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Guide to Regional Arbitration (volume 5 - 2017)

White List: Asia Pacific

02 November 2016

If regional arbitration has a birthplace, it is Asia. It was the Hong Kong International Arbitration Centre’s rise in popularity that proved the concept: if you give users a good local provider, they will come. Of course, there’s more to it than that – many stars must align for an arbitral centre to flourish. But the HKIAC showed it could happen – that those stars could align and a regional arbitration provider could prosper.

Today there are 40-plus international arbitration institutions around Asia seeking to emulate Hong Kong’s success. They have their own club: the Asia Pacific Regional Arbitration Group (APRAG).

And new ones are appearing all the time. Recent examples are the Bangladesh International Arbitration Centre and the Delhi Arbitration Centre (which opened a branch of its international arm in 2013). Meanwhile, in China, two city branches of CIETAC have in recent years broken away from their parent and set up in competition.

So, amid all this energy, which Asian arbitral providers are the safe options?

Well, below you can see the ones we “white-list”. But after those are a number that, for the right case or type of contract, are eminently worth a closer look.

Hong Kong International Arbitration Centre (HKIAC)

Why is the HKIAC on a white list of regional arbitration providers?

Regional arbitration pretty much began with the HKIAC. No regional institution has been running for so long, or with such success.

How successful is it?

In case terms, very. In 2015 the centre handled 271 arbitration matters, nearly four in five of which were international in nature. The total amount in dispute was US$6.2 billion.

Doesn’t it count cases a little differently from others?

It’s complicated – but yes. An important statistic within the overall total is the number of cases administered under either its administered arbitration rules or the UNCITRAL rules. In 2015 that climbed to 116 cases.

Isn’t it all construction and maritime arbitration?

It used to be, but not any more. In 2015 construction counted for 22 per cent (while maritime counted for 18 per cent). But half its disputes were commercial cases.

How did the HKIAC establish itself?

A combination of luck and good judgement. The HKIAC was arguably in the right place at the right time – but it’s also enjoyed a succession of excellent leaders. Two of its founding fathers are Neil Kaplan QC and Michael Moser – now, towering figures but less well known then. They helped it grasp how to grow beyond domestic work in Hong Kong. And the government has helped too.

What has the government done?

Though standoffish at first, it’s grown into a keen supporter. It ensured the HKIAC got a whole floor in downtown Hong Kong to turn into a hearing centre (no easy task in that real estate market). The chief executive of Hong Kong (head of the government) and the justice minister have attended various HKIAC events.

Did being on China’s doorstep help?

Undoubtedly. China’s economic rise is a big part of why Hong Kong has emerged as a seat. It was seen as neutral, but acceptable territory. Whether it remains so in the long term is less clear. The current deal protecting Hong Kong’s separate identity expires after 50 years in 2047. Whether international parties will see it the same way in the future remains to be seen. It’s certainly a worry for some.

What are the HKIAC’s strengths?

Its proven track record (it has been handling cases for two decades); a fine set of rules; and a light-touch style of case administration. It is also affordable, even in a city as expensive as Hong Kong. The HKIAC was the first institution to give parties a choice in how they pay arbitrators (by value of case, or an hourly rate). It’s gone even further recently on arbitrator costs.

How does the HKIAC differ from SIAC?

The two have different structures – the HKIAC’s rules are more UNCITRAL-inspired, while SIAC is closer to the ICC approach. They also had quite different beginnings. The HKIAC grew organically. It can be viewed as an offshoot of the local bar; in fact, it started life as a very successful branch of the CIArb. SIAC, in contrast, was a government idea.

Does organic growth make a difference?

It says something about Hong Kong’s legal environment and its support for arbitration. But it also certainly helps an institution to have the backing of a vibrant arbitration bar. It’s arguable that the HKIAC would have been less able to respond to Singapore’s marketing push without the support of its local bar. Those voices helped it to make the case for upgrading Hong Kong’s arbitration infrastructure.

Has the HKIAC been hurt by the rise of Singapore?

There’s no doubt the two are serious rivals, but in the past, each has had a protected area. For the HKIAC it was China, while Singapore enjoyed a monopoly on India (Hong Kong awards weren’t enforceable there, owing to a technicality of Indian law). Singapore has lost that advantage because India has “gazetted” Hong Kong, while Hong Kong must deal with a perception in some quarters that, now it is part of China, it is not as suitable for China disputes as it once was.

So what’s going to happen?

Who knows? Hong Kong’s share of Chinese work is standing up well. Competition in any walk of life is usually a good thing and it’s hard to see why arbitration should be an exception. As it happens, the HKIAC doesn’t only face competition from SIAC. It has to contend with both the ICC (which administers cases in Hong Kong) and now CIETAC Hong Kong on its doorstep.

What are the HKIAC’s rules like?

They contain some useful regional elements. One is an improved set of powers on joinder. Asian investments are often spread over several contracts; the rules give the HKIAC and arbitrators more power to join third parties to proceedings. Since the introduction of the multiparty and multi-contract provisions in 2013, the centre has received 12 requests for consolidation and three applications for joining additional parties.

They also extend the HKIAC’s tradition of doing its utmost to control arbitrator costs.

How do they do that?

As well as giving parties a choice of how to pay the arbitrators, they contain a cap on the arbitrator’s hourly rate unless the parties agree otherwise.

Is that useful?

Well, arbitrators will tell you that the percentage of total costs they account for is very low. But every little helps, and rules like this go down particularly well with Asian parties. The cap is HK$6,500 an hour.

Are there any pitfalls?

With the HKIAC, no. With Hong Kong, occasionally. Korean firms and lawyers from civil law jurisdictions feel that at times Hong Kong arbitration is a little litigation influenced. Also, there’s always a slight concern that in 15 years’ time, Hong Kong may not be the place it is today.

What’s the mood of the centre like?

Buoyant, for the most part. With some justification. Hong Kong as a seat is in better shape than it was a few years ago (thanks to a roundly applauded new arbitration ordinance and some very favourable court decisions) and the HKIAC feels that it has bounced back well after losing a bit of ground to the SIAC.

How did it bounce back?

It amended its rules and structure extensively – and also persuaded the government to give it premises for a state of the art hearing centre, right in the heart of HK’s business district (in the city’s Two Exchange Square building). It also seized the opportunity presented by EU and US sanctions against Russia to promote its advantages extensively to Russian business.

But it hasn’t all been smooth sailing.

What less-good things have happened?

The HKIAC is currently in rented accommodation, pending a move to a new justice super-centre that the government is creating near the courts in Central, in a renovated colonial-era building. The plan is to create a “justice hub”, bringing arbitration and the courts closer together. But the project won’t be completed for a couple of years.

Does that mean the HKIAC will lose the Exchange Square hearing centre?

People are hoping not. There’s a lot of affection for Two Exchange Square, which is praised at the moment for being one of the few such facilities where the fabled technology consistently works. That may sound trivial but it’s quite important in a hearing that the videoconferencing actually hooks up. It so happens there’s now a rumour doing the rounds doing the rounds that the HKIAC may manage to keep the centre. A lot may depend on the persuasive powers of the new secretary general.

Who’s that?

Sarah Grimmer – formerly of the Permanent Court of Arbitration. She was appointed after previous secretary general Chiann Bao decided it was time to return to private practice. Bao leaves many admirers. She received so many standing ovations at a recent dinner that one attendee joked it was like watching President Obama leave office. But Grimmer is seen as energetic and able too.

What other challenges does she face?

The main one is uncertainty over Hong Kong’s future. Nobody really knows the Chinese government’s plans for the former colony. Will it retain its special character? Will it be submerged into just another part of China? There’s some evidence that US parties are already wary of agreeing to arbitrate there (less so Europeans). Whether the HKIAC can offset any loss of appeal with more business from other places – China and Russia for instance – remains to be seen.

There’s also a concern that Hong Kong doesn’t grow its own legal talent (in contrast to Singapore), though that’s not really something within HKIAC’s control. At the moment the HKIAC has to live with the truth that membership of the private bar, which has nurtured and sustained the HKIAC, isn’t indigenous and doesn’t have the deepest roots in the city. Family and personal life allowing, Hong Kong’s legal talent could relocate quickly and easily. That’s all in the future though. Right now Grimmer’s main task is to get her feet under the desk and preserve the brand. Then she can start to worry about what things look like in 15 years’ time.

Singapore International Arbitration Centre (SIAC)

Why is SIAC white-listed?

At a poetic level, SIAC stands for the proposition that dreams can come true, and that persistence pays off. Thirteen years ago, it was a small (if well-funded) player. Today it’s probably the fastest-growing arbitral provider in this report. Waxing less lyrical, it’s a safe pair of hands (and seat) in Asia that isn’t part of China.

How was its transformation achieved?

Slowly. SIAC was launched in 1991, but didn’t see casework take off until fairly recently. So success didn’t come overnight.

What finally swung it?

The glib answer is, building the world’s biggest international arbitration hearing centre. The 2010 opening of Maxwell Chambers – a mega-sized hearing complex dedicated entirely to international arbitration – put Singapore firmly on the arbitration map.

How’s that connected to SIAC?

SIAC proposed the idea, after canvassing sources around the world on how to kickstart its project. One could see Maxwell Chambers as a metaphor for Singapore’s whole approach to international arbitration: trawl the world for good ideas and have government backing to make your own version.

So has the government been an important part of SIAC’s success?

Absolutely. Barely a year goes by without some change to Singapore’s arbitration regime – or “ecosystem” as the Minister of Law and Education has called it. Often those require legislative time.

Ways the government has helped SIAC include introducing tax perks for foreign arbitrators and arbitration firms that work in Singapore, plus almost countless adjustments to the law to fill lacunae or ensure SIAC’s rules work as intended.

Does SIAC change its rules often?

More than most. It released new rules in 2016 – the fourth set since 2007. Most providers amend their rules every nine or 10 years. It’s also introducing a new set of rules for investment treaty arbitration, which it hopes will be a growth area.

Early 2015 saw the introduction of SIAC’s “practice note” on the appointment of administrative secretaries, which regulates appointments and fees.

So it’s a simplification to say Maxwell Chambers put Singapore on the map?

Yes. Although Maxwell Chambers helped, it takes more than a new hearing centre to get to the top – even a really good one.

It so happens that SIAC hit the road hard between 2001 and 2007, promoting itself to law firms, corporations and its own government. More recently it’s brought in big international names to assist it administrate cases, including Gary Born as president.

Are these efforts paying off?

There’s evidence that they are. Statistics show that centre enjoyed its latest“best year ever”in 2015, with a new all-time high total of 271 new cases. It posted a very respectable total of 222 cases in 2014, and has around 600 cases total on foot at the time of writing.

On top of that, the clauses producing these were mostly written in the past four years. So SIAC seems firmly implanted in deal lawyers’ minds. Anecdotally, many say SIAC has gained a solid reputation and is easy to agree on, particularly if you have a party that doesn’t want to arbitrate in Europe or the US.

More importantly, the value of those cases is much bigger than it used to be. In 2015 the value in disputes at SIAC was just over US$4.5 billion, up from US$3.7 billion in 2014 – a year when half the caseload value was accounted for by a single US$2.4 billion matter.

Was the SIAC’s take-off really all down to opening a hearing centre?

Probably not. The statistics showed a seismic jump in case numbers between 2008 and 2009 (a full year before the opening of Maxwell Chambers). 

The government also assisted SIAC greatly when it opened the legal market to foreign firms. Once foreign firms were in place, they had an incentive to promote Singapore as an international arbitration centre – since it was a form of work in which they had a competitive advantage.

What’s arbitrating at SIAC like?

It’s a lot like being at the ICC. In 2013, changes to the rules completed the homage (it was already fairly similar). Above all, they added a Court of Arbitration to the process, to resolve any issues arising mid-case. This court comprises 16 illustrious names from the international arbitration firmament.

They also offer the various bells and whistles that have become standard – since 2010, for example, SIAC has offered an expedited procedure for use when certain criteria are met, and the option of an emergency arbitrator.  In 2015–2016 SIAC changed its rules again, driven by concern that it had fallen behind others (the ICC loomed large again) in the realm of joinder and consolidation. The new rules’ appearance coincided with SIAC’s silver jubilee.

Of course, the rules are one thing, how the arbitrators apply them is another one. If SIAC has a flaw, it’s that local arbitrators set things up too much like Singaporean court litigation.

Is that the main pitfall?

No pitfalls per se, just the standard little things to watch out for. One is that the rule on confidentiality is particularly broad. Another is that the model clause makes a few choices for you that other clauses leave blank (such as Singapore as a seat). Other than that, no real traps exist for the unwary – although, with the rules changing often, there can be scope for arguments about which set should apply.