Arbitration continues to make giant strides across Asia, driven by the growth of institutions like SIAC, HKIAC and KLRCA. Ranajit Dam reports on key trends in the region’s arbitration space today, and how the future looks even brighter

If nothing else, then the sheer numbers show just how rapidly arbitration has advanced and proliferated in the Asian region. The London Court of Arbitration (LCIA), which was set up in the 19th century, had 326 cases referred to it in 2015, but the Singapore International Arbitration Centre was rapidly catching up with 271 (up from just 58 in 2000). Meanwhile, the Hong Kong International Arbitration Centre handled a total of 252 new arbitration matters in 2014, the last year for which figures are presently available.

Singapore in particular has seen its star rise of late. The International Chamber of Commerce (ICC) has ranked the city-state as the number one seat of ICC arbitration in Asia for the last five years, as well as in the top five most preferred seats of ICC arbitration in the world for the last ten years. Last year, Singapore was the fourth most preferred seat globally for ICC Arbitration, with more than 6 percent of new ICC cases last year naming Singapore as the seat of arbitration. It has also seen an increase in the number of foreign parties choosing Singapore as a seat for arbitration.

Louise Stoupe, a litigation partner with Morrison & Foerster in Tokyo, says that arbitration is continuing to “gather momentum” in Asia. “Major arbitral tribunals have grown in strength to the point that there are now more arbitrations filed before China International Economic and Trade Arbitration Commission (CIETAC) and the HKIAC than in the traditional arbitral centers of the ICC in Paris and the LCIA,” she says. “As Asia continues to expand its international business reach, the use of arbitration for international disputes will likewise continue to grow.”

Another trend has been that matters of larger value are being arbitrated in this region, says Christopher Anand Daniel, the managing partner of Singapore’s Advocatus Law. “These disputes also usually involve more complex legal and factual issues,” he notes. “There has also been an increase in multi-party disputes, which are interesting because they raise various jurisdictional issues that the Tribunal has to grapple with. All of these are a result partly of the development and increased sophistication of the arbitration process in the region.”

James Kwan, a partner specialising in international arbitration with Hogan Lovells in Hong Kong, says that the past year has seen states updating their outdated arbitration legislation, and institutions such as SIAC and CIETAC updating their rules to cater for multi-party disputes. “In January this year, Myanmar replaced its 72 year old arbitration legislation with the enactment of the Arbitration Law, which is based on the UNCITRAL Model Law, he says. “This follows Myanmar’s recent accession to the New York Convention in 2013.”

Kwan notes that India also recently amended its arbitration law to provide for a time limit for arbitrators to issue an award within 12 months of the constitution of the tribunal, which may only be extended by six months by agreement. “If an award is not made within 18 months, the tribunal’s mandate shall be terminated, unless an extension is granted by the Court for sufficient cause. Tribunal members can also be penalized if proceedings have been delayed for reasons attributable to the tribunal,” he says.

Kwan says that the past year has seen significant movement of international arbitration specialists among international law firms in both Hong Kong and Singapore. “Singapore saw the highest rate of arbitration practitioner hires, with 14 out of 53 lateral partner moves in Singapore involving arbitration specialists,” he notes. Daniel adds that he has noticed the increase in offshore players, including Queen’s Counsel and members of various English Chambers that have offices in the region. “They have made the field pretty challenging,” he says. 

POPULAR SEATS

As for seats, Kwan says that Hong Kong continues to be a popular choice of seat for MNCs. “In the last year, my arbitrations have involved companies from the U.K., India, U.S., Slovakia, France, Russia, Korea, Malaysia, and of course China, among others,” he says. “Hong Kong is well recognised for its arbitration-friendly independent judiciary applying the rule of law and their non- interventionist approach.”

Part of this is down to the “tremendous job” that the HKIAC has done in promoting its arbitration services in the last few years, says Kwan. “It is renowned as an institution that is transparent and independent, with rules reflecting international best practice that are easily assimilated,” he says. “MNCs are comforted with the knowledge that the arbitral process of a Hong Kong-seated arbitration is predictable, and unlike some other Asian states, awards have been made against government entities and state- owned enterprises in Hong Kong.”

Stoupe says that both Singapore and Hong Kong offer established legal systems that support arbitration combined with high quality arbitral institutions, which appeals to clients when selecting an arbitration seat. “In general, arbitral institutions in Asia have updated their rules in the last couple of years and now have many attractive procedures available to participants such as emergency arbitration and consolidation of multiple proceedings,” she says. “Asia also has a large selection of quality practitioners and arbitrators who are able to efficiently resolve commercial disputes in a neutral and fair manner, so there is no need to go further abroad for effective dispute resolution.”

Noting that Singapore and Hong Kong are the more popular seats in the region, primarily due to the volume of disputes related to Chinese, Indonesian, and Indian parties, Daniel says that Singapore itself has seen an increase in the number of arbitrations year on year. “One of the reasons that may contribute to this is that English is widely used in Singapore,” he notes. “Another reason is that Singapore, like Hong Kong and India, uses Common Law. We have even started seeing companies such as Indonesian companies choosing to adopt Singapore law rather than English law in arbitration.” That said, the advent of the Singapore International Commercial Court (SICC) could have an effect of taking some disputes through the court system instead of arbitration, says Daniel.

Kwan agrees that Singapore is continuing to do well, and is favored by Korean and Indian entities doing business in Asia. “We are also seeing some Indian entities choosing Hong Kong in their investments with Chinese corporations,” he says. “We recently handled the largest claim involving an Indian entity that was administered by the HKIAC. The claim was more than $400 million.” Other seats in Asia – and their respective institutions – have also made great strides in attracting arbitration work, but they still lag behind both Hong Kong and Singapore by a long way, adds Kwan. 

BACKING OF CLIENTS 

According to Daniel, typically, disputes relating to the oil, gas, resources, and energy industries will lead to arbitration in this region. “This, in a way, is linked to the countries from which the parties to these disputes originate,” he says. “Most of the time, the disputes will revolve around joint venture projects that these parties embark on.” He adds that clients are generally receptive to arbitration and its process. “However, we have noticed that clients are increasingly cost-conscious, and at times, the high costs incurred in the course of arbitration proceedings can be a prickly issue for the lawyers to deal with,” says Daniel. 

Datuk Sundra Rajoo, director of the Kua¬la Lumpur Regional Centre for Arbitration (KLRCA), says that it is currently witnessing an exponential growth of Construction In¬dustry Payment and Adjudication Act 2012 applications. “The act was implemented in 2014 to resolve payment-related construc¬tion disputes and to facilitate cash flow within the construction industry,” he says. “Apart from adjudication related disputes, we are seeing more interest in investment arbitration and an increase in caseload for Domain Name Dispute Resolution cases as well. Overall, across multiple industries, parties are now more open to ADR as a reliable form of dispute resolution.” 

Stoupe agrees that more companies are considering arbitration to be a viable alternative for their significant disputes, and thus there has been a growth in arbitration in all sector areas, in addition to an increase in the size and complexity of the disputes. “Arbitration of larger disputes indicates increasing confidence in the ability of arbitral tribunals to resolve disputes fairly,” she says. “We see this trend in the confidential arbitrations that we are handling as well as in the publicly reported arbitral decisions, such as the April 2016 decision by ICSID to award Canadian miner Crystallex International Corp $1.386 billion against the Venezuelan government. The filing of the first ICSID arbitration by a Japanese investor in 2015 further illustrates this trend.”

That said, selecting the right arbitrator is key, notes Stoupe. “Most arbitrations are handled in a similar – fair and predictable – manner throughout the world,” she says. “When clients experience that process, they generally are satisfied.[However, if the arbitrator does not have sufficient international experience then the process is often handled in a manner similar to domestic court proceedings. When this happens, the client is frequently dissatisfied.”

Kwan says that arbitration is the default dispute resolution mechanism for cross border deals due to enforcement. “This is usually combined with other dispute resolution mechanisms in a multi-tiered process, negotiations between chief executives, mediation or in IT contracts, expert determination,” “Still little thought is given to arbitration clauses; we have seen some pathological clauses such as a jurisdictional clause being combined with an arbitration clause, and ‘hybrid clauses,’ with institutions administering the rules of other institutions.”

Kwan also feels that clients are concerned about the cost of proceedings and the length of time it takes for the tribunal to render its award. “Although some institutions have announced new measures to reduce the tribunal’s fees in the event an award is delivered beyond three months, we have had awards rendered by three- member tribunals beyond six months,” he says.

In the same vein, Stoupe notes that a recent criticism of arbitration is that the process is becoming too similar to court proceedings, with arbitrators taking too long to issue awards. “Arbitral institutions have clearly been listening to these criticisms and, in January 2016, the ICC announced that it would reduce the fees paid to arbitral tribunals that fail to submit a draft award within three months of the last substantive hearing or the last substantive post-hearing submission, and two months in the case of a sole arbitrator, she says. “I expect to see other arbitral institutions create similar mechanisms that are aimed at ensuring their reputation for speed and efficiency remains intact.” 

ENFORCEMENT A MIXED BAG

A key part of any arbitration process in the enforcement of awards, and Asia has some way to go in that regard. Daniel says that while the UNCITRAL Model Law helps to ensure a generally smooth enforcement procedure in many jurisdictions, there are still a number of jurisdictions in which en-forcement poses difficulty. “In this region, Indonesia is such an example, and this can be a real burden given the volume of disputes that involve Indonesian parties,” he says.

Stoupe believes that enforcement continues to be a mixed bag. “In some jurisdictions such as Japan, enforcement is relatively simple,” she says. “In other jurisdictions, ease of enforcement depends on where and how the arbitration was administered. For example, in China, there is an entirely different enforcement scheme for awards originating from SIAC as opposed to the HKIAC. HKIAC awards can be enforced relatively easily using the Supreme People’s Court Announcement of Arrangement of the Supreme People’s Court on Reciprocal Enforcement of Arbitration Awards between the Mainland and the Hong Kong Special Administrative Region. However, Chinese courts have more bases to refuse recognition of SIAC awards in China as these awards need to be enforced through the Circular of Supreme People’s Court on Implement-ing Convention on the Recognition and Enforcement of Foreign Arbitral Awards Entered by China.” The bottom line, ac-cording to her, is that enforcement consid-erations need to play into the decision of how and where to conduct the arbitration. The enforcement procedures across Asia are still quite varied.”

BRIGHT FUTURE

Stoupe of Morrison & Foerster believes that arbitration will “continue to soar” as a dispute resolution mechanism in Asia. “Arbitration in Asia offers up-to-date rules, excellent arbitral institutions and greater neutrality than most of the local court systems,” she says. “It is the best way to resolve disputes involving Asia-based companies and I expect it to grow hand- in-hand with the Asian economy.”

Kwan of Hogan Lovells says that Hong Kong is looking at amending its Arbitration Ordinance to clarify the arbitrability of intellectual property rights. “This is a positive development, and will increase Hong Kong’s attractiveness as an arbitration and IP hub in Asia,” he says. “We have already arbitrated licensing disputes in recent years and we are seeing arbitration clauses for cross border licensing agreements.”

Daniel of Advocatus Law says that while the pressure on costs will continue, as with such pressure in all forms of dispute resolution, he expects Singapore to become “even more popular” as a seat. “There will be an increase in arbitration counsel who will make themselves available in Singapore, so the trend of Queen’s Counsel and English Chambers’ increased presence in Singapore will continue,” he notes. 

THIRD-PARTY FUNDING TAKES ROOT

One possible game-changer in the arbitration space is the advent of third-party funding for disputes. “Third-party funding will be allowed in Hong Kong, it’s a matter of time,” says James Kwan, partner, Hogan Lovells. “With safeguards such as self-regulation and disclosure, I believe this is a good thing as it allows for increased access to justice, and for companies to manage their portfolio of claims to focus on their core business. It would also enhance Hong Kong as a seat of arbitration, but I think Singapore will shortly follow Hong Kong if it is introduced here.”

Christopher Daniel, managing partner of Advocatus Law, says that third-party funding will be allowed in Singapore in some form. “This should make access to arbitration more ready for disputants,” he says. “However, there are maintenance and champerty concerns that need to be allayed.”