Case: A construction engineering company of China (the “Contractor”), has contracted a large-scale construction project in Poland and subcontracted the project to a Subcontractor, which is also a Chinese builder, by entering into a subcontract thereof. Construction of the project commenced as scheduled and proceeded for only over one year before the Poland party proposed termination of the subcontract for various reasons and claimed for a large sum of compensation. The claim involves a dispute over breach of contract between the Contractor and the Subcontractor. In the litigation process, one party thereto claimed that the laws of Poland shall govern by reason that the real estate of the project is located in Poland; while the other party thereto claimed that the laws of China shall govern by reason that both parties to the subcontract are Chinese builders. This gives rise to a matter on conflict of laws of various countries and the governing laws in respect of a subcontract of foreign construction engineering project.
Legal Entities of Subcontract of Foreign Construction Engineering Project
In the practice of contract for international engineering projects, general contractors of large-scale projects generally assign certain part(s) of the projects (or make assignment of the total project quantity by certain proportion) to subcontractors with corresponding qualifications. In case of breach of contract by the subcontractors due to failure of proper performance of corresponding subcontracts or in case of any extra losses sustained by the general contractors for reasons attributed to the subcontracts, legal relations among the project owners, general contractors and subcontractors come into existence.
The acronym “FIDIC” stands for the International Federation of Consulting Engineers. Many of its regulatory documents apply extensively to international engineering contract projects. Under FIDIC Conditions of Contract for Works of Civil Engineering Construction, the owner and the contractor under a contract for works of civil engineering construction may stipulate matters on subcontract upon entering into the contract, or the contractor may, under the engineer’s instructions, employ a subcontractor to undertake part of the contract project. As to the nominated subcontractor, under FIDIC Conditions of Contract, if the contractor refused to employ a nominated subcontractor and the owner insisted on employing a subcontractor, the contractor shall not be held liable to the owner for any matter caused by the subcontractor. Such provisions are in conflict with provisions of China on the relations among the owners, general contractors and subcontractors. According to provisions of subcontracting principle under Article 38.3 of the Sample of PRC's Construction Engineering Contract, “project subcontracting shall not release a contractor from any liability or obligation under a construction engineering contract; the contractor shall dispatch relevant management personnel to station on the site of subcontracting to ensure performance of the contract; the contractor shall be jointly and severally liable for any damages to the project or other losses to the contract-offering party caused by any breach or negligence of subcontractors”, the contractor shall be jointly and severally liable for losses caused by the subcontractor. Such conflict of laws makes legal relations under foreign construction engineering contracts more complicated. An international construction engineering contract may involve many contractors and subcontractors from different countries, giving rise to conflict of governing laws.
Laws Governing Relations under a Foreign Construction Engineering Contract in China
With respect of settlement of dispute between a contract-offering party and the contractor, Article 37.1 of the Sample of PRC's Construction Engineering Contract stipulates as follows: any dispute arising from performance of the contract by either the contract-offering party or the contractor may be settled through amicable consultation or through mediation presided by relevant competent authorities. In case of either parties’ unwillingness to or failure to reach a settlement through amicable consultation or mediation, both parties may select one of the following dispute settlement methods pursuant to special provisions: one method is to submit an arbitration agreement concluded by and between both parties to an arbitration commission as agreed for arbitration; the other method is to initiate litigation proceedings with a people’s court of competent jurisdiction. It can be seen that arbitration and litigation are two optional methods available for settlement of disputes over construction engineering contracts in China.
Due to the fact that the owner, contractor(s) and subcontractor(s) under a foreign construction engineering project may come from different countries, the fairly commonly seen problem in practice is, in case of any dispute arising from the project, by the laws of which country shall the dispute be governed. Prevailing laws of China contain no expressive provisions on foreign construction engineering contracts or jurisdictions on cases of disputes over subcontract. In China, disputes on governing laws are mainly settled pursuant to relevant provisions of the Civil Procedure Law of PRC and the Law of the Application of Law for Foreign-related Civil Relations. In the FIDIC conditions of contract, the FIDIC forms are not restricted, nor intended, for use under a particular governing law. Specific domestic and foreign legal provisions on such disputes are as follows:
As provided for in Article 23 of the Civil Procedure Law of PRC, “A lawsuit brought on a contract dispute shall be under the jurisdiction of the people's court of the place where the defendant has his domicile or where the contract is performed”.
As provided for in Article 34 of the Civil Procedure Law of PRC, “A party to the contract or other property dispute may choose by written agreement to be under the jurisdiction of the people’s court in the location of the defendant’s domicile, where the contract is performed or signed, in the location of the plaintiff’s domicile, in the location of the subject matter or in other locations which have actual connections with the dispute, provided that the provisions on hierarchical jurisdiction and exclusive jurisdiction are not violated”.
Under Article 33 of the Civil Procedure Law of PRC, exclusive jurisdiction in relation to real estate is provided for as follows: a lawsuit brought on a dispute over real estate shall be under the jurisdiction of the people's court of the place where the estate is located.
4、《民事诉讼法》第266条规定，属于我国人民法院专属管辖的涉外民事案件有：1．在我国履行的中外合资经营企业合同纠纷； 2．在我国履行的中外合作经营企业合同纠纷； 3．在我国履行的中外合作勘探开发自然资源合同纠纷。
As provided for in Article 266 of the Civil Procedure Law of PRC, Actions brought on disputes arising from the performance of (a) contracts for Chinese-foreign equity joint ventures, or (b) contracts for Chinese-foreign contractual joint ventures, or (c) contracts for Chinese-foreign cooperative exploration and development of the natural resources in the People's Republic of China shall fall under the jurisdiction of the people's courts of the People's Republic of China.
As provided for in Article 41 of the Law of the Application of Law for Foreign-related Civil Relations, “parties to a contract may choose the laws governing the contract; if they fail to do so, laws of the domicile of one party whose obligation performance demonstrates characteristics of the contract to the highest extent or other laws in closest relationship to the contract shall govern”.
As provided for in Article 36 of the Law of the Application of Law for Foreign-related Civil Relations, “real property rights shall be governed by laws of the place where the real property is located”.
Under Switzerland's Federal Code on Private International Law, “contracts in relation to real properties or use thereof shall be governed by laws of the place where the corresponding real properties are located or other laws as chosen by parties to the contracts”.
As provided for in Article 24 of Hungary Private International Law, “the governing laws of a contract may be chosen by both parties thereto upon or after conclusion of the contract; if both parties fail to do so, the governing laws shall be determined in accordance with provisions of Article 25 to 29 of this Chapter which are applicable to some special types of contracts”.
As stipulated in Section 186 of the Restatement (Second) of Conflict of Laws, “Issues in contract are determined by the law chosen by the parties in accordance with the rule of Section 187 and otherwise by the law selected in accordance with the rule of Section 188”.
Under Section 187 thereof, “(1) the law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue”.
Under Section 188 thereof, “Law governing in absence of effective choice by the parties:
The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in the Section 6.
In the absence of an effective choice of law by the parties (see s 187), the contacts to be taken into account in applying the principles of s 6 to determine the law applicable to an issue include:
(i) 合同缔结地/the place of contracting；
(ii) 合同谈判地/the place of negotiation of the contract；
(iii) 合同履行地/the place of performance,；
(iv) 合同标的物所在地the location of the subject matter of the contract, 以及/and
(v) 当事人的住所、居所、国籍、公司成立地以及营业地/the domicile, residence, nationality, place of incorporation and place of business of the parties。
These contacts are to be evaluated according to their relative importance with respect to the particular issue.
As could be seen from the above provisions, although litigation proceedings with respect to disputes over real property rights under foreign construction engineering contracts shall be governed by the laws of the place where the real property is located, more and more legal provisions no longer persistently adopt absolute exclusive jurisdiction; application of laws governing real property contracts, excluding disputes over real property rights, is increasingly inclined to respect the principle of “party autonomy” under which parties to a contract may choose the governing laws or, in the absence of choice of governing laws, the laws of the place in closest connection to the contract shall govern. Any dispute over real property rights under a foreign construction project between a Chinese builder and a foreign owner shall be governed exclusively by laws of the place where the real property is located; however, disputes between Chinese subcontractors and Chinese contractors, most of which are contractual disputes, shall be governed by the laws chosen by both contractual parties or, in the absence of choice of governing laws, by the laws of the place in closest connection to the contract. For instance, in the case of a dispute between a Chinese contractor and a subcontractor with respect of a construction project located within the territory of Poland undertaken by a Poland party and a Chinese Party, the laws of China shall be the governing laws pursuant to the foregoing analysis.
Suggestions on Application of Laws Governing Subcontracts for Foreign Construction Engineering Projects
According to the author, the globally prevailing views on application of laws governing foreign construction engineering subcontract shall be adopted, under which the principle of party autonomy shall predominate over the principle of application of laws of the place in closest connection to the subcontract. Allowing contractual parties to choose governing laws is another basic reflection of the principle of freedom of contract. Although the Law of the Application of Law for Foreign-related Civil Relations and its prevailing judicial interpretations contain no specific provisions on application of laws governing contracts and subcontracts of construction projects, the principle of application of laws chosen by contractual parties through agreement is demonstrated in provisions of Article 101 of Model Law of Private International Law of the People's Republic of China, which was promulgated prior to the Law of the Application of Law for Foreign-related Civil Relations, as follows: in the absence of choice of governing laws by contractual parties, the laws of the place in closest connection to the contract shall be applicable. In general circumstances, the laws of the place in closest connection to the following contracts shall be determined as follows: (13) contracts for construction engineering projects shall be governed by the laws of the place where the corresponding projects are located. Such legal provisions acknowledge the dominant position of contractual parties’ choice of laws governing contracts and subcontracts for foreign construction engineering projects.
If parties to a contract fail to choose any governing law, the laws of the place in closest connection to the contract shall be applicable. In determination of the governing laws, factors in closest connection to the contract itself shall be taken into account. These factors generally include the place of contracting, the place of performance of the contract, the place of incorporation, principal place of business, domicile or residence of each contractual party, place of promulgation of arbitration regulations and rules chosen by contractual parties on jurisdiction of courts, as well as the place where properties are located etc. The place in closest connection to any contract or subcontract for a foreign construction engineering project may be deemed according to actual circumstances to be the place of the project or the principal place of business of contractual parties etc. If either or both the contractor or/and the subcontractor under a subcontract for a foreign construction project is/are Chinese builder(s), the place in closest connection to the subcontract may be the principal place of business of the Chinese builder(s); that is, the laws of China may be the governing laws.
What is noteworthy is that an arbitration agreement concluded by contractual parties may exclude from the exclusive jurisdiction of courts for litigation. As stipulated in Article 305 of Opinions of the Supreme People's Court on Some Issues Concerning the Application of the Civil Procedure Law of the People's Republic of China, “according to provisions of Articles 34 and 246 of the Civil Procedure Law, the parties concerned shall not select a foreign court for jurisdiction by a written agreement; unless they stipulate to settle the dispute through arbitration”, for parties to a contract of foreign construction engineering project who intend to have their legal rights and interests protected by laws of any country other than the country where the project is located, the current feasible way is to specify an arbitration tribunal in the contract.
IV. FIDIC 合同下仲裁条款的适用问题
Under Clause 26.6 of FIDIC Construction Project Contract Template, “Unless settled amicably, any dispute in respect of which the DAB’s decision (if any) has not become final and binding shall be finally settled by international arbitration. Unless otherwise agreed by both parties: (a) the dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce; (b) the dispute shall be settled by three arbitrators appointed in accordance with these Rules; and (c) the arbitration shall be conducted in the language for communications defined in Sub-Clause [law and language]. In other words, this Clause stipulates that, unless otherwise specifically agreed by both parties, all disputes arising from this Contract shall be governed by ICC Rules. Although governing arbitration rules are expressly specified thereunder, it leaves still open the question whether arbitration clause thereunder is valid in China. As previously mentioned by the author, besides arbitration institutions, courts of competent jurisdiction are also competent to rule or judge whether an arbitration agreement is valid; furthermore, in case of inconsistency of rulings between an arbitration institution and a court, the court’s ruling prevails in most cases. The author is of the view that two deficiency of this Clause may lead to an ambiguous answer to the question on validity of the arbitration clause in China.
Firstly, although ICC rules are stipulated as the applicable arbitration rules thereunder, no law governing the validity of arbitration agreement is specified. With respect to ascertainment of the law governing validity of arbitration agreement, China’s courts, according to their judicial precedents, tend to make ascertainment in line with general principles of the private international law, mainly in the following methods: (1) where a law governing validity of arbitration agreement is expressly stipulated by contractual parties, China’s courts would ascertain validity of the arbitration clause concerned pursuant to such stipulated governing law. (2) If the place of arbitration is stipulated under a contract without any stipulation on the law governing validity of arbitration agreement, the courts would apply the law of the place of arbitration in ascertaining validity of the arbitration agreement concerned. (3) Where neither any law governing validity of arbitration agreement nor any place of arbitration is stipulated under the arbitration clause of a contract, the court would apply laws of the location of the court (i.e. laws of China) in ascertaining validity of the contract. Such methods summed up from practice were affirmed by the Supreme People’s Court through Article 16 of Interpretation of the Supreme People's Court on Issues concerning Application of the Law of Arbitration of People’s Republic of China  No.7 announced on 23 August, 2006, giving legal binding force to the aforesaid judicial practices.
However, as could be seen from Clause 20.6 Arbitration of the Construction Contract Template, only the governing law on dispute resolution rather than on ascertainment of validness of arbitration agreement is stipulated and no place of arbitration is specified. In this case, only when the construction contract is submitted to a China’s court by either contractual party for ascertainment of validity of arbitration clause thereof, the China’s court would make such ascertainment in accordance with the laws of China.
The next question is, as stipulated in Clause 20.6 thereof, whether an arbitration agreement specifying only arbitration rules without any provision on the place of arbitration is valid under the laws of China?
In accordance with provisions of Paragraph 2 of Article 16 and Article 18 of the Arbitration Law of China, if parties to an arbitration agreement neither specify any arbitration institution nor reach any supplementary agreement on arbitration institution, the arbitration agreement shall be deemed as null and void. Great importance is attached to stipulation on arbitration institution. This is the uniqueness of China’s legislation on arbitration which has always been the principle dominating judicial practices of China’s courts. In the Letter of Reply of the Supreme People's Court to the Request for Instructions on the Case concerning the Application of Züblin International GmbH and Wuxi Woke General Engineering Rubber Co., Ltd. for Determining the Validity of the Arbitration Agreement MSTZ No.23 dated 5 July, 2004, the validity of arbitration clause (i.e. Arbitration: arbitration shall be conducted in Shanghai in accordance with the ICC rules) involved in the case was ascertained as follows: “According to the relevant provisions of the Arbitration Law of China, an effective arbitration clause shall have such three contents as an intention to arbitration, matters for arbitration, and a definite arbitration institution. Seen from the letters of the arbitration clauses involved in this Case, there are clear intention to arbitration, arbitration rules, and place of arbitration, but the arbitration institution is not clearly designated. Therefore, the arbitration clause shall be determined as invalid”. Likewise, in the Letter of Reply of the Supreme People's Court to the Request for Instructions on Validity of the Arbitration Clause  MSTZ No.6 dated 26 April, 2006, it’s pointed out that “As stipulated in Article 18 of the Arbitration Law of the People’s Republic of China, if an arbitration agreement contains no or unclear provisions concerning the matters for arbitration or the arbitration commission, the parties may reach a supplementary agreement. If no such supplementary agreement can be reached, the arbitration agreement shall be null and void. Both parties in this case specify no arbitration institution in the arbitration clause and fail to reach any supplementary agreement thereon, the arbitration clause in question is therefore null and void……”
In practice, such stringent legal requirements on arbitration would hinder development of international trade and business. Accordingly, China’s judicial circles made some supplementary adjustments to the Arbitration Law based on actual circumstances. Under Article 4 of Interpretation of the Supreme People's Court concerning Some Issues on Application of the Arbitration Law of the People's Republic of China (Interpretation No.7 ), “where an agreement for arbitration stipulates only arbitration rules applicable to any dispute, it shall be deemed that no arbitration institution is stipulated, unless the parties concerned reach a supplementary agreement thereon or an arbitration institution could be determined pursuant to the arbitration rules as agreed by them”, it could be seen that, as compared to provisions of the Arbitration Law, such interpretation by the supreme court has extended the criteria for ascertainment of validity of arbitration agreement. That is, where parties to a contract stipulate only applicable arbitration rules without agreement on any arbitration institution, the court may determine an exclusive arbitration institution based on the stipulated arbitration rules and such contract may be ascertained as valid by the court. According to this judicial interpretation, a contract merely stipulating CIETAC Rules as the applicable rules in its arbitration clause may be deemed as valid by the court. It’s expressly provided in paragraph 3 of Article 4 of CIETAC Rules (2005 Revision) that “where the parties agree to refer their disputes to arbitration under these Rules without providing the name of an arbitration institution, they shall be deemed to have agreed to refer the dispute to arbitration by the CIETAC”. Such provision is followed by CIETAC Rules (2012 Revision). The supreme court, in its Judgment (2007) MSZZ No.15 that “the arbitration clause is null and void because they specify no arbitration institution but merely ICC rules as the governing arbitration rules”, expressly pointed out that CIETAC Rules (2005 Revision) may be deemed as within the range of the Judicial Interpretation 2006 that “an arbitration institution may be determined pursuant to arbitration rules as stipulated under a contract”, while ICC rules may not.
In accordance with the aforesaid legal provisions and judicial interpretations, Clause 20.6 Arbitration of the Construction Contract Template would not be ascertained as valid by the China’s courts. The reason is that no exclusive arbitration institution could be determined under the ICC rules by China’s courts, which is affirmed by the Supreme People’s Court through the aforesaid relevant letters of reply; however, the author is of the opinion that the upcoming promulgation and effectiveness of new rules ICC2012 will change the current situation.
ICC2012新规则新增加条款第6条第2项规定“凡当事人约定按照本规则进行仲裁，均视为同意将争议提交给国际商会仲裁委员会。“（by agreeing to arbitration under the Rules, the parties have accepted that the arbitration shall be administered by the Court.）其次，新规则第1条第2款也明确到The Court是唯一经授权对仲裁规则项下仲裁活动实施管理的机构，包括对按照仲裁规则所做出的裁决进行核阅、批准。（the court is the only body authorized to administer arbitrations under the Rules including the scrutiny and approval of awards rendered in accordance with the Rules, ）新增加这两条规则，其与CIETAC第四条的规定极为相似，根据这两条规则，我们可以推断出当事人双方在合同中约定所有争议由ICC规则管辖，就等于双方约定了争议由ICC管辖。根据该新规则以及上述提到最高院民四终字第15号的判决的精神，笔者认为可以从建筑合同范本第20.6项条款推导出，双方已默示的约定将争议提交给国际商会仲裁委。然目前，中国境内暂没有相关法院对这个问题进行确认，们需要等待相关司法解释或者最高院的判例给予回复。
We will see a new provision “Paragraph 2 of Clause 6” added to the new ICC Rules 2012, providing that “by agreeing to arbitration under the Rules, the parties have accepted that the arbitration shall be administered by the Arbitration Commission of the International Chamber of Commerce”. Additionally, it’s also prescribed under Paragraph 2 of Article 1 of the new rules ICC2012 that “the court is the only body authorized to administer arbitrations under the Rules including the scrutiny and approval of awards rendered in accordance with the Rules”. According to these two newly added provisions which are quite similar to that under Clause 4 of CIETAC, we can infer that, by stipulating that all disputes shall be governed by ICC rules, both parties have actually agreed that the arbitration shall be administered by ICC. The author is of the opinion that, under the guidance of these new rules ICC2012 and the aforesaid Judgment  MSZZ No.15 made by the Supreme People’s Court, it can be deferred from Clause 20.6 of the Construction Contract Template that both parties thereto have impliedly agreed to submitted disputes thereunder to the Arbitration Commission of ICC. Considering that none of China’s courts has ever made affirmation on this issue, we need to wait for the reply in the form of relevant judicial interpretations or decisions of the Supreme Court.
Applicable Law to Determine Validity of Arbitration Clause
The Letter of Reply of the Supreme People's Court to the Request for Instructions on Validity of the Arbitration Clause  MSTZ No.6 dated 26 April, 2006 reads that the arbitration clauses of this case involve foreign elements, thus the first point to make sure is the applicable law to determine the validity of arbitration clause. Based on years’ judicial experience as well as the principles ascertained in the meeting summary of 2nd National Conference of Judicial Work on Commercial and maritime Cases held by this Court, where parties expressly agree in the agreement on the applicable law to determine the validity of arbitration clause, such agreed law shall be applied; where no applicable law to determine the validity of arbitration clause has been agreed on but the place of arbitration has been agreed on, the law of the country or region where the place of arbitration is located in shall be applied.
《纽约公约》（New York Convention 1958 ）第5条第1款第1项规定（Article V（1）（A））：
Article V（1）（A）of New York Convention 1958 reads that:
Recognition and enforcement of the award may be refused at the request of the party against whom it is invoked, only if that party furnished the proof to the competent authority where the recognition and enforcement is sought on one of the following grounds:
(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, under the law of the country where the award was made when failing any indication of applicable laws.
FIDIC Contract for Construction. Clause 20. CLAIMS, DISPUTES AND ARBITRATION
20.1 Contractor's Claims
20.2 Employer's Claims
20.3 Appointment of the Dispute Adjudication Board
20.4 Failure to Agree Dispute Adjudication Board
20.5 Avoidance of Disputes
20.6 Obtaining Dispute Adjudication Board's Decision
20.7 Amicable Settlement
20.9 Failure to Comply with Dispute Adjudication Board's Decision
20.10 Disputes Arising during the Operation Service Period
20.11 Expiry of Dispute Adjudication Board's Appointment
The FIDIC forms are adopted around the world including in the Middle East, South East Asia and Eastern Europe, and widely used in Africa, notably the Red Book, in countries with a common law tradition. The uptake is more limited in countries that have their own domestic highly-developed standard form contracts, such as the USA, UK, Australia, Malaysia and Germany. Nevertheless, the FIDIC forms are not restricted, nor intended, for use under a particular governing law (FIDIC标准合同不限制适用某一具体国家的法律作为合同的准据法), which goes along way to explaining their success and uptake around the world.
《FIDIC Contracts: Law and Practice》，published in 2009
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