Innovation in Asia
Since the Hong Kong International Arbitration Centre (HKIAC) won GAR’s 2014 innovation award,1 it continues to set the pace for innovation, alongside its peer institutions in Asia. Barriers have been broken over the past year in a number of arbitral seats and institutions in the region, which evidence Asia’s position as a beacon for innovation. While this article gives a broadstroke review of the key developments, each Asian jurisdiction has experienced relative improvement, underlining the growing market demand for quality dispute resolution services in the region.
Shanghai’s open door policy for international arbitration
In an effort to attract foreign investment to Shanghai, the Shanghai government introduced a policy to welcome international dispute resolution organisations to set up an office in the Shanghai Free Trade Zone. HKIAC became the first international institution to set up an office in the Free Trade Zone in November 2015.2 Soon after, the International Chamber of Commerce (ICC) and the Singapore International Arbitration Centre (SIAC) announced a similar move at the beginning of 2016.3
The significance of such a development cannot be underestimated and was recognised by GAR for best development in 2015. With HKIAC as the first entrant and ICC and SIAC following closely behind, other institutions have also expressed interest in establishing a presence in mainland China, the country with arguably the largest arbitration market in recent years. For example, HKIAC’s caseload involving Chinese parties has grown year on year, and HKIAC administers more cases involving Chinese companies than most institutions outside mainland China. With the establishment of an onshore office, these institutions will be able to further cater to the needs of Chinese users.
Additional evidence for Shanghai’s liberalisation of its dispute resolution market is found in Siemens International Trading (Shanghai) Co Ltd v Shanghai Golden Landmark Co Ltd.4 Under PRC law, only disputes with a foreign element may be submitted to foreign arbitration. What constitutes a ‘foreign element’ has been explained by several Supreme People’s Court Interpretations.5 And, until this case, there was no reported case that delineated what ‘other circumstances’ might mean. However, the Shanghai No. 1 Intermediate People’s Court (the Court) in Siemens recognised and enforced an arbitration award, even though the arbitration involved two PRC entities and was seated in Singapore. While there was no obvious foreign element in this arbitration, the Court found, upon a closer examination that: (1) both parties were wholly foreign-owned entities registered within the Free Trade Zone with foreign sources of capital, foreign ultimate beneficiaries, and management as well as control significantly related to foreign investors; and (2) the performance of the contract has characteristics similar to the international sale of goods. Taking these factors into consideration, the Court held that circumstances existed under which the civil relationship may be determined as a foreign-related one. Accordingly, it upheld the validity of the arbitration agreement and recognised the award.
While it should be emphasised that this is a decision of the Shanghai court, which has no particular precedential value for other Chinese courts, this case represents an important development particularly for foreign investment enterprises in mainland China. It is an opening of a window of opportunity for the Chinese courts to take a more expansive approach in interpreting the ‘foreign element’ requirement for the purposes of allowing foreign owned or invested companies in mainland China to opt for offshore arbitration.
New arbitration legislation
Two long-awaited pieces of arbitration legislation were passed in the region: Myanmar’s Arbitration Law and India’s Arbitration and Conciliation (Amendment) Act. For Myanmar, a country that has only recently opened for business after many years of isolation, the accession to the New York Convention in 2013 brought to foreign investors a degree of comfort that recourse could be made available for disputes arising from their investments in Myanmar. The passage of the Arbitration Law by the Burmese parliament gives effect to this momentous development and signifies an acceptance of international norms. The Burmese Arbitration Law (which is currently only in the Burmese language) appears to be largely influenced by the UNCITRAL Model Law. However, there is a distinction carved out between domestic and foreign arbitrations: while the entire piece of legislation applies to domestic arbitrations, only certain provisions apply to foreign arbitrations. Other noteworthy features include express provisions recognising the enforceability of interim measures and the incorporation of grounds of refusing the recognition and enforcement of awards under the New York Convention. Adopting the Singapore International Arbitration Act’s position, the Burmese Arbitration Law grants a right of appeal against both positive and negative determinations of jurisdiction by an arbitral tribunal within 30 days of such a ruling (in contrast, Hong Kong grants a right of appeal for positive determinations of jurisdiction only). There are certain idiosyncrasies that may raise cautionary flags, such as the provision regarding the default appointing authority being the Chief Justice, which would be a reference to the Chief Justice of Myanmar for international matters and the local chief justice for domestic matters. Notwithstanding this, the Burmese Arbitration Law, with the UNCITRAL Model Law firmly in its DNA, serves as a key step in the right direction for Myanmar in becoming an arbitration-friendly jurisdiction.
For India, the enactment of the amended arbitration act indicates to foreign investors a willingness to modernise the arbitration regime. The amendments to the Indian Arbitration Act (the Act) introduced certain creative reforms intended to address the criticisms of arbitration and to bring best arbitration practice into the Indian arbitration regime. For example, the Act incorporates the IBA Guidelines on Conflicts of Interest in a wholesale manner. This is intended to apply international practices to ensure the independence and impartiality of arbitrators. In an effort to prevent delay in the arbitral process, the Act requires arbitral tribunals to render awards within 12 months, which can be extended for a period of six months by either the parties or the court.
Some of the recent changes to the Indian arbitration legislation were prompted by several landmark cases over the past few years. For instance, the Act was amended to clarify that parties can obtain interim measures from the Indian courts in both domestic and international arbitrations, effectively negating the BALCO decision which held that parties to an arbitration seated outside of India cannot apply for interim measures from the Indian courts.6 Additionally, amendments to section 34 of the Act have codified the decision of Shri Lal Mahal Ltd v Progetto Grano SpA,7 holding that the ground of ‘patent illegality’ in setting aside an award would not apply to international arbitrations. While the imperfections in the legislation seem glaring according to some commentators, the efforts made to address certain flaws in the system cannot be viewed as anything but laudable and an enthusiastic willingness to bring international best practices to arbitration in India.
Incidentally, what is also noteworthy for India is the long-anticipated home-grown international arbitration centre. This centre, based in Mumbai, is expected to open towards the end of 2016. This news comes on the heels of the recent closure of the LCIA-India operations in 2015.
Rule revision and innovation
The past several years have seen innovative procedures introduced by major arbitral institutions in the region with a view to promoting diversity of institutional choices for users of arbitration.
For example, HKIAC has consolidated best arbitration practices into its latest set of rules – the 2013 HKIAC Administered Arbitration Rules (the HKIAC Rules). Recognised by GAR as one of the best developments in 2013,8 the HKIAC Rules create a sophisticated system which offers parties a number of innovative tools to enhance cost-effectiveness and efficiency of arbitration. In particular, the HKIAC Rules contain comprehensive and far-reaching provisions to maximise the ability of HKIAC and arbitral tribunals to manage complex disputes involving multiple parties or multiple contracts. In this regard, the HKIAC Rules are the first set of rules that offer a complete system to deal with complex arbitrations by joinder, consolidation and single arbitration under multiple contracts in the Asia-Pacific region.
Of the innovations incorporated into the HKIAC Rules, the complex arbitration provisions have caught the most attention of other institutions. All subsequent rule revisions by arbitral institutions in Asia have incorporated the same if not similar provisions. Both the 2014 version of the Japan Commercial Arbitration Association (JCAA) Commercial Arbitration Rules and the 2015 version of the China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules include a suite of provisions regarding joinder, consolidation and single arbitration under multiple contracts.
Most recently, the Australian Centre for international Commercial Arbitration (ACICA)’s revised rules, which came into force in January 2016, provide tools to consolidate and join arbitrations as well. In addition, the ACICA’s rules incorporate expedited procedures and have followed in the LCIA’s footsteps by introducing a provision on the conduct of legal representatives. It is expected that the SIAC’s new set of rules, which will be unveiled in May 2016, will also include provisions on joinder, consolidation and single arbitration under multiple contracts. In addition, it is anticipated that the SIAC will soon launch its Investment Arbitration Rules, the first of its kind in Asia.
Development of tribunal secretary best practice
As tribunal secretaries have become more routinely accepted as a player in international arbitration, there is a clear demand for more transparency as to the work and relationship of the tribunal secretaries to the tribunal. Concerns of such a secretary going beyond his or her mandate and improperly influencing the tribunal’s decisions are highlighted in the Yukos v Russia case,9 where Russia successfully challenged the award based on, among other things, an allegation that the tribunal secretary played an excessive role in the tribunal’s decision-making process. While this allegation was ultimately deemed moot, the submission of this allegation alone caused much discussion in the arbitration community.
As a result of the increasing need for more visibility on the work of the tribunal secretary, a few institutions have responded to the concerns associated with the existence of a tribunal secretary in an arbitration. In Asia, the HKIAC is the first institution to address the use of tribunal secretaries. On 1 June 2014, the HKIAC issued the Guidelines on the Use of a Secretary to the Arbitral Tribunal (the Guidelines),10 providing detailed provisions regarding the appointment, removal, remuneration and duties of tribunal secretaries. To address the controversy surrounding the role of tribunal secretaries, the Guidelines define the tasks that can be performed by a secretary in a comprehensive manner while allowing the parties to agree or the tribunal to direct otherwise. The Guidelines have also established a system to determine the fees and expenses of a tribunal secretary. The Guidelines can be used by parties in arbitrations administered by the HKIAC under any version of the HKIAC Administered Arbitration Rules or the UNCITRAL Arbitration Rules or any other cases after consultation with the HKIAC.
In addition to the Guidelines, the HKIAC has also introduced a tribunal secretary service giving tribunals the opportunity to appoint a member of the HKIAC Secretariat as secretary.11 This service allows HKIAC Secretariat members to serve as conflict-free support with an arm’s-length relationship with the tribunal. Moreover, tribunal secretaries appointed from the HKIAC Secretariat may have the advantage of having unique and useful insights into HKIAC arbitral procedures. This innovation contributes to the HKIAC’s winning of the GAR award for best innovation of 2014.
As of November 2015, the HKIAC launched the world’s first tribunal secretary accreditation programme with a view to training a new generation of tribunal secretaries. This programme not only provides a training ground for younger arbitration practitioners but also facilitates the future development of arbitrators who will have had experience serving as tribunal secretaries. The next phase for this tribunal secretary initiative is to establish a roster of those who are experienced tribunal secretaries. These tribunal secretaries will be able to apply to HKIAC’s roster which will be made publically available for tribunals in arbitrations under any institutional rules and seated in any jurisdictions.
Following the HKIAC’s introduction of its Guidelines, the SIAC issued a brief Practice Note on the Appointment of Administrative Secretaries (the Practice Note).12 The Practice Note applies to all secretaries appointed in SIAC-administered cases on or after 2 February 2015. In an effort to control arbitration costs, the Practice Note provides for different methods to remunerate a tribunal secretary for cases below and above S$15 million. For cases where the amount in dispute is below S$15 million, the parties will not bear any of the secretary’s fees. However, where the amount in dispute is S$15 million or above, the parties may be asked to pay the fee of the secretary. Such fee shall not exceed S$250 per hour.13
Breaking the impasse associated with the CIETAC split
From 2012 to 2015, the split of the CIETAC’s Shanghai and Shenzhen sub-commissions – forming the Shanghai International Arbitration Centre (SHIAC) and the Shenzhen Court of International Arbitration (SCIA) respectively – has caused a great deal of uncertainty to Chinese arbitration users. Not only are parties uncertain as to which institution has jurisdiction over cases referring to ‘CIETAC Shanghai’ or ‘CIETAC South China/Shenzhen’, but a recalcitrant party may in fact exploit this uncertainty and seek to derail the arbitration procedure by lodging a challenge before the Chinese courts, arguing that the case had not been referred to the proper arbitral institution.
To resolve the dilemma caused by the CIETAC split, the Supreme People’s Court (SPC) issued a judicial interpretation on 15 July 2015 clarifying which institution should exercise jurisdiction and under what circumstances: for arbitration agreements concluded before the name change, the former sub-commission would have jurisdiction; otherwise, the CIETAC would have jurisdiction. The SPC’s guidance helps put the controversy between the SHIAC, SCIA and CIETAC to rest.
Other than in Australia, where litigation funding is commonplace, the rest of Asia-Pacific, has not customarily sought third-party funding for arbitration. Indeed, in the common law jurisdictions such as Singapore and Hong Kong, maintenance and champerty have served to prohibit such financial arrangement in litigation. However, enlisting the support of a third-party funder for arbitration may not be in the distant future, at least in Hong Kong. In 2015, in an effort to further entice arbitrations to Hong Kong, the Hong Kong government released a consultation paper examining the possibility of legislating third-party funding for arbitration. While some concerns have been raised such as disclosure requirements and the liability of a third-party funder for cost orders or security for costs, these are not specific to Hong Kong’s proposal to legislate the availability of third-party funding for arbitration and seem unlikely to block the progress of this development. Regardless of its outcome, the publication of such a consultation has raised awareness and brought to the forefront of the Asian arbitration community the topic that is firmly integrated in the international arbitration discussion abroad.
Asia boasts lively engagement by the governments and the legal community to bolster trade and to formulate dispute resolution platforms for its end users. Commercial arbitration is now the preferred route taken by companies in the region to resolve their cross-border disputes. Investment arbitration is the next frontier which some Asian jurisdictions have already penetrated. With the recent establishment of the Asian Infrastructure Investment Bank, the announcement of the Belt and Road Initiatives and the conclusion of the Trans-Pacific Partnership, the region will inevitably see further development and innovation of dispute resolution mechanisms to cater to the types of disputes such initiatives will inevitably bring.
- See HKIAC News Flash ‘And the GAR Innovation Award goes to … HKIAC’, 27 February 2015. Available online at: www.hkiac.org/en/news/526.
- See HKIAC News Flash ‘HKIAC Achieves Breakthrough by Launching Office in Mainland China’. Available online at: www.hkiac.org/news/hkiac-achieves-breakthrough-launching-office-mainland-china.
- (2013) Hu Yi Zhong Min Ren (Wai Zhong) Zi No. 2 (27 November 2015 (unreported).
- The following constitutes ‘foreign element’: (1) one or more parties are foreign citizens or foreign legal persons, (2) the subject matter of the dispute is located in a foreign country, (3) the facts which create, modify or terminate the legal relationship occurred in a foreign country, (4) the habitual residence of one or more parties is located outside mainland China, or (5) other circumstances exist that can constitute a foreign-related element. See Interpretations of the Supreme People’s Court on Several Issues Concerning Application of the Law on Foreign-Related Civil Relations of the People’s Republic of China, (I), (effective 7 January 2013), article 1.
- Bharat Aluminium v Kaiser Technical Services, Civ App 3678 of 2007 (6 September 2012).
- Civil Appeal No. 5085 of 2013.
- ‘Vote now for the GAR Awards 2014’, 24 Jan 2014. Available online at: https://globalarbitrationreview.com/news/article/32341/vote-gar-awards-2014/.
- C/09/477160/HA ZA 15-1, 20 April 2016.
- HKIAC, ‘Guidelines on the Use of a Secretary to the Arbitral Tribunal’, 1 June 2014. Available online at www.hkiac.org/images/stories/arbitration/HKIAC%20Guidelines%20on%20Use%20of%20Secretary%20to%20Arbitral%20Tribunal%20-%20Final.pdf.
- More details about HKIAC’s tribunal secretary service are available online at www.hkiac.org/en/arbitration/tribunal-secretary-service.
- ‘Tribunal secretaries: now SIAC issues guidance’, 10 February 2015. Available online at: https://globalarbitrationreview.com/news/article/33384/tribunal-secretaries-siac-issues-guidance/.
- SIAC, ‘Practice Note on the Appointment of Administrative Secretaries’, PN-01/15, 2 February 2015. Available online at: https://globalarbitrationreview.com/cdn/files/gar/articles/SIAC.pdf.