, prior to undertaking work in a foreign jurisdiction, advice should always be taken as to the local regime. For example, the right of any party to a construction contract in the United Kingdom to have any dispute referred to adjudication under the strictures of the Housing Grants, Construction and Regeneration Act 1996, with all its attendant implications, has, it is known, taken unsuspecting and ill-advised non-UK contractors by surprise. It would not avail any such contractor, for these purposes, that the governing law of the contract is a law other than that of England or Scotland, nor, indeed, that a tribunal (judicial, arbitral or other) outside the UK is otherwise stated to have exclusive jurisdiction over disputes. Equally "draconian" statutory dispute resolution procedures may also exist in other jurisdictions, and a "foreign" party would be well-advised to be aware of such in advance
The choices available, the complexities involved, and the risks to be run in the context of dispute resolution may appear daunting to any operator in the global market. In the European context, some help may be near to hand. Article 65 of the Treaty establishing the European Community provides that measures adopted by the Council in the field of judicial co-operation should, inter alia, be aimed at improving and simplifying the recognition and enforcement of decisions in civil and commercial cases, including decisions in extra-judicial cases. In March 2000, the Commission submitted to the Council a progress report, recommending the establishment of minimum quality standards for the extra-judicial settlement of disputes. During the course of 2001, the Commission will be drawing up a Green Paper initiating wide-ranging consultation with a view to establishing basic principles, either in general or in specific areas, which offer the necessary guarantees to ensure that the settlement of disputes by extra-judicial bodies enjoys the degree of reliability which the administration of justice requires.

Nonetheless, the choice of dispute resolution procedure will continue to require careful thought and consideration when operating internationally, and the conduct of any proceedings careful handling.

David Scott is a Partner in McGrigor Donald, practising from that firm’s Edinburgh and London offices. David is a solicitor qualified in England, Scotland and Hong Kong.