China: Arbitration in Hong Kong

Hong Kong is a legally and economically autonomous area of China. It has a common law system which upholds the rule of law and is a leading international arbitration centre for the region.

Senior judges from other common law jurisdictions sit in its Court of Final Appeal. Founded in 1985, the Hong Kong International Arbitration Centre is one of the first and most active independent arbitration centres in Asia. In 1990, Hong Kong became the first Asian country to adopt the UNCITRAL Model Law. In cases stretching back more than two decades, the Hong Kong courts have consistently upheld party autonomy and supported arbitration. Awards published in Hong Kong are readily enforceable in most other jurisdictions, including Mainland China (The New York Convention was applied to Hong Kong by the UK government in 1977; the convention continues to apply to Hong Kong following the change of sovereignty in 1997).

The Arbitration Ordinance (Cap. 609)

This important piece of legislation, which came into effect on 1 June 2011, reinforces Hong Kong's status as a leading international arbitration centre. The new ordinance unifies the domestic and international regimes and allows parties to tailor their clauses by adopting a number of provisions which under the old ordinance were only applicable to domestic arbitrations covering matters such as default number of arbitrators, consolidation of arbitration, court determination of points of law, appeals on grounds of serious irregularity and appeals on points of law. Tribunals are given power to grant preliminary orders and interim measures, e.g., for preservation of assets and evidence and injunctive relief. As an arbitration friendly jurisdiction the Hong Kong courts will order interim measures in aid of Hong Kong arbitration and, provided certain conditions are met, foreign arbitration proceedings too. The new ordinance has altered the rules on confidentiality of court proceedings in aid of arbitration: they will now be heard in private but with discretion in the court to direct otherwise. The current position reflects the general desire to treat arbitration as a confidential process and aims to balance that wish with the need for transparency in the judicial process. Consistent with modern trends, the ordinance also makes provision for an existing arbitrator to act as mediator if the parties agree; in the event that no settlement is reached, no valid objection can be made against an arbitrator who resumes his role as arbitrator solely on the ground that he was previously acting as mediator in the same matter.

The Hong Kong International Arbitration Centre Administrated Arbitration Rules

The new ordinance was the result of long and thoughtful consultation with groups concerned with arbitration. Similarly the HKIAC draft Administrated Arbitration Rules, which were prepared in October 2012 by the HKIAC Rules Revision Committee, are currently the subject of consultation. The revised rules are expected to come into effect in the early part of 2013 and will make five main changes. First, joinder of additional parties to one or more arbitration agreements may be effected by the HKIAC upon application by one party before a tribunal is constituted. All parties are deemed to relinquish the right to make appointments and any existing appointments may be terminated without however affecting any acts done before termination or an arbitrator's right to be paid his fees and expenses. After a tribunal is appointed, a request for joinder will be determined by the tribunal which can also decide any challenge to its jurisdiction. Second, the HKIAC will be able to consolidate two or more arbitrations conducted under the rules with the arbitration commenced first in time. Again, the parties will be deemed to have waived their right to make appointments and the HKIAC may revoke existing appointments although previous acts and entitlement to fees will remain unaffected and the date on which any claim or defence is made will not be disturbed so far as time limitation is concerned. The HKIAC's decision to consolidate will not be a reason to challenge an award on enforcement. Third and uniquely, the parties will be given a choice between the HKIAC's schedule of fees calculated on the basis of the sum in dispute, or a schedule of hourly rates capped at HK$6,500, the second alternative being the default position if the parties do not address the matter themselves in the arbitration agreement. Fourthly, the existing provisions for interim relief will be enlarged to cover the factors to be considered when deciding such applications, and the purpose for which relief is to be grounded. Tribunals may also order security for costs. Fifthly, new provisions will enable emergency arbitrators to be appointed to deal with applications for interim relief before a tribunal has been constituted. It is expected that the HKIAC will appoint an emergency arbitrator within a couple of days of receiving an application; a decision by him can be expected within fifteen days of his receiving papers from the HKIAC. Various new ancillary provisions will be introduced.

Recent case law

There have been several recent decisions which serve to illustrate the reluctance of the Hong Kong courts to interfere with arbitration except in unusual circumstances. Two decisions stand out from the rest: first, Pacific China Holdings v Grand Pacific Holdings (CACV 136/2011), where the Court of Appeal reaffirmed that only "serious or egregious" procedural irregularities" by the tribunal would merit setting aside an award. (This was a case where the applicant argued it had been prejudiced in conducting its case by decisions and orders made by the tribunal on interlocutory matters.) Second, Lin Ming v Chen Shu Quan (HCA 1900/2011 and HCMP 552/2012), where the court refused to grant an anti-arbitration injunction following the approach of English courts that such relief is warranted only in exceptional cases.

Other developments – New York Convention: China/Hong Kong and India

In recent years the volume of Sino-Indian trade has increased and so has the need for effective enforcement of arbitral awards between the two countries. Until recently, arbitration awards from Hong Kong and Mainland China were not recognized as New York Convention awards in India despite India and China being signatories to the New York Convention. The India Arbitration and Conciliation Act 1996 requires a territory to be published in its Official Gazette in order for the New York Convention to be applied to that territory in India. Hong Kong and China were not in India's Official Gazette and as a result the enforcement of Chinese and Hong Kong arbitration awards was usually a difficult and time-consuming exercise. This encouraged parties to Indiarelated contracts to select a seat of arbitration other than Hong Kong. This is about to change. On 19 March 2012, the Indian Government Ministry of Law and Justice included China (and Hong Kong) in the India Official Gazette under the 1996 Act. The result is that arbitration awards made in China, Hong Kong or Macau on or after 19 March 2012 will be recognised as New York Convention awards and become more easily enforceable in India. This change is a welcome one as it gives parties to India-related contracts the additional effective choice of arbitration in Hong Kong thereby enhancing Hong Kong's attractiveness as an international arbitration venue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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