23 October, 2015
If anywhere is the cradle of regional arbitration, it is Asia. Case numbers have grown, arbitral institutions proliferate and innovate, national legislation is being amended and standardised. Is this growth simply a function of and a response to global trends, or does Asia stand alone?
We examine the latest status of some of Asia’s major arbitral centres and arbitration trends and the factors influencing the choice of seat by consumers of arbitration.
A GROWING SECTOR
The story of global arbitration over the past five years is one of growth, both in terms of case numbers and case values. The GAR 30 ranking of worldwide arbitration shows that the number of pending claims being handled by the world’s 30 leading arbitration firms, including Clyde & Co, has risen from around 2,000 to around 3,000 since 2011, while the aggregate value of those claims has risen from USD 643 billion to USD 1,613 billion.
However, the growth of arbitration in Asia has been even greater, at least in terms of sheer numbers of cases. In the introduction to his 2013 book “Arbitration in Asia”, Michael Moser observes that, compared with twenty years ago, “the number of cases handled by arbitration institutions in Mainland China and Hong Kong together has outstripped that of the International Chamber of Commerce in Paris, the London Court of International Arbitration, the Stockholm Chamber of Commerce and other well-known Western arbitration institutions.”
WHERE ARE ASIA’S ARBITRATION CENTRES?
What do we mean when we talk about arbitration in Asia? On 2 November 2004, representatives of 17 arbitration centres and associations in Asia Pacific met in Sydney and established the Asia Pacific Regional Arbitration Group (APRAG); there are now 41 members. This growth in itself puts an analysis of each and every arbitration centre in Asia outside the scope of this article.
APRAG, of course, includes bodies in Australia, while geographically speaking; some might consider Asia to include Dubai and the Middle East. Any choice will be necessarily subjective.
The Middle East and Australia are big and interesting arbitration markets in their own right. They are geographical, and to some extent cultural, outliers in Asia. They deserve their own articles, or a more detailed analysis than space here will allow. This article will therefore focus on a selection of what remains – some new arbitral centres, some more established, with a variety of legal, political and cultural backgrounds: Singapore, Hong Kong, China, Seoul, Kuala Lumpur and Tokyo.
HONG KONG AS AN ARBITRATION HUB
One of the oldest and most prestigious international arbitration institutions in the Asia-Pacific region is the Hong Kong International Arbitration Centre (HKIAC), which since being founded 30 years ago has managed more than 8,000 cases.
￼In 2014 the HKIAC handled 477 new dispute matters, including 252 arbitration cases, 201 domain name disputes and 24 mediation disputes. Of the 252 arbitration cases, 110 were fully administered. 93% of the disputes were international. The total amount in dispute was worth approximately USD 2.8 billion, representing a 40% increase from 2013. In 2014 the HKIAC received cases from parties from 38 different jurisdictions.
Hong Kong has been named as the most preferred arbitral seat outside of Europe for its neutrality by the World Economic Forum’s Global Competitiveness Report 2015-2016, which ranked Hong Kong’s judiciary as the fourth most independent in the world.
In terms of formal legal infrastructure, Hong Kong has the benefit of a well-regarded judiciary and court system – based on the English common law – which is supportive of arbitration.
The Hong Kong Arbitration Ordinance (HKAO) is a sophisticated piece of arbitration legislation, largely based on the UNCITRAL Model Law, and was most recently revised in 2013 to implement changes such as new provisions allowing Hong Kong courts to enforce relief granted by an emergency arbitrator. Under the HKAO, the Hong Kong Courts have the power to issue interim orders in support of arbitration.
Hong Kong also scores well in terms of convenience and general infrastructure. It is well placed geographically, with good transport links, and offers parties familiarity with the Chinese language and culture, with many multilingual practitioners based in Hong Kong and bilingual arbitrations not uncommon. In what many considered a response to Singapore’s foundation of Maxwell Chambers in 2009, HKIAC undertook a major refurbishment program in 2012. Ease of enforcement against assets in China is no doubt also a factor influencing Hong Kong as a choice of seat.
On 19 October 2015, the Third Party Funding for Arbitration Sub-committee of the Law Reform Commission (LRC) published a consultation paper proposing that third party funding for arbitration taking place in Hong Kong should be permitted under Hong Kong law.
The Sub-committee members are unanimously of the view that the current law in Hong Kong needs to be reformed to expressly permit third party funding for arbitration, subject to compliance by third party funders with appropriate ethical and financial standards.
The Sub-committee also recommends that consideration be given as to whether or not a tribunal should be granted the power to make an adverse costs order against a third party funder in arbitrations taking place in Hong Kong.
The Sub-committee's view is that the Arbitration Ordinance (Cap 609) should be amended to expressly provide that third party funding for arbitration taking place in the HKSAR is permitted under Hong Kong law. The Sub-committee also considers that the potential risks arising from third party funding can be minimised by implementing clear ethical and financial standards, and the consultation paper recommends the development of these standards.
It is currently seeking submissions on this and also adverse costs orders, between now and January 18, 2016.
Dr Julian Lew – a leading commentator upon such matters – has stated that Asia has the highest concentration of countries in the world which have adopted the UNCITRAL Model Law.
This underscores the changes that have occurred, but also the reality that, technically and procedurally, Asia’s arbitration centres are increasingly similar, and supportive of the arbitration process. This similarity runs from form of arbitration law to available facilities: following Singapore’s example, Hong Kong, Seoul and now Kuala Lumpur are establishing state-of-the art hearing venues.
Increasingly, therefore, it is what distinguishes one Asian arbitral centre from another which makes it most appealing. As more and more governments appreciate the benefits that can accrue from arbitration services, competition between arbitral centres is fierce.
The one difference which is difficult to overcome is familiarity with national and cultural identity.
In an increasingly homogenous market, the statistics still show that Chinese parties feel comfortable arbitrating in Hong Kong; both Indian and Chinese parties feel a cultural familiarity with Singapore; and Japanese parties prefer to arbitrate in Japan.
Those with looser cultural ties – or more choice – may decide on the basis of their preferred – or more familiar – type of legal system. Seoul and Tokyo have the appeal of civil law jurisdictions, whereas parties more comfortable with the common law regime (for example, because it dovetails with the proper law of the contract) may opt for Singapore or Hong Kong as a seat.
Innovation is vital in growing or retaining a position as a regional centre. For example, in recent years, both HKIAC and the Singapore international Arbitration Centre (SIAC) have introduced emergency arbitrator provisions in their arbitration rules, with corresponding legislative changes passed in Singapore and Hong Kong providing for the enforceability of emergency arbitrator awards. But innovations soon catch on; existing centres face threats from new entrants, such as Malaysia, who learn fast and effectively.
Institutions and jurisdictions must constantly evolve and adapt to the needs of users (and government support, for example with legislative change or consultation, can assist). This can only be good for arbitration’s consumers. As a further example, HKIAC has recently announced that it will offer a tribunal secretary service for arbitrations administered by HKIAC and ad hoc arbitrations, and has issued an accompanying set of guidelines on the use of tribunal secretaries.
SIAC has recently launched a ‘training video’, with workshops taking place throughout Asia.
It seems clear from the example of Singapore that the extent to which a jurisdiction promotes its arbitration services (preferably with government support), will have an impact on its success as a centre for arbitration. Further, a strong institution based in the jurisdiction with an active business development strategy can be immensely influential in the growth of the centre.
Governmental initiatives such as support for establishing modern hearing facilities, or the provision of tax incentives, can also greatly assist.