For multinational companies, the Asia-Pacific region presents a vibrant landscape of opportunities intertwined with the challenge of navigating complex legal jurisdictions. This is particularly true when it comes to resolving cross-border disputes through arbitration. The key to success lies not just in understanding the specific legal frameworks of Mainland China, Hong Kong, and Singapore, but also in recognizing the broader strategic implications these frameworks hold for global business operations. Choosing an appropriate seat requires a delicate balance of legal acumen and strategic foresight.
Mainland China - Navigating Challenges in Arbitration
Foreign users’ increasing preference for arbitration institutions outside of China is noteworthy. To some foreign users, although many arbitration institutions in mainland China have been making strides to improve, the lingering perception of a need for greater neutrality and professionalism drives many to seek alternatives.[1] This might be due to the following reasons:
Mainland China’s arbitration framework does not adhere to the UNCITRAL Model Law, a standard that provides a consistent and predictable basis for international arbitration. This deviation means that foreign parties must navigate a different set of rules and expectations when arbitrating in Mainland China, adding complexity to dispute resolution processes.
In Mainland China, the compensation for arbitrators often does not match the remuneration standards seen in other jurisdictions. This situation has led many lawyers to view serving as an arbitrator more as a means of gaining prestige than as a financially rewarding endeavor. The potential impact on the quality and dedication of arbitrators is a concern for foreign parties seeking diligent case handling.
Despite these challenges, one appealing aspect of arbitrating in Mainland China for foreign companies is the relatively low threshold for obtaining asset preservation orders (akin to Mareva Injunctions). Chinese courts are generally willing to grant such orders at the request of arbitration institutions based in the PRC. This can be a potent tool for multinational companies in disputes with Chinese counterparts, offering a means to secure assets and ensure effective enforcement of arbitration awards.
Hong Kong - Leveraging Strategic Advantages
Hong Kong emerges as a premier choice for multinational corporations seeking arbitration, blending established international norms with strategic proximity to Mainland China. Its global recognition as a preferred arbitration seat is underpinned by adherence to the UNCITRAL Model Law, ensuring a familiar and trusted legal environment for international entities.
The city’s common law system, supported by a judiciary that integrates local and global legal expertise, affirms its commitment to the rule of law. This legal confluence guarantees that arbitration in Hong Kong is marked by independence, neutrality, and a consistent enforcement record.
The author observes a reluctance among some international entities to select Hong Kong as a seat, especially in cases involving Chinese parties, due to geopolitical considerations. Nonetheless, the region’s legal connections with Mainland China offer distinct benefits for asset preservation against adversaries located in Mainland China. For example, as of October 2023, the Hong Kong International Arbitration Centre (HKIAC) has demonstrated its strength in facilitating asset preservation in cross-border disputes. The center has handled 100 applications under a specificarrangement, involving requests to preserve assets totaling around USD 3.6 billion. Of the 69 decisions issued by Mainland Courts regarding these applications, an impressive 65 were approved contingent on the applicant providing security, while only four were denied. This high success rate exemplifies Hong Kong’s effectiveness in offering substantial support for asset preservation in international disputes, highlighting its strategic advantage in arbitration processes.
In navigating the intricacies of international arbitration, multinationals find in Hong Kong a synthesis of legal rigor, strategic positioning, and economic prudence. Drafting arbitration clauses with a strategic Hong Kong perspective empowers companies to handle disputes with efficiency and authority, ensuring their position in Asia’s competitive legal landscape is both secure andadvantageous.
Singapore – A Neutral Forum for International Entities
Singapore’s ascent as a leading venue for international arbitration is underpinned by a strong legal framework and a pro-arbitration judiciary, exemplified by the International Arbitration Act (IAA) which embodies the UNCITRAL Model Law. This robust legislation ensures a familiar and stable environment for international entities who are accustomed to the Model Law framework.
SIAC, since its establishment in 1991, has been a cornerstone of Singapore’s arbitration ecosystem. Its arbitration rules, reflective of contemporary practices, and its panel of international arbitrators ensure that SIAC remains a preferred institution for resolving complex commercial disputes. SIAC is ranked 2nd among the world’s top 5 arbitral institutions, and is the most preferred arbitral institution in the Asia-Pacific[2].
The author notes an increasing trend for international entities to choose Singapore for arbitration involving Chinese parties, attributed to geopolitical factors. While this decision is strategic, it is important to acknowledge that these entities may not access certain advantages, such as asset preservation measures available through arbitration in Hong Kong and Mainland China.
Practical Insights
Multinational companies must tailor their arbitration clauses carefully to leverage the unique features of each jurisdiction. This ensures both effective dispute resolution and enforceability of arbitration awards. The choice of arbitration venue can be significantly influenced by geopolitical considerations. Companies should consider the strategic advantages of arbitrating in Mainland China and Hong Kong for securing assets of their Mainland China opponents in disputes. Singapore’s appeal as a neutral venue with a pro-arbitration judiciary provides a stable and predictable environment for arbitration.
[1] see Chapter 3, in Gary B. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing (Sixth Edition)
[2] see 2021 International Arbitration Survey: Adapting Arbitration to a Changing World, Page 2 and Page 7: https://arbitration.qmul.ac.uk/media/arbitration/docs/LON0320037-QMUL-International-Arbitration-Survey-2021_19_WEB.pdf
