Innovating the future: recent changes and developments in global and regional arbitral institutions
It is obvious that the influence of Asian countries and the Asian market is growing in the global economy. The increase in cross-border transactions by leading companies in Asia has resulted in an increase of international disputes. The importance of international arbitration in resolving these disputes is also being emphasised, and major Asian countries and arbitral institutions are strengthening their ability to respond to the growing needs of international arbitration. In this article, we examine the recent developments of major Asian countries related to international arbitration and outline how Korea and KCAB INTERNATIONAL are making efforts to target the Asian market.
- The significance of Asian markets for international arbitration
- Arbitral progress in major Asian countries
- Korea as an important economic player in Asian markets
- KCAB’s efforts to be a leading institution
Referenced in this article
- Singapore International Arbitration Centre
- Hong Kong International Arbitration Centre
- Shanghai International Economic and Trade Arbitration Commission
- Japan Commercial Arbitration Association
- KCAB INTERNATIONAL
- KCAB’s International Arbitration Rules
- KCAB’s overseas offices
Introduction: the significance of Asian markets for international arbitration
Asia, with its rapid economic growth, is appearing to shift the centre of the global economy. As the world’s largest economic region, Asia has shown steadily increasing growth rates over the past years and its regional economy is quickly bouncing back from the pandemic. According to the IMF 2021 report, the real GDP growth in the Asia-Pacific is expected to be 6.7 per cent, surpassing the anticipated growth rate in other regions. According to the World Trade Organization’s World Trade Report 2020, the Asian powerhouses, including Korea, China, India and Japan, contribute almost 40 per cent of the world’s research and development. A notable phenomenon in the midst of Asia’s growing economies is integration: intra-regional ties among Asian countries have become much stronger. In November 2020, the Association of Southeast Asian Nations hit its crucial milestone of signing the Regional Comprehensive Economic Partnership, an agreement accounting for nearly a third of the global economy.
Alongside the expansion of economic influence, the demand for effective cross-border dispute resolution methods has naturally grown as well; in particular, international arbitration has become one of the most popular dispute resolution mechanisms of cross-border disputes in Asia. To meet this demand, regional arbitral institutions are concentrating their efforts on implementing significant changes to encourage more arbitration users to adapt to international arbitration trends.
Arbitral progress in major Asian countries
Singapore, with its reputation as a neutral venue for international commercial arbitration, has established its position as Asia’s leading alternative dispute resolution (ADR) hub over the past 20 years. Its common law system, fluent English usage and geographic location, supported by social and legal infrastructure, are a few of the characteristics that make it the preferred option for both Western and Eastern users.
The Singapore International Arbitration Centre (SIAC), the leading arbitral institution in Singapore, has enforced its arbitration in many jurisdictions, including China, India, the United Kingdom and the United States, and other New York Convention signatories. SIAC provides relatively competitive costs and efficient case management services to parties from all over the world.
In 2020, SIAC opened its New York office, its first office outside Asia. This is an important milestone in the institution’s global growth, with US parties consistently ranking among the top foreign users of SIAC. US parties topped SIAC’s foreign user rankings in 2018, and over 500 US parties arbitrated under the SIAC Rules in 2020 alone.
Hong Kong also serves as a representative international arbitration hub in Asia. Hong Kong is ranked among the top five seats of arbitration worldwide, with six arbitral institutions facilitating international arbitration. Moreover, with support from the Chinese government (ie, supporting access to interim measures of arbitration in Hong Kong to be enforced in mainland China), many parties in China-related disputes choose Hong Kong to seek relief.
The Hong Kong International Arbitration Centre (HKIAC), one of the esteemed arbitral institutions in Hong Kong, has the most extensive caseload involving Chinese parties among all international arbitral institutions, maintaining a solid record of enforcement in China. The HKIAC administers the most ad hoc arbitrations among all regional arbitral institutions, proving Hong Kong’s steady position as a neutral venue in international arbitration.
China is undoubtedly the largest market for ADR with the heavy caseloads of its arbitral institutions. With over 200 local arbitration institutions, China has already built up its domestic ADR system. To bring the arbitration-friendly environment in China to the next level, China gradually opened its arbitration market to foreign arbitration institutions by allowing them to establish operating offices in Shanghai and Beijing in 2019 and 2021, respectively. As a major arbitral institution in China, the China International Economic and Trade Arbitration Commission (CIETAC) has shown remarkable growth in the past decade with a 605 per cent increase in disputed amounts. The Shanghai International Economic and Trade Arbitration Commission (SHIAC) is an another notable arbitral institution in China. With strong support from the Chinese government, Shanghai has made progress in promoting itself as a global financial and arbitration hub, and a growing number of financial disputes have been filed with the SHIAC.
Japan has a stable, modern, sophisticated democracy and the world’s third-largest economy. Despite its dominant economic position, Japan has room for improvement in its use of arbitration as a dispute resolution method when compared with other nations.
Established in 1950, the Japan Commercial Arbitration Association (JCAA) is now aiming for innovation. The JCAA now has three sets of arbitration rules, which came into effect in 2019: the JCAA Commercial Arbitration Rules; the JCAA Interactive Arbitration Rules; and the JCAA UNCITRAL Arbitration Rules. Separate from the JCAA, the Japan International Dispute Resolution Centre (JIDRC) was established in 2018 as a joint undertaking of the public and the private sectors. On 3 December 2020, KCAB INTERNATIONAL signed a memorandum of understanding (MOU) with the JIDRC to develop further cooperation.
On 12 October 2020, the new Tokyo hearing facility of the JIDRC officially launched in Japan after the JIDRC Osaka, its first hearing venue, was established in a former Ministry of Justice building in May 2018. These actions demonstrate Japan’s desire to increase its popularity as a seat for international arbitration.
Other Asian countries
South East Asia has become another of the world’s major economic blocks, with high population growth continuing to drive demand for large-scale infrastructure projects and a rapidly expanding digital and consumer economy. While this generates significant opportunities, the associated risks can often lead to disputes. Owing to the diverse characteristics of commercial disputes across the region, such as different business cultures, languages and legal systems, it has been a common challenge for users to find effective resolution of disputes.
Vietnam, in particular, is making notable efforts to improve accessibility to arbitration. In 2019, the Korean Commercial Arbitration Board (KCAB) established a Hanoi office as the first and only foreign arbitration institution in Vietnam. In 2017, two KCAB awards were recognised and enforced in Vietnam, signifying the Vietnamese courts’ support for the use of international arbitration as a dispute resolution mechanism. In 2019, the Vietnam International Arbitration Centre (VIAC) registered 274 new cases, up from 179 cases in 2018.
Malaysia’s Asian International Arbitration Centre (AIAC) modernised its arbitral rules and launched its i-Arbitration Rules in 2018. In 2013, Cambodia launched its National Arbitration Centre and Myanmar acceded to the New York Convention. Meanwhile, the region has experienced a rise in investor-state arbitration resulting from the growth of its bilateral investment treaty and free trade agreement portfolio. With cross-border (including inter-regional) investment still on the rise in Asia’s emerging markets, the trend of opting for arbitration is expected to last for quite some time.
As one of the fastest-growing economies in the world, India has recognised the need for an efficient and effective ADR system that could boost investor confidence and promote business and investments. However, excessive judicial interference, long delays and high costs continued to interfere with the arbitral process for about two decades after it was enforced. Despite 35 arbitral institutions and several sets of rules in place in India, the use of ad hoc arbitration has been predominant in practice.
Korea: a major economic player in Asian markets
Commercial arbitration is used extensively in Korea as a means of resolving disputes. With the continuous increase of international transactions in Korea, or those involving Korean parties, the country has recognised the significance of international arbitration and is endeavouring to establish itself as an international arbitration hub in north-east Asia. The national interest in arbitration is naturally leading to the growth of KCAB, the only commercial arbitral institution legally authorised in Korea.
It is expected that Korean companies will continue to seek outbound investment in foreign countries. This may increase the caseload for KCAB, as most domestic companies are unfamiliar with the rules and systems of foreign arbitral institutions. More importantly, Korea’s more dominant presence in the global economy will lead to an increase in the number of cross-border disputes, many of which could be resolved by international arbitration. Korean companies have shown their willingness to refer to international arbitration as they are well aware that it takes more time and cost to settle a dispute through litigation.
Korea-related parties are expected to hold greater bargaining power or leverage in international transactions, thereby potentially increasing calls for KCAB. This leads to the question of what makes Korea an ideal seat for international arbitration for counterparties to give their consent.
Background for promoting arbitration in Korea
Importance of Asian markets for Korea
The Asian market overall has played an important role for Korea. In terms of trade, Korea substantially increased its exports to Asia, from US$58.9 billion in 2008 to US$297.5 billion in 2018. Now, East Asian countries account for nearly 50 per cent of Korea’s total exports; in particular, more than half of Korea’s exports to Asia are to China, while trade with Japan has been continuously decreasing. Notably, trade with the ASEAN market has been gradually increasing. Vietnam is currently one of the largest markets, accounting for 16.3 per cent of Korean exports in 2018. The importance of Korea’s role as an investor is rapidly increasing in East Asia. In 2019, outbound investment from Korean corporations hit a record high of US$61.85 billion, jumping 21 per cent from the previous year. China is again the most favoured destination for Korean corporations’ investments, followed by Singapore and Vietnam.
Korean businesspeople based around the world are known as Hansang in Korean. Their influence and network are more prominent than their volume. According to the Ministry of Foreign Affairs, at the end of 2018, the number of Hansang living abroad reached about 7.5 million across 180 countries. This number is increasing every year, in particular in Vietnam, where Korean companies have become more active in investing. As is well known in Vietnam, Korea has recently overtaken Japan as the country contributing the most foreign direct investment.
The scale of trade through Korean entrepreneurs is steadily increasing, and trade is extending beyond basic trade in goods to high-value-added sectors. As the population of Hansang is growing, along with their capabilities, an increase of disputes related to the group is expected. Arbitration in Korea can be greatly beneficial for both parties in resolving cross-border disputes related to Korea.
Korea, one of the first Asian countries that adopted the UNCITRAL Model Law on International Commercial Arbitration, has established a strong legal framework that promotes international arbitration as a primary dispute resolution mechanism for cross-border disputes. In 2016, the Korean government incorporated the 2006 amendment to the UNCITRAL Model Law into its domestic law by amending the Korean Arbitration Act. KCAB also revised its international arbitration rules in the same year. In 2017, the government enacted the Arbitration Industry Promotion Act, which mandated the Ministry of Justice to devise and implement specific plans to promote international arbitration in Korea.
Korean courts are also well known for their efficiency, reliability and support for international arbitration through the recognition and enforcement of foreign arbitral awards, unless there are clear reasons to vacate them. According to the World Bank’s 2020 Doing Business Report, Korea ranked second in the area of enforcing contracts. Moreover, South Korea was chosen by Delos Dispute Resolution’s Guide to Arbitration Places, a renowned study among international arbitration practitioners, as one of three Asian countries to consider as an arbitral seat, along with Singapore and Hong Kong.
Korea is a globalised society. A large number of Koreans study abroad at an early age and gain overseas work experience. As a consequence of the influx of people who are fluent in other languages and familiar with other cultures, Korean society has become more diverse. Korean law firms and companies have benefited from this by hiring Korean lawyers educated and trained in the United States and other jurisdictions. Therefore, considering the inherent characteristic of international arbitration, Korea is better positioned to compete in this field. Korean legal society is diversifying with the support of the courts and the development of global human resources.
Mature civil law system
Korea is a civil law country. However, unlike other civil law jurisdictions, Korea adopted certain common law provisions in its legal system that enhance its attractiveness as an arbitral seat. For example, it allows cross-examination during court procedures and lawyers are obligated to preserve confidential information about their clients in the course of their duties under attorney–client privilege. This unique blend of common law features with Korea’s civil law is arguably one of its strengths. With the exception of Singapore and Hong Kong, most other jurisdictions in Asia are built upon the civil law system. As a result, disputes arising between civil law countries, for example between Chinese and Japanese parties, can be settled in a more balanced way in Korea.
Geographical proximity to Asian powerhouses
Korea is located in the heart of East Asia and is surrounded by other Asian powerhouses, including China and Japan. As one of the world’s most dynamic and technology-driven countries, and as a renowned centre for international business, Korea has some of the world’s largest and fastest-growing companies.
Korea’s handling of the covid-19 pandemic flattened the curve of the virus without closing businesses, issuing stay-at-home orders or implementing many of the stricter measures adopted by other countries – an approach that was widely praised around the world. Thus, KCAB was able to administer domestic hearings and conduct relevant arbitral proceedings despite the pandemic.
KCAB’s efforts to be a leading institution
As previously discussed, several statistics reflect the growing use of international arbitration by Korean companies. According to the 2019 report presented by the International Chamber of Commerce, Korea ranked third among the Asian-Pacific countries for the most common party nationality (of the 869 newly filed cases, 57 were of Korean nationality). In 2018, SIAC also identified Korean nationals as one of the top 10 foreign users (of the 402 newly filed cases, 41 were Korean nationals).
The number of arbitration cases involving international (non-Korean) parties has continued to grow over the past few years – an average of more than 70 cases were brought under KCAB International Arbitration Rules. Moreover, the nationalities of parties in KCAB arbitration cases have diversified, with around 30 different countries represented.
To meet the growing demand for cross-border commercial dispute resolution, KCAB INTERNATIONAL was established on 20 April 2018 as an independent division of KCAB. Since its establishment, KCAB INTERNATIONAL has made significant improvements in its overall service, adopting a much more user-friendly manner. KCAB INTERNATIONAL specialises in international arbitration to ensure that disputes are resolved in a cost-effective and time-efficient manner as part of a streamlined process. Enlisted with leading experts and professionals with abundant experience and expertise in international dispute resolution, KCAB INTERNATIONAL further enhances Korea’s status as a premier international dispute resolution centre in Asia and beyond.
Revision of rules
Following the amendments to the Korean Arbitration Act, KCAB introduced its 2016 International Arbitration Rules (the 2016 Rules). Some of the significant changes made in the 2016 Rules include the introduction of:
- provisions that allow for more efficient case management, including consolidation and joinder, as well as an increase in the claim amount for the expedited arbitration from 200 million won to 500 million won;
- emergency arbitrator proceedings;
- measures to increase fairness in appointing arbitrators, including the requirement for arbitrators to sign and submit statements showing their acceptance, impartiality and independence, and the changes in the parties’ choice of arbitrators from appointment to nomination; and
- provisions defining conservatory and interim measures.
Currently, KCAB INTERNATIONAL is working on revising the 2016 Rules to reflect new international arbitration trends.
To meet the sophisticated standard of global users, KCAB INTERNATIONAL has been refining its internal protocols and related guidelines. In 2018, it started the Fundholding Service to meet the demand of arbitration users. The ‘Practice Note on Case Administration and Appointment of Arbitrators for Cases under the UNCITRAL Rules’ and the ‘Schedule of Costs for Appointment Service for UNCITRAL or other Ad Hoc Arbitrations’ will also be announced this year. In addition, KCAB INTERNATIONAL is preparing its guidelines on the emergency arbitrator procedure to ensure procedural transparency. This procedure was carried out for the first time in March 2021.
Diverse nationalities on panels and in appointments
KCAB INTERNATIONAL’s panel of arbitrators consists of domestic practitioners, worldwide legal experts, international arbitrators and industry specialists. The diversity of this panel directly facilitates the flexibility and efficiency of KCAB’s international arbitration.
KCAB already has a dedicated panel of over 500 carefully selected international arbitrators with a range of expertise from over 40 jurisdictions. It reviews its panel’s qualifications twice a year to make sure its users are offered the best experience possible.
In June 2020, KCAB INTERNATIONAL announced that 53 arbitrators would be joining its Panel of International Arbitrators based on applications received during the first half of 2020. Of the newly selected arbitrators, 81 per cent are non-Korean. Arbitration practitioners from both civil and common law jurisdictions representing 21 different jurisdictions have joined, some associated with emerging markets, including Russia, Denmark, Malaysia, Iran, Ukraine and Nigeria. Through the recent intake, KCAB INTERNATIONAL now has 545 arbitrators on its international panel.
In addition, of all the arbitrators nominated by the parties and the Secretariat during 2020, 36 per cent were non-Korean and 18 per cent were women. Further, 23 per cent of the appointments were ‘first-timers’ to KCAB’s international cases, showing that seasoned arbitrators with experience in other institutions were accepting their first cases to KCAB.
Preparation for international mediation
In response to the growing demand for international mediation services after the signing of the United Nations Convention on International Settlement Agreements Resulting from Mediation (the Singapore Convention) in August 2019, KCAB INTERNATIONAL established a new division for international mediation to adopt global developments and provide high-quality services to its users.
On 6 August 2019, KCAB INTERNATIONAL signed an MOU with the Singapore International Mediation Centre (SIMC) to jointly promote international commercial mediation. The MOU was signed at the Mediation: A New Era Forum, which was held on the eve of the signing of the Singapore Convention. By maintaining close cooperation with leading mediation institutions, KCAB INTERNATIONAL is making significant progress in international mediation. It is now enacting international mediation rules to meet the growing demand for this service. To enact these rules, it has established a task force of prominent internal and external experts, including Ms Sue Hyun Lim, the secretary general of KCAB INTERNATIONAL. Following this work, KCAB INTERNATIONAL is now developing its education programmes to cultivate and train international mediators and related personnel.
Technological advances and innovation in virtual hearings
Virtual hearings at KCAB INTERNATIONAL are conducted with the assistance of the Seoul International Dispute Resolution Centre (SIDRC). The SIDRC offers virtual hearing services that use a cloud-based web conferencing platform to encrypt all information and data exchanged and transmitted on the platform. In addition to this end-to-end encryption, the SIDRC’s virtual hearing services eliminate any security and confidentiality concerns by implementing several steps to check the identity of all participants in the hearing. The Seoul Protocol on Video Conferencing in International Arbitration (the Seoul Protocol) was introduced and drafted at the 7th Asia Pacific ADR Conference held in Seoul in 2018. Since then, it has been revised and updated in compliance with comments from the SIDRC.
In 2020, the number of virtual hearings held increased by 200 per cent compared to 2019, and more than 20 webinars were held to promote KCAB’s services to foreign users. As vaccinations are gradually being distributed around the world, the risk of covid-19 is expected to reduce. However, the ‘new normal’ that was established during the pandemic will prevail in international arbitration, and virtual hearings will continue to develop and be used in the future. KCAB INTERNATIONAL is well prepared for this.
Focus on foreign offices
In addition to its Seoul and Busan offices, KCAB has expanded its reach, making it a global hub of international arbitration users.
In 2016, KCAB launched its first overseas office in Los Angeles (LA), United States. LA has the largest population of Koreans outside Korea. To meet the growing demand for dispute resolution methods in Korean cross-border commerce, the LA office is focusing on the promotion of arbitration in Korean society in the United States and is conducting research on the international arbitration system in the United States.
In 2017, another overseas office was established in Shanghai, the international city of China. It aims to support better settlement of commercial disputes between Korea and China and meet arbitration users’ needs throughout China. Since 2016, China has gradually opened up its arbitration market to foreign arbitration institutions, and has established a few case management institutions. The Shanghai office is actively engaged in the arbitration community in China and is making notable progress in promoting KCAB INTERNATIONAL, not only in Shanghai but throughout the country.
In 2019, KCAB officially opened its overseas office in Hanoi. It is the first foreign arbitration centre to be given approval to open an office under Vietnam’s Law on Commercial Arbitration 2010. Korea has consistently been one of the top foreign investors in Vietnam in recent years and this office aims to promote KCAB’s dispute resolution services as well as the development of ADR services in Vietnam.
The common keyword of the three overseas offices is Hansang. As previously discussed, the volume of trade conducted by Korean businesspeople working in various industries overseas continues to increase rapidly. The main goal of KCAB INTERNATIONAL and its overseas offices is to provide efficient resolution methods to disputes arising from the Hansang’s cross-border commerce. The overseas offices are responsible for consulting on arbitration for local and Korean businesspeople in each country. In addition to providing consulting services for this group, through close cooperation and communication with international arbitral institutions, academia, industry circles and legal circles, the overseas offices are seeking better opportunities to develop international arbitration, including but not limited to research, seminars and MOUs.
The year 2020 was extraordinary for everyone, and KCAB INTERNATIONAL was no exception. However, we have overcome the difficulties resulting from covid-19 and developed our international arbitration practice (eg, by introducing virtual hearings after travel bans were instituted). We have adjusted to our ‘new normal’ and are preparing for the post-pandemic era.
Asia is the world’s largest economic region and there is still significant room for further economic development, especially in the post-pandemic era after a fast recovery from covid-19. The recent growth of international arbitration in Singapore, Hong Kong, China and Japan, among others, is evidenced by the efforts of regional arbitral institutions to transform themselves into international arbitral institutions through globalisation.
As the importance of the Asian market continues to grow, the influence of Korea-related commerce will become more prominent. In particular, forms of trade are being diversified into high-value-added industries such as finance, IT and culture, beyond the simple import and export of goods, thus pre-emptive preparation is much needed. As one of the powerhouses in Asia, Korea is a major player in the Asian market and has become one of the ideal arbitration seats in Asia with its mature legal infrastructure and proximity to other Asian powerhouses.
KCAB INTERNATIONAL, established in 2018, has successfully developed and transformed into a prominent global arbitral institution within a short period. With its constant innovation, it is ready to become the leading arbitral institution, not only in Asia but around the world.
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 Pawel Pasierbiak, The Position of South Korea in East Asian Regionalization in 21th Century, World Economy Brief, KIEP, Vol. 9
 Grant L Kim, Korea’s ‘Bali Bali’ Growth in International Arbitration, 15 Pepp Disp Resol L J 615 (2015), available at: https://digitalcommons.pepperdine.edu/drlj/vol15/iss3/7.
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 Internal statistics of KCAB INTERNATIONAL.