Australia’s Less Lethargic Law Reform? International Arbitration in the Asia-Pacific

[This blog posting follows on from my East Asia Forum posting criticising “Australia’s Lethargic Law Reform” in consumer law recently. I am somewhat more optimistic about initiatives in arbitration law reform, but Australia shares some similar problems with Japan. Japan also took its time to enact new legislation, in 2003, but hasn’t seen significant increases in disputes referred to arbitration.]
On 21 November 2008, the Attorney-General’s Department (AGD) announced a Review of Australia’s International Arbitration Act 1974 (IAA). The aim was to consider whether the Act should be amended to:
* ensure it provides a comprehensive and clear framework governing international arbitration in Australia
* improve the effectiveness and efficiency of the arbitral process while respecting the fundamental consensual basis of arbitration, and
* consider whether to adopt ‘best-practice’ developments in national arbitral law from overseas.
The AGD’s Discussion Paper (DP) expressed the hope that a revised IAA would make Australia a more attractive venue for conducting international commercial arbitration (ICA), especially within the Asia-Pacific region. Unfortunately, Australia has missed that boat, with China, Hong Kong and Singapore the clear leaders now in this part of the world.
For Australia to have any chance at all, it needs a much more ambitious reform than envisaged in the AGD’s DP. Anyway, Australia needs to appreciate the more diffuse and long-term benefits of this type of reform.

The following Table reproduced from an empirical study published last year by the University of London and PricewaterhouseCoopers confirms that the Australian Centre for International Commercial Arbitration (ACICA) has almost completely missed out on attracting ICA work, compared to its counterparts in China (CIETAC), Hong Kong (HKIAC) and Singapore (SIAC).

Other arbitration centres in Asia are also building up caseloads (eg KCAB in Korea), and the American Arbitration Association (AAA) conducts arbitrations in places like California as well as the East Coast. The International Chamber of Commerce is setting up branches in Singapore and Hong Kong, following steady increases in ICC cases involving Asian parties, who also seem keener now to press for the seat to be in Asia (including, albeit occasionally, Australia or Japan) rather than Paris, Geneva or London.
China, Hong Kong and (to a lesser extent) Singapore have benefited from the boom in business with China over the last decade. HKIAC has taken away cases from CIETAC since the UK renounced sovereignty over HK in 1997, and foreign parties have become more aware that the Chinese government in fact does not require Chinese parties to agree only to CIETAC arbitration. SIAC has also benefited from the emergence of India. And all these institutions have received strong government backing, financial and otherwise, compared say to ACICA. This extends to regular reforms to arbitration legislation, where the Australian government has been most remiss. Although it amended the IAA in 1989 to adopt the 1985 UNCITRAL Model Law on ICA, unlike HK (which also adopted it in 1989) and Singapore (1995) Australia has not amended it for almost two decades now, despite some very peculiar decisions of Australian courts and some clear errors in drafting the legislation. Even New Zealand, which adopted the Model Law in 1996, enacted amendments to its Arbitration Act in 2007 following some major revisions to the Model Law agreed by the UN in 2006.
For Australia to regain any lost ground, it must be bold in adopting new or emerging global standards as reflected in the revised Model Law. This extends to seriously considering the option of completely abolishing writing requirements for a valid arbitration agreement, and especially the revised Model Law’s compromise solution of allowing ex parte preliminary orders in support of interim measures issued by arbitrators. These solutions, already found for example in New Zealand, also help to restore greater informality and therefore cost-effectiveness in ICA proceedings. That is especially important now that studies (like a 2006 study by the University of London / PWC ) confirm a re-emergence of a persistent trend for ICA to become more and more like regular court litigation, despite concerted efforts in the late 1990s to address a similar trend.
However, this bolder approach is only evident in a few Submissions available via the AGD website, notably in a Final Submission (and now an article manuscript) by myself and Professor Richard Garnett. We also urge the AGD to address at least twenty major issues in this Review, not just the (mostly straightforward) eight issues raised in its DP. Australia should re-emphasise informality and a related respect for arbitral autonomy, following the global trend even though the English law tradition has involved greater supervision of arbitration by the courts. Perhaps the Review so far represents another example of Australia’s conservatism in law reform, apparent also in the reluctance to follow emerging trends in consumer product safety re-regulation and control over unfair contract terms.
Even if we can achieve a more comprehensive and bolder reform of the IAA, Australia needs to be realistic. Its “tyranny of distance” and the “early-mover advantage” achieved by Hong Kong and then Singapore mean that Australia will probably never achieve a dramatic increase in ICA caseloads. One quantitative analysis found quite little economic impact in various countries from adopting even the original Model Law (Christopher Drahozal, ‘Regulatory Competition and the Location of International Arbitration Proceedings’ 24 International Review of Law & Economics 371 (2004)). However, such analysis deals in aggregates so Hong Kong and Singapore are probably important exceptions, at least nowadays. More importantly, the study did not (and probably cannot easily) deal with more diffuse benefits that can follow from comprehensive arbitration law reform.
For example, it helps Australian lawyers and their clients by re-educating them about existing and emergent global best practices, so they can do more and better when negotiating arbitration clauses and resolving disputes in arbitrations (and sometimes then courts) outside Australia. Comprehensive reform of ICA legislation also assists in understanding and reassessing the distinct but overlapping and growing field of investor-state arbitrations.
Longer term, as in countries like Japan that also recently revised arbitration legislation, comprehensive reform aimed at cross-border arbitration should also help to reinvigorate arbitration of purely domestic disputes. In Australia, this field is also largely stagnant. Commercial Arbitration Acts still hold sway, dating back to the mid-1980s and involving even greater court supervision of arbitral proceedings. Some of us have been pushing for reform for years. Maybe this will get some traction now that the Chief Justice of New South Wales has highlighted the problem, and the best solution, in a speech in Sydney on 2 February 2009 (at pp 17-18):
“The focus on commercial arbitration as a form of commercial dispute resolution has always offered, but rarely delivered, a more cost effective mode of resolution of disputes. Our uniform legislative scheme for domestic arbitration is now hopelessly out of date and requires a complete rewrite. The national scheme implemented in 1984 has not been adjusted in accordance with changes in international best practice. Of course, in our federation, agreement on technical matters such as this in multiple jurisdictions is always subject to delay. The delay with respect to the reform of the Commercial Arbitration Acts is now embarrassing. This is not an area in which harmonisation based on the lowest common denominator principle is appropriate.
In my opinion, the way out of the impasse is to adopt the UNCITRAL Model Law as the domestic Australian arbitration law. It is a workable regime, itself now subject to review at the Commonwealth level. Its adoption as the domestic Australian arbitration law would send a clear signal to the international commercial arbitration community that Australia is serious about a role as a centre for international arbitration. Our competitors in this regard, such as Hong Kong or Singapore, do not create a rigid barrier between their domestic and international arbitration systems. Nor should we.”
I would add that aligning the CAA regime more closely with the revised IAA has the further advantage of reviving domestic arbitration anyway. Also, the IAA regime should be updated comprehensively, even if in extending it then to domestic arbitrations we then pare back some of the new provisions (or even some of the original ones) to acknowledge some somewhat different public interest elements (eg in B2C transactions) and perhaps different underlying empirical realities (eg more use of non-lawyer arbitrators). Ambitious reform of the IAA is particularly important, given the delays and complications alluded to by the Chief Justice that inhere in Australia’s constitutional system. Similar reasons underlie my call for a more comprehensive new “Australian Consumer Law”.
In both fields of law reform, if we don’t get it right now, it will be at least another decade before Australia gets another chance. And we can be sure that other Asia-Pacific countries are probably already engaged in or will soon embark on their own further reforms to laws on ICA. They too will want to further bolster this preferred mechanism for resolving cross-border commercial disputes, to keep attracting more ICA cases (and associated service industries) to their own shores, and to encourage more use of arbitration domestically.

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM LLD Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law. View all posts by Luke Nottage