Dispute resolution in Asia
October 2010 | TALKINGPOINT | LITIGATION & DISPUTE RESOLUTION
FW moderates a discussion between James Kwan at Simmons & Simmons, Karam Singh Parmar at Tan Kok Quan Partnership and Steven Burkill at Watson Farley & Williams, on dispute resolution procedures in Asia.
FW: Have you seen an increase in commercial disputes across Asia over the last 12 months or so? What types of disputes seem to be most prevalent?
Kwan: In the past 12 months, we have observed a number of trends in Asia. There continues to be work driven by the economic crisis, including disputes and litigation relating to the sale of complex financial products, investigations arising from increased regulatory oversight, labour disputes, and breach of contract matters. In this regard, we have been asked to advise on regulatory and compliance matters, and are currently defending our clients in ‘jumbo’ mis-selling claims brought by disgruntled investors. Projects having stalled due to the lack of funding have gone to arbitration. There has been a dramatic growth in international commercial arbitration in Asia and a rise in the number of cases administered by arbitral institutions based in Asia, as cross-border commercial disputes are rife due to the financial crisis. More recently, as Asian economies rebound from the financial crisis, this has caused a surge in exports and outbound investment, which has led to a greater appreciation of the value of arbitration clauses in contracts.
Parmar: Asia includes several of the world’s strongest economies as well as some of the major commercial and financial centres of the world. Growth in arbitration activity has certainly followed Asia’s unparalleled economic growth over the last 12 months and indeed the last 20 years. Our experience is supported by statistical data that has been published by some of the leading arbitral bodies such as the Singapore International Arbitration Centre (SIAC) and the International Chamber of Commerce (ICC). ICC for example reported that 13.5 percent of all new arbitrations last year involved parties from the Asia-Pacific alone. The nature of the disputes varies. Construction disputes continue to be prevalent. We have also seen an increase in trade related disputes especially those involving commodity transactions, which invariably have a shipping angle. The oil and gas industry is another sector.
Burkill: We have seen an increase in work over the last 24 months. This might be explained in part by the knock on effect of the financial meltdown experienced worldwide together with the ‘red shirt’ activity in Thailand which gave rise to building damage and insurance claims. We have seen several energy disputes come in, several commodities disputes and a rash of ship-building disputes which do not originate from the meltdown or red-shirt problems.
FW: To what extent are companies in the region embracing alternative dispute resolution methods?
Parmar: Companies in the region are certainly embracing ADR, including arbitration, in a big way. A perceived lack of independent judicial systems, the fear of ‘home-ground’ advantage, the lack of efficiency and expediency in discharging justice and enforcement difficulties in some Asian countries are reasons for the shift by companies away from national courts to ADR. Hence, more and more, we find business entities inserting arbitration clauses in their transactional documents. In this regard, Singapore’s SIAC has reported a 62 percent increase in the number of arbitrations in 2009 over the year before. Other ADR methods such as mediation, conciliation and expert determination are also being embraced by companies. Expert determination, for example, has been endorsed by the Singapore courts and is widely adopted in some industries. A hybrid dispute resolution process called ‘med-arb’, which brings together the elements of both mediation and arbitration, is also offered by the Singapore Mediation Centre.
Burkill: I believe that there is an increasing awareness of the value of arbitration (less so mediation) as an alternative to reverting to court process. We are dealing with non-Asians doing business in the region or Asians doing business outside of Asia. Most of these clients understand that choosing arbitration as a dispute resolution mechanism has advantages in terms of neutrality, enforceability of awards as opposed to unenforceable judgements, cost efficiency, privacy, and scope for reasonable cost collection. We see a trend of arbitration clauses appearing in the contracts that we see.
Kwan: Mediation is on the rise due to two reasons: the success rate of mediation combined with the prohibitive costs of litigation and arbitration, and court support of the process. In Hong Kong, parties now have to explore the possibility of mediation before continuing with litigation under a new court rule. There are risks as to costs sanctions if a party unreasonably refuses to mediate. A striking aspect of arbitration in China is the use of mediation and arbitration together, a hybrid technique that permits the arbitrator to mediate the dispute in the same case.
FW: How would you describe Asia’s arbitration facilities and processes? What are the key centres for dispute resolution?
Burkill: There are some outstanding arbitration processes and facilities in Asia. In my view Singapore has the best arbitration system in the world. The Singapore International Arbitration centre is an excellent, helpful and efficient arbitral body. The Rules of the SIAC are first rate. Singapore Law provides an excellent Arbitration Act for ad-hoc arbitrations so that arbitrations can proceed under a first rate body of rules. Above all, the Singapore Government has decided as a matter of policy that it wants to make Singapore the arbitration centre of Asia. Therefore the Courts are empowered to greatly support the arbitral process and enforce awards. Aside from Singapore, Hong Kong has an excellent arbitration system which is ably supported by the court. Elsewhere there have been movements to improve available arbitral processes. The process in Vietnam has been revamped, for example. The system in Thailand is developing and being used more – albeit that it needs improvement.
Kwan: Asia’s arbitration facilities and processes are becoming more mature. Two institutions, the Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC), have excellent reputations for transparency and independence. Their rules reflect international best practice and can be easily assimilated, they have quality staff to administer the proceedings, and internationally renowned panels of arbitrators. Historically, for parties based in Asia, London, Paris or Stockholm have been the preferred locations for arbitration, but increasingly, arbitration clauses now provide for a seat in either Singapore or Hong Kong. For contracts with two Asian parties, my observation is that Singapore or Hong Kong is the place of arbitration for 90 percent of the time. It is rare for intra-Asia disputes to go to London or Paris. There are three reasons why Asian venues are chosen over traditional seats in London and Paris. First, HKIAC and SIAC are becoming mature arbitral institutions – the HKIAC celebrating its 25th anniversary this year, are cheaper than their European counterparts, and are as just as good as them. Second, intra-Asian trade is on the rise. Third, China is continuing to emerge, and bargaining power is shifting.
Parmar: The standard of Asia’s arbitration facilities and processes are improving rapidly and a number are already world class. China’s CIETAC would obviously be a key centre. CIETAC moved to new premises in 2009 and the move is reported to result in improved facilities for parties conducting arbitrations. Other key centres in Asia would have to be Singapore and Hong Kong. Singapore, as an arbitration centre, is already a world leader. A state of the art, integrated dispute resolution centre, was opened in Singapore in January 2009. The complex, called Maxwell Chambers, houses first class hearing facilities and offices of top ADR institutes and dispute resolution professionals. The country has a judiciary that supports the arbitration process and there is a constant re-examination of legislation to ensure arbitration-friendly laws and processes are in place to promote and support arbitration. Even arbitrations subject to the rules of other centres can be administered by Singapore’s SIAC. No doubt, the standards of facilities and processes vary from jurisdiction to jurisdiction, however, the trend towards improvement is evident.
FW: What influence, if any, has the UNCITRAL Model Law had on dispute resolution in your jurisdiction of focus?
Kwan: One of the themes in Asia is the harmonisation of arbitral procedure due to the uniformity of arbitral legislation, as growing numbers of Asian jurisdictions have amended their outdated laws and adopted the principles established by the UNCITRAL Model Law. Hong Kong, Singapore, Japan, Korea, India, Malaysia, the Philippines and Thailand all have arbitral legislation based on the UNCITRAL Model Law. Although most Asian states have adopted the Model Law, what is more important is how the Model Law is applied by state courts in support of the arbitral proceedings. Courts in Hong Kong, Singapore, Korea, Japan, and Malaysia are known to be arbitration friendly with minimal interference and delay to the arbitral process, whereas others have been ambivalent towards arbitration. In Hong Kong, a new Arbitration Bill was published on 26 June 2009 based on the UNCITRAL Model Law and is expected to be enacted in the first quarter of 2011. This will create a single arbitral regime in Hong Kong for international and domestic arbitration and promote the development of Hong Kong as an arbitration hub in Asia.
Burkill: In Thailand the Thai Arbitration Institute Rules borrow from UNCITRAL but they are not adopted fully. They are an amalgam of different ideas and rules. We do, however, see arbitrations being conducted in Thailand under UNCITRAL Rules. Currently our biggest arbitration here is a UNCITRAL arbitration subject to Thai Law with three experienced international arbitrators making up the panel.
Parmar: The UNCITRAL Model Law has been embraced by Singapore and many other jurisdictions in the Asia-Pacific region, which probably has the highest concentration of ‘Model Law’ countries in the world. Singapore’s International Arbitration Act gives the force of law to the UNCITRAL Model Law on Arbitration, with some modifications. With the UNCITRAL Arbitration Rules forming the basis of the Rules published by the Singapore International Arbitration Centre and with the adoption of the Model Law, Singapore’s legal system is more international in outlook, meets the needs of international commercial arbitration and provides a universal standard of arbitral laws. This has no doubt influenced litigants’ choice of Singapore as the preferred seat of arbitration to resolve their disputes, as is evident from the rapid development of international commercial arbitration in Singapore. It is clear that the UNCITRAL Model Law has influenced and will continue to influence dispute resolution in Singapore.
FW: What arbitration-related challenges have you seen in your jurisdiction of focus?
Parmar: Singapore’s government and its judiciary are clearly pro-arbitration. It has put in place the necessary facilities and processes to promote arbitration. Foreign arbitration practitioners are welcomed and the courts have clearly adopted a policy of limited and careful curial intervention in support of arbitrations. It can be said therefore that the arbitration regime is well established and in place for the continuing progress and success of international commercial arbitration. Serious arbitration-related challenges in Singapore are presently not contemplated. Perhaps one possible challenge to arbitration is its increasing cost. The arbitral forum and arbitrators’ fees are not inexpensive. As the trend is to prepare for arbitrations as thoroughly as preparing for court trials, counsel charges are also high. If unchecked, arbitration runs the risk of pricing itself out of being a viable alternative to court litigation. However, this challenge is already receiving attention as is evident by the recent changes to the UNCITRAL Model rules to encourage greater accountability and predictability in relation to arbitration costs.
Burkill: I am happy to report that in Thailand the courts both in Bangkok and provincially are much happier to push through award enforcement. There appears to be a growing acceptance that the New York Convention (to which Thailand is a signatory) must be complied with. The Thai Arbitration Institute Rules are a very decent set of rules and we are happy to advise clients that arbitrations conducted in Thailand, which are generally speaking conducted under those rules, proceed satisfactorily. There are however some problems with those rules. First, the rules fix very low fees to remunerate arbitrators. What this means is that good arbitrators will not take up appointments under TAI Rules as they are not being paid properly. Where we can, we try and agree with our counter party lawyers that we will agree to amend the rules so far as arbitrator remuneration is concerned – otherwise a risk is run that we can only assemble a poor quality tribunal. Second, the rules do not allow for sensible cost recovery for the winning party. This means that a claimant can win an arbitration hands down, have to deal with expensive delaying tactics from the other side and having done so recover as little as 5-10 percent of costs incurred. This compares woefully with more sensible jurisdictions where a 60-70 percent recovery might be the norm for a winning party. Aside from the rules, the Thai Court system is not especially helpful or supportive of the arbitration process (aside from now being willing to enforce awards). The Thai court will be reluctant to injunct assets, order discovery of documents, subpoena witnesses, etc., in support of an arbitration process.
Kwan: Although the Chinese government has been supportive of arbitration, problems still exist with foreign arbitral institutions being able to administer proceedings in the PRC and with the enforcement of domestic and foreign arbitral awards. Another contentious issue is the ability of Chinese domestic parties to arbitrate in Hong Kong. This is seen as a potentially good source of business for Hong Kong, and the Hong Kong International Arbitration Centre in particular. However, the issue has yet to be clarified by the Supreme People’s Court.
FW: Are there any problems with the enforcement of arbitration awards by Asian Courts?
Burkill: Award enforcement is definitely improving in the region. It used to be the case that signing up to the New York Convention meant nothing to Asian Courts. That is not now the case. Singapore has an outstanding record of enforcing awards quickly. Hong Kong is similar. Less sophisticated jurisdictions such as Thailand and Vietnam are certainly coming along nicely and doing much better in terms of willingness to enforce and readiness to dispense with delay based set aside tactics.
Kwan: If we were to use a traffic light system to describe enforcement in various jurisdictions in Asia (with ‘green’ designating a state as pro enforcement, ‘amber’ designating caution, and ‘red’ meaning problematic), I would give Hong Kong, Singapore, Taiwan, Korea, Malaysia, and Japan a ‘green’ light; Indonesia and Philippines an ‘amber’ light; and China, Thailand, and India ‘red’. Courts in Hong Kong, Singapore, Taiwan, Korea, Malaysia, and Japan are pro enforcement. They construe the nebulous concept of public policy narrowly, which is a ground for refusal of enforcement under Article V of the New York Convention. Although Taiwan is not a party to the New York Convention, in principle Taiwanese courts will recognise and enforce all foreign arbitral awards subject to limited exceptions. Indonesian and Philippine courts have previously applied their own notion of public policy from a domestic perspective to refuse enforcement of arbitral awards. Enforcement has been erratic in India; an award has been set aside on grounds of public policy where there was an error apparent on the face of the arbitration award giving rise to substantial questions of law. The barriers to enforcement in China include local protectionism and a lack of understanding of the application of the New York Convention. However, China’s judiciary has improved since its accession to the WTO.
Parmar: The lack of uniformity and hence, uncertainty in the instances when national courts intervene to prevent the enforcement of arbitral awards is cause for concern. Even amongst the nations that have embraced the Model Law, differences in application of the grounds for refusing enforcement are prevalent. An example is where enforcement is denied on grounds that the award is in conflict with public policy. The Model Law does not define ‘public policy’ and indeed recognises that it may differ from jurisdiction to jurisdiction. The problem lies with the differing interpretations placed on this by each State. In India for instance, the Supreme Court seems to have interpreted public policy to include errors of law as a ground for refusing enforcement of Indian arbitrations. The Singapore Court of Appeal on the other hand has in line with its policy of facilitating and promoting arbitration, affirmed that public policy under its International Arbitration Act is to be construed narrowly and does not include errors of law by the tribunal. This lack of uniformity, however, is not restricted to Asian Courts.
FW: To what extent can arbitration awards be appealed or set aside in Asian Courts?
Kwan: Whether the award can be appealed or challenged by will depend on the law of the seat of the arbitration any relevant institutional rules. There is usually no right of appeal on questions of law in jurisdictions that have incorporated the UNCITRAL Model Law. Subject to institutional rules, in jurisdictions such as Hong Kong and Singapore where there is a bifurcated regime of international and domestic arbitration, a right of appeal on questions of law with leave of the court is allowed in domestic arbitrations. Institutional rules may provide that rights of appeal are waived to the extent that such waiver can be validly made under the law of the seat of the arbitration. The rules may also make provision in relation to challenges and the timing of objections. An award may be set aside on limited procedural grounds similar to Article V of the New York Convention in jurisdictions that have incorporated the UNCITRAL Model Law.
Parmar: The answer to this question would vary from state to state. As with the problem of enforcement, even amongst States that have adopted the UNCITRAL Model Law, the interpretation and application of the grounds for an appeal or to set aside an award can differ. For example, the contravention of public policy, which is a ground to set aside an award, can be construed quite widely as aptly illustrated in a South East Asian Court’s ruling, which held that when considering the issue of public policy, its laws, its government’s policy, its moral values “and all other relevant factors then prevailing” would be relevant. It is therefore very difficult to make a general statement concerning Asian Courts’ attitude towards upholding arbitral awards. Singapore has adopted the UNCITRAL Model Law and hence, recognises limited grounds for setting aside an award. The grounds for setting aside an award include procedural grounds (arbitral jurisdiction, due process, composition of the tribunal and arbitration procedure) and substantive grounds (arbitrability and public policy) but given the legislative intent to limit court intervention to instances expressly provided by law, the setting aside of an award will not be permitted save for the clearest of cases. An appeal pursuant to Singapore’s domestic Arbitration Act must be based on a question of law as opposed to an error of law.
Burkill: To my knowledge all legal systems across Asia provide scope for awards to be set aside or appealed. The right of appeal is however subject to the contractual arrangements between the parties who will often agree that an award should be final and binding. If that is the case, I believe that in most Asian jurisdictions the courts will respect that and not allow appeals. This is true of Singapore, Hong Kong, Thailand and Vietnam in my direct experience. I understand that most legal systems in Asia will allow scope for set aside applications and will have a body of law which provides a vehicle for this. A set aside might be allowed where there is a point of public policy which an award offends, where there is some fraud or corruption on the part of an arbitrator, where there is compelling evidence that one side in an arbitration has not been afforded a proper opportunity to put its case or where the award decides something that it should not have. Again, this is my experience in Singapore, Hong Kong and Thailand.
FW: What changes would you make to existing arbitration rules, and why?
Parmar: Modern forms of communications such as email and the fast pace of business in the modern era require dispute resolution to keep abreast. More efficient arbitration processes to speed resolution of disputes is therefore required. Changes to rules that are designed to reduce timelines for the commencement of arbitrations, to limit time for the publishing of awards, to speed up hearings while ensuring that costs remain reasonable (such as the use of video conferencing facilities) and so forth should be put in place. In line with such measures to expedite the arbitral process, changes to the rules to enable a litigant to seek and obtain immediate relief (before the appointment of the arbitrator) would also be welcome. An example would be the establishment of an emergency arbitrator procedure to enable parties to obtain immediate relief even before the arbitrator is appointed. Some jurisdictions have already incorporated such changes in their existing rules, such as Singapore’s SIAC Rules. Other arbitration rules need to do likewise.
Burkill: In terms of changes to rules, it really depends upon which rules we are talking about. First, for ICC Rules I would like to see the requirement to deposit a substantial fund with the ICC Court by reference to a formulae connected to the size of a claim dispensed with. It puts many clients off going to arbitration. Second, I would like to see rules amended which provide for the administrative body to appoint a panel of arbitrators (LMMA Rules, for example) amended. It is a fundamental part of the arbitral process that the parties should select their panel of arbitrators. Third, I would provide for costs recovery for the winning party in all rules (amend, for example, TAI Rules). Finally, I would like to see courts even more supportive of the arbitral process in terms of the orders that they will make on documents or witness production or securing assets in dispute.
Kwan: A tactic for respondents is to refuse to pay its share of the arbitration costs. Provisions should be included in arbitral rules for the tribunal to be expressly empowered to issue an interim award for unpaid costs, to avoid uncertainty. In our experience, deals in the energy and infrastructure sectors are becoming more complex involving multiple parties. Detailed provisions are required in arbitral rules to deal with multiparty disputes – consolidation and joinder; when parties can be joined in the proceedings and how arbitrators are to be appointed. Some arbitral rules do not have detailed provisions as to confidentiality of the proceedings and all documents and materials arising out of the proceedings.
FW: What clauses would you recommend that Asian companies insert into their commercial contracts to manage potential disputes down the line?
Burkill: I would go with disputes to be decided in accordance with English Law by way of arbitration in Singapore under SIAC Rules. In my experience the Singapore system cannot be bettered. After that I would, within Thailand, go for disputes to be decided in accordance with English law in Thailand under UNCITRAL Rules – so that we can at least get costs recovery if we win and so that we can remunerate arbitrators properly and get a good panel in place.
Kwan: Due to the lack of reciprocal enforcement treaties for court judgments between Asian states and the US and European states, and within Asia itself, nearly all contracts that have a cross-border element should contain arbitration clauses. Arbitration is attractive for a number of reasons. First, its flexibility – in the constitution of the tribunal, language, venue, procedural rules, and timetable (usually). Second, its neutrality – it avoids national courts, choice of neutral arbitrators, language, and venue. This is particularly important in Asia where in some parts the judicial systems are unstable. Third, its confidentiality. Lastly, its finality – there are usually no or limited rights of judicial recourse to the award. However, arbitration is not always the best option. Litigation should be considered when there are strong courts for the dispute and enforcement, efficient court procedures, purely domestic issues, the ‘dispute’ is likely to be a simple issue that involves debt collection, and the need for precedent. Multi-tiered dispute resolution clauses are also popular, with mediation as the first tier. Be careful with drafting provisions requiring negotiations in good faith. These are generally unenforceable as they are an ‘agreement to agree’, and at best act as a cooling off period if a definite time period is specified for the negotiations to take place.
Parmar: Standard arbitration clauses recommended by arbitral institutes for insertion into commercial contracts are by and large similar in content. In addition to such arbitration clauses, companies should insert provisions that enable them to seek specific relief or remedies which, although available to a litigant in court, may not ordinarily be available to a party in arbitration. An example would be a contractual right to seek pre-action relief measures from the courts (such as pre-arbitral discovery) without prejudicing the right to have the primary dispute arbitrated. While institutes are amending their rules and legislative changes are being made to afford litigants access to interim measures or remedies in some states, there remain a number of jurisdictions where the courts do not have the power under their present legal regime to fully assist parties in arbitration unless express provisions have been provided for. Self-help measures are therefore necessary.
James Kwan is a partner at Simmons & Simmons. He focuses on international commercial arbitration and litigation, with an emphasis on infrastructure, engineering, and energy disputes. He has a range of international experience, having been involved in disputes/arbitrations in the Middle East, Germany, Greece, Switzerland, Thailand, Korea, China, Vietnam, Japan and Singapore. Mr Kwan can be contacted on +852 2583 8380 or by email: email@example.com.
Karam S Parmar is a senior partner of Tan Kok Quan Partnership, a Singapore law practice. He holds dual qualifications in engineering and law, and was called to the Bar of England and Wales in 1992. Mr Parmar currently heads the firm’s building and construction department and has considerable experience in both non-contentious and contentious work. Inevitably, a large part of his practice involves arbitration work and the promotion of arbitration. He can be contacted on +65 6496 9541 or by email: firstname.lastname@example.org.
Steven Burkill is a partner at Watson, Farley & Williams LLP. He joined the firm in 1998 and is head of the Bangkok Office and head of the Asia dispute resolution team. He specialises in international litigation and, in particular, London and Asia-based arbitrations involving oil and gas, power and large-scale project disputes. Mr Burkill is also highly experienced in shipping litigation involving charterparty, bill of lading, commodities and ship sale and purchase disputes. He is cited in the Asia Legal 500 as a leading practitioner in dispute resolution work. He can be contacted on +66 2 665 7801 or by email: email@example.com.
Simmons & Simmons
Karam Singh Parmar
Tan Kok Quan Partnership
Watson Farley & Williams