By Deborah Ruff and Charles Golsong

Despite the recent increase in the popularity of Singapore and Hong Kong as arbitration centres, London remains at the top due to some unique factors. Let´s examine them.

Recent press reports have suggested that London’s status as the world’s leading arbitration hub is now subject to challenge by Singapore, with Hong Kong not too far behind. A closer look reveals that London remains uniquely popular for high-value arbitration.

The reach of Singapore and Hong Kong as arbitration seats

Given that one of the major advantages of arbitration over litigation is that arbitration is generally confidential, we must necessarily take into account statistics in order to ascertain where London ranks. However, as Mark Twain once said, “Facts are stubborn things, but statistics are pliable.”

A further complication arises in that, to our knowledge, there exist no overall figures of total arbitrations heard in a particular seat. Indeed, compiling such statistics accurately would be nigh on impossible given, for example, that many ad hoc arbitrations are never reported. As such, one must rely on data collated by arbitral institutions and surveys of users of arbitration.

In the most recent Queen Mary University International Arbitration Survey published in 2021, the five most preferred arbitral seats were London, with 54% of respondents including the city in their answer, which tied with Singapore, followed by Hong Kong (50%), Paris (35%) and Geneva (13%). However, respondents to the survey seem to have been heavily concentrated in Asia.

When one looks at the most recent figures from the Singapore International Arbitration Centre (SIAC), these reveal that almost a third of cases administered by SIAC in 2022 involved one or more Singaporean party, and only about a quarter of parties originated from outside the Asia Pacific region.

In Hong Kong, meanwhile, less than a third of all arbitrations submitted to the Hong Kong International Arbitration Centre (HKIAC) involved no Hong Kong parties and a mere 6% involved no Asian parties.

The data suggest that Singapore and Hong Kong are predominantly regional arbitration hubs, favoured by users operating in Asia-Pacific. We note in particular that, in our experience, Chinese parties prefer to arbitrate close to home.

Whether these two seats can build on their regional popularity will depend on a number of factors. It is worth noting that the effects of recent political difficulties in Hong Kong are likely not yet fully reflected in the statistics, not least because contracts are typically drafted years before disputes are in contemplation.

How does London compare?

Statistics published by the London Court of International Arbitration (LCIA) for 2022 show that 88% of parties in LCIA arbitrations came from countries other than the UK, with the percentage of parties from the UK decreasing in 2022 (12%) compared with 2021 (15%). Moreover, 95% of LCIA arbitrations involved at least one international party, and 75% involved no UK parties whatsoever. There are, of course, many arbitrations held under the rules of other institutions, such as the International Chamber of Commerce (ICC), which are seated in London, in addition to those administered by the LCIA.

Strikingly, London was considered the preferred arbitration seat by respondents to the Queen Mary University survey from Africa, Europe, the Middle East and North America, with over 75% of respondents from Europe and the Middle East making it their preferred choice, and 66% of North American respondents doing the same (ahead of New York).

A Brexit effect?

It is still too early to say whether London’s popularity as an arbitration seat will in any way be adversely affected by the UK’s withdrawal from the European Union. However, the enforcement advantages of arbitration afforded by the New York Convention, of which the UK is a signatory, will be entirely unaffected by Brexit.

Location, location, location?

While each user of arbitration will have its reasons for selecting London as a seat, the continued attractiveness of London is likely down to several advantages which the city possesses.

Firstly, and most obviously, London offers a convenient location between East and West, in a country whose language is the most widely spoken in the world, and is particularly accommodating for virtual hearings operating across different time zones. The rise in virtual hearings can also negate concerns over the cost of holding arbitrations seated in London.

Secondly, English law is an undeniably extremely popular choice when it comes to selecting a law to govern agreements between international parties. English arbitrators are frequently appointed in arbitrations held under the rules of all major institutions, regardless of where they are seated. English-style arbitration also offers a compelling compromise between civil law and US styles of dispute resolution.

Thirdly, because many of the world’s pre-eminent lawyers, experts, and accountants are based in or have offices in London, there is little difficulty involved in locating and instructing the most talented professionals.

Fourthly, the English Arbitration Act provides a strong framework with limited, defined, court intervention. The ongoing review of the Arbitration Act is undoubtedly being carried out with a view to cementing London as the go-to arbitration seat by streamlining the arbitration process and proposing a procedure whereby unmeritorious claims can be dismissed at an early stage of the proceedings.

What to look for in an arbitration seat

The seat of the arbitration will be relevant to a number of factors, including:

1. the ability of arbitrators to award interest;
2. rights of challenge to the arbitration award;
3. arbitrators’ powers of joinder and consolidation;
4. the level of confidentiality provided;
5. the availability of court assistance when seeking interim relief; and
6. the ability to recover lawyers’ fees and expenses.

The Chartered Institute of Arbitrators in 2018, developed a framework outlining the key elements of a “safe seat” for international arbitrations.

These elements include a modern and effective arbitration law providing a good framework for the process, limiting court intervention, striking the right balance between confidentiality and transparency, and an independent, competent, and efficient judiciary.

In addition, an independent, competent legal profession with expertise in international arbitration is a critical element of the framework. Furthermore, adherence to international treaties for the recognition and enforcement of foreign awards and arbitration agreements, immunity for arbitrators from civil and criminal liability for anything done/omitted to be in good faith as an arbitrator, and ready access to the country for witnesses, counsel, and a safe environment for participants.

London ticks all of these boxes, such that its arbitration crown is not (yet) under threat. However, continued innovation and promotion will be required for London to remain at the forefront.

This article was originally published on 27 August 2023.

About the Authors

Deborah Ruff, is Pillsbury’s International Arbitration Practice Group Leader. She has extensive experience in multi-jurisdiction disputes, with a focus on high-value and complex international arbitration in the energy, infrastructure and construction, telecommunications and financial sectors.

Charles Golsong is a dispute resolution counsel based in Pillsbury’s London office, focusing on international arbitration.

By Guanghua Yu

In Violence and Social Orders, North and his colleagues divide countries or regions into natural states and open access orders. Natural states solve the problem of violence by limiting to elite coalition groups any access to political organizations and activities, and any economic organizations and events. In this way, natural states maintain stability and make broad social interaction possible. As natural states have to implement higher rents or privileges to please the dominant coalition, these countries or areas are less likely to have a vibrant and dynamic economy, compared with countries or regions with open access orders. Although using different terms of inclusive and extractive political and economic institutions, Acemoglu and Robinson share a similar logic with North et al. in Why Nations Fail. In the view of Acemoglu and Robinson, extractive political and/or economic institutions make(s) it possible for the few controlling elites to exploit the rest of society. As a result, long term growth is impossible.

The open access order advocated by North and his colleagues requires that a country have open access to political organizations and activities, and open access to economic organizations and events. Open access in the political sphere makes it difficult for the government or any political faction, to manipulate the open access order in the economy. Similarly, open access to economic organizations and activities requires political organizations to consider the broad interest of society to gain political power to run a government.

This note argues that the logic underlying the open access order is not the only way of achieving economic and human development in the contemporary non-Western world. Evidence from Japan shows that it is open access in the economic sphere, as well as institutional building related to the protection of property rights, contract enforcement, financial market, rule of law, and human resource accumulation that determine economic and human development. The case of Singapore similarly supports the claim that open access in the political sphere is not a necessary condition for economic and human development. The successful development story of Singapore is consistent with my position that successful economic and human development requires open access in the economic sphere and for interconnected institutions to support that endeavour. China’s successful development story in the past several decades further supports my argument here.

If it is indeed open access in the economic sphere and institutional building related to the protection of property rights and contract enforcement, financial market, the rule of law, and human resource accumulation that determine economic and human development in Japan, Singapore, and China, we still need to know the reason the West, particularly Britain, led the world in the past several centuries. Put another way, why did elite democracy promote significant economic development in Britain when other countries still possessed an agricultural or primitive economy? This note tries to answer the question.

My answer is that it is open access in the economic sphere, as well as institutional building related to the protection of property rights, contract enforcement, financial market, the rule of law, and human resource accumulation that determine economic and human development. This explanation is correct both for Britain in the seventeenth century and beyond, and China in the latter twentieth century and beyond. Britain and China, however, differ in the way of moving towards that direction. In Britain, elite democracy through parliament played essential roles in gradually enlarging open access in the political sphere. This was essential when Britain was still a feudal society under the rule of a monarch.

After the Glorious Revolution, Parliament started to represent the interest of the growing or diversifying economic, commercial, and industrial sectors. In that gradual process, it is difficult for a single party to emerge and represent the interest of the whole society due to high transaction costs of transportation and obtaining local information. Using Parliament is a better institutionalized way of enlarging open access in the political sphere. Open access in the political sphere then led to the gradual open access in the economic sphere and the building of institutions related to contract enforcement, better definition and enforcement of property rights, financial market, the rule of law, and accumulation of human resources. During that process, Britain developed ahead of other countries.

In contrast, China experienced a different path of nation building. The Communist Party of China emerged and developed through its struggle against foreign interests in China, particularly the Japanese. Domestically, the Party and its troops experienced a nationwide Civil War against the Guomindang Government. Establishing a one-party rule regime in China was very costly. While a one-party rule resulted in a series of failures and disasters in China after 1949, when properly used, one-party rule can also govern the country very effectively. Evidence bears that out. Since 1978, China, under the rule of the Communist Party of China, has gradually moved towards greater open access in the economic sphere. In connection with the open access in the economic sphere or the expansion of inclusive economic institutions (using the language of Acemoglu and Robinson), China also started to establish interconnected institutions related to contract enforcement, better definition and enforcement of property rights, financial market, the rule of law, and accumulation of human resources. As a result, China enjoyed a very high rate of economic development. Also improved significantly are human development records in terms of infant mortality rate, school enrolment rate, and the rate of life expectancy.

While China has developed very well in terms of economic growth and human development indicators, it does not follow the model in the United Kingdom by allowing open access in the political sphere. Opposition parties are not allowed, organizations such as trade unions and NGOs are tightly regulated, corporations are required to establish a branch of the Communist Party of China, newspapers are heavily censored, and academic freedom is subject to the one-party rule regime. Neither contestation by different parties for government control nor popular elections of high-level legislative and executive officials are adopted. In other words, China is not a democracy.

The above discussion led to the conclusion that elite democracy in Britain led to open access in the political sphere. Open access in the political sphere, in turn, resulted in the open access to economic organizations and activities in Britain and other Western countries. Open access in the economic sphere and the establishment of institutions related to contract enforcement, property rights definition and protection, financial market, the rule of law, and accumulation of human resources supporting the open access in the economic sphere naturally caused significant economic and human development. While open access in the political sphere played important roles in Britain, open access in the political sphere is not adopted in China. In sum, both Britain and China developed significantly at different historical times due to open access in the economic sphere and the construction of interconnected institutions supporting the open access in the economic sphere. That is the similarity. The difference is that open access in the political sphere in Britain played important roles in shaping the open access in the economic sphere and the establishment of interconnected institutions supporting open access in the economic sphere. Still, open access in the political sphere does not appear to be relevant in China.

The discussion raises a further question about whether China’s economic development is sustainable. Acemoglu and Robinson have explained that China’s economic growth is not sustainable. This is so because China’s political institutions are extractive. The reason that China’s political institutions are extractive is that China is under the rule of one party, the Communist Party of China. My view is that Acemoglu and Robinson are wrong. By following their logic that extractive political institutions allow the few elites to exploit the rest of society, the Communist Party of China does not have to exploit the rest of society if the party takes into consideration the broader interests of the people in the country. This can be achieved when the party absorbs elites in various sectors of the economy or country to make the party inclusive.

A survey done at the beginning of this century indicates that about 40 percent of lawyers are members of the Communist Party of China and around 30 percent of private entrepreneurs or capitalists are members of the party. In essence, the Communist Party of China itself is very inclusive, although China does not follow the political model of the West. Due to the nature of the inclusiveness of the ruling party, China can maintain open access in the economic sphere and to improve the interconnected institutions supporting the open access in the economic sphere. Viewed in this way, China’s economic development can be sustainable. While the absolute rate of economic development will decline, the quality of economic and human development will improve in the future. Acemoglu and Robison further argue that China’s economic growth is not sustainable because the nature of development in China is based on catching up and massive investment only. Xiaodong Zhu’s research indicates, however, that China’s rapid economic growth in the last three decades is mainly due to productivity growth rather than capital investment. Recent evidence on patent registration and high-tech sector growth in artificial intelligence and telecommunications suggests that a great deal of innovation has occurred because of better reshaping of property rights rather than simply catching up.

There is no reason to believe that coordination of elites between political parties in the West or elsewhere is necessarily more efficient or effective compared with coordination of elites within one party, other things being equal. While democracy in terms of contestation and inclusiveness has played important roles in the West in shaping the open access in the economic sphere and the establishment of interconnected institutions related to contract enforcement, property rights definition and protection, financial market, the rule of law, and accumulation of human resources, democracy has also encountered the following problems. In the first place, when a country or region has already achieved open access in the economic sphere and developed the interconnected institutions supporting the open access in the economic sphere, further popular participation increases transaction costs of policy making without corresponding benefits. Secondly, the higher degree of popular participation is not consistent with specialization and division of labour. Thirdly, the Jury Theorem shows that when each person is more likely to be wrong than correct and when people in the group are making independent decisions, corrective decisions are more likely to be wrong when the process involves more people in the group or society. Fourthly, when a country or region is experiencing troubles of separation or identity struggle, a higher degree of contestation and popular participation may lead to chaos and civil unrest. The recent example of Hong Kong reflects the trouble of all the above problems.

This article was originally published on 09 December 2019.

About the Author

Guanghua Yu is a Professor of Law, at the Faculty of Law of the University of Hong Kong. He graduated from the University of Toronto School of Law and York University School of Law. His specialized areas of teaching and research include law, development, and governance.