Lawyer Monthly - May 2022

EXPERT INSIGHT 50 WWW.LAWYER-MONTHLY.COM | MAY 2022 are unavoidable, owing to the inherent features of international construction projects. That is why I would suggest the starting point at the negotiation stage should actually be to devise an effective mechanism for handling disputes, i.e. governing law and dispute resolution clauses. Governing law and dispute resolution clauses are called “midnight clauses”, indicating that parties usually pay less attention to these clauses than commercial ones at the negotiation stage. However, parties often realise the importance of the governing law and dispute resolution clauses after being involved in proceedings, which is very late in the process. It is essential for parties to fully understand their selection of a particular legal system and how clauses are assessed within said system, as well as the legal costs and implications for a chosen dispute resolution mechanism and forum. In my view, this should be a standard beginning step for managing disputes. How does an international element affect risk allocation on a construction project? As discussed previously, the international element may expose parties to more significant risks than domestic ones as there exist more uncertainties in aspects of the modern global economy regarding the political, economic and legal environments of the state where the project is supposed to be built. In terms of risk allocation, all contracts pursue a fair and balanced allocation of risks between parties to realise the purpose of the contract with a reasonable price paid for quality performance. This is no different in international construction contracts, although in most instances parties are unable to bargain fairly as the employer frequently has a tight budget and contractors in a highly competitive market tend to compromise at the tender stage. Standard forms of contract by international associations attempt to provide guidance or a reference of risk allocation best practice for international construction projects. For instance, the major terms of the FIDIC suite of contracts concern the allocation of risks in different manners for projects with different procurement methods and they are widely adopted with tailored amendments in practice. How are disputes arising from such international projects often resolved? Multi-tier dispute resolution clauses are not uncommon in international construction contracts, which is demonstrated as a constructive approach to manage differences before escalating to litigation and to effectively resolve disputes with limited disturbance to the construction progress.

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