Whilst China has been working on launching its Belt and Road initiative, the immensely ambitious undertaking of construction and infrastructure projects set to span over 60 countries, Singapore has been working on improving its own infrastructure. With the guiding hand of its government and state incentives, the country has transformed itself into a global state-of-the-art legal hub. The two are now perfectly poised to benefit one another, not least from a legal perspective, where Singapore’s rise in dispute resolution has seen it emerge as the preferred seat in the region.
This was stated in the recent Queen Mary 2018 International Arbitration Survey report which ranked the Singapore International Arbitration Centre as the third leading seat in the world after London and Paris. That places it as the highest ranked in the ASEAN region, ahead of the International Chamber of Commerce (ICC), and the Hong Kong International Arbitration Commerce (HKIAC). Should things continue, and the Belt and Road initiative proceed as planned, SIAC‘s role could be significant in resolving the disputes that inevitably arise.
Disputes are indeed an inevitable outcome of Belt and Road, which comprises high-value projects covering an area of the globe which has more than half the world’s population. Beijing envisions the initiative could lead to spend of $1.3 trillion by 2027 alone. The Silk Road economic belt that passes through Central Asia will connect two of the world’s largest economies, China and Europe. A maritime Silk Road is envisioned to connect Europe and China via Southeast Asia, South Asia, the Middle East and East Africa. Not only does this include range of disparate jurisdictions with legal regimes from both common to Islamic law, they also must also include cross-border elements and all the complex legal factors this entails.
Significant disputes have already arisen. In 2015 for example, Sri Lanka’s government suspended work on their $1.4 billion Colombo Port City project. Work had only recently resumed after the China Communication Construction Company (CCCC) dropped its claim against the Sri Lankan government for $143 million. It’s a case that demonstrates why a neutral dispute resolution forum is inherently desirable for such situations as this. The Belt and Road initiative is led by the Chinese government, so Chinese Law is unlikely to be the governing law in the majority of cases, as many of the core risks are inherently political and thus disputes between Chinese state entities and counterparties will have to be removed from local courts.
There’s also no doubt the potential for these disputes is vast. Singapore arbitral awards can already be readily enforced in the majority of Belt and Road countries. They would also be much easier to enforce cross-borders, and when administered correctly, arbitration is faster and most cost-effective method for settling disputes than in court. That being said, the costs of arbitration can still skyrocket in the type of high stakes construction disputes that will dominate the Belt and Road landscape. Additionally, the World Bank records the average time for resolving a commercial dispute through Belt and Road participating countries at 20 months. Parties can easily spend many millions on legal fees and expenses.
Parties will need to decide therefore between a very long and expensive road to recovery in both legal costs and risk or consider whether there is in fact a clear role for legal finance in these matters. Legal finance shifts the high cost and risk of pursuing a claim that is likely to take almost two years to resolve off corporate balance sheets, unlocking the value of the claim and its associated assets.
The decision in Singapore therefore to open its doors in 2017 to third party funding in international arbitration is astutely timed. With over 100 international law firms from both the US and the UK now operating in the Lion State, the seat has positioned itself as a forward-thinking state of the art legal hub, capable of hearing the complex multi-jurisdictional nature of these claims. Its continued rise in dispute resolution on back of China’s Belt and Road can lead to even further expansion.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Quentin Pak is a Director responsible for running Burford’s office in Singapore and expanding Burford’s presence in Asia and Australia.
He joins Burford with 20 years of experience in finance and law, most recently as Head of Commodities (Asia) at Commonwealth Bank of Australia in Singapore. His previous experience includes senior positions at major global financial institutions including Barclays, Goldman Sachs and Deutsche Bank. Before going into banking, he practised law for a number of years with Allen & Overy in both London and Singapore.
Quentin graduated from the University of Bristol and College of Law in the UK.