Hong Kong remains Asia’s disputes capital but Singapore continues to close the gap with sustained investment attracting more litigation and arbitration work
For so long the epicentre of dispute resolution in Asia, events have conspired in recent history to undermine Hong Kong’s status. Two years ago, hundreds of members of the judiciary led a silent march in response to a diktat from Beijing challenging the judicial independence of Hong Kong from the mainland. It was the start of what became known as the ‘umbrella movement’ protests.
The protests were the result of tensions that simmered since the 1997 handover of the city state. According to Herbert Smith Freehills disputes partner Gareth Thomas, ongoing fears among lawyers in Asia about the ‘new owner’, have yet to be realised. ‘The one thing one could say about Hong Kong in that time is that, thankfully, those people have been proven wrong.’
On the numbers, Hong Kong remains the Asia disputes capital, with work primarily coming from China and the US, as well as further afield in Asia-Pacific. For example, the Hong Kong International Arbitration Center (HKIAC) oversaw 477 disputes in 2014, including mediation and adjudication. The US comes second only to China as the source of these matters, showing Hong Kong still holds its own as an international forum. The caseload is mostly related to energy and natural resources (18%) and shipping (16%).
Yet recent years have seen the sustained rise of Singapore, Hong Kong’s Asian disputes challenger, particularly for international arbitration. ‘The story of the decade has been the phenomenal growth of international arbitration [in Singapore],’ says Rajah & Tann disputes partner Paul Tan.
Singapore swing
Years of government backing and focused investment means the Singapore International Arbitration Centre (SIAC) is now handling serious caseloads at the high-value end of the market.
‘Mainland China is a difficult market; it’s a very complicated place to do business in.’
Michael Davison, Hogan Lovells
The SIAC reported its highest annual number of new cases in 2015: 271 from 55 jurisdictions, a 22% increase on 2014. The results showed it had grown its caseload three-fold in ten years. This is compared to the 252 new arbitration matters brought to the HKIAC in 2014, according to its latest figures.
‘At this point [the SIAC] is one of the busiest international arbitration centres, not just in Asia but in the world,’ agrees Gary Born, head of international arbitration at WilmerHale and president of the SIAC.
Born states that while the number of arbitrations before the International Chamber of Commerce have remained flat – from 791 in 2014 to 801 in 2015 – Singapore is still seeing growth.
In terms of value, the SIAC has also steamed ahead. In its annual report, the centre said it had handled S$6.23bn worth of disputes in 2015, up from around S$5bn the previous year, while the HKIAC dealt with around US$2.8bn or S$3.76bn in its most recent figures for 2014.
‘Singapore is seen as the place to be in Asia for arbitration,’ says John Savage, an Asia-based arbitration partner for King & Spalding. ‘Hong Kong is still important and the two are clearly the leading places, but Singapore is in the ascendant.’
High-value work in Hong Kong in 2016 included Hogan Lovells acting for an Indian technology company in a US$407m HKIAC arbitration – the largest-ever arbitration in Hong Kong involving an Indian party – against a Chinese entity concerning a wafer supply agreement in the solar industry.
One area where Hong Kong has traditionally dominated in Asia is as a forum for disputes and investigations relating to corporate crime in Asia. This remains a key focus, particularly with the long-running campaign of the Independent Commission Against Corruption (ICAC). In December 2014, a commission investigation led to the landmark prison sentence for Hong Kong’s former chief secretary for administration, Rafael Hui, with an appeal quashed in February 2016.
However, the Hong Kong-based body has been rocked by allegations in recent months. The head of ICAC’s investigations unit, Rebecca Li Bo-Lan, was forced out after just a year in the role, causing the city’s chief executive Leung Chun-ying to be quizzed over the state of the body by the Legislative Council.
Such developments point to how Singapore is perceived by some advisers to be gaining ground reputationally. While Hong Kong remains judicially independent of the People’s Republic, many partners agree Singapore is becoming first choice for international clients seeking to resolve disputes in Asia due to its impartiality. ‘Its independence from other jurisdictions is unquestioned and people trust it for the neutrality and reliability of arbitrations held here,’ notes Savage.
The city state is now launching a bid to rival other Asian regional courts in terms of litigation, opening the Singapore International Commercial Court (SICC) in 2015. The court issued its first judgment earlier this summer in BCBC Singapore Pte Ltd v PT Bayan Resources TBK – ruling on an US$800m coal technology dispute between parties from Australia, Singapore and Indonesia, which saw judges rule against the plaintiffs.
Baker & McKenzie global head of international arbitration, Leng Sun Chan, says: ‘There is a future for the SICC. It is definitely something to watch. It has some features of arbitration but also a top-quality bench. It has a panel of international and Singaporean judges that gives assurances to parties that they are going to get first-tier adjudicators without paying greater fees.’
‘What you have now is quite healthy competition,’ says Thomas. ‘You have two common law hubs that are not only catering for their own markets but also attracting disputes, both arbitration and litigation, from around the region.’
Arbitration and litigation are by no means limited to the two cities. Tokyo serves as a disputes hub for much of North-East Asia, while the China International Economic and Trade Arbitration Commission (CIETAC) deals with more than 1,000 cases annually, although usually of lower value.
China itself is a far less attractive forum to foreign businesses and UK and US-based international law firms. Hogan Lovells head of litigation and arbitration Michael Davison says: ‘Mainland China is a highly difficult market; it’s a very complicated place to do business in.’
‘One sees in Singapore a very robust market that rivals London in terms of the sophistication and size of the local arbitration Bar.’
Gary Born, WilmerHale
CIETAC actually split in 2012, with sub-centres in Shanghai and Shenzhen pushing for independence. Only last year did the country’s Supreme Court issue a ruling clarifying the position of the centres, calling on arbitration agreements to specify which new location they would appear before.
Competition time
Both Singapore and Hong Kong have seen an influx of new firms opening offices or relocating seasoned arbitration specialists, with Allen & Overy moving Judith Gill QC to Singapore, Freshfields Bruckhaus Deringer relocating former head of international arbitration Lucy Reed to first Hong Kong, then Singapore, and Eversheds bringing in Rodman Bundy from its Paris arm.
While some firms have sought to strengthen established practices, others have just entered the market and there are widespread reports of lowballing on fees to win business. Top players report seeing fees undercut by hundreds of thousands of dollars, with even Magic Circle firms at times bidding at a loss to win business.
Arbitration partners across the region say competition has brought down fees, with one Singapore-based partner commenting they lost have lost business to firms ‘that are agreeing to do cases at a massive loss’.
Says Reed, who became a professor at the Centre for International Law in Singapore in June: ‘People are cutting fees. Often the start-ups are charging ridiculously low fees, as they do elsewhere.’
However, Born says there is still huge confidence in the market: ‘There are always worries about rates and competition with local firms, but one sees in Singapore a very robust market that in many ways rivals that of London in terms of the sophistication and size of the local arbitration Bar.’
But, of course, it is not just international US and UK firms capitalising on this market. Born notes that the local advisers are engaged in ‘very rapid expansion’, such as Singapore-based firm Rajah & Tann Asia, which now has a network of offices in Cambodia, China, Indonesia, Laos, Malaysia, Myanmar, Thailand and Vietnam.
‘It wouldn’t surprise me to see those firms on the edge of being world-class competitors to New York and Magic Circle firms before too long,’ says Born. ‘The quality of service that they provide right now is on a par with the best.’
There is a race to innovate between Hong Kong and Singapore, with the latest step coming from the SIAC updating its arbitration rules this summer to speed up resolution of disputes and offer provisions for early dismissal. However, Reed says she does not see the growth of Singapore as a challenge to the legacy of Hong Kong as a disputes centre: ‘When I was in private practice and we were referring clients, sometimes it was Hong Kong, sometimes it was Singapore and sometimes it was the ICC.’
Other changes are set to disrupt the markets. Third-party funding of disputes could bolster the number of cases in both jurisdictions. Third-party funding is likely to bring more cases to both the arbitration centres and the courts, as funders such as Burford Capital see a future for the markets.
Sapna Jhangiani, an arbitration partner at Clyde & Co, says both centres are vying to legislate first. ‘Hong Kong is looking at making third-party funding expressly permitted. Singapore obviously doesn’t want to be pipped to the post.’
While restrictions on such funding exist in both jurisdictions, Reed sees this changing soon: ‘There are claimants who need funding in order to pursue their cases. Those cases will go elsewhere if there is not the funding. These are not the ambulance-chasing cases that the laws were passed to block. It is not an evil, but an improvement on access to the provision of justice.’
The competition seems set to rumble on. While Hong Kong is the seasoned heavyweight, Singapore is currently landing more of the blows.
matthew.field@legalease.co.uk