CDR | 刘侨、奧斯曼：“一带一路”项目纠纷在HKIAC
近年，香港国际仲裁中心（“港仲”）已成为“一带一路“项目纠纷当事人最常选择的争议解决平台之一。自2016年1月1日至2021年5月31日，港仲共受理1,248起至少一方当事人来自“一带一路”司法辖区的仲裁案件，共有来自45个“一带一路”司法辖区的2,587名当事人参与。
其中，由港仲管理的一方来自中国内地、另一方来自其他“一带一路”司法辖区的仲裁纠纷共109起。数据显示，45起（41.3%）中国内地当事人提起仲裁申请；60起（55%）中国内地当事人作为被申请人；4起（3.7%）申请人和被申请人方都包含来自中国内地的当事人。这些案件涉及至少7个不同的准据法，香港法为最常见的准据法，其次是中国内地法和英国法；程序语言上，74%以英文进行，18%以中文进行，8%以中英双语进行；仲裁地均为中国香港。
本文对港仲处理的含有“一带一路”元素的仲裁数据进行了系统的分析，并列举了四个真实案例对“一带一路”项目纠纷进行进一步说明。欲了解更多内容，欢迎阅读原文。
Introduction
The Belt & Road Initiative (“BRI”) generates significant investment in large-scale projects across multiple sectors in numerous countries. However, these projects are exposed to a spectrum of political, financial and legal risks during the project life cycle. It is inevitable that disputes will arise from some of the BRI projects and such disputes should be managed properly with the choice of effective dispute resolution mechanisms. Recent years have seen some BRI disputes submitted to international arbitral institutions and courts. The Hong Kong International Arbitration Centre(“HKIAC”), for example, has handled numerous such disputes which arise typically from a Chinese-funded project in a BRI country between a Chinese enterprise and its local counterparty.
The first part of this chapter provides an overview of the BRI and some of its notable projects. In the second part, we present statistics to identify the types of BRI disputes that have been submitted to HKIAC, followed by case studies to look into some of those disputes in more detail. We conclude by outlining the common features of HKIAC’s cases with BRI elements and highlighting the importance of selecting suitable dispute resolution mechanisms for BRI projects.
BRI and its notable projects
The BRI refers to the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road” – two trade routes to connect Asia, Europe and Africa. The BRI contemplates the establishment of six economic corridors to build a transportation and infrastructure network overland and a network of maritime trade routes connecting major seaports.
Since its introduction in 2013, the BRI has created a framework of economic cooperation covering more than 140 countries. The transcontinental scale of the BRI requires significant investment. According to the World Bank, BRI projects in all sectors that are already executed or planned are estimated to require investment of US$575 billion. The Asian Development Bank estimates that, between 2016 and 2030, the required investment in the infrastructure needs for Asia alone would amount to US$26 trillion. Chinese investment has been the primary source of funding for BRI projects. According to the statistics published by the Ministry of Commerce of People's Republic of China, the total non-financial direct investment made by Chinese enterprises in BRI countries from January 2020 to May 2021 was US$23.4 billion. During the same period, Chinese enterprises concluded 6,631 contracts in respect of projects in BRI countries with a total contractual value of US$160.9 billion.
At present, most BRI projects are led by large Chinese state-owned enterprises (“Chinese SoEs”) that invest primarily in the energy, transportation, telecommunications and infrastructure sectors. Such investment may receive funding from the Silk Road Fund – a state-owned investment fund established by the Chinese government in December 2014 to invest mainly in infrastructure and resources, as well as in industrial and financial cooperation related to BRI projects. Chinese outbound investment may also receive financial support from two China-led multilateral development banks, namely, the New Development Bank and the Asia Infrastructure Investment Bank, as well as China’s policy banks.
Given their large scale and nature, many BRI projects are long-term, cross-border, high-value,high-public interest, multi-party and multi-contract transactions. They typically involve entities from countries at different stages of development with varying legal, political and economic systems. Some recent BRI projects bearing those features are listed below:
The Addis Ababa–Djibouti Railway, a Chinese-built 756-kilometre electric rail connecting Ethiopia to the Gulf of Aden, began operations on 1 January 2018, becoming Africa’s first electrified transboundary line and opening new trade markets for Djibouti and Ethiopia.
The overland route from Kashgar in Xinjiang to Pakistan’s Gwadar Port, a key piece of China’s biggest BRI project to date – the China-Pakistan Economic Corridor – is now partially operational.
In the second half of 2019, Russia began construction of its portion of the China-Western Europe transport corridor, a highway that will allow trucks to travel between China and Europe in just 11 days.
In December 2019, Kenya launched cargo operations on the new 120-kilometre section of the Standard Gauge Railway between Nairobi and Naivasha, which cost US$1.5 billion and was funded by the Export-Import Bank of China.
The World Bank predicts that BRI projects have the potential to substantially improve trade, foreign investment and living conditions for citizens in BRI countries. While quantifying the impact of the BRI is challenging, its financial and social impact on the participating economies is supported by the following statistics as reported by China Daily:
The trade volume between China and other BRI countries surpassed US$6 trillion from 2013 to 2018, with an average annual growth rate of 4%.
The total value of foreign contracts signed between China and other BRI countries has surpassed US$600 billion, with an average annual growth rate of 11.9%.
The overseas economic and trade cooperation zones which Chinese companies have built in BRI countries have created approximately 300,000 local jobs, with a total investment of more than US$30 billion.
By the end of 2018, China Export & Credit Insurance Corp realised a total insurance amount of more than US$600 billion in BRI countries.
Although BRI projects promote trade liberalisation and stimulate infrastructure developments, they often involve political, commercial and legal risks. Over the last eight years, the BRI has faced some challenges, from the withdrawal of contracts to reassessment of costs – sometimes due to a change of government in BRI countries. These risks can lead to commercial or investment disputes between Chinese entities and their BRI counterparties or, in some cases, the government of the host state. As it typically takes two to five years for a dispute to arise, some BRI transactions have already given rise to disputes as the underlying contracts mature.
HKIAC statistics
HKIAC has proven to be a popular forum for resolving BRI-related disputes and its position for handling such disputes has been strengthened by several recent developments in respect of HKIAC and Hong Kong arbitration. The most significant development is the Hong Kong–Mainland arrangement to allow the Mainland Chinese courts to issue interim relief in support of arbitrations seated in Hong Kong and administered by a qualified arbitral institution such as HKIAC (the “Arrangement”). The Arrangement allows parties to eligible arbitrations to seek interim orders to preserve assets, evidence or conduct by the Mainland Chinese courts thereby placing Hong Kong in a unique position to resolve BRIdisputes. Since the Arrangement came into force on 1 October 2019, HKIAC has processed 49 applications and received 31 orders from the Mainland Chinese courts preserving assets worth a total of approximately US$1.7 billion.
From 1 January 2016 to 31 May 2021, HKIAC registered a total of 1,248 arbitrations involving at least one party from a BRI jurisdiction. These 1,248 cases featured 2,587 parties and 45 BRI jurisdictions. For the purposes of HKIAC’s statistics, BRI jurisdictions are the 146 jurisdictions identified by the Chinese government’s Belt and Road Portal (yidaiyilu.gov.cn).
Given the undefined scope of the BRI and limited data on the number, size and terms of BRI projects, identifying disputes from BRI projects is a challenging task. Accordingly, for the purposes of this chapter, we have identified 109 arbitrations involving at least one party from the Mainland and one party from another BRI country that were administered by HKIAC between1 January 2016 and 31 May 2021. These cases represent only a fraction of all disputes submitted to HKIAC that have a BRI element, as many other such disputes arose out of transactions structured through offshore entities controlled by Chinese investors.
In respect of the 109 arbitrations identified, further details are provided below.
Amount in dispute: The total amount in dispute is US$2.3billion.
Nationality of parties: Parties from the Mainland and 24 other BRI jurisdictions participated in the arbitrations. The number of arbitrations involving parties from those jurisdictions are provided below:
Role of Mainland Chinese parties: In 45 arbitrations (41.3%), the claimant was a Mainland Chinese party. In 60 arbitrations(55%), the respondent was a Mainland Chinese party. In four arbitrations (3.7%), both the claimant and respondent included a Mainland Chinese party.
Chinese SoEs: At least 11 Chinese SoEs or their affiliates participated in a total of 12 arbitrations (11%). In six of those arbitrations (5.5%), the Chinese SoE or its affiliate appeared as the claimant party. In the five other arbitrations (4.6%), the Chinese SoE or its affiliate appeared as the respondent party. In one arbitration (0.9%), both the claimant and respondent included a Chinese SoE or its affiliate.
Types of disputes: The arbitrations concerned the following types of disputes:
Applicable rules: The arbitrations were administered by HKIAC under the following rules:
Seat of arbitration: All arbitrations were seated in Hong Kong.
Governing law: The disputes were arbitrated under the following governing laws:
Language of arbitration: the arbitrations were conducted in the following languages:
Nationality of arbitrators: 69 arbitral tribunals have been constituted in the 109 arbitrations. A breakdown of the nationality of the arbitrators appointed or confirmed by HKIAC is provided below:
Case studies
In this section, we present four case studies in respect of disputes administered by HKIAC that have a BRI connection. Each case involves a dispute concerning a transaction connected to a BRI country between a Mainland Chinese party or a party affiliated with a Mainland Chinese entity on the one hand and its counterparty in the BRI country on the other hand. All identifying and confidential information has been removed.
1. Laying of subsea cables in the Middle East
This dispute concerned works sub-contracted to a Chinese SoE to install a submarine power cable and several intra-field cables in respect of an oilfield in the Middle East.
The claimant was a joint venture (“JV”) established by a Chinese SoE and a UK marine engineering services provider. The first respondent was a listed company controlled by another Chinese SoE. The second respondent was a wholly owned subsidiary of the first respondent in Saudi Arabia.
Pursuant to the two sub-contracts entered into by the parties, a certain part of the project work was to be undertaken by the claimant. The dispute concerned primarily the alleged failure by the respondents to lay an electricity cable at the level required by the sub-contracts and the alleged breach of contract by the claimant with respect to alleged defects in its trenching and seabed cable laying work.
Each sub-contract included an arbitration clause providing that all disputes be resolved under the “Rules of Hong Kong International Arbitration Centre (HKIAC)” and designated Hong Kong as the seat of arbitration. The governing law of both sub-contracts was Hong Kong law.
The claimant initially commenced one arbitration against each respondent under the 2013HKIAC Administered Arbitration Rules (the “2013 HKIAC Rules”). Both arbitrations were subsequently consolidated based on all parties’ agreement.
The claimant requested the arbitral tribunal, among other things, to declare that its works under the sub-contracts were completed and to update the contract price as a result of a series of “change orders”. The respondents contested the updated contract price contended by the claimant and counterclaimed damages for the alleged delay of the claimant’s works.
The parties designated jointly a sole arbitrator to determine the dispute. HKIAC confirmed the arbitrator pursuant to the 2013 HKIAC Rules.
The arbitrator issued two partial awards. The first partial award decided, among other things, that the claimant was liable for any failure to achieve the required depth below the seabed of the excavated trench into which an electricity cable was to be laid. The second partial award determined the remaining issues in the arbitration including certain milestone payments and quantum issues.
2. Financing of exploration of oilfields in Africa
This case related to the repayment of a loan arising out of an investment made by a Chinese SoE in three deep water oil blocks A, B and C located offshore an African state pursuant to a loan agreement and a shareholder loan agreement.
The claimant, a Cayman entity of the Chinese SoE, was the lender under each of the agreements and acquired a 50% stake in the JV for each block. It commenced two separate arbitrations, i.e., one against the borrowers and guarantor under each agreement, pursuant to the 1976 UNCITRAL Arbitration Rules and the 2005 HKIAC Procedures for the Administration of International Arbitration.
The borrowers under the loan agreement were(1) the national oil and gas company of the African state (the “African SoE”), and (2) a Hong Kong company that formed a JV with the African SoE with respect to various oil and gas interests in the African state. The guarantor was a Cayman vehicle established by the claimant, African SoE and Hong Kong company.
Under the shareholder loan agreement, the borrowers were the JVs for the three blocks and the guarantor was the same Cayman vehicle under the loan agreement.
Each of the agreements provided for arbitration before a sole arbitrator under the UNCITRAL Arbitration Rules “as at present in force” with HKIAC as the appointing authority and administering institution and Hong Kong as the seat of arbitration. Each agreement was governed by Hong Kong law.
The loan provided by the claimant was part of a series of transactions by which the claimant bought into a JV between the African SoE and the Hong Kong company in relation to the three blocks. This transaction was structured so that the loan would be repaid from revenues from the blocks.
The claimant alleged that, while block A was a moderate commercial success, no economically viable discoveries were found blocks B and C. The claimant asserted that block B was subsequently returned to the state government and block C was sitting idle. In the circumstances, the claimant considered that the commercial failure of blocks B and C and the return of block B to the state government were events that had a material adverse effect on the ability of the borrowers and guarantor under each agreement to repay the loan. The claimant therefore asserted that an event of default had occurred under each agreement and requested repayment of approximately US$820 million under the loan agreement and approximately US$615 million under the shareholder loan agreement. Neither the borrowers nor the guarantor paid these amounts.
HKIAC appointed the same sole arbitrator in each arbitration pursuant to the list-procedure under the UNCITRAL arbitration rules. The claimant then sought consolidation of both arbitrations to which the respondents objected. The claimant subsequently withdrew its request for consolidation and its claims against the respondents under the shareholder loan agreement. The other arbitration under the loan agreement proceeded.
In that other arbitration, the borrowers denied that their obligations to repay the loan had been triggered. The borrowers’ case was that the alleged exploration failures of blocks B and C could not constitute an event of default, because the geological conditions, commercial viability and exploration risks of the two blocks were foreseeable before the loan was advanced, the return of block B to the state government was foreseen and consented to by the claimant, and block C was in fact expected to come into production. The borrowers argued that an event of default could not arise in respect of conditions that were within the contemplation of the parties at the time of the contract and the matters relied upon by the claimant could not materially adversely affect the borrowers’ performance of the loan agreement.
The parties subsequently agreed to terminate the arbitration as regards the African SoE and the guarantor under the loan agreement. The claimant's remaining claim against the Hong Kong company was suspended due to settlement discussions.
3. Payment of drilling services in Turkey
This case concerned a Chinese SoE’s well-drilling operations in Turkey and the alleged failure of a Turkish JV to pay the Chinese SoE’s invoices in full.
The claimant was a Turkish entity established by a Chinese SoE to provide drilling services related to the exploration and development of oil and natural gas in Turkey. The respondent was an energy JV incorporated under Turkish law. The dispute arose out of a drilling agreement (the “DA”) concluded in May 2017 under which the claimant was contracted to conduct well-drilling operation works for the respondent in respect of a geothermal power project in Turkey.
The claimant issued 12 invoices to the respondent for works completed under the DA. While the respondent settled some of the invoices, it failed to pay the remaining balance of approximately US$4.7 million. According to the claimant, the respondent did not dispute the outstanding payment but alleged that it had been trying to obtain funding to pay the outstanding amount through a transfer of the project to third parties.
The claimant commenced an arbitration under the 2018 HKIAC Administered Arbitration Rules (the “2018 HKIAC Rules”) requesting the arbitral tribunal to order the respondent to pay the outstanding amount of approximately US$4.7 million and liquidated damages specified in the DA, plus interest and costs.
The arbitration clause contained in the DA provided that, in the event of any dispute, “either party may propose such case to Hong Kong International Arbitration Centre for arbitration, and the arbitration will take place in Hong Kong”. The DA was governed by Chinese law.
In the arbitration, the claimant also applied to HKIAC to conduct the arbitration in accordance with the expedited procedure under the 2018 HKIAC Rules on the grounds of “exceptional urgency”. The claimant alleged exceptional urgency based on the respondents’ alleged attempts to transfer the project to third parties and the alleged financial difficulty faced by the respondent including the possibility of the respondent’s entry into bankruptcy at any time. The claimant asserted that it would suffer irreparable harm and its ability to fully recover its claims would diminish significantly if those activities eventually occurred.
The respondent did not respond to the claimant's substantive claims but objected to the applicability of the expedited procedure. The respondent contended that it was a reputable JV company established by two large energy companies with a good financial standing in Turkey. The respondent also pointed out that it owned several licences and wells in Turkey worth over US$10 million and it had no intention to sell its assets or licences to any third parties.
Having considered each party’s position, HKIAC rejected the claimant’s application for an expedited procedure on the basis that the claimant did not demonstrate exceptional urgency in support of its application.
The parties eventually settled the case and, upon the parties request, the arbitral tribunal issued an award on agreed terms.
4. Acquisition of interest in an infrastructure project in a Specific Economic Zone of a developing South-East Asian state
This case concerned the transfer of shares in a JV from the claimant to the respondent under a shareholders cooperation agreement (the “SCA”). The JV was the owner of a project to build and develop infrastructure in a Specific Economic Zone of a developing South-EastAsian state. The zone was established by the government to open up the economy and had attracted significant investment from Chinese companies over the years. Due to the nature of the project, the Ministry of Commerce of the host state held a stake in the JV.
The claimant was a Malaysian company and the majority shareholder of the JV. The respondent was a Mainland Chinese public company that engaged primarily in engineering and medical investment in China and abroad. The respondent held itself out as a top contractor for foreign contracts in China and a leading private enterprise for the BRI.
The claimant contended that both parties entered into the SCA in January 2018 pursuant to which the respondent acquired 30% of the claimant’s equity in the JV in consideration for US$30 million. The parties agreed to adopt Chinese standards and use Chinese technology, material and equipment to design and implement the project. The claimant alleged that the respondent was responsible for monitoring and supervising the construction work of the project but failed to fulfil its various obligations under the SCA causing delays in the construction work, breaches of the conditions for a bank to finance the project, as well as losses and damages to the claimant and the JV.
The SCA included an arbitration clause providing for arbitration under “the rules of conciliation and arbitration of Hong Kong International Arbitration Center (HKIAC)” withHong Kong as the seat of arbitration. The SCA was governed by the laws of the host state.
The claimant commenced an arbitration against the respondent pursuant to the 2018 HKIAC Rules seeking, among other things, termination of the SCA, return of the 30%equity from the respondent, and compensation of losses and damages of approximately US$65 million.
The respondent contested the claimant’s claims on both jurisdiction and merits. The respondent averred that the version of the SCA relied upon by the claimant had been terminated and replaced by a subsequent version and that the claimant’s claims should be governed by the subsequent version including the arbitration clause therein. On the merits, the respondent disputed various aspects of the claimant’s case including the overall structure of the transaction, the respondent’s role in the project and the scope of its obligations under the subsequent version of the SCA. The respondent further alleged that the claimant had failed to perform its various obligations under the SCA and therefore counterclaimed damages against the claimant.
At the time of writing, the arbitral tribunal has issued a procedural timetable for the submission of pleadings and other documents with the substantive hearing to be held at HKIAC.
Conclusion
The BRI brings investment opportunities but also risks requiring careful management. It is imperative for all parties to a BRI project to be aware of possible legal risks and disputes that may arise out of the project and formulate a strategy to avoid and manage those risks and disputes during the negotiation and performance of the relevant contracts.
As shown in HKIAC’s cases, disputes with BRI elements may involve a multiplicity of parties, contracts and legal systems. They may feature the direct or indirect involvement of a Chinese SoE as investor or contractor. Such disputes can be complex, technical and capital intensive. Some of them may also involve national interest and political sensitivity.
The four case studies presented above show that transactions can go wrong at any stage of the project. The primary claims raised in the case studies are contractual debt claims in respect of services provided or money invested as well as damages for breach of contract. The common defences include jurisdictional challenges, the invalidity of the underlying contract, breaches of representations and warranties, defects and delays in the services provided, and wrongful construction of contractual terms. Notably, the parties to some of these cases sought to invoke various procedural mechanisms under the HKIAC Rules to streamline the arbitral process, such as the expedited procedure and consolidation. Where applicable, these mechanisms can bring significant benefits to the procedural management of the case in terms of time and cost efficiency.
A central aspect to the management of legal risks and disputes is the choice of appropriate and effective dispute resolution mechanisms. This is to ensure that disputes are resolved under a neutral, fair and efficient framework with decisions rendered by professionals with relevant expertise that are enforceable in relevant BRI jurisdictions. Given that arbitral awards are enforceable in 73% of the BRI jurisdictions under the New York Convention 1958, international arbitration is considered as a preferred method of dispute resolution for BRI projects.
In recent years, multiple fora have been established or promoted for BRI disputes. Hong Kong and HKIAC stand out as an attractive option for such disputes given their proven record and experience of handling cross-border disputes involving Chinese parties and strong record of enforcement of arbitral awards in the Mainland and elsewhere. The Arrangement has further strengthened the position of Hong Kong and HKIAC as a preferred forum for BRI disputes. Parties should be aware of the benefits and risks of all alternative dispute resolution fora and select the most suitable option as part of their overall risk management strategy for BRI projects.
Contributors
Joe Liu is Deputy Secretary-General of HKIAC. He oversees dispute resolution proceedings under HKIAC’s auspices, develops HKIAC’s rules and procedures, and promotes HKIAC’s services worldwide. He has acted as secretary to multiple arbitral tribunals in HKIAC-administered matters. Joe was a member of the HKIAC Rules Revision Committees which oversaw the drafting of both the 2013 and 2018 HKIAC Administered Arbitration Rules. He is a key contributor to Moser & Bao, A Guide to the HKIAC Arbitration Rules – a detailed commentary to the 2013 HKIAC Rules published by Oxford University Press. Joe is a frequent speaker and writer on issues of international dispute settlement.
Email: joe@hkiac.org
Othmane Benlafkih is a Trainee at GBS Disputes and former Counsel and Team Supervisor in HKIAC’s arbitration team. In his role as Counsel at HKIAC, he was responsible for the administration of arbitrations under HKIAC’s auspices. He also served as tribunal secretary under the UNCITRAL and HKIAC Rules. Prior to joining HKIAC, Othmane gained work experience in cross-border disputes at leading international law firms and barristers’ chambers in Hong Kong. He is a graduate of the University of Hong Kong and speaks English, French, Arabic and intermediate level Mandarin.
Email: othmaneb@connect.hku.hk
The Hong Kong International Arbitration Centre (HKIAC) is a company limited by guarantee and a non-profit organisation established under Hong Kong law. It is one of the world’s leading dispute resolution organisations, specialising in arbitration, mediation, adjudication and domain name dispute resolution. HKIAC also offers state-of-the-art hearing facilities, which have been ranked first worldwide for location, value for money, IT services and helpfulness of staff.