Arbitration hearing in Hong Kong in row over US$500m railway contract

Hearing in US$500m railway contract row between Philippines and mainland firm

PUBLISHED : Wednesday, 30 January, 2013, 12:00am
UPDATED : Wednesday, 30 January, 2013, 4:40am

A dispute over a US$500 million railway contract between the Philippine government and a large Chinese state-owned company will be heard at the Hong Kong International Arbitration Centre - a move hailed as a vote of confidence in the city's judicial independence.

The row between North Luzon Railways (North Rail) and China National Machinery and Equipment Corporation (Sinomach) over a lucrative project near Manila has dragged on for years, adding tension to already strained Sino-Philippine ties.

The Philippine Department of Transportation and Communications - which wholly owns North Rail - decided to take the dispute to Hong Kong for arbitration. Two Hong Kong-based lawyers confirmed the decision and at least one city law firm will be involved.

The fact that the Philippines chose Hong Kong to solve the dispute is a boost to the city's reputation as Asia's prime arbitration centre.

"There is a view that Singapore has stolen a march on Hong Kong as Asia's top arbitration hub," said one British lawyer who did not want to be named.

"One argument that Singapore has is that Hong Kong is too close to China. Parties in disputes with a Chinese side may prefer a more impartial place to have their case heard."

But James Kwan, a partner of international arbitration at law firm Baker & McKenzie, said the case had helped to dispel such concern.

"[It shows] that foreign parties see Hong Kong as being pro-arbitration with an independent judiciary," Kwan said.

"Hong Kong is the pre-eminent choice of arbitration involving mainland Chinese parties. Foreign parties also find Hong Kong acceptable."

Arbitration centre chairman Wong Kwai-huen agreed. "Our legal arbitrators have experience in handling disputes involving mainland parties as well as disputes about railway construction," he said.

Daryl Chew, who is an associate of US law firm Shearman & Sterling, said the case highlights "the value of a neutral, efficient and accepted forum for the resolution of high-stakes transnational disputes".

A North Rail document seeking lawyers for the case said the arbitration at the centre was imminent. In October, Philippine Transport Secretary Joseph Abaya said the arbitration would decide how much of the US$500 million rail project is paid and "who pays who".

The controversy goes back almost a decade ago. In 2004, then Philippine president Gloria Macapagal-Arroyo approved a project to build a rail link between Manila and Diosdado Macapagal International Airport at Clark air base. The first phase of the project was financed with a US$400 million loan from Export-Import Bank of China, with Sinomach to be the main contractor.

But the project met stiff opposition in the Philippines and was repeatedly delayed.

In 2011, President Benigno Aquino halted the project after the Philippine Supreme Court ruled that the project violated Filipino procurement laws, according to Philippine media reports.