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Arbitration at Arm's Length: Are U.S. Firms Missing an Opportunity in Asia?
The Asian Lawyer
Four years ago, Paul Mitchard QC's firm, Skadden, Arps, Slate, Meagher & Flom, put him in charge of building an international dispute resolution practice in Asia. After trying -- and failing -- to find a suitable lawyer to head up an arbitration-focused team in the region, Mitchard decided to go to Hong Kong, where he had qualified in 1984, and do it himself. He moved to Hong Kong in 2009, and the following year was joined by litigation partner Frances Kao, who relocated there from Chicago.
Mitchard and Kao are part of a very small club. American arbitration lawyers are scarce on the ground in Asia. Many of Skadden's U.S. competitors have no arbitration partners in Asia at all. Of the 10 firms that handled the most large arbitrations in 2009-10, according to The American Lawyer's 2011 Arbitration Scorecard, four -- Shearman & Sterling; Debevoise & Plimpton; Cleary Gottlieb Steen & Hamilton; and Curtis, Mallet-Prevost, Colt & Mosle -- have no arbitration partners at all based in Asia-Pacific countries. Other top-ranked firms have only a handful: White & Case, King & Spalding, Latham & Watkins, and Sidley Austin all have three or fewer.
And yet Asian arbitration is a growth industry. The Hong Kong International Arbitration Centre has increased its caseload from 281 to 624 disputes between 2005 and 2010. The Singapore International Arbitration Centre has recently doubled the number of new cases it handles annually, from 99 in 2008 to 198 in 2010. According to statistics published by the SIAC, eight of Asia's major arbitral institutions -- two in China, one in each of Singapore, South Korea, Vietnam, Japan, Hong Kong and the Philippines --administered 722 disputes in 2010. That's not too far behind the American Arbitration Association's International Centre for Dispute Resolution, based in New York, which administered 888.
"There is an increasing amount of good work here [in Asia] to be had, and potentially lucrative work," says Robert Pe, a dispute resolution partner in Orrick, Herrington & Sutcliffe's Hong Kong office. But despite mounting interest in dispute resolution in general among American firms in the region, he says that he is surprised that some of the market leaders haven't followed where Skadden dared to tread.
Maybe it's because of the British. The U.K. firms poured into Asia in the 1980s, offering a broad spread of practices, in contrast with the capital markets focus of many of their U.S. competitors, and their arbitration teams have had time to grow.
Herbert Smith, for example, now has 13 Asia-based partners who focus heavily on arbitration, and has represented India's Tata Group of Companies in a recent major arbitration. Clifford Chance's five-partner team has picked up billion-dollar disputes from Malaysian telecom company Maxis Communications Bhd. and China's state-owned resources giant, Sinopec Group.
For smaller disputes, regional clients have typically turned to domestic Asian firms, with which they have close relationships. But occasionally these local firms hit the big time, too. India's Siva Ventures Ltd. appointed Singapore's Drew & Napier to appear opposite Clifford Chance in a claim against Maxis Communications and Global Communications Services Holdings Ltd., a Mauritian investment holding company, in the Singapore arbitration arising from Maxis' purchase of Indian cell phone operator Aircel Ltd. in 2005. The amount in dispute reached more than $1 billion before a three-member arbitration panel in Singapore dismissed the claim in October 2011. Korean law firms such as Bae, Kim & Lee; Kim & Chang; and Shin & Kim also frequently appear in arbitrations, representing their country's powerful conglomerates such as the Hyundai and Daewoo companies, either alone or in tandem with international firms.
U.S. firms are more likely to try to run their Asia arbitration practices from New York, Washington or London. Debevoise & Plimpton has followed this path, although the firm moved toward a stronger on-the-ground presence last year when it announced a New York-based arbitration partner, Christopher Tahbaz, will also spend up to half of his time in Hong Kong. But Debevoise will continue to work with local firms, says Tahbaz, adding that the firm's change in strategy is "an evolution" rather than a brash dive into the market.
Other U.S. firms have been even more hesitant. Cleary's managing partner, Washington, D.C.-based Mark Leddy, says the firm has no immediate plans to expand its Asia presence. Shearman & Sterling, which was the fourth-busiest firm on the Arbitration Scorecard with roles in 19 disputes, used to have an arbitration partner in Singapore, John Savage, who left the firm in August 2010 to join King & Spalding's office in that city. He hasn't been replaced.
Shearman has been considering once more building up its arbitration team based in Asia, says Hong Kong-based capital markets partner Matthew Bersani, who manages the firm's practice in the region. "One of the reasons we're interested in arbitration is that it's a countercyclical practice to capital markets and M&A," he says. "Having that kind of practice would be very helpful."
But the Asian arbitration market may be too small to support many more entrants, believes Savage. "People, including ourselves, see potential, but I think there's a risk that it has been hyped up more than it deserves," says Savage. The amounts in dispute in Asia are often low, he says. "The question I'm asking myself is, under the perception, is there anything to back it up?"
The amounts in dispute do occasionally hit the stratosphere. Eight Asia-seated contract disputes made last year's Arbitration Scorecard, with amounts in dispute of at least $500 million. The hype will become reality eventually, says Savage: "It's going to happen as trade and investment in Asian economies increases. I expect the trend to be upward."
For firms with an eye on expanding into arbitration, the biggest challenge -- as is so often in Asia -- is recruiting talent. Savage's switch to King & Spalding was a rare example of a partner with a strong arbitration focus making a lateral move in Asia. Another was Dechert's hire of Beijing partner Jingzhou Tao from Jones Day in May 2011. Tao -- managing partner of Coudert Brothers' China practice until the firm collapsed in 2005, then a partner at DLA Piper until 2007 -- has carved out a niche in international arbitration that is still unusual in China. "I do think it's a promising business, but it's hard to find the right combination of skills and local connections," says Shearman's Bersani. "I think the business in China has become much more dominated by PRC people, or people with PRC connections."
There are other advantages to being local. Arbitration lawyers know that selecting the right tribunal is a critical part of arbitration strategy. Many of the region's top arbitrators are independent or attached to barristers' chambers; examples include Hong Kong's Michael Moser and Teresa Cheng, and Singapore's Michael Hwang. Knowing which arbitrator is suitable for a particular dispute comes only through familiarity, says Richard Chalk, the Hong Kong-based head of Freshfields Bruckhaus Deringer's Asia arbitration practice: "If you get the tribunal right, you're halfway there."
An increasingly sophisticated base of in-house lawyers in Asia will soon tire of liaising with partners in New York or London, predicts Chalk. And they will certainly be unhappy about paying extra for the privilege. "It's really the travel costs that add to it," says Chalk. "That could be quite high if you have to produce documents or interview witnesses."
And having a local contact is simply good service, adds Chalk. Clients respond better to someone whom they can meet locally, or at least contact in the same time zone, he says: "It's just human nature."
Cleary partner Christof von Dryander, who is based in Hong Kong and Frankfurt, says he sees the value in being close to the client. But he says there are "numerous situations" in which it's advantageous to use an arbitration team based primarily overseas, such as when key documents are located abroad, or if a dispute needs specialized expertise the firm cannot offer locally. "In any event, over the years we have attracted substantial arbitration work for Asian clients and on Asian matters through our offices in Europe and the U.S.," he adds.
While firms like Cleary bide their time, those with arbitration partners already in Asia are consolidating their positions. Freshfields plans to redeploy an arbitration partner to Hong Kong in May, says Chalk. It's a balancing act, he says: Too many arbitration lawyers, and they end up sitting around; too few, and the client goes elsewhere. "If we think we're losing out -- if we think we find ourselves at a competitive disadvantage because we can't act on significant disputes -- then we would have to act," he says.