Spotlight on China: Construction project dispute resolution

Tan Jinghui’s annual review of construction project dispute resolution in China, published in the Construction Law Journal, offers several interesting insights into the Chinese construction industry. The review surveys the disputes heard by the Supreme People’s Court in 2014. The most common reasons for disputes involved the carrying out of construction work using other contractor’s qualifications, sub-contracting entire construction projects to other contractors, and illegal sub-contracting of works to disqualified sub-contractors. Another common factor was issues in the tendering process.

While we do not have a comprehensive breakdown of the causes of construction disputes in NZ, in our experience disputes tend to relate to issues in contract administration, delay and cost, and scoping and design, which appear to make up the lower percentage of disputes heard by the Chinese courts.

Other insights that can be gleaned from the review include:

  • China has turned to heavy promotion of the PPP model (which may in turn lead to more disputes given the legal complexity of PPP contracting).
  • Construction safety management has become a significant issue, and China has moved to strengthen its work safety laws, including imposing heavier liabilities for work safety violations, such as penalties, bans, and publication. This is not unlike NZ’s recent move to strengthen its health and safety laws with the Health and Safety at Work Act 2015, which also provides for increased fines, and a ‘name and shame’ mechanism.
  • In contrast, unlike NZ, recent court decisions indicate that in China a ‘pay if paid’ clause in a contract will be legal and effective, but a Court may be willing to imply certain conditions and a narrow scope to avoid its abuse – for example, requiring stringent notification obligations, and evidence that a party has performed its obligations to request in good faith settlement and payment by the owner. In NZ, ‘pay if paid’ clauses are prohibited by the Construction Contracts Act.

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