Review of the 2013 HKIAC Administered Arbitration Rules one year on

Review of the 2013 HKIAC Administered Arbitration Rules one year on

It is now a year since the HKIAC’s Administered Arbitration Rules came into effect. Amy Lo of Hogan Lovells’ Hong Kong office considers how the rules have been received by the arbitration community and concludes that the 2013 Rules have been a great success.

Over to Amy:

It is now a year since the 2013 edition of the HKIAC Administered Arbitration Rules (2013 Rules) were implemented. The 2013 Rules are the end product of feedback from leading practitioners, arbitrators and other stakeholders following the introduction of 2008 HKIAC Rules. The 2013 Rules are now regarded by practitioners as a comprehensive and sophisticated set of rules, consistent with the Hong Kong Amended Arbitration Ordinance (Cap 609 which came into force on 1 June 2011 repealing the old Arbitration Ordinance, Cap 341), and reflecting best practice in international commercial arbitrations.At the same time, users have confirmed that the light-touch institutional approach adopted by the HKIAC, which recognises the importance of party autonomy and the policy of limited judicial intervention, has been working well with the introduction and implementation of the 2013 Rules.Having said that, some issues including the following will have to be resolved, for the continued success of the 2013 Rules.

Consolidation

Article 28 of the 2013 Rules provides that the HKIAC may consolidate two or more arbitrations at the request of a party and after consulting with the parties and any confirmed arbitrators, where:

  • the parties have agreed to consolidate or
  • all the claims are made under the same agreement or
  • the claims are made under more than one arbitration agreement but the HKIAC finds the arbitration agreements to be compatible, after taking into account factors as to compatibility, including whether there is a common question of law or fact arising from the arbitrations, or whether the rights of relief arise out of the same series of transactions

This article was one of the more controversial additions to the 2013 Rules due to the broad powers given to the HKIAC, in particular its power to consolidate even where arbitrators have already been appointed and the parties and arbitrators are engaged in separate proceedings. Significantly, consent of all the parties to consolidation is also not required. Moreover, parties to a consolidated arbitration are deemed to have waived their right to appoint an arbitrator despite any express nominations in the original arbitration agreements (HKIAC, art 28.8).

The rationale behind this article is to avoid not only inconsistent rulings on similar issues of fact or law, but also the problem of which tribunal should determine consolidation where more than one tribunal has been constituted. The flexibility and efficacy provided by the rules is, in the author's opinion, highly welcomed given the increasingly complex multi-party nature of commercial transactions.

In practice, however, the impact of this provision is yet to be seen. Our understanding is that thus far, the HKIAC has not yet exercised its power under Article 28. This may be attributed to the fact that Article 28 only applies to arbitration agreements entered into on or after 1 November 2013 (HKIAC, art 1.4).

Other international arbitral institutions appear to have taken a more conservative approach. For example, the Singapore International Arbitration Centre (SIAC) and UNCITRAL rules are silent on the issue of consolidation of two or more arbitrations. The 2012 China International Economic Trade Arbitration Commission (CIETAC) and International Chamber of Commerce (ICC) rules have not been so far-reaching, in requiring the consent of all parties before consolidation may proceed. As the 2013 Rules do not have stipulations as to whether the parties may opt out of consolidation, the ICC and CIETAC rules may therefore strike a more comfortable balance between party autonomy and flexibility for those who want to reduce the risk of unexpected consolidation. Experience would suggest, however, that the HKIAC is likely to take into account any express statements in an arbitration agreement that parties wish to opt out of consolidation when considering an application for consolidation.

The progressive approach taken by the HKIAC appears to have caught on. In May earlier this year, the International Centre for Dispute resolution (ICDR) introduced a consolidation rule following in the footsteps of the HKIAC and the Swiss Rules. The ICDR's provision relies on the same considerations to be taken into account in ordering consolidation, although it provides instead for the appointment of a 'consolidation arbitrator' to decide if the multiple arbitrations should be consolidated.

Despite detracting a bit from the HKIAC's traditionally 'light touch' approach, it seems that the cost-efficiency and efficacy of this process may have begun to win over industry experts and may better equip arbitral institutions to deal with the changing nature of commercial deals.

Interim measures and emergency relief

Article 23 (HKIAC, art 23) provides that a party may apply for urgent interim or conservatory relief (or ‘emergency relief’) before the constitution of the arbitral tribunal, with the rules of the relevant procedure detailed in HKIAC, sch 4. Under these rules, parties may apply for the appointment of an emergency arbitrator at the same time or after filing a notice of arbitration.

This measure is not intended to take away from the courts' role in providing emergency relief. Indeed a valid concern is that parties will continue to rely on the courts instead of on the HKIAC interim measures of protection and provision of emergency relief. While the confidentiality of the emergency arbitral process may be a key advantage for parties, the procedure cannot offer the element of surprise and opportunity for ex parte relief that court proceedings have. We understand that, at the time of writing, only one application has been made under the new emergency relief measures since they were introduced, and this was subsequently withdrawn. Nevertheless, this low number may be attributed to the fact that the provision is not retrospective and may only be applied to arbitration agreements entered into on or after 1 November 2013.

Given that emergency interim measures have only been introduced by international arbitral institutions over the past few years, the issue may simply be that parties and courts need time to grow accustomed to the new measures. It is still too early to ascertain the efficacy of the emergency arbitral procedure and the enforceability of their interim awards. Statistics from SIAC show a growing acceptance of emergency relief provisions, with 34 applications made for such between 1 July 2010 when the provision came into force and 6 March 2014. Of these, 12 were granted, 4 were granted by consent and 2 were granted in part. 11 have been rejected and the remainder have been withdrawn or are pending.

Following this trend, most, if not all, major arbitral institutions have now incorporated provisions on emergency relief, with the London Court of International Arbitration (LCIA) being the latest institution to join the crowd in bringing into force such rules on 1 October 2014.

A general concern as to the enforcement of emergency arbitral awards is that such an award may not be recognised as being ‘final and binding’ under Article V of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (commonly referred to as the New York Convention).

However, as in Singapore, Hong Kong legislation has expressly provided for the enforceability of emergency relief granted by an emergency arbitrator under the relevant arbitration rules, in the same manner as any order or direction of the court, provided the court's leave has been obtained (section 22B, Arbitration Ordinance (Cap 609)). Moreover, Article 23 of the 2013 Rules lends greater legitimacy to the emergency arbitral process by using the language of sections 35 and 36 of the Arbitration Ordinance (Cap 609), which in turn directly incorporates Articles 17 and 17A of the UNCITRAL Model Law into statute.

It is too soon to make a judgment as to the efficacy of the emergency relief provision and its related procedure under the HKIAC so far, but it seems clear that applications to the court for interim relief will continue to remain the norm for a while yet

New model clause

Separately, it should be noted that the HKIAC has recently introduced a new model clause (which is available at the HKIAC's website here) in order to address the issue in relation to the law of the arbitration agreement.

The new model clause has an additional optional provision providing that ‘the law of this arbitration agreement shall be [Hong Kong] law.’ This is recommended to be included in arbitration agreements, in particular those where the law of the substantive contract is different from the law of the seat. This was introduced to avoid uncertainty and the unnecessary costs of potential ancillary litigation to decide which law should apply.

Parties sometimes fail to specify the law of the arbitration agreement in the agreement itself, despite identifying a seat of arbitration. This gives rise to uncertainty and may lead to disagreements as to whether or not the law of the substantive contract is the same as the seat of arbitration. There has been little consistency in dealing with this question in international case-law, which is all the more reason to laud the HKIAC's new model clause for providing certainty in the matter, which will benefit users of arbitration.

The appointment of arbitrators (Articles 7-10 of the 2013 Rules)

Under Articles 9 and 10 of the 2013 Rules (HKIAC, art 9-10), an arbitrator's designation shall be confirmed by the HKIAC on the terms of either Schedule 2 or 3, with the two systems for calculating tribunal fees being:

  • in reference to hourly rates under Schedule 2; or
  • in reference to a schedule of fees calculated in relation to the amount in dispute under Schedule 3

These standard terms for arbitrator appointment under Schedules 2 and 3 were introduced in 2013 for parties' easy reference. However the 2013 Rules are flexible in allowing the terms to be changed with the consent of all parties and where the HKIAC considers appropriate.

Controversially, an hourly fee cap for arbitrators was introduced, and has currently been set at HK $6,500. For higher rates to be charged, either the express written agreement of all parties would be needed, or the HKIAC's approval in a case of ‘exceptional circumstances’.

These changes seek to make arbitration a more cost-efficient and streamlined process, and while it is difficult to pinpoint how successful the clauses have been, it speaks for itself that so far this year, as of 28 October 2014, 53% of the HKIAC's new cases have been fully administered by the HKIAC Secretariat, compared to only 31% from 2013.

Useage of the new rules

According to the statistics of the HKIAC (available here),

  • in 2013 the HKIAC received 463 dispute resolution matters
  • of the 260 new arbitration cases handled in 2013 by the HKIAC, 81 were fully administered by the HKIAC Secretariat; this represents a 20% increase from 2012 and, more impressively, a 97% increase from 2011
  • among the administered arbitration cases, 91% were international
  • whilst the users based in China still represent the majority, other users were from all over the world including from the US, Germany, BVI, Cayman Island, Japan and Korea

So, have the revisions been a success?

Judging from the positive feedback from the users and the statistics of the HKIAC, opinion think that the 2013 Rules have been a great success. In order to facilitate smooth operation in future and ensure the continued success of the 2013 Rules, however, the HKIAC and the Hong Kong government will have to address the issues relating to the implementation of the provisions on consolidation of arbitrations, emergency arbitrators and emergency relief.

I am optimistic that given the success of the 2013 Rules, the superb quality of arbitration professionals in Hong Kong, the excellent enforcement records of HKIAC awards as well as the unique geographic location of Hong Kong (ie being a special administer region in the PRC having its independent judiciary adopting the common law legal system and being located at the heart of the central Asia Pacific Region) (see here), the HKIAC will continued to be the first choice of international arbitration users in the near future.

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