The White Paper doesn’t specifically address how organisations should go about protecting their investments in Asia.
There is much talk of the commercial opportunities and the easing of regulation around doing business within the region. But, we know that all of this is difficult without the appropriate mechanisms in place to settle disputes.
We’re disappointed that international arbitration didn’t get the profile it should have had in a paper about how Australia engages with the region. However, moving forward there are plenty of opportunities for a proper and robust structure to be put in place to reduce the risks for both in-bound and out-bound investors.
As Australia’s engagement in Asia increases, Australian companies investing in Asia must ensure that their foreign investments are adequately protected. Effective dispute resolution clauses in cross-border contracts are key to risk management.
As cross-border trade and investment continues to grow within the region, we are seeing a rise in the number of arbitrations involving Australian parties and a trend towards conducting arbitrations in Hong Kong, China and Singapore. The record of enforcement of arbitral awards in courts in the region varies between countries, but is generally improving as governments come to understand the importance of effective enforcement of international arbitral awards to global and regional trade. We consider that both Australian and Chinese parties would be aided by greater certainty that awards they obtain will be honoured in the other country’s courts.
On a commercial level, clients ought to ensure that appropriate international arbitration clauses are contained in their cross-border commercial contracts. At a political level, the White Paper’s strategic objective to increase commerce in the region would be enhanced by including international arbitration dispute resolution provisions in regional free-trade agreements.
How this will impact on your business
International arbitration is the method of choice for resolving cross-border commercial disputes. Companies should ensure that their dispute resolution clauses in international contracts are carefully considered and drafted.
In addition to including international arbitration dispute resolution clauses in cross-border contracts, parties can also structure their investments to take advantage of the bilateral investment treaties (“BITs”) in the region.
BITs are agreements entered into between two States, usually with the aim of encouraging and promoting trade between those States. While each BIT is different, BITs generally provide that each State guarantees certain protections to investors of the other State. If a State breaches a guarantee under the BIT, for instance by “expropriating” (or taking) the investment of the foreign investor, then most BITs provide that the investor may bring direct action against the State for that State’s conduct. BITs generally provide that the investor does not need to bring such an action in the foreign State’s courts, but instead may bring the action in an international arbitration. Where this is the case, the dispute between the State and the investor will usually be heard in a neutral venue, by international arbitrators appointed by each of the parties, or by an independent arbitral institution. It is significant that there is generally no right of appeal on the merits from awards delivered by tribunals pursuant to BITs.
Australia has BIT’s with the following countries in the Asia region: China; Hong Kong; India; Indonesia; Laos; Pakistan; Papua New Guinea; Philippines and Vietnam.