Archive for the ‘Kluwer Construction Blog’ Category
It is with much regret that this is the final post for Kluwer Construction Blog. Over the last 14 months the blog has informed us of significant infrastructure and energy projects from South America to Europe and Asia, kept us up to speed on developments in dispute resolution processes in the Gulf, Asia Pacific, Australia and the U.S. and given insights and advice about practical issues facing contractors around the world .We have very much enjoyed publishing and following the blog, but unfortunately supply has outweighed demand. We have sadly realized that there just isn’t enough of a call for the blog at this current point in time.
The good news – all of our fantastic contributions will remain here on the blog for the next 6 months, giving you plenty of time to search, peruse and re-read your favourite posts.
On behalf of Kluwer we would like to extend a huge thank you to all involved, especially Sarah Thomas, Pinsent Masons (editor), and our much valued team of regular contributors. But, we would also like to thank all of you out there who have been following the blog over the last 14 months.
Should you wish to stay abreast of developments in the international arbitration world, we would be delighted if you would sign up for our Arbitration Blog at www.wolterskluwerblogs.com. The blog works in the same way, by entering your email address posts will be delivered straight to your inbox as they go live.
Equally if you would like to keep abreast of developments in construction law or trends in international construction, please feel free to sign up to receive Pinsent Mason’s e-newsletter. You can do this by clicking the link: www.pinsentmasons.com/myprofile then clicking the ‘create new profile link’. If you have any queries regarding this facility please feel free to contact Sarah Thomas of Pinsent Masons at email@example.com.
It just remains for us to thank you for following the blog over the past few months: thank you.
Kluwer Law International
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A) The Angra 3 Nuclear Power Project
Nuclear energy provides about 3% of Brazil’s electricity. In 2007, gross production was 445 billion kWh, with net imports of 39 billion kWh being required. Of the total generated in the country, 84% of power was from hydro, 3.5% from gas, 4% from biomass, just over 5% from coal and oil, and 3% (12.4 million kWh) from nuclear. In 2009, nuclear power generated 13 billion kWh of electricity. Per capita electricity consumption in Brazil has grown strongly since 1990 – from under 1500 kWh/yr in 1990 to nearly 2200 kWh/yr in 2007.
The high dependence on hydro gives rise to some climatic vulnerability which is driving policy to diminish dependence on it. Despite this, in February 2010 the government approved $9.3 billion investment in the new 11.2 GWe Belo Monte hydro scheme, which will flood 500 sq km of the Amazon basin and supply about 11% of the country’s electricity. About 40% of Brazil’s electricity is produced by the national Eletrobrás Systema. About 20% of electricity is from state-owned utilities, and the rest is from privately-owned companies.
Angra 1 suffered continuing problems with its steam supply system and was shut down for some time during its first few years. Its lifetime load factor over the first 15 years was only 25%, but since 1999 it has been much better. Civil works on Angra 2 started in 1976 and, due to a lack of financial resources and a lower than expected growth in demand, only commenced operation at the end of 2000. Angra 3 was designed to be a twin of unit 2, with a 1,400MW generating capacity. Work started on the project in 1984 but was suspended in 1986 before full construction began. Around 70% of the equipment is on site, full construction did not begin and work on the project was suspended in 1986.
In November 2006 the government announced plans to complete Angra 3 and also build four further 1000 MWe nuclear plants from 2015 at a single site. Angra 3 construction approval was confirmed by Brazil’s National Energy Policy Council in June 2007 and received Presidential approval in July. Environmental approval was granted in March and all other approvals by July 2009. In December 2008, Eletrobrás Termonuclear S/A (Eletronuclear) signed an industrial cooperation agreement with Areva, confirming that Areva will complete Angra 3 and be considered for supplying further reactors. Areva also signed a services contract for Angra 1. First concrete for Angra 3 was due in 2009. A construction licence was granted by the National Nuclear Energy Commission (CNEN) at the end of May 2010, and construction resumed two days later, in June. The plant is expected in operation at the end of 2015 after 66 months.
B) Financial challenges
Economically, power from existing nuclear plants is about 1.5 times more expensive than that from established hydro, and power from Angra 3 is expected to be slightly over twice as expensive as old hydro, about the same as that from coal and cheaper than that from gas. Overall, including Angra 3 in projections reduces network prices slightly. Plans to build two new nuclear plants in the northeast and two more near Angra in the southeast are underway1. At the end of 2009, Eletronuclear commenced initial siting studies at four potential locations in the northeast2, and is aiming to present a list of 40 possible sites to the Mines & Energy Ministry by mid-2011. Eletronuclear is looking at the Westinghouse AP1000 (which is reported to be favoured), the Areva-Mitsubishi Atmea-1 and Atomstroyexport’s VVER-1000.
In December 2010, The Brazilian Development Bank (BNDES) approved BRL 6.1 billion (US$ 3.6 billion) in financing for Angra 3, covering almost 60% of the BRL 9.9 billion estimated cost. This month Eletronuclear received an offer for a EUR1.5bn (US$2.02bn) loan from a pool of five French banks led by Société Générale to develop its Angra III nuclear power plant in Rio de Janeiro state. This is only one of many recent developments in the country’s nuclear sector. Sustained by strong economic and demographic growth, Brazil’s power demand is indeed expected to increase significantly in the coming years and the country is planning to boost nuclear generation along with its more developed hydro generation. Brazil’s Senate still has to approve the loan, and a decision on the matter is not expected until the second half of 2011. Construction of Angra 3is currently underway and the new nuclear power plant is expected to start production by 2015. The total investment for the project has been estimated at BRL9.9bn (US$5.91bn).
C) About Eletronuclear and BNDES
Eletronuclear was established in 1997 for the purpose of operating and building thermal nuclear power plants in Brazil. A subsidiary of Eletrobrás, Eletronuclear is a government-controlled company that accounts for the generation of approximately 3% of electric power consumed in Brazil. By the interconnected electric power system, such power reaches the main consumer centers in Brazil and corresponds, for example, to more than 50% of electric power consumption in the State of Rio de Janeiro, a proportion to be considerably expanded on completion of the third unit of Admiral Álvaro Alberto Nuclear Power Station (CNAAA). At present, nuclear power plants Angra 1 – with a generating capacity of 657 electric megawatts, and Angra 2 – rated at 1350 electric megawatts are in operation. Angra 3, to practically be a replica of Angra 2, (incorporating the technological advances made since the construction of the latter) is also planned
BNDES is the main financing agent for development in Brazil. Since its foundation, in 1952, the BNDES has played a fundamental role in stimulating the expansion of industry and infrastructure in the country. Over the course of the Bank’s history, its operations have evolved in accordance with the Brazilian socio-economic challenges, and now they include support for exports, technological innovation, sustainable socio-environmental development and the modernization of public administration. The Bank offers several financial support mechanisms to Brazilian companies of all sizes as well as public administration entities, enabling investments in all economic sectors. In any supported undertaking, from the analysis phase up to the monitoring, the BNDES emphasizes three factors it considers strategic: innovation, local development and socio-environmental development. The BNDES’ disbursements reached R$ 168.4 billion in 2010, a 23% increase when compared to the previous year. The result takes into consideration Petrobras’ R$ 24.7 billion capitalization operation. When this operation – a one-off and non-recurring – is not considered, the Bank’s disbursements ended 2010 at R$ 143.7 billion, a 5% increase when compared to 2009, growth which is compatible with previously made projections. Industry accounted for 47% of the Bank’s total disbursements, followed by Infrastructure, with 31% presence, and by Trade and Services, at 16%. In all areas of activity (agriculture, industry, infrastructure, trade and services) disbursements grew in 2010, resulting mostly from the successful Investment Maintenance Program (PSI). Launched in July 2009 and expected to last until next March 31, 2011, PSI guaranteed the return of investment to the country amidst the global financial and economic crisis.
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The inaugural Youth Olympic Games hosted by Singapore in August last year left a positive impression on Singapore’s young guests. The fanfare would have been much bigger had the Singapore Sports Hub been available for the event.
At an estimated cost of S$1.33 billion, the new Sports Hub will boast a 55,000-seater retractable roof stadium, a 6,000-capacity Indoor Aquatic Centre, a 3,000-capacity Multi-Purpose Arena and a Water Sports Centre.
Despite the tender being awarded by the Singapore government in 2008, the PPP project commenced construction only in September 2010 – the result of delays from the 2008-2009 global financial crisis and high construction costs. It is now expected to complete in 2014.
Other major infrastructure projects soon to get underway include the Tuas desalination plant, Singapore’s second and largest such plant. Local water authority PUB closed its open tender late last year and the outcome of the tender is expected in first quarter 2011. The Tuas desalinated water plant is expected to complete by 2013.
This is already PUB’s fourth Design, Build, Own and Operate (DBOO) project. The first three were desalination and recycled water projects. The purpose of such arrangements include helping local water companies build their track records towards eventually exporting such expertise overseas.
Another notable launch is Tuas Power’s Tembusu Complex comprising a waste re-utilisation facility, a biomass-clean coal co-generation plant and a desalination plant, costing an estimated US$1.5 billion.
The project has already garnered several local awards for innovation and research with part of the biomass-clean coal cogeneration plant’s processes converting ash into synthetic aggregates for use in the construction industry.
FIDIC Red Book – A hiccup?
In a rare decision, the Singapore High Court in PT Perusahaan Gas Negara (“PGN”) v CRW Joint Operation (“CRW”)  4 SLR 672 refused to uphold an ICC arbitration award arising from a contract using the FIDIC Red Book 1999 Edition.
Disputes between the parties over variation orders and payment requests were referred to a Dispute Adjudication Board (DAB) by the contract. The parties accepted several of the DAB’s decisions, save one involving a disputed sum of over US$17 million.
The DAB decision was referred to arbitration and the Tribunal upheld it in its award. When CRW applied to register the arbitration award in a Singapore court, PGN sought to set it aside.
The Singapore High Court set aside the award on the basis that the arbitration tribunal exceeded its powers in rendering a final award in contravention of the parties’ agreement. The High Court interpreted the dispute resolution provisions in the FIDIC Red Book to mean that CRW was first required to refer the disputed DAB decision back to the DAB for review and confirmation, before involving arbitration.
Notably, the Court observed a possible gap in the 1999 FIDIC Red Book as it did not expressly allow a counter party’s failure to comply with a DAB decision to be referred directly to arbitration.
This is a rare instance of the Singapore High Court setting aside an arbitral award. It highlights the importance of parties understanding the clauses in their contract, especially how the reference to arbitration is to be properly invoked.
Mohan R Pillay
Partner & Joint Head of Office
Pinsent Masons MPillay LLP
Adj. Assoc. Prof., Faculty of Law, Nat. Univ. of Singapore
Visiting Professor, Centre of Construction Law, King’s College London
16 Collyer Quay #22-02
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A new President and her plans to improve the Brazilian airport system
As the ninth largest economy in the world – expected to reach fifth place in the next decade – and the largest of Latin America, Brazil is today one of the best markets for foreign investment and an increasingly important operator in the international geopolitical stage. Despite that, three recent reports have described the quality of Brazil’s transport infrastructure – including the airport system – as ranking among some of the worst in the world, despite growing demand from international manufacturers for goods produced in the country.
a) The first report, by the Brazilian economic consultancy LCA Consultores – which analyzed results from a competitiveness poll conducted among attendees at the 2009/2010 World Economic Forum in Geneva – indicates that compared to another 20 countries with which it competes on a global scale, Brazil hangs on to the 17th slot in infrastructure quality in general. On a 1-7 rating scale, Brazil scored 3.4, below the world average of 4.1.
b) The second report, by Brazil’s Applied Economics Research Institute (IPEA), indicates that a number of airports are on the edge of an operational collapse, meaning there is a considerable threat of a logistics blackout in the airport sector unless investment is initiated immediately. The IPEA report said demand for air travel is expected to triple in the next 20 years, especially with the World Cup and 2016 Olympics putting additional pressure on the country’s transport infrastructure, making the situation all the more pressing.
c) The third report, by consultancy company McKinsey, indicates that investment of BRL25-34bn (US$15-20bn) is needed to meet growing demand in the airport sector over the next 20 years. The study found that Brazil’s 20 main airports need massive investments in upgrades to enable them cater for the growing passenger traffic demand up to 2030. The study further concludes that airports such as the Viracopos international airport in Sao Paolo may need up to BRL4-6bn (US$2-3bn) reals to enhance its capacity to handle passenger traffic in its metropolitan area, the most congested in the country. On the other hand, the state’s Congonhas airport was said to be in dire condition, with capacity levels already exceeded, revealed the study. Only tow Brazilian airports were found to be in better condition, the Galeão airport in Rio de Janeiro, and the Curitiba airport in Paraná state.
With these findings in mind, President Dilma Rouseef wants to make a firm position that the country’s airport system will indeed improve in a fast track model. In her 3rd day in Office the new President has decided to privatize the construction and operation of 2 new airport terminals in the State of São Paulo. President Dilma also decided to open up the capital of INFRAERO (the Brazilian Airport Infrastructure Company) and create an special Secretariat – directly attached to the the Presidency’s Office – to oversight civil aviation business in Brazil.
President’s Office has already started meeting with companies interested in the construction and operation of the 2 new terminals in the State of São Paulo. Those companies have been informed that concession agreements for the new terminals will be of at least 20 years and will have BNDES’ (the Brazilian Development Bank) participation in the financing. The BNDES Credit Lines comprise long-term financing, at competitive interest rates, for the development of investment projects, the commercialization of machinery and equipment, and the growth of Brazilian exports. Credit lines and programs provided by the BNDES serve the investment needs of companies of any size and sector set up in Brazil.
Other investments recently announced shall be placed in the airports at Belo Horizonte, Brasília, Cuiabá, Curitiba, Fortaleza, Manaus, Natal, Porto Alegre, Recife, Rio de Janeiro and Salvador, the other 11 host cities of the 2014 World Cup. The Government expectation is that all work shall be completed between June 2013 and April 2014, so that the airports shall be ready to welcome the large number of tourists that should visit the country in this period.
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Arbitration has become the black sheep of alternative dispute resolution (ADR) processes in Australia’s domestic sphere. Over the last two decades arbitration has descended into a costly, rigid and time consuming process.
As noted in my July 2010 blog ‘A return to Arbitration?’, Australia’s domestic arbitration regime is currently the subject of legislative reform with each state and territory agreeing to adopt the Model Law.
This raises the questions:
- will adoption of the Model Law improve the effectiveness of arbitration as an ADR process and make it a more attractive ADR option, or
- will its success depend on arbitrators taking full advantage of the new legislative framework in managing the process.
Declining popularity of arbitration
In the 1970s and 1980s construction disputes were commonly resolved by arbitration. Increasingly, arbitral awards were challenged on the basis of ‘technical misconduct’. The technical misconduct umbrella opened to include requiring arbitrators to write detailed decisions to a standard similar to a judge’s judgment.
The arbitration process became more cumbersome and time consuming as arbitrators managed the process more cautiously, mirroring procedures used in civil litigation (although ironically not the fast tracking procedures adopted in case management regimes in commercial lists) in order to avoid challenge on the basis of technical misconduct.
New Law – New opportunities
In May 2010, the states and territories agreed to overhaul the current domestic arbitration regime and adopt the Model Law. New South Wales has lead the way with its Commercial Arbitration Act 2010 (NSW) (NSW Act) commencing operation on 1 October 2010.
The new legislative framework, which is expected to be adopted by the remaining states and territories, enhances the arbitrator’s role as the master of the process. It opens up an opportunity for arbitrators to restore arbitration to its former glory as a efficient, informal and cost effective ADR process.
Examples of amendments that should instil confidence in arbitrators to manage the process effectively include:
- clarification that the parties are to be given a ‘reasonable’ opportunity to state their case; including power to order a stop clock arbitration;
- imposing a direct obligation on the parties to do all things necessary for the proper and expeditions conduct of the proceedings;
- the power to dismiss proceedings in the face of inexcusable delay
- powers to grant interim measures such as disclosure, security of costs, costs and damages and preservation orders; and
- most significantly the removal of the court’s power to set aside an award for technical misconduct and the provision of limited appeal rights.
Changing the domestic arbitration procedural rules alone may not be enough to make arbitration a more attractive ADR option. The onus is on parties, their advisors and ultimately arbitrators to utilise the tools provided by the Model Law. Whether the Model Law delivers on its promise to provide a fast, fair, cost-effective and less formal option for resolving disputes remains to be seen.
Perhaps Australia should draw on other nation’s experiences in the application of the Model Law?
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Acronyms abound in the wide world of project delivery methods – D&C, DCM, ECI, EPC, EPCM. The list goes on. Even for those of us out there who speak the ‘lingo’, it can get quite confusing.
Engineering, Procurement and Construction (EPC) and Engineering, Procurement and Construction Management (EPCM) contracts are two project delivery methods commonly used in the mining, mineral processing and power industries. Despite the widespread use of these contract models, there remains a general level of mystification associated with EPCM contracts, and the distinction between EPC and EPCM contracts is not particularly well documented or understood.
In acronym alone, the two contract models appear to be similar. So what’s in an ‘M’?
Under an EPC contract, the EPC contractor develops the project from its inception to final completion. The principal provides the EPC contractor with technical and functional specifications for the project, and the EPC contractor subsequently designs, builds and delivers the project in an operational state so that it can be operated at the ‘turn of a key’ (resulting in the common reference to EPC contracts as ‘turnkey’ contracts).
EPC contracts are almost always ‘lump-sum’, where the EPC contractor is limited to receiving a fixed price irrespective of the actual cost of performing the work. The EPC contractor generally takes the benefit of any savings (and the risk of any cost over-runs). In addition, in an EPC contract, the EPC contractor usually provides a performance guarantee (subject to agreed liability caps).
An EPC contract provides a suitable framework for projects where significant engineering expertise is required, and the principal does not need to retain design control or flexibility in execution. EPC contracts are commonly used for large scale resource developments, such as oil and gas plant projects.
EPCM contracting – How is it different?
In contrast to an EPC contract, an EPCM contract is a sophisticated project management or agency arrangement where the EPCM contractor:
- is responsible for the detailed engineering and design for the project;
- administers and manages the project as the principal’s agent or representative, including by providing programming and strategic management services; and
- is typically responsible for breaking down the procurement and construction work into packages, managing their tender, overseeing the principal’s entry into the trade/supply contracts and managing those trade/supply contracts on the principal’s behalf to achieve completion of the project.
Unlike EPC contracts, EPCM contracts are almost always ‘cost plus’ (or ‘cost-reimbursable’). The principal pays the subcontractors directly for materials, equipment and on-site works, and only pays the EPCM contractor its actual direct costs (mostly labour) for performing engineering and supervisory services, plus an agreed margin. The margin charged by EPCM contractors varies depending on the risk assumed (which is usually low), the size of the project (small projects usually have higher margins) and supply/demand position in the economy.
An EPCM contract provides a suitable framework where the nature of the project requires continual design development either due to the complex nature of the project (or its interface with other assets or projects) or because the outputs of the project have not yet been finally determined. So long as the principal has the expertise, experience and resources to manage the progress of the project and can afford to retain the cost and time risk of the project, the principal can avoid payment of a hefty premium to put the risk on a head contractor under an EPC contract.
An EPCM contract may be appropriate where the inherent advantages of other procurement models (largely time and cost certainty) are not able in a practical sense to be delivered, perhaps due to lack of market appetite or capability to accept the risk transfer of traditional models. This is particularly relevant where the principal is unable or unlikely to obtain a suitable contractor and price using an EPC contract model.
EPCM contracts are commonly used for the construction or expansion of large scale heavy engineering facilities or manufacturing plants in the petrochemical oil and gas, mining and power sectors, where engineering and project management skills are more likely to be separate to construction and supply capability. EPCM contracts are not generally used for civil projects, except where the project can be delivered by relatively small, self-contained packages awarded to multiple contractors.
So what’s in an ‘M’?
There are, of course, many other differences between EPC and EPCM contracts. The fundamental difference, however, lies in the ‘M’. The ‘Construction Management‘ component of the project delivery method means that the EPCM contractor does not perform construction work and does not usually take full responsibility for delivering the completed project. The principal is able to take a more ‘hands on’ approach, with greater flexibility to modify project specifications and effect changes to the scope of the works throughout the project. However, as with any project delivery method, if you elect to use an EPCM contract model for your project, it should be moulded to fit the needs of the project and the principal to give your project the best chance for success.
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Recent gas-fired combined cycle power plant construction projects in Switzerland have not proceeded beyond the planning stage as a result of the Swiss CO2 law, which provides that 70% of their emissions must be offset by means of measures taken inside Switzerland. So far, such measures have been considered to be too costly, pushing a number of electricity companies to suspend major gas power plant projects.
However, a project for the construction of a 400 MW gas-fired combined cycle plant on the site of an existing plant in the alpine canton of Wallis has taken a large step forward. The plans to offset the 600,000 to 700,000 tons of CO2 expected to be emitted by the Chavalon plant once completed (which will represent roughly 2 to 3 per cent of total Swiss emissions) have been found to be financially feasible.
The offsetting measures, which have been the subject of studies and will soon be submitted for the approval of the Swiss Federal Ministry of Environment, include advances such as the use of heat pumps and improved energy use of sewage and water infrastructure. The projected measures will allow for the plant’s emissions to be offset in their entirety.
In addition, the Chavalon project was made possible by a recent ordinance of the Swiss government exempting new fossil-fuel power plants built on the site of an existing plant from the requirement of waste heat recovery. Such waste heat recovery would not have been feasible for the Chavalon project given the projected plant’s isolated location high above the Rhone valley.
While the waste heat recovery exception carved out by the Swiss Government for the Chavalon plant was controversial given Switzerland’s energy policy, which is focused on nuclear and hydro-electric power, the Government adopted the exception in order to keep the option of building gas-fired plants open, and because of the advanced nature of the Chavalon project’s carbon-offsetting plans. Electricity companies have been pushing for the right to build such plants since the middle of the decade in order to satisfy demand until new nuclear power plants, which would have higher production capacities of up to 1600 MW, become operational.
The Chavalon plant, which could be operational by 2016, will give a significant boost to Swiss electricity production in the coming years.
The electricity generated in Chavalon will not only compete with relatively low cost hydro-electrical and nuclear power, but also with the more expensive imported power produced with gas-fired combined cycle plants. The higher prices for such imported power will be decisive to the profitability of the Chavalon plant, and the development of a Europe-wide offsetting system will further enhance the plant’s cost-effectiveness.
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The 2010 International Arbitration Survey by the School of International Arbitration at Queen Mary College, University of London, represents one of the largest empirical studies ever undertaken of corporate attitudes and practices regarding international arbitration. The focus – key factors influencing corporate decisions on international arbitration.
The 2010 survey sees a much broadened territorial scope to include emerging venues such as Singapore together with the established venues of London, Paris, Switzerland and New York.
The key factors influencing international arbitration identified by the survey are not surprising – governing law, seat of arbitration, choice of arbitral institution, and appointment of an arbitrator.
A. Governing Law
The survey revealed a preference for a company’s home jurisdiction as the governing law.
When this was not possible, the next choice was for the widely accepted laws of England, New York, or Switzerland.
B. Seat of Arbitration
The survey identified a clear emphasis by corporates for arbitration seats to have “formal legal infrastructure”. This included the national arbitration law and a track record in enforcing arbitration agreements and arbitral awards.
Survey results on the preferred seat of arbitration reveal Singapore’s emergence as a regional leader in Asia. Singapore garnered 7% of votes in line with Paris (7%), Tokyo (7%) and New York (6%) but behind the historically well established centres of London (30%) and Geneva (9%).
The survey respondents were also asked to rate the arbitration seats which they had used before. Of these, London, Paris, New York were well regarded while Singapore was the next most commonly referred to seat.
47% of survey respondents rated Singapore as very good or excellent. This certainly reflects well on Singapore’s push in recent years to be a regional hub for arbitration. As the 2010 survey recognised, Singapore is a new entry from the 2006 survey as the most popular Asian seat.
C. Choice of Arbitral Institution
When choosing an arbitral institution, the survey showed that corporations look for neutrality, “internationalism” and a strong reputation. This was important as an institution with broad acceptance increased the likelihood that the counterparty would accept the institution.
This has important practical repercussions – as one survey respondent noted, such institutions would be readily accepted without having to trade-off some other element of the contract negotiation.
The emergence of Singapore as the choice of seat in Asia is also reflected in corporate perceptions of arbitral institutions. In the 2010 survey, the majority of votes for preferred arbitral institutions went to ICC (50%), LCIA (14%) and AAA/ICDR (8%) and SIAC (5%).
D. Singapore Efforts
The survey results are evidence of Singapore’s successful and well documented efforts at positioning itself as an international arbitration centre:
• Singapore offers an attractive “neutral” seat in Asia for impartial resolution of disputes
• As a signatory to the New York Convention, Singapore arbitration awards are enforceable in over 140 countries
• Singapore’s International Arbitration Act (which adopts the UNCITRAL Model Law regime,) was revised as recently as 1 January 2010 to remain current with developments in international arbitration;
• Singapore’s Courts have designated arbitration judges and are supportive of arbitration;
• Singapore’s laws allow foreign lawyers to conduct arbitration in Singapore (including those governed by Singapore Law)
• As reflected in the 2010 International Arbitration Survey, the SIAC is a leading regional arbitral institution. In 2009, the SIAC saw the highest increase in arbitration case-load (60%) among the major arbitral institutions in the world;
• Maxwell Chambers (launched in January 2010) offers parties state-of-the-art dispute resolution complex, with dedicated arbitration hearing rooms and related support facilities. It currently houses the SIAC and leading institutions such as the American Arbitration Association, the Permanent Court of Arbitration, the ICC, the Arbitration and Mediation Centre of the World Intellectual Property Organization and the International Centre for the Settlement of Investment Disputes
Mohan R Pillay
Partner & Joint Head of Office
Pinsent Masons MPillay LLP
Adj. Assoc. Prof., Faculty of Law, Nat. Univ. of Singapore
Visiting Professor, Centre of Construction Law, King’s College London
16 Collyer Quay #22-02
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Auction date has been defined
The meeting held between Dilma Roussef, the Brazilian President-elect and members of the State Office and the Government transport sector sealed the date for the auction for the bullet train that will connect Campinas-São Paulo-Rio de Janeiro. According to Dilma’s decision, it will take place on November 29, 2010.
Requests had been made by businessmen to postpone this date, and in view of this, the meeting was held yesterday been the President-elect and the members of the government responsible for the auction.
According to allegations of interested parties, the administration had delayed in disclosing the rules due to the electoral process, which allegedly had impaired companies from taking this decision and from concluding feasibility studies on the project.
Notwithstanding these complaints, the decision was made to maintain the date set on the invitation to bid. Bids will be delivered by the November 29 and the winner will be disclosed 18 days afterwards.
The works, which are now estimated to cost US$ 20 billion awakened the interest of South Korea, China, Japan, Germany, France and Spain.
The Government published a provisional measure to guarantee funding of up to US$ 12 billion for Banco Nacional de Desenvolvimento Econômico e Social – BNDES financing for the project.
Provisional Measure 511 included a clause that permits the Federal Government cover up to US$ 3 billion should income for the project fall below what has been forecast for the first 10 years of operation. This measure seeks to guarantee the interests of foreign investors in the project.
BNDES has held discussions with Japanese, Korean, Chinese, Spanish, German and French investors. The cap for the tariff has been set at US$ 115 for the segment between Rio and São Paulo. The trip will take one hour and thirty minutes (1:30) and the extension of the bullet train is 511 km.
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Those of you involved in cross-border sale of goods will probably know that a new version of Incoterms takes effect on 1 January 2011. Incoterms (or international commerce terms) are a series of international sales terms published by International Chamber of Commerce and widely used in international commercial transactions.
There are some significant differences between Incoterms 2000 and the new Incoterms 2010. Some of the changes will need to be incorporated into new sale of goods contracts entered into before 1 January 2011; other changes simply need to be understood and considered when preparing contracts effective on or after 1 January 2011.
What needs to be done before 1 January 2010?
Timing is all important. After 1 January 2011, any reference to Incoterms in a contract signed on or after that date will be understood to be a reference to Incoterms 2010, unless the parties expressly agree otherwise.
Both international and domestic users, therefore, should consider what amendments need to be made between now and 1 January to bring new contracts in line with Incoterms 2010. This will involve a thorough audit of standard suites of contracts that refer to Incoterms to ensure that those standard contracts are consistent with Incoterms 2010.
What will change?
1. Incoterms DAF, DES, DDU and DEQ replaced
Because of increased point-to-point sales and containerisation, Incoterms 2010 replaces four existing Incoterms with two new Incoterms:
|New Incoterm||Replaces Incoterm|
|Delivered at Place (DAP)||Delivered at Frontier (DAF)Delivered Ex Ship (DES)Delivered Duty Unpaid (DDU)|
|Delivered at Terminal (DAT)||Delivered Ex Quay (DEQ)|
2. Institute cargo clauses updated and insurance obligations clarified
In 2009, insurance markets adopted the revised Institute Cargo Clauses (LMA/IUA) (2009). Incoterms Cost Insurance and Freight (CIF) and Carriage and Insurance Paid (CIP) have been amended to reflect this. The amendments also clarify information obligations regarding insurance.
3. New security obligations
The seller and the buyer will be compelled to co-operate as they have not done previously. This is because Incoterms 2010 will allocate the obligations to supply the necessary information in order to obtain export and import clearance (eg, chain of custody information).
4. Obligations around terminal handling charges clarified
Incoterms 2010 seeks to reduce the potential for buyers to be charged twice for terminal handling charges. Pass through of the cost of carriage of goods to an agreed destination, which often resulted in buyers being charged twice, should disappear as a result of amendments to CIP, CPT, CFR, CIF, DAT, DAP and CCP Incoterms.
5. Requirements and obligations associated with string sales recognised
Incoterms 2010 recognises and clarifies the practice of string sales (ie, multiple sales of goods during transit).
Specifically, FCA, CPT, CIP, FAS, FOB, CFR and CIF Incoterms have been amended to provide that the seller in the middle of a string sale has an obligation to “procure goods shipped” and not to “ship” the goods.
The seller’s obligation to contract for the carriage of goods has been amended to allow the seller to procure a contract of carriage.
Key amendments in Incoterms 2010
Three key areas of amendments do not require any specific action but should be understood and considered when preparing contracts to be given effect on or after 1 January 2011. These are:
1. Using Incoterms for domestic sale of goods contracts
Incoterms 2010 have been adapted for use in domestic contracts. This will make it easier to incorporate Incoterms in contracts relating to the movement of goods domestically – for example, within a trading bloc such as the EU where the export and import formalities have largely disappeared, and in the US where there has been an increasing preference to use Incoterms rather than the Uniform Commercial Code in domestic sales.
2. Revised term categories
Incoterms 2010 separates its eleven terms into two broad categories:
|Deliveries by any mode of transport (sea, road, air, rail)||Deliveries by sea and inland waterways transport|
|Ex Works (EXW)||Free Alongside Ship (FAS)|
|Free Carrier (FCA)||Free on Board (FOB)|
|Carriage Paid To (CPT)||Cost and Freight (CFR)|
|Carriage and Insurance Paid to (CIP)||Cost, Insurance and Freight (CIF)|
|Delivered at Terminal (DAT)|
|Delivered at Place (DAP)|
|Delivered Duty Paid (DDP)|
Previously, confusion occurred when some people misused FOB to indicate any point of delivery. This new categorisation clearly states that the FOB rule is meant to be used solely for sea and inland waterway transport.
3. Maintenance of electronic records
This amendment imposes the same obligation to keep contractual documentation and records regardless of their form. Interestingly, ‘electronic communication’ is used broadly to encapsulate future technological developments.
What you need to remember
Trading companies that refer to Incoterms in their contracts need to be aware of the effect of the differences between Incoterms 2000 and Incoterms 2010.
Confusion (and potential disputes) may arise where trading companies have not conducted a thorough audit of their existing contracts (or proposed new contracts) that will apply after 1 January 2011 to ensure they understand the effect of the amendments and consequently the terms they have (or will in the future) agreed.
If trading companies have not familiarised themselves with the changes between Incoterms 2000 and Incoterms 2010 before 1 January 2011, users may still choose to be bound by the previous version – provided the parties’ agreement to use those terms is clear.
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