INT ERNAT IONAL ARBI TRAT ION
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SPECI AL REPORT THE CHANGING FACE OF INT ERNATIONAL ARBITRATION IN A SI A : INNOVATING TO S TAY AFLOAT
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IN CONVERS AT ION WI TH NE IL K APL AN CBE QC SBS International Arbitrator
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SUNGBAE J I President of the Korean Commercial Arbitration Board (KCAB)
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MARKE T COMMENTARY T URK E Y: T HE L I NK BE T WEEN E UROP E A ND A S I A
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K NOWN UNK NOWNS : F ORE I GN I N V E S T MEN T A ND A RB I T R AT I ON I N M YA NM A R THE EMIRAT ES MARITIME ARBITRATION CENTRE : BRIDGING THE GAP IN THE MARITIME MARKE T Q&A - AUS TRALI A : PERTH ’ S DEDI C ATED CENTRE FOR ENERGY AND RESOUR CES DISPUTES THE SUPREME PEOPLE ’ S COURT ISSUES GUIDANCE ON CIETAC ’ S JURISDI CTION
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FORTHCOMING E VENT S
INTERNATIONAL ARBITRATION 1/3LY
MESSAGE FROM THE EDITOR 01
ME S S AGE FROM THE ED I T OR It gives me great pleasure to present the fifth issue of the International Arbitration 1/3LY. This October, the international arbitration community will gather in Hong Kong to discuss on-going developments in the field during Hong Kong arbitration week. With this in mind, we turn our attention to the growth of new and developing centres in the Asia-Pacific region.
As the trail blazer of regional arbitral centres, Asia is at the forefront of developments in arbitration. With centres such as the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC) having set the precedent for regionally-focussed institutions, there has been a surge in regional arbitral centres across the continent seeking to cater for the idiosyncrasies of local disputes. The propensity of arbitrating parties to utilise regional centres in Asia is a trend that we can expect to see grow, as the number of countries in the region participating in international trade will undoubtedly rise. In this issue we take a look at the current status of arbitration in Asia, with an in-depth report on Asian arbitral centres, from the old to the new; Beth Cubitt talks procedures, costs and institutions with former Chairman of the HKIAC, Neil Kaplan CBE QC SBS; and June Yeumspeaks with newly elected president of the Korean Commercial Arbitration Board (KCAB), Sungbae Ji.
Elsewhere in this issue we cover developments in specialist arbitral centres with an article on the newly formed Emirates Maritime Arbitration Centre (EMAC) and an interviewwith director of the recently opened Perth Centre for Energy and Resources Arbitration (PCERA), Kanaga Dharmananda SC. We also take a look at arbitral developments inMyanmar and Turkey. On behalf of Clyde&Co, I would like to expressmy gratitude to Neil Kaplan CBE QC SBS, Sungbae Ji and Kanaga Dharmananda SC for sharing their expert opinions, and providing us and our readers with a unique insight into developments in the field. I also wish to thankmy colleagues from the firm’s global arbitration group for their interviews and articles.
PETER HIRST, CO-CHAIR, GLOBAL ARBITRATION GROUP, CLYDE & CO
BE TH CUBI T T TALKS TO NE IL K APL AN ABOUT CURRENT I SSUES IN ARBI TRAL PROCEEDINGS , CRE AT ING THE “ DRE AM” TRIBUNAL AND THE DEBAT E ON COS T S AND E THI CS .
NE I L K A P L A N
BE T H C UB I T T
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IN CONVERSATION WITH NEIL K APL AN CBE QC SBS 03
IN CONVERS AT ION WI TH NE IL K APL AN CBE QC SBS INTERNAT IONAL ARBI TRATOR Beth Cubitt, Partner at Clyde & Co, in conversation with Neil Kaplan, International Arbitrator.
A K E Y F I GURE IN A RB I T R AT I ON : HOW I T A L L BEG A N
BE TH So who do you consider to have been your role models in arbitration over the years? NE IL I suppose if there’s anybodywho got me really interested in arbitration it would be David Hunter, the first chairman of the HKIAC. He wasmy immediate predecessor andwas also inmy chambers in London in the 1960s. He was a lovelyman and a very keen arbitrator. We worked together on setting up the HKIAC.
BE TH You have been recognised as a key figure in international arbitration for a long time. Howdid you develop an interest or become involved in arbitration? NE IL I startedmy career as a barrister in 1965 and became interested in arbitration after being introduced to the Chartered Institute of Arbitrators (CIArb) by one of my pupils in 1978. He came intomy roomand said, “Sign here” and showedme an application to become a Fellow of the Chartered Institute of Arbitrators. I replied, “I don’t knowanything about arbitration!”, and he said “Oh, don’t worry; it’s a good career move”. So I signed it. Two weeks later I was interviewed by two elderly gentlemen from the Chartered Institute. They invitedme into the roomandwelcomedme as the next Fellow of the Chartered Institute. I said, “Don’t youwant to askme any questions?” and they said, “Oh no, we knowyou barristers knowall about arbitration!”. I left for Hong Kong at the very end of 1980. Arbitrationwas then a big topic in Hong Kong. The Arbitration Act at that time was an Ordinance based on the English Arbitration Act 1950. The Attorney General, a friend of mine, wanted to amend it into something newand advanced, similar to what they had in England. The Attorney General set up a sub-committee to look at the viability of setting up an arbitration centre. I got involvedwith the committee and ended up as Chairman of the Hong Kong International Arbitration Centre (“HKIAC”) in 1991. I was on the committee looking into the viability of adopting the UNCITRAL Model Law in Hong Kong. My first international arbitration came in 1987when the ICC askedme to chair the first ever ICC arbitration in Korea.
DE V EL OPMEN T S IN IN T ERN AT I ON A L
A RB I T R AT I ON : C URREN T I S SUE S IN PROCEDURE S
BE TH As someone who has been instrumental in driving arbitration in Hong Kong, youmust have seen the practice go throughmany developments. What would you likemost to change about international arbitration? NE IL I think the appointment systemwhich applies at the moment can be improved. First of all, I don’t believe that any of the arbitrators should be of the same nationality as any of the parties. I’ve seen cases where arbitrators of the same nationality as one of the parties have been appointed and have had a clear bias towards that party. Fortunately, I have not encountered that scenario often, but I have seen it and I know that it happens, which is wrong. I think there is also a slight problem in the Bilateral Investment Treaty fieldwith themultiple appointments that some arbitrators get, which leads to thembeing labelled as either ‘pro state’ or ‘pro investor’. I amquite uncomfortable about all the research that lawyers do to look at whether an arbitrator is pro this or anti that.
I T ’ S A QUEST ION OF TRA INING AND EDUC AT ION ; EXPL A INING THAT L I T IGAT ION I S NOT A MIRROR IMAGE OF ARBI TRAT ION. THE Y ARE T WO VERY DIFFERENT PRACT I CES AND DIFFERENT SK ILLS ARE REQUIRED FOR E ACH .
INTERNATIONAL ARBITRATION 1/3LY
IN CONVERSATION WITH NEIL K APL AN CBE QC SBS 05
BE TH That could also address the conundrumaround whether to appoint one or three arbitrators in advance, as the appropriate number often depends onwhat kind of issues you’ve got. NE IL Yes, exactly. What else would I change? It’s hard to change the antics of lawyers but I must say, in recent years, I’ve seen some awfully bad cases of over- lawyering. It all becomes very destructive, very time wasting and expensive. In some cases the lawyers can be quite unpleasant to the tribunal and unpleasant to the other side. It’s not what arbitrationwas supposed to be. We get cases all the time where there are 40 or 50 lawyers on each side; and the billsmust be horrendous! BE TH Do you think that’s one of themost pressing challenges that practitioners have to address? NE IL These things shouldn’t happen. It seems tome that today somany things go onwhich irritate tribunals. If you’re unpleasant to the person that you’re trying to persuade, for example, writing rude letters to the other side, threatening the tribunal with a reservation of rights to pursue unwarranted challenges to purported due process violations and not being able to agree on the chronology of events, etc. It’s just not good advocacy. BE TH I suppose it has a lot to do with the rate at which international arbitration is developing. For example, arbitration in the Asia Pacific region is evolving at an incredible pace with new rules and new centres. NE IL Yes, and youwill know that it’s a question of training and education; explaining that litigation is not amirror image of arbitration. They are two very different practices and different skills are required for each. For many clients, arbitration is really the thirdmethod of dealing with international disputes. It’s just another limb of the litigation department. BE TH Do you think there’s enough training at that level?
NE IL It’s starting to increase – inmy day there was none at all.
For example, an arbitrator in investment arbitrationmay be thought to be pro state if he has ruled in favour of the state say two or three times in a row. However, the strong likelihood is that this is because the investor’s case has been poor and would have been dismissed by any tribunal. I really do object to this kind of speculation about what motivates people. BE TH Have you found that, in that context, there has been an increase in interviewing arbitrators as well? NE IL Not exactly, but there has been a big increase in using processes similar to a ‘beauty parade’. All that is really needed is for parties to choose an arbitrator who is able, honest and independent. I didwrite an articlemany years ago, for the Chartered Institute of Arbitrators, about an alternative systemof appointing arbitrators. It proposed that, at the time of agreeing the arbitration clause, parties should agree on a personwho is authorised by both to convene the appropriate tribunal, should a dispute arise. This thought came tome when I was sitting as arbitrator on one of your cases, Beth. Mymindwas wandering during a fascinating piece of evidence about welding or something. I looked tomy left and sawClyde Croft – a lawyer – and also onmy left wasMichael Pryles, another lawyer. If ever there was a case whenwe needed an engineer, accountant and a lawyer then this was it! So I came upwith the idea of parties empowering somebody to find out what the case was about and then to put together the dream team tribunal. We never get the dream team, though, because one party appoints a lawyer and then the other party reacts with another lawyer, and the two lawyers appoint another lawyer, and so on. BE TH Yes and they instinctively appoint an evenmore eminent lawyer. NE IL Exactly. So you end upwith lawyers deciding cases not really in their area of expertise and, therefore, finding it very difficult to resolve the case. The appointed person could also check on conflicts, availability, all sorts of things, and produce the team. As it stands, though, I’mnot aware of anyone really taking up the idea.
City University London has had aMasters course in arbitration for 25 years and there is nowa similar course in Hong Kong. King’s College London, where I went, has undergraduate and postgraduate courses in arbitration. So that’s very good. It’s the practical side of it that we need to concentrate on. Another thing – too often in arbitration – parties rely on solicitors, or attorneys, who are not necessarily trained as advocates to do the cross-examination. They don’t use barristers, and they aremissing a trick. Not every solicitor or attorney is trained to cross-examine. I have heard some very bad cross-examinations and I find themmost irritating to listen to. For example, when you ask a question and you get the answer youwant, move on to something else. But the inexperienced cross-examiners often come back to the same point, giving the witness the opportunity to wriggle out of their original answer. BE TH I imagine in those instances that they are trying to hammer the point home but instead they end upwatering it down. NE IL Yes, exactly. NEW CEN T RE S IN IN T ERN AT I ON A L A RB I T R AT I ON : WH AT MA K E S A N A RB I T R AT I ON - F R I ENDLY CEN T RE? BE TH With regards to the global development of international arbitration, we are seeing increasing competition in Asia. There’s always been the HKIAC in Hong Kong and SIAC in Singapore. What do you think centres need to do for them to stand out or attract users? NE IL First of all, centres should be located in an arbitration- friendly jurisdiction. That, inmost cases, is a given, for example the HKIAC and SIAC. However, not all centres are located in an arbitration-friendly environment.
06 IN CONVERSATION WITH NEIL K APL AN CBE QC SBS
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BE TH Andwhat are your views on institutions’ position regarding the debate about ethics? NE IL I come froman age where one imagined all arbitrators were ethical. 99% of the arbitrators I work with I knowand trust and, I’msure, are perfectly professionally ethical. I don’t see why they need anymore rules to bind them, other than the ones already in existence. BE TH One argument is that the world is changing. We’ve already discussed the impact that developments in arbitration may be having on lawyer behaviour. NE IL The world is changing, yes, and there will be others enforcing these things. If we all belonged to something like the Chartered Institute of Arbitrators and you did something that was unbecoming then you could lose your membership, but that doesn’t stop you frombeing appointed. You can introduce amore elaborate system, for example, taking away arbitrators’ licenses if theymisbehave. This is never going to happen though in the short-term. BE TH Not on a global scale. NE IL No. However, it’s not a bad idea to have a code of conduct to whichwe should all adhere.
But themost important thing is that they’ve got to be efficient. The biggest criticism I hear of centres is that they are inefficient, that there is a delay in dealing with cases, it’s too expensive for what they actually provide and they don’t provide the necessary backup. Having the right facilities is also an important factor. For instance in Sweden, the StockholmChamber of Commerce doesn’t have a centre but instead offers a private venue, or a hotel. You can’t really call yourself an important centre if you don’t have a dedicated venue for proceedings. BE TH With regards to Hong Kong and Singapore, have you found that there has beenmuch of an impact from the recently revised arbitration legislation laws in both of those jurisdictions? Do you find there’s a significant change or is it just more to reflect on? NE IL Not a significant change, as such. I find that it mainly just updates things. We all have ideas on how to improve the law. The trouble is it takes an awful lot longer in Hong Kong to get the law changed then it does in Singapore. BE TH So, what, if any, role do you think arbitral centres should play in the debate surrounding costs in international arbitration? NE IL Costs are a hobby horse withmost arbitrators, but I don’t see what role institutions have in relation to costs. Institutionsmay keep down the arbitrator’s fees and expenses, but that’s the extent of what they can do. Is there one provision you know of that affects what the parties have to pay their own lawyers?Why hasn’t one of the institutions put together a set of rules that limits costs? Because institutions will lose work and everybodywill refuse to go to them. If an institutionwere to have a sliding scale and, for example, in a case worth USD 200million you can only recover say USD 5million in costs, then the defendant will only have to pay the claimant USD 5million in costs, leaving the claimant to cover the balance of the fees. That may be a spur to efficiency. However, such rulesmaymake institutions unattractive to users. One waymay be tomake it an opt-in provision. So, in reality, I don’t think institutions do anything to keep costs down, save to control the fees of the arbitrators, which is a tiny proportion of the all.
Centres also need tomake sure their model clause is up to date. We recently changed themodel clause in Hong Kong to alert parties to the possibility that theymight want to choose a different lawapplicable to the Arbitration Agreement, which was a first. Institutions also need tomake sure they have the right people on the panel, and that there isn’t delaywith proceedings or the issue of the award. The Singapore Court recently had to remove an arbitrator from the panel who failed to deliver an award after a two-year delay. I know there were some special circumstances there, but those types of incidences are unacceptable; it gives arbitration a bad name. BE TH So do you think that it’s the responsibility of arbitral centres to avoid that kind of delay of the award? NE IL An arbitral centre gets involved in two different ways. One way is in the administration of the arbitration. If they are administering the arbitration then they have a duty to keep a check on everything andmake sure there are time limits so that the award comes out in a reasonable amount of time. If, on the other hand, you are only using the arbitral centre as a venue, then unless the parties give powers to the centre to do something expressly, there’s not much a centre can do.
C A N E A RLY OP ENINGS IMPRO V E A RB I T R A L PROCEDURE S?
L OOK ING F ORWA RD : C ONS I DER AT I ONS F OR A RB I T R A L INS T I T U T I ONS
BE TH With regards to the procedural side, are there any issues you think need to be addressed by the arbitration community? NE IL Well, as you know, one of the things I amkeen on at themoment is early openings, which I’ve been using and is nowbeing adopted by arbitratorsmore widely. Do you know how it works? BE TH No, tell me a bit more.
BE TH In light of all the developments that we’ve discussed, what do you think are themajor challenges facing arbitral institutions over the next five years? NE IL The challenge with arbitral institutions is to keep cases coming to them, making themattractive as venues. That means physically; froman efficiency point of view; and in terms of the service delivered. The HKIAC has an excellent team for counsel. We nowprovide tribunal secretarial services to arbitrators if they need it andwe are looking at other things that we can improve.
THE CHALLENGE WI TH ARBI TRAL INST I TUT IONS I S TO KEEP C A SES COMING TO THEM, MAK ING THEM AT TRACT I VE A S VENUES . THAT ME ANS PHYS I C ALLY; FROM AN EFF I CIENCY POINT OF V IEW; AND IN T ERMS OF THE SERV I CE DEL I VERED.
INTERNATIONAL ARBITRATION 1/3LY
REG I ON A L T RENDS IN A S I A - PA C I F I C
NE IL What goes wrong at themoment is that the tribunal is servedwith boxes and boxes of documents. It’s assumed that they read themall and understand the case. The Chairmanmight get the nearest to doing that, but I’m not convinced that the wingmen are going to open all those boxes and read all the documents. Theymay just read the witness statements. So you potentially end upwith an uneven consideration of the issues, with everybody rushing to get on top of the case just before, during and after the hearing. It struckme that, duringmy days at the Bar, one of the things I enjoyedmost was opening cases. You stand up in front of the judge, who has no prior knowledge of the case, and you go through the documents and pull out all the important parts. I thought that we should do something similar in arbitration. I have suggested using an early opening whereby, after the first exchange of pleadings and the witness statement, you call the parties in and give each side a day to open the case - in an old fashionedway. This approach ensures that the whole tribunal is up to speed on the case. It also enables the tribunal to have ameaningful dialogue with the parties, three to sixmonths before themain hearing. As it stands, if you raise something at the first day of a hearing, not much can be done about it.
BE TH So inmanyways an early opening would be the equivalent of an early identification of issues? NE IL Yes! It provides the opportunity to assess which points should be dropped andwhich points should be pursued. The parties are going to be in the same room for two days, so theymaywell come to some accord about throwing away some points. Andwhat it really does is inform the rest of the case preparation. If necessary, it’s a vehicle fromwhich you can deal with really difficult and contested procedural or preliminary issues which can be sorted out. It’s called a Kaplan Opening - a “KO”. I have conducted it several times nowand I knowmany other people are also starting to do it too. Inmy opinion, it leads to a better and quicker award.
BE TH Have you noticed any kind of trends in disputes within the Asia Pacific region that may have been a result of global events, such as the global economic crisis? NE IL What you usually findwhen there’s an economic down-turn is that there aremore bad cases. In other words, more people are trying to buy themselves some extra time by putting forward arguments that aren’t all that good. But you know, that was a long time ago now, and I hope we’re not in for another one. But I haven’t noticed that so much recently. I have noticed an increase in activity in Australia. Sydney has promoted itself for sometime. NowMelbourne and Perth have arbitration centres and try to promote themselves as well. Australia is a safe neutral venue for Asia-Pacific disputes. The law is up-to-date, Judges are experienced in arbitration and understand their limited role under NYC and UNCITRAL rules, and there is, of course, the huge Australian legal diaspora. I would hope that givenmore time, publicity and a deeper knowledge of the advantage of arbitration, the larger Australian corporationsmay try to negotiate harder for an Australian based seat.
WHAT YOU USUALLY F IND WHEN THERE ’ S AN ECONOMI C DOWN-TURN I S THAT THERE ARE MORE BAD C A SES .
IN CONVERSATION WITH NEIL K APL AN CBE QC SBS 09
W I T H T H A NK S T O T HE C ON T R I BU T OR S OF T HI S E XCH A NGE . . .
NEIL K APL AN CBE QC SBS, INDEPENDENT ARBITRATOR Neil Kaplan CBE QC SBS has been a full-time practising arbitrator since 1995. During this period he has been involved in several hundred arbitrations as co-arbitrator, sole arbitrator or chairman. These arbitrations have included awide range of commercial, infrastructural and investment treaty disputes under the rules of the ICC, HKIAC, LCIA, UNCITRAL, SIAC, SCC, ICSID and CIETAC. Called to the Bar of England andWales in 1965, Neil has practised as a barrister, Principal Crown Counsel at the Hong Kong Attorney General’s Chambers and served as a Judge of the Supreme Court of Hong Kong in charge of the Construction and Arbitration List. From1991 until 2004, he was Chairman of the Hong Kong International Arbitration Centre, and in 1999-2000 he was President of the Chartered Institute of Arbitrators. Since 1995, he has been a Council Member and nowGoverning BoardMember of the International Council of Commercial Arbitration (ICCA) and in 2012 he became aMember of the ICC International Court of Arbitration. He is a Chartered Arbitrator and a Fellow of the Chartered Institute of Arbitrators, the Hong Kong Institute of Arbitrators and the Singapore Institute of Arbitrators. Additionally, he is a panellist of several other arbitral institutions including CIETAC.
BETH CUBIT T, CLYDE & CO
Beth Cubitt is a partner in Clyde&Co Australia’s Perth office. Beth advises onmajor construction disputes (including mediation, expert determination, litigation and arbitration), cross-border disputes and international commercial arbitrations throughout Australia and the Asia-Pacific region. Beth has developed her practice in Australia over the past 13 years in Brisbane, Melbourne and, most recently, Perth. She is also a qualified lawyer in South Africawhere she acted for various commercial clients in respect of dispute resolution and the negotiation and drafting of commercial contracts before moving to Australia in 2000. Beth is a national councillor of the Australian branch of the Chartered Institute of Arbitrators and is a Fellow of the Chartered Institute of Arbitrators, the Institute of Arbitrators and Mediators Australia, and the Australian Centre for International Commercial Arbitration.
INTERNATIONAL ARBITRATION 1/3LY
MARKET COMMENTARY 11
T URKE Y: THE L INK BE T WEEN EUROPE AND A S I A
On 20 November last year, the Turkish parliament passed the Istanbul Arbitration Centre Law. This entered into force at the start of the year and will lead to the establishment of a long awaited centre to administer international arbitrations on the banks of the Bosphorus. The news is in line with Turkey’s aim to develop Istanbul, the largest city in the country, into a dominant centre for cross-border financial transactions, both in the region and globally. A “strategy and action plan” to bring about this transformation was adopted by Turkey’s High Planning Board in 2009, a key pillar of which was the formation of an independent arbitration centre to hear international disputes, the Istanbul International Arbitration Centre (ISTAC). The ability of the centre to compete with other regional centres on cost, speed and efficacy will be crucial to its success. C AN IT COMPETE? In establishing ISTAC, Turkey is seeking to capitalise on its logistical advantages as a “regional hub” linking Europe and Asia. The geographic location of the centre provides significant geopolitical and geostrategic advantages and its easy accessibility to international travellers, as well its attractive visa regime, should not be underestimated. Turkey’s buoyant and growing economy provides the right environment for an aspiring new disputes centre. It is worth noting, however, that uncertainty surrounding the political stability of the broader regionwill inevitably impact upon the centre’s success. Furthermore, if the centre is to compete with others in the region, it is of vital importance that Turkey has the appropriate legal framework in place and that the independence of the centre, and of the Turkish judicial system, is guaranteed. In recent years, Turkey has introduced a number of legislative changes to support arbitration, bringing its law in line with that of centres such as London, Paris and Dubai. The Turkish International Arbitration Law, adopted in 2001, is based on the UNCITRALModel Law. In the previous 12 years, Turkey acceded tomultinational treaties including the New York Convention, the ICSID Convention and the European Convention on International Commercial Arbitration, which entered into force in 1991, 1989 and 1992, respectively. IS INDEPENDENCE AN ISSUE? Questions have been raised as to the extent of ISTAC’s independence –something which is paramount to the centre’s credibility and success. Concern has surrounded the state’s involvement in funding the centre for the first year and the election process for the centre’s General Assembly, whichwill enable various governmental bodies to elect a determined number of members.
BY BEN KNOWLES, ALEC EMMERSON AND IAIN ROWL ANDS, CO-CHAIR GLOBAL ARBITRATION GROUP, CONSULTANT AND A SSOCIATE AT CLYDE & CO
INTERNATIONAL ARBITRATION 1/3LY
MARKET COMMENTARY 13
Opposition to the centre’s general assembly electionmechanism resulted in the process being challenged as a breach of the Turkish constitution, with 123members of the Turkish legislature filing a petition to overturn the statute establishing the new centre. The challenge was unsuccessful, however, with the court citing that the new centre is not established by the constitution and, therefore, its structure is within the discretion of the legislature. The decision of the court may help to allay fears over autonomy. Also alleviating concerns will be the appointment of Mr. Ziya Akinci as first Chairman of the new centre. Mr. Akinci’s electionwas, in effect, proposed by Turkey’s private sector and his appointment, a four year term, is in preference to a government appointee. Mr. Akinci is currently seeking guarantees that the local courts will support the arbitral framework, further ensuring the integrity of the process. Such guarantees are important given the relative infancy of the Turkish courts in developing their approach to setting aside arbitration awards. However, recent decisions appear to suggest a continuing trajectory towards an arbitration compatible approach. Government influence is undoubtedly a possibility but it is not yet known how far this will play out in practice. WhileMr. Akinci will lead the teamchargedwith tasks including, drafting the institution’s first set of arbitration rules, the appointment of further personnel is nowawaited with great interest. The formation of an effective secretariat, plus the perceived independence of arbitrators and, crucially, a robust list of candidates, will all be paramount to the centre’s credibility and success.
WHAT LIES AHE AD? Istanbul seems to tickmany of the boxes required for a successful arbitration centre and, indeed, there is no shortage of cases with a Turkish element following significant growth in recent years. However, the jury is still out in relation to independence, which is likely to determine the ability of Istanbul to compete with rival arbitration centres in the region, especiallywith relatively young arbitration centres such as Dubai which have a head start in that they have developed something of a reputation and portfolio of cases. The long term funding of ISTAC is another potential issue, particularly if the centre does not quickly become self-sufficient through generating its own income – potentially byway of private investors. If funding continues to be required, it will be interesting to see where it is sourced from after the first year. ISTAC’s prospects of success appear to be good, and recent developments are positive, but, with a lack of a significant track record of arbitration in Turkey, only time will tell. The proposed rules of arbitration, which are scheduled to be published imminently, are awaitedwith great anticipation in advance of the proposed commencement of operations at the end of the year. A successful track record is likely to be the best way to enhance the reputation and awareness of the new centre in order to drive usage.
A VERSION OF THIS ARTICLE WA S FIRST PUBLISHED IN GLOBAL ARBITRATION RE VIEW, JANUARY 2015.
THE FORMAT ION OF AN EFFECT I VE SECRETARI AT, PLUS THE PER CE I VED INDEPENDENCE OF ARBI TRATORS AND A ROBUS T L I S T OF C ANDIDAT ES , WILL ALL BE PARAMOUNT TO THE CENTRE ’ S CREDIBIL I T Y AND SUCCESS .
INTERNATIONAL ARBITRATION 1/3LY
THE CHANGING FACE OF INT ERNAT IONAL ARBI TRAT ION IN A S I A : INNOVAT ING TO STAY AFLOAT
BY S APNA JHANGIANI AND IAN HOPKINSON, LEGAL DIRECTOR AND SENIOR A SSOCIATE AT CLYDE & CO
SPECIAL REPORT 15
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? This article examines 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.
GROWTH OUTSTRIPPED 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 fromaround 2,000 to around 3,000 since 2011, while the aggregate value of those claims has risen fromUSD 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, comparedwith twenty years ago, “the number of cases handled by arbitration institutions inMainland 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-knownWestern arbitration institutions.” WHERE ARE A SIA’S ARBITRATION CENTRES? What do wemeanwhenwe talk about arbitration in Asia? On 2 November 2004, representatives of 17 arbitration centres and associations in Asia Pacificmet in Sydney and established the Asia Pacific Regional Arbitration Group (APRAG); there are now41members. 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, somemight consider Asia to include Dubai and theMiddle East. Any choice will be necessarily subjective. TheMiddle East and Australia are big and interesting arbitrationmarkets in their own right. They are geographical, and to some extent cultural, outliers in Asia. They deserve their own articles, or amore detailed analysis than space here will allow. This article will therefore focus on a selection of what remains – some newarbitral centres, somemore established, with a variety of legal, political and cultural backgrounds: Singapore, Hong Kong, China, Seoul, Kuala Lumpur and Tokyo.
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S ING A P ORE
SINGAPORE HA S SEEN STELL AR GROWTH A S AN ARBITRATION CENTRE OVER RECENT YE ARS. BET WEEN 2000 AND 2005, THE AVERAGE NUMBER OF INTERNATIONAL ARBITRATION C A SES FILED AT THE SINGAPORE INTERNATIONAL ARBITRATION CENTRE (SIAC) E VERY YE AR WA S 34. IN 2014, 222 WERE REGISTERED, WITH A TOTAL VALUE OF SGD 5.04 BILLION (USD 3.6 BILLION). Likemany arbitral centres, Singapore arbitration remains rooted in its domesticmarket. That is both natural – as parties are likely to choose locations which are culturally familiar and geographically close – and not necessarily indicative of a lack of diversity – Singapore is a long established hub for international trade. However, Singapore clearly has an international appeal, bothwithin and beyond the immediate geographical region. SIAC’s 2014 Annual Report notes that Singaporean parties (including Singaporean subsidiaries of international companies) appeared in 147 of the 222 new cases in 2014. Perhapsmore tellingly, it follows that 75 of the 222 did not involve a Singaporean party. After Singaporean, Chinese and Indian parties were the second and fourthmost numerous nationalities. Parties from the USA were third. So the Singapore arbitration story is one of growth: growth in numbers, growth in value, and growth in national diversity. What lies behind this growth? In terms of technical criteria that are important to arbitration’s consumers in an arbitral seat, Singapore ticks all the boxes. It has a generally pro-arbitration judiciary (Chief Justice SundaraeshMenon is a very supportive and visible figure in international arbitration); awell-regarded and efficient court system; an internationally-recognised and stable national law (based on the English common law); international arbitration legislation based on the UNCITRALModel Law; several official languages (four, including English) with links to other economically developed countries; and excellent transport links.
These factors are undeniably important, but they are not unique in global arbitration centres. The X-factor in Singapore’s successmight verywell be down to the decision taken by the Singaporean government to promote the growth of international arbitration as an industry in itself, its resolve in sticking to that decision and the depth of its involvement in the creation of the infrastructure of arbitration. SIAC’s foundation in 1991was followed by enactment of the International Arbitration Act (IAA) in 1994. Unlike some jurisdictions, this has not been the end of Singapore’s efforts. Significant amendments weremade to the IAA in 2001, 2002, 2009 and 2012. There is every reason to suppose that amendments will continue to keep pace with, or indeed lead, developments in international arbitration. The judiciary in Singapore, a common law jurisdiction, has been permitted to establish a number of lines of pro-arbitration jurisprudence. The SIAC Rules are in their fifth edition. If the enactment andmaintenance of arbitration legislation is normal governmental activity, the foundation of purpose-built arbitration facilities is perhaps less so. However, that is what the Singapore government – which provided seedmoney for Maxwell Chambers and retains an equity stake – has done in the colonial former CustomHouse. It was the first Asian government to do anything on this scale. Meanwhile a tax incentive announced in 2007 even allows qualifying law firms a 50% tax exemption on incremental income arising from international arbitration cases which culminated or would have culminated in substantive hearings held in Singapore.
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CHIN A
DESPITE THE RECENT STOCK MARKET CRISIS, CHINA’S SUSTAINED RATE OF ECONOMIC GROWTH IS THE ENV Y OF MANY COUNTRIES. WITH ECONOMIC ACTIVIT Y COMES INTERNATIONAL TRADE AND, INE VITABLY, INTERNATIONAL DISPUTES. IT IS NOT SURPRISING, THEN, THAT CHINA HA S DE VELOPED A SIGNIFIC ANT ARBITRATION INDUSTRY, REPORTEDLY COMPRISING AROUND 200 ARBITRAL BODIES, BIG AND SMALL. However, two of themain ones, the China International Economic and Trade Arbitration Commission (CIETAC) and the Beijing Arbitration Commission (BAC), have seen a very significant falling off of new international cases in recent years. From ten year highs of 560 and 72 new international cases for CIETAC and BAC respectively in 2009, new matters have fallen to 331 and 26 respectively in 2012 (the last year for which data are available). 1 At first sight the increase in disputes arising fromglobal economic downturnmay have been partly responsible for the 2009 peak. However, analysis of the figures gives the true picture: in CIETAC’s case the 2012 figure is the lowest recorded in 13 years of data. For BAC it is the lowest in ten years. In Hong Kong, there is a similar story at the HKIAC. Back in Singapore, however, SIAC has broadlymaintained themomentumof growth throughout. This is also true of Western stalwarts such as the ICC, LCIA and SCC.
Putting aside the effect of themuch-publicised falling out between CIETAC and its Shanghai branch in 2012– not least because the BAC numbers showa similar pattern of decline – one reason for the apparent decline in popularity of arbitration in Chinamaywell be the success of some of its neighbours. Woven into that, of course, are the practical and procedural benefits afforded by those neighbours when comparedwith arbitration in China. For many the spectre of state control looms large in Chinese arbitration, perhaps asmuch in impression as reality. Nevertheless, it is fair to note that the courts systemhas wide supervisory powers and a chequered history of judgments in support of arbitration, particularly the enforcement of awards renderedwithin the country. China’s national arbitration legislation – the Arbitration Law of People’s Republic of China – is not based upon the UNCITRALModel Law.
FOR MANY THE SPECTRE OF S TAT E CONTROL LOOMS L ARGE IN CHINESE ARBI TRAT ION, PERHAPS A S MUCH IN IMPRESS ION A S RE AL I T Y.
1 “Trends in International Arbitration: A NewWorld Order” (FTI Consulting, February 2015), p.3
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HONG KONG
HONG KONG IS A POPUL AR ARBITRATION SE AT, WITH 234 NEW INTERNATIONAL ARBITRATIONS BEING COMMENCED AT THE HKIAC IN 2014. ACCORDING TO HKIAC’S 2013 ANNUAL REPORT, CHINESE PARTIES REMAIN THE MOST NUMEROUS, WITH SOME 62.5% OF THE ARBITRATIONS INVOLVING A CHINESE PART Y. TO THAT EX TENT, AT LE A ST, HONG KONG MAY BE SEEN BY CHINESE PARTIES, AND CERTAINLY THEIR FOREIGN COUNTERPARTIES, A S A GOOD COMPROMISE SE AT AWAY FROM MAINL AND CHINA . OTHER FAR E A STERN COUNTRIES SUCH A S TAIWAN, SINGAPORE, SOUTH KORE A , JAPAN AND THE PHILIPPINES ALSO FE ATURE FREQUENTLY A S HKIAC USERS. In terms of formal legal infrastructure, HongKonghas thebenefit of a well-regarded judiciaryand court system–basedon theEnglish common law–which is supportiveof arbitration. TheHongKong ArbitrationOrdinance (HKAO) is a sophisticatedpieceof arbitration legislation, largelybased on theUNCITRALModel Law, andwasmost recently revised in2013 to implement changes suchasnewprovisions allowingHongKong courts to enforce relief grantedbyanemergencyarbitrator. Under theHKAO, theHong KongCourtshave thepower to issue interimorders insupport 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 familiaritywith the Chinese language and culture, withmanymultilingual practitioners based in Hong Kong and bilingual arbitrations not uncommon. Inwhat many considered a response to Singapore’s foundation of Maxwell Chambers in 2009, HKIAC undertook amajor 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. Like the Chinese institutions though, HKIAC’s latest data shows a drop in newarbitrations since the late 2000s with 2013 seeing the lowest number of cases accepted in 14 years of statistics. One reason for this may be that parties fromoutside China, particularly those fromEurope and the US, sometimes viewHong Kong as an arbitral seat within China and, therefore, not a “neutral” venue for an arbitration against a Chinese party. Another reason for the fall in casesmay simply be the relative success of Singapore as a venue for international arbitration in the region. To continue to compete, Hong Kong will need to consistentlymarket itself as an attractive seat for arbitrations against Chinese parties, and to distinguish itself fromMainland China as an arbitral seat by emphasising its common lawheritage andworld-class arbitration infrastructure.
E A SE OF ENFOR CEMENT AGA INS T A SSE T S IN CHINA I S NO DOUBT ALSO A FACTOR INFLUENCING HONG KONG A S A CHOI CE OF SE AT.
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SEOUL
LIKE SINGAPORE, SOUTH KORE A HA S LONG-ESTABLISHED ARBITRATION INFRA STRUCTURE AND HA S BEEN MAKING EFFORTS TO POSITION ITSELF A S A LE ADING ARBITRATION CENTRE IN A SIA , HAVING BEING TIPPED A S “ARBITRATION’S RISING STAR”. 2 THOUGH IT CONTINUES TO MAKE STE ADY GROWTH, SUPPORTED BY KORE A’S FORMIDABLE EXPORT SECTOR, SEOUL IS YET TO BECOME A SERIOUS ALTERNATIVE TO SINGAPORE FOR A COMPANY WITH A BIG ARBITRATION BURNING A HOLE IN THE CORPORATE POCKET. SOME MIGHT ARGUE THAT KUAL A LUMPUR HA S STOLEN ITS CLOTHES (SEE PAGE 24). South Korea’s arbitration infrastructure has age on its side: its state- established arbitral body, the Korean Commercial Arbitration Board (KCAB), was established in 1970 under an Arbitration Act dating from 1966. Regular revisions to the Arbitration Act, based upon the UNCITRAL model law, have kept it fresh. The latest crop of proposed revisions would strengthen a tribunal’s ability to order interim relief and simplify the enforcement process. This is complemented by domestic courts with power to grant interim relief in support of arbitration andwhich are generally happy to do so. The KCAB’s arbitration rules, overseen by the Supreme Court and last revised in 2011, are also about to be updated again to institute an emergency arbitrator systemand to develop existing provisions on joinder and the KCAB’s confirmation of arbitrators.
There are signs that these efforts are paying off, buoyed at least in part by South Korea’s large and active international trade links and, to a lesser extent, by itsmaritime (including shipbuilding) and financial industries. International arbitrations commenced annually at KCAB have crept up, froman average of 47 per year in 2001-9 to 76 per year in 2010-2014, though the rate of growth year-on-year has been far fromconsistent. Of those arbitrations commenced in 2014, 70% concerned international trade, while finance andmaritime came in at 9% and 8% respectively. 3 In 2013, and again in amove reminiscent of Singapore, Seoul got its own state-sponsored ADR hearing centre, the Seoul International Dispute Resolution Center (Seoul IDRC). Unlike Singapore, it is not clear that Seoul is yet attracting very high value, high complexity or fully international arbitrations. The average claimvalue of an international arbitration commenced at the KCAB in 2014was less than USD 2.6million and 54% concerned payment issues. 4 On the other hand, partly owing to the simple nature of the disputes that are administered by the KCAB, the average duration of the centre’s international cases completed in 2014was a very respectable 12months. There will bemany, including clients of the authors, who wish some of KCAB’sWestern counterparts were as fast. Anecdotal evidence, however, suggests that the KCAB has some way to go to convince all of its potential users – beginning with domestic users – that it is a reliable and consistent option for resolution of complex international disputes. When it is able to do so, the infrastructure is in place for success.
THE AVERAGE DURAT ION OF THE CENTRE ’ S INTERNAT IONAL C A SES COMPLE T ED IN 2014 WA S A VERY RESPECTABLE 12 MONTHS .
2 Article by Kanishk Verghese published on 1 October 2013 and available at: http://www.legalbusinessonline.com/features/seoul-arbitration’s-rising-star/57823. 3 KCAB 2014 Annual Report, p.11; “Trends in International Arbitration: A NewWorld Order” (FTI Consulting, February 2015), p.3. 4 KCAB 2014 Annual Report, pp.13-14
INTERNATIONAL ARBITRATION 1/3LY
KU A L A L UMP UR
WAITING IN THE WINGS MAY WELL BE SINGAPORE’S MORE COST-EFFECTIVE NEIGHBOUR, KUAL A LUMPUR. KUAL A LUMPUR BENEFITS FROM THE S AME COMMON L AW TRADITION A S SINGAPORE, WITH AN EXCELLENT GEOGRAPHIC AL LOC ATION, GOOD TRANSPORT LINKS AND CULTURAL FAMILIARIT Y WITH BOTH CHINESE AND INDIAN PARTIES. The Kuala Lumpur Regional Centre for Arbitration (KLRCA) has some of the lowest arbitration fees in the region. The Global Arbitration Review2014 reports that the centre’s costs were around 60% lower than in Singapore. Even though the centre has since revised its fee structure, costs are still around 20% lower than SIAC and the HKIAC. 5 With cost increasingly cited as a significant factor when choosing a seat, this is likely to be attractive tomany. Under the directorship of Professor Datuk Sundra Rajoo, the KLRCA is actively promoting itself as an international arbitration centre in the region, and government support for this initiative is evident. For example, Malaysian legislationwas recently amended to permit foreign arbitrators and lawyers to enter Malaysia to participate in arbitral proceedings without awork permit being required. Further, with government support, KLRCA have nowmoved into state-of-the-art hearing facilities at an art deco heritage building close to the city centre.
The KLRCA also stands to benefit from the arbitration-friendly legal framework of the country. In addition to national legislationmodelled on the UNCITRALModel Law, the country is also a signatory to the New York Convention. Further, local courts are swift to resolve arbitrationmatters referred to them, with Chief Justice Ariffin Zakaria having stated that challenges to arbitration awards in the country are generally heardwithin around threemonths and disposed of within 9months from the date of registration. 6 Statistics on cases filed suggest that the efforts of KLRCA and the Malaysian government havemet with some success. The number of cases filed at the centre for 2008 stood at just 47 7 ; by 2013 annual cases filed had risen to 156 and by the third quarter of 2014 the centre had already received 226 cases. 8 These figures add credence to the argument that Malaysia has the potential to rival Singapore as a regional arbitration centre; particularly if Malaysia focusses on its cost advantage, given that arbitration consumers have identified cost as themost important factor of general infrastructure influencing the choice of seat. 9
THE KLR C A HA S SOME OF THE LOWES T ARBI TRAT ION FEES IN THE REGION.
5 Article by LimWei Jiet published on 15 April 2015 and available at: http://ciarb.org.my/ymg/2015-04-winner.php 6 ibid 7 “Case Statistics fromDifferent Arbitration Centres” published on 29 October 2014 available at: http://eng.viac.vn/about-us/case-statistic-from-different- arbitration-centres-a273.html 8 ibid 9 2010 International Arbitration Survey: Choices in International Arbitration” (White & Case & Queen Mary, University of London)
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T OK YO
TOKYO IS SOMETHING OF AN ANOMALY A S AN ARBITRATION CENTRE IN A SIA , GIVEN THAT ARBITRATION IS NOT PARTICUL ARLY COMMON A S A DISPUTE RESOLUTION MECHANISM IN JAPAN. REPORTS SUGGEST THAT, ON AVERAGE THE JAPANESE COMMER CIAL ARBITRATION A SSOCIATION (JC AA) – JAPAN’S ONLY INTERNATIONAL ARBITRATION PROVIDER – GETS BET WEEN 15 AND 20 C A SES A YE AR, ONLY A HANDFUL OF WHICH ARE INTERNATIONAL. Nevertheless, on some analyses Tokyo is an important regional arbitration centre –7% chose it as a preferred arbitral seat in the QueenMary/ White&Case 2010 International Arbitration Survey – though thismay simply have been because of a high number of Japanese respondents. The Japanese Arbitration Law (LawNo 138 of 2003) governs arbitration proceedings with their seat in Japan, and is based on theModel Law. The Japanese Courts have consistently adopted a pro-arbitration attitude with respect to the enforcement of awards and have, for example, narrowly interpreted ‘public policy’ in light of the purposes of the Arbitration Law. In terms of legal infrastructure, therefore, Tokyo is in a comparatively strong position.
Anecdotally, though, Japan is not seen as a go-to venue for international arbitration. Whether this is to do – as some have suggested –with an approach to business which dislikes confrontational processes or simply a combination of soft factors such as the lack of an established bar of arbitration practitioners and a perception that Japan is a high cost venue is not clear. Competition in Asia between arbitral seats is fierce. Tokyo is unlikely to grow in terms of popularity until arbitration takes off as a formof dispute resolution in Japan, and it doesmore tomarket itself internationally as an arbitration centre. The annual International Bar Association conference took place in Tokyo in October 2014which, no doubt, would have contributed to Japan’s profile as an arbitration centre. But it will takemore than this. There will need to be further initiatives to attract international arbitration consumers to Tokyo. Some examplesmight be the setting up of specialised hearing rooms (such asMaxwell Chambers in Singapore, or SIDRC in Seoul), perhaps with Government backing, and themore active involvement of arbitral institutions outside Japan (such as the ICC), which government initiatives could support.
COMPET I T ION IN A S I A BE T WEEN ARBI TRAL SE AT S I S F IER CE . TOKYO I S UNL IKELY TO GROW IN T ERMS OF POPUL ARI T Y UNT IL ARBI TRAT ION TAKES OFF A S A FORM OF DI SPUT E RESOLUT ION IN JAPAN, AND I T DOES MORE TO MARKE T I T SELF INT ERNAT IONALLY A S AN ARBI TRAT ION CENTRE .
Image credit: Luciano Mortula / Shutterstock.com
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