A wave of new economic and commercial initiatives, including the AEC and China’s OBOR, are set to firmly place Asia at the epicentre of cross-border trade and economic growth. These commercial opportunities, coupled with uncertainty over global markets, are likely to spur a spike in cross-border disputes. In this light, 2016 is gearing up to be a milestone year for international arbitration in Asia. Kanishk Verghese reports.
M&A activity in the Asia-Pacific region reached new heights in 2015, with numerous multibillion dollar keeping businesses, bankers and lawyers on their toes. According to Thomson Reuters data, announced M&A volume in the region (excluding Japan) in 2015 hit the trillion dollar mark for the first time in history, with $1.165 trillion, a whopping 59 percent increase from the $731.3 billion recorded in 2014. This boom can be linked to the strong cash positions held by Asian companies, cheaper asset valuations in overseas markets, and a ravenous appetite for expansion. Furthermore, the launch of a number of economic initiatives in the region has whetted the appetite of investors. In Southeast Asia, the proposed integration of the 10 ASEAN members into the ASEAN Economic Community (AEC) seeks to relax capital flow restrictions and promote the free movement of goods, services and labour within the region. The AEC is expected to encompass a trading bloc of more than 600 million people with a GDP exceeding $5.6 trillion, which would make it the seventh-largest economy in the world.
And then there is the One Belt, One Road (OBOR) economic initiative spearheaded by China in 2014, which aims to realise economic cooperation through interconnection between more than 60 countries – with a population of 4.4 billion – across Asia, Europe and Africa. According to an Asian Development Bank study, more than $8 trillion is required for infrastructure investment in the Asia-Pacific region. While China and other nations and multilateral financial institutions have invested billions in the initiative, much of the funding is expected to come from private sector investment. OBOR in particular is viewed by many economists as a real game changer for cross-border trade and economic activity, says Shaun Wu, a litigation and arbitration specialist at Kobre & Kim in Hong Kong. China cross-border M&A activity hit $161.9 billion in 2015, a 61 percent increase from the $100.8 billion accumulated in 2014, Thomson Reuters data shows. “There will likely be more China outbound-related international disputes as a result of the OBOR initiative,” says Wu. “It will take time for issues to crystallise into problems, but in the near future we can expect to see the first few instances of disputes arising out of transactions, possibly in the project, infrastructure, construction or even investment space.” As a result, Hong Kong and China’s governments and arbitral institutions have been actively educating businesses and investors on the benefits of arbitration in relation to any cross-border disputes that may arise out of the OBOR initiative.
In addition to the spike in cross-border trade and investment, international arbitration in Asia is also likely to experience an uptick as a result of uncertain economic conditions in the region, says James Kwan, an arbitration partner at Hogan Lovells in Hong Kong. “The weak manufacturing data from China, uncertainty in the stock market, as well as phenomena such as a weaker yuan, declining commodity prices and low oil prices are likely to lead to more prevalent disputes in the region, with international arbitration a common choice for many parties,” says Kwan.
A FOCUS ON EFFICIENCY
As global and intra-Asian trade and investment surges, Asia’s arbitration centres have also been gaining prominence. The Hong Kong International Arbitration Centre (HKIAC) and Singapore International Arbitration Centre (SIAC) have long been viewed as the Asian destinations of choice for disputing parties, and have seen their total numbers of new cases handled steadily increase year on year. In China too, arbitration has boomed over the past decade with the China International Economic and Trade Arbitration Commission (CIETAC) consistently handling more than 1,000 cases a year since 2007.
For his part, Kwan notes that HKIAC and SIAC are fast maturing, and now handle a number of arbitrations that would have historically been seated in London or Paris. This is due to Hong Kong and Singapore being pro-arbitration, with an independent judiciary that supports the arbitral process, and the HKIAC and SIAC having international reputations for transparency and independence, arbitral rules which can be easily assimilated and capable staff to administer the proceedings. Institutions such as the HKIAC have been focusing on efficiency, explains Kwan. This is evident through the revision of rules and best practices by these institutions to ensure that the arbitration process is efficient, economical, and cost-effective. For example, various institutions have introduced rules to allow for expedited procedures which is becoming more used, as well as the use of emergency arbitrator procedures, notes Kwan. “Furthermore, institutional rules now reflect the complexity of business and contractsas catering formultiparty arbitrations, and the consolidation of proceedings. HKIAC recently released a practice note on the consolidation of arbitrations, which allows arbitrations to be combined into one if they involve common questions of law or fact, if claims arise out of the same transaction or series of transactions, and they have compatible arbitration agreements,” he says.
Lastly, Kwan adds that amendments to arbitral legislation are also creating an efficient environment for disputes, citing the example of the Indian Arbitration Act that is currently being revised. “One unique requirement being discussed is that the arbitration has to be completed within 12 months. This can be extended up to 18 months by agreement, but further extensions would require further approval,” he says.
Several Asian arbitral institutions have also looked to expand their physical presence in response to greater economic activity in the region. CIETAC opened a Hong Kong office in September 2012, while SIAC launched an office in Mumbai in 2013. HKIAC set up its first overseas presence in Seoul in May 2013, and opened its doors in Shanghai in 2015, becoming the first offshore arbitration body to formally establish a presence in mainland China.
The appeal of arbitration in Asia has been further evidenced by the opening of the Seoul International Dispute Resolution Centre in Korea (Seoul IDRC) in May 2013, as well as the launch of Cambodia’s first arbitration venue – the National Arbitration Centre – in Phnom Penh in March 2013. The Kuala Lumpur Regional Centre for Arbitration (KLRCA) too is fast emerging as a viable arbitration hub in Asia. From handling roughly 20 cases a year before 2011, the KLRCA – which was established in 1978 – oversaw 156 cases in 2013, and notched more than 200 cases in 2014. The centre prides itself on its competitive fees, state of the art facilities, as well as its unique i-Arbitration Rules, which deal with the arbitration of disputes arising from commercial transactions premised on Islamic principles.
The emergence of arbitration centres such as the KLRCA, as well as new hearing facilities such as the Seoul IDRC, is a positive sign for arbitration in the region, says Kwan. “Competition is good because it leads institutions to examine how they can do things better in terms of improving their institutional rules or in terms of how cases are administered. Having said that, I still see Hong Kong and Singapore being the leading seats for arbitration in Asia,” he says.
A GOLDEN AGE
Nonetheless, lawyers note an increasing awareness, as well as an increasing acceptance of arbitration among parties as the preferred means of dispute resolution for cross-border disputes. While arbitration offers a number of benefits ranging from flexibility, finality, and confidentiality, the real driver for parties to seek arbitration is the enforcement of awards, claims Kwan. “With increasing cross-border investment and trade, arbitration is a default mechanism because of the New York Convention on the recognition and enforcement of arbitral awards. 156 states are members of the New York Convention, and there are very few reciprocal enforcement treaties for the enforcement of court judgments,” he notes.
Another driver for parties to choose arbitration is neutrality, says Kwan. “When you are negotiating an agreement with a counterparty, you want to avoid their local courts. This is heightened in Asia because in some jurisdictions the system of law is not predictable, and the local courts can be unpredictable,” he adds.
However, many national courts in Asia have become more arbitration-friendly and supportive in their enforcement of arbitral awards. For his part, Kobre & Kim’s Wu views arbitration as a great complementary system to the established national court litigation system. “Take a joint venture contract dispute between a Chinese and a U.S. company that is being arbitrated in Hong Kong as an example. Even though this is an international arbitration matter, the Hong Kong courts supervise the proceedings, the PRC or U.S. courts manage the enforcement, and a court in an offshore jurisdiction may oversee any injunctions, freezing orders or ancillary relief in aid of arbitration,” says Wu.
Despite the growth in arbitration in Asia, improvements are still needed in certain areas, such as arbitration costs and the time taken for tribunals to deliver their award, says Kwan.
Nonetheless, as Asian companies continue to pursue their outbound ambitions and take advantage of the lucrative economic initiatives on offer, disputes are certain to follow, with international arbitration perfectly poised to become the dispute resolution mechanism of choice, says Wu. “It is the golden age for international dispute resolution in Asia, and this is definitely the right place at the right time.”
The technology advantage
As the numerous economic initiatives in Asia begin to bear fruit and spur cross-border trade, companies are inevitably bound to find themselves entangled in commercial disputes. In no other setting is the ability to deliver legal services in an efficient and cost effective way more important. In recent years, modern technology has become one solution to delivering seamless and efficient legal services, and has started to play a bigger role in the dispute resolution process.
The use of technology in the legal space is not a new phenomenon. But providers like UK-headquartered Opus 2 International are at the forefront of crafting new solutions that can provide immediate benefits to clients involved in litigation or arbitration cases. One such solution is Opus 2’s Magnum, an electronic trial platform that combines a collaborative electronic bundle system with an advanced live transcription technology – known as Magnum Realtime – and electronic presentation of evidence service. “Where Opus 2’s Magnum is unique, is that it addresses the next stage in proceedings where the parties need to effectively collaborate amongst their team, prepare across key case materials and then carry that preparation into the hearing itself, saving significant time and money,” says Graham Smith- Bernal, founder and CEO of Opus 2. “The Magnum system makes the whole case preparation process and the hearing itself more efficient saving significant costs. We estimate that using Magnum generates savings of up to 55 percent as against hard copy,” he says.
When preparing a case, legal teams, co-counsel and experts need to collaborate among themselves and with their clients to prepare a coherent, logical and ultimately persuasive argument for the judge or arbitrator. Using Magnum, one common set of the documents and the transcripts – including live transcripts – can be securely accessed by the parties from anywhere in the world in one interface, eliminating the need for multiple hardcopy sets, says Smith-Bernal. “Each side to the dispute views that common set of materials in their own private workspace so that users can instantly create notes on all of those materials and share them with colleagues and clients. They can also create live hyperlinks between all content as well as electronically searching across them, streamlining case preparation. Magnum also incorporates an electronic presentation of evidence tool which allows clean versions of the evidence to be instantly displayed to the hearing room, dramatically speeding up hearings,” he says.
While jurisdictions like the U.S. and UK have made much headway in using new technology to more effectively handle disputes cases, some have argued that the legal market in Asia has not been as fast to embrace this trend. However, Asia is not as being far behind the U.S. and UK as some people think, says Smith-Bernal. “While e-disclosure tools are certainly not as widely used in Asia, since we opened our office in Singapore, we have seen a really positive uptake of our service in the local market. Singapore, helped in part by a progressive judiciary, is a market that is open to exploring technological means of improving legal practice, and is embracing the concept of the paperless trial,” says Smith-Bernal. In fact, Asia is very likely to experience substantial growth in the use of technology in the coming years, primarily driven by clients demanding that their lawyers deliver services in a cost effective and efficient way, and also by lawyers themselves who want to focus on the substantive practice of law rather than the more mundane, logistical or administrative aspects of legal practice, says Smith-Bernal.
Despite the progress of technology in the legal sector, one major concern surrounds the security of client data and other sensitive information, particularly in relation to data stored in the cloud. For his part, Smith-Bernal notes that the cloud is an extremely secure way of storing and collaborating across data which is now very much a part of our day-to-day lives. “Few of our clients would blink an eye at the idea of using internet banking for example. Furthermore, there is perhaps a false presumption that paper files are 100 percent secure, when these too can be misplaced or fall into the wrong hands. As a technology provider, data security is our first priority,” he adds.
The goal, it seems, is not to immediately revolutionise the entire litigation support process, but rather to complement existing work practices and gradually allow the industry to evolve according to client needs. “The trap many technology providers fall into is to try and tell their clients what they need. The results are overly engineered tools with endless bells and whistles which clients don’t want and won’t use,” says Smith- Bernal. “Our approach to development has always been to let our clients tell us what they need. Since Magnum was first used in 2011, we have always sought to let our clients lead the direction of our development, whilst always keeping the tool simple and intuitive.