The past decade has seen an extraordinary growth in the use of international arbitration globally, reflecting changes in international trade and investment.
Advances in technology and the reduction of trade barriers have led to an expansion in cross-border investment and trade characterised by greater real or perceived risk. Nowhere has this been more evident than in booming (and still developing) Asia.
To manage this risk, the need for a neutral tribunal and an enforceable award has arisen, leading many commercial organisations to turn to international arbitration.
The laws in this practice area are developing rapidly in Asia, and with them the perceived value, both regionally and globally, of Asia as a competitive and viable venue for arbitration.
As Asia-based seats continue to promote themselves, and the number and talents of local arbitrators continue to increase, this trend is set to accelerate.
An Asian seat
"Increasingly Asian disputes are being resolved in Asia," Baker & McKenzie regional head of arbitration Andrew Aglionby says.
"We now have a body of expertise in Asia, with much more ability to service clients' needs without them having to go outside."
Though still not as popular as preferred international seats in Europe or America, Asia's arbitration seats are increasingly valued as venues for resolving Asia-based disputes.
This is particularly the case in Hong Kong, which has become the busiest international seat of arbitration in the region. In 2005 the Hong Kong International Arbitration Centre (HKIAC) was involved in 281 arbitrations. While China International Economic and Trade Arbitration Commission (CIETAC) on the mainland saw more cases in 2005 (427), it cannot be considered as the preferred choice for businesses looking for high arbitration standards.
"Usually the big disputes go to places like London, and one of the reasons why they go there is that the parties have greater confidence in the infrastructure and quality of legal representation they can get," WongPartnership partner Christopher Chuah says. "But that's changing slowly - it's not happening fast, but over time it is happening."
As a result, Aglionby says, in many arbitration agreements written for Japanese clients, Singapore or Hong Kong will now be stipulated as the preferred arbitration venue.
"I think also a lot of the contracts now don't involve European or American based companies but rather their subsidiaries based in Hong Kong or Singapore, and local managers are much more comfortable with more local solutions," he comments.
Singapore has become the newest contender in the region for international disputes. It is widely seen as having grown rapidly in attractiveness compared with other centres, although only 45 international disputes were resolved there in 2005.
DLA Piper head of arbitration in Singapore, Justyn Jagger, says Singapore has attained a reputation for efficiency and neutrality as a centre for dispute resolution, and the quality of legal education, the convenient time zone for local managers, and the possibility of reduced costs due to the relative weakness of the local currency are all attractive factors.
Singapore International Arbitration Centre (SIAC) has been marketing itself heavily in competition with HKIAC, and this is seen as a boon for clients, with greater improvements for end users.
However, efforts to be involved in the arbitration market are not limited to Hong Kong and Singapore. Korea, Malaysia (Kuala Lumpur) and Japan also want a piece of the action.
In Korea, steps have been taken to promote arbitration for domestic disputes, and at the same time more Korean-related international cases have specified the country as the seat. There are a number of respected Korean arbitration lawyers, but a limited pool of arbitrators.
Kuala Lumpur is one location that is actively knocking on the door of the arbitration community to be recognised as a regional venue. A new arbitration law was introduced last year, but as yet the jurisdiction cannot be compared with Singapore.
Japan, by nature not inclined towards disputes, is so far poorly developed as an arbitration venue. However, with its businesses facing the increasingly litigious nature of global realities, there have been initiatives to develop arbitration.
The China question
The China International Economic and Trade Arbitration Commission (CIETAC) is not at the top of the list of Asian venues international parties would choose for arbitration.
One reason is that it is not truly independent and disconnected from government, state and party affiliations. This led to controversial events this year, including the shock arrest of internationally respected arbitrator and secretary-general of CIETAC, Wang Shengchang on corruption charges. Many believed the allegations could have been a response to Wang's vote against a Chinese company in Stockholm.
Wang himself has argued in the past that authorities in China should give more flexibility and autonomy to the arbitration sector to ensure it develops effectively.
O'Melveny & Myers partner Michael Moser says there are a number of steps that need to be taken before China could be accepted as a genuine international arbitration center.
"It needs to amend the outmoded PRC Arbitration Law and bring it up to date," Moser says. "Second, arbitration institutions need to continue to revise their rules to bring them up to date. In particular, these institutions need to do away with the list system, whereby arbitrators are appointed from a mandatory list. China is probably one of the last jurisdictions in the world to still use this system, which impinges on party autonomy."
Moser suggests Chinese arbitration bodies also need to pay foreign arbitrators at international rates, as they will face difficulty in attracting many of the famous foreigners on the list to sit on arbitrations if it continues to compensate at the current very low rates.
Complaints have also been made about China-based arbitration bodies' fee charging schedules, especially for big-ticket cases. At present the ad valorum rates charged are often significantly higher than the ICC and other institutions.
However, on the positive side, many foreign companies agree to a CIETAC venue because of the increased likelihood of enforcement of an award there as compared with a foreign award. CIETAC awards do have a greater likelihood of enforceability.
Litigation in Hong Kong
Arbitration continues to be a preferred mode of dispute resolution over litigation in Asia, mainly due to the advantages of enforceability across diverse legal regimes in the region.
This is evident in the rise of insolvency-related arbitrations of construction companies in Singapore since 2002, according to Drew & Napier director Manoj Sandrasegara.
"The liquidators and administrators of these companies now find they have to commence or continue arbitration proceedings to enforce the company's rights under these contracts for the benefit of the creditors or to enhance creditor and shareholder returns."
However, there are some expectations that there could be a swing back toward litigation in Hong Kong for commercial disputes involving mainland parties. In addition, foreshadowed civil justice reforms will make Hong Kong more attractive for litigation.
A preliminary agreement for the mutual enforcement of judgments in both Hong Kong and Mainland China was recently signed. The announcement was met with excitement by lawyers and the business community, as it is expected that clients will now have access to a tried and tested common law system in Hong Kong to deal with mainland disputes.
Huany Yi, partner with Allbright Law Offices, says he expects that more parties will be likely to choose the Hong Kong courts over arbitration after its implementation.
Hong Kong lawyers are also waiting in anticipation of proposed civil justice reforms, which follow on from similar reforms in the UK.
"The civil justice reforms are likely to be introduced next year, and the whole litigation regime will probably change," Heller Ehrman's Martin Downey predicts.
"Court proceedings should be far more expeditious and hopefully less expensive. It will be interesting to see over the next several years if parties will be more attracted to litigation in some way," he says.