The recent Shandong Rizhao Steel Holdings and Mount Gibson arbitration, the first of its kind filed by an overseas iron ore miner against Chinese steelmakers, has triggered much debate in the legal industry. Arbitrated in Australia, the case resulted in Rizhao having to pay US$114m compensation to Australian iron ore company Mount Gibson for breaching a supply contract. While Rizhou has filed a counterclaim, Mt Gibson vindicates its decision to take up international arbitration seeking justice for its China-related losses.
International arbitration – like everything else in China today – has become a growth industry. Spurred by institutional changes and a procession of cross-border transactions, both the number of disputes and the institutions providing dispute resolution services have proliferated.
Meg Utterback (pictured left), an international arbitration specialist who recently joined King & Wood as a partner from Pillsbury Winthrop, lists increasing global ties and new structural regimes as drivers for the rise of international arbitration. “We are seeing a lot of developments made by arbitration centres, especially local ones like CIETAC. Not only has the quality of arbitrators improved drastically but also the country as a whole has grown more receptive to foreign arbitral awards,” she says.
The increasing willingness of Chinese companies to take their disputes outside China also reflects the growing sophistication of PRC corporations. “Chinese companies, including SOEs, have been increasingly open to offshore arbitrations whereas in the early 2000s and before, it would have been rare to find clauses in their contracts which stipulate arbitrations outside the PRC,” says Chan Hock Keng, partner and head of commercial and corporate disputes practice at Singapore firm WongPartnership.
Less than two years ago, international arbitration lawyers were still having to explain to local clients the benefits of arbitration, and why arbitration clauses were necessary in their contracts with foreign companies.
Today, the same lawyers attest to the erudition of their Chinese clients. “All the big businesses in China know what arbitration is. What they are really interested in now is which are the best seats and institutions for their interest, and what are the best drafting techniques they should use,” says Justin D’Agostino, a Herbert Smith Hong Kong-based litigation and arbitration partner. “They have become just as sophisticated as long-term arbitration users in other parts of the world.”
The usual suspects
The increasing use of arbitration to resolve China-related disputes has spilled over into Asian arbitral bodies in Hong Kong and Singapore. Both the Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC) have recorded a significant increase in the number of cases involving Chinese parties. “For Chinese clients doing international deals, you are still going to look at the usual suspects like Hong Kong and Singapore,” says D’Agostino.
And local practitioners agree – both Martin Hu (pictured left), managing partner of Shanghai-based Martin Hu & Partners, and Henry Mao, corporate finance and dispute resolution partner at Jin Mao PRC Lawyers, also cited Hong Kong and Singapore as their preferred international arbitration venues.
“When it comes to recommendations, I tend to suggest HKIAC to clients, simply because it is the most widely accepted in the region. It is very accessible for Chinese clients and language is also not a problem,” says Mao. “Moreover, the HKIAC has long been focusing on China and businesses here are very familiar with the institution.”
Hu has more explicit criteria; he bases his venue recommendation on four facets – his confidence in obtaining a fair judgement, the efficiency of the institution, arbitration fees and the general comfort level of his clients with the chosen venue.
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