As economic activity related to development of oil and gas production continues to increase in Asia and the Pacific Rim, many of our clients have requested advice regarding arbitration of disputes under the administration of local arbitral bodies or even ad hoc arbitration in the area. This alert will touch on some key points to be considered in determining whether to accept arbitration, before which arbitral body and under what arbitration rules and law.
Some preliminary points to note are that all of the major players in the energy field come from countries that adhere to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This is important because the Convention provides uniform requirements for arbitration agreements, allows limited grounds for challenge to awards, and assurance that awards will be granted recognition in the jurisdictions where the Convention is in force (194 countries).
In addition, in most jurisdictions arbitration provisions in contracts are deemed to be separate agreements that will survive even a challenge to the underlying contract, unless it can be shown that the alleged contractual impediment affects the arbitration provision itself. That is, arbitration will occur even though the underlying contract is claimed to have been fraudulently induced, unless it is proven that the arbitration clause itself was fraudulently induced.
Further, the law applicable to the arbitration agreement is not necessarily the law of the underlying contract. In the absence of any express agreement the governing law of the arbitration agreement will be the law of the seat of the arbitration (not necessarily the site of the hearings), and the rules of the arbitral body, some of which allow the arbitrators to apply whatever law they deem appropriate. To avoid surprises in this regard, it is best to stipulate in the contract the law to govern the arbitration agreement. This can be done by simply adding to the general choice of law clause the phrase: “This contract, including the dispute resolution clause, shall be governed etc.”
With the above introduction, we will provide an overview of the commercial and maritime arbitration regimes prevailing in China, Hong Kong, Singapore, India and Vietnam.
International commercial arbitrations are conducted by the China International Economic and Trade Arbitration Commission (CIETAC). CIETAC rules require the arbitration agreement be in writing and identify the arbitral body. It is permissible to use the International Chamber of Commerce, Hong Kong International Arbitration Centre or Singapore International Arbitration Centre as the arbitral body. CIETAC is headquartered in Bejing with sub commissions in Shenzhen and Shanghai. All use the same rules, panel of arbitrators and exercise the same jurisdiction. A combination of arbitration and conciliation is available at the option of the parties.
When submitting an application for arbitration, relevant documentary evidence relied upon should be attached. The claimant nominates an arbitrator from the CEITAC Panel. The respondent has 20 days after receipt of the application for arbitration to nominate an arbitrator. Arbitrator may, subject to confirmation by the Chairman of CEITAC, be from outside the CEITAC Panel. If no nomination, the Chairman of the Arbitration Commission will make the appointment. The Respondent has 45 days to submit its defense and supporting documents. Foreign attorneys are permitted to represent the parties. Preservative measures are permitted subject to the assistance of local courts. A written or taped record is made of arbitration rulings and the parties may be asked to sign the record. Awards are reasoned and generally rendered within 45 days of the final hearing. (However, delays are not unusual) Chinese is the official language of the hearings for both oral and written evidence. The basic arbitration fees run from a minimum of 2,000 Yuan to 97,000 Yuan plus 0.7% of claims over 5,000,000 Yuan. The rules contain an option for summary procedure and allow for conciliation by the arbitral tribunal. Awards are enforced in accordance with the 1958 New York Convention but local Courts may hinder enforcement.
Maritime arbitration is administered by the China Maritime Arbitration Commission (CMAC) located in Beijing (with offices in Shanghai, Guangzhou and Dalian). Arbitrators come from the CMAC Panel consisting of both foreign and Chinese persons with suitable experience. The panel is predominantly Chinese. Interim relief in the form of attachment of property to preserve it is permitted. The arbitrators have their own power to determine its own jurisdiction, and may gather evidence on their own.
China does not recognize Ad Hoc arbitration but will enforce an Ad Hoc award rendered in Hong Kong. The Chinese record regarding court interference with arbitration and review of arbitration awards is checkered but improving.
At present the Government of Hong Kong is considering reforms to its arbitration law. The primary proposal is to enact a uniform law for domestic and international arbitrations based on the UNCITRAL Model Law. The practical purpose is to adopt a law that is user friendly and generally accepted world wide in order to re-energize Hong Kong as the leading regional arbitration center. The reforms, if enacted, should minimize judicial interference in arbitration.
Hong Kong has a specialist list of jurist who consider all matters concerning arbitration, thus bringing a level of uniformity to the decision making process. Arbitrators have the power to determine their own jurisdiction. Representation by foreign counsel is permitted. Hong Kong is a party to the New York Convention of 1958.
The Hong Kong International Arbitration Centre (HKIAC) is independent of the Chinese government and operates under the UNCITRAL arbitration rules. On default of the parties to appoint arbitrators, the HKIAC will make the appointment. The HKIAC does not fix the arbitrators’ fees nor does it review awards, like the ICC, before they are rendered. HKIAC administrative fees are relatively low.
In 2000, the Hong Kong Maritime Arbitration Group was formed as a division of the HKIAC. It maintains a list of arbitrators with shipping experience. There are no specific time limits for the rendering of an award. The tribunal may make orders for interim measures, including the posting of security by a party.
The Singapore International Arbitration Centre (SIAC) enacted new rules in July 2007. These Rules confirm SIAC as the arbitrator appointing authority, even if the arbitration agreement provides otherwise. Party appointments will only be viewed as recommendations subject to the approval of the SIAC Chairman. A parties’ challenge to an arbitrator will not automatically suspend the proceedings. Thus, the dilatory tactic of challenge is minimized. Foreign lawyers may participate without associating local counsel. The parties are to prepare a Memorandum of Issues within 45 days of the submission of written statements of their case, defense, and counter-claim, if any, including witness statements. The Memorandum will define the matters that the tribunal is to decide in its award. The new 2007 rules are intended to streamline and speed up the arbitration process. Another new requirement is the review of proposed awards by the SIAC Registrar for approval of matters as to form before the award is issued. The new rules contain a sliding scale of fees similar to the ICC schedule but significantly lower.
Under the Singapore International Arbitration Act (modeled on the UNCITRAL Model Law), the arbitration tribunal has jurisdiction to determine its jurisdiction, including challenges to the arbitration clause. The tribunal has the power to appoint witnesses, order correction of the contract or arbitration agreement, allow other parties to be joined and order any interim measures.
The award is to be rendered within 45 days of the final hearing. An award may be set aside by the Courts on the grounds set out in the UNCITRAL Model Law and, in addition, if the making of the award was secured or affected by fraud or corruption or a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced. Singapore has appointed a specialist judge to hear all arbitration related matters brought before the High Court. In practice, the expanded review power has seldom been exercised by the Singapore courts. In fact, the Singapore Court of Appeals recently affirmed the philosophy of minimal judicial interference with the arbitral process. Awards are enforced in accordance with the New York Convention of 1958.
Maritime matters can be referred to the Singapore Chamber of Maritime Arbitration. It has a small claims procedure for disputes up to USD $75,000. The rules of the SCMA are substantially similar to those of the Society of Marine Arbitrators, Inc. based in New York.
As is the case of the other jurisdictions discussed above, Indian law of arbitration recognizes party autonomy in contracting. A designation of applicable law will be deemed, unless otherwise stated, not to include conflict of laws principles. Absent a designation of applicable law, the arbitrators may apply any law deemed appropriate under the circumstances. The arbitrators are to take account of the usage of the trade.
The Indian Arbitration and Conciliation Act of 1996 is based upon the UNCITRAL Model Law. However, Indian Courts have claimed the power to correct errors of judgment in awards and if the award contravenes the provisions of any substantive law governing the parties or is against the terms of the contract. In addition, the Indian Supreme Court has held that the Monopolies and Restrictive Trade Practices Commission will have jurisdiction of a claim for damages due to an alleged unfair trade practice. The arbitration clause can be worded to avoid both holdings but it must be specific. Finally, Indian law broadly construes “public policy” as “that which is fundamental policy of Indian law or the interest of India or justice or morality or is patently illegal”
The arbitral body for commercial and shipping matters is the Indian Council of Arbitration. It has earned a reputation for prolonged hearings and delay in rendition of awards. On receipt of an application for arbitration, the Council has the absolute discretion to accept or reject the application without stating reasons. The decision may be appealed to the courts. Administrative fees run from 8,000 Rs to 68,000 Rs plus for disputes over 100,000,000 R. Consolidation of arbitrations arising out of the same transaction are allowed. A party may have any question arising in any proceeding before the arbitral tribunal referred for an opinion of an Indian Court in the form of a special case subject to the accession of the tribunal. The tribunal may decide its own jurisdiction. Arbitrators can award interim relief. Awards are made by majority vote. Failing a majority award, the Chairman of the Tribunal shall make the award alone. The award shall be reasoned.
The law of Vietnam allows parties to agree to arbitration either institutional or Ad Hoc and in any place. There are two Vietnamese arbitration bodies - the Vietnam International Arbitration Center, which handles commercial and maritime matters, and the Economic Arbitration Centers in Hanoi and other cities. Representation by lawyers is allowed. It is unclear if foreign lawyers can participate without association with a Vietnamese firm. Proceedings are in Vietnamese, unless the parties agree otherwise. The applicable law will be that of the seat of the arbitration or that stipulated by the parties so long as it does not contravene fundamental principles of Vietnamese law. There is no appeal from an award, but a party may proceed in a Vietnamese Court to cancel the award on the grounds allowed under the New York Convention. The legal statutes of limitations apply to arbitration proceedings or two years if no statute of limitations is established to cover the dispute. Foreign arbitrators are allowed. The arbitrators can determine their own jurisdiction but their decision on jurisdiction is subject to appeal to the local court. Interim relief must be obtained from the courts. Arbitral awards must be reasoned, unless the parties agree otherwise. Vietnam is a signatory to the New York Convention of 1958. Arbitration is relatively new to Vietnam and results can best be described as uneven.
The foregoing is based upon present knowledge. It is not an attempt to give definitive legal advice, but only to provide an overview of the subject. In any particular case, professional and specific advice should be sought. Should you have any questions or wish more detailed information, we are of course available.