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Resolving disputes across borders

Feature Articles

Cite as: December 2013 87 (12) LIJ, p.34

The rapid growth of Asian economies has led to an increase in cross-border transactions in the region. Understanding the hallmarks and trends of the dispute resolution landscape in Asia is vital for practitioners operating in the Asian market. By Jacob Chylinski 

By Jacob Chylinski

The White Paper “Australia in the Asian Century” predicts a genuine Asian economic revolution. By 2025 four of the world’s top ten largest economies will be Asian, and the combined economies of Asia will account for almost 50 per cent of global economic output. Asian countries are also increasing their outward investments with China, the ASEAN region, and to a lesser extent India, becoming significant capital exporters. The importance of this growth relative to Australia is now well understood: in 2012 Australia’s top four export destinations were in Asia, and three of its top five import markets were Asian.1

Accompanying this revolution is a push towards the internationalisation and liberalisation of the legal services and dispute resolution market in Asia. As Asian countries seek to make themselves attractive foreign investment destinations, they are prioritising the development of stable and effective dispute resolution mechanisms. The opening of legal services markets has in turn created opportunities for participation by foreign lawyers, and many global law firms have now established genuine footholds in the Asian market.

Asia’s preference for ADR

One of the primary features of the dispute resolution landscape in Asia is the preference of Asian companies for alternative dispute resolution (ADR) techniques, including mediation and arbitration, over litigation. This development can be traced to institutional, historical and cultural factors.

Institutionally, significant concerns exist regarding perceived and actual weaknesses in the systems underpinning litigation in a number of Asian countries. Concerns often expressed include efficiency, cost, lack of transparency, lack of independence and difficulties in enforcement.

For example, litigants before Indian courts face an archaic system with significant delays, with cases dragging on for years and sometimes more than a decade. In Indonesia, enforcing a contract costs an average of 139.4 per cent of the value of a claim,2 and there remains a widely held view that the Indonesian court system is uncertain, unpredictable and lacks independence.3 A further complication is that some Asian legal systems have multiple sources of law, both formal and informal, with the result that in countries such as Japan, Indonesia and Malaysia there can be serious gaps between “black-letter” commercial law and the demands of commercial practice.4

Culturally, the preference for ADR can be explained by differing attitudes in the region to conflict. One perspective, though far from universally accepted, is that Asian approaches to conflict resolution tend to be consensual rather than confrontational, reflecting differences between individualistic and collectivist societal norms. Individualistic norms give priority to personal preferences, rights and goals, whilst collectivist norms emphasise the welfare of groups. Most western cultures are generally assumed to be individualistic whereas cultures from China, India, Vietnam and Thailand are assumed to be collectivistic.5

Reflecting these institutional and cultural factors, in most Asian jurisdictions mediation appears to be a preferred method of dispute settlement.6 A recent survey in Asia found nearly 80 per cent of respondents had used mediation in the past three years.7 In China, mediation is the cornerstone of the Chinese system of dispute, and mediation services have developed to deal specifically with Chinese-foreign business disputes.8

The rise and rise of international arbitration

Given the trends identified above, and the need for a more international form of dispute resolution, arbitration has emerged as the dispute resolution mechanism of choice for many corporations9 and is a default choice in most cross-border transactions in the region.10 Arbitration addresses many of the perceived weaknesses in litigation. Its primary advantage is enhanced enforceability of arbitral awards through the mechanisms set out in the New York Convention11 to which the majority of Asian countries have acceded. Other key advantages include independence and neutrality of the arbitral tribunal, flexibility in adopting appropriate dispute resolution methods and the ability to protect the confidentiality of the arbitral process.

Many Asian governments have actively shaped pro-arbitration legislative environments through the enactment of new or revised arbitral laws. Hong Kong, Singapore, Japan, Korea, India, Malaysia, the Philippines and Thailand all have legislation based on the UNCITRAL Model Law,12 and earlier this year Myanmar also acceded to the New York Convention. Simultaneously, local international arbitration centres have proliferated. The Hong Kong International Arbitration Centre (HKIAC), Singapore International Arbitration Centre (SIAC) and China International Economic and Trade Arbitration Commission (CIETAC) have grown to be the most prominent centres for international arbitration in the region, with SIAC now a leading centre globally. HKIAC and SIAC have recently adopted revised arbitration rules to reflect global and regional best practices.

Mediation/arbitration hybrids

Also popular in Asia is a hybrid form of dispute resolution incorporating elements of mediation and arbitration. Mediation-arbitration (med-arb) generally refers to a process where during the course of arbitral proceedings, an arbitrator may, with the consent of the parties, pause the arbitration and adopt conciliation or mediation in an effort to resolve the dispute. If the attempt is unsuccessful, the same arbitrator may then resume the arbitral proceedings and render an award.

Support for med-arb can be found in a number of national laws and institutional rules within Asia.13 Variants of med-arb can be found in China, Japan, Taiwan, Indonesia, Korea, Hong Kong, Singapore and India.14 Within Australia, utilisation of med-arb is rare, although express med-arb powers have now been included on an opt-out basis in Australia’s recent uniform domestic arbitration laws.15 No equivalent provision is found in its latest international arbitration legislation16, a curious omission given the popularity of the technique within Asia.

Considerations for practitioners

Given the above characteristics, a number of considerations should be taken into account by practitioners when faced with disputes with an Asian dimension:

Build an ADR toolkit: Practitioners should be aware of the prominent role ADR techniques such as mediation, arbitration and med-arb play in resolving disputes in the region, both when drafting agreements and when faced with an imminent dispute. Having a robust ADR “toolkit” at hand will allow practitioners to respond flexibly and commercially to their clients’ needs and preferences. That said, litigation should not be entirely discounted, especially in jurisdictions where there are efficient and reliable courts, such as Singapore and Hong Kong. There may also be situations where there is a strong need for precedent, such as copyright matters in the People’s Republic of China.

Know your jurisdiction: When a dispute arises, differences in legal traditions and cultural backgrounds can impact the manner in which conflict is approached and influence the choices made in its resolution. Given the region’s social and legal diversity, care should be exercised when speaking of a single “Asia” or “Asian culture”.17 The effects of this diversity can be subtle, and informed by differing historical and cultural traditions. For example, empirical studies suggest Chinese parties prefer compromising (bargaining and mutually giving up something to reach settlement), Indian parties prefer accommodating (listening and satisfying the other party’s concerns) while Thai and Vietnamese parties prefer collaborating (working to find a ‘win-win’ solution that satisfies all parties).18 Therefore, a specific understanding of, and experience with, the jurisdiction in which the dispute is connected is critical.

Arbitration is not always the answer: Despite its undeniable popularity within Asia, arbitration is not a panacea. While courts in Hong Kong, Singapore, Korea, Japan and Malaysia are generally supportive of arbitration, the position is less clear in a number of other jurisdictions.

Some countries, including Vietnam and Indonesia, have yet to enact the UNCITRAL Model Law, leading to an unpredictable approach towards enforcement. Even where a jurisdiction enacts the Model Law, the degree of institutional support for its provisions varies. For example, the Philippines has a poor award enforcement record, both in terms of delay and enforcement uncertainty,19 and in Thailand the court is reluctant to make orders supporting the arbitration process such as injunctions, discovery of documents or subpoenas for witnesses.20

In a number of Asian jurisdictions, a propensity to refuse recognition of an arbitral award for reasons of local “public policy” remains a serious barrier to the effectiveness of the arbitral process. Violation of a state’s ”public policy” is one of the grounds in the New York Convention by which a party can challenge the enforcement of a foreign arbitral award. As the concept is imprecise and depends upon the interpretation of an individual country, it is susceptible to abuse.

Australia, consistent with a pro-enforcement attitude towards arbitration taken in the majority of Convention states, has interpreted “public policy” narrowly. By contrast, in a number of Asian jurisdictions such as Indonesia, the People’s Republic of China, Thailand and Vietnam, public policy is still broadly or inconsistently interpreted. For example, Chinese courts have interpreted acts against public policy to encompass harm to state sovereignty, deterioration of Chinese moral values, corruption, or a negative impact on local economy.21 The Indian Supreme Court has equated a breach of public policy with a breach of Indian substantive law, although in a decision of July this year, the Court appears to be moving away from this position to a concept more in line with international norms.22

Discovery and privilege: Practitioners should be mindful of how discovery and legal privilege issues may be treated within Asian jurisdictions. The rules can differ markedly from those in Australia. A number of jurisdictions do not have wide discovery obligations, and rely upon civil law traditions which import a professional secrecy obligation upon lawyers rather than a common law client right of legal privilege. Some differ in the degree to which any privilege extends to protect in-house counsel or foreign-qualified lawyers. Not all jurisdictions recognise a concept of waiver or loss of privilege. The following table summarises some approaches to discovery and privilege in certain key Asian jurisdictions.23

The varying approaches to disclosure and privilege in the region necessarily affect the manner and extent of communication between lawyers and their clients. Practitioners and in-house counsel should seek country-specific assistance at an early stage (such as the establishment of a comprehensive management protocol document) to avoid potential pitfalls, which could include the inadvertent disclosure of legal advice or other sensitive material to other parties in a proceeding, a court or a national regulatory body.

Conclusion

The considerations above highlight a common theme – the need to appreciate the diversity of approaches to dispute resolution within Asia, and the importance of a strong knowledge of the specific jurisdiction within which a dispute is connected. By developing familiarity with a broad range of dispute and conflict resolution techniques, and seeking specialist assistance where necessary, practitioners will ensure they are well placed to assist their clients in resolving disputes in the “Asian Century”.

Legal professional privilege

JACOB CHYLINSKI is an associate in the dispute resolution and international arbitration group of Baker & McKenzie. Jacob is the chair of the LIV International Law Section Executive Committee and recently moderated a panel discussion on the Asian Century White Paper and developing Asia-ready capabilities for lawyers.

1. A Milner and S Wood (eds), Southeast Asia as “the Third Way”, report by the Asialink Commission, at [1.1].

2. World Bank, Doing Business 2013 – Indonesia, www.doingbusiness.org/data/exploreeconomies/indonesia/#enforcing-contracts.

3. K Davies, To 2027 and Beyond: A Survey of Arbitration in the “Asian Century”, TDM 5 (2011), p23.

4. VL Taylor and M Pryles, “The Culture of Dispute Resolution in Asia” in M Pryles (ed), Dispute Resolution in Asia (2006), p11.

5. P Dimeglio, Designing a Tailored Conflict Management System in Asia, TDM 5 (2001), p4.

6. A Maniruzzaman, Resolving International Business and Energy Disputes in Asia – Traditions and trends, in Liber Amicorum, Melanges en l’honneur de Serge Lazareff (2011), p 424.

7. See International Institute for Conflict Prevention and Resolution, Attitudes towards ADR in the Asia-Pacific Region: A CPR Survey (2011).

8. M Moser, “People’s Republic of China” in Pryles, note 4 above, p92.

9. Note 3 above, p3.

10. M Pryles, Note 4 above, p16.

11. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (New York Convention).

12. United Nations Commission on International Trade Law Model Law on International Commercial Arbitration.

13. For example, the CIETAC Arbitration rules provide for an arbitrator, upon agreement of the parties, to undertake conciliation of the dispute in a manner it considers appropriate. Similar provisions can also be found in the national arbitration statutes of Hong Kong, Singapore, Japan and India.

14. Note 6 above, p424.

15. See s27D of the Commercial Arbitration Act 2011 (Vic) and its counterparts.

16. International Arbitration Act 1974 (Cth).

17. M Pryles, Note 4 above, p7.

18. Note 5 above, p5.

19. Note 3 above, p38.

20. Financier Worldwide, Talking Point: Dispute Resolution in Asia, October 2010.

21. C Wang and Z Xianchu, Introduction to Chinese Law, Sweet & Maxwell Asia (1997) p257.

22. See the cases of Oil and Natural Gas Corporation Limited v Saw Pipes Limited (2003), Indlaw SC 362 and Shri Lal Mahal Ltd v Progetto Grano SpA (2013), Indlaw SC 413 Civil Appeal No. 5058 of 2013.

23. See Baker & McKenzie Global Attorney-Client Privilege Handbook (2011).

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