By Nicholas Clark
The Law Commission’s ongoing review of the 1996 Arbitration Act [1], which is in part motivated by a desire to keep abreast of arbitral developments in Singapore, Dubai, and other emerging arbitration centres, brings into focus the forces that have made Singapore an attractive centre for arbitration seating, in contrast to traditional arbitration destinations such as London and Paris. Singapore, along with London, has emerged as the top destination for arbitration practice, according to researchers at Queen Mary University and White & Case [2]. Indeed, as the Law Commission eyes Singapore’s gains in the arbitration space, it is useful to examine the factors that have led to Singapore’s rise to the top, including specific areas of targeted reform, alongside broader market trends.
Singapore’s successes in recent years are accountable to a number of factors. Singapore has gained substantially from the relative decline of Hong Kong’s strength as an arbitration centre, owing to perceived declines in rule of law as Hong Kong’s judiciary comes under closer scrutiny from mainland China. Singapore’s status as an arbitration seat also stands to gain from the amendments made under the International Arbitration (Amendment) Act 2020. These amendments, which bring clarity to certain multi-party arbitration proceedings and affirm and strengthen the legal framework for arbitrations chaired in Singapore, provide a useful point of comparison with the Law Commission’s attempts to modernise the 1996 Act. Furthermore, a number of market trends, such as a rise in investor-state arbitrations, seem to work in Singapore’s favour.
Hong Kong's Loss, Singapore's Gain
Singapore and Hong Kong retain a unique proximity to the Asian market, and have long maintained precedence as arbitration centres for regional disputes. However, a number of developments in Hong Kong, such as the passage of the National Security Law and subsequent political instability, have raised doubts about rule of law in Hong Kong, while certain MNCs have questioned the long-term viability of Hong Kong as a financial and legal hub. Despite assurances from the Hong Kong Department of Justice that Hong Kong’s judiciary retains an “irreplaceable position as a leading international legal hub for deal-making and dispute resolution services”, Hong Kong’s reputation as an arbitration centre has been challenged, with critics pointing to the risk of interventions from mainland interests as detrimental to rule of law [3]. Fears that Britain may withdraw foreign judges, who have long been seen as a stabilising mechanism for rule of law in Hong Kong’s judiciary, have heightened concerns about the city’s judicial independence [4].
While Hong Kong and China agreed to strengthen mutual enforcement of arbitration awards [5] in a bid to assuage concerns from arbitrating parties, these efforts to stem divestment from Hong Kong’s arbitration seat may be in vain. The SIAC, meanwhile, has recorded record numbers of arbitrations seated in Singapore, primarily led by arbitrations petitioned by parties in India, China, and the United States. The Singapore International Arbitration Centre has also worked to embed itself in these leading foreign arbitration markets, with a new office in New York and the opening of the Beihai Asia International Arbitration Centre, a Chinese partnership focused on Belt and Road related projects [6]. The Asian arbitration market has grown significantly, evidenced by the near-doubling of applications for arbitrations chaired in Singapore in 2020, further galvanising Singapore’s assent with the decline of Singapore’s primary Asian arbitration competitor.
Procedural modernisation and the International Arbitration (Amendment) Act 2020
The modification of the International Arbitration Act further worked to refine arbitration procedures in Singapore in an effort to keep ahead of international arbitration trends, primarily working to clarify two procedural uncertainties. Two new subsections, Section 9(b) and Section 12(1)(j), were introduced. The first aims to clarify processes used to form tribunals in multi-party arbitrations, where default tribunal formation processes fail, provides that the appointing authority “must, upon the request of any party, appoint all three arbitrators and designate any one of the arbitrators as the presiding arbitrator”, whereas previously this process was only provided for in a two-party arbitration [7]. This keeps abreast of broader developments in the commercial space, where complex commercial transactions have produced a number of multi-party arbitrations.
Under Section 12(1)(j), Singapore seated arbitral tribunals are given the power to make orders and issue directions to enforce confidentiality obligations, and are enforceable as if they were a court order, working by leave of the General Division of the Singapore High Court. This ensures that existing confidentiality obligations are strengthened, which serves to further enhance accountability mechanisms in Singapore-based arbitrations. Commentators have noted that this also serves to bolster confidentiality agreements surrounding the transmission of electronic documents, which has become even more important in light of the pandemic, where many arbitral authorities moved proceedings online [8]. Furthermore, the SIAC has introduced a framework to extend the viability of third-party funding in more categories of proceedings, given the increased popularity of third-party funding in arbitrations [9]. This refers to situations where a third party funds the arbitration proceedings of a participating entity, a practice that was traditionally illegal, but as of 2017 has been permitted in Singapore under certain criteria, which have since been expanded [10].
Broader trends in the arbitration landscape
The SIAC has benefited from a number of shifts in the broader arbitration landscape. Investor-state arbitrations have continued to increase as a general trend, according to United Nations Commission on International Trade Law (UNCITRAL) report [11], and Singapore has emerged as a popular investor-state arbitration seat (which has in turn motivated the aforementioned procedural reforms). A 2022 report by Freshfields indicates the pandemic has a significant impact on the proliferation of investor-state disputes, on the grounds that “[g]overnment emergency measures adopted during the pandemic are likely to lead to an increase in the number of COVID-19-related investor-state disputes”, a trend which Singapore seems prepared to capitalise on [12]. Energy has also emerged as a leading field for investor-state disputes, particularly renewal projects in the face of a checkered global economic recovery, while the conflict in Ukraine may also inject market uncertainties necessitating arbitral mediation [13].
An increasingly polarised geopolitical landscape may also spurn an intermediary role for Singapore as an arbitration destination. A Rajah and Tan lawyer, speaking with the Financial Times, also reflected on the growth of Singapore-seated arbitration hearings from both the United States and China, owing to Singapore’s balanced relationship between the two powers - “Singapore walks a fine line between [the US and China]”, a position which strengthens the credibility of Singaporean judgements in arbitration hearings which may otherwise favour one of the two parties. As indicated above, Singapore has made continued efforts to integrate itself into both arbitration markets, a move which significantly sets Singapore apart from Hong Kong, where foreign firms may be hesitant to chair China-centred arbitrations for fear of biased rulings.
For the future of British arbitration, look east?
The effect of section 12(1)(j) on arbitration proceedings in Singapore substantially expands the remit for the enforcement of confidentiality, while the new s.9(b) enhances arbitral protocols in complex multi-party cases. These developments are highly sensitive to changes within the commercial space and traditional arbitration structures, along with new digital modes of conducting arbitral proceedings, with the SIAC continuing to eye new potential areas for reform and consolidation.
By contrast, the Law Commission keenly notes that the impetus for a consultation - and Arbitration Act reform - is to “maintain the attractiveness of England and Wales as a 'destination' for dispute resolution and the pre-eminence of English Law as a choice of law” [14]. Singapore’s legislature, however, has shown itself to be significantly more amenable to frequent re-evaluations of existing arbitral legislation, an adaptivity that is likely to ensure that Singapore continues to be a dynamic and forward-looking arbitration centre. It is for arbitration authorities in the UK - and the Law Commission - to continue to modernise and refine arbitration in the UK. The fast pace of arbitration development in Singapore, stands as a clear motivator that London cannot rest on its laurels.
References
[1]: Law commission to review the arbitration act 1996. (n.d.). Law Commission. https://www.lawcom.gov.uk/law-commission-to-review-the-arbitration-act-1996/
[2]: Singapore takes top arbitration slot along with London for first time. (2021, May 6). Financial Times. https://www.ft.com/content/7942f589-8b73-4e51-aad9-7780e9fab2c0
[3]: Is Hong Kong losing its lustre as favored arbitration hub? (2021, February 2). Law.com International. https://www.law.com/international-edition/2021/02/02/is-hong-kong-losing-its-lustre-as-favored-arbitration-hub/?slreturn=20220319153408
[4]: Buddle, C. (2022, March 26). Removing foreign judges would amount to abandoning Hong Kong. South China Morning Post. https://www.scmp.com/comment/opinion/article/3171986/removing-foreign-judges-would-amount-abandoning-hong-kong
[5]: Hong Kong, Mainland China strengthen mutual enforcement of arbitral awards. (2020, December 8). Law.com International. https://www.law.com/international-edition/2020/12/08/hong-kong-mainland-china-strengthen-mutual-enforcement-of-arbitral-awards/
[6]: New international arbitration centre in Singapore to focus on ‘Belt and Road” initiative disputes. (n.d.). Linklaters | Global Law Firm | Global Lawyers. https://www.linklaters.com/en/insights/blogs/arbitrationlinks/2019/october/new-international-arbitration-centre-in-singapore-to-focus-on-belt-and-road-initiative-disputes
[7]: International arbitration 2021. (n.d.). Home | Global Practice Guides | Chambers and Partners. https://practiceguides.chambers.com/practice-guides/international-arbitration-2021/singapore/trends-and-developments
[8]: 25 years of the arbitration act: Time for reform? (n.d.). https://www.engage.hoganlovells.com/knowledgeservices/news/25-years-of-the-arbitration-act-time-for-reform
[9]: Ibid
[10]: Jurisdiction guide to third party funding in international arbitration. (2021, May 7). Pinsent Masons. https://www.pinsentmasons.com/out-law/guides/third-party-funding-international-arbitration#Singapore
[11]: Inside arbitration: Investor-state dispute resolution series part I - A close look at the concerns arising out of investor-state dispute settlement. (2022, March 15). Herbert Smith Freehills | Global law firm. https://www.herbertsmithfreehills.com/insight/inside-arbitration-investor-state-dispute-resolution-series-part-i-a-close-look-at-the
[12]: International arbitration in 2022. (n.d.). Freshfields Bruckhaus Deringer. https://www.freshfields.com/490835/globalassets/our-thinking/campaigns/arbitration-top-trends 2022/international_arbitration_top_trends_2022.pdf
[13]: State COVID-19 response and investors-arbitration in renewable energy . (n.d.). Simmons & Simmons.https://www.simmons-simmons.com/en/publications/ckcabaljtjttz092680lrr8yk/state-covid-19-response-and-investors-arbitration-in-renewable-energy
[14]: Maintaining England and Wales' status as a leading destination for commercial arbitration. (2022, February 3). Law Gazette. https://www.lawgazette.co.uk/practice-points/maintaining-england-and-wales-status-as-a-leading-destination-for-commercial-arbitration/5111385.article