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Sat 1 Aug 2009 04:00 AM

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Jurisdiction clauses on gov projects in the GCC - Part 1

In the first of a two part series, James Bremen discusses policy over practicality on government projects.

Large international construction projects involve a plethora of different parties the world over.

Project sponsors are often large state-run entities, financing parties can include a number of banks from different jurisdictions and contractors may be shell companies based in tax havens.

When a dispute arises the parties all look to protect their own position. But how does the victor share in the spoils?

Parties often neglect to consider their chances of enforcing any judgment a court may hand down.

Jurisdiction for dispute resolution

In a project finance scenario, to provide for multilateral disputes, the parties may elect to adopt common governing law and jurisdiction provisions and select a reputable arbitration provider or the courts and legal system of an independent jurisdiction. This is, more often than not, contained in a developed multi-party arbitration agreement.

However, where the project is financed by governments (particularly those from the Middle East), the jurisdiction is more likely to fall to the national courts of the country in which the project is located. Generally this is due to legislation or corporate governance of the state run companies which dictate that government entities may not submit to the jurisdiction of a foreign country or tribunal.

For example, in Saudi Arabia government organisations may only elect a jurisdiction other than the Board of Grievances if authorised by royal decree.

Irrespective of the location of the ultimate tribunal, due to the number and international nature of the parties involved in such projects, the problem is the same. Where a dispute arises, court judgments may need to be enforced in a foreign jurisdiction.

Treaties

Traditionally, the preferred forum for international construction projects has been international arbitration, with the ICC and Uncitral both popular and respected choices. In addition, countries in the Middle East are also developing their own arbitration centres.

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”) is widely adhered to across the globe and enables a successful party to enforce an arbitral award in the relevant country (although you should always seek legal advice as to its applicability in the relevant country). The global nature of the New York Convention makes enforcement of arbitral awards generally more straightforward than that of foreign court judgments.

Although treaties do exist in relation to the enforcement of foreign court judgments, for example the Brussels Regulation and Lugano Convention, which govern the mutual recognition and enforcement of judgments between most European states, if a local court awards a judgment in your favour, enforcement may not be straightforward. A key issue that ought to be considered at a policy level is whether the mandatory application of local courts in government contracts is necessarily in governments’ interests where there are international counterparties against whom local court judgments may need to be enforced.

This article considers the process of enforcing foreign judgments and the alternatives to enforcement.

Avoid the Problem - Take Security

Some of the risks associated with enforcement uncertainty can be overcome by taking contractual security, including parent company guarantees, cash retentions and performance bonds.

James Bremen is a partner in the projects and construction department at King & Spalding. He has practised exclusively in construction law for more than a decade and has significant experience in project development and dispute resolution, both in the UK and internationally. Since 2002 more than half of his practice has been in the GCC.

The opinions expressed in this column are of the author and not of the publisher.

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