What the new HKIAC Rules mean for China-related arbitration
July 02, 2013 | BY
clpstaff &clp articles &Following extensive review and consultation, HKIAC has unveiled its much-awaited new Administered Arbitration Rules, which are attractive to mainland parties and will come into force from November 2013
The Hong Kong International Arbitration Centre (HKIAC) has long been a leading choice for arbitration between Chinese and foreign parties. In 2012, 68% of all arbitrations handled by HKIAC were international. Chinese parties were by far the most frequent users. Although HKIAC traditionally administered international arbitrations under the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, in 2008 it launched its own HKIAC Administered Arbitration Rules. Last year the number of cases fully administered under these rules represented a 40% year-on-year increase. Over the past two-and-a-half years, HKIAC's Rules Revision Committee embarked on a review of these rules and sought feedback through extensive consultation with the public as well as practitioners, arbitrators and other stakeholders. Its efforts culminated in the much-awaited new HKIAC Rules, which come into force on November 1 2013.
Key changes
The 2013 Rules retain HKIAC's light-touch approach and clarify but do not modify the substance of HKIAC arbitration. Equally, they have taken on-board emerging best practices worldwide to enhance the effectiveness and efficiency of HKIAC arbitration. Many of the key changes will have an impact on China-related arbitration.
Multiple parties, multiple arbitrations, multiple contracts
- Joinder of additional parties: The arbitral tribunal now has power to join an additional party to the arbitration, provided that the additional party is bound by the arbitration agreement. Where HKIAC receives a request for joinder before the arbitral tribunal is confirmed, HKIAC may decide whether the additional party is bound by the arbitration agreement, and if so, may join the additional party to the arbitration (Article 27).
- Consolidation of arbitrations: HKIAC now has power, at a party's request, to consolidate arbitrations under its rules, where: (a) the parties agree to consolidate; (b) all the claims are made under the same arbitration agreement; or (c) the claims are made under more than one arbitration agreement, a common question of law or fact arises in 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 compatible (Article 28).
- Single arbitration under multiple contracts: Claims arising out of or in connection with more than one contract may now be made in a single arbitration, provided that: (a) all parties are bound by each arbitration agreement; (b) a common question of law or fact arises under each arbitration agreement; (c) the rights to relief claimed are in respect of, or arise out of, the same transaction or series of transactions; and (d) the arbitration agreements are compatible (Article 29).
These revisions are relevant especially for China-related investments, which are increasing in scale and complexity, involving related parties and separate contracts. Instead of having to spread the dispute over different proceedings, the 2013 Rules now afford the flexibility to join and consolidate in the very same arbitration: multiple parties, multiple arbitrations and claims from multiple contracts.
Arbitrator fees, expenses and terms of appointment
- Arbitral tribunal's fees and expenses: The parties can choose for the arbitral tribunal's fees and expenses to be determined according to either: (a) the default position of hourly rates now subject to a cap of HK$6,500 ($840); or (b) the schedule of fees based on the sum in dispute (Article 10, and Schedules 2 and 3).
- Terms of appointment: Prior to confirmation, a prospective arbitrator shall: (a) sign a statement confirming his availability to decide the dispute and his impartiality and independence; and (b) disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence (Article 11).
The parties' freedom to choose the basis of the arbitral tribunal's fees and expenses has always been a unique feature of HKIAC arbitration. The 2013 Rules now set a limit on hourly rates to further enhance HKIAC's appeal. This is a welcome development especially for parties accustomed to traditionally lower rates for arbitration in mainland China, including at the China International Economic and Trade Arbitration Commission (CIETAC), Beijing Arbitration Commission (BAC) and Shanghai Arbitration Commission (SHAC). The formal introduction of standard terms of appointment will also assure parties of the arbitrator's impartiality and independence.
Expedited proceedings
- Expedited procedure: A party must now apply to HKIAC in order for the arbitration to be conducted in accordance with the expedited procedure where: (a) the amount in dispute does not exceed the new threshold of HK$25 million; (b) the parties agree; or (c) in cases of exceptional urgency. The presumption is for a sole arbitrator and for the award to be made within six months of transmission of the file to the arbitral tribunal (Article 41).
The 2013 Rules offer parties choice by now having the expedited procedure as an opt-in rather than the previous opt-out procedure. The threshold for such cases has also been raised from $250,000 to HK$25 million to allow greater scope for applying the expedited procedure. This is again a welcome development for parties accustomed to arbitration in mainland China, where awards are rendered typically within six months, even for regular proceedings.
Applications before constitution of the arbitral tribunal
- Prima facie Jurisdiction: If prior to the constitution of the arbitral tribunal a question arises as to the existence, validity or scope of the arbitration agreement, or to HKIAC's competence to administer the arbitration, HKIAC now has power to proceed with the arbitration if it is prima facie satisfied that an arbitration agreement under its Rules may exist (Article 19).
- Emergency relief: A party may now apply for urgent interim or conservatory relief before the constitution of the arbitral tribunal. Such relief includes ordering that a party: (a) maintain or restore the status quo; (b) take action that would prevent or refrain from taking action that is likely to cause harm or prejudice; (c) provide means of preserving assets; or (d) preserve evidence that may be relevant and material. An emergency arbitrator will be appointed within two days of receipt of the application and a decision will be made within 15 days from the date on which HKIAC transmitted the file to the emergency arbitrator (Article 23 and Schedule 4).
The 2013 Rules now provide certainty for proceedings that may take place before the constitution of the arbitral tribunal. Perhaps the most widely discussed trend in recent times is the emergency arbitrator procedure. Such a procedure was added to the arbitral rules of the Singapore International Arbitration Centre (SIAC) in 2010 and the International Chamber of Commerce (ICC) in 2012. What is significant is that when CIETAC revised its Rules in May last year, it chose not to include such a procedure. Instead, revisions to the PRC Civil Procedure Law (中华人民共和国民事诉讼法) which entered into force recently on January 1 2013, provide that emergency relief sought before the commencement of the arbitration shall be decided by the courts (Article 101).
HKIAC's introduction of the emergency arbitrator procedure is therefore much awaited, especially for parties accustomed to arbitration in mainland China as it represents the possibility of urgent relief from a choice other than a local court. The short timelines will also help to safeguard an affected party's interests in times of urgency.
Supporting changes to Hong Kong legislation
In order to support the new HKIAC Rules, members of HKIAC's Rules Revision Committee are understood to have worked with the Department of Justice to draft appropriate amendments to Hong Kong's arbitration legislation, the Arbitration Ordinance.
The Arbitration (Amendment) Bill 2013 was introduced in the Hong Kong Legislation Council on April 24 2013. The supporting changes proposed in the Bill are:
- Enforcement of emergency arbitrator relief: Emergency relief granted whether in or outside Hong Kong by an emergency arbitrator under the relevant arbitral rules will be enforceable in the same manner as an order or direction of the court that has the same effect, but only with the leave of the court (Clause 5).
- Costs assessed on party-and-party basis: If the parties to the arbitration have agreed that the costs of the arbitral proceedings are to be assessed by the court (instead of the arbitral tribunal), such costs will be assessed on a party-and-party basis (Clause 7).
- Mutual enforcement of awards: Arbitral awards in Macau and Hong Kong are now mutually enforceable, pursuant to the Arrangement Concerning Reciprocal Recognition and Enforcement of Arbitral Awards executed in January 2013. Four new parties to the New York Convention will also be added (Clauses 3, 9, 18, and 20).
These amendments apply to arbitrations under all arbitral rules (not only HKIAC's) and are expected to come into force by the end of August, in advance of the new HKIAC Rules.
Impact on China-related arbitration
If a Chinese party (or its foreign counterparty) seeks to bring arbitration, applying the new HKIAC Rules can make an important difference. Suppose the counterparty is quickly dissipating assets in mainland China, in order to frustrate the purpose of the arbitration. If the arbitration agreement provides for arbitration at an arbitral institution in mainland China, the affected party will have no choice but to apply for pre-arbitration relief before local courts — the very scenario parties had intended to avoid when opting for arbitration. However, the new HKIAC Rules entitles the affected party to urgent relief from an emergency arbitrator within 15 days.
One limitation, unfortunately, is that even though the emergency arbitrator's order will soon have effect under the Arbitration Ordinance (and therefore effective in respect of assets located in Hong Kong), it is unclear to what extent it will be recognised, if at all, in mainland China, where a significant proportion of the assets are likely to be located.
That said the new HKIAC Rules undoubtedly provide parties with greater flexibility. As investments into and out of China increase, so does the complexity of such transactions. The 2013 Rules can no doubt accommodate even arrangements unique to China-related transactions (including offshore holding companies, special investment vehicles, financiers, guarantors, creditors and debtors).
It is therefore fitting that the new HKIAC Rules will apply at a time when foreign investment into China is likely to reach $120 billion. Yet equally significant is the trend of Chinese state-owned and private enterprises increasing their investments in Asia and beyond. As arbitral practice constantly evolves to fit commercial needs, so too have the new HKIAC Rules for especially new China-related matters.
Shaun Wu, Kobre & Kim, Hong Kong
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