Michael J Moser

O'Melveny & Myers LLP

Recent years have seen a dramatic shift in worldwide patterns of trade and investment. As a result, today's Asia plays an important role in the world economy. Concomitant with these changes, a large number of the disputes which today arise in connection with international trade and business relate to Asian transactions and involve ever larger numbers of Asian parties. In this new environment, arbitration has come to play an increasingly important role.

Growth

Arbitration is clearly on the rise in Asia today (see table 1). Whereas 10 years ago Asian arbitration institutions would have received scant mention in a list of the 'top ten' busiest international arbitration bodies, the picture today is quite different. In 1985 the China International Economic and Trade Arbitration Commission (CIETAC) handled 37 cases. Ten years later the number of cases topped 900. In 1985 the number of cases referred to the Hong Kong International Arbitration Centre (HKIAC) was nine. Today, the number is approaching 300.

Over the past five years the number of cases handled by arbitration institutions in mainland China and Hong Kong together have outstripped the International Chamber of Commerce in Paris, the London Court of International Arbitration, the Stockholm Chamber of Commerce and other well-known Western arbitration institutions.

Table 1

International arbitration cases filed 1999-2005

	AAA	CIETAC	HKIAC	ICC	LCIA	SIAC	SwissRules	SCC
1999	453	609	257	529	56	67	NA	104
2000	510	543	298	541	81	55	NA	73
2001	649	731	307	566	71	56	NA	74
2002	672	684	320	593	88	46	NA	55
2003	646	709	287	580	104	41	NA	80
2004	614	850	280	561	87	51	52	50
2005	580	979	281	521	118	58	54	56

Table: International arbitration cases received by major institutions.¹ Source: Hong Kong International Arbitration Centre: www.hkiac.org/HKIAC/HKIAC_English/en_statistics.html; www.swissarbitration.ch/news.php (accessed 10 April 2006).

Note: Statistics for CIETAC, ICC and LCIA in some years include domestic and international arbitrations. Accordingly, figures are not directly comparable. NA: not available.

Prepared by HKIAC with the assistance of the named institutions.

Similar dramatic growth in the acceptance of arbitration in Asia is reflected in ICC statistics. Whereas Asian parties figured in only 3 per cent of ICC cases in 1983, the percentage has increased dramatically since. By the end of 2005, nearly 18 per cent of all ICC cases involved one or more parties from the Asian region. The increase in the number of cases in recent years involving parties from China, India, Japan, Korea and the Philippines is especially noteworthy.

Arbitral institutions

Hand in hand with growth in the volume of cases and increased acceptance of arbitration throughout the region has been the proliferation of arbitration institutions in Asia. From the Mongolian International Court of Arbitration (MICA) to the Japan Commercial Arbitration Association (JCAA), the China International Economic and Trade Arbitration Commission (CIETAC), the Hong Kong International Arbitration Centre (HKIAC), the Korean Commercial Arbitration Board (KCAB), the Philippine Dispute Resolution Centre (PDRC), the Thai Arbitration Institute (TAI), the Singapore International Arbitration Centre (SIAC), the Regional Centre for Arbitration at Kuala Lumpur (RCAKL) to the Bandan Arbitrase Nasional Indonesia (BANI) in Indonesia and a number of other similar centres throughout the region, Asian proponents of arbitration have in recent years been engaged in a serious exercise of institution-building.

In 2004 the Asia Pacific Regional Arbitration Group (APRAG) was established as an umbrella organisation for Asia-based institutions. Its membership now includes 27 arbitral institutions, centres and other organisations.

As the large number of arbitration bodies in the region shows, institutional arbitration plays a very prominent role in Asia. Why this is so can be attributed to a variety of factors. Some have argued that the predominance of institutional arbitration reflects a preference by many Asian disputants for administered arbitrations as opposed to ad hoc proceedings. In Japan, for example, ad hoc arbitrations are reported to be quite rare, with Japanese parties preferring the more structured arrangements of arbitration before the JCAA.

Apart from cultural factors, there are in many Asian jurisdictions also good legal reasons why ad hoc arbitration should be avoided. In China, for example, there is no clear legal basis for the conduct of ad hoc proceedings. The 1995 PRC Arbitration Law requires that all arbitrations be carried out under the auspices of a government-sanctioned arbitration commission. Although perhaps not as extreme as in China, doubts also surround the enforceability and practicality of executing ad hoc arbitration agreements in some other Asian jurisdictions.

Legislation

Another theme that emerges from a review of arbitration in Asia is the increasing uniformity of local legislation, as growing numbers of Asian jurisdictions amend outdated laws and adopt the principles established by the UNCITRAL Model Law.

In Australia, where arbitration is well established, a comprehensive legal framework governing arbitration has been in place for some time. At the national or federal level, the International Arbitration Act (1974) implements, inter alia, the UNCITRAL Model Law on International Commercial Arbitration. Each of Australia's mainland states and territories has separately enacted uniform legislation governing domestic arbitrations in the form of the Commercial Arbitration Act (CAA). Under the relevant CAAs, parties in international arbitrations are allowed to 'opt out' of the Model Law and choose application of the CAA if they wish.

Hong Kong, which has long been a pioneer in the area, adopted the UNCITRAL Model Law in 1990 to govern international arbitrations. Domestic arbitrations are governed by a different section of the Ordinance, although parties may opt in or out of the two regimes. The Arbitration (Amendment) Ordinances of 1996 and 2000 made a number of additional amendments to Hong Kong's arbitration law. A complete revamping of the Hong Kong Arbitration Ordinance, to establish a single Model Law regime for both international and domestic cases, is expected to be enacted later this year.

Singapore has also shown itself to be a progressive force in the region. In 1995 Singapore enacted the International Arbitration Act. The IAA adopts the UNCITRAL Model Law for international arbitrations, while domestic arbitrations continue to be governed by the earlier Arbitration Act, an approach which, as we have seen has also been adopted in Australia and Hong Kong. As in these jurisdictions, parties to arbitrations may opt in or out of either regime.

As a result of the legislation introduced in Australia, Hong Kong and Singapore, these jurisdictions today offer some of the most up-to-date and progressive arbitration legislation in the world. Other jurisdictions that have recently adopted the UNCITRAL Model Law or amended local legislation to incorporate key elements of the Model Law include Japan (2004), Korea (1999), Malaysia (2006), the Philippines (2004), India (1996) and Thailand (2002). At the same time, other Asian jurisdictions (such as Taiwan), while not adopting the Model Law, have adopted amendments to local laws aimed at establishing 'arbitration-friendly' legislation.

One major arbitration player that has lagged behind in reforming its arbitration legislation is China. The PRC enacted its first Arbitration Law in 1994. The law provides for a bifurcated arbitration system consisting of a domestic regime and an international regime. While China considered, but ultimately decided against, adoption of the UNCITRAL Model Law, a number of its key principles are nonetheless reflected in the final legislation.

As discussed earlier, a distinctive feature of arbitration in China is the requirement that all proceedings be conducted by a designated arbitral institution. The Arbitration Law provides for the establishment of both domestic arbitration commissions and international or foreign-related commissions. Whereas the law itself appears to contemplate a strict demarcation of jurisdiction between the two types of commissions, with domestic commissions dealing exclusively with domestic matters and international commissions dealing with international cases, this distinction has in recent years become blurred. In particular, as a result of a State Council decision in 1996, domestic tribunals may now hear international cases and international tribunals established under CIETAC may, since 2000, hear both domestic as well as international disputes.

Although China's Arbitration Law has made an important contribution by unifying the previously scattered legislative enactments governing arbitrations in China, it also leaves many questions unanswered. As discussed previously, the Arbitration Law fails to clearly answer the question as to whether ad hoc arbitrations are permissible in China. This has caused particular concern. In addition, by providing that all arbitrations in China be conducted under the auspices of 'arbitration commissions' established pursuant to the law, the PRC Arbitration Law casts doubt on whether foreign institutions such as the International Chamber of Commerce may legally administer arbitrations inside China.

Arbitration procedures and Asian legal cultures

While globalisation has tended to promote the harmonisation of arbitral practice and procedure in Asia and elsewhere, it is important to keep in mind that legal culture continues to exert a strong influence on dispute settlement processes. This is clearly the case in Asia, where tradition runs deep.

One example concerns the approach towards the use of mediation (or conciliation) in arbitral proceedings. The traditional view in the West has been that mediation and arbitration are distinct proceedings and should be kept separate. In particular, common law-trained lawyers are uncomfortable with the notion that a mediator in possession of confidential information gained in the course of a mediation could subsequently act as arbitrator if the mediation failed. In Asia, by contrast, where 'friendly negotiations' and mediation have long been the preferred mechanism for resolving disputes, the combination of mediation and arbitration in the same proceeding is frequently encountered. The practice is especially common in institutional arbitrations in China, Japan, Korea and Taiwan, jurisdictions strongly influenced by Confucian ideals. Indeed, many cases dealt with by these arbitral bodies are settled by mediation conducted in the course of the arbitral proceedings, rather than by an award on the merits.

The traditional practice of combining arbitration and mediation has received growing official sanction in arbitration legislation and procedural rules of various jurisdictions. In China, for example, no bar exists to an arbitrator acting as mediator in the same proceedings, and settlements reached through conciliation in the course of arbitral proceedings may be enforced as arbitral awards.

Hong Kong and Singapore also allow the practice of 'combining mediation and arbitration'. However, under the arbitration legislation in both jurisdictions, an arbitrator may only act as mediator in a dispute in which he or she has been appointed arbitrator so long as both parties consent in writing and so long as no party withdraws his or her consent. In Hong Kong, an arbitrator acting as mediator is required to keep all information confidential but if the mediation fails the arbitrator must disclose to all other parties as much information as he or she considers is material to the arbitration proceedings.

Legal culture is also evident in the approach toward arbitral decision making found in some Asian jurisdictions. Although arbitrators worldwide have often been accused of making decisions by 'splitting the difference', the tendency toward equity-based compromise decisions is most pronounced in Asia. In Indonesia, for example, the Badan Arbitrasi Nasional Indoneisa (BANI) arbitrators are said to ''frequently lean towards basing their awards on the principle of ex aequo et bono, and not always strictly upon the letter of the law''. CIETAC's rules direct arbitrators to base their awards in compliance with the ''principle of fairness and reasonableness'' as well as the facts and the law. Similar examples could be cited from the practice of tribunals in Japan, Taiwan, Vietnam and elsewhere in the region.

Enforcement

Finally, a word should be said about enforcement. Most jurisdictions in the Asia-Pacific region have acceded to the New York Convention of 1958 (see table 2). Widespread acceptance of the principles contained in the Convention is deserving of applause. Unfortunately, however, there appears to be less uniformity throughout the region with respect to the implementation of the Convention.

Table 2

Membership of the New York Convention

State	Ratification/Accession	Reservations
Australia	1975	-
Bangladesh	1992	-
Brunei	1996	R
Cambodia	1960	-
Hong Kong SAR	(1997 via PRC)	R
India	1960	C/R
Indonesia	1981	C/R
Japan	1961	R
Laos	1998	-
Malaysia	1985	-
Mongolia	1994	C/R
Myanmar	-	-
New Zealand	1983	R
People's Republic of China	1987	C/R
Philippines	1967	C/R
Singapore	1986	R
South Korea	1995	C/R
Sri Lanka	1962	-
Taiwan	-	-
Thailand	1959	-
Vietnam	1995	C/R

C:

Commercial Reservation

R:

Reciprocity Reservation

China's own track record with respect to the enforcement of foreign arbitral awards has been mixed. Whereas China itself has been a major beneficiary of the New York Convention, with many of CIETAC's awards being granted recognition and enforcement in courts worldwide, foreign arbitral awards have been greeted less warmly by the People's Courts in China.

Enforcement of foreign arbitral awards has also proved problematical in a number of other jurisdictions throughout the region, including Indonesia, Thailand and Vietnam.

* * *

There is no doubt that arbitration has gained a firm foothold in many jurisdictions in Asia, and is digging down strong roots in others.

Today more and more Asian parties are questioning the benefits of the traditional paths to London, Paris, Stockholm and Zurich and are seeking to resolve disputes closer to home.

A review of trends in arbitration legislation reform throughout the region demonstrates the salutary effects of the work of UNCITRAL and the New York Convention in promoting the harmonisation of international arbitration law and practice in Asia. However, as we can see from the case of the New York Convention, embracing international principles and enforcing the same in diverse political and cultural surroundings present particular challenges. Clearly much more work needs to be done.

Notes

1.
AAA: American Arbitration Association
CIETAC: China International Economic and Trade Arbitration Commission
HKIAC: Hong Kong International Arbitration Centre
ICC: International Chamber of Commerce
LCIA: London Court of International Arbitration
SIAC: Singapore International Arbitration Centre
Swiss Rules: Swiss Arbitration Association
SCC: Arbitration Institute of the Stockholm Chamber of Commerce