The 2013 HKIAC Administered Arbitration Rules (2013 HKIAC Rules) will come into force on 1 November 2013. These Rules, which have been released and are now available on HKIAC’s website,1 are the culmination of an extensive review and public consultation process led by the HKIAC Rules Revision Committee2 and involving leading practitioners, arbitrators and other stakeholders.
The end result is a sophisticated and innovative set of Rules which not only respond to HKIAC users’ feedback following five years’ use of the 2008 HKIAC Rules and ensure consistency with the amended Arbitration Ordinance, but also reflect best practice in international commercial arbitration.
That is not to say that the spirit of the ‘light touch’ style embodied in the 2008 HKIAC Rules has been changed. Users confirmed that the HKIAC’s ‘light touch’ administrative approach, which recognised the importance of party autonomy, had been working very well. Nonetheless, the HKIAC Rules Revision Committee took advantage of the review process to bring the HKIAC Rules completely up to date, and indeed innovate in the realm of international arbitration.
The key changes: an overview
The 2013 HKIAC Rules implement a number of key changes in the following areas:
- the scope of the 2013 HKIAC Rules (article 1);
- the arbitrator appointment process, including the introduction of standard terms of appointments for arbitrators and an hourly fee cap3 (articles 9 and 10, schedules 2 and 3);
- the introduction of provisions for the consolidation of arbitrations and single arbitrations under multiple contracts, as well as amendments to the existing joinder provisions (articles 27, 28 and 29);
- greater guidance on interim measures of protection (article 23) and the introduction of an express power of the tribunal to order security for costs (article 24);
- the introduction of emergency relief provisions (corresponding changes to the Arbitration Ordinance also came into effect on 19 July 2013) (article 23 and schedule 4);
- improvements (by expansion) of the expedited procedure, including raising the applicable monetary threshold for its application from US$250,000 to HK$25 million (article 41); and
- greater clarity on the obligations of confidentiality (article 42).
As confirmed by article 3.12 of the 2013 HKIAC Rules, HKIAC will also be issuing practice notes to supplement the Rules. These practice notes will be made available on HKIAC’s website, and may be amended from time to time as required.
Scope of application – article 1
The first amendment was introduced right at the very beginning in article 1.1. A minor, but not insignificant, change has been made to that article: the 2013 HKIAC Rules will apply where an arbitration agreement provides for arbitration ‘administered by HKIAC’ or words to ‘similar effect’, rather than merely the ‘same effect’.
This change was implemented to address frequently encountered situations where arbitration agreements, particularly those drafted in Chinese, indicated that the parties appeared to intend the HKIAC (Administered Arbitration) Rules to apply, but did not expressly say so.
(Old) article 1.3 of the 2008 HKIAC Rules, which dealt with situations where arbitration agreements provided for the application of the UNCITRAL Rules but with administration by HKIAC, has been deleted from the 2013 HKIAC Rules.
(New) article 1.3 of the 2013 HKIAC Rules confirms the prima facie position that the 2013 HKIAC Rules shall come into force on 1 November 2013 and shall apply to all arbitrations (falling within article 1.1) in which the notice of arbitration is submitted on or after 1 November 2013, unless otherwise agreed by the parties. This is uncontroversial and follows the usual practice, including old article 1.4 of the 2008 HKIAC Rules. Article 1.3, however, is subject to (new) article 1.4.
article 1.4 of the 2013 HKIAC Rules expressly carves out the consolidation (article 28), single arbitration under multiple contracts (article 29) and emergency relief (article 23.1 and schedule 4) provisions from article 1.3, and provides that, absent express contrary agreement of the parties, those provisions shall not apply to arbitrations arising out of arbitration agreements concluded before 1 November 2013. This approach acknowledges that those provisions will be new to existing users of the 2008 HKIAC Rules and therefore will not apply automatically to arbitrations arising from arbitration agreements entered into before the 2013 HKIAC Rules come into effect, even if the notice of arbitration is submitted on or after 1 November 2013. Nonetheless, the parties can agree to opt in to those provisions in agreements made prior to 1 November 2013. In this author’s experience, parties are already choosing to opt in to some of these provisions (particularly the emergency arbitrator provisions) in their arbitration agreements, in order to be able to take advantage of those provisions when the 2013 HKIAC Rules come into effect (if the need arises).
Commencement of the arbitration – articles 5 and 6
articles 5 and 6 have also been amended. For example, it is the parties, rather than HKIAC, who are now responsible for serving their notice of arbitration and answer to the notice of arbitration on all the other parties to the dispute (article 4.3(i) and article 5.3 (g)).
The parties are also obligated to provide their proposal regarding the designation of a sole arbitration or their designation of the relevant party-appointed arbitrator in the notice of arbitration or answer thereto, as appropriate. If the parties do not do this, and do not rectify the position upon request from HKIAC to do so, the notice or answer (as the case may be) will be deemed incomplete and, if it is the notice which is incomplete, the arbitration will be deemed not to have commenced.
This in particular is a welcome change as it serves to speed up the arbitral process and the constitution of the tribunal.3
Appointment of arbitrators – articles 7, 8, 9 and 10
Under the 2013 HKIAC Rules, HKIAC has maintained the two different systems for calculating the fees of the tribunal: (i) by reference to hourly rates (schedule 2); or (ii) pursuant to a schedule of fees calculated within a certain range by reference to the amount in dispute (schedule 3).
Thus, in accordance with articles 9 and 10 of the 2013 HKIAC Rules, the designation of an arbitrator shall be confirmed by HKIAC on the terms of either schedule 2 or schedule 3, and subject to the corresponding fee system: hourly rates as prescribed by schedule 2 or in accordance with the fee schedule set out in paragraph 6.1 of schedule 3.
Again, as with the 2008 HKIAC Rules, where the parties are unable to agree on the method of determining the fees and expenses of the tribunal, and thus inform HKIAC of such agreement within 30 days of the respondent’s receipt of the notice of arbitration, the default position will be that the tribunal’s fees and expenses will be calculated by reference to hourly rates and schedule 2. So far, this tracks the 2008 HKIAC Rules.
However, two important changes have been introduced by the 2013 HKIAC Rules. The first is the introduction of an hourly fee cap for arbitrators, currently set at HK$6,500.5 Higher rates can only be charged by express written agreement of all the parties, or if HKIAC so determines in ‘exceptional circumstances’.6 It would be fair to say that this amendment received the most attention and gave rise to vigorous discussion during the consultation process. Nonetheless, the HKIAC Rules Committee felt that this fee cap, and corresponding control over fees, was vital to ensure HKIAC’s continued success in an ever-more competitive arbitration arena.
The second change is the introduction of standard arbitrator terms of appointment, which are set out in schedule 2 and schedule 3. These terms are essentially the same but have been set out separately in each schedule for the parties’ ease of reference, and thus enable each schedule and fee system to stand alone. These standard terms can only be varied by agreement of all the parties, as well as any changes which HKIAC considers appropriate (article 9.2).
HKIAC anticipates that the uniformity created by these two features will facilitate negotiations around the appointment of arbitrators and accordingly streamline this process and the commencement of the substantive arbitration proceedings.
Interim measures of protection and security for costs – articles 23 and 24
The tribunal’s power to order interim measures of protection is dealt with by article 23. This mirrors to a large extent sections 35, 36, 39, 40, 41 and 42 of the Arbitration Ordinance, which in turn implement articles 17, 17A, 17D, 17E, 17F and 17G of the UNCITRAL Model Law.
There are a couple of differences: article 23.3 of the 2013 HKIAC Rules expressly includes an interim measure being given in the form of an order (as well as an award or other form), as well as providing that the types of interim measure listed in article 23.3 (a) to (d) are given only by way of ‘example and without limitation’.This contrasts with article 17 of the UNCITRAL Model Law (given effect to by section 35 of the Arbitration Ordinance), which provides an apparently finite, albeit comprehensive, list of interim measures of protection.
The tribunal’s power to award security for costs, which mirrors section 56(1)(a) of the Arbitration Ordinance, is contained in article 24 of the 2013 HKIAC Rules. In initial drafts of the Rules, this power was contained within article 23. However, during the consultation process, practitioners expressed a desire to have that power carved out into a separate article. Hence the creation of article 24 – Security for Costs.
Emergency relief – article 23.1 and schedule 4
The 2013 HKIAC Rules
The 2013 HKIAC Rules introduce the ability of a party to seek urgent interim or conservatory relief (referred to as ‘emergency relief’) from an ‘emergency arbitrator’ prior to the constitution of the tribunal.
The power of the parties to apply for such emergency relief can be found in article 23.1, with the substantive emergency relief procedure being set out in schedule 4. As noted above, these provisions are not retrospective in that they do not apply automatically where the agreement to arbitrate was signed before 1 November 2013 (ie, before the 2013 HKIAC Rules come into effect).
The introduction of emergency relief provisions reflects attempts to offer ‘fast-track’ options to parties requiring urgent relief, when in reality it can take weeks, and sometime even months, to constitute the tribunal. As emphasised in paragraph 22 of schedule 4, the emergency relief procedure is not intended to exclude the role of the courts in providing emergency protection in appropriate circumstances. Indeed, certain types of interim relief (for example, ex parte applications for freezing injunctions) are, for obvious reasons, likely to remain the domain of the national courts. Nonetheless, statistics from institutions which have already implemented emergency relief provisions7 demonstrate that parties are increasingly taking advantage of the ability to invoke the assistance of an emergency arbitrator and that this avenue of relief can in many circumstances (and for many varied reasons) be more attractive than seeking the same relief from the national courts.
Key features of the emergency relief provisions set out in schedule 4 include the following:
- the application for emergency relief can be filed concurrent with, or following, the filing of the notice of arbitration and prior to the constitution of the tribunal (paragraph 1);
- the applicant must also pay the ‘application deposit’ stipulated by HKIAC on its website, consisting of HKIAC’s administrative expenses and the emergency arbitrator’s fees and expenses (paragraphs 1 and 6);
- the emergency arbitrator’s hourly rate is capped at the same rate applicable to the tribunal,8 although HKIAC has the power to increase the emergency arbitrator’s fees and its own expenses taking into account the nature of the case and the work performed by the emergency arbitrator (paragraph 6);
- if HKIAC determines that it should accept the application, it must seek to appoint an emergency arbitrator within two days after receipt of both the application and the ‘application deposit’ (paragraph 5);
- after appointment of the emergency arbitrator, HKIAC must notify the parties and transmit the file to the emergency arbitrator (paragraph 7);
- the emergency arbitrator has complete discretion to conduct the emergency relief proceedings in any manner which he or she considers appropriate (paragraph 11);
- the emergency arbitrator may give emergency relief in the form of a decision, order or award (‘emergency decision’), and such relief must be given within 15 days from when HKIAC transmitted the file to the emergency arbitrator, subject to this period being extended by agreement of the parties or by HKIAC in appropriate circumstances (paragraph 12);
- any emergency decision shall have the same effect as an interim measure granted pursuant to article 23 of the Rules (paragraph 16);
- a party can apply to the emergency arbitrator or the tribunal (once constituted) for a modification, suspension or termination of an emergency decision (paragraph 18);
- any emergency decision ceases to be binding if the emergency arbitrator or the tribunal so decides, upon the tribunal giving a final award (unless the tribunal expressly decides otherwise), upon the withdrawal of all claims or the termination of the arbitration, or if the tribunal is not constituted within 90 days from the date of the emergency decision (paragraph 19). Although this latter period can be extended by agreement of the parties or, in appropriate circumstances, by HKIAC, the parties should keep a close watch on this time period to ensure that the emergency decision does not expire before the tribunal is constituted;
- the emergency arbitrator’s powers cease upon the constitution of the tribunal (paragraph 20), save that an emergency decision may be made even if the file has been transmitted to the tribunal (paragraph 13). Moreover, an emergency arbitrator cannot act as arbitrator on the tribunal, unless otherwise expressly agreed by all the parties to the arbitration (paragraph 21); and
- in all matters not provided for in schedule 4, the emergency arbitrator is to act in the spirit of the 2013 HKIAC Rules (paragraph 24). This provision mirrors article 13.7 and is important, not least because it grants wide powers to the emergency arbitrator to deal with situations not expressly contemplated by the Rules.
Consequential changes to the Arbitration Ordinance
In conjunction with the drafting of the emergency relief provisions, HKIAC worked closely with the Hong Kong Department of Justice to draft complementary amendments to the Arbitration Ordinance to ensure that emergency relief granted by an emergency arbitrator (whether in or outside Hong Kong) would be enforceable in Hong Kong.
The Arbitration (Amendment) Bill 2013 was introduced into the Legislative Council of Hong Kong (LegCo) in April 2013 and subsequently passed in July 2013. The provisions relating to the enforcement of emergency relief came into force on 19 July 2013.
The relevant amendments introduce a new part 3A into the Arbitration Ordinance entitled ‘Enforcement of Emergency Relief’. Within that part 3A, new section 22A adds a definition of an emergency arbitrator and new section 22B deals with the enforcement of the emergency relief.
Pursuant to section 22B(1), emergency relief, whether granted in or outside Hong Kong by an emergency arbitrator, is enforceable, with leave of the court, in the same manner as an order or direction of the court that has the same effect. Section 22B(2) adds a proviso to the effect that the court will only grant leave to enforce emergency relief granted outside Hong Kong if it is satisfied that the nature of the emergency relief is such that it could have been granted in Hong Kong.9 This was added simply as a matter of policy, and mirrors section 61 of the Arbitration Ordinance dealing with the enforcement of a tribunal’s orders or directions.
The extent of the amendments and the speed with which they were settled by the Department of Justice, introduced into LegCo and brought into force on 19 July 2013 are testimony to the Hong Kong government’s commitment to the continued development of international commercial arbitration in Hong Kong.
Multiple parties and contracts – articles 27 – 29
Perhaps the most innovative changes introduced by the 2013 HKIAC Rules (in addition to the emergency arbitrator provisions discussed above) are the changes in article 27 (Joinder of Additional Parties), article 28 (Consolidation of Arbitrations) and article 29 (Single Arbitration under Multiple Contracts). As noted above, articles 28 and 29 do not have retrospective application and do not, therefore, apply automatically to arbitrations arising out of agreements to arbitrate entered into before 1 November 2013.
Increasingly, claims raised are subsets of the same dispute, involving multiple parties and, sometimes, multiple contracts. The changes introduced by articles 27 to 29 are designed to reflect this development and generally to deal with the growing complexity of commercial disputes involving multiple parties and contracts.
In respect of joinder, the joinder provisions have been strengthened and expanded. In summary:
- HKIAC has been given the express power to join an additional party to the arbitration proceedings where the request for joinder is received before the tribunal is constituted (article 27.8); and
- the tribunal has the power to allow an additional party to be joined to the arbitration, provided that such additional party is bound by an arbitration agreement under the 2013 HKIAC Rules giving rise to the arbitration. Article 27.1 confirms that this includes any arbitration under article 28 or article 29.
article 28 is entirely new. It gives HKIAC the power to consolidate two or more arbitrations at a party’s request and after consulting with all parties. In essence, the factors which HKIAC must take into consideration in deciding whether to consolidate are similar to the joinder criteria with an additional ground provided by article 28.1(c), namely where ‘the claims are made under more than one arbitration agreement, a common question of law of or fact arises in both or all of 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 to be compatible’.The timing of the application will be relevant – see article 28.3. Thus, a request for consolidation will have more chance of success when the constitution of the tribunals of the different arbitrations being considered for consolidation is at an early stage.
Single arbitration under multiple contracts
article 29 is also entirely new.4 article 29 provides that claims arising out of or in connection with more than one contract may be made in a single arbitration provided that the conditions set out in article 29.1(a) to (d) are met. Again, these conditions are similar to the criteria for consolidation, except that article 29.1(a) expressly provides that all the parties to the arbitration must be bound by each arbitration agreement giving rise to the arbitration.
Waiver – appointment of arbitrators
In respect of both joinder and consolidation, the parties give power to HKIAC to revoke the appointments of any arbitrators already designated or confirmed.11 Thus, article 27.11 (joinder) provides that where an additional party is joined to the arbitration before the tribunal is confirmed, all parties to the arbitration shall be deemed to have waived their right to designate an arbitrator, and HKIAC may revoke the appointment of any arbitrators already designated or confirmed and proceed to appoint a new tribunal. Similarly, article 28.6 (consolidation) provides that where HKIAC decides to consolidate two or more arbitrations, the parties thereto shall be deemed to have waived their right to designate an arbitrator, and HKIAC may revoke the appointment of any arbitrators already designated or confirmed and proceed to appoint a new tribunal in respect of the consolidated proceedings.
Waiver – enforcement of award
In all cases of joinder (article 27.13), consolidation (article 28.8) or single arbitrations under multiple contracts (article 29.2), the parties expressly waive12 any objection to the validity or enforcement of any award made by the tribunal in the arbitration on the basis of joinder, consolidation or the commencement of a single arbitration, as the case may be. This waiver is an important one, and emphasises the fact that by agreeing to arbitrate under the 2013 HKIAC Rules (excluding arbitration agreements entered into before 1 November 2013) the parties are thereby fully accepting the associated application of the joinder, consolidation and single arbitration under multiple contract provisions, and cannot use any action taken under those provisions to resist enforcement in the future.
Expedited procedure – article 41
Consistent with the trends to enable more arbitration proceedings to be fast-tracked when it would be appropriate to do so, the 2013 HKIAC Rules expand the application of the expedited procedure.
In addition to raising the monetary threshold for the application of the expedited procedure from US$250,000 (article 38.1 of the 2008 HKIAC Rules) to HK$25 million, the expedited procedure will also apply where (i) the parties agree and (ii) in cases of exceptional urgency (to be determined by HKIAC after considering the views of the parties).
HKIAC expedited arbitration proceedings will have the following features:
- the appointment of a sole arbitrator (unless the arbitration agreement provides for a tribunal of three arbitrators, in which case HKIAC will invite the parties to agree to refer the case to a sole arbitrator) (article 41.2(a) and (b));
- HKIAC may shorten both the time limits provided for in the Rules, as well as any time limits which it has set (article 41.2(c));
- the presumption is that the tribunal shall decide the dispute on the basis of documentary evidence only and the tribunal will only have oral hearings if it considers it appropriate to do so (article 41.2(e)); and
- the award shall be rendered within six months from the date when HKIAC transmitted the file to the tribunal. HKIAC retains the power to extend this deadline, but will only do so in exceptional circumstances (article 41.2(f)).
Pursuant to article 41.3, however, and even where the monetary claims fall under the HK$25 million threshold, the expedited procedure will not apply to any proceedings consolidated under article 28 or to any arbitration commenced under article 29 of the 2013 HKIAC Rules, unless the parties expressly agree otherwise.
Confidentiality – article 42
Finally, as highlighted in the introduction, the confidentiality provisions have been clarified and now expressly reflect section 18 of the Arbitration Ordinance.
article 42.2 confirms that the obligations of confidentiality also apply to HKIAC, the tribunal (and any tribunal secretary), any emergency arbitrator appointed, and any expert or fact witness.
article 42.5 retains HKIAC’s power to publish awards.5 Specifically, an award will only be published (whether in full form, summary form or by way of an extract) where a specific request has been made to HKIAC, the parties’ names have been deleted from the award and no party to the award has objected to such publication within the time limit set by HKIAC. This is an important function and there was overwhelming support for its retention, but the parties similarly retain the power of veto should they wish to keep the award entirely confidential.
This article set out to explore whether the 2013 HKIAC Rules are a game-changer for Hong Kong arbitration; the author’s personal view is that they are. That is not to say that the 2008 HKIAC Rules were not working well, because they were. Nonetheless, the 2013 HKIAC Rules are state of the art and have already generated a great deal of discussion and interest. There can be no doubt that Hong Kong has for a long time been a serious player in the world of international commercial arbitration, but the introduction of the 2013 HKIAC Rules – which follows hot on the heels of the unveiling of HKIAC’s fabulous new premises – arguably puts Hong Kong at the forefront of arbitration centres worldwide.
- HKIAC Rules Revision Committee: Chiann Bao (Secretary-General, HKIAC); Matthew Gearing (Council Member, HKIAC and Chairperson of HKIAC Rules Revision Committee); Peter Caldwell (Council Member, HKIAC); Justin D’Agostino (Council Member, HKIAC); Joe Liu (Allen & Overy, Hong Kong); Michael Moser (Honorary Chairperson, HKIAC); Kathryn Sanger (Council Member, HKIAC) and Briana Young (Herbert Smith Freehills, Hong Kong).
- Currently HK$6,500 per hour.
- Under the 2008 HKIAC Rules, the parties were given the option of designating their respective arbitrators, or giving their proposals as to a sole arbitrator.
- This compares with the LCIA’s current hourly rate of £450 (effective 30 March 2013). Pursuant to paragraph 9.4 of schedule 2, an arbitrator may increase his or her hourly rate by up to 10 per cent on each anniversary of the confirmation of his or her appointment. It should be borne in mind that this is a maximum sum, and that many arbitrators arbitrating under the 2013 HKIAC Rules will charge below this cap.
- Paragraph 9.5, schedule 2.
- Similar provisions can be found in the ICC Rules, SCC Rules, Swiss Rules and the SIAC Rules. SIAC reports that as at July 2013, 27 applications for emergency relief have been made since the SIAC Rules (4th Edition – which first introduced the emergency relief provisions) came into force on 1 July 2010.
- Currently HK$6,500 per hour.
- In this regard, section 22B(2) (a) – (f)) sets out a comprehensive but exhaustive list of interim measures recognised under the Arbitration Ordinance, taken from Sections 35, 40 and 56 of the Arbitration Ordinance.
- article 29 is similar to article 9 of the 2012 ICC Rules.
- Like all powers granted to HKIAC, this express power is granted by virtue of the parties’ agreement to arbitrate under the 2013 HKIAC Rules, and is consistent with the provisions of the Arbitration Ordinance; see for example article 15 of the UNCITRAL Model Law, given effect to by section 28 of the Ordinance.
- To the extent such waiver can validly be made.
- See article 38.3 of the 2008 HKIAC Rules.