Hong Kong: MoFo APAC Arbitration Update: August 2019

Hong Kong Court Addresses Interplay Between Arbitration and Insolvency

On August 2, 2019, the Hong Kong Court of Final Appeal addressed the interplay between arbitration and the court’s insolvency jurisdiction in its judgment in But Ka Chon v Interactive Brokers LLC [2019] HKCA 873. Under Hong Kong’s insolvency regime, creditors have a statutory right to apply to wind up insolvent debtors if the debtor has failed to pay a debt due and payable. Generally, a debtor can only avoid winding up if it is able to show that the debt is bona fide disputed on substantial grounds. However, in March 2018, a Court of First Instance judge varied this position where the parties are bound by an arbitration agreement. Following recent English precedent, the Court of First instance held that the court shall generally dismiss a winding-up petition in favor of arbitration if (a) the debt is not admitted, (b) there is an arbitration agreement covering the dispute, and (c) the debtor has commenced the contractually mandated dispute resolution process. The effect of the new approach was that creditors would be required to arbitrate over indisputable debts. In its August 2 judgment, the Court of Appeal called this approach into question in observations made on an obiter basis. The Court of Appeal noted that the new approach significantly curtails creditors’ statutory rights. These observations suggest that, when required to decide the applicable approach in the future, the Court of Appeal may well not follow the English approach.

Singapore Passes Intellectual Property Dispute Resolution Bill

Following a public consultation by the Singapore Ministry of Law in early 2019, an Intellectual Property (Dispute Resolution) Bill (the “Bill”) was introduced before the Singapore Parliament for consideration. The Bill was passed on August 5, 2019, and creates a framework for arbitrating intellectual property (“IP”) disputes, which is similar to that in Hong Kong’s Arbitration Ordinance. The amendments to Singapore’s Arbitration Act and International Arbitration Act provide certainty that IP disputes can be arbitrated in Singapore, including disputes over enforceability, infringement, subsistence, validity, ownership, scope, and duration of an IP right, a transaction in respect of an IP right, and compensation payable for an IP right. The Bill provides that arbitral awards are binding only between parties to the arbitration, and not against third parties. The amendments clarify that an entity’s status as a licensee of arbitration does not make that entity (in and of itself) a party to the arbitration.

Indian Court Enforces SIAC Award Concerning Arbitration Agreement Referring to Non existent Arbitral Institution

On August 9, 2019, the New Delhi High Court granted enforcement of a final award issued under Singapore International Arbitration Centre (SIAC) Rules and a related costs award in favor of Glencore International AG (“Glencore”) against an Indian entity,1 even though the parties’ arbitration agreement referred to a non-existent arbitral institution. The agreement provided for arbitration conducted under “the Rules of Singapore International Arbitration of the Chambers of Commerce in Singapore.” The New Delhi High Court rejected the Indian defendant’s argument for refusal of enforcement. The thrust of the Indian party’s objection was that the arbitrator should not have conducted the arbitration under the SIAC rules, as this was contrary to the parties’ agreement. The New Delhi judge found that the arbitrator was required to take an interpretative approach to construing the arbitration agreement and that, in light of the arbitration agreement’s drafting history, it was reasonable to apply the SIAC rules because this upheld the parties’ intention to arbitrate.

PRC Plans to Allow FTZ-Registered Foreign Arbitral Institutions to Lawfully Administer Arbitrations in Mainland China

On August 6, 2019, the State Council of the People’s Republic of China (the “PRC”) issued a plan for the New Lingang Area of the Shanghai Pilot Free Trade Zone (the “FTZ Plan”). In Article 4, the FTZ Plan shows that the State Council plans to allow reputable overseas arbitral institutions to register and “conduct arbitration businesses.” It further provides that the registered institutions be entitled to support application and enforcement of interim measures, such as asset preservation, evidence preservation and action preservation. At present, foreign arbitral institutions are not recognized “arbitral institutions” under PRC Arbitration Law, and, therefore, they are not permitted to administer cases in mainland China. In addition, PRC courts have historically (with a few limited exceptions) refused to grant interim measures in aid of arbitrations administered by foreign arbitral institutions. The FTZ Plan suggests that, once registered, these institutions will be able to lawfully administer PRC-seated civil and commercial arbitrations and to refer applications for interim measures to the PRC People’s Courts. This will be particularly welcome news to Foreign Invested Entities, especially Wholly Foreign-Owned Enterprises, which are, at present, generally required to submit their disputes to Chinese arbitral institutions in Mainland China if the underlying dispute lacks a “foreign element.”

46 States Sign Singapore Mediation Convention

On August 7, 2019, 46 nations signed the Convention on International Settlement Agreements Resulting from Mediation (the “Singapore Convention”) in Singapore. Negotiated and agreed under the auspices of the United Nations Commission on International Trade Law (“UNCITRAL”), this new treaty seeks to facilitate the global enforcement of international settlement agreements that have been reached through the use of mediation. Among the signatories to the Singapore Convention are China, India, Malaysia, the Philippines, Singapore, South Korea, and the United States. Twenty other countries have also indicated their intention to sign the treaty. The Singapore Convention will enter into force six months after ratification by three countries. Before ratifying the treaty, Convention States will need to take steps to ensure compliance with their treaty obligations at the national level, likely by adopting domestic legislation mirroring or approximating the treaty. In order to promote consistency of national laws, UNCITRAL has proposed a “Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation” for adoption by Convention States, which largely mirrors the treaty itself.

Beihai Asia International Arbitration Centre Opens in Singapore

The Beihai Asia International Arbitration Centre opened in Singapore on August 8, 2019. The Centre, set up by China’s Beihai Arbitration Commission, will form a China-ASEAN panel, intended to promote person-to-person exchanges. The new Commission aims to provide faster, more cost-effective, and efficient international arbitration services for small- to medium-value disputes arising from cross-border commercial transactions. The BAC selected Singapore as the base for the Centre because of the jurisdiction’s “position as the legal and financial hub of South-east Asia.

Singapore Launches Public Consultation on Conditional Fee Arrangements in Singapore

On August 27, 2019, the Singapore Ministry of Law launched a public consultation on proposed amendments to the Civil Law Act and the Legal Profession Act to allow for conditional fee arrangements (“CFAs”) for prescribed categories of proceedings. The consultation period will run from August 27 to October 8, 2019. CFAs, also known as success or uplift fee arrangements, provide that a lawyer receives payment only if the client’s claim is successful. A lawyer may also be entitled to an “uplift” or “success” fee under a CFA. The Ministry of Law proposes to permit CFAs in the context of domestic and international arbitrations in Singapore, as well as in certain proceedings before the Singapore International Commercial Court, including mediation proceedings arising out of or connected with such proceedings. The Ministry of Law’s announcement can be found here, and the public consultation paper can be found here.

Indian Supreme Court Holds That Arbitrator’s Mandate Terminates Upon Expiry of Contractually Agreed Procedural Time Limit

On August 27, 2019, the Indian Supreme Court issued its decision in Jayesh H. Pandya & Anr v Subhtex India Ltd. & Ors, Civil Appeal No. 6300 of 2019, considering an application seeking a declaration that an arbitrator had become de jure unable to perform his functions and that his mandate had terminated because the contractual time limit for issuance of the award had expired. The parties’ arbitration agreement provided that the arbitrator had to render the award “within a period of 4 months from the date of service of copy of agreement,” which the arbitrator had failed to do. The arbitration agreement provided that the arbitrator could extend time with the consent of the parties, which was not provided. In considering the application, the Supreme Court adopted its earlier approach in NBCC Limited v J.G. Engineering Private Limited,2 which held an arbitrator is unable to unilaterally extend a contractual time limits absent party consent and that the arbitrator’s mandate to make the award terminates upon the expiry of the time fixed by the parties. The Court also rejected the argument that, by participating in the arbitration, the respondent in the arbitration had waived the right to object to the extension of time. The Supreme Court thus found that, absent party agreement to extend the time limits of the arbitration, the arbitrator’s mandate ended when the four-month period expired.

India Gazettes Amendments to Its Arbitration & Conciliation Act

On August 30, 2019, India published in its Official Gazette amendments to its Arbitration & Conciliation Act. The Indian Arbitration & Conciliation (Amendment) Act 2019 (the “Amendment Act”) makes a number of key changes. First, the Amendment Act revises the time limit applicable to Indian-seated arbitrations: arbitral awards in domestic arbitrations must now be rendered within 12 months (extendable to 18 months by mutual consent of the parties) from the completion of pleadings, rather than from the date the arbitral tribunal enters upon reference. If the arbitration is not completed within 18 months from the date of the completion of pleadings, the court’s permission is required for the arbitration to continue. This time limit applies to domestic arbitrations only; tribunals in international arbitrations are, however, encouraged to adhere to the same timeline. Second, the Amendment Act expressly recognizes the confidentiality of arbitrations. Third, the Amendment Act expressly grants arbitrators immunity from suit for good faith exercises of their arbitrator duties.

Interestingly, the Amendment Act contains a number of other changes not notified in the Official Gazette. This means that these planned changes are not (yet) in effect. These as yet unnotified amendments include: (a) the introduction of a new Arbitration Council of India tasked with developing institutional arbitration in India; (b) the empowerment of arbitral institutions (instead of the Supreme Court) to appoint an arbitrator where a party fails to nominate in a timely matter; and (c) qualifications for the accreditation of arbitrators, which may preclude non-Indian-qualified professionals from serving as arbitrators in Indian-seated arbitrations.

Footnotes

1 Glencore International AG v Indian Potash Limited & Anr, Case No. Ex.P. 99/2015.

2 1 2010(2) SCC 385.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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