July 1, 2014
In 2013, Myanmar became the 149th signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The New York Convention was drawn up in 1958 and is the foundation on which the edifice of international arbitration has been built. It has enabled arbitration awards made in any signatory country to be enforced readily in any other signatory country, without reconsideration of the merits of the dispute that was the subject matter of the award. This is the critical advantage that arbitration holds over proceedings brought in national courts: enforcing national court judgments in other nations is typically subject to a longer and more involved process, and often includes some examination of whether the judgment was rightly granted. Myanmar's accession to the New York Convention was hailed as a significant step toward fostering inward investment, as it allows investors to choose arbitration in a neutral offshore forum for the resolution of investment disputes in preference to the local courts. Local courts, in addition to being unfamiliar terrain for the investor, may also lack expertise in commercial disputes, and be under-resourced and so subject to delays.
Signing up for a globally-recognised and effective means of dispute resolution permits a country to leap-frog, at least for the commercial sphere, the tedious process of legal education and infrastructure-building attendant in upgrading its justice system. It is similar to how countries with a poor fixed line telecommunications system have been able to jump straight to mobile. Thus, with the stroke of a pen, businesses investing in Myanmar escape a judicial system that according to the World Bank's Doing Business Project ranked bottom of 188 countries in the time taken to enforce contracts. According to this study, enforcing a contract in the Myanmar Courts takes more than three years. By way of comparison, Singapore ranked 12th, with contracts taking five months for enforcement. Instead, investors can opt in to the same system of dispute resolution, namely international commercial arbitration, that is available across the globe, and so, by definition, of world-class standard.
Myanmar watchers observe the dance between President Thein Sein and democracy icon Aung San Suu Kyi for clues to whether the reform programme will endure, deepen and sustain. All eyes are on whether Clause 59(f) of the Constitution, which prohibits anyone with a foreign spouse or children from becoming president, and plainly targeted at Ms Suu Kyi, is repealed in time for the elections next year. This is obviously a critically important issue for the political future of the country. But while big questions like this remain unanswered, there are changes at the smaller micro-level, most notably the accession to the New York Convention, that have the potential to transform Myanmar's business culture. As businessmen come to cherish the ability to enforce rights in the business sphere, the appetite will grow for the domestic Court system to improve in efficiency, and, as this happens, citizens will begin, bit-by-bit, to see how valuable practical recourse to the law can be in daily lives. Slowly, this will re-shape behaviour and expectations, and people will grow out of the helplessness and apathy that accompanies non-functioning state institutions. As Tom Bingham, former Lord Chief Justice and Senior Law Lord of England and Wales, put it in his book, The Rule of Law: 'An unenforceable right or claim is of little value to anyone.'
Change in the underlying legal and social culture of Myanmar is a likely long-term effect of accession to the New York Convention, but in the short-term Myanmar businesses will adapt in three significant ways.
First, once it becomes a realistic prospect that one will be held to a promise, making promises becomes a much more serious matter, and greater care is taken in drafting contracts. In particular, understanding how the assignment of responsibilities and allocation of risks in the contract affects pricing and margins becomes essential. Experience is often the best education, and businessmen will not need to go to business school to learn this lesson.
Secondly, businesses will rapidly improve their own recordkeeping, and how they document what happens in the course of performing a contract. Confirming conversations with one's counterparty via email will soon become second nature. Culture changes from the optimistic adage that 'my (spoken) word is my bond' to the more realistic practice that 'if it's important it's on email'.
Thirdly, once businessmen see that their conduct will be scrutinised by an independent third party (the arbitrator), this becomes a brake on unreasonable conduct. An effective way for disputes to be resolved imposes the adjudicator's lens of reasonableness on behavior during performance of the contract. Naturally, this also breeds posturing, with parties cloaking ruthless actions beneath apparently reasonable words, but this is the exception rather than the rule.
The piece of paper that is the New York Convention will not of itself transform Myanmar's economy, blighted as it was by chronic cronyism under the military junta. Yet it is still a significant milestone on the road to modernity.
The article was first published in The Business Times on 28 May 2014.