Arbitration in Asia

Education and infrastructure

The last two years have seen the continued growth of arbitration in Asia. Many studies have reported impressive increases in the number and value of cases that are being handled by the leading arbitral centres in Asia.

Keeping pace with the growing caseload, Asian arbitration centres and institutions continue to develop both in terms of organising educational initiatives to promote and support international arbitration, and establishing new physical infrastructure to handle the increasing caseload.

It is not possible to exhaustively list all the efforts that have been undertaken in the past two years in this respect. What is key, however, are the efforts being undertaken by leading arbitral institutions and centres in developing Asian economies and the receptiveness with which these initiatives have been met. For instance, the National Commercial Arbitration Centre (NCAC) in Cambodia has completed work on its Arbitration Rules and its Code of Conduct and has recently announced that it 'is finally ready to take on its first case'.1

In Indonesia, BANI Arbitration Center (as the local organiser of ICCA) conducted, in October 2013, a Roadshow Seminar on the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) in collaboration with the Indonesian Supreme Court and supported by the USAID programme Changes for Justice.2 The seminar was aimed at expanding the knowledge and awareness of judges from various cities in Indonesia on the importance of international arbitration and the New York Convention. These are, no doubt, laudable developments that would go some way towards dispelling the perception that Indonesia is not arbitration-friendly.3

In terms of physical infrastructure, as noted in the 2014 edition of this review, the Seoul International Dispute Resolution Centre (SIDRC) opened in May 2013, providing a convenient and new venue to handle complex international arbitration cases.4 In 2014, the Kuala Lumpur Regional Centre of Arbitration (KLRCA) intends to open its new arbitration centre at the Suleiman Building, which will boast state-of-the-art facilities.5

The continuing efforts by the Asian arbitration community to promote international arbitration through education and the construction of newer and more modern arbitration facilities reflect the common understanding of the vital importance that international arbitration plays in attracting foreign investment and, indeed, in growing Asian economies.

The enthusiasm with which these initiatives have been received also reflects the receptiveness of the business community to international arbitration and a greater awareness of the pivotal role it plays in the Asian century of economic growth.

UNCITRAL Model Law in Asia

One key influence on the expansion of international arbitration in Asia is the adoption of legislation that provides for a framework that enables international arbitration to function effectively as a dispute resolution mechanism. This includes the effective recognition and enforcement of arbitration agreements and arbitration awards. In this regard, the 1985 UNCITRAL Model Law on International Commercial Arbitration (the Model Law) has played a central role.

UNCITRAL's objectives in adopting the Model Law were to address perceived inadequacies and disparities among national arbitration laws and to establish a 'vehicle for harmonisation'6 that 'reflects a worldwide consensus on the principles and important issues of international arbitration practice'.7 To the extent that the Model Law was intended to serve as a 'vehicle for harmonisation', there has been some measure of success in Asia.

As noted by Professor Julian DM Lew QC,8 many Asian jurisdictions have based their arbitration laws on the Model Law. In fact, Asia has the highest concentration of Model Law-based arbitration laws. Given the sheer number of Asian jurisdictions that have adopted the Model Law, parties may be reluctant to submit to arbitration in Asian countries that have not enacted the Model Law. As such, the number of jurisdictions that will adopt the Model Law is expected to grow.

In this respect, 2014 has seen at least one notable development. Following its historic accession to the New York Convention on 15 July 2013, Myanmar recently circulated for public consultation a draft arbitration bill which largely tracks the Model Law.9

It should be noted that Myanmar currently does not have any enabling domestic legislation that would allow its courts to recognise and enforce arbitration agreements and foreign awards in accordance with its New York Convention obligations. This is despite the fact that Myanmar's existing Foreign Investment Law allows parties to refer their disputes to arbitrations seated in other jurisdictions. The proposed bill is thus set to radically change the landscape of Myanmar arbitration law.

One significant change is the adoption of the policy of minimal curial intervention. Under the existing Arbitration Act, the Myanmar court is given wide latitude to intervene in the arbitration process at various stages. By contrast, the new bill expressly provides that there shall be no court intervention in arbitrations except as provided for therein. In that regard, while the Myanmar court is empowered to grant interim relief to support arbitrations, the Myanmar court's scope of involvement in arbitration proceedings will otherwise be significantly reduced. The progressive and pro-arbitration stance is also evident from the bill not containing any restriction on the nationality of arbitrators, the language of the arbitration or the rules applicable to the arbitration.

Certain features of the arbitration bill, however, do not cohere well with established international arbitration practice. For instance, the bill does not incorporate article 16 of the Model Law, which entitles an aggrieved party to apply to the court to review the tribunal's ruling on jurisdiction. The arbitration bill permits the parties to only set aside any such award in accordance with article 34 of the Model Law. At first blush, this seems to limit the rights of a party objecting to jurisdiction to challenge a jurisdictional ruling on the limited grounds prescribed in article 34, whereas it is well-established in most jurisdictions that a plea that a tribunal lacks jurisdiction would be considered afresh.

Of course, it remains to be seen whether the arbitration bill will be passed in its present form. Nevertheless, the positive steps that Myanmar has taken only goes to demonstrate the growing importance of international arbitration in Asia and the need for Asian jurisdictions to update their laws to keep abreast of current international standards.

An emerging Model Law jurisprudence

While a sound legislative framework is necessary to any sustainable development and growth of international arbitration in Asia, the effectiveness of any such legislative regime rests heavily on the courts that interpret and apply them. In light of the large number of jurisdictions that have adopted the Model Law in Asia, the courts in these Asian jurisdictions will be 'in the vanguard'10 of the development of a 'global free-standing body of substantive arbitration law'11 that Chief Justice Menon envisioned in his landmark Keynote Address to the ICCA Congress in Singapore in 2012. Professor Julian DM Lew QC states:

This will be effected through reliance on the Model Law and the development of its principles when necessary through the courts of the Model Law countries. This will result in conformity in legal application and understanding among its adopters. It may also leave the traditional arbitration countries and venues on the side.12

Singapore currently stands at the forefront of the development of a uniquely Asian jurisprudence on the Model Law. In this regard, the Singapore Court of Appeal delivered two significant decisions in 2013 and 2014 that illustrates this drive to rely on the Model Law and to develop its principles.

The first is the decision in International Research Corp Plc v Lufthansa Systems Asia Pacific Pte Ltd [2014] 1 SLR 130. In International Research Corp, the Court of Appeal was asked to determine whether an arbitration agreement contained in one contract could be incorporated by reference into another contract.

English law holds that a clear and express reference to an arbitration agreement is required before it can be incorporated by reference into another contract. The question that the Court of Appeal had to confront was the extent to which the 'strict approach' adopted by England (which is not a Model Law jurisdiction), applies in Singapore (which has adopted the Model Law). The Court of Appeal declined to follow the English approach in this case.

Referring to commentaries on the preparatory work of the Model Law, the Court of Appeal noted that it is sufficient if the reference in a contract to a document containing an arbitration agreement only refers to the document; specific mention of the arbitration clause therein is not necessary. The Court of Appeal also drew inspiration from the decision of Kaplan J in the Hong Kong case of Astel-Peiniger Joint Venture v Argos Engineering & Heavy Industries Co Ltd [1994] 3 HKC 328, which held that the English 'strict rule' did not apply in Hong Kong, a Model Law jurisdiction.

The Court of Appeal decision in International Research Corp plc clearly reflects what had been presaged by Professor Julian DM Lew QC of the move by Asian Model Law jurisdictions, such as Singapore, to rely on the Model Law and to develop its principles. This would result in conformity of the legal application and understanding of the Model Law, and International Research Corp plc demonstrates how Hong Kong and Singapore now share a common approach on the incorporation by reference of an arbitration agreement. The case also shows how legal principles emanating from traditional arbitration venues (in this case, England), where they conflict with Model Law principles, are being left on the side.

The second decision is PT First Media TBK v Astro Nusantara International BV and others [2014] 1 SLR 372 where the Court of Appeal was confronted with a novel question: can an award debtor resist an application for the enforcement of an award issued pursuant to international arbitration proceedings seated in Singapore on a jurisdictional point if it did not apply to review the tribunal's decision on its jurisdiction pursuant to article 16 of the Model Law?

The answer to that question turned on the interpretation of section 19 of the Singapore International Arbitration Act and its interplay with the Model Law. The Court of Appeal held that the award debtor had a 'choice of remedies' between taking the active step of appealing against the finding on jurisdiction, and taking the passive step of resisting enforcement where the application is made.

Following the approach it had taken in International Research Corp plc, the Court of Appeal undertook a thorough and painstaking analysis of the preparatory work, the legal literature and cases pertaining to the Model Law, and found that the choice of remedies is not just a facet of the Model Law, but lies at the heart of the design of the Model Law enforcement regime.

The decision and analysis of the Court of Appeal in International Research Corp plc and Astro clearly reflects an effort by the Singapore courts to develop a harmonious and coherent body of legal principles that draws from the jurisprudence of other Model Law countries and Model Law literature.

A similar approach appears to be taking hold in Singapore's close neighbour, Malaysia. In a recent decision of the Kuala Lumpur High Court in Government of India v Cairn Energy India Pty Ltd [2014] 9 MLJ 149, the court had before it an application to set aside an award emanating from an arbitration seated in Malaysia. The Kuala Lumpur High Court declined to do so.

In reaching its judgment, the Kuala Lumpur High Court observed that the Malaysian Arbitration Act was based on the Model Law. It noted the following:

[T]here is much assistance to be found in the preparatory materials to the Model Law, especially the explanatory note issued by the UNCITRAL secretariat on the Model Law on International Commercial Arbitration (see UNCITRAL Yearbook Volume XVI - 1985), which though not issued as an official commentary on the Model Law, it is noteworthy. It provides background and understanding on the Model Law and why Nation States have reached such comity on the desirability in conformity in international commercial arbitration practice. This explanatory note remains relevant even though Malaysia adopted the Model Law only in 2005 vide the Arbitration Act of 2005, and even though it is with modifications.13

As regards the relevance of decisions from other Model Law jurisdictions, the Kuala Lumpur High Court added the following:

Therefore, the 'philosophy' of the Model Law as set out in the explanatory note ought to be borne in mind when approaching and considering the application at hand. At the same time, it cannot be denied that while Act 646 may have been enacted in 2005, the lessons and approaches of other supervisory courts in jurisdictions which have adopted and applied Model Law, be it wholesale or in parts, with or without modification, remain both useful and instructive.

Further, it may be added that this approach in looking at the decisions of these other jurisdictions contribute to the larger object of ensuring consistency and certainty in the courts' approach to arbitration and arbitration related matters as explained in the explanatory note that was pointed out earlier. It cannot be gainsaid that this is vital to the promotion of investor or trader confidence especially in fast-paced and multifaceted international commerce and trade. The present case is no exception.14

Having set out the approach that it would take, the Kuala Lumpur High Court proceeded to analyse the various academic writings and decisions of the Singapore, English and Hong Kong courts before arriving at its decision.

In India, the Supreme Court's decision in Bharat Aluminium Company v Kaiser Aluminium Technical Services (BALCO) (2012) 9 SCC 552 clarified the extent to which Indian courts could intervene with respect to foreign-seated arbitrations. Previously, Indian courts had jurisdiction over foreign-seated arbitrations unless the parties had expressly or impliedly agreed to the contrary. However, the Supreme Court has restricted this approach in the BALCO decision. Now, insofar as arbitration agreements entered into after 6 September 2012 are concerned, Indian courts may not grant interim measures, allow challenges to awards or make default arbitrator appointments in foreign-seated arbitrations. In arriving to this decision, the Supreme Court referred to the preparatory work of the Model Law and affirmed that the application of the Model Law was intended to be limited to the jurisdiction of the seat (known as the 'territorial principle').15

In TCL Air Conditioner (Zhongshan) Co Ltd (appellant) v Castel Electronics Pty Ltd (respondent) [2014] FCAFC 83, the Full Court of the Federal Court of Australia upheld the decision of a primary judge of the same court to dismiss an application to set aside an award rendered in Australia. The appellant had argued that the arbitral tribunal's finding of certain facts were 'made in the absence of probative evidence, and were findings upon which TCL was said to have been denied an opportunity to present evidence and argument'.16 The Federal Court rejected the appellant's arguments. In identifying that the rules of natural justice were within the 'public policy' concept, the Federal Court went further to say something 'as to the content of the phrase "public policy", so as to understand the statutory context of the phrase "rules of natural justice"'.17The Federal Court recognised the views of leading authors on international arbitration that 'public policy' was to be limited to the fundamental principles of justice and morality within the international commercial arbitration context.18 This was a different context from the exercise of public power under Administrative Law.19 In this regard, the Federal Court stated:

This approach to confining the scope of public policy has widespread international judicial support. Contrary to the submission of the appellant, it is not only appropriate, but essential, to pay due regard to the reasoned decisions of other countries where their laws are either based on, or take their content from, international conventions or instruments such as the New York Convention and the Model Law. It is of the first importance to attempt to create or maintain, as far as the language employed by Parliament in the IAA permits, a degree of international harmony and concordance of approach to international commercial arbitration. This is especially so by reference to the reasoned judgments of common law countries in the region, such as Singapore, Hong Kong and New Zealand [...] Such an approach accords with the objectives of the IAA in s 2D and with the interpretive approach referred to in s 17 of the IAA. It is also an approach required by Art 2A of the Model Law [...] Where, as with the Model Law, there has been extensive discussion and negotiation of a model law under the auspices of a United Nations body, such as UNCITRAL, and where the Model Law has been adopted by the General Assembly of the United Nations with recommendation of 'due consideration' by member states to advance uniformity of approach, the same appropriate respect for, and, where necessary, sensitivity or deference to, reasoned decisions of other countries, should be shown.20

The Federal Court drew inspiration from, among others, Singapore, New Zealand and Hong Kong in approaching the interplay between natural justice and public policy and, in particular, the appropriate balance that had to be struck in the court's interference when determining whether the rules of natural justice had been breached. For instance, the Federal Court referred to the Singapore Court of Appeal decision of LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2013] 1 SLR 125:

If a party has been denied a hearing on an issue, for instance, it is relevant to enquire whether, in a real and not fanciful way, that could reasonably have made a difference. It should be recalled that the proper framework of analysis for the IAA is the setting aside or non-recognition or enforcement of an international commercial arbitration. In that context, it is essential to demonstrate real unfairness or real practical injustice.21

Harmonising arbitration laws

While these cases may well suggest a trend among the courts of Asian Model Law jurisdictions to develop a 'global free-standing body of substantive arbitration law', much more remains to be done by the courts and arbitration practitioners alike.

Much of the above discussion centres on the decisions of courts that share a common law heritage. It should be noted that a vast majority of jurisdictions in Asia are not common law jurisdictions. Indeed, some jurisdictions with a significant involvement in arbitrations (whether domestic or international) are not common law jurisdictions (such as China, the Republic of Korea and Indonesia). There remains the task of harmonising the laws and practices of the common law jurisdictions with these jurisdictions.

To this end, the International Bar Association has formed a Working Group on the Harmonising of Arbitration Laws in the Asia Pacific Region. The work of the Working Group, as well as the initiatives being undertaken by other institutes of learning and arbitration, will no doubt go a long way towards developing a 'global free-standing body of substantive arbitration law' alongside this incredible growth of arbitration that we are witnessing in Asia.

Notes

  1. Chan Muyhong. 'Arbitrator Ready to Hear Cases.' Phnom Penh Post. Np, 14 July 2014 www.phnompenhpost.com/business/arbitrator-ready-hear-cases.
  2. Roadshow on New York Convention in Mega Mendung - Indonesia, (2013) Indonesia Arbitration Quarterly Newsletter, No. 12/2013, at page 5; Indonesia and UNCITRAL Model Law, (2013) Indonesia Arbitration Quarterly Newsletter, No. 12/2013 at pp6-7.
  3. Andi Kadir. 'INDONESIA: Friendly or not?' Global Arbitration Review. 7 Jul. 2014 www.globalarbitrationreview.com/journal/article/32770/indonesia-friendly-not/.
  4. Jun Sang Lee and Lydia I Kang. 'Korea'. The Asia-Pacific Arbitration Review 2014 - A Global Arbitration Review Special Report. 2013 Law Business Research Limited p70.
  5. Kuala Lumpur Regional Centre For Arbitration. 'The Sulaiman Building: The Next Phase for KLRCA'. www.klrca.org.my/facilities/klrca-new-building/#7.
  6. UNCITRAL Model Law on International Commercial Arbitration (1985), Explanatory note, para 3.
  7. UNCITRAL Model Law on International Commercial Arbitration (1985), Explanatory note, para 2.
  8. Professor Julian DM Lew QC. 'Increasing Influence of Asia in International Arbitration.'Asian Dispute Review, January 2014: pp6-7.
  9. Jainil Bhandari, Chester Toh, Kelvin Poon, Paul Tan, and Jawad Ahmad. 'MYANMAR: A Fresh Start.' Global Arbitration Review, Law Business Research, 11 June 2014 www.globalarbitrationreview.com/news/article/32714/myanmar-fresh-start.
  10. Professor Julian DM Lew QC. 'Increasing Influence of Asia in International Arbitration.' Asian Dispute Review, January 2014: p6
  11. The Hon Chief Justice Sundaresh Menon, International Arbitration: The Coming of Age for Asia (and Elsewhere) at para 17 www.arbitration-icca.org/media/0/133998435632250/ags_opening_speech_icca_congress_2012.pdf.
  12. Professor Julian DM Lew QC. 'Increasing Influence of Asia in International Arbitration.' Asian Dispute Review January 2014 p6.
  13. [2014] 9 MLJ 149 at [98].
  14. [2014] 9 MLJ 149 at [110] and [111].
  15. [2012] 9 SCC 552 at [60] to [76].
  16. [2014] FCAFC 83 at [7].
  17. [2014] FCAFC 83 at [74].
  18. [2014] FCAFC 83 at [74].
  19. [2014] FCAFC 83 at [74].
  20. [2014] FCAFC 83 at [75].
  21. [2014] FCAFC 83 at [154].

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