Need for well-defined agreements-
Much has been said in recent months about the creation of the ASEAN Economic Community (AEC), a process which is well under way. One of the key concepts for the AEC is connectivity, which is applied to many topics regarding regional integration. One of the areas to which connectivity applies is the development and integration of regional infrastructure. But even with enhanced economic integration, diverse legal systems in the region could prove an impediment to infrastructure projects, especially those across borders. Even so, the basic principles of contracts are widely understood and accepted in the region. So why does the process of drafting contracts remain so important, particularly with regard to infrastructure projects? There are at least two fundamental aspects to be considered concerning drafting contracts in the region: clarity and dispute resolution.
Regardless of the venue, contracts must be drafted in a comprehensive manner, leaving little or nothing to the imagination. The more complete the contract is and the more detail it is drafted in, the less the room for dispute later. It may seem like a self-evident principle, but it is always surprising when significant contracts miss some critical element that later turns into a major dispute. This is particularly important in infrastructure contracts, as they frequently include technical details involving the project. Infrastructure agreements tend to be more complicated than a more straightforward commercial contract, and therefore, even more care must be taken in their preparation. As the old adage says, an ounce of prevention is worth a pound of cure.
As important as a carefully drafted contract is, one section, which is key for any contract, especially contracts dealing with infrastructure, is the dispute resolution clause. Considering that many infrastructure contracts have an element of the national government as a party, having a good dispute resolution clause becomes critical. Given the diversity of legal processes in the ASEAN countries, with wide variation in terms of quality, complexity, predictability and efficiency of judicial systems, there is a strong argument for having dispute resolution in the form of international arbitration. The optimal situation would be to have arbitration in a neutral site and according to well-established law. Fortunately, there are a number of well-established arbitration centres in the region, including in Singapore, Kuala Lumpur and Hong Kong. A very typical clause would have arbitration at the Singapore International Arbitration Centre, the governing law being that of England. But other arbitration solutions can also be opted for, such as the United Nations Commission on International Trade Law, the International Centre for the Settlement of Investment Disputes, and the International Chamber of Commerce, via the vehicle of the ICC International Court of Arbitration.
The difficulty, of course, with choosing arbitration as the means of dispute resolution is when one party represents the host government, which will often want to have disputes resolved in its own court system. This presents a problem for investors in infrastructure projects, as the laws in the various ASEAN countries may vary in terms of their comprehensiveness and applicability, and the judicial systems can also vary in terms of quality and efficiency. So international arbitration can assure investors in infrastructure projects of a fair and fairly predictable outcome to the decision-making process. This outcome is critical to the confidence of investors for major projects in the region, and considering the cost and complexity of the projects, should not be ignored.
Bretton G. Sciaroni, senior partner, Sciaroni & Associates, is among the first foreign lawyers in Cambodia in the modern era, who negotiated the first foreign investment (in 1994) under the new investment law. He continues to provide legal advice on numerous investment projects and is very active in the business community. Sciaroni is chairman of the American Chamber of Commerce in Cambodia and the International Business Chamber. He also is an active member of the Government-Private Sector Forum (GPSF), the public-private dialogue mechanism in which laws and policies are discussed by officials of the Royal Government and the business community. In the GPSF, Sciaroni serves (along with the Minister of Economy and Finance) as co-chairman of the Working Group on Law, Tax and Governance. He holds degrees from the UCLA School of Law, Georgetown University, and Claremont McKenna College.
