The Dragon's Skin Shed: The New HKIAC Arbitration Rules

by Dechert LLP
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Introduction

The dragon’s skin began to shed in 2011, when the Hong Kong International Arbitration Centre (“HKIAC”) initiated the revision process of its 2008 Arbitration Rules for Administered Cases (“Old Rules”). After the issuance of the draft version in October 2012, the HKIAC promulgated the new version of the Rules in June 2013 (“New Rules”). The New Rules will come into force on 1 November 2013. Except under certain circumstances,1 they will apply to disputes submitted on or after that date, regardless of when the arbitration agreement was concluded.2  The New Rules contain new provisions aimed mainly at tackling the growing complexity of the disputes, fostering the cost-efficiency of the proceedings and addressing the topics of interim measures and emergency arbitrators.

Tackling the growing complexity of disputes

Joinder, consolidation and single arbitration under multiple contracts

In light of the increase in complex disputes involving multiple parties and based on multiple contracts, the HKIAC introduced three new sets of provisions to tackle them. First, under Article 27, the HKIAC New Rules offer a two-step approach regarding the joinder of additional parties, modifying substantially Article 14.6 of the Old Rules.3 Indeed, the arbitral tribunal has the power to decide prima facie whether an additional party can be joined.4 The arbitral tribunal will make a final decision as to its jurisdiction, in the event its jurisdiction over the joined parties is subsequently challenged.5

Second, the HKIAC at the request of a party may decide to consolidate several arbitration proceedings pending under these Rules, where one of three criteria is met. These criteria are the same as under the ICC Rules.6 Unlike the joinder decision, the decision to consolidate is taken by the HKIAC based on the circumstances of the case, which are not strictly defined. These circumstances may include, but are not limited to, considerations about the constitution of the arbitral tribunals in each of the proceedings.7

Third, the HKIAC may allow claims made under multiple contracts to be merged into a single arbitration proceeding.8

The waivers

Consolidation, joinder of additional parties and single arbitration arising out of multiple contracts require the HKIAC to postulate several new waivers. In case of joinder of additional parties9 and consolidation,10 all parties shall be deemed to have waived their right to nominate their arbitrator. If such arbitrators have already been nominated or confirmed, the HKIAC may revoke them and appoint other arbitrators.

There is another kind of waiver that is also explicit in case of joinder of additional parties,11 consolidation12 and single arbitration arising out of multiple contracts,13under which the parties are deemed to have waived any objection to the validity and enforcement of such awards, insofar as such waiver can be validly made under the lex arbitri and the law of the enforcing state.

Fostering the cost-efficiency of proceedings

The New Rules provide for several innovative ways to foster the cost-efficiency of the proceedings.

Additional mandatory information

In the Notice of Arbitration14 and in the Answer to the Notice,15 the New Rules require that the parties include their respective proposal regarding the designation of the sole arbitrator or the party-designated arbitrator, whereas under the 2008 Rules such designation was optional. In the same way, parties are now obliged to include the legal arguments supporting the claim in the Statement of Claim, and the legal arguments supporting the counterclaim or set-off defence in the Statement of Defence.16

Expanded powers of the HKIAC

The New Rules expand the HKIAC’s powers in two ways, namely regarding the constitution of tribunals and its jurisdiction to administer cases.

Regarding the constitution of tribunals, under Article 8.1(b) of the New Rules, parties are only given 15 days as opposed to 30 days in the Old Rules to designate their arbitrators, a failure of which will lead the HKIAC to appoint the arbitrator. Under Article 8.2(c) of the New Rules, there are circumstances that empower the HKIAC to constitute the entire tribunal “without regard to any party’s designation”.Additionally, the HKIAC is given the discretionary power to appoint the substitute arbitrator “in view of the exceptional circumstances of the case”,17 thereby depriving a party of its own right to designate a substitute arbitrator. Next to this appointment power, the HKIAC will require the arbitrators to confirm their availability,18 which follows the approach adopted by the ICC.19

The second direction for expansion concerns the HKIAC’s own jurisdictional powers. Like the ICC,20 the HKIAC is now able to decide on a prima facie basis, before the constitution of tribunal, whether it has jurisdiction over the dispute.21

Expedited procedure

The New Rules open the door for the expedited procedure by significantly increasing the amount in dispute under which parties may apply for such a procedure. Indeed, under the New Rules, such amount shall not exceed HKD$25 million [around US$3.2 million],22 whereas under the Old Rules it was fixed at US$250,000.23

The hourly rates as the default method for arbitrators’ compensation

This is one of the most distinctive features of the New Rules. Parties have the choice to remunerate their arbitrators either based on hourly rates under Schedule 2 of the New Rules, or based on the amount in dispute, under Schedule 3 of the New Rules. Previously, under Article 36.2 of the Rules, parties could compensate arbitrators based either on the amount in dispute or “in accordance with the fee arrangements agreed between the appointing party or parties and the arbitrator so appointed.” The most striking change under the New Rules is that the HKIAC explicitly expressed its preference for Schedule 2, establishing it as a default method.24 The HKIAC will set up a maximum hourly rate, which can be waived by the parties or the HKIAC in exceptional circumstances.25

Addressing the topics of interim measures and emergency arbitrators

The third point of this paper relates to two topics in the field of international arbitration: the interim measures and the emergency arbitrator, which have given rise to a significant number of new provisions.

Interim measures

In the same vein as the draft Rules dated October 2012, the New Rules expand Article 23 on interim measures to include the definition and the purpose of an interim measure26 and the relevant factors for the tribunal to take into account when issuing an interim measure.27 In addition, arbitral tribunals are allowed to modify, suspend or terminate the interim measures in certain circumstances,28 order security for costs,29 require the requesting party to disclose material changes related to the circumstances leading to granting the interim measures,30 and award costs and damages caused by the interim measures at any time. 31These additions should come as no surprise, as they are directly inspired by the UNCITRAL Model Law and the Hong Kong Arbitration Ordinance.

Emergency Arbitrator

Along with several other arbitration institutions such as the ICC, the Singapore International Arbitration Centre or the Stockholm Chamber of Commerce (“SCC”), the HKIAC has felt the need for the emergency arbitrator (“Emergency Arbitrator”). Under the New Rules, the Emergency Arbitrator may only apply to arbitration agreements executed after 1 November 2013, unless otherwise agreed by the parties.32 The HKIAC will appoint an Emergency Arbitrator within two days from receipt of the application, and the Emergency Arbitrator shall make his decision, which will be enforced under the new sections 22A and 22B of the Hong Kong Arbitration Ordinance, within another 15 days.33

* * *

Dragons shed their skin as often as their growth requires it. The significant rise of arbitration as the preferred method for dispute resolution involving China-related parties is no stranger to the growth the HKIAC. By amending its Arbitration Rules for Administered Arbitration to be in line with the other major arbitral institutions, the HKIAC has demonstrated its clear intent to remain one the leading arbitration institutions for China-related disputes.

Footnotes

1HKIAC [New Rules], Article 1.4 .

2 HKIAC [New Rules], Articles 1.1 and 1.3.

3 HKIAC, Article 14.6 [Old Rules] reads as follows: “The arbitral tribunal shall have the power to allow, upon the application of a party, one or more third persons to be joined in the arbitration as a party, provided that such third person or persons and the applicant party have consented to such joinder in writing”.

4 HKIAC [New Rules], Article 27.1.

5 HKIAC [New Rules], Article 27.2.

6 ICC, Article 10.

7 HKIAC [New Rules], Article 28.3.

8 HKIAC [New Rules], Article 29.

9 HKIAC [New Rules], Article 27.11.

10 HKIAC [New Rules], Article 28.6.

11 HKIAC [New Rules], Article 27.13.

12 HKIAC [New Rules], Article 28.8.

13 HKIAC [New Rules], Article 29.2.

14 HKIAC [New Rules], Article 4.3(h).

15 HKIAC [New Rules], Article 5.1(f).

16 HKIAC [New Rules], Articles 16.2(d) and 17.3(c).

17 HKIAC [New Rules], Article 12.2.

18 HKIAC [New Rules], Article 11.4.

19 ICC, Article 11.2.

20 ICC, Articles 6.3 and 6.4.

21 HKIAC [New Rules], Article 19.4.

22 HKIAC [New Rules], Article 41.

23 HKIAC [Old Rules], Article 38.

24 HKIAC [New Rules], Article 10.1.

25 HKIAC [New Rules], Schedule 2, Article 9.3.

26 HKIAC [New Rules], Article 23.3.

27 HKIAC [New Rules], Articles 23.3 and 23.4.

28 HKIAC [New Rules], Article 23.5.

29 HKIAC [New Rules], Articles 23.6 and 24.

30 HKIAC [New Rules], Article 23.7.

31 HKIAC [New Rules], Article 23.8.

32 HKIAC [New Rules], Article 1.4.

33 HKIAC [New Rules], Schedule 4.

 

DISCLAIMER: 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.

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