Doing Business in Asia? Here’s What You Need to Know About Arbitration in the Region

Tuesday, April 3, 2018

The popularity of international arbitration as a preferred dispute resolution mechanism in Asia, reflecting ongoing engagement in cross-border investment across and from outside the region, has resulted in the continued development and refinement of national arbitral rules and laws across many of these jurisdictions.

While arbitration rules and procedures will often have common features globally, it is important to remember that cultural, geographical, and commercial differences still have a significant impact on the conduct of arbitration around the world, and must be considered carefully at the contract drafting stage before deciding whether to arbitrate, where to arbitrate, and which procedural rules to adopt in resolving any dispute.

Morgan Lewis partner Stephen Cheong, a disputes partner in the firm’s Singapore office, lays out some of the key reasons companies involved in cross-border investment choose arbitration as the mechanism by which commercial disputes will be resolved and some of the key things to be aware of when arbitrating in Asia. For more detailed information, please see the second edition of An Introductory Guide to Arbitration in Asia, which covers key elements of the arbitration frameworks in 14 key jurisdictions that have continued to attract significant investment activity. The Guide addresses commonly asked questions that global businesses should consider in connection with international arbitration proceedings in these jurisdictions and the enforcement of arbitral awards across Asia.

Why would companies involved in cross-border deals chose arbitration over litigation?

For many years, a significant proportion of contracting parties have chosen arbitration over litigation based on a number of factors: the arbitration may be conducted confidentially in a neutral venue, rather than publicly in the state of either contracting party; the parties can select a tribunal that is familiar with their industry sector and the course of dealing within that sector; and a procedural timetable can be agreed upon that provides a clear way forward to the hearing and the award, enabling the parties to budget for the time and cost of resolving their dispute. Grounds for appeal are often limited and the award itself can be enforced directly in more than 150 countries through the New York Arbitration Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, 1958.

Do you think this trend toward arbitration will continue to grow?

The continued popularity of arbitration as a dispute resolution mechanism is reflected in the growth of a number of international arbitration centers throughout Asia. In turn, arbitration centers have developed procedural rules that parties may adopt to govern the appointment of the tribunal and, subsequently, the procedure that parties may follow to resolve their disputes. At the same time, national arbitration laws across jurisdictions in Asia have been reviewed and refined to support the arbitration procedure in that jurisdiction and the enforcement of arbitration awards from overseas. A number of jurisdictions in the region have developed their arbitration institutions as a crucial element of their standing as part of a key global financial center.

What were some of the changes made to arbitral rules in the last year?

China, India, Thailand, and Vietnam all updated their arbitral rules in 2017. In China, the Arbitration Law came into effect January 1, 2018, and the People’s Republic of China Civil Procedure Law came into effect July 1, 2017, with both applying to domestic and international arbitration. Under the PRC’s Civil Procedure Law, corporations waive their right to bring an action in people’s court if an arbitration clause is included in an initial contract. The Arbitration Law further clarifies the scope of arbitration agreements, providing that an arbitration agreement must contain an intention to arbitrate, define the scope of disputes that are to be arbitrated, and identify the arbitration commission chosen by the parties to administer the arbitration.

In India, the arbitration act does not in specific terms exclude any category of disputes—civil or commercial—from arbitration. However, an award will be set aside if the court finds that the subject matter of the dispute is not capable of settlement by arbitration under the laws currently in force, or if the award conflicts with Indian public policy. There is no appeal from arbitral awards made in India. A domestic award may only be set aside by the courts upon application by a party. Any such application must be made within three months from the date on which the party making the application received the arbitral award.

In Thailand, foreign nationals may only represent clients in arbitration if the law governing the dispute is not Thai law or if the award will not be enforced in Thailand. And in Vietnam, the Civil Procedure Code came into effect March 1, 2017, and specifies that certain disputes, including civil cases related to immovable property, divorce proceedings involving a Vietnamese citizen and foreigner, and civil cases where the parties have the right to select the jurisdiction of the Vietnamese courts, are subject to the exclusive jurisdiction of the Vietnamese courts and are therefore not arbitrable in Vietnam.

What are some best practices for companies when reviewing arbitration agreements?

Some of the main points to be considered when drafting and negotiating an arbitration agreement in Asia include the following:

  • Define the scope of the agreement to arbitrate to make sure it is broad enough to cover all anticipated disputes and claims and clear enough to avoid any potential jurisdiction challenges. It’s also helpful to determine what language everyone is comfortable using to avoid the need for interpreters.
  • Determine the seat and venue of the arbitration, as the seat of the arbitration usually determines the law that governs the arbitration (if not already specified in the arbitration agreement). For example, if the seat of the arbitration is Singapore, then the legal position governing applications for injunctive relief before the arbitral tribunal will be governed by Singapore law. Parties should select a place that is neutral and where the national courts are supportive of arbitration.
  • Decide who will administer the arbitration. Parties can decide to have the arbitration administered by a recognized arbitral institution (e.g., SIAC, HKIAC, LCIA) or administered in accordance with their own set of agreed procedures (i.e., ad hoc arbitration). While more costly than ad hoc arbitration, the arbitral institution can assist in matters such as securing the appointment of the arbitrators, setting and administering the arbitrators’ fees (which may be scaled based on the aggregate sum in dispute), supervising the arbitration, and reviewing the arbitral award. In an ad hoc arbitration, parties may save on the cost of appointing the arbitral institution to administer the arbitration but will have to determine all aspects of the arbitration themselves.
  • Adopt rules of arbitration in the initial agreement. Differences exist between each of the popular institutional rules and it is recommended that parties consult with their lawyers when selecting a set of institutional rules that meets their needs.
  • Determine the proper number of arbitrators: one or three. While appointing a sole arbitrator may be cheaper and potentially more efficient, a sole arbitrator may not have the legal and/or technical expertise to determine all issues in dispute.
  • Specify the governing law of the contract and of the arbitration. The law that parties wish to apply to govern the disputes that arise should be identified in the arbitration agreement (if not identified elsewhere in the contract). Otherwise, it may be a source of dispute if parties from different countries insist that the laws of their respective countries should govern the contract from which the dispute arises. Similarly, parties should specify the governing law of the arbitration and should not assume that the governing law of the arbitration follows the seat of the arbitration, the governing law of the contract, or the venue of the arbitration. Failing to specify the governing law of the arbitration may evolve into a preliminary issue that the arbitral tribunal will have to determine.