The IBA Young Lawyers’ Committee’s Training Series: Session six, ‘A quick guide of international arbitration in the Asia Pacific Region’

Ariel (Lu) Ye
King & Wood Mallesons, Shenzhen, China
ariel.ye@cn.kwm.com

The seminar started with each panellist sharing the latest arbitration update in their area.

Ms Sanger shared three updates in Hong Kong (HK): (1) interim measure arrangement between HK and Mainland China; (2) law reform on arbitration success fees; and (3) HK court rules on escalation clauses.

First, the interim measure arrangement between HK and Mainland China. On 1 October 2019, an arrangement between HK and Mainland China came into force. The arrangement allows parties to Hong Kong-seated arbitrations to seek interim measures directly from the People's Republic of China (PRC) courts. HK has become the only seat outside of Mainland China that can also apply to interim measures to secure claims pending their final determination. On 9 February 2021, the HKIAC reported that the total value of assets reported to have been preserved amounts to approximately RMB 10bn or US$1.6bn.

Second, HK Law Reform Commission’s proposal on arbitration success fees. At present, HK lawyers are prohibited from charging outcome-related fees in arbitration, while lawyers in some jurisdictions could offer flexible-fee structures to clients in arbitration. Therefore, it is proposed that the law in HK should be reformed to permit outcome-related fee structures, including conditional fee agreements and damages-based agreements, to be used in arbitrations and related proceedings. This change is expected to be completed at the end of 2021 and stay HK-seat competitive.

Third, HK court’s latest decision on ‘escalation clauses’. Many commercial contracts contain ’escalation clauses’ requiring parties to take certain steps before formal arbitration begins – such as a requirement to ‘negotiate in good faith’ before starting arbitration. Previously, failure to comply with the escalation mechanism left the arbitrators' decisions vulnerable to challenge in domestic courts. In a new judgment, the Hong Kong High Court confirmed that this approach is wrong, and that questions around compliance with the escalation mechanism are matters of admissibility for arbitrators to resolve, not matters of jurisdiction subject to review by local courts. As HK is a Model Law jurisdiction, this judgment has real international significance. The case will be of relevance in the 118 jurisdictions which have legislation based on the Model Law, and follows a wider international trend. It also provides welcome confirmation of the pro-arbitration stance of the HK courts. 

Mr Rainbird shared two updates in Singapore.

First, according to a study, this year, Singapore has for the first time taken the top slot, along with London, as the most popular seat to conduct international arbitration. SIAC also set a new record in 2020 with 1,080 new case filings.

Second, according to the SIAC 2020 Annual Report, the most applied governing laws were Singapore (76 per cent, an increase of 41 per cent from 2019), followed by the United Kingdom (nine per cent) and India (two per cent), affirming that Singapore’s legal and political infrastructure is a trusted brand.

Ms Kim introduced the sole arbitration institution in Korea – Korean Commercial Arbitration Board (KCAB). Ms Kim highlighted the establishment of KCAB International, an independent division of the KCAB to meet the growing demand for cross-border commercial dispute resolution. KCAB International aims to provide a unique civil law-style tribunal. Compared with other institutions, it has a relatively moderate arbitration fee. It also designed expedited procedures and emergency arbitrators to support efficiency. For a dispute where both parties are from a Civil law background, KCAB International would be a choice for them.

Mr Merchant shared updates regarding how India is gradually turning to a pro-arbitration seat. Historically, India has shown reluctance towards arbitration. In recent years, the Indian Supreme Court has been making progress on supporting arbitration. For example, the Court softened its approach and recognised that two Indian parties with an arbitration made outside of India can still enforce the award in India. Also, certain landlord-tenant disputes are arbitrable now. There have been several recent moves to improve the arbitration landscape in India. Significantly, amendments to the Arbitration Act have sought to improve the speed and efficiency of arbitration by imposing time limits. India is the first country to set a provision to restrict the duration of the arbitration proceeding.

After each panellist had presented, the seminar turned to a Q&A session.

Ms Ye proposed a question regarding 'mixed-clause’. Mixed-clause, namely, is a mix and match arbitration rules and arbitration institution. For example, in some arbitration clauses, parties agree on arbitration in CIETAC but applying ICC arbitration rules. Ms Sanger commented that it is not recommended to draft a mixed arbitration clause, particularly considering that ICC has expressed that they did not administer its rule by other institutions.

The conversation then turned to how different cultural backgrounds will affect witness testimony and the tribunal. Ms Kim shared her insightful opinion.

Ms Kim, as a former judge in a civil law judicial system and a current litigator on international arbitration, has rich experience in encountering cultural diversity. She shared several examples to illustrate the difference in mindset and the importance of communication. Featuring Ms Ye’s and Ms Sanger’s experience on cross-culture witness testimony, a novel perspective was presented.

Ms Kim thinks the cultural difference has a huge impact on arbitration that people often neglect. Sometimes, for the client, even with the same decision, the cultural difference will lead to a significantly different approach, for example, once Ms Kim made a decision on the scope of document production. When approaching the estimation of document amount, clients from civil law jurisdictions think they will supply around 600 documents, while 600,000 was raised by clients from common law jurisdiction.

Usually, the cultural difference will be more influential to clients than to arbitrators, considering that for arbitrators, the more experienced they are, the similar their decisions will be. Nevertheless, the cultural difference will still subtly affect the Tribunal. Ms Kim raised an example of evidence. It is well-known that the civil-law system is more used to documentary evidence, while common-law heavily relies on cross-examination. For instance, once there was a QC who cross-examined the witness before an arbitrator from a civil-law background. The QC delivered a marvellous cross-examination, but which only raised the curiosity of the arbitrator – 'why is the counsel is trying to confuse the witness?’.

Ms Kim therefore concluded that when one has an arbitrator from a different background from the client, the arbitrator has to explain to the client why cross-examination or the documentary evidence is crucial. It is important to realise the existence of cultural difference.

The experiences of Ms Ye and Ms Sanger also echo this opinion. For example, for testimony, Ms Sanger proposed that the CEO’s testimony will generally be considered helpful to the tribunal, considering their authority. Ms Kim then suggested the authority of the CEO may be considered as biased for their related interest, testimony by employees may take more credit. Ms Ye commented that in certain jurisdictions, testimony by the employee may be considered ridiculous and of low evidentiary value, considering employees are all paid by the company, if such a company is a party to the case.

Finally, as part of the training session for young lawyers, Ms Ye asked each panellist to kindly share their tip for young petitioners, and we quote:

Mr Merchant: Know your client’s business, thinking from a business perspective.

Mr Rainbird: Most clients would rather not have arbitration in the first place, do your best to manage your client’s risk to avoid dispute.

Ms Sanger: Professionally, always know the facts of your case; personally, always work hard and know your case well so your team members, including partners, can count on you.  

Ms Kim: For any dispute lawyer, professionally do not lose your objectivity; do not blindly see one side of the facts only. For international arbitration lawyers, be able to understand the cultural differences and try to bridge the gap.