International Arbitration in South and East Asia — Opportunities, Challenges and the ICC Experience

The year 2008 witnessed a number of important and historical events for international commercial arbitration, the International Chamber of Commerce (ICC) and the ICC International Court of Arbitration (ICC Court).

The New York Convention of 1958, the most important multilateral treaty on international commercial arbitration, celebrated its 50th anniversary this year. The ICC was at the forefront of the development of the New York Convention and has further marked its support for the Convention by compiling a report on the procedural requirements for enforcement of awards in over 60 countries around the world.

The 1998 edition of the ICC Rules of Arbitration (ICC Rules) also celebrated its 10th anniversary this year. Since its promulgation in 1998, the ICC Court has witnessed considerable growth in arbitration. By the end of this year, the ICC Court expects to have administered more than 16,000 arbitrations under the ICC Rules and to be managing an active caseload of around 1,350 cases.

Much of the growth in commercial arbitration has occurred in Asia. In recognition of this fact and to demonstrate its commitment to the region, the ICC Court has now opened an office in Hong Kong and will shortly do the same in Singapore. The Hong Kong office accommodates a new case management team of the ICC Court's Secretariat and will be fully operational by the end of this year. The office in Singapore will house a liaison office dedicated to ICC Dispute Resolution Services.

While all of these events underline the continued growth and success of international arbitration, especially ICC arbitration, as a means of dispute resolution, the opening of the ICC's new offices in Asia is a particularly significant development for the ICC.

The decision to locate a team of specialised case managers to administer arbitrations outside of Paris, the historical headquarters of the ICC Court and its Secretariat, is a first for the ICC. The objective is to bring high-quality service, which is the hallmark of ICC arbitration, closer to the users of ICC arbitration in Asia and provide them with the benefits of direct and local contact to dedicated case administrators and arbitration lawyers in the same time zone and having specialised experience and knowledge of the region. The ICC Court will continue to sit in Paris, at least for the time being, but will work with the Asian branch of the Secretariat on a regular basis using modern communications, including a dedicated video conferencing link and case management intranet.

The growth of international arbitration in South and East Asia is a story worth tracing. The ICC experience of international arbitration in South and East Asia has been well documented on an annual basis since June 1990 in the Court's annually published statistical report. While these statistics confirm that the ICC Court's experience in South and East Asia continues to be one of great opportunity for the users of international arbitration, both within and outside of the region, there remain a number of challenges to the region which we explore below.

Parties to ICC arbitration

Since the ICC Court first published statistics, parties have participated in ICC arbitration from almost every country in south and east Asia, including Bangladesh, Brunei, Cambodia, China (including Hong Kong), India, Indonesia, Japan, Laos, Malaysia, the Maldives, Mongolia, Pakistan, the Philippines, Singapore, Sri Lanka, Nepal, North Korea, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.

In 1980 (the first year concerning which the ICC has published statistics), only 2.5 per cent of all parties in ICC arbitration came from South and East Asia, while 64 per cent were recorded as being from Western Europe. Ten years later in 1989, the number of parties from South and East Asia had tripled to 8.7 per cent of all parties, while the number of parties coming from Western Europe had decreased to 56.2 per cent.

Within a further five years, the number of parties from South and East Asia (11.5 per cent) had surpassed the number of parties from North America (10.1 per cent).

In 1998, at a time when 1,151 parties participated in ICC arbitration, the number of parties from South and East Asia had risen to its all time high in percentage terms of 19.5 per cent of all parties.

In 2007, of the 1,611 parties involved in ICC arbitration, 190 were from South and East Asia (11.8 per cent), behind Western Europe with 707 parties (43.9 per cent) and Latin America and the Caribbean with 200 (12.4 per cent). Further figures show that 184 parties came from Central and Eastern Europe (11.4 per cent) and 156 parties came from North America (9.7 per cent). Although final figures are not yet available for 2008, a further rise in the number of cases emanating from Asia is expected, confirming the growth trend.

From the late 1980s until today, Indian, South Korean and Chinese parties (including Hong Kong) have remained consistently among the most frequent users of ICC arbitration from the South and East Asia region. In 2007, 42 parties from India, 40 from South Korea and 27 from China (including Hong Kong) participated in cases under the ICC Rules.

Interestingly, however, the number of participating parties from particular countries within the region has in certain years been especially high. For example, in 1998, 21 parties from Pakistan and 19 parties from Singapore; in 1999, 69 parties from India and 22 parties from Thailand; in 2001, 31 parties from Japan; in 2004, 52 parties from the Philippines and 32 parties from China (including Hong Kong); in 2006, 12 parties from Sri Lanka; and, in 2007, 12 parties from Malaysia.

Arbitrators

In 1992, despite the significant increase in the number of parties from South and East Asia (7.7 per cent of all parties, compared to 3.3 per cent 10 years earlier), of the 249 arbitrators confirmed or appointed by the ICC Court, only 10 came from South or East Asia. Moving forward to 1999, of the 849 arbitrators confirmed or appointed by the ICC Court, 49 were from South and East Asia.

In 2007, 1,039 arbitrators were confirmed or appointed by the ICC Court, of which 53 came from South and East Asia.

Reviewing the breakdown of arbitrators coming from South and East Asia, arbitrators from Singapore have consistently featured as being the most confirmed or appointed by the ICC Court. More recently, however, while Singaporean arbitrators still figure highly (for example, 20 out of the 53 arbitrators from South and East Asia in 2007 were Singaporean), the number of appointments and confirmations of arbitrators from India, China (both from mainland China and Hong Kong), Malaysia, Japan, Thailand and South Korea have been increasing.

Place of arbitration

In 1982, no city in South or East Asia was recorded as having been designated as the place of arbitration, either by the parties or the ICC Court.1 However, by 1991, the place of arbitration was designated in South and East Asia 17 times.

By 1999, 42 ICC arbitrations were taking place with the place of arbitration in South and East Asia and most recently, in 2007, 47 ICC arbitrations had as the place of arbitration a city in the region.

Since 1992, the place of arbitration has been designated in a city in the following South and East Asian countries: Bangladesh (nine times), China (80 times, and in Hong Kong 64 times), India (58 times), Indonesia (eight times), Japan (37 times), Laos (two times), Malaysia (12 times), Nepal (six times), Pakistan (nine times), the Philippines (15 times), Singapore (180 times), South Korea (24 times), Sri Lanka (23 times), Taiwan (eight times), Thailand (26 times), and Vietnam (three times).

Recently, in 2007, Singapore, Hong Kong and Seoul were most frequently designated as the places of arbitration in South and East Asia (17, seven and six occasions, respectively).

Opportunities and challenges

The growth of ICC arbitration in the South and East Asia region, especially from the mid-1990s onwards in terms of the number of parties, has been remarkable. Equally remarkable has been the geographic spread of the users of ICC arbitration in the region, with almost every country in South and East Asia represented.

Parties from the region are involved in the whole range of arbitrations conducted pursuant to the ICC Rules. The subject matters are diverse and so is the quantum at issue. A popular myth about ICC arbitration is that it is only used for high-value disputes. In fact, almost 60 per cent of all ICC cases have a value below US$10 million. That said, some of the largest ICC arbitrations — where claims exceed US$1 billion — have involved parties from South and East Asia or with the place of arbitration being located in the region, or both.

Another telling statistic is that a significant number of ICC cases are between parties who all share the same nationality. In 2007, for example, 19 per cent of all cases filed were between parties of the same nationality. This willingness to use ICC arbitration to settle domestic disputes has also been shared by parties from South and East Asia.

To reflect the important growth of ICC arbitration in regions such as South and East Asia, the ICC Court has itself grown in size and diversity. For example, members have been appointed to the ICC Court from Bangladesh, China, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, Nepal, Pakistan, Philippines, Singapore, Sri Lanka, Taiwan, and Thailand.

The depth and breadth of the membership of the ICC Court, including those members from South and East Asia, is an important feature of ICC arbitration, ensuring an inclusive and high-quality decision making process that benefits from the experience of some of the leading arbitration practitioners from the region. This diversity also provides the users of ICC arbitration with confidence in its independence, knowing that the ICC Court's decisions are made after having received input from the many cultural and legal perspectives of its members.

While the number of arbitrators coming from South and East Asia may appear disproportionate to the number of parties, there has nonetheless been consistent growth and an important diversification in South and East Asian arbitrators. It is expected that as the place of arbitration is more frequently designated within the region, the number of South and East Asian arbitrators in ICC cases will also increase.

Also, the statistics do not reflect the growing number of foreign lawyers residing in the region who act as arbitrators, possessing experience and specialised legal and language skills from many of the jurisdictions in South and East Asia. The need for experienced arbitrators from the region is also increasing in importance given the growing number of awards rendered in a language other than English, with the court having recently approved, for example, awards rendered in Korean, Mandarin, Japanese and Thai. The Secretariat of the ICC currently has the ability to work in 22 different languages.

Within the last 15 years, an ICC arbitration has taken place in most countries in South and East Asia. While Singapore and Hong Kong have historically been the regionally favoured places of arbitration, other cities have also come into favour by parties as being neutral and reliable forums for their arbitrations, in particular in South Korea, Japan and Malaysia. Indeed, the court itself has on recent occasions fixed the place of arbitration in Seoul, Tokyo and Kuala Lumpur and is likely to do so more in the future where the court considers that a venue has the support of the local courts. As more countries in the region reform and update their arbitration laws, it can be expected that cities in South and East Asia will continue to increase in popularity as places of arbitration. This is to be expected not only in terms of party confidence in their neutrality and pro-arbitration legal regimes, but also in terms of minimising costs relative to the more traditional centres of arbitration.

This brief overview of the ICC Court's experience in South and East Asia demonstrates that parties from the region have quickly become confident users of international arbitration, thereby providing opportunities to local and foreign businesses outside of the more traditional dispute resolution methods and outside of the more traditional arbitration centres.

However, in order for users to fully benefit from these opportunities and make the most of the potentials that international arbitration has to offer the region, a number of challenges still remain.

Despite legislative reform, there remain concerns in several countries within South and East Asia about the level of judicial intervention in arbitrations, not only where the place of arbitration is in the country of a particular court, but even where the place of arbitration is not situated within the country of that court. The basis for these interventions is often unclear and their effect can be to stop or significantly delay the conduct of the arbitration, increasing the time and cost to the parties to finalise the arbitration.

In mainland China, great progress has been made in some areas. For example, the users of international arbitration have received clarification from the courts on the extent to which express reference must be made to an arbitral institution in an arbitration clause for the purposes of its validity under Chinese law.2

That said, uncertainty still exists in other areas. For example, the extent to which a foreign arbitral institution, such as the ICC Court, may administer an arbitration where the place of arbitration is in mainland China remains unclear. This is an important issue because mainland China is quite often designated as the place of arbitration for arbitrations administered by foreign arbitral institutions. In the ICC's experience, since 1992, parties have agreed to the place of arbitration being within mainland China on 16 occasions. There continues to be a disjunction between the expectations or understanding of parties and the Chinese arbitration law in this regard. The ICC very much hopes that steps will be taken in China to resolve these lingering ambiguities.

In India, a country in which 58 ICC arbitrations have taken place between 1992 and 2007, stamp duty is imposed upon arbitral awards rendered in many states. The payment of this stamp duty is effectively a condition to the enforceability of an award in India. However, there remains considerable uncertainty for both parties and arbitrators as to the extent to which stamp duty is payable and how and by whom it should be paid. Such uncertainties cause delay in finalising the award as well as its enforcement, particularly where foreign arbitrators or parties are involved. Clarification in this regard would greatly assist parties and arbitrators to reduce the time and costs involved with finalising arbitrations and enforcing awards.

In its administration of cases from South and East Asia, the ICC Court also observes a number of problematic arbitration clauses which have the potential to disrupt arbitrations and jeopardise awards. Parties from Asia often modify the ICC standard arbitration agreement to provide for bespoke methods of appointing the arbitral tribunal or administering the cases. More often than not this gives rise to problems.

Recently, the ICC Court has administered a number of cases involving parties from South and East Asia in which the mechanism agreed to by the parties for the constitution of the arbitral tribunal has created significant uncertainty and delay. For example, a number of arbitration clauses have insufficiently accounted for the possibility of multiple parties being involved in the arbitration, or have modified the time limits to nominate an arbitrator as contained in the ICC Rules to such an extent that some time limits have expired even before a request for arbitration has been filed with the ICC Court. Carefully drafted arbitration clauses can assist in minimising the potential for difficulties and delays in the constitution of the arbitral tribunal.

Another issue which has attracted much public attention is the problem of arbitration clauses providing for arbitration under the ICC Rules, but that purport to permit another arbitral institution to administer the case.3 Often it would appear that parties that have concluded such agreements do so in the misguided belief that they will get the best of the ICC system of arbitration but at a lower cost. There remains a perception that ICC arbitration is expensive. It is not, but perhaps, more importantly, the drafting of such clauses can lead to significantly increased costs for the parties.

While each case will turn on its particular facts and it is not our intention in this article to comment on any particular case, there is a real danger in drafting clauses that attempt to mix the roles of different institutions. The ICC Court and its Secretariat are unique organs, both in terms of their constitution and the functions they perform under the ICC Rules. The conduct of any arbitration under the ICC Rules is inextricably linked with the ICC Court and its Secretariat, who alone can exercise the powers and functions conferred on them by the Rules.

Take, for example, one of the most distinctive features of the ICC Rules — the scrutiny of draft awards. Only the ICC Court, with its unique constitution, internal practices and vast experience in having approved many thousands of arbitral awards can provide parties with the quality assurance of the ICC scrutiny process. The same observation can be made of other aspects of the ICC Court's administration of the ICC Rules, for example, the confirmation, appointment and removal of arbitrators, the terms of reference and the management of the financial aspect of cases.

An award that has not been approved by the ICC Court is not an ICC award made in accordance with the parties' arbitration agreement. Arbitration agreements which purport to provide otherwise are to be discouraged and parties should be wary of claims that the ICC Rules can be administered by other institutions. Parties cannot be assured of the quality of an arbitration award or, more importantly, that it will be enforceable as an award rendered pursuant to the ICC Rules.

Problematic arbitration clauses are not of course unique to South and East Asia. However, it is probably fair to say that, in the ICC's recent experience, we see a higher proportion of pathological clauses emanating from the region than from elsewhere. The challenge is therefore to educate the legal and business community and to promote simple and effective drafting.

***

The experience of ICC arbitration in South and East Asia is an interesting prism through which to view the globalisation of international arbitration. The speed with which South and East Asia has embraced international arbitration is quite remarkable, with the region moving from the farthest margins of ICC arbitration to centre stage within a matter of years. And, although a number of challenges remain, if the foregoing is anything to go by, the future in terms of overcoming these challenges appears to be very promising. The ICC Court and its Secretariat are committed to working closely with businesses, lawyers, governments and the judiciary in the region to increase awareness of international best practices in this regard.

It must also be said that the traffic flow of knowledge and expertise in international arbitration has not all been inward bound. Many countries in the region have long been at the forefront of combining international arbitration with other forms of dispute resolution, such as mediation. Innovative experiences from the region, such as these, can be shared with the rest of the world, to enhance the richness and flexibility of international arbitration as a means of dispute resolution and minimise time and costs for its users.

It is clear that international arbitration in South and East Asia will continue to develop and provide parties with an efficient and independent means to resolve their commercial disputes. The ICC Court very much hopes that its decision to open offices in Hong Kong and Singapore will assist in this process.

Notes

1. In the large majority of cases, the parties agree upon the place of arbitration. For example, in 2007, the parties agreed upon the place of arbitration in 85.2 per cent of cases; the court having fixed the place of arbitration in the absence of the parties' agreement in 14.8 per cent of cases.
2. See, for example, Interpretation of the Supreme People's Court on Certain Issues Relating to Application of the Arbitration Law of the People's Republic of China, 23 August 2006.
3. For examples and a discussion of such clauses, see: Davis, Benjamin G 'Pathological Clauses: Frederic Eisemann's Still Valid Criteria'. Arbitration International, Vol. 7, No. 4 (1991), pp377—378.

Get unlimited access to all Global Arbitration Review content