14 October, 2015
This year’s Hong Kong Summit (“HK Summit”), co- organised by the Hong Kong International Arbitration Centre (HKIAC) and the International Council for Commercial Arbitration (ICCA), took place on 13 May 2015 at the Hong Kong Grand Hyatt. In her welcome remarks, Teresa Cheng SC referred to a conversation that she once had about “how the world would look if the world map is moved 180 degrees from the one that we normally see, namely with the Pacific Ocean in the centre of the map.” She invited participants “to try and view and understand the topics that we are going to discuss through this prism, through this new dynamism of the economies, and of course through this new world map.” Indeed if one had to summarise the spirit of the 2015 HK Summit, it would be just that: re-thinking the contemporary challenges faced by international arbitration through the prism of the emerging world.
Session 1
What better place to start this re-think than the New York Convention. The first session for the day was a debate on the motion “This House Believes that the New York Convention Does More Harm Than Good to Developing Economies”. The speakers for the proposition were Makhdoom Ali Khan (of the Supreme Court of Pakistan) and Lucy Reed (of Freshfields Bruckhaus Deringer), while the speakers for the opposition were Adriana Braghetta (Vice President of ICCA) and Dominique Hascher (Supreme Judicial Court of France).
The debate showcased a very spirited exchange of views. With a rousing start, the proposition pronounced that “arbitrators’ [decisions] are not final because they are infallible, but infallible because they are final”. They argued that the limited grounds to challenge the enforcement of awards impede capacity building in legal systems across the developing world. It was also said that the New York Convention perpetuates the perceived mediocrity of the courts of the developing world by taking away the more complex commercial disputes into the domain of international arbitration. According to the proposition, but for the New York Convention, many courts in the Global South (which typically refers to Africa, Latin America and developing Asia including the Middle East) would have vastly improved, both for the benefit of their own citizens and foreigners. Finally, the proposition questioned whether the New York Convention is truly democratic; today, most developing nations have no real choice but to accede to it, as it is no longer fashionable to remain an “outsider” to the Convention.
In response, the opposition recalled the very purpose of the New York Convention – to set uniform standards in a diverse world. They also noted how the Convention encourages judicial dialogue, for instance, between the courts that set aside and those that enforce. Further, since developing nations have often inherited out-dated legislation from colonial powers, the New York Convention improves governments’ awareness of the necessity to modernise their arbitration laws and to adapt legislation to the complexities of international arbitration in a global economy. The opposition stressed that the New York Convention increases the legitimacy of enforcing courts. Interestingly, they also observed that although Brazil’s arbitration regime was very similar to that envisaged under the New York Convention, it could not successfully pitch itself as a “safe place for arbitration” until it acceded to the Convention in 2002.
While the opposition ultimately proved victorious, there was little doubt that debating the virtues of the New York Convention through the perspective of the developing world brought to the fore otherwise overlooked issues.
Session 2
The second session was on “New Regionalism and South-South Trade”. As the Global South is increasingly leaning inwards, the session sketched how the region stands to benefit a great deal from South-South trade (or trade between developing economies), as the future growth of the world economy will likely be propelled by the demographic power of consumers from the South. The commentators noted that despite increasing geo- political complexities, there is a move towards economic exchange and integration in the South, as, for example, in ASEAN. The growing influence of South-South trade on the legal landscape was illustrated through the expansion of regional development banks, regional trade agreements and new model BITs. The significant future impact of new initiatives (such as the One Belt One Road, the BRICS bank and the Asian Infrastructure Bank) on the international development architecture for this century was also discussed. Further, while there is growing resistance in the US and EU to the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership, the commentators suggested that these negotiations represent merely one part of much larger trade and investment law programmes in China and the ASEAN. For instance, of the 16 states currently negotiating the Regional Comprehensive Economic Partnership, 10 are from the developing world. There were also discussions of the new India Model BIT and the model BIT proposed by the Southern African Development Community, which entail a markedly distinct approach from existing treaty practice.
Against this backdrop, the commentators explored the impact of the changing trade landscape on international arbitration. In particular, it was queried if there might be a correlation between development of free trade and the development of institutional frameworks in the South, especially the use of arbitration. Equally however, it was questioned whether the new economic power of the South has translated into any real impact upon international dispute resolution services. With the exception of Singapore, Hong Kong and Dubai, the commentators highlighted that the northern hemisphere is still seen as the preferred dispute resolution arena even in South- South transactions. It was also noted that while Asian institutions are growing, there is little, if any, uptake at their African counterparts. Indeed the under-representation of the South, in particular Africa, in the pool of arbitrators and arbitration counsel was observed, as was the need to build both capacity and increase exposure in international
arbitration in the South. One commentator raised the interesting possibility of devising a system of standards and principles that are specific to South-South relations, akin to the Global System of Trade Preferences among Developing Countries initiative.
In all, this enlightening session highlighted that while trade in the Global South is forging ahead with the potential to impact the legal landscape, the legal fraternity has yet to catch up.
Session 3
Following these two sessions, participants were given the opportunity to attend one of two sessions: a series of three Young ICCA soapbox debates on transparency in international arbitration, or a session on whether “Anti- Corruption Investigations and Anti-Bribery Legislation Influence or Affect International Arbitration”.
The three motions for the soapbox debates explored the need for greater publicity in international arbitration through nuanced motions: (i) that there is a public interest in making international commercial arbitration proceedings public (speaker for the motion was Jern-Fei Ng of Essex Court Chambers, and against the motion was Rafale Llano Oddone of White & Case); (ii) that in the absence of a contrary party-agreement, commercial arbitral decisions and awards should be made public (speaker for the motion was Diego Brian Gosis of Gomm & Smith, and against was Ruth Stackpool-Moore of the HKIAC); and (iii) that proponents of confidentiality in international arbitration must be hiding something (speaker for the motion was Jelita Pandjaitan of Linklaters, and against was Garoar Vioir Gunnarsson of Reykjaviak University). The author did not attend this session, but reports on good authority that the incisive exchanges were filled with wit, banter, humour and good spirited sarcasm. If the post-conference chatter was anything to go by, the Young ICCA soapbox sessions appear to have scored the highest on the fun quotient.
The second session on the impact of corruption in International Arbitration was perhaps less lively in format, but no less engaging in content. The discussion highlighted that, across the developing world, corruption in poor governments remains perhaps the biggest impediment to sustainable economic development. In this context, two questions were raised: is it possible for violations of domestic anti-corruption legislation to influence the outcomes of international investment arbitrations and, if so, should that be the case?
On the first question it was observed that it is precisely in countries that score poorly for control of corruption or rank low on the Corruption Perceptions Index that businesses prefer arbitration to reliance on domestic legal systems. Conversely however, it was suggested that arbitration (in particular confidentiality in arbitration) offers a means to mask corruption or legitimise a contract that may have been obtained by the illegal conduct of one or both parties. There were said to be at least two aspects through which corruption could impact an international arbitration: corruption in the arbitral process itself and corruption as a substantive issue in dispute in the arbitration. While the first form of corruption is rare, it was noted that allegations of the second type are often raised by parties in a bid to avoid their contractual obligations, particularly before investment arbitration tribunals.
This lead to the second, more germane question: when should arbitrators engage in a finding of corruption? Given the recent trend that acknowledges the arbitrability of corruption allegations, it was argued that arbitrators should not shy away from making a finding of corruption when the facts disclose it. As international arbitrators are perceived to be more independent and professional, it was suggested that they might even be better positioned to deal with corruption allegations than prosecutors and judges in many developing countries. Equally however, it was queried if arbitrators are the best placed to make this finding as they do not have investigative resources of judiciaries such as the power to subpoena.
Apart from these issues, there was also recognition that a substantive finding of corruption is not without its complexities: which law should a tribunal apply to make a substantive finding of bribery and what is the standard of proof? While paying a government official a bribe to grant a licence may be an uncontroversial case of corruption, one speaker suggested that it may not be as black and white in other cases. For instance, would it be corruption if a poorly financed government hospital demands free equipment from a medical equipment provider as a condition for engaging the provider on another supply contract? The discussion illustrated how the peculiarities of developing economies may require a more nuanced approach in tackling corruption.
Session 4
The final session for the day explored the legitimacy challenge to investment treaty arbitration. The key issues raised were the growing perception that investment arbitration is biased against developing countries, the view that investment treaties unduly interfere with the right of the state to regulate and the criticism that arbitrators with no public accountability should not be allowed to decide vital questions of national interest.
The discussion recognised that a core reason for the legitimacy crisis lay in the arbitrator appointment process, namely, the perception of repeat appointments of “the usual suspects” on ICSID tribunals and the lack of geographic diversity (i.e. inadequate representation from developing countries). While there was agreement that ICSID ought to take a more proactive role in encouraging appointments of a wider pool of candidates from the developing world, it was also well noted that law firms and counsel ought to make a conscious effort in this regard. One suggestion was that ICSID ought to issue guidelines on multiple appointments akin to the IBA Guidelines on Conflicts of Interest in International Arbitration. A more novel suggestion was the issuance of guidelines relating to the use of administrative secretaries. It was proposed that if an arbitrator is only able to serve in a high number of cases at the price of delegating essential duties to administrative secretaries, then that arbitrator ought to be replaced by someone available to dedicate more time to the case. A counterview was that the lack of diversity on ICSID tribunals was more perceived than real. For instance one speaker mentioned a study conducted a few years ago that found a “massive diversity” of about 42 nationalities on ICSID tribunals. In addition, it was said that while issues of conflict should be guarded against, a certain degree of repeat appointments is an inevitable outcome of the need to appoint individuals with expertise; “nobody complains about repeat appointments of Lionel Messi when he plays for Barcelona”, went the argument. In addition to diversity, members of the floor also advocated a separation of roles between counsel and arbitrators in investment treaty cases. Even if a conscientious arbitrator could in fact distance himself or herself from their role as counsel, it was argued that the perception of bias would nevertheless exist. The commentators drew from the experience of the Court of Arbitration for Sport and the International Court of Justice where measures have been adopted to prevent, or at least discourage, simultaneous or successive appointments of agents and counsel as mediators/arbitrators and ad hoc judges respectively.
Another reason highlighted for the perception that investment arbitration is biased against developing states is the trepidation with which the EU and the US now view the inclusion of investor state dispute settlement in multi- lateral treaties. Some asked, “[i]s it cold feet or hypocrisy on the part of [developed states]?” Others questioned if it is in fact a condescending suggestion or a statement of fact that the judicial systems of some states are less able than others to independently enforce treaty protections. Cutting through the North-South divide, one speaker suggested that there was no need to impugn the judiciary of any state or question the quality of justice in state courts, in order to justify investment arbitration mechanisms; the need for a non-national neutral forum was justification enough.
The final aspect of this discussion focused on whether investment law is either substantively or procedurally biased against developing states. On the substantive front, it was argued that the system disfavours host states by according investors with treaty protections without extending equal rights for states to make counterclaims or independent claims. On the procedural front, it was highlighted that developing states that have not established the institutional capacity to represent themselves are at a procedural disadvantage. The delay caused by the lack of bureaucratic infrastructure in these states often results in the loss of important rights, such as that to appoint an arbitrator to the Tribunal. While the remedy to the substantive bias lay in states negotiating better protections for themselves, it was suggested that the procedural imbalance could be mitigated through training on best practices provided by international institutions and organisations to state agencies.
Conclusion
In sum, albeit touching on frequently discussed issues in international arbitration, the HK Summit demonstrated how a slight shift in perspective from First World to Third could shed new light on often overlooked problems and throw up innovative solutions all the same.
Reported by Kirtan Prasad, Allen & Overy
For further information, please contact:
Hong Kong International Arbitration Centre
adr@hkiac.org
