Three years ago, Paul Mitchard QC’s firm, Skadden, Arps, Slate, Meagher & Flom, put him in charge of international dispute resolution for Europe and Asia. He’d spent the last seven years building a European disputes practice in Skadden’s London office—but Asia was a whole new challenge. 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 ten 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 just a few arbitration partners in Asia: White & Case has two arbitration partners in each of its Tokyo and Singapore offices; King & Spalding has one in Singapore. Latham & Watkins has one in Hong Kong and one in Tokyo, while Sidley Austin has three in Hong Kong. (Baker & McKenzie is an exception: Besides Hong Kong–based arbitration partner James Kwan, many of the firm’s partners in Bangkok, Manila, Jakarta, and Taipei practice arbitration alongside their other practices.)
International arbitration might seem an obvious next step for the Asian offices of Shearman and Cleary, both of which recently began to practice local law in Hong Kong, in addition to their existing U.S. law practices there. Asian arbitration is a growth industry: The Hong Kong International Arbitration Centre has increased its caseload from 281 to 624 disputes in the past five years. The HKIAC this year doubled its premises because it was having to turn disputes away, according to the center’s chairman, Huen Wong. The new facilities are also an effort to keep up with the Singapore International Arbitration Centre, which has recently increased twofold the number of new cases it handles annually, from 99 in 2008 to 198 in 2010. That explosion is thanks in part to the government-backed state-of-the-art Maxwell Chambers arbitration center, which opened in Singapore last year.
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. The Paris-based International Chamber of Commerce administered 793 arbitrations in the same period, and the London Court of International Arbitration administered 237.
“There is an increasing amount of good work here [in Asia] to be had, and potentially lucrative work,” says Robert Pé, a dispute resolution partner at Orrick, Herrington & Sutcliffe’s Hong Kong office. He joined Orrick from Paul Hastings in 2007, and has frequently acted as arbitration counsel or arbitrator in the region. 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. At that time, international arbitration was shifting into vogue: Hong Kong first established the HKIAC in 1985. And in the quarter-century since, the British firms’ arbitration teams have grown with the practice.
Herbert Smith now has 13 Asia-based partners who focus heavily on arbitration. Hogan Lovells has seven arbitration partners in Asia; Clifford Chance has five; Freshfields Bruckhaus Deringer and Allen & Overy have two apiece. Their investment has paid off in the form of local big-ticket assignments: Herbert Smith has represented India’s Tata Group of Companies in a recent major arbitration, for example. Clifford Chance has picked up billion-dollar mandates from Malaysian telecom company Maxis Communications Berhad and China’s state-owned resources giant, Sinopec Group [Arbitration Scorecard, Focus Europe, Summer 2011].
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 Limited appointed Singapore’s Drew & Napier to represent it in a claim against Malaysia’s Maxis Communications and Global Communications Services Holdings Ltd., a Mauritian investment holding company, in the Singapore arbitration arising from Maxis’s purchase of Indian cell phone operator Aircel Limited in 2005. The amount in dispute is now more than $1 billion. 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 this year when it transferred counsel Philip Rohlik from New York to the firm’s Hong Kong office. A New York–based partner, Christopher Tahbaz, will also spend up to half of his time in Hong Kong. Tahbaz worked with Debevoise New York partner David W. Rivkin to represent Korea’s Hyundai Heavy Industries Co. Ltd. in the largest Asia-seated arbitration on the 2011 Scorecard, in which it succeeded in blocking other shareholders from selling petroleum refiner Hyundai Oilbank Co. Ltd. (Instead, the shareholders were ordered to sell their stake in the company to Hyundai Heavy Industries at a 25 percent discount from market value, worth around $750 million.)
Tahbaz describes his firm’s change in strategy as “an evolution” rather than a brash dive into the market. Debevoise will continue to work with local firms, as it did with Korean firm Bae, Kim & Lee during the Hyundai dispute.
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, but will “keep a close eye on market developments” in the region. 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 last August to join King & Spalding’s office in that city. But he hasn’t been replaced. The firm now has just one counsel and two asso­ciates in Singapore handling arbitrations.
Shearman has been “looking at the question” of whether it should once more build 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.”
If Shearman does expand its arbitration team in Asia, says Bersani, it’s unlikely the firm would relocate partners from elsewhere. Rather, it would build a local team with heavy supervision from the firm’s Paris office. Emmanuel Gaillard—Shearman’s senior statesman of arbitration—and his lieutenants would make frequent trips to Asia.
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 this year’s Arbitration Scorecard, with amounts in dispute of at least $500 million. Seven were seated in Singapore; the other was an ad hoc arbitration—that is, one with no institutional oversight—convened by the Supreme Court of India, relating to a broader dispute heard in London under LCIA rules.
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.”
One such investment was that of French food and beverage company Groupe Danone, which entered into a joint venture with Hangzhou Wahaha Group Co. Ltd., based in China’s Zhejiang Province, in 1996. Things went awry when Danone accused its business partner of breaching a noncompete clause. Danone and Wahaha appointed Freshfields and China’s King & Wood, respectively, to represent them in a series of eight Stockholm-seated arbitrations that ended in 2009. The amount in dispute was $1.3 billion.
“There’s going to be more of those, just given the law of averages,” says Richard Chalk, the Hong Kong–based head of Freshfields’s Asia arbitration practice. “We anticipate all our competitors will beef up their practices in Asia, and some have.”
Contractual disputes aren’t arbitration’s only potential growth area. Both Savage and Chalk predict an increase in investment treaty disputes, too. At the moment it’s a minor niche in Asia. Only six of the 152 treaty arbitrations worth at least $100 million in this year’s Arbitration Scorecard involved Asia-Pacific parties, compared with 18 of the 111 contract arbitrations worth $500 million or more. The only two Asian treaty arbitrations with more than $1 billion at stake were a tax dispute between Russian mining companies and the government of Mongolia, and a dispute between the operator of Frankfurt Airport and the Philippine state.
The elephant in the room is China, which as of June of this year had signed a whopping 127 bilateral investment treaties, compared with the United States’s 37. Early Chinese BITs omitted arbitration clauses, but that policy changed in 1998, and most of the 56 treaties signed since then allow for arbitration.
So far, companies have been reluctant to take the Chinese government to task over alleged breaches of investment treaties. “The size of that market, and the potential loss if you lose out on that market, is very scary to investors,” says Orrick’s Pé.
A Malaysian company, Ekran Bhd., became the first known party to challenge China under a BIT earlier in May. A Chinese subsidiary of Ekran had its leasehold over land in China’s Hainan Province revoked by local authorities in 2004, on the grounds that it had failed to meet its legal obligation to develop the land. According to lawyers familiar with the case, Ekran argued that the removal of its leasehold violated the China-Malaysia BIT, in force since 1990. The parties settled within three months, says Pé. This case isn’t the start of a flood, he believes, but it does reflect a growing awareness among clients in Asia that they have the option to sue governments under an investment treaty.
For lawyers, treaty arbitration is not a path to riches by itself. Sovereign parties often impose a cap on fees, says Pé. “These investment treaty cases are more about prestige than anything else, particularly if you’re acting for the state,” he says. His team recently went head-to-head with a rival for a role representing an Asian government in a treaty arbitration, a pitch he says was highly competitive. Having reached the final choice between two firms, Orrick lost out on the assignment—a decision Pé says came down to fees.
But the prestige that comes with sovereign cases more than compensates for the paltry fees in terms of commercial business, he says. Pé was a supporting partner in Orrick’s team representing the government of the Democratic Republic of the Congo in a high-profile case in Hong Kong this year. The firm succeeded in persuading Hong Kong’s highest court that Congo was entitled to absolute sovereign immunity from the enforcement of two arbitral awards. Orrick argued that Hong Kong is now part of China, one of a few countries that still gives governments full immunity from lawsuits. The decision was widely reported because it implied that other governments could claim such immunity—and the win brought other work, says Pé. “We’re now doing some corporate work in Congo that I think our success in that case has helped us win,” he says.
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. Tao—managing partner of Coudert Brothers’s 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 Freshfields’s Chalk: “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, who is based in Hong Kong. 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.”
When Freshfields represented Danone in the Wahaha arbitration, the firm’s Paris office took the lead, traveling to the Stockholm-based hearing when necessary. But arbitration lawyers based in Hong Kong could interview witnesses in China, cutting time and costs considerably, says Chalk.
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 overseas, 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 the region early next year, 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. •