In the inaugural edition of The Asia-Pacific Arbitration Review five years ago, the overarching theme was the growth of arbitration in Asia. Since then, Asian companies conducting business with overseas counterparties have grown even more reliant on arbitration as an effective form of risk management. And Asian economies have continued to remain resilient, and in some cases grown, throughout these turbulent financial times. In fact, more than half of Next-11 countries,1 a grouping of emerging markets which show the highest economic potential, are located in the Asia-Pacific region.2 The momentous growth of Asian economies coupled with the willingness to adopt arbitration as the preferred method of dispute resolution has precipitated a growth in the leverage that Asian companies wield in negotiating a seat of arbitration that accounts for their preferences. Consequently, most arbitral jurisdictions in Asia have gone from strength to strength to such an extent that, when discussing arbitration in Asia, the conversation is no longer simply focused on the rise of arbitration in Asia but rather on how the larger arbitration community is starting to look to the Asian region for innovative developments in the practice of international arbitration.
As a consequence of geographic proximity and cultural familiarity, Asian parties have been vying for, and successfully stipulating, Asian seats in arbitration clauses. This shift has been acceptable, and even somewhat palatable, to non-Asian contracting parties due to the maturation of the arbitration infrastructure in Asia.
One of the main concerns of users when choosing an Asian venue is enforcement. Nearly every jurisdiction in Asia is a signatory to the New York Convention, and many (notably Hong Kong and Singapore) have sophisticated judiciaries that recognise the importance of enforcing international awards, except in the limited circumstances prescribed by the New York Convention. However, not all Asian jurisdictions can claim such a pro-enforcement record. In fact, many still struggle with the full implementation of the Convention.
However, one jurisdiction with a problematic enforcement regime is looking likely to make notable strides in 2012. In March 2012, the Department of Legal Affairs of the Indian Government Ministry of Law and Justice added China (including Hong Kong) to the list in the Indian Official Gazette of territories to which the New York Convention applies. This development is significant because India will enforce New York Convention awards only if they are made in a Convention country that is also ‘gazetted’ in this way. 3 Until early 2012, China, also a signatory to the New York Convention, was not gazetted - a glaring omission that had resulted in uncertainty over the enforceability of a Chinese or Hong Kong arbitral award in India. Parties engaging with Indian parties now have clarity on the viability of China or Hong Kong as seats of arbitration. This development is expected to further enhance Sino-Indian trade relations by offering a convenient venue for arbitration.
In another welcome development, the Indian Supreme Court is also expected to reverse a decision that has long caused consternation in the international arbitration community. In early 2012, a specially-constituted bench of the Court began hearings in Bharat Aluminum v Kaiser Aluminum (Civil Appeal No. 7019 of 2005) to review its earlier, controversial judgment in Bhatia International v Bulk Trading SA. In Bhatia, the court held that the domestic law provisions of part I of the Indian Arbitration and Conciliation Act 1996 would also apply to offshore arbitrations, unless the parties impliedly or expressly excluded the applicability of the Act. Indian courts have applied the rationale in Bhatia to set aside foreign awards rendered outside India (even when the awards were not sought to be enforced in India) and also to appoint arbitrators in offshore arbitrations. The current hearing holds promise that the Supreme Court will rectify the ills emanating from Bhatia. Certainly clarification on both the application of the New York Convention to China and the reversal of a troubling decision will bring India one step closer to becoming a viable arbitration jurisdiction for international parties.
Hong Kong also recently received a welcome fortification of its enforcement regime. In reversing the lower court’s decision in the by-now infamous case Grand Pacific Holdings v Pacific China Holdings,4 the Hong Kong Court of Appeal (CA) strongly reasserted the pro-enforcement reputation of the Hong Kong judiciary. At first instance, the court had set aside an ICC award on the bases that the arbitral tribunal had denied the applicant an opportunity to present its case and that the tribunal had deviated from the procedure agreed upon by the parties. The lower court cited various case management decisions of the tribunal in holding that the tribunal had caused serious procedural irregularities, and that such irregularities established grounds for setting aside an award under article 34(2)(a)(ii) and (a)(iv) of the UNCITRAL Model Law. By equating the tribunal’s conduct to a violation of article 34(2), the lower court raised concerns about the loss of arbitrators’ discretion over matters of case management.
The Appeal Justices have assuaged the fears of the arbitral community by confirming that the Hong Kong courts will not readily review a tribunal’s procedural decisions, and that they will set aside an arbitral award under article 34(2) only very rarely, where the conduct of the tribunal has been ‘egregious’. The CA also placed a heavy emphasis on the broad, discretionary case-management powers of the arbitral tribunal, which are a fundamental feature of international arbitration.
The judgment leaves Hong Kong’s law on setting aside in line with international standards, and as such is a welcome development for both Hong Kong and other Model Law jurisdictions.
Certain jurisdictions in Asia have become increasingly attractive arbitration venues as a result of their comprehensive, pro-arbitration legal frameworks. The UNCITRAL Model Law has long served as the basis of the international arbitration law in many of these jurisdictions. Hong Kong blazed the trail when it adopted the UNCITRAL Model Law in 1990. And, when amendments to the UNCITRAL Model Law were made in 2006, Hong Kong, Singapore and Australia, quickly passed legislation to reflect the amendments and to further modernise their existing legal frameworks.
Singapore is again undergoing amendments to an already progressive piece of arbitration legislation and, in April 2012, the Singapore Parliament passed amendments to the International Arbitration Act (IAA) which is expected to pass into law in late 2012 through the Singaporean legislative process. The bill amends the IAA in four areas, namely by:
- extending IAA’s application to arbitration agreements concluded by any means, as long as the contents of the agreement are subsequently memorialised in writing;
- granting Singapore courts the right to review positive and negative jurisdictional rulings at any stage of arbitral proceedings and to make cost orders;
- clarifying the scope of tribunals’ power to award interest; and
- providing legislative support for the ‘emergency arbitrator’ procedure by affording emergency arbitrators the same legal status and powers as those of a conventionally constituted arbitral tribunal, including the recognition and enforcement of their orders by Singapore courts, whether made in Singapore or abroad.
2012 began with the much-anticipated revised ICC Arbitration Rules coming into effect. The main innovations of the new ICC 2012 Rules focused on three areas: complex disputes (consolidation and joinder), time and cost efficiency, and emergency arbitrators. The key amendments are highlighted below:
- Any party can make claims against any other party in arbitrations with multiple parties.
- Under certain circumstances, claims arising out of or in connection with more than one contract can be merged into a single arbitration.
- The ICC Court may consolidate two or more ICC arbitrations.
- A party may apply to join an additional party to the arbitration at any stage before an arbitrator is confirmed or appointed.
Time and cost efficiency
- All participants in the arbitration are under an obligation to make every effort to contribute to expeditious and efficient proceedings.
- The new rules allow in most cases for the arbitral tribunal to directly rule on jurisdiction challenges, bypassing the ICC Court and thereby reducing the time span for determining jurisdiction.
- Parties are now required to include additional information about their claims or counter-claims at the outset of proceedings. This represents an attempt to front-load the arbitration process.
- The new rules provide for the appointment of an emergency arbitrator to order interim or conservatory measures on an urgent basis and before the tribunal is constituted.
- The emergency procedure applies, unless the parties have explicitly agreed to opt out.
- The rules set a short procedural timeframe for emergency proceedings: two days for the president of the ICC Court to appoint a sole emergency arbitrator, two days to establish a timetable, and 15 days to draft an emergency order.
The new ICC rules are responsive to the proliferation of complex disputes in international arbitration. The ICC has created effective provisions for governing disputes involving multiple parties to an underlying contract and multiple contracts between the same parties. Moreover, the addition of the emergency arbitrator provisions is in step with the trend of making such emergency arbitrator services available to users. ICDR and SCC were pioneers in introducing this concept and, since then, many institutions, including SIAC, ACICA, ASA and now ICC have followed suit.
CIETAC also introduced its updated Rules in 2012. This is its seventh revision since the CIETAC Rules were first established in 1954. CIETAC has taken steps to bring its rules into closer alignment with international standards and user expectations. Many of the revisions codify CIETAC’s existing practice, as well as filling gaps when the parties cannot agree and the arbitration agreement is silent. The following amendments have been made:
- Seat of arbitration: If parties have not agreed upon a seat of arbitration or arbitration agreement is ambiguous as to seat of arbitration, CIETAC may make the determination by taking into account the circumstances of the case and choose any jurisdiction, including one outside of China. Previously in such circumstances, the seat would always be in China.
- Language of arbitration: Under the previous rules, if parties could not agree as to a language of arbitration, the default language was Chinese. Under the 2012 CIETAC Rules, CIETAC may now designate a language other than Chinese in appropriate circumstances.
- Designation of CIETAC Sub-commissions: Where the sub-commission or centre agreed upon by the parties does not exist, or where the agreement is ambiguous, the CIETAC Beijing will administer the arbitration.
- Interim measures: CIETAC tribunals now have power to grant interim measures under limited circumstances (that is, where PRC law does not apply, ie, where the seat is outside Mainland China).
- Evidence: Expert witnesses are now required to attend the hearing and give oral evidence if the tribunal considers it necessary. This will allow parties to cross-examine experts on their written reports. Previously, experts could not be compelled to give oral evidence.
- Consolidation: The CIETAC Rules now provide a mechanism for parallel proceedings to be consolidated into a single arbitration.
- Administration: CIETAC will administer arbitration under the rules of other tribunal institutions, as well as ad hoc arbitrations and arbitrations under its own rules. This provision provides clarity as to a controversial practice of one institution administering an arbitration under another institution’s rules and, in particular, contradicts Article 1.2 of the ICC Rules which states that the ICC Court of Arbitration is the only body that is authorised to administer arbitrations under the ICC Rules of Arbitration.
- Med-arb: CIETAC can now conduct mediation during arbitration, with the parties’ agreement and not involving the arbitrators (this provision is designed to be an alternative to ‘med-arb’, and thereby to address concerns about maintaining arbitrator neutrality in the event the dispute does not settle).
KLRCA has been swift to keep pace with the demands of its users by updating its fast-track rules, which were first established in 2010. These fast-track rules provide parties with the option of resolving disputes involving less than 1 million ringgit to be resolved in no more than 140 days. KLRCA has also injected more flexibility in this edition of the rules to address the needs of parties engaged in maritime disputes by, among other things, allowing for extensions of time and a tribunal of three if necessary.
Finally, the HKIAC is expected to promulgate amended HKIAC Administered Arbitration Rules later in 2012. Complex multi-party disputes involving significant underlying projects have presented opportunities for HKIAC to test the structural integrity of its rules and to expand its capabilities. Accordingly, the HKIAC initiated measures to update its Administered Arbitration Rules to ensure that the Rules give full effect to the provisions of the New Arbitration Ordinance and that the Rules comport with best practice trends in international arbitration. In preparation of revising the Rules, HKIAC conducted public consultation rounds to assess how the rules have been used in practice and identify how the rules could be modified for optimisation. Some of the key issues being considered include the following:
- scope of the rules;
- introduction of emergency arbitrator procedure;
- further development of provisions to cater to multiparty arbitrations; and
- enhancement on cost provisions and expedited proceedings.
Impetus for physical growth
As caseload continues to grow in the region, the demand for hearing space has also increased. Asian governments have acted on this demand by funding the construction of new premises and the expansion of existing facilities. There is no shortage of examples around the Asian arbitration community to illustrate this phenomenon. In 2010, Singapore introduced Maxwell Chambers and Australia established the Australian International Dispute Centre in Sydney. These hearing centres both bring modern facilities available for a neutral hearing space to Asia. In October 2012, HKIAC will be heralding a new chapter in its storied existence with the opening of its expanded premises. With approximately double the original space, the HKIAC will be able to cater to the increasing demand for suitable and neutral hearing space in Hong Kong. KLRCA is also scheduled to move to its new premises by early 2013. Availability of many neutral hearing spaces further enhances the attractiveness of keeping arbitration in Asia and, as has already been evidenced by the increased usage of the existing facilities in the region, it confirms the old adage that ‘if you build it, they will come’.
Fostering arbitral culture
Not only has the arbitral infrastructure taken shape in Asia, but the thirst for arbitration knowledge is seemingly unquenchable. Hong Kong has had a long tradition of fostering the next generation of arbitration practitioners. The Chartered Institute of Arbitrators (East Asia Branch), with the largest membership of all branches, including London, holds multiple training courses throughout the year. The Vis (East) international arbitration moot is held annually in Hong Kong, with participants from all over the world. And, HK45, a young arbitration practitioners grouping affiliated with the HKIAC, has a membership base that has tripled since its inaugural event in late 2010. The arbitral culture in Hong Kong has been further enhanced in recent years with more and more dispute resolution practices of law firms finding their Asian home in Hong Kong. Notably, 44 of the GAR 100 law firms listed have a presence in Hong Kong.
Singapore also possesses a shining arbitration community which will be hosting the much-anticipated ICCA Conference in 2012. This event will not only showcase Singapore’s many attributes but serve as a premier opportunity to engage with international arbitration practitioners from all over the world.
Australia is making innovative strides in bridging the gap between the arbitration community and the judiciary. ACICA set up a Judicial Liaison Committee (“JLC”) which met for the first time in 2012. This committee has members from all the Courts States and Territories, except Tasmania, and the Federal Court. The principal objective of the JLC is to provide consistency between the courts in the application of arbitration laws, and to educate the judiciary with relevant updates in jurisprudence. To this end, the JLC is currently drafting rules for the interpretation and application of the International Arbitration Act, to be uniformly applied across each of the Australian jurisdictions.
Perhaps the most magnetic and rapidly growing arbitral culture can be found in Seoul. Since the 2011 IBA Arbitration Day, Korea has caught the attention of the arbitration world, not merely in Asia, but internationally. Within a decade, local Korean firms have produced eminent international arbitration practitioners who have created a strong platform for arbitration activity. With the recent ratification of the Korea-EU FTA in July 2011 and KORUS FTA in March 2012, countless new trade opportunities for Europe and the US have created an increasing demand for arbitration services and the opening of the legal industry has prompted American and British law firms to enter the market in Seoul. Evidence of the development of the Korean arbitration community can be found in the publication of Arbitration Law in Korea: Practice and Procedure, the first arbitration text dedicated to Korean arbitration. It is also worth noting that the inaugural ‘Seoul International Arbitration Lecture’ will feature Jan Paulsson as the keynote speaker.
Given the 2012 snapshot of the state of the global economy, the development of international arbitration in Asia as a whole will unlikely regress. Our legislatures have established arbitration legislation that comports with and reflects the UNCITRAL Model Law, making it user-friendly to foreign practitioners. Our courts have sought to support the arbitral process engaging in constructive interference and avoiding destructive interference. Our arbitral institutions have looked to cultivate a skilled and professional international arbitration community and have provided purpose-built physical premises for conducting arbitrations. Despite this framework and culture, pro-arbitration legislation has not been consistently implemented and enforcement continues to be a work in progress. It is in the best interest of all of the players in the region to work together to ensure that all jurisdictions rise to their potential such that all users have tools and resources to meaningfully engage in international arbitration.
- Term coined by Goldman Sachs economist, Jim O’Neill: www.guardian.co.uk/global-development/poverty-matters/2011/feb/18/brics-next-11-economy-transformation-uk
2Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam.
3From the Asia-Pacific region, Korea, Japan, Philippines, Malaysia, Singapore, Thailand and now China (and Hong Kong) are currently gazetted.
4HCCT No.15 of 2010.