The Asian Infrastructure Investment Bank (AIIB) was created in 2015 with clear aims to support the building of infrastructure and establishment of multilateral developing agencies in the Asia-Pacific region. For stakeholders with the AIIB, the risks of entering into disputes in the course of investing, trading and fulfilling contracts are inevitable. This calls for ample attention when drafting dispute resolution provisions.
International investment and trade challenges. First, legal systems among AIIB member states vary drastically. The jurisdictions of AIIB member states run from civil law to common law and Islamic law. The difference are exacerbated in areas which the AIIB focuses on: infrastructure and investment.
Second, member states may not recognize and enforce foreign judicial awards. After undergoing a torturous litigation process in the investing state, a transnational investor may find the enforcement of the judicial award completely dependent upon the assistance of a foreign court, which further hinges on the differences between the judicial systems and the existence of a Foreign Assistance Arrangement between the two states. The enforceability of judicial awards is therefore subject to immense uncertainty.
Finally, a greater than ever level of expertise is expected in resolving investment and trade disputes. Cross-border investment and trade disputes are increasingly touching upon complex legal relationships and matters concerning specialized knowledge. Together with the prevalence of practical hindrances such as language barriers in trials, dispute resolution is becoming more challenging than ever.
Arbitration has established itself as the leading process for dispute resolution for the international civil and commercial community. Owing to its respect for party autonomy, flexibility of procedures, expertise of arbitrators, finality of awards and universal enforceability, arbitration is more likely to overcome the challenges brought by international investors and traders, and is preferred by most international investment and trade entities.
World Bank and Asian Development Bank. Challenges arising from international investment disputes are not unique to the AIIB, and are also encountered by the World Bank and the Asian Development Bank (ADB). Yet, with years of experience, the World Bank and ADB have relatively stable models in respect of the dispute resolution provisions. For AIIB stakeholders, the issue is worthy of thorough examination.
The first observation is that arbitration is the dispute resolution mechanism by default. The vast majority of tender documents and model contracts published by the World Bank and ADB have indicated arbitration as their dispute resolution mechanism.
Another observation is that arbitration via a permanent arbitration institution is preferred. When it comes to resolving transnational investment and trade disputes, permanent arbitration institutions have a few advantages over the ad hoc. With well established procedural rules and experienced case managers, permanent arbitration institutions can ensure an orderly advancement of the arbitral process in an efficient and professional manner. They also provide a more reasonable selection of arbitrators, and parties can choose from an entire list of approved arbitrators, or when the circumstance requires, any appropriate arbitrators outside this list. The process aside, an arbitral award is more likely to be enforceable when it is delivered by a reputable, influential, permanent arbitration institute.
It is also observed that model contracts usually provide for a number of internationally renowned arbitration institutes for parties to choose from. As an example, the “World Bank Model Bidding Document for Procurement of Goods” has recommended a list of arbitration institutions for dispute resolution that includes the International Chamber of Commerce International Court of Arbitration, the London Court of International Arbitration, and the Arbitration Institute of the Stockholm Chamber of Commerce. They are all reputable.The World Bank and ADB have adopted arbitration – an internationally preferred method – administered by internationally renowned arbitration institutions, to resolve disputes.
AIIB model contract clause. Based on the experience of the World Bank and ADB, it is suggested that the AIIB would list Chinese arbitration institutions as recommended dispute resolving agencies in the standard dispute resolution clause in the AIIB model contract. The systematic management systems of Chinese arbitration institutions allows investors to forecast more precisely the arbitral process and the arbitration result. The abundance of arbitration institutions provided in the model contract will allow the AIIB – the drafter of the model contract – to better defend its own interest. In addition, with the rapid development of Chinese arbitration, a number of top-notch arbitration institutions have emerged in China. They can meet the respective standards for handling international investment disputes effortlessly.
While selecting Chinese arbitration institutions, the AIIB should consider the following:(1) whether the arbitration institution has a set of advanced arbitration rules that are in line with international standards; (2) are arbitrators professional and ethical;(3) whether the respective arbitration institution can provide an up-to-standard arbitration management service; (4) whether the arbitration institution has incorporated mediation and negotiation into their dispute resolution mechanism; and (5) how much does the arbitration service cost.
The importance of the AIIB researching Chinese arbitration institutions is obvious. By consulting with the prospective institutions about arbitration clauses, not only can the AIIB better protect its own legitimate rights and interests, but it can bolster its leading role in the drafting of contracts as the key financial institute in the region.
Yang Rui is a case manager at Berijing Aritration Commission/Beijing International Arbition Centre. BAC/BIAC's inter,Joshua Ngai Jun, also contributed to the article.