The China International Economic and Trade Arbitration Commission (CIETAC) is one of the busiest arbitration centres in the world, handling some 1,400 cases in 2009. It is by far the largest and most reputed arbitral organisation in Mainland China and the most obvious choice of Chinese businesses. Many construction disputes tend to be heavily fact-sensitive, involving considerable technical detail. For this reason, dispute determination regularly requires experts qualified in specific technical disciplines in addition to law experts. Relatively factually (as opposed to legally) heavy cases lend themselves particularly suitable for resolution by technical experts. It is therefore common for a construction dispute to be referred at the first instance to what is commonly called a dispute review board, or an equivalent body. Resolution at this stage may help the parties avoid the costs and time required in arbitration proceedings.

Effective for trial implementation from 1 May 2010, CIETAC’s Construction Dispute Review Rules seek to “prevent, reduce and promptly resolve construction disputes by means of dispute review”.

The Dispute Board (DB)

There are two types: a “standing DB” and an “ad hoc DB”. The former may be appointed at the time of entering into the construction contract, or within such time as agreed by the parties. Its purpose is to keep track of the performance of the contract and assist with preventing disputes. It will also attempt to resolve disputes as they arise.

An ad hoc DB on the other hand is established by the parties to review a dispute after one has arisen.

Common to both is the parties’ autonomy in agreeing the number of members on the DB and the binding effect (if any) of the DB’s determination and relevant fees and expenses.

Absent an agreement, the rules provide for three members, a fee schedule, and for each party to equally share fees and expenses. Similar to the now-liberated rules for arbitrator appointment under CIETAC’s arbitration rules, parties may appoint a DB member not on CIETAC’s List of Experts. To help ensure the DB has the adequate and practical expertise, the rules spell out that unless otherwise agreed, a DB member “shall be professionally knowledgeable and have practical experience in contract management, contract interpretation and the construction industry.”

As is common for appointment on a three-member arbitral tribunal, each party is to appoint a member to the three-member DB, with the third (acting as chairman) being appointed jointly by the two party appointed members. If there is to be only one member on the DB, and the parties cannot agree on the appointee, the DB would be appointed by CIETAC.

Running to 52 articles, the rules set out in detail how the review mechanism is to work. Obligations and duties of DB members including issues of confidentiality are spelt out in length. Article 16 states that unless otherwise agreed by the parties, a DB member shall not act in any arbitral or judicial proceedings related to any dispute submitted for review, whether as arbitrator, judge, or as a representative of a party. Although a DB member may participate in formal proceedings as a witness of the arbitral tribunal or of the court, he/she shall not act as a witness of a party. This is in line with current internationally accepted practice.

Speed

As noted above, speed is a paramount reason for referring a dispute to a DB. The Claimant’s Request for Review is to be followed within 28 days by the Respondent’s Statement of Defence, and the first hearing is to take place within a further 14 days. The rules therefore provide for a hearing to take place within 42 days of the filing of the Request for Review, and Article 32 states that the DB is to issue its determination within 84 days of the filing. These time periods are subject to agreement by the parties or as decided by the DB, but they do at least provide the framework for a quick resolution and less scope for dilatory tactics which could defeat the purpose of having a review at all.

Review Procedure

In keeping with the aim of achieving a flexible and speedy procedure, the DB is empowered to review a dispute in any way it deems appropriate, whilst avoiding unnecessary procedural delays and expenses. Despite this, Article 26 states that it must act in a fair and just manner under all circumstances, and afford a party reasonable opportunity to present its case and to rebut the other party’s case.

The default position under the rules further empower the DB to go on a fact-finding mission as part of its review. It could do such things as conduct a site visit, question a party’s representative or witness, require a party to submit any supplementary materials or written opinions, and conduct an appraisal or appoint an expert on a specific legal or technical issue.

Of some interest is the provision in Article 31 relating to multi-party disputes. Where a difference being reviewed involves a third party, the DB may allow the third party to be joined to the review proceedings if all parties agree. This provision could be particularly useful for disputes involving more than two parties which are not infrequent in construction matters, for example in a sub-sub-contracting situation, or where there is some other allegation of third party default.

As with most means of alternative dispute resolution, a DB resolution is consensual – unless all parties agree, there could be no binding decision by the DB. The parties could therefore go through the whole process without there being a binding decision. Unless the binding effect is agreed before hand, the potential exists for a party to use the DB mechanism as a tactic to delay a resolution of the dispute.

Mediation by the DB

Article 18 provides a mechanism whereby a standing DB (but not an ad hoc DB) with the consent of the parties may “informally assist” the parties in resolving a dispute that may arise during the performance of the construction contract. In practical terms, this would amount to a mediation.

The measures the DB could take include discussions involving both or either of the parties with the prior agreement of all parties, as well as oral or written informal views given by the DB to the parties.

Of note is that it appears after having undertaken informal steps to assist, the DB is not disqualified from acting if the dispute is ultimately submitted for review. One potential issue which comes to mind is whether the same DB should be permitted to undertake a subsequent review. In an informal dispute resolution proceeding such as mediation, one or more parties would commonly disclose to the “mediator” sensitive information. Therefore in the course of rendering informal assistance, the DB might very well come into knowledge of sensitive information provided by a party in confidence which it would not have been required to – and would not have chosen to disclose – in review proceedings. Such information could potentially be prejudicial to that party.

On the other hand, a party entering the mediation with this in mind and guarding itself accordingly would not give rise to circumstances favouring a successful mediation outcome. This issue could be eliminated should a differently constituted DB decide the review, but this would add to costs.

Summary

There appears to be no published figures on the adoption of these rules which have only to date been on trial for less than a full year, but they do provide a framework consistent with international standards for a viable alternative to arbitration proceedings, with a potential saving in time and costs.

For further information please contact:

Malcolm Chin, Senior Associate
T +852 2841 6870
[email protected]