Duan & Duan Triumphs in International Contract Dispute
-----Monica

In September of 1999, Duan & Duan received an urgent telephone from a client (PHDCPT) seeking consultation on legal matters involving contracts for imported equipment.

PHDCPT was an entity established by the China National Offshore Oil Corporation (CNOOC) in response to the energy importing strategy of China. On August 22, 1996, PHDCPT entered into an agreement with Pan International (Pan), a U.S. company established for the purpose of importing equipment valued at US$ 10,600,000 for the construction and placement of an offshore oil platform (MDP). Over the course of 1 ? years, the construction of MDP went over budget, with Pan requiring four separate price increases. Supplementary agreements were sighed by the two parties, and PHDCPT agreed to a total revised price of US$14,500,000. As part of the revised contract, after the MDP was handed over after the modification of parts of the equipment, PHDCPT would have the right to audit. If the audit revealed that Pan's quote were more over than the practical expenses, then PHDCPT would be entitled to a refund of the overage.

Pan continued to seek price increases of up to US$19,000,000, which PHDCPT refused. Pan handed the MDP to PHDCPT, but then refused to provide the sales invoice, notary letter and any manuals for use of the MDP equipment.

PHDCPT sent auditors to the Pan Beijing Branch in accordance with the supplementary agreements, but found Pan decidedly uncooperative. In the meantime, PHDCPT was finding it quite difficult to use the MDP equipment with no manuals or instructions for use. As the situation continued to deteriorate in this manner, PHDCPT sought Duan & Duan's assistance in analyzing the disputes and suggesting ways to protect PHDCPT's interests.

Meanwhile, Pan went and retained a big-six accounting firm to conduct an audit for their benefit and then submitted that audit report so that when the dispute entered litigation or arbitration, it would be Pan's audit (and final contract price determination) that would be the report of record. Duan & Duan sent an attorney's legal letter to Pan at once, pointing out that Pan's action breached the agreement of the two parties.

Pan considered that the conditions were favorable for them, and moved forward with bringing the case into the U.S. District Court in Texas, making a claim for a remaining balance of US$4,000,000, along with attorney's fees and costs. As there was no one at CNOOC's Houston branch to sign for the summons, it appeared that the matter would go directly to arbitration instead of litigation (per the terms of the agreement). However, with the assistance of consultant Jeff Johnson of Duan & Duan's Seattle Branch, PHDCPT entrusted an attorney in Houston to sign for the summons, thus preserving PHDCPT's ability to defend itself in either venue, litigation or arbitration.

The parties eventually settled on mediation as their method of dispute resolution, with Pan firstly signing the arbitration agreement and then having the court terminate the litigation. Pan had difficulty justifying its cost overruns and lowered its claim US$ 4,000,000 down to US$ 1,450,000, but refused to go further and threatened to submit the matter for arbitration. However, Duan & Duan presented a strong case and in considering the possibility of losing at arbitration, Pan finally decided to agree to sign the mediation agreement. According to the mediation agreement, PHDCPT only paid US$ 1,000,000, and Pan provided all the required documents and agreed not to sue in the future. The mediation agreement, negotiated over the course of two months, avoid the unreasonable payment US$4,000,000 and significant legal fees. CNOOC and PHDCPT were very satisfied with the settlement.