Singapore to make billions handling cross-border arbitrations

August 31, 2009
Singapore Democrats

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Bloomberg

When Matthew Gearing represents Deutsche Bank AG in its oil hedging dispute against Sri Lanka’s government, some 20 lawyers, arbitrators and witnesses from the U.K., Belgium, New Zealand and Pakistan will be enlisted, too.

“When there’s an international case in Singapore like this, you attract a cast from all over the world,” said Gearing, a Hong Kong-based partner at Allen & Overy LLP.

That sort of influx could produce a “multibillion-dollar industry” for Singapore as cross-border disputes increase in the region, Law Minister K. Shanmugam said. To spur growth, the city-state has opened its legal market to foreign firms, offered tax incentives and developed a complex with 14 hearing rooms.

That’s a direct challenge to nearby Hong Kong, host of six times as many arbitration cases last year. Given a projected spike in arbitration, there may be enough new business for both cities to enjoy a rise in dispute revenue.

“There’s a very, very serious need for arbitration in this region,” Shanmugam said, citing the abundance of foreign investments in a region with less-developed institutions.

Arbitration provides companies with more of a level playing field in resolving disputes than some nascent court systems in the region, international lawyers said.

China, the most attractive country for foreign direct investments according to a United Nations Conference on Trade and Development survey, was ranked 69th out of 134 countries by a World Economic Forum report for its judicial independence.

Asia’s Best Courts

India, the third-most attractive investment destination globally behind the U.S., was ranked No. 43. Hong Kong and Singapore were ranked as having Asia’s best court systems.

Singapore hadn’t exploited its key strengths in arbitration in the past, Shanmugam said. “We needed to put together some of the pieces,” he said, such as allowing foreign lawyers to practice local corporate law. The country also began offering tax exemptions for international arbitration work in 2007.

Germany’s largest lender and Sri Lanka chose it for their claim over the non-payment of oil hedging contracts by state- owned Ceylon Petroleum Corp., Gearing said.

Five of the six law firms allowed to practice Singapore law this year started or expanded their dispute resolution teams in the country. Allen & Overy’s Andrew Battisson and New York-based White & Case LLP partner Aloke Ray will transfer from London later this year. Nicholas Peacock of London-based Herbert Smith LLP relocated in January.

Betting on Services

Pittsburgh-based K&L Gates LLP this month hired Raja Bose from London-based Watson, Farley & Williams LLP to head a new Asian arbitration practice in Singapore, even though it didn’t win one of the practice licenses.

Policies including tax incentives and state-developed infrastructure have helped Singapore’s gross domestic product per person, adjusted for living costs, reach $51,142, according to David Cohen, an economist with Action Economics in Singapore, compared with $43,811 in Hong Kong. To boost the share of services in its economy from the current two-thirds, Singapore will open two casinos next year, he said.

Legal services accounted for about 0.7 percent of Hong Kong’s GDP in 2007, or HK$10.5 billion ($1.3 billion), according to the latest available figures from the Census and Statistics Department. The contribution in Singapore that year was 0.5 percent or S$1.3 billion ($902 million) and 0.6 percent in 2008, according to the nation’s statistics department.

Costs, Proximity

Costs as well as geographical proximity may determine the choice between the “two excellent arbitration venues” of Singapore or Hong Kong, according to Martin Downey, a Hong Kong- based dispute resolution partner at Philadelphia-based Blank Rome LLP.

Room rates at Singapore’s Four Seasons Hotel start from the equivalent of $250 while in Hong Kong, a similar room costs $542, according to the luxury hotel chain’s Web site.

“We’re not afraid of competition; we want to make the pie bigger,” said Frank Poon, Hong Kong’s deputy solicitor general.

The Hong Kong International Arbitration Centre’s cases doubled to 602 in 2008 from 2000. The Singapore International Arbitration Centre, set up six years later in 1991, had a 71 percent rise in cases to 99 in the same period.

“Hong Kong is perceived as the place to be for growth,” said Richard Hill, head of Houston-based Fulbright & Jaworksi LLP’s Asian disputes practice. He moved to Hong Kong from London last year in response to U.S. clients anticipating a rise in China-related disputes.

Skadden, Linklaters

Skadden, Arps, Slate, Meagher & Flom LLP, the highest- grossing U.S. law firm, this year started a new Asian disputes practice in Hong Kong while Linklaters LLP, the biggest U.K. firm by revenue, has expanded its Asian litigation and arbitration team in Hong Kong by 20 percent to 14 lawyers.

Hong Kong is home to 1,100 foreign lawyers, according to the city’s Law Society. There are 840 foreign lawyers in Singapore, its law ministry said.

“Hong Kong has an advantage as it’s a part of China,” said Sundaresh Menon, SIAC’s deputy chairman.

In some respects, it’s a disadvantage as some clients may want a neutral center for disputes involving Chinese parties, he said. China regained sovereignty over Hong Kong from Britain in 1997, promising to leave its separate legal system in place for 50 years.

Neutrality

Hong Kong’s judiciary was ranked as Asia’s best by independent surveys, Poon said when asked about its neutrality. The government won’t offer tax incentives or develop an arbitration facility like Singapore’s Maxwell Chambers because such subsidies could lead to perceptions they may be subject to influence, he said.

“We don’t want to be seen to be intervening,” Poon said.

Hong Kong has attracted the International Chamber of Commerce’s International Court of Arbitration to set up a secretariat and case management team which is already handling more than 100 disputes, he said.

It’s also trying to attract the China International Economic and Trade Arbitration Commission, Asia’s most active center with 1,230 cases last year, to establish an office.

Maxwell Chambers has attracted the American Arbitration Association’s International Centre for Dispute Resolution and the UN World Intellectual Property Organization.

“It’s a totally business friendly approach” and “we don’t interfere,” said Shanmugam, adding that there’s more than enough work in Asia for two or three arbitration centers.

If you add people coming and spending time, paying hotel bills, it can certainly be a multibillion-dollar industry, he said.

“For the man in the street, the sexy stories are about murder and that sort of thing,” he said. “But the big money and really sexy stories are in the commercial courts.”

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