Arbitration in Asia

By Professor Datuk Sundra Rajoo

(President of the Asian Institute of Alternative Dispute Resolution, former Director of the Asian International Arbitration Centre (AIAC), Managing Director of Sundra Rajoo Arbitration Chambers)
[Reproduced with permission]

History of Arbitration in Malaysia

It would be difficult to trace the history of arbitration in Asia, but we can first look back to 1923, when the International Chamber of Commerce (ICC) Court conducted its first arbitration. Despite it involving an Asian party (a Thai Claimant, to be specific[1]), it was only up till five years ago that arbitration was deemed virtually non-existent within the Asian terrain.

Today, statistics however reveal an indubitable surge in arbitration in that more Asian parties are submitting themselves to arbitration (ICC statistics reveal that from 195 Asian parties in 2005, there were 257 Asian parties in 201.0), as well as an increase of places of arbitration in Asia and reform or substantive laws[2].

With the world economic progression today, in order to accommodate counterparty in the Asian region, there has-been tendency to refer disputes to arbitral institutions located in Asia, namely CIETAC, BAC, SIAC, HKIAC, KLRCA, KCAB, ICC Asia and others. Based on the Global Arbitration Review’s most recent report on Asia-Pacific, the number of cases regionally stands as below[3]:

The outlook of arbitration in asia

In recognition of the growth of arbitration, many Asian countries have undergone extensive arbitration related legislative changes and judicial reforms, even more so in these past five years. Many nations have opted to incorporate international standards such as the UNCITRALModel Law. In fact, Asia currently has the highest concentration of Model Law adopters worldwide[4]. This comes quite timely, as a 2010 survey on the choices of international arbitration (venues? seats?) tells us that 62% of the respondents opine that formal legal infrastructure or the statutory framework of a country is a decisive factor in selecting a place of arbitration [5].

Malaysia

The arbitration regime of Malaysia is presently at the brink of a new horizon. In 2011, the government of Malaysia publically reiterated its commitment to the growth of arbitration in Malaysia bypassing the Arbitration (Amendment) Act2011 which came into effect on 1 July 2011. The amendments address lacunas which emerged from the former Arbitration Act 2005 (Act646). Under the amendment act, court intervention in Malaysia has been modified to adopt the
language of UNCITRAL, thus only allowing for intervention where it is so provided in this Act [6].

This limits the use of inherent powers to matters specifically mentioned in the Act as opposed to the former text which created a sliver of manoeuvrability with the phrase, ‘unless otherwise provided’. In light of development of maritime litigation, the Amendment Act also expands its scope by providing for the arrests for security of property related to admiralty proceedings [7]. In terms of practice, it should be noted that KLRCA launched the second edition to its Fast Track Rules [8],

which was drafted in consultation with prominent lawyers of the maritime industry and discards the previous RM1 million limit of the previous edition whilst maintaining the speed of resolution.Other notable reforms in Malaysian law are the granting of stay of proceedings in favour of arbitration unless an agreement is void, inoperative or incapable of being performed[9], the granting of interim awards and stay of proceedings where the seat of arbitration is not in

Malaysia [10], the provision for laws of other countries to be used in a domestic arbitration [11], the clarification of enforcement of awards of international arbitrations seated in Malaysia [12], the use of laws of other States in the determination of the validity of an arbitration agreement [13] to state a few [14].

China

Around two decades, arbitration in China was quite a different creature from today. There, were strict distinctions between international and domestic arbitrations and arbitration as a whole, exuded a predominantly administrative flavour. However, in 1994, the Arbitration Law of the People’s Republic of China (PRC) was introduced and established a system more Convergent with international practices. Today, the China International Economic and Trade Arbitration Commission (CIETAC – China’s forefront arbitration body) is gaining prominence as a favoured option for dispute resolution in complex, bilingual commercial cases [15]. In 2011 alone, CIETAC dealt with 1,435 cases.

In 2011, the Law on Application of Law for Foreign-related Civil Relations (the PRC Law on Conflict of Laws) brought some key changes to arbitral practice in China. Article 41 of the Law on Conflict of Laws states that substantive law shall be the laws at the habitual residence of the party whose fulfilment of obligations can best reflect the characteristics of the contract; or other laws which have the closest relation with the contract. Article 10 of the Law on Conflict of Laws states that the People’s Courts, the arbitration institutions and the relevant administrative authorities shall ascertain the content of foreign law intended to be applied by the parties. Article 18 states that where parties have’ not agreed on the governing law of foreign-related arbitration agreement, the governing law shall be either the law of the place where the arbitration commission is located or the law of the place of the arbitration.

New rules-came into force on 1 May 2012 and the rules show a strong commitment to reconcile arbitration in China with international practice. CIETAC’s new rules expand on, previous improvements, such as by empowering CIETAC to order any interim measure as it deems necessary or proper on a party’s application. Also, the new rules allow CIETAC to designate any language of the arbitration in the absence of party agreement. In terms of the summary procedure it will apply to any case where the amount in dispute is below 2 million renminbi. For fairness, the new rules provide that if either side defaults in appointing the party-appointed arbitration hen the1 chairman of CIETAC will appoint all three arbitrators. The new rules also allow consolidation of two or more CIETAC arbitrations into one arbitration, freedom to agree on the governing law of the contract consistent with PRC law, and clarification that the ‘Secretariat of CIETAC’ or CIETAC in Beijing would administer the case where the parties -had failed to agree on the administering body. Such improvements will be useful for parties seeking arbitration in China.[16]

HONG KONG

Hong Kong has quite a unique position. Being a colony of the United Kingdom up till recent times (1997), Hong Kong perched precariously between two vastly different arbitral regimes. Pursuant to an arrangement made between Hong Kong and the Mainland government (21 June 1999), it was agreed that arbitration awards made in Hong Kong are to be enforced in the Mainland as if the New York Convention would apply and vice versa. Hong Kong thus maintained its status as per under British rule.

More recently, a new Arbitration Ordinance 2011 (chapter 609) came into force on 1 June 2011. One of the most striking changes is the unification and streamlining of domestic and international arbitration into a single framework based on the UNCITRAL Model Law (as amended in 2006).

Overall, me new ordinance has set the idea stage for arbitration proceedings, i.e. it stresses on the finality of arbitral awards by limiting the grounds for setting aside, it encourages party autonomy by allowing parties to select the institution and rules they would prefer to submit to and it imposes more stringent confidentiality requirements on parties [17]. The ordinance also legislates for arbitration-related court proceedings to be conducted in camera unless otherwise required by the court or parties [18]. However, due to the requests of the construction industry, ‘opt-in’ provisions were drafted into the ordinance to allow for parties to opt for the old domestic regime to apply [19].

Another interesting aspect of Hong Kong’s new ordinance is the use of hybrid dispute resolution methods such as Med-Arb or Arb-Med[20] which have been popular in China. However, the verdict on the prudence of conglomerating dispute resolution methods is still out. In the recent case of Gao Haiyan v Keeneye Holdings [21], the Court of Appeal reinstated an arbitral award previously set aside by the lower courts under the grounds of biasness. The Court of Appeal held that respondents had not raised any concerns as to the med-arb procedure through out the arbitration itself. Furthermore, the Court of Appeal undertook to construe public policy grounds narrowly.

Singapore

We would not be far off in saying that Singapore ranks quite closely among the giants of arbitration. Its Maxwell Chambers, opened in 2009, was nominated for an award in the most significant development of the year category at the 2011 GAR30 Awards [22]. Statistics reveal that from 58 new cases in 2000, the number of new cases handled by the Singapore International Arbitration Centre (SIAC) has increased tremendously to 198 in 2010 [23], and 188in 2011 [24].

Interestingly, Singapore practises a dual regime system following the enactment of the International Arbitration Act in 1995. The most recent amendments to the International Arbitration Act (IAA) was on 1 January 2012. The most salient features would be: the broadening of the definition in the IAA for “arbitration agreements”, allowing the Singapore courts to review a ruling by an arbitration tribunal that it does not have jurisdiction to hear a dispute, clarifying the scope of arbitral tribunals’ powers to award interest in arbitral proceedings, and providing legislative support for the ’emergency arbitrator’ procedure by granting emergency arbitrators appointed under any arbitration rules the same legal status and powers as that of a conventionally-constituted arbitral tribunal [25].

Australia

The July 2010 amendments to the International Arbitration Act (IAA) radically transformed Australia’s legislative facade. The amendments adopt the 2006 amendments of UNCITRAL Model Law and repeal the former section 21 IAA which allowed parties to ‘opt out’ of being in accordance with Model Law. Under the amendments, case law on UNCTIRAL Texts (CLOUT) reports may be used in interpreting the IAA [26].

These amendments have also greatly impacted arbitration on the domestic front in that it has prompted the Standing Committee of the Attorneys-General to introduce uniform arbitration legislation in all states [27]. Thus far, only, New South Wales and Tasmania has introduced new legislations. However, these new enactments carry are rife with interesting features such as mandatory stay of proceedings in the light of an arbitration agreement and provisions for the appointment of a temporary arbitrator.

Japan And South Korea

Both Japan and South Korea have amended their laws to be more complaint with UNCITRAL Model Law in 2004 and 2010 respectively. This was quite a leap for Japan as its Code Of Civil Procedure 1890 (based on the German Code of Civil Procedure 1877) remained virtually unchanged until2003.

Both Japan and South Korea’s legislations contain deviations from UNCITRAL Model Law. For example, Japan’s Arbitration Act contains some provisions for a similar procedure as that of med-arb where arbitrators, pending arbitral proceeding, may attempt to settle, the dispute [28].

One of the notable features of South Korean Arbitration Act is Article 3(2) where it defines arbitration agreement as ‘an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them out of defined legal relationship, whether contractual or not. Article 35 states that the arbitral award shall have the same effect on the parties, as a final and conclusive judgment of a court. South Korea continues to maintain a pro-enforcement stance and1 in 2009, the Supreme Court reaffirmed that an award rendered in the jurisdiction, of New York Convention signatories shall have the same effect as a domestic judgement[29].

India

In 2010, the Indian Ministry of Law and Justice released a consultation paper addressing some of the major failings within the Indian Arbitration and Conciliation Act (IACA) 1996. The key amendment contained in the paper was the need to amend Section 2(2) to ensure that Part 1 of the Act that confers wide intervention powers only applies to arbitrations in India, whilst, still ensuring that Sections 9 and 27 continue to apply to international commercial arbitration, where the place of arbitration is not in India.

A further important amendment proposed deals with the term ‘public policy’, in Section 34. Following the decision in Oil & Natural Gas Corporation Ltd (ONGC) v Saw Pipes Ltd (2003), which held that the term ‘public policy’, is to be given a wider interpretation, the need for express legislation has arose in order to negate the effect of this unruly judgement.

Although serious action towards amending the Act has yet to be taken, there has been some significant advancement recently which can only be described as positive. For example, the High Court’s decision in Coal India v Canadian Commercial Corporation wherein the High Court refused to set aside an award rendered under the ICC Arbitration Rules in Geneva. This decision gives credence to parties’ choice in seat of arbitration. As stated by Redfern and Hunter, if an English woman decides to drive her car in France, she has chosen to abide by French traffic law. It would now be interesting to see how the Supreme Court decides the batch of consolidated appeals considering the correctness of Bhatia International v Bulk Trading SA [30] which had extended Part I of the Act into international matters outside India.

Other notable developments are opening of an Indian branch of the London Court of International Arbitration, the employment of an Indian lawyer to the International Court of Arbitration of the ICC, and the encouragement of the use of arbitration under the National Litigation Policy.

Emerging Countries

Despite the surge of development in certain parts of Asia, arbitration is just beginning to find its footing in the dominions of other countries such as the Philippines, Thailand, Indonesia, Vietnam and Cambodia.

Even so, it must be recognised that there has been a marked increase in receptivity to international arbitration. For example, all of the abovementioned countries are member states to the New York Convention and have their own respective arbitration laws.

Vietnam, in June 2010, passed the Arbitration Law2010 which came into effect on 1 January 2011 and established some positive elements. The law itself is not based on the UNCITRAL Model Law, but it allows for parties to select the law applicable to the dispute regardless of whether it conflicts with Vietnamese law. While there are no nationality restrictions on the tribunal’s panel, the new law sets down a list of requirements which any local or foreign must first meet before being deemed qualified to act as an arbitrator. Vietnam is one of the few countries who still impose restrictions. At present, the system of enforcement of awards remains largely untested.

Another country which has fairly recently amended its laws is Thailand which enacted the Arbitration Act 2002 BE 2545, substantially based on UNCITRAL Model Law. It has been considered a generally “modern and workable arbitration statute” [31] by most within the arbitration sector. Some of its key features are the unification of domestic and international cases, the competency of the tribunal to rule on its own jurisdiction, the principle of separability, representation by foreign lawyers may only occur where a dispute is not governed by Thai Law and there is no need to apply for enforcement of an award in Thailand. However, foreign nationals may act as arbitrators. Perhaps one of the biggest challenges faced by Thailand is the exclusion of government organs from arbitration unless exempted by Cabinet and also the absence of a stipulated time limit for the delivery of an award.

The developments of legislation in other parts of the region are similar including that it consists gaps which have led to doubt and a lack of confidence in the system. Nevertheless, we must not undermine the efforts which have been taken by some of these States in promoting the use of Alternative Dispute Resolution (ADR). The Philippines have taken initiatives to establish training programmess for ADR providers and practitioners, and have been promoting the use of ADR to various industries.

It may be surmised that a common trend that poses an issue for arbitration in developing countries is the lack of deadlines for awards. The non-existence of strict stipulations of time erodes at the confidence of international parties as there is no assurance that an award will be made, and the entire arbitral process becomes subject to arbitrary delays.

There also appears to be some form of cultural resistance. For example, the Indonesian requirement for Bahasa Indonesia as the predominant language even in the event that a translation of the award from another language is a deterring factor. It is not only a hassle but also creates the apprehension that the true intention and meaning of documents may be lost in translation.

The past five years can be categorised as an era of reforms wherein we saw many Asian countries and institutions generating new legislations and rules to be more harmonised with their Western counterparts. Thus, having formed the hypothesis and created the would-be ideal environment, the region is now entering a period wherein their systems will be put to the test. It will also be establishing best practices for other developing countries within the region.

Conclusion

Although change does not occur overnight, the rapid development of arbitration in Malaysia and its neighbours leaves little option but for stakeholders to pick up the pace. This bodes extremely well for the regional business and trading parties and it is with much interest that we as one of the leading institutions monitor the product of our hard work.