Regional Arbitration for ASEAN in the Context of Regional

Integration

Tran Thi Thuy Dung

Law Institute, RUDN University, Miklukho-Maklaya 6, Moscow, Russian Federation

Keywords: arbitration, commercial arbitration, investment arbitration, regional arbitration, regional integration, ASEAN

Abstract:

Business transactions among ASEAN member countries are increasingly open, especially with the advent of

the ASEAN Economic Community. Nevertheless, the economic development is also followed by the

proliferation of international disputes among ASEAN businesses or even the Member States. This paper aims

to present the idea of the establishment of an ASEAN Unified Regional Arbitration Center to overcome the

problem of recognizing and implementing international arbitration awards by taking advantage of regional

unity. At the same time, establishing a unified arbitration organization for the region will also create a stable

legal and business environment, attracting foreign investment.

1 INTRODUCTION

The Association of Southeast Asian Nations

(ASEAN), established in 1967, is a supranational

organization comprised of ten South-East Asian

countries: Indonesia, Malaysia, Philippines,

Singapore, Thailand. Brunei Darussalam, Vietnam,

Laos, and Cambodia. The ASEAN Declaration

outlines the key goals and purposes of integrating a

regional community with three pillars of Politic-

Security, Economic, and Socio-Culture; promoting

regional peace and stability through respect for justice

and the rule of law in the relations between nations.

In which, the major milestone in this economic

integration progress is the establishment of the

ASEAN Economic Community (AEC). The AEC has

been negatively affected by the relatively unreliable

dispute settlement system, thus undermining investor

confidence in the AEC (Sim, 2020).

In commercial activities, traders are concerned with

profit, loss, and business strategy, and the legal aspect

when disputes arise. Economic development has

always been accompanied by an increase in disputes

between the parties. At that time, arbitration is often

the choice of business subjects to deal with problems

without going through judicial bodies because of this

method's advantages, such as effectiveness,

flexibility, confidentiality, professionality. However,

https://orcid.org/0000-0002-7423-8906

recognition and enforcement of Arbitral Awards is

another story with many difficulties due to

differences in legal systems of ASEAN member

states. Whether the idea of building a joint arbitration

organization for the whole region solve this problem?

2 METHODS

A comparative study of ASEAN performed the study

to find the rule of law, legal principles, and legal

doctrines to answer legal issues. In addition,

Conventions and Agreements are also used as

documentary research to study and assess the

recognition and enforcement status of international

arbitration awards in the ASEAN region.

3 RESULTS AND DISCUSSION

3.1 Recent Regional Arbitration

Developments in ASEAN countries

No official reports or statistics evaluate the

effectiveness of enforcement of international arbitral

awards in the ASEAN area separately. However, in

2018, Herbert Smith Freehills conducted a survey on

Thuy Dung, T.

Regional Arbitration for ASEAN in the Context of Regional Integration.

DOI: 10.5220/0010659700003224

In Proceedings of the 1st International Scientiﬁc Forum on Jurisprudence (WFLAW 2021), pages 17-22

ISBN: 978-989-758-598-2

the occasion of the 60th anniversary of the New York

Convention that found Singapore had won the leading

position in terms of being most effective in

recognizing and enforcing arbitration with 91.02% of

respondents from the survey. Malaysia has always

held the second spot with 69%. Thai and Philippine

arbitration are effective. Indonesia and Vietnam are

in the least effective jurisdictions, while there is not

much information about Brunei, Laos, Cambodia, and

Myanmar (School of International Arbitration 2018).

3.1.1 Singapore

Singapore is considered to be the place to have the

leading arbitration centre in the ASEAN region. Both

the Singapore Arbitration Act and the International

Arbitration Act are based on the Model Law.

Singaporean law has reasonably applied a reasonably

broad view of the arbitrable disputes. Generally, any

dispute affecting the civil rights and interests of the

parties is deemed to be arbitrable, and this is contrary

to Indonesian Law, as discussed later.

In addition, the country has the most advanced

judicial body in the region, and it is also among the

best in the world. Because Singapore courts are

sophisticated, very arbitration-friendly,

knowledgeable about the commercial arbitration

process, and above all, they tend to uphold the

principle that they only interfere in arbitration in

minimal cases, where such intervention would assist

arbitration. It is challenging to set aside an arbitral

award in Singapore, and parties generally do not

succeed (Colin n.d.).

According to the Queen Mary University of

London International Arbitration Survey 2018, the

Singapore International Arbitration Centre ranks

third among the world's top five arbitral institutions.

It is the most favoured arbitral institution as well as

the most preferred arbitration seat in Asia (The Baker

McKenzie 2018). Parties from 60 jurisdictions

preferred to arbitrate at SIAC even during the

COVID-19 pandemic, and as a result, according to

SIAC 2020 Annual Report, it received 1,080 new

case filings, in which 1,063 (98%) were cases

administered by SIAC, and the other 17 (2%) cases

were ad hoc appointments. It brought the total sum in

dispute for 2020 was USD 8.49 billion (SGD 11.25

billion), which was a 4.9% rise over 2019 (SIAC

2020).

While International Chamber of Commerce (ICC)

opened a case management office in Hong Kong

(2008), New York (2014), Sao Paolo (2017),

Singapore (2018), and the fifth case management

office will be located at Abu Dhabi Global Market

(ADGM), SIAC also opened its liaison offices. In

2013, the first liaison office was established in

Mumbai, India. The second and third liaison offices

were opened in Seoul, South Korea, and Shanghai,

China, respectively, in 2013 and 2016. SIAC opened

its first representative office in the United States in

New York City in December 2020.

Furthermore, SIAC signed a Memorandum of

Understanding (MOU) with China International

Economic and Trade Arbitration Commission

(CIETAC) in 2018 to facilitate international

arbitration as a favoured method of conflict solution

for settling international disputes in order to satisfy

the interests of businesses in relation to the Chinese

Belt and Road Initiative (SIAC 2018).

3.1.2 Malaysia

Malaysia has a dual judicial system in which modern

English common law coexists with Islamic shariah

laws (Colin 2021). The Malaysian Government and

legal community have made sustained attempts to

promote arbitration as a method of dispute settlement,

with the Asian International Arbitration Centre

(AIAC), also known as Kuala Lumpur Regional

Centre for Arbitration, at the forefront.

Since 2017, the AIAC's arbitration caseload has

been increasing in response to the steady growth in

domestic and international arbitrations seated in

Malaysia. The number of AIAC appointments and

confirmations more than doubled, from 75 in 2018 to

150 in 2019, with 27 new ad hoc cases and 98 new

administered cases (Yap n.d.).

3.1.3 Indonesia

In Indonesia, the legal framework is based on Dutch

law, and the primary source of arbitration is the Law

on Arbitration and Alternative Dispute Resolution,

which is not based on the Model Law but has

incorporated key aspects of it. The plurality of

arbitrations conducts in Indonesia follows the Badan

Arbitrase Nasional Indonesia Rules of Arbitration

(BANI Rules 2018). Indonesia's parties also tend to

favour arbitration seats in Hong Kong and Singapore

while maintaining Indonesian law as governing law.

In addition, they also prefer to choose arbitration

organizations such as ICC (Singapore) and Hong

Kong International Arbitration Centre (Hong Kong)

to arbitrate.

3.1.4 Myanmar

The Myanmar legal system is strongly influenced by

English law. Until January 2016, Myanmar enacted

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the Law on Arbitration to make its arbitration law

more consistent with the Model Law. In this country,

arbitration was not a common or widely dispute

resolution mechanism for local parties. No arbitration

centres are operating in Myanmar, and foreign parties

are forced to settle their disputes in other

neighbouring ASEAN countries, with Hong Kong

and Singapore being the most popular.

3.1.5 The Philippines

The Philippines has a common law legal system

based on both Spanish (in the Civil Code) and

American law (in other commercial laws). In 1966,

the Philippines signed and ratified the New York

Convention, with the reservation that it would only

recognize and enforce an award made in the territory

of another contracting state that reciprocates and

enforces Philippine arbitral awards.

The Alternative Dispute Resolution Act of

200458 (2004), which adopted most of the Model

Law's provisions, governs arbitration in the

Philippines. As a result, there are minimal grounds

under the Act for setting aside awards or resisting its

enforcement. An arbitration award may be set aside

only for severe violations of due process or a lack of

jurisdiction, or limited public policy reasons. The

Philippine Dispute Resolution Center, Inc. is the most

prominent local arbitration centre in the Philippines,

while international parties prefer ICC arbitration.

3.1.6 Thailand

Under the influence of several common law factors,

Thailand is considered a civil law country with a

relatively modern law compared to other civil law

countries. The Arbitration Act B.E. 2545 (2002),

based on the Model Law, has been relatively

successful for domestic arbitrations. As a result,

arbitration centres such as the Thai Arbitration

Institute, the Thai Commercial Arbitration

Committee of the Board of Trade of Thailand are

quite active.

Similar to Malaysia and Myanmar, many local

Thai and foreign companies tend to appoint

arbitrators in Hong Kong or Singapore when entering

into international contracts. However, the Thai

Arbitration Center (THAC) was established in 2015

with the aim of supporting and promoting

international arbitration, providing a central arbitrator

with modern facilities in Thailand that meet

international standards and can serve as an arbitration

centre in ASEAN countries (The Baker McKenzie

2019).

3.1.7 Brunei

In Brunei, domestic arbitration is governed by the

2009 Arbitration Order, and the 2009 International

Arbitration Order governs international arbitration.

Both arbitration laws are based on the 2010 amended

Model Law and are subject to international principles

and practice that national courts can only assist and

not interfere in the arbitration process.

Under the arbitration laws, the Arbitration

Association Brunei Darussalam (AABD) is

designated as the default appointing arbitration body

in the event of default or failure to appoint by the

parties. Brunei lawyers have limited international

arbitration experience; therefore, more than 90% of

arbitrators in the AABD arbitration panel being non-

Brunei nationals.

3.1.8 Vietnam

Vietnam is a civil law country with the influence of

communist doctrinal rules. The current Arbitration

Law, which is based on the Model Law, was adopted

in 2010. In addition, the 2015 Civil Procedure Code

devotes a chapter to the procedure for the recognition

and enforcement of "foreign arbitral awards,"

bringing the implementation of the Arbitration Law

closer to the New York Convention.

Though ad hoc arbitration is relatively unpopular

in Vietnam, the Vietnam International Arbitration

Centre (VIAC) is regarded as a reputable arbitration

institute that has gained the confidence of both

domestic and international business communities.

With a significant rise in new administered cases filed

(274 new cases) and total amount in dispute (6.7

thousand billion VND), VIAC continues to reaffirm

its status as the leading arbitral agency in Vietnam

(VIAC 2019).

3.1.9 Laos

Similar to Vietnam, the current Lao civil law system

is deeply influenced by French law, socialist

ideology, and the Chinese communist system. Since

1998, Laos has signed the New York Convention but

so far has not ratified the Convention.

The applicable arbitration law in Laos is Law No.

02 / NA on Resolutions of Economic Arbitration,

amended in 2018. This Law maintains the

fundamental Laotian requirement for parties to

mediate their disputes before having the right to

arbitrate in Laos. Therefore, foreign parties usually

negotiate to have the seat of arbitration outside Laos.

Regional Arbitration for ASEAN in the Context of Regional Integration

3.1.10 Cambodia

Cambodia is also a civil law country with French laws

and communist ideology influences. Although

Cambodia became a signatory to the New York

Convention in 1960, the Law on the Recognition and

Enforcement of Foreign Arbitral Awards was not

enacted until 2007.

The Cambodian National Commercial Arbitration

Centre, independent of the Government, was

officially opened in 2013. Since 2014, commercial

arbitration activity in Cambodia has seen some

remarkable positive developments. It was the final

decision of "the first Cambodian appellate court

enfacing a foreign arbitration award and adopting

arbitration rules by the NCAC." These improvements

have the potential to change Cambodia quickly into a

jurisdiction where trade disputes can be settled as

efficiently and transparently as possible.

3.2 Recent Position of Arbitration in

ASEAN

ASEAN signed the Agreement on Dispute Settlement

Mechanism of the ASEAN-China Framework

Agreement on Comprehensive Economic Co-

Operation (2005), Agreement on Dispute Settlement

Mechanism under ASEAN-Korea FTA (2005),

Agreement on Dispute Settlement Mechanism under

ASEAN-India (2009). The dispute settlement

mechanism is included as a chapter in ASEAN-Japan

Comprehensive Economic Partnership Agreement.

Dispute Settlement Procedure in all the Agreements

is similar. The main stages of dispute settlement

include the following: Consultations, Conciliation, or

Mediation. If a dispute cannot be resolved through

consultations [...], the complaining party may make a

written request [...] to appoint an arbitral tribunal. An

arbitral panel should be established on an exceptional

basis for each particular dispute since the arbitral

tribunal is not a standing body (Gao, 2018).

The ASEAN Charter mentioned dispute

settlement mechanisms, including arbitration, in

Article 25. The Protocol to the ASEAN Charter on

Dispute Settlement Mechanisms (DSMP) was signed

in 2010 to implement Article 25 of the Charter. In

addition to providing dispute resolution methods such

as Good Offices, Mediation, Conciliation, Protocol

(Article 10) states that arbitration must be performed

in compliance with the Protocol's provisions and the

Rules of Arbitration, which are annexed to the

Protocol (Annex 4). However, the arbitration

procedures could be modified upon the disputing

parties' agreements.

Until 2017, all the Member States have ratified the

Protocol. Once the Protocol on DSMP entered into

force, ASEAN, for the “first time in its history have a

settlement mechanism for disputes concerning its

Charter,” (Phan, 2013) something other regional

organizations have had for a quite long time, such as

the Court of Justice of European Union, the African

Court of Justice of African Union. Although the

DSMP does not create a permanent judicial body for

ASEAN like the other regional organizations, it does

offer an avenue for ASEAN Member States to pursue

in case they have disputes concerning the

interpretation and application of the ASEAN Charter

(Phan, 2013). It is intended to encourage and provide

more efficient and cost-effective judicial systems of

dispute resolution in the Member States while still

being open to other approaches in order to reduce the

pressure on judicial bodies and speed up the

resolution of economic disputes. This is aligned with

the ASEAN (Asian) way of doing things, which

avoids legalistic procedures. However, ASEAN

Member States had used WTO's dispute settlement

body rather than ASEAN mechanisms to resolve the

disputes arising from ASEAN agreements

(Saidmukhtorov, 2019).

3.3 The Need of Establishing a Unified

Regional Arbitration Institution in

ASEAN

3.3.1 The Recognition and Enforcement of

International Arbitration Awards Are

Not Going Effectively

The number of commercial disputes is increasing, and

arbitration has become particularly pertinent in the

business sector as dispute resolution institutions

because it has distinct advantages over the national

justice system. However, putting the arbitration

awards into execution would be difficult. For

example, winning at the Singapore arbitration

institution cannot be immediately carried out in

Indonesia, even though the nation has ratified both the

New York Convention and the ICSID Convention.

The most recent case demonstrates that foreign

parties have significant difficulty executing foreign

arbitration rulings in Indonesia due to the Indonesian

Court's refusal to impose an execution order. There

are possible reasons under the Indonesian Arbitration

Law that account for the denial of an international

arbitration award enforcement, such as the disputes is

not arising from legal relationships that are

considered "commercial' under Indonesian law; or

whether to comply with the arbitration ruling would

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violate "public policy." On the other hand, winning in

Indonesian arbitration does not imply that Indonesian

entrepreneurs can quickly execute the assets of

opponents residing in Myanmar.

The reason for the inefficiency in the recognition

and enforcement of international arbitral awards is

that, unlike the European Union, the ASEAN

Member States have very varied political and legal

systems caused by their history, such as countries

with a civil law system but they are affected by the

common law system or the countries with the

combination of communism and civil law system as

mentioned above. Existing practical problems on

recognizing and enforcing international arbitral

awards prevent business disputes in the ASEAN

region from being effectively resolved, as there is a

vacancy for common dispute settlement forums in the

ASEAN region. Therefore, the regional arbitration

unification is considered a potential solution to solve

the issue of recognition and enforcement of the

arbitration award in this area (Rahmah and

Handayani, 2019).

3.3.2 Issue of Investor-State Arbitration

The above issue on recognition and enforcement of

international arbitral awards is for commercial

disputes in general. In addition, there are also some

issues in the field of investment disputes, especially

the settlement of disputes between the host country

and foreign investors. Investor-State Dispute

Settlement (ISDS) claims are relatively low against

the ASEAN Member States with only a handful of

adverse awards (Nottage and Thanitcul, 2017).

Usually, when resolving international investment

disputes, the parties use the consultative and

negotiating approach, which is often specified in free

trade agreements. ASEAN decision-making is often

based on consultation and consensus as a working

mechanism of the "ASEAN Way" (Rahmah and

Handayani, 2019). This approach can maintain

harmonious relations among members but can also

bring inadequacies to the disputing parties, causing

legal certainty. Therefore, according to the ASEAN

Comprehensive Investment Agreement (2009), in

case of arising disputes, investors can consider and

choose the following ways to resolve their disputes:

The first option is to bring the lawsuit to the host

country's local court. However, ASEAN countries

have different levels of development in terms of

judicial independence and the rule of law. Local

courts may be biased in their State and vulnerable to

influence or corruption. The State Immunity principle

is also a significant hindrance to the choice of the

national court as the settlement of the dispute.

Secondly, under the ASEAN Comprehensive

Investment Agreement, investors can also settle their

disputes with host countries by using international

arbitration, including tribunals of International Centre

for Settlement of Investment Disputes (ICSID), ad

hoc arbitration tribunal under the UNCITRAL Rules

or any other international institutional arbitrations as

agreed by the parties.

ICSID is an international arbitration institution

that was established to resolve a dispute between

investors and the State, thus the possibility to arbitrate

under ICSID is considered as a lucrative option to

bring advantages for foreign investors. Moreover, an

ICSID award shall be recognized and “automatically

enforced” as "binding" and a "final domestic

judgment" by the court of the States that are members

of the ICSID Convention (Article 54). However, in

order to be arbitrated under ICSID, both of the host

country and investor's home country must be

members of the ICSID Convention. Unfortunately,

Laos, Myanmar, Thailand, and Vietnam have yet to

accede to the Convention. For example, the

Investment Protection Agreement (IPA) 2020

between the EU and Vietnam deals with the

settlement of investment disputes between Vietnam

and the European Member States as well as their

investors by providing a novel provision for a

permanent investment tribunal and mentioning the

ICSID mechanism. However, since Vietnam is not a

member of the ICSID convention, European investors

in Vietnam will not benefit from the recognition and

enforcement mechanism of arbitral awards under this

Convention (ICSID n.d.). And vice versa, it shall be

the same for the situation of the dispute concerning

Vietnamese investors and the European Union as a

disputing party. However, the New York Convention

will be an alternative mechanism for the recognition

and enforcement of foreign arbitral awards.

For cases involving these non-ICSID Convention

and ICSID Convention contracting states, arbitration

under the ICSID Additional Facility Rules may be

possible. Because it allows arbitration under the

Additional Facility Rules when either the host

country or the investor's home country is members of

the ICSID Convention, however, the selection of the

ICSID Additional Facility Rules for arbitration

remains impossible if neither the host country and the

investor's home country are not a party to the

Convention. For example, a dispute between a Thai

investor and the Myanmar government will not

become arbitrable under the ICSID or the ICSID

Additional Facility Rules.

Regional Arbitration for ASEAN in the Context of Regional Integration

In addition to arbitration institutions, investors

can also choose to arbitrate at an ad hoc arbitration

under the Rules of the UNCITRAL Rules. However,

the poor awards rendered by UNCITRAL ad hoc

tribunals and non-ICSID tribunals can be set aside by

state courts in the same manner as commercial

arbitration awards. As a result, UNCITRAL awards

and non-ICSID awards may be refused to recognize

and enforce under the grounds of Article V of the

New York Convention.

The investor's final option is using international

arbitration centres in ASEAN countries. Most

ASEAN countries have international arbitration

centres. However, in essence, an international

investment dispute is always a particular type of

dispute involving both private and public entities,

while their experience in handling investor-state

arbitration is still limited. Therefore, to make the

dispute resolution more objective, the establishment

of a joint arbitration institution for the ASEAN region

may be a promising future.

4 CONCLUSIONS

The growing business relationship in the ASEAN

region has always had the effect of increasing

disputes among ASEAN business people. Arbitration

is considered to be an out-of-court dispute resolution

method that has many benefits, but still, this problem

arises in the enforcement of arbitral awards due to

differences in the legal system of the parties.

To resolve this problem, ASEAN Member States

should seek the establishment of a Unified regional

arbitration centre for the ASEAN region. It can be

central to international dispute resolution and

especially for resolving disputes carried out in the

ASEAN region. With a regional arbitration forum, the

procedure for resolving disputes in this region will be

simpler, more efficient, and easier. In particular, the

Member States can discuss and agree on the

regulation and interpretation of the term "public

policy" in such a way as to harmonize the legal

systems of ASEAN Member States. Legal barriers

that often occur the refusal to recognize and execute

international arbitral awards can be reduced if there

are legal terms; and arbitration procedures are jointly

recognized by all ASEAN member countries. In

addition, a stable regional organization with a good

legal environment and fair forum will promote and

attract the investment capital flows from the third

countries and other regions in the world.

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