Expert legal commentary: Melbourne as an Emerging Player in the Region: an Arbitrator Perspective

Mr Neil Kaplan
CBE QC SBS

By Neil Kaplan CBE QC SBS

It surprises me that with all the natural resources produced by Australia, the inevitable disputes that arise from trade of this nature often find themselves being dealt with in international arbitration outside of Australia. The question arises whether Australian corporations and their legal advisers are negotiating hard enough to keep the disputes within Australia. I accept that there may well be a geographic problem. But given the size of the business, the generally favourable law of arbitration throughout Australia, the Australian legal diaspora and the large number of eminent Australian arbitrators, it does seem strange that so many of these cases are dealt with outside Australia.

There has been a steady rise in the number of international commercial arbitrations submitted to the major centres in the world. For example, the International Chamber of Commerce based in Paris (apart from its one overseas counsel team based in Hong Kong), has seen a steady increase over the years. In 1999, 529 requests for arbitration were filed with the ICC Court. They involved 1,353 parties from 107 different countries. In 2009, 817 requests were filed, and they involved 2,095 parties from 128 countries. In 2012, a slight decrease was recorded by the ICC Court with respect to the number of newly filed requests for arbitration - only 759 requests were registered, but they involved 2,036 parties from 137 countries and independent territories.

As to the number of Chinese parties involved in the ICC arbitrations, a steady increase can be detected over the years. In 1999, for example, the number of arbitrations involving Chinese parties was 22. In 2009, that number increased to 49. In 2012, that number was 55.

However, the number of Australian parties at the ICC is far less substantial. In 1999, there were only six arbitrations involving Australian parties (all Claimants). In 2009, that number increased to 15. By 2012, that number had decreased to 10.

Similar increases have been seen in Hong Kong at Hong Kong International Arbitration Centre. 257 requests for arbitration were filed in 1999 however 10 years later this number had risen to almost 650. Substantial increases have also been noted in Korea, Malaysia, and Singapore. The caseload statistical data for these regional institutions is readily available on HKIAC’s website.

In addition to commercial disputes, there have been a growing number of Bilateral Investment Treaty cases where investors can arbitrate against states where it is alleged that the state has affected the investment in breach of the terms of the treaty. The on-going Philip Morris case against Australia is a classic example, as is the White Industries case, where damages were awarded against India because the Indian courts' delay in enforcing an ICC award breached the claimant's right under the relevant BIT to an "effective means" of enforcing that award in accordance with the terms of the New York Convention. The importance of Bilateral Investment Treaty claims is such that contract drafters have to know about the existence of such treaties and use an appropriate corporate vehicle that can take advantage of the nationality requirement.

Perhaps in light of these developments, at a recent arbitration event in Singapore, a UK arbitration practitioner Toby Landau QC raised a problem which he entitled “Legislative Chill”. In his opinion, an increasing number of investment arbitration awards against states has caused several states to reconsider their policy in agreeing to arbitration clauses in bilateral investment treaties. For example, in 2012, the Venezuelan government announced Venezuela’s irrevocable withdrawal from ICSID. According to the Venezuelan government, the withdrawal was to “protect the right of the Venezuelan people to decide the strategic orientation of the social and economic life of the nation”.  In 2008, Ecuador took steps towards its own withdrawal from ICSID for the same reason.

Australia is reported to have fallen victim of this “legislative chill” recently, but it is hoped that the Abbott government may adopt a different view.

In this regard, Gavan Griffith QC, Australia’s former Solicitor-General, confirmed at an event in London last year that in his opinion, “foreign investors look to the security of an external sanction, conferring a reasonable prospect of being able to recover money lost through breach of a state’s obligations under the investment treaty”.

I think there is much force in Gavan Griffith’s view and I hope that Australia will not go the way of Venezuela and Ecuador. States have nothing to fear from investment treaty arbitration if they behave properly and respect the rule of law.