12 April 2018

Trends in Asia Pacific cross-border disputes in 2018

By Teng Haidi and Gao Ruimin

The growth in cross-border commercial and investment activity in the Asia Pacific region, particularly with the rising economy of the People’s Republic of China (PRC), has resulted in a corresponding growth in cross-border disputes in the region.

This has been reflected in a survey by Queen Mary University of London in 2015[1] which found that the most improved arbitral seat over the past five years was Singapore, followed by the Hong Kong Special Administrative Region (Hong Kong SAR). Both jurisdictions were also ranked in the top five most preferred and widely used seats globally, alongside London, Paris and Geneva.

This trend is set to continue in 2018, in view of regional developments that are likely to bolster the role of Asia Pacific jurisdictions as a forum for cross-border dispute resolution. We explore this and some of the other key trends and developments in Asia Pacific cross-border disputes below.

Belt and Road Initiative

The Belt and Road Initiative (BRI) has seen some USD1 trillion committed towards linking countries along the BRI routes with China[2]. The PRC’s investment in the BRI is projected to grow in the coming years, particularly in view of the continued emphasis by the PRC leadership on the initiative. In this context, international arbitration is well-suited to play a significant role as a mechanism to resolve cross-border disputes arising from the BRI projects.

One of the key benefits of arbitrating BRI disputes is the ability to enforce foreign arbitral awards in the PRC and other countries under the New York Convention. This allows PRC parties to protect their rights by enforcing arbitral awards overseas and for other investors to enforce foreign arbitral awards in the PRC. Since ratifying the New York Convention in 1987, PRC courts have increasingly demonstrated a pro-enforcement stance. Most recently, this can be seen in the series of judicial interpretations issued in late 2017 by the Supreme People’s Court providing more detailed guidance on the enforcement laws[3].

A key point addressed by one of the recent judicial interpretations includes affirmation of the three-tier reporting system for foreign arbitral awards. The system provides that where foreign arbitral awards are not recognized or enforced by a PRC court, the decision is to be reviewed by three tiers of courts in the PRC. This ensures a high level of judicial scrutiny for enforcement proceedings in relation to foreign arbitral awards. The new legal interpretations also provide answers to some commonly asked questions such as those relating to jurisdictional challenges during the recognition and enforcement process.

Third party funding

The past year has seen notable developments in the Asia Pacific region in relation to the regulation of third party funding in international arbitration.

In 2017, both Hong Kong SAR and Singapore passed legislation allowing for and regulating arbitration funding by third parties. Such funding was previously prohibited in both jurisdictions.

This trend towards regulating third party funding in international arbitration has two key benefits: (1) making jurisdictions more arbitration-friendly; and (2) mitigating the risks inherent in third party funding, such as the potential for conflicts of interest, uncertainty about costs and security for costs and questions about privilege. An example of the latter can be seen in Hong Kong SAR and Singapore where both have moved towards transparency, making it mandatory to disclose the existence of a third party funding arrangement and the identity of that third party funder.

However, certain concerns may also arise if governments in the Asia Pacific increasingly seek to follow the lead of Hong Kong SAR and Singapore in regulating third party funding of international arbitration at a national level. This includes the potential emergence of diverging sets of national laws with varying degrees of regulation, which could lead to increased forum-shopping in the region by potential claimants seeking to take advantage by commencing international arbitration in jurisdictions with favourable (or perhaps non-existent) regulations in third party funding in international arbitration. Further, given the rigid nature of national legislative regimes, rules surrounding third party funding may lack the flexibility to avoid becoming outdated or inconsistent with future international standards.

It is worth noting that while there has also been third party funding by private funds or venture capitalist funds in the PRC, usually working together with law firms, there is currently no PRC legislation in this regard.

At the forthcoming International Council for Commercial Arbitration (ICCA) congress to be held in Sydney in April 2018, the ICCA-Queen Mary Taskforce will deliver its long-awaited final report on third party funding concerning international arbitration.[4] It is expected that the Taskforce will provide some guidance on third party funding regulation for the Asia Pacific region and globally.

Corruption and ethics

Another area that has been increasingly the subject of discourse in recent years is corruption and ethical conduct issues for both arbitrators and counsel. Whereas there have been initiatives and provisions adopted by arbitral institutions to regulate misconduct on the part of counsel and arbitrators, there appears to be an emerging consensus to create a transnational set of ethical standards in international arbitration.

Two well-known ethical guidelines for counsel have been adopted over the last few years: the International Bar Association (IBA) Guidelines on Party Representation in International Arbitration (2013) and the LCIA’s General Guidelines for the Parties’ Legal Representatives (2014). The LCIA Guidelines are binding on LCIA arbitrations, whereas the IBA Guidelines only apply where the parties or tribunal agree for it to apply.

However, the IBA Guidelines continue to form part of the “soft law” applicable to arbitrations worldwide and contribute to the creation of a uniform set of rules for counsel in arbitrations. Indeed, the IBA Guidelines have been recently endorsed by the ICC Court, as well as other arbitral institutions.

Many of the leading international arbitral institutions have also established codes of conduct for arbitrators to increase transparency and legitimacy of arbitration, with a primary focus on issues of impartiality and independence. Consistent with the trend of emerging transnational standards, the United Nations Commission on International Trade Law (UNCITRAL) is currently preparing a code of ethics for arbitrators.

It will be interesting to see, over the course of 2018 and beyond, the initiatives taken toward the consolidation of a transnational binding set of ethical rules for arbitrators and counsel, and most importantly whether further developments will arise in relation to the creation of a global ethical body responsible for the enforcement of ethical rules.

[1] The 2015 Survey ‘Improvements and Innovations in International Arbitration’ carried out by the School of International Arbitration at Queen Mary University of London.  See full survey results published at http://www.arbitration.qmul.ac.uk/docs/164761.pdf.

[2] Cgtn.com, ‘One Belt, One Road, One Trillion Dollars’ (10 January 2017) <https://news.cgtn.com/news/3d63544d3363544d/share_p.html>.

[3] Provisions of the Supreme People’s Court on Issues relating to the Reporting and Review of Cases Involving Judicial Review of Arbitration, Provisions of the Supreme People’s Court on Several Issues relating to the Hearing of Cases Involving Judicial Review of Arbitration, and the Notice of the Supreme People’s Court Concerning Some Questions Regarding the Centralized Handling of Judicial Review of Arbitration Cases.

[4] International Council for Commercial Arbitration, Third-Party Funding <http://www.arbitration-icca.org/projects/Third_Party_Funding.html>.

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