At the Chartered Institute of Arbitrators (Malaysia Branch) International Arbitration Conference 2018, Peter Godwin, the Managing Partner of Herbert Smith Freehills’ Kuala Lumpur office gave a keynote address. The topic of the address was “Evolving Asia, New Frontiers in Dispute Resolution”.
The text of Peter’s keynote is set out below.
Keynote Address – Evolving Asia, New Frontiers in Dispute Resolution
When asked to speak, I thought I ought to ask what the organisers would like me to speak about. The answer was that so long as I fitted broadly within the conference theme, anything goes. Perhaps, a slightly dangerous approach to give a lawyer a blank canvas and a microphone.
I got thinking about what the Asian arbitration scene had looked like when I first arrived in Asia. Initially I arrived in Hong Kong in January 1998 and then I moved to Tokyo in August 2000 which was when I really turned my attention to the world of arbitration, having previously focussed primarily on litigation.
Without doubt, the Asia arbitration scene looked very different. Perhaps the only things that have not changed are that
- Hong Kong International Arbitration Centre (“HKIAC”), Singapore International Arbitration Centre (“SIAC”) and China International Economic and Trade Arbitration Commission (“CIETAC”) were the three most well-known institutions whilst the institutions such as the likes of Kuala Lumpur Regional Centre for Arbitration (“KLRCA”) in Malaysia and Japan Commercial Arbitration Association (“JCAA”) in Japan were vocal in their keenness to win a greater market share. They still are as are the respective Governments.
- Badan Arbitrase Nasional Indonesia (“BANI”) and Indonesia generally were perceived to be best avoided. Now BANI is battling with a new arbitral institution also called BANI for supremacy in Indonesia, it is still best avoided for now. In the Indonesian courts there have been three separate actions between BANI and BANI and its currently two to one to BANI.
To put things in context when I moved to Japan, a number of my colleagues were convinced I had committed career suicide. Across the whole of Asia, Herbert Smith Freehills had just two arbitration partners.
It is fair to say that, in those days, the Japanese were not known for conflict and certainly not for airing that conflict in front of a third-party foreigner like myself.
When I relocated to Malaysia nearly 17 years on, I was leading a team of 14 partners across Asia of whom 5 were based in Tokyo and we were the busiest part of our global practice. So our growth closely mirrors the growth of the Asian arbitration market.
This success is due to a number of things that have changed over that period of time, including but not limited to;
- Intra-Asia investment flows increasing significantly.
- The number of disputes inevitably grew; many to be determined by arbitration.
SIAC in particular grew in prominence, this was not by accident. It was an intense marketing campaign and stole a march on likes of HKIAC and ICC International Court of Arbitration (“ICC”).
- SIAC’s growth and enhanced reputation attracted companies to keep their Asian disputes in Asia rather than sending them to ICC which had often been the practice in Europe.
- We lived through a few financial crises. Tough economic times meant companies, even historically cash rich Japanese ones, were unable to buy their way out of disputes and so learned to use processes (including arbitration) to delay payments, etc. Once these lessons have been learned, they tend to stay learned even when economic times improve.
- In Japan at least, the first generation of GCs who had spent time in the US appeared, bringing with them just a touch of that US litigation culture. The subtle but very definite change in attitude is perhaps most obviously illustrated by my own practice when I was in Japan. For a number of years on arrival, I would act for Japanese Companies as Defendants. By the time I left the majority of my work was for Japanese Companies as Claimant.
- Elsewhere, China grew in prominence as an economic powerhouse; ASEAN started to see enormous growth with much more to come, etc.
- Whilst the economic power of Asian countries grew, the reliability and sophistication of the local courts did not always keep pace so encouraging parties to seek alternatives. The obvious alternative was arbitration.
Unsurprisingly, all of the above has proved good news for lawyers, especially arbitration lawyers.
STATISTIC OF INSTITUTIONS
Asian International Arbitration Centre
(708 CIPAA cases)
*Stats are sourced from various third-party sources online and the official statistic of the respective institutions.
As the number of Asia based cases increased, what else have we seen change?
- The European mafia no longer rule the roost in terms of arbitrator appointments for Asian cases.
- International law firms remain prominent but generally through having arbitration lawyers resident in the region. The FIFO model of old is not extinct but it is on the decline.
- Even the London bar, which dare I say is not renowned for its speed of response to the modern world, has recognised this trend with barristers chambers opening offices in Asia, including in KL to try to recapture ground being taken away by other parts of the legal profession.
- A new cadre of Asian arbitration lawyers is growing. This will continue and we will see more and more Asian arbitrators appointed as we should. However, this also gives rise to some short-term challenges about which I will say more later.
- New arbitration centres are sprouting up all over the place (eg. Brunei, Pakistan and Cambodia even the Maldives, Mauritius and Sydney) and others are reinventing themselves to try to compete more effectively (eg. Japan, Korea, AIAC itself).
So you could be forgiven for thinking all is rosy in the world of arbitration, right? Wrong: in recent years arbitration has come in for a good deal of criticism. Much of this has been in the investment arbitration arena but some has spilled over into the world of commercial arbitration.
Indeed, such criticism has reached levels that in a lecture he delivered in London recently Gary Born, who will be known to many of you in the room, and is unarguably one of the most prominent of all international arbitration practitioners, was moved to say that people should stop criticising arbitration arguing that those who attack international arbitration attack cross-border trade and commerce and the rule of law in international life. Instead he urged people to espouse the benefits of arbitration which he described as the 5E’s – efficiency, expedition, expertise, even-handedness and enforceability.
I agree but that is not to say we can afford to ignore the criticism and nor did Gary suggest we should.
For my part, I consider it important that as a community we are not complacent about the problems we face but we must see the criticisms as opportunities for improvement; we must each seek to address these challenges whether acting as counsel or arbitrator as, by working together, much can be achieved to ensure that parties and counsel conduct proceedings in an efficient manner.
So to be clear, what are the challenges we face? According to one of the Queen Mary surveys on international arbitration, the worst characteristics of international arbitration (in descending order) are:
- lack of effective sanctions during the arbitral process; in this regard, whilst costs sanctioning is a well established and widely used method of policing the behaviour of parties and counsel, arbitrators have traditionally been reluctant to use the full range of their powers for fear of rendering their awards open to challenge;
- lack of insight into arbitrators’ efficiency: it is surely incumbent on any of us sitting as arbitrators not to be the cause of any inefficiency in the process;
- lack of speed;
- national court intervention;
- lack of third-party mechanism: ICC and others have sought to address this in recent years;
- lack of appeal mechanism on the merits;
- lack of insight into institutions efficiency; and
- lack of flexibility.
Much of this has been written and spoken about in recent years. Some have predicted the demise of arbitration as a consequence yet the number of cases continues to increase. Others, like Gary Born, have told the arbitration community to stop complaining about the imperfections in the system possibly for fear of this becoming a self-fulfilling prophecy.
Our collective challenge is how do we make a real difference? We cannot be complacent and expect all to be well if we do nothing; equally we cannot wait for the institutions to introduce new rules which will miraculously resolve the issues: if only it was so simple.
We all need to understand the issues and in every case we handle whether as counsel or as arbitrator, we need to be proactively looking for solutions in the context of those specific cases. Every little helps!
So my challenge to each of you here today is to ask yourself what you, individually, can do on the cases you are involved in? And collectively, do we have the ambition, or bravery, to try to lead from the front and show the rest of the region or the world a path to a more efficient, cost effective and flexible arbitration process fit the 21st Century?
Let us not forget that when the CIArb was founded in the UK in 1915, it was at a time when arbitration was seen as a quick, efficient alternative to litigation. Whilst many clients still believe this true, we know better!
So having set you that challenge, is it within our control to achieve?
There is no doubt in my mind that lawyers are a part of the problem. One of the consequences of our involvement is that arbitral procedure has come to mirror court procedure and consequently, even for smaller claims, some of the flexibility that should be an advantage for arbitration has been eroded. This is the case in Europe as well as in Asia but I would suggest Asia is perhaps a little behind due to the relative inexperience of the arbitration bar and the fact that many Asian jurisdictions are still developing as arbitral centres.
Of course, I generalise but the trend one sees across the region is that as arbitration grows in popularity more lawyers are becoming involved either because they have existing clients who find themselves engaged in an arbitration and they want their trusted adviser to act for them or because the lawyers themselves have seen the opportunity to build a career as an arbitration practitioner. This is a good thing of course.
The vast majority of this new generation have started out as litigators. It is therefore no surprise that as they learn the arbitration ropes, when in doubt, they default to adopting practices and procedures familiar to them from the court systems in which they grew up. I can recall doing exactly the same thing when I started out.
By way of example of this, when I arrived in Japan in 2000, one of the most oft-heard complaints about the JCAA was that their proceedings looked like those of the Tokyo District Court. Japan is of course a civil law jurisdiction.
As a quick aside, for any young arbitration practitioners out there, my one tip: the best arbitrators and counsel have a strong grasp of both comparative law and comparative procedure. So as a common lawyer, if you can find a way to be exposed to civil law, and vice versa, grasp that opportunity.
As is not uncommon in the courts in civil law jurisdictions, this included hearings being conducted a day or two at a time, and often with months between hearings. That is manageable when the lawyers, witnesses, etc. are all residents in Tokyo but as soon as one is flying lawyers, witnesses, experts etc. from overseas, the impracticality, not to mention cost, of such a system is a positive deterrent to efficient dispute resolution.
In 1991, having just completed a JCAA case, Charles Ragan, a US attorney, wrote an article complaining about this practice, and many other elements of JCAA arbitration as it was. Happily the JCAA recognised that and practices have now changed to be far more akin to the usual international practice. Indeed I wrote an article called ‘Bursting the Ragan myth’ back in 2008 updating the arbitration community of what arbitration in Japan is actually like.
Turning to Malaysia, what have I observed thus far? Generally the adoption of a lot of the best international practice which is great but where I have cause for concern is the length of hearings. Both anecdotally, and from my own admittedly quite limited experience, I would suggest that hearings in Malaysian arbitrations are materially longer than elsewhere in Asia. It is not yet clear to me why that is, save that a number of local lawyers have suggested to me that the style of cross examination in the Malaysian courts is relatively long-winded and that is reflected in arbitration too. Many of you will know better than I if this is fair comment.
It is well-known how expensive hearing days are so, if this is correct, this is something I would urge us all to reflect upon and potentially seek to change. This is very much within our control as lawyers (whether counsel or arbitrators).
Unfortunately, not everything is within our control as we have to answer to our clients. But clients will welcome anything that makes arbitration quicker and cheaper I hear you say. In theory, of course that is right but, in practice, things get a tad more challenging. Let me try to illustrate what I mean.
Pleadings in arbitration (whether common law style or memorial style) are intended to narrow the issues in dispute. Unfortunately it has almost become the norm that if a ‘claim’ is 20 pages long, the ‘defence’ will be 40 pages, the ‘reply’ 80 pages and the ‘rejoinder’ 100 pages. You get the idea. Every document seems to broaden the issues in dispute not narrow them.
We all know that we will win a case based on one or two of our strongest arguments. If they fail, the chances of winning based on our tenth argument are slim indeed. Nevertheless, as lawyers, we seem to be largely incapable of not dealing with every argument raised against us in the same level of detail. Should we not have the courage of our convictions and focus on our, say, three best arguments, and be prepared to deal with the remainder in cursory fashion?
It sounds obvious and straightforward but even if you as the lawyer favour that approach, (let’s be clear it’s quite a brave call), how do you persuade your client to adopt that approach? In my experience, clients not only want you to deal with all ten arguments made against them but also like to throw in a couple of case theories of their own which they naturally believe are winners.
So I would suggest to you the required change is not entirely within our control but we must try to we must enlist the help of our clients in trying.
If we choose to ignore the challenge, there are a number of wannabe processes, institutions and conventions lining up to steal away our business. These include:
- Singapore International Mediation Institute (SIMI) launched in 2014;
- soon to be enhanced by the Singapore Convention on Enforcement of Mediated Settlement Agreements. The Singapore Convention will be signed in Singapore on 1 August 2019 and will come into effect six months after at least three states have ratified it;
- Japan International Mediation Center (JIMC-Kyoto) announced but not yet open;
- international commercial courts;
- Abu Dhabi
- Dubai International Financial Centre (DIFC)
- Two in China for the anticipated Belt & Road disputes
- statutory adjudication regimes for construction payment disputes;
- Kuala Lumpur
- and then there is technology: a huge subject for another day but one that is bound to give rise to both opportunities and threats
The good news is that there is still time to stop whinging, to promote the benefits of arbitration and to potentially make a few changes for the better.
Last year, some of you may have participated in the Global Pound Conference. This was an ambitious initiative in which my firm was heavily involved to inform how civil and commercial disputes are resolved in the 21st century.
The series brought together over 4,000 people from across the spectrum of dispute resolution stakeholders, at 28 conferences spanning 24 countries worldwide and was used to identify key insights that emerged from extensive voting data collected during the series, with a focus on the needs of corporate users of dispute resolution.
Six Asia-Pacific cities hosted conferences to assess how dispute resolution can be improved: (Singapore, Hong Kong, Chandigarh, Bangkok, Sydney and Auckland). Region-wide, the data highlights that commercial parties want to use mediation and other ADR processes more, either alone or as an adjunct to adversarial proceedings.
However, the data shows that the market is not responding adequately. As a result, mediation remains under-utilised and actual use lag behind positive attitudes to it. Unless parties and their advisors actively take a different course (for example through inserting escalation clauses in contracts, actively proposing mediation at the point of dispute or by following mandatory mediation protocols), there is likely to remain a perpetuation of the ‘same old processes’: litigation and arbitration.
So as I said, we still have time to improve the somewhat tarnished image of international arbitration.
Ladies and gentlemen, join me in being bold, being ambitious and being efficient. Let us write 6 December 2018 in the history of Malaysia as the day the local arbitration community decided to lead the world.
For further information, please contact Peter Godwin, Partner, or your usual Herbert Smith Freehills contact.