Construction Law Seminar at the Beijing Arbitration Commission

1
Construction Law Seminarat the Beijing
Arbitration Commission

• Risk management
• of foreign law

by Dr Eckart Brödermann (Chair of CELA)
BRÖDERMANN JAHN RA-GmbH (Hamburg) Beijing, 28
April 2009
2
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??? ????(Dr Eckart Brödermann)
(????????)????/?????? (BRÖDERMANN JAHN
RA-GmbH,Hamburg)2009?4?28?,??
3
Introduction (1)

• A national project with national material,
  people, know how and law has no risk of foreign
  law.
• The global world in which we live is different.
• Where ever we use the business opportunities of
  international construction projects, we must cope
  with a risk of foreign law.
• Even if we succeed to impose our own law (which
  is often not a realistic option) there is a risk
  of foreign law
• It may be mandatory and thereby unavoidable.

4
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5
Introduction (2)

• As human beings we tend to perceive and judge
  matters on the basis of what we know.
• Foreign law is embedded in a a different
  cultural, economical and political environment
  and therefore different, - at least in the
  detaisl.
• Therefore it is important to concentrate on the
  issue of foreign law.
• It is a matter of risk management.
• And a matter of budgeting (you get what you pay
  for).

6
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7
Agenda

• Part I The risk of foreign law
• Part II How to minimise the risk of foreign law
• Part III CEAC clauses as a useful tool for
  foreign law risk management
• Summary Practical consequences

8
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9
Part I The risk of foreign law (1)

• Foreign law is different, at least in the
  details.
• It comes from a different culture, political,
  social and economic background.
• It may contain different concepts which you do
  not know.
• Matters which are self-evident from your
  perspective maybe a sensible issue in the foreign
  culture and legal set up.
• Foreign law may be mandatory.

10
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11
Part I The risk of foreign law (2)

• Examples for possible mandatory foreign legal
  requirements are multiple
• Foreign investment law,
• Foreign exchange law,
• Compliance,
• Export control law (dual use goods)
• Approvals / authorizations / visa
• taxation
• Company law (requirements
• Even the ordinary contract law may contain many
  differences
• Legal guaranties (e.g. 10-year-garantie on
  construction in Algeria)
• Legal presumptions
• Law of implied authority
• Form
• Etc.

12
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13
Part I The risk of foreign law (3)

• The art is to discover the issues with possible
  differences
• Instruction of a foreign lawyer is usually not
  enough
• He or she will interpret the instruction from his
  or her perspective
• For the foreign lawyer, different issues are
  self-evident
• It is often helpful to operate in international
  teams
• In a spirit of open communication
• And overcoming cultural barriers of communication
  (e.g. international workshops)

14
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15
Part II How to minimise the risk of foreign law
(4)

• Prerequisite a top team (incl. scouting of the
  right team on site)
• The wrong team may not put the right questions
• Spirit of communication
• workshops
• Concentration on the core issues (incl. choice of
  law and arbitration)
• Avoiding ignorant choices of law
• To save costs reference to neutral law or rules
  of law such as the UNIDROIT Principles

16
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17
Part II (5) UNIDROIT Principles

• A non-legislative codification or restatement
  of the general part of the law of international
  commercial contracts.
• prepared by independent experts from all the
  major legal systems and geo-political areas of
  the world,
• set up by the International Institute for the
  Unification of Private Law (Unidroit), an
  intergovernmental organisation composed of 61
  member States including China (www.unidroit.org).
  
• In recent years, the UNIDROIT Principles have
  been a source of law to many legislators (incl.
  China and Germany). They are akin to many laws.

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????(5) ????????????????UNIDROIT Principles

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  (www.unidroit.org)
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  ??????????

19
Part II.(6) UNIDROIT Principles continued

• First published in 1994, in their present edition
  of 2004 the Unidroit Principles consist of a
  Preamble and 185 articles divided into 10
  chapters
• on general provisions, formation including
  authority of agents, validity, interpretation,
  content including third party rights, performance
  including hardship, non-performance and remedies,
  set-off, assignment of rights, transfer of
  obligations and assignment of contracts, and
  limitation periods.
• Each article is accompanied by comments and,
  where appropriate, by factual illustrations
  intended to explain the reasons for the black
  letter rule and the different ways in which it
  may operate in practice.

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????(6) ????????????????UNIDROIT Principles

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  ?,??10??
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  ???????????????????????,???????
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21
Part II (7) UNIDROIT Principles continued

• The Unidroit Principles represent a mixture of
  both tradition and innovation. In other words,
  while as a rule preference was given to solutions
  generally accepted at international level
  (common core approach), exceptionally solutions
  best suited to the special needs of international
  trade were preferred even though they represented
  a minority view at domestic law level (better
  rule approach).   
• The UNIDROIT Principles are available in
  virtually all the principal languages of the
  world including Chinese.
• Using the UNIDROIT Principles as a basis for the
  standard contractual issues, is a good and cost
  efficient, neutral basis.

22
????(7) ????????????????UNIDROIT Principles

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23
Part II (8) UNIDROIT Principles

• At its 40th Plenary Session in 2007, the United
  Nations Commission on International Trade Law
  (UNCITRAL) formally endorsed the UNIDROIT
  International Commercial Principles and commended
  their use by the international business
  community.
• Arbitral tribunals increasingly refer in their
  decisions to the Unidroit Principles, see the
  UNILEX database at www.unilex.info.
• As a result the UNIDROIT Principles provide also
  a neutral common ground for parties from
  different legal cultures.

24
????(8) ????????????????UNIDROIT Principles

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  ?????????????
• ?????????????????????????????????,????UNILEX???
  www.unilex.info.
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25
Part II (9) Chinese law / UNIDROIT Principles

• Many provisions in the Chinese contract law and
  the UNIDROIT Principles are similar or nearly
  identical, e.g. the provisions
• on effectiveness of contract (Art. 8 Chinese
  Contract Law / Art. 1.3 UNIDROIT Principles)
• on freedom of form (Art. 10 Chinese Contract Law
  / Art. 1.2 UNIDROIT Principles)
• on standard terms (see Art. 39-41 Chinese
  Contract Law / Art. 2.1.19, 2.1.20, 2.1.21 and
  2.1.22 UNIDROIT Principles)
• on negotiations in bad faith (Art. 42 Chinese
  Contract Law / Art. 2.1.15 UNIDROIT Principles)
• on confidentiality (Art. 43 Chinese Contract Law
  / Art. 2.1.16 UNIDROIT Principles)
• on contract performance (Chapter 4 of Chinese
  Contract Law / Chapter 6 of the UNIDROIT
  Principles)
• on liability for breach of contract (Articles
  108-112, 114 and 118-120 Chinese Contract Law /
  Chapter 7 of the UNIDROIT Principles on
  non-performance).

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  2.1.20, 2.1.21?2.1.22??
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• ????????????43?/?????????????????2.1.16?
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• ????????????108?112?,?114????118?120?/??????????
  ???????7?

27
Part II (10) Beyond the UNIDROIT Principles

• The choice of UNIDROIT Principles does not
  liberate the parties from
• writing a detailed construction contract, in
  particular by focusing on the description of the
  scope of work
• thinking about creative, pragmatic solutions for
  the special needs of the project
• researching the applicable mandatory national
  laws and regulations for certain aspects
• yet, it is a perfect joint neutral starting
  point
• Such choice needs to be combined with a forum
  which accepts such choice of neutral rules.

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29
Part II (11) CISG

• For certain issues, e.g. sales of spare parts,
  CISG may be a valuable alternative for
  international sales
• CISG is part of Chinese law (since 1. January
  1988).
• It applies
• to contracts of sale with contracting partners
  from other CISG members (e.g. Germany, Italy,
  France, Greece, Spain, Canada and Australia),
• Art. 1 I a CISG
• to contracts of sale where the parties agree on
  Chinese, German or any other law of a member
  state
• generally to all contracts of sale where the
  applicable law points to the application of the
  law of a member state such as China or Germany,
• Art. 1 I b CISG,
• E.g. according to future European private
  international law (Rome I Regulation of the
  European Union, effective as of 17 December 2009)
  if the Chinese party is the seller.

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????(11) ?????????????(CISG)

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  ???????????????????????),
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• ?????????????(CISG)?1??1?b?,
• ??,???????????????(?????????1?(Rome I Regulation
  of the European Union),??2009?12?17??????),???????
  ????????

31
Part II (12) CISG

• Through the CISG, the international sales law of
  China and 72 laws around the globe (including
  Germany and Italy) are alike.
• Differences lie only in national reservations to
  the CISG, e.g. the (outdated) Chinese reservation
  according to Art. 1 I b and Art. 11.
• As a result the international CISG (without
  reference to such national reservations) provides
  often a neutral common ground.
• See e.g. discussion in this direction at the
  UNCITRAL Congress "Modern Law for Global
  Commerce", 9-12 July 2007, Vienna.
• See worldwide cases and publications at
  www.unilex.info.

32
????(12) ?????????????(CISG)

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  ????????)??????????
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  1?b???11?????????(????????)?
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33
Part III CEAC clauses as a useful tool for
foreign law risk management (1)

• Combination of
• A choice of law clause which foresees the
  possibility to refer to neutral law
• An arbitration clause which refers to CEAC as an
  institution with equal division of power between
  China, Europe and the world in the appointing
  authority
• whereby CEAC and the underlying UNCITRAL based
  German arbitration law accept such reference to
  neutral rules of law

34
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Part III (2) - CEAC choice of law clause

• The contract shall be governed by
• a) the law of the jurisdiction of _______
  country to be supplemented, or
• b) the United Nations Convention on Contracts for
  the International Sale of Goods of 1980 (CISG)
  without regard to any national reservation,
  supplemented for matters which are not governed
  by the CISG, by the UNIDROIT Principles of
  International Commercial Contracts and these
  supplemented by the otherwise applicable national
  law, or
• c) the UNIDROIT Principles of International
  Commercial Contracts supplemented by the
  otherwise applicable law.

In the absence of any such agreement, the
Arbitration Tribunal shall apply the rules of law
which it determines to be appropriate.
36
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• a) ________ (??)???,??
• b) 1980??????????????,????????????1980?????????
  ???????????,???????????????????????????????????
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37
Part III (3) - CEAC arbitration clause

• Any dispute, controversy or claim arising out of
  or relating to this contract,
• or the breach, termination or invalidity
  thereof,
• shall be settled by arbitration in Hamburg
  (Germany) in accordance with the CEAC Hamburg
  Arbitration Rules.

38
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39
Part III (3) Options CEAC arbitration clause

• Options
• (a) The number of arbitrators shall be ___ ((i)
  one or (ii) three or (iii)  three unless the
  amount in dispute is less than ___ e.g.
  100.000 in which case the matter shall be
  decided by a sole arbitrator)
• (b) The arbitration proceedings shall/may take
  place (also) in ___________ (town or country)
• (c) The language(s) to be used in the arbitral
  proceedings shall be __________
• (d) Documents also may be submitted in
  _________________ (language).

40
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  ??,?????????________????100000?????????????????
  ?)
• (b) ???????,?????____________(?????)????
• (c) ?????????????????_________
• (d) ????????_________(??)?

41
Part III (3) Options CEAC arbitration clause

• Further Options
• (e) The arbitration shall be confidential. The
  parties agree that also the mere existence of an
  arbitration proceeding shall be kept
  confidential, except to the extent disclosure is
  required by law, regulation or an order of a
  competent court.
• (f) The arbitration tribunal shall apply the CEAC
  Hamburg Arbitration Rules as in force at the
  moment of the commencement of the arbitration
  unless one of the parties requests the tribunal,
  within 4 weeks as of the constitution of the
  arbitration tribunal, to operate according to the
  CEAC Hamburg Arbitration Rules as in force at the
  date of the conclusion of this contract."

42
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  ????????
• f.?????????????????????????????,???????,????????
  ?,????????,???????????????????????????

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Summary Consequences

• Negotiate early on the choice of law clause
• Try Chinese law or neutral law (e.g. CISG law or
  Unidroit Principles)
• Agree on the arbitration institution (that choice
  is decisive for the efficiency of the arbitration
  proceeding and for the choice of law)
• e.g. BAC in China or a neutral institution (CEAC)
• Devote the necessary time, concentration and
  budget to legal risk management

44
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45
Thank You. ??

• ??(Dr. Eckart Brödermann)
• BRÖDERMANN JAHN
• (??/? ???????)
• Rechtsanwaltsgesellschaft mbH
• Neuer Wall 71, Hamburg
• www.german-law.com

The inaugural ceremony of CEAC ????????????? 18
September 2008
Eckart.Broedermann_at_german-law.com www.ceac-arbitra
tion.com www.cela-hamburg.com