The growth of commercial arbitration as well as government enforcement actions in Southeast Asia means that disputes lawyers in the region are being kept very busy indeed.

There’s no dispute that the key growth area in the commercial dispute resolution space in Asia is arbitration, especially in Southeast Asia where the method has continued to pick up pace as the preferred way to resolve cross-border disputes in the eclectic region.

The leading institution in Southeast Asia for arbitration cases is the Singapore International Arbitration Centre (SIAC), where the number – and value – of the cases that it administers continues to rise. Last year, the centre handled 343 cases, a 25 percent jump from the year before, which is more than the London Court of International Arbitration.

Despite the rise, arbitral institutions have not rested on their laurels and have continued working to meet their users’ needs, observes Kelvin Tan, director of dispute resolution at Drew & Napier. Tan gives the example of the SIAC’s latest rules, which he explains “introduce the power for tribunals to dismiss manifestly unmeritorious claims and defences, and refine the procedures for expedited and emergency arbitration.”

“These bring some of the features of court proceedings into arbitral procedure, and enhance the attractiveness of arbitration as an alternative to court proceedings,” he adds. “They may draw some of the claimants who previously preferred the summary judgment procedure in court to consider arbitration.”

Another major trend to look out for involves one of Asia’s biggest projects – China’s ambitious $1 trillion Belt and Road initiative, which aims to connect infrastructures and economies across Asia, Europe, the Middle East, and Africa.

More than 60 mostly emerging economies are hoping to benefit from roads, ports, energy and other major projects, including several in the Southeast Asia region, such as Vietnam, Malaysia and Indonesia.

Though Singapore, by far the most developed economy in Southeast Asia, won’t see many projects actually built in the city, the Asian financial centre will play a major part in financing those projects and, more importantly for disputes lawyers, resolve disputes when problems inevitably arise.

“As China rolls out its Belt and Road initiative in Southeast Asia, the region may see an uptick in disputes from the projects, the corollary financing and other businesses that will support the projects,” says Tan. “The arbitration eco-system and the Singapore International Commercial Court are well suited to play a role in the resolution of such disputes.”

REGULATORY PUSH

The rise of commercial disputes in connection with regulatory and white-collar crime compliance issues is another trend Maurice Burke, head of Hogan Lovells’ regional dispute resolution practice, and Anton Seilern, a senior associate of the practice

group, have started to see emerge and expect to grow going forward.Since the global financial crisis, there has been a rapidly increasing focus by governments across the globe on regulatory and white-collar crime enforcement. Areas such as bribery and corruption, money laundering, fraud and anti-trust are what government enforcement actions have been targeted against corporations as much as individuals, with heavy fines, often in the hundreds of millions, being imposed.

“This has been driven both at global level – particularly by U.S. and UK governments enforcing extra-territorial laws – as well as by domestic enforcement agencies in Southeast Asia, who are now placing an increased focus on the prosecution of corporations, often in cooperation with their international counterparts,” they note.

“Importantly, corporations can be liable for regulatory breaches and white-collar offences committed by their agents and business representatives,” they add. “On a commercial level, this has given rise to multinationals operating in Southeast Asia now routinely seeking compliance-focused contractual protections in their commercial agreements with business partners.”

These provisions can take a number of different forms, ranging from compliance warranties and indemnities to rights of audit – all designed to mitigate the principal corporations’ exposure to potential liability arising from compliance breaches by their business partners.

As government enforcement actions continue to rise, Burke and Seilern are also starting to see an increase in corporations relying on these clauses to terminate contractual arrangements and, in certain cases, make a call on any applicable indemnities in cases where there has been a breach – or potential breach – by the business partner.

“Given the size of government fines, the sums involved in such indemnity calls can be substantial, thus presenting an incentive to litigate if this may lead to a passing on of the cost of the fine to the business partner,” they say.

A further factor giving rise to enhanced litigation risk in this space is the fact that the relevant contractual provisions are often vaguely drafted and/or may not adequately address the underlying compliance risks.

They add, “In many cases this results from the fact that these clauses are heavily negotiated and often result in compromises being reached on the basis of uncertain wording.”

MITIGATING RISK

To avoid disputes arising from inadequately drafted contractual provisions, Burke and Seilern advise two key measures that should be taken.

First, the risk can be significantly reduced by careful business partner selection and the conduct of appropriate compliance due diligence. “This will usually involve, amongst other things, independent background checks, as well as a review of the business partner’s existing compliance framework and relevant internal controls,” they note.Second, they say, it is critical that the relevant contractual protections adequately address the compliance risk for the particular business relationship being entered into and be carefully drafted to avoid any areas of uncertainty.

To manage risks in cross-border transactions, Drew & Napier’s Tan says companies can start even before the transaction is entered into.

“‘Deal fever’ is caused by a confluence of numerous factors such as the personal pressure to get the deal done, business incentives or the satisfaction of completing a deal,” he says. “Unfavourable terms can get overlooked and dispute resolution clauses, in particular, may receive little attention.”

“In a cross-border deal, a poorly-considered dispute resolution clause may result in a party being brought to a forum that is in an inconvenient or undesirable jurisdiction or venue, under unfamiliar substantive law and procedures and possibly in a foreign language,” he adds.

“There may be restrictions on the choice of representation and concerns over the tribunal.”

Parties also need to consider their tolerance for the different types of dispute resolution mechanisms, jurisdictions, substantive and procedural governing laws, and even the language of the proceedings.

Tan explains, “Parties that regularly enter into cross-border transactions should try to maintain the consistency of the company’s contracts so as to avoid inconsistent dispute resolution clauses in related contracts or, at least, decide on primary and back-up choices.”

CONSIDER MEDIATION

But when a dispute does arise, apart from commencing legal proceedings, parties need to carefully weigh options such as negotiating with the other party or mediation to resolve their dispute, advises Tan.

“There are formal institutions that can facilitate mediation, such as the Singapore International Mediation Centre. Parties can submit disputes to the SIAC for resolution under an Arb-Med-Arb agreement,” he says. “The KLRCA also offers mediation under its own Mediation Rules.”

Beyond the process, Tan emphasizes the importance of recognising that the culture of the parties can have an impact on the negotiations and mediation. “Parties should not to assume that the other party

shares similar views and expectations in the negotiation or mediation process,” he says. “In many Southeast Asian countries, ‘face’ is an important aspect of a commercial relationship.

“A direct and confrontational style of negotiation may be seen as an attempt to make the other party ‘lose face’ and may be counterproductive,” he adds. “Importantly, the loss of face is often not spoken about, and one needs to try and read non-verbal cues.” 

Relationships are also critical. “Parties from Southeast Asian countries generally prefer to enter into transactions with people that they are familiar with or through a recommendation,” he says.