By Paul Starr, Justin Lo and Nicholas Lee King & Wood Mallesons’ Hong Kong office.

This seminar took place in January 2017. Panellists were: Ms Pru Bennett (Director and Head of the Corporate Governance and Responsible Investment Team at BlackRock); Mr Carl Wilkins (Fiscal Crime Liaison Officer for HM Revenue and Customs in Hong Kong); Mr Simon Booker (Head of Capital Projects and Infrastructure at PwC Hong Kong); our own Paul Starr; and Ms Gillian Meller (Legal and European Business Director at MTR Corp) as moderator. They shared their insights and expertise on ‘Applying Governance to Open up One Belt, One Road Opportunities’.

Each of the panellists stressed that the scale and international nature of Belt and Road projects mean there are additional risks to their success over and above those of standard projects. The panellists identified these broadly as including political, security, corruption, and sovereign risks. They also stressed the enhanced financial risks which can affect Belt and Road projects. For instance, emerging countries along the Belt and Road may vary in their ability to finance projects. It is crucial therefore that investors understand what kind of risks they are likely to face.

With the establishment of the Asian Infrastructure Investment Bank (AIIB) in 2016 and its commitment of over USD100 billion in capital, AIIB members have been able to pursue projects for which investors previously would have struggled to find capital. AIIB has, in its short history, already invested in nine projects and extended over USD1.7 billion in loans. Despite this, many countries still face impediments of their own design when it comes to raising finance. For instance, Simon Booker identified many of the emerging countries along the Belt and Road as having higher non-performing loan ratios, making financing projects riskier for lenders, and consequently more costly for the countries. In this respect, he advised that: “to spur private funding, there has to be clear transparency in fund allocation [and a] cross-border regulatory framework, supported by market principles, to support a business case for business returns”.

It is in this very uncertain business environment that good corporate governance becomes extremely   important when dealing with foreign corporations and potential joint venture counterparties. To minimise financial risks, Mr Booker added that companies should “clearly define criteria for group level control” and maintain “adequate reporting of risk factors and potential impacts on overall performance.

In a similar vein, Pru Bennett stressed the importance of disclosure and transparency in Corporate Governance. Ms Bennett suggested this is something in which each member of the company had to take part.

Many countries along the Belt and Road have unstable political environments and pose corruption risks. Mr. Wilkins informed the audience that, prior to September 2017, the UK “would introduce new criminal laws to apply to corporations who fail to put in place reasonable procedures to prevent their representatives criminally facilitating tax evasion, both in the UK and overseas”. Mr Wilkins noted that it remains to be seen how effective the new laws will be in capturing those who fail to prevent the facilitation of an overseas tax offence.

Given the above factors, prospective Belt and Road participants face a greater risk of project disruption or failure. Paul Starr gave his insights on how to mitigate these risks by providing a case study on a gold-mining dispute in an African country. In short, the case involved a Chinese SOE/Hong Kong consortium operating a gold mine through a joint venture with a mining company owned by an African, Belt and Road State. The mining company argued force majeure to stop delivering the gold, eventually leading to the State’s army barring the consortium from entering the site.

This case highlights the pivotal importance of properly drafted dispute resolution clauses in preventing the parties from getting caught up in unmanageable disputes. The particular dispute resolution clause in question was multi-tiered, as is often seen in construction contracts, but in this instance was drafted in an ambiguous and unclear fashion. The parties did not know whether they had complied with the initial tiers of the dispute resolution clause, namely negotiation, and the legal problem of whether an agreement to negotiate is enforceable at all then arose.

It is this uncertainty that has made some multi-tiered clauses unenforceable. In Hong Kong, this has been considered by the Court of Appeal in Hyundai Engineering & Construction Co Ltd v Vigour Ltd [2005] 1 HKC 579. The Court of Appeal held that the dispute resolution clause at issue was imprecise and unenforceable. The dispute resolution clause had provided that any differences between the parties would be resolved, in the first instance, by the managing directors, failing which, it would be submitted to third party mediation. The Court found that such a clause was no more than an agreement to agree, stating: “an agreement to negotiate, like an agreement to agree, is unenforceable, simply because it lacks the necessary certainty”.

The case study, and Hyundai Engineering, both serve to illustrate the importance of well drafted multi-tiered dispute resolution clauses. In order for such clauses to be enforceable, they must be certain, provide clear steps that are to be taken, and include details on the minimum level of participation required of the parties and on when or how the process is exhausted.

Besides careful drafting of the clauses, Paul emphasised that parties needed to structure their Belt and Road projects to avail themselves of any rights under international treaties. With over 100 existing bilateral investment treaties between China and Belt and Road countries, there is ample opportunity for parties to structure their deals and benefit from treaty rights.

Finally, Paul highlighted the advantage of Belt and Road participants using arbitration clauses with Hong Kong as the seat of arbitration. Hong Kong, being an independent jurisdiction with an established rule of law and pro-arbitration court, is perfectly equipped to serve as a conduit between China and Belt and Road countries.


Belt and Road will no doubt present many opportunities, but with these will come significant risks. The guest speakers all emphasised the importance of good governance in pursuing these opportunities.

KWM suggests that acknowledging these risks early on can prevent possible disputes arising. Belt and Road construction lawyers should be brought in at the tender stage, as part of the tender team, to help evaluate all risks, and structure the deal and disputes clause for maximum benefit.