Dispute resolution when undertaking construction projects overseas

Like any other sector, the construction industry is equally poised to benefit from globalisation. In The Sun Daily (http://www.thesundaily.my/news/1564848), AYS Ventures Bhd announced that it had set up a joint-venture company with Japanese firms Okaya & Co Ltd and Kondo Steel Corp to exploit the 2020 Olympic Games in Tokyo, Japan. They are of course neither the first, nor will they be the last to venture beyond Malaysian shores to exploit construction opportunities.

With the current falling Ringgit, all the more companies including construction companies are seeking their fortunes beyond Malaysian shores. After all, many of the technical concepts in the construction industry would be similar if not outrightly identical, so there is not necessarily such a vast knowledge gap when companies venture overseas.

However, it is important when undertaking projects overseas to bear in mind the possibility of a future dispute. Of course, nobody wants or wishes for a dispute, but the reality is that disputes do and will continue to happen. And when a company faces a dispute internationally, there are many more complexities to deal with.

For one, the terms of the letter of award would have to be scrutinised much more carefully as opposed to many current local practices whereby at times, substantial contracts are awarded purely on the basis of purchase orders, invoices and a good subsisting relationship.

Furthermore, it is imperative that the dispute resolution clause provides for arbitration instead of litigation, as litigation would by default have to be conducted at the venue of the contract and be subject to the laws of the foreign jurisdiction.

On the other hand, there is greater flexibility when arbitration is relied upon as the dispute resolution mechanism. Such flexibilities include:

  1. the ability to determine any preliminary dispute resolution steps that can minimise any potential dispute (including negotiations, mediation or early neutral evaluation);
  2. the applicable law for the dispute;
  3. the applicable law for the arbitration procedure itself;
  4. the right and mechanism to appoint arbitrators as well as any pre-qualification of arbitrators;
  5. reliance on party experts or neutral experts; etc.

However, in order to take full advantage of the flexibility of the arbitration process, these issues must be determined beforehand (i.e. before a dispute arises) during contract negotiation stage, and not after the fact. In other words, take a pro-active approach to managing any potential disputes BEFORE they arise.

Kheng Hoe Advocates (Building contract and construction contract dispute lawyers)
PS: If you have any building contract and construction contract related issues, I invite you to take advantage of my free one-to-one consultation to explore your next steps. There is totally no obligation on your part, and regardless whether you engage me or not, I guarantee that you will walk away with a clear idea as to where your case stands and how to take your case forward. To schedule an appointment, e-mail me with a brief description of your issue at khenghoe@khenghoe.com.