Hong Kong Rules OK!

Arbitration analysis: Hong Kong is, for many, Asia's destination of choice for the resolution of complex, high value commercial disputes and two recent developments, which we highlighted over the summer of 2013, have cemented Hong Kong's position at the forefront of modern international arbitration practice.

On 12 June 2013, the Hong Kong International Arbitration Centre (HKIAC) announced the release of the 2013 edition of its Administered Arbitration Rules (the HKIAC 2013 Rules). The HKIAC 2013 Rules, which came into force on 1 November 2013, were issued following a major review and after extensive consultation with the international arbitration community. The HKIAC has stressed that many of the changes clarify, but do not modify, the substance of HKIAC administered arbitration, but it is clear that significant changes have been made.

Then, on 19 July 2013, Hong Kong's Legislative Council enacted the Arbitration (Amendment) Ordinance 2013 (the 2013 Arbitration Ordinance). The 2013 Arbitration Ordinance amends Hong Kong's Arbitration Ordinance (Cap. 609) (the Hong Kong Arbitration Ordinance) which came into force on 1 June 2011. Arbitration in Hong Kong is governed principally by the Hong Kong Arbitration Ordinance and it regulates various aspects of arbitration such as the composition and jurisdiction of the arbitral tribunal, the conduct of arbitral proceedings and the recognition and enforcement of arbitral awards. The 2013 Arbitration Ordinance introduces a small number of nonetheless important changes.

What's changed?

The HKIAC 2013 Rules introduce a number of changes, which are likely to be welcomed by the international arbitration community. The HKIAC 2013 Rules reflect similar revisions made to the SIAC and ICC administered arbitration rules in 2013 and 2012 respectively and may give an indication as to the likely changes to the LCIA rules, which are anticipated later in 2013.

The key revisions are summarised below. We also include, where relevant, detail of the changes introduced by the 2013 Arbitration Ordinance.

Changes to the HKIAC's model arbitration clauses

The HKIAC's suggested model clauses (also known as arbitration agreements) have been amended and expanded by the HKIAC 2013 Rules. For example, the model clauses now cover expressly disputes between the parties regarding non-contractual obligations (eg torts).

In addition, the model clauses provide that the default seat of the administered arbitration will be Hong Kong (which is also reflected in the revised article 14.1 of the HKIAC 2013 Rules).

It is notable that unlike, for example, the LCIA or ICC model clauses, the HKIAC's model clauses do not contain a governing law provision.

The notice of arbitration and the answer

The HKIAC 2013 Rules now require explicitly that the notice of arbitration be made in writing (article 4.1). This is one of many clarification amendments, which have been made by the HKIAC 2013 Rules.

In addition to the information, which currently has to be included in the notice of arbitration, it will be mandatory (under article 4.3(h) and 4.3(i) of the HKIAC 2013 Rules) for a claimant to include:

  • its proposal regarding the designation of a sole arbitrator under article 7 or designation of an arbitrator under article 8, and
  • its confirmation of simultaneous service of the notice of arbitration on all other parties (ie the respondents)

Equivalent mandatory provisions apply to the respondent's answer (article 5.1(f) and 5.1(g)). While these do not amount to burdensome changes, these are important matters for the parties to get right at the start of any arbitration proceedings to avoid delay.

Fees and expenses

There are a number of important changes in relation to administrative and tribunal fees under the HKIAC 2013 Rules.

Practitioners should be aware that the registration fee will be payable in Hong Kong Dollars (HKD) instead of US Dollars (USD) and has slightly increased to HKD 8,000 (under the HKIAC Rules 2008 the fee was USD 1,000). This currency shift applies across the HKIAC 2013 Rules.

From 1 November 2013, parties will have a choice as to how the tribunal's fees for the arbitration are computed. Under the HKIAC Rules 2008, tribunal fees were based on the sums in dispute, but under the HKIAC 2013 Rules, fees will be calculated either on the basis of the amount in dispute (in accordance with schedule 3 of the HKIAC Rules 2013) or on the basis of agreed hourly rates (in accordance with schedule 2 of the HKIAC Rules 2013) (article 10).

The parties' choice, by agreement, either way is to be notified to the HKIAC within 30 days of the respondent's receipt of the notice of arbitration (article 10.1). If the parties cannot agree, the default position will be on the basis of agreed hourly rates. The tribunal's hourly rates under the HKIAC 2013 Rules will also be capped by the HKIAC (the cap, which will apply post 1 November 2013, is HKD 6,500--see article 9.3 of schedule 2 and the HKIAC fees schedule).

For those practitioners whose clients opt for the schedule 3 fee calculation (ie on the basis of the amount in dispute), the fee bands will move as a result of the currency shift from USD to HKD. Accordingly, any preconceptions as to applicable fee band based on the amount in dispute will have to be carefully examined by practitioners and parties alike.

Emergency relief

The HKIAC 2013 Rules include provision for emergency interim or conservatory relief prior to the constitution of the tribunal (article 23 and schedule 4). Under the new provisions, a party may make an application for emergency relief concurrent with or after submission of the notice of arbitration for the appointment of an emergency arbitrator. The new emergency relief procedure is set out in schedule 4 of the HKIAC 2013 Rules. The inclusion of emergency relief provisions reflects a trend amongst many of the major arbitral institutions (including the ICC and SIAC).

The 2013 Arbitration Ordinance, enacted in July 2013 after the release of the HKIAC 2013 Rules, has amended the Hong Kong Arbitration Ordinance so as to provide explicitly for the enforcement of emergency relief granted, in or outside Hong Kong, by an emergency arbitrator in the same manner as an order or direction of the Court of First Instance of the Hong Kong High Court (the Court) that has the same effect (section 22B(1)).

Such enforcement is only possible with leave of the Court (section 22B(1)), which won't grant leave to enforce any emergency relief granted outside of Hong Kong unless the applying party can show that it consists of only one or more temporary measures (including injunctions) by which the emergency arbitrator orders a party to do one or more of the following (section 22B(2)):

  • maintain or restore the status quo pending the determination of the dispute
  • take action that would prevent, or refrain from taking action that is likely to cause current or imminent harm or prejudice to the arbitral process
  • provide a means of preserving assets out of which an award may be satisfied
  • preserve evidence that may be relevant and material to resolving the dispute
  • give security in relation to any of the above
  • give security for the costs of the arbitration

The Court's decision to grant or refuse leave under section 22B cannot be appealed (section 22B(4)).

In addition, the interim protection measures under the revised article 23 of the HKIAC 2013 Rules have been expanded significantly. For example, article 23.4 states that when deciding a party's request for an interim measure, the tribunal shall take into account the circumstances of the case, which includes factors such as:

  • the fact that harm caused not reparable by an award of damages is likely to result to the requesting party if an order is not made and such harm substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted, and
  • there is a reasonable possibility that the requesting party will succeed on the merits (although this will not fetter the tribunal's ability to make any subsequent determination on the merits)

Joinder of additional parties and related matters

Whereas the HKIAC Rules 2008 provided for joinder of a party to the proceedings only with consent of the party to be joined (article 14.6), the HKIAC 2013 Rules contain much expanded joinder provisions under the new article 27, granting the tribunal power to allow additional parties to be joined to the arbitration provided that the additional party is bound by the arbitration agreement under the HKIAC 2013 Rules giving rise to the arbitration (including any arbitrations under articles 28 or 29).

In addition, the HKIAC 2013 Rules allow the HKIAC to consolidate two or more arbitrations at a party's request (article 28). HKIAC is required to consult with the parties and any constituted tribunal and may grant such a request where:

  • the parties agree to consolidate, or
  • all of the claims in the arbitrations are made under the same arbitration agreement, or
  • the claims are made under more than one arbitration agreement, a common question of law or fact arises in both or all of the arbitrations, the rights to relief claimed are in respect of, or arise out of, the same transaction or series of transactions, and HKIAC finds the arbitration agreements to be compatible

Similarly, claims arising under more than one contract will be able to be arbitrated together and the requirements for this procedure are set out in article 29 of the HKIAC 2013 Rules.

Expedited procedure

The expedited HKIAC arbitration procedure is clarified and changed under the HKIAC 2013 Rules.

The most significant change is that the expedited procedure will not be the default position for claims under USD 250,000 (see article 38 of HKIAC Rules 2008) (although this provision is subject to the parties' agreement or intervention of the HKIAC Secretariat).

Instead, under article 41 of the HKIAC 2013 Rules, a party may, prior to constitution of the tribunal, apply for the expedited procedure to apply where the amount in dispute does not exceed HKD 25,000,000 (roughly USD 3,200,000), or where both parties agree or in cases of exceptional urgency.

The HKIAC has stated that use of the expedited procedure presumes that a sole arbitrator will hear the dispute and the award will be handed down within six months of the transmission of the file. The availability of this expedited procedure is likely to be very attractive for time-pressured, cost-conscious commercial parties.

Other notable changes

In addition to the above, the HKIAC 2013 Rules have been revised to include the following notable changes:

  • Article 11.4 (qualifications of the tribunal): arbitrators will be required to sign a statement confirming their availability, impartiality and independence. Further terms and conditions are set out in the two practice notes, which accompany schedules 2 and 3 to the Rules where this statement is referred to as a declaration
  • Article 40 (deposits for costs): the timing for payment of any requested deposits will fall earlier potentially. Under HKIAC Rules 2008, the request shall be made upon the establishment of the tribunal, but under the HKIAC 2013 Rules it shall be made as soon as practicable after receipt of the notice of arbitration
  • Article 3.1 (interpretation)--the HKIAC reserves to itself the power to interpret the HKIAC 2013 Rules, but the tribunal's view will prevail in the event of any inconsistency
  • Article 37 (correction of award)--practitioners should note the changes to some of the time limits in this article, which, in some cases, have been reduced
  • Article 16.2(d) (statement of claim)--the claimant must also set out the legal arguments supporting its claim
  • Article 17.3(c) (statement of defence)--the defendant must also set out the legal arguments supporting its counterclaim or set off defence

Our original arbitration analyses can be viewed here--Revised HKIAC Arbitration Rules announced and Hong Kong amends its Arbitration Ordinance.

Further reading

Subscribers to LexisPSL will be interested to note that we have updated our HKIAC practice notes to reflect the changes introduced by the 2013 version of the HKIAC Rules:

  • HKIAC--background and structure
  • HKIAC--the Rules
  • HKIAC--starting an arbitration
  • HKIAC--responding to a HKIAC arbitration
  • HKIAC--the award
  • HKIAC--procedure

We will also be adding additional HKIAC practice notes very soon, so keep a close eye on the HKIAC subtopic.

This article was first published on Lexis®PSL Arbitration on 31 October 2013. Click here for a free 24 trial of Lexis®PSL.

Filed Under: Arbitration

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