How the East is gaining on the West in international arbitration
Singapore and Hong Kong have both strived to establish themselves as the "go to" venues for arbitration in Asia, and it seems to be working. Indeed, both seats are beginning to compete with the traditional hegemony of London and Paris. While Singapore has promoted its pro-arbitration stance, Hong Kong has broadened its appeal and streamlined its service.
As our 2015 International Arbitration Survey shows, London and Paris continue to be the most used and most preferred venues for international arbitration. However, the research – conducted by Queen Mary University London, in partnership with White & Case – reveals that Hong Kong and Singapore are gaining momentum, coming third and fourth. Singapore also is perceived to be the most improved seat for international arbitration over the past years, with Hong Kong closely behind.
The numbers show that these Asian seats are quickly improving and closing the gap, but what are the factors behind their improvement? The research suggests that seats were deemed to have improved due to 1) better hearing facilities, 2) the availability of quality arbitrators who are familiar with the seat, 3) better local arbitral institutions, and 4) improvements to the national arbitration law. So while respondents' choice of the most preferred and most used seats were driven by the seat's legal infrastructure, the reason behind those which had improved the most focused on convenience factors. Only one factor (improvements to the national arbitration law) directly related to formal legal infrastructure. This is in contrast to why seats are most used – where the predominant reason given was the "reputation and recognition of the seat".
This is interesting and suggests that once a seat's formal legal infrastructure reaches a certain threshold of quality; convenience factors become more important for potential users. In this situation, features that play a secondary role in the most preferred and most used seats, such as the quality of hearing facilities, can increase the attractiveness of the seat once this legal threshold is reached. Indeed, the research suggests that the two most improved seats – Hong Kong and Singapore – fit these criteria. They were well-established arbitral seats five years ago and have now built on this foundation, making significant investments in their international arbitration "infrastructure".
In addition to the investment these seats have made, they have also benefitted from the growth of emerging markets in Asia. This growth has created a west-east capital flow – often to fund mega-infrastructure, oil & gas and other energy projects. But these types of projects can lead to disputes with issues over access to resources, finance and funding and conflicts of interest. Indeed, because they are often extremely costly and, where there's a lot of money at stake, disputes are always a significant risk. As such, we're seeing more and more disputes involving Asian parties with Singapore and Hong Kong becoming increasingly attractive as arbitral venues.
Now that Singapore and Hong Kong have improved so significantly, the question becomes what they need to do to cement their position and indeed attract more users. The key would seem to be further enhancing their reputation. But this is no easy feat, as Lord Browne, the former chairman of BP has recently noted: "reputation is best seen as a reservoir of goodwill, which takes years to fill up and only hours to empty". It's now up to these seats to continue to fortify their gains.
This article first appeared on South China Morning Post as "Growing reputation helps Asian cities gain momentum as arbitration venues", here.
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