International Arbitration in Asia

International arbitration has come of age in Asia. The number of cases being reported in the region is on the rise, local arbitration institutions are growing in importance and serious efforts are being made to modernise local arbitration legislation. Most Asian nations are party to the New York Convention and the ICSID (or Washington) Convention. Although the number of investor-state arbitrations in the region remains small, recent developments suggest that this is likely to change in the near future.

Growth

The growth of arbitration in Asia in recent years can be seen clearly in the statistical reports (see Table 1). Whereas 10 years ago Asian arbitration institutions would have received scant mention in a list of the 10 busiest international arbitration bodies, the picture today is quite different. In 1985, the China International Economic and Trade Arbitration Commission (CIETAC) handled 37 cases; 10 years later the number of cases topped 1,000. In 1985 the number of cases referred to the Hong Kong International Arbitration Centre (HKIAC) was nine; today, the number is approaching 500.

Over the past five years, the number of cases handled by arbitration institutions in mainland China and Hong Kong together have outstripped the International Chamber of Commerce in Paris, the London Court of International Arbitration, the Stockholm Chamber of Commerce and other well-known western arbitral institutions.

Similar dramatic growth in the acceptance of arbitration in Asia is reflected in ICC statistics. Whereas Asian parties figured in only 3 per cent of ICC cases in 1983, the percentage has since increased dramatically. By the end of 2006, nearly 17 per cent of all ICC cases involved one or more parties from the Asian region. The increase in the number of cases in recent years involving parties from China, India, Japan, Korea and the Philippines is especially noteworthy.

Arbitration institutions

Hand in hand with growth in the volume of cases and increased acceptance of arbitration throughout the region has been the proliferation of arbitration institutions in Asia. These include:

- the Mongolian International Court of Arbitration (MICA);

- the Japan Commercial Arbitration Association (JCAA);

- the China International Economic and Trade Arbitration Commission (CIETAC);

- the Hong Kong International Arbitration Centre (HKIAC);

- the Korean Commercial Arbitration Board (KCAB);

- the Philippine Dispute Resolution Centre (PDRC);

- the Thai Arbitration Institute (TAI);

- the Singapore International Arbitration Centre (SIAC);

- the Regional Center for Arbitration at Kuala Lumpur (RCAKL); and

- the Bandan Arbitrase Nasional Indonesia (BANI).

Through these and a number of similar centres throughout the region, Asian proponents of arbitration have in recent years been engaged in a serious exercise of institution building.

In 2004, the Asia Pacific Regional Arbitration Group (APRAG) was established as an umbrella organisation for Asia-based arbitration institutions. Its membership now includes 27 arbitration institutions, centres and other organisations. APRAG has also developed a list of Asia-based arbitrators with broad experience both in the region and beyond. For more on APRAG, visit their website at www.aprag.org.

As the large number of arbitration bodies in the region shows, institutional arbitration plays a very prominent role in Asia. This can be attributed to a variety of factors. Some have argued that the predominance of institutional arbitration reflects a preference by many Asian disputants for administered arbitrations as opposed to ad hoc proceedings. In Japan, for example, ad hoc arbitrations are reported to be quite rare, with Japanese parties preferring the more structured arrangements of arbitration before the JCAA.

Apart from cultural factors, there are in many Asian jurisdictions also good legal reasons why ad hoc arbitration should be avoided. In China, for example, there is no clear legal basis for the conduct of ad hoc proceedings. The 1995 PRC Arbitration Law requires that all arbitrations be carried out under the auspices of a government-sanctioned arbitration commission. Although perhaps not as extreme as in China, doubts also surround the enforceability and practicality of executing ad hoc arbitration agreements in some other Asian jurisdictions.

Table 1: international arbitration cases filed, 2000-2007

AAACIETACHKIACICCLCIASIACSIACSwiss RulesSCC

Legislation

Another theme that emerges from a review of arbitration in Asia is the increasing uniformity of local legislation, as growing numbers of Asian jurisdictions amend outdated laws and adopt the principles established by the UNCITRAL Model Law.

In Australia, where arbitration is well established, a comprehensive legal framework governing arbitration has been in place for some time. At the national or federal level, the International Arbitration Act (1974) implements, inter alia, the UNCITRAL Model Law. Each of Australia's mainland states and territories has separately enacted uniform legislation governing domestic arbitrations in the form of a Commercial Arbitration Act (CAA). Under the relevant CAA, parties in international arbitrations are allowed to 'opt out' of the Model Law and choose application of the CAA if they wish.

Hong Kong, which has long been a pioneer in the area, adopted the UNCITRAL Model Law in 1990 to govern international arbitrations. Domestic arbitrations are governed by a different section of the Ordinance, although parties may opt in or out of the two regimes. The Arbitration (Amendment) Ordinances of 1996 and 2000 made a number of changes to Hong Kong's arbitration law. A complete revamping of the Hong Kong Arbitration Ordinance to establish a single Model Law regime for both international and domestic cases is expected to be enacted later this year.

Singapore has also shown itself to be a progressive force in the region. In 1995 Singapore enacted the International Arbitration Act (IAA). The IAA adopts the UNCITRAL Model Law for international arbitrations, while domestic arbitrations continue to be governed by the earlier Arbitration Act, an approach which as we have seen has also been adopted in Australia and Hong Kong. As in these jurisdictions, parties to arbitrations may opt in or out of either regime.

As a result of the legislation introduced in Australia, Hong Kong and Singapore, these jurisdictions today offer some of the most up-to-date and progressive arbitration legislation in the world. Other jurisdictions that have recently adopted the UNCITRAL Model Law or amended local legislation to incorporate key elements of the Model Law include Japan (2004), Korea (1999), Malaysia (2006), the Philippines (2004), India (1996) and Thailand (2002). At the same time, other Asian jurisdictions (such as Taiwan), while not adopting the Model Law, have adopted amendments to local laws aimed at establishing 'arbitration-friendly' legislation.

One major arbitration player that has lagged behind in reforming its arbitration legislation is China. The PRC enacted its first Arbitration Law in 1994. The law provides for a bifurcated arbitration system consisting of a domestic regime and an international regime. While China considered, but ultimately decided against, adoption of the UNCITRAL Model Law, a number of its key principles are nonetheless reflected in the final legislation.

As discussed earlier, a distinctive feature of arbitration in China is the requirement that all proceedings be conducted by a designated arbitration institution. The Arbitration Law provides for the establishment of both domestic arbitration commissions and international or foreign-related commissions. Whereas the law itself appears to contemplate a strict demarcation of jurisdiction between the two types of commissions, with domestic commissions dealing exclusively with domestic matters and international commissions dealing with international cases, this distinction has in recent years become blurred. In particular, as a result of a State Council decision in 1996, domestic tribunals may now hear international cases and international tribunals established under CIETAC may, since 2000, hear both domestic and international disputes.

Although China's Arbitration Law has made an important contribution by unifying the previously scattered legislative enactments governing arbitrations in China, it also leaves many questions unanswered. As discussed previously, the Arbitration Law fails to clearly answer the question as to whether ad hoc arbitrations are permissible in China. This has caused particular concern. In addition, by providing that all arbitrations in China be conducted under the auspices of 'arbitration commissions' established pursuant to the law, the PRC Arbitration Law casts doubt on whether foreign institutions such as the ICC may legally administer arbitrations inside China.

Enforcement

Most jurisdictions in the Asia-Pacific region have acceded to the New York Convention of 1958 (see Table 2). Widespread acceptance of the principles contained in the Convention is deserving of applause.

Unfortunately, however, there appears to be less uniformity throughout the region with respect to the implementation of the Convention. Enforcement of foreign arbitral awards has proved problematic in some jurisdictions, including mainland China, Thailand, Indonesia and Vietnam.

Hong Kong has long had an exemplary record with respect to the enforcement of arbitral awards. With the reversion of sovereignty to China in 1997, China extended the New York Convention to the territory. In 2000, the Hong Kong-Mainland Enforcement Arrangement was put into effect, ensuring the New York Convention principles would also apply to the enforcement of Hong Kong awards in mainland China and vice versa. At the same time, Hong Kong amended its Arbitration Ordinance to permit the enforcement in Hong Kong of awards made in non-Convention territories such as Taiwan. The result of these changes, coupled with the strong pro-enforcement bias of the Hong Kong courts, makes Hong Kong one of the most enforcement-friendly jurisdictions in the region.

Investor—state arbitration

Investor—state arbitration has also begun to grow in Asia. With the notable exception of India and Thailand, most Asian states have acceded to the ICSID Convention. Moreover, an increasing number of Asian states have entered into bilateral investment treaties (BITs) with their major trading partners. China, for example, has entered into more than 100 BITs.

Up to now, Asian states and investors have made only limited appearances on ICSID's case docket. Between 2003 and 2007, only 12 cases have involved Asian states or investors. The states to have appeared include Bangladesh, Indonesia, Malaysia, Mongolia, Pakistan and the Philippines (see http://ita.law.uvic.ca/). Conspicuously absent from the case record has been China, the world's leading destination for foreign direct investment.

This picture will likely change in the years ahead. In particular, observers expect that the number of claims by foreign investors against China will increase as a result of recent changes to the country's BIT regime. Until 2004, China's BITs all provided that decisions as to liability of the state under a BIT claim can only be made by a Chinese court or administrative tribunal; only after a determination on liability was made could issues relating to quantum be referred to arbitration before ICSID or an ad hoc tribunal. Not surprisingly, this scheme tended to discourage BIT claims. In 2004 and 2005, however, China amended its BITs with the Netherlands and Germany to permit both liability and quantum to be referred to international arbitration.

Another factor that will likely lead to an increase in BIT cases involving China is that country's current resource-led investment drive in Africa and central Asia. In recent years, China has strengthened its treaty network to include the signing of BITs with states in these regions.

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There is no doubt that international commercial arbitration has gained a firm foothold in many jurisdictions in Asia, and is putting down strong roots in others.

The statistics show clearly that more and more Asian parties are questioning the benefits of the traditional paths to London, Paris, Stockholm and Zurich, and are seeking to resolve disputes closer to home. Moreover, Asian jurisdictions have made important efforts to ensure that they have the legal and institutional infrastructure in place to handle the growth in arbitrations.

Reforms in arbitration legislation throughout the region demonstrate the salutary effects of the work of UNCITRAL and the New York Convention in promoting the harmonisation of international arbitration law and practice in Asia.

In future years, commercial arbitration will no doubt increase throughout the region. In addition, there will likely be an increase in the number of investor-state arbitrations involving parties from Asia. It is expected that this trend will be led by China, the region's largest recipient of foreign investment.

Notes
1. International arbitration cases received by major institutions. Prepared by HKIAC with the assistance of the named institutions; www.hkiac.org/hkiac/hkiac_english/en_statistics.html; www.swissarbitration.ch/pdf/newsletter_2007_1.pdf (accessed 26 October 2006). NB: statistics for CIETAC, ICC and LCIA in some years include domestic and international arbitrations — accordingly, figures are not directly comparable.