With the Belt and Road Initiative (OBOR) set to generate an increase in important cross-border investment and disputes, the Hong Kong International Arbitration Centre (HKIAC) is well-positioned to provide dispute resolution services required in this kind of setting, write Sarah Grimmer, Director-General, and Joe Liu, Managing Counsel, of the HKIAC.
This year is the Year of the Rooster, which is traditionally seen as a time of new opportunities. Indeed, HKIAC sees 2017 as a critical year to tap the opportunities generated by the Belt & Road Initiative (OBOR), which is an extensive outbound investment and development strategy launched by the Chinese government in 2013 to promote economic cooperation among countries along the OBOR routes.
OBOR currently covers 65 economies across three continents, about 65% of the world’s population and one-third of the world’s GDP. With President Donald Trump’s order withdrawing the US from the Trans-Pacific Partnership (TPP) on January 23 2017, OBOR has the potential to become the world’s largest network for regional collaboration.
What does OBOR mean to business? It calls for massive Chinese outbound investment led by its major state-owned enterprises. The investment will focus on infrastructure and resources, with funding available from the $40 billion Silk Road Fund and the Asian Infrastructure Investment Bank with a capital base of $100 billion. The China Daily website reported in September 2016 that, in 2015, investment in OBOR countries stood at $18.93 billion and Chinese investment in these countries has soared 38.6% year on year. The report added that, as of August 2016, nearly 4,000 engineering contracts were signed by Chinese companies in the OBOR region, with a combined contract value of $69.82 billion.
What does OBOR mean to HKIAC? It is likely to generate a wide range of commercial and investment disputes in the infrastructure, transportation, logistics, maritime, energy and financing sectors, between Chinese investors and their local partners or host governments in the OBOR region. Such disputes will fuel further demand for dispute resolution services from HKIAC and Hong Kong.
Hong Kong has already established itself as the go-to place for disputes arising out of Chinese outbound investment, thanks to its strong tradition in the rule of law, independent judiciary, modern arbitration legislation and large pool of world-class arbitrators and legal professionals. The city is also widely recognised as the “super-connector” linking China with the rest of the world, and has been ranked second worldwide for global foreign direct investment (FDI) flows.
HKIAC will look to capitalise on the advantages of Hong Kong and provide a full range of dispute resolution services to parties with OBOR disputes, including both contract and treaty-based disputes.
The Centre already has a reliable and well-tested system for disputes arising under commercial contracts between OBOR parties. The 2013 HKIAC Administered Arbitration Rules (the Rules) include a number of trend-setting provisions that can be strategically used to control costs and increase efficiency for resolving construction, joint venture or project finance disputes between Chinese investors and their OBOR contractors.
The Rules contain comprehensive and far-reaching provisions to maximise the ability of HKIAC and arbitral tribunals to manage complex disputes involving multiple parties and/or contracts. The joinder provision allows an existing or additional party to submit a request for joinder at any stage of the arbitration. The consolidation provision empowers HKIAC to combine multiple arbitrations if they involve a common question of law or fact, claims arising out of the same transaction or a series of transactions, and compatible arbitration agreements. A unique feature of this provision is that HKIAC is able to order consolidation even where the parties to each of the relevant arbitrations are different. Alternatively, a party may commence a single arbitration under multiple contracts from the outset to avoid seeking consolidation later.
The Rules also have a unique dual fee regime to remunerate arbitrators (based on either hourly rates or the sum in dispute). If an arbitrator is paid by hourly rates, he or she cannot charge more than HK$6,500 ($838) an hour, unless the parties agree or HKIAC determines otherwise. Under this regime, parties can choose the most cost-effective method to pay their arbitrators – a feature that was nominated for the Global Arbitration Review’s award for best innovation of 2013.
HKIAC already has vast experience in handling contractual disputes with parties across 19 OBOR countries. A large proportion of such disputes involve Chinese parties. For example, in 2015 alone, HKIAC registered 108 arbitration cases involving 139 mainland Chinese companies. HKIAC awards also maintain an excellent track record of enforcement in OBOR countries, particularly in China. Over the last six years, only one HKIAC award was not enforced in China.
As a one-stop-shop, HKIAC also provides mediation, med-arb, adjudication and domain name services under one roof to OBOR parties who may prefer to use other methods to resolve their disputes.
A salient feature of OBOR is that the initiative focuses on emerging markets and infrastructure investment in these markets is notorious for its risk. It is long term, has political implications and involves a lot of uncertainties. Some of the OBOR countries are undergoing complex political, economic and social changes, which could have a significant impact on foreign investment. One example is the Myitsone Dam project in Myanmar. A Chinese company made a $3.6 billion investment in the project before the new Myanmar government suspended it in 2011.
Investor-state arbitration provides a means by which to enforce a State’s international investment obligations and has been pursued by Chinese companies in protecting their investment abroad. Most bilateral investment treaties concluded between the Chinese and OBOR governments allow an investor to bring investment claims against the host country before an international arbitral tribunal constituted under the UNCITRAL Arbitration Rules (the UNCITRAL Rules). Such treaties include, for example, the China-Russia BIT and the China-India BIT. The investor and the host government can agree to designate an arbitral institution to administer their dispute in an UNCITRAL arbitration.
HKIAC has the longest history of administering UNCITRAL cases in Asia, having begun to handle such cases in 1986. In January 2015, HKIAC published a set of updated procedures for the Centre to administer both commercial and investor-state disputes under the UNCITRAL Rules, making HKIAC the first institution in Asia to have procedural rules for investor-state arbitration. In October 2016, HKIAC launched an initiative according to which the parties in any proceedings involving a state listed on the OECD development assistance list to which the parties have agreed to HKIAC administrative support, are entitled to use HKIAC’s hearing facilities free of charge. This is particularly relevant to OBOR, as 70% of the OBOR countries are on the OECD list. HKIAC’s hearing facilities have been repeatedly ranked number one in the world (“Hearing Centres Survey”, Guide to Regional Arbitration, Vol 5, 2017). Giving OECD States free access to such facilities demonstrates HKIAC’s commitment to serving parties to investment disputes in the OBOR region.
But HKIAC’s initiatives for investment treaty disputes do not stop there. It is common practice in investor-state arbitration for an arbitral tribunal to appoint a secretary to undertake administrative tasks that would otherwise fall to the tribunal, and therefore save parties’ costs and increase procedural efficiency. HKIAC is the only international commercial arbitral institution that provides a tribunal secretary service. Arbitral tribunals may appoint a legal counsel from within HKIAC’s experienced, qualified, multilingual secretariat. The legal counsel will act as tribunal secretary under a set of guidelines with detailed provisions regulating the remuneration and role of a tribunal secretary (For more information about HKIAC’s tribunal secretary service, click here).
A clear vision
With OBOR set to generate an increase in important cross-border investment and disputes, HKIAC is well-positioned to provide dispute resolution services required in this kind of setting. It has developed an action plan that will enable the Centre to play a leading role in resolving commercial and investment disputes along the OBOR routes through its signature services.