Arbitration builds on progress in Asia

Kent Phillips and Roger Milburn of Berwin Leighton Paisner discuss changes to international arbitration in the region

PUBLISHED : Wednesday, 03 July, 2013, 12:00am
UPDATED : Wednesday, 03 July, 2013, 4:48am

The arbitration landscape has dramatically changed in Asia in recent years and new developments involving CIETAC - the leading arbitral institution in China - may have a wider impact on the growth of arbitration in the region.

The China International Economic and Trade Arbitration Commission and its peers in the region are being used increasingly by commercial parties to resolve disputes away from local courts, which are often viewed as inefficient, parochial or worse.

The increased use of international arbitration has been aided by promotion from international administering institutions, the growth of a well-developed cadre of international specialists to act as counsel and arbitrators, and increasing acceptance of arbitration by domestic legislators and courts. Arbitration also benefits from the advantage of the New York Convention, which in principle makes awards more readily enforceable between all 148 signatory countries than is the case with equivalent foreign judgments. This increased arbitration use in Asia has reached a point where statistics suggest that key arbitral institutions in the region now rival some of the main London or European equivalents in terms of case loads and value.

London or Paris is no longer the default option for arbitration of international trade disputes. A number of regional centres have sprung up in Malaysia, Indonesia, South Korea, Vietnam and Cambodia, but real growth in international arbitration has gravitated to Singapore and Hong Kong. Both are regarded as dynamic arbitration venues that advocate the latest thinking in the arbitration world and which possess well developed legislation and arbitration-supportive courts.

However, a great deal of mainland-related disputes are still resolved by arbitration in China. CIETAC has an important function in servicing this work alongside disputes involving international parties. This role is imperilled by the recent news of a split in CIETAC, where the Shanghai International Arbitration Centre and the Shenzhen Court of International Arbitration have broken away and established new institutions independent of CIETAC. The developments may bring some immediate uncertainty to parties with existing contracts referring disputes to CIETAC arbitration in Shanghai or Shenzhen.

Beyond this is the more important question of the wider implications for arbitration in Asia. Further competition between institutions is good for arbitration participants. However, the risk facing China is that instead of having its own leading international institution, it may end up with several fragmented institutions, adding to a pool of smaller, regional players, each competing to attract international cases and the best arbitrators.

A further issue is that concern about the rivalry may serve to undermine confidence in arbitration in China, leading some parties to prefer litigation instead. However, few international parties are likely to be put off arbitration, given their concerns with litigation in China and the enforcement advantages offered by the New York Convention. A more likely response for some international parties is an increased reluctance to agree to arbitration in China.

How to resolve disputes is always a matter of agreement and foreign parties will now have another argument to try to negotiate for arbitration outside the mainland.

Existing institutions in Hong Kong are obvious candidates to gain from any drop-off in agreements to arbitrate on the mainland.

Singapore may well benefit. This in part reflects its efforts to forge links with China. It is also due to Singapore's growing status in the region, with statistics showing another year of substantial growth in case loads and average case sizes.