Update on Hong Kong Arbitration: Hong Kong’s new Arbitration Ordinance and HKIAC to expand

June 2011

Contacts

Introduction

On 1 June 2011, the much anticipated Hong Kong Arbitration Ordinance (Cap. 609) (the AO) came into effect. This new legislation, based largely on the UNCITRAL Model Law on International Commercial Arbitration (the Model Law), will not only make Hong Kong’s arbitration law more user-friendly but will also cement Hong Kong’s position as a leading arbitration centre in Asia and as an international centre for dispute resolution.

By enabling participants to operate within an arbitration regime that accords with widely accepted international practices and development and as the Model Law is familiar to participants from both civil law and common law jurisdictions, the AO will certainly promote Hong Kong within the international business community as an attractive place to conduct arbitrations.

Rachel Bendayan and Stephen Drymer, co-Chair of International Arbitration of Norton Rose OR LLP in Canada commented that “the introduction of the Arbitration Ordinance is perfectly timed to take advantage of the growing cross-border investment and trade in Asia and the international and domestic disputes arising therefrom. The fact that it creates a unitary regime for both domestic and international arbitrations based on the well known Model Law makes Hong Kong an even more inviting home for arbitrations.

Michael Hart of Norton Rose South Africa comments, “The new Hong Kong Arbitration Ordinance will be well received in Africa in general and South Africa in particular because the exponential increase in trade with China makes Hong Kong a logical forum for dispute resolution. South African traders and shippers will be familiar with the process and like its new format.

HKIAC on the move

In keeping with these positive changes, the Hong Kong International Arbitration Centre, a leading international arbitration institution, has announced it will be doubling the size of its premises in Hong Kong’s business district. The centre’s workload has increased dramatically in the last few years and its representatives have been lobbying the government for more space for some time.

We recall the main features of the AO below and comment on a recent Hong Kong case. For full details please see our 15 March 2011 article linked below.

Hong Kong’s New Arbitration Ordinance

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Mediation in the process of arbitration proceedings

Under the AO, an arbitrator may act as mediator in arbitration proceedings seated in Hong Kong if all parties have provided their written consent. In the event that a settlement is not reached in the mediation, no objection may be made against the person continuing to act as arbitrator solely on the ground that the person acted as mediator.

This approach is not often used in Hong Kong due to concerns about impartiality. However, in jurisdictions such as China, this “two hats” approach is more widely used and is thought in many instances to speed up the process and to save time and costs. In its recent decision in Gao Haiyan and Xie Heping v Keeneye Holdings Ltd and others [2011] HKEC 514, the Hong Kong Court of First Instance considered whether, in relation to an application for setting aside the enforcement of an Xian Arbitration Commission (XAC) award, a XAC arbitrator-turned-mediator created an apparent bias in the conduct of the mediation process. It was found that after the XAC arbitration had commenced, the XAC arbitrator-turned-mediator set up a “mediation” dinner at the Xian Shangri-La Hotel with a third-party related to an arbitral party, where he told the third party of the tribunal's settlement proposal and asked him “to work on” that arbitral party to accept such proposal. The Court’s view was that “a mediator who may be sitting as arbitrator in the same case must be particularly careful not to convey to one party or the other the impression of bias”. The Court found that the conduct of the mediation in the circumstances gave rise to an apprehension of apparent bias and ordered that the XAC award be set aside on the grounds that it was contrary to the public policy of Hong Kong. This is a very rare example of an international award being refused enforcement by Hong Kong on the grounds of public policy; Hong Kong has a pro-enforcement record demonstrating Hong Kong’s pro-arbitration stance.

With respect to enforcement, it is significant that the AO has added a new section on the enforcement of arbitral awards which provides that awards that are not made in a New York Convention state or in mainland China can be enforced on a discretionary basis and without the need to demonstrate reciprocity.

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Opt-in provisions for ''domestic'' arbitration

The AO replaces the old Arbitration Ordinance (the old law). A key feature of the old law was dual regimes for domestic arbitrations and international arbitrations (effectively, arbitrations with an international element). The AO abolishes this distinction and establishes a unitary regime based on the Model Law which will apply to all arbitrations.

The AO allows parties to tailor their clauses by choosing to apply a number of the provisions which were applicable to “domestic” arbitrations under the old law. These opt-in provisions, if chosen, apply to any Hong Kong seated arbitration (whether involving Hong Kong parties or whether it is “international”).

The opt-in provisions, which parties can incorporate into their arbitration agreements either individually or entirely, relate to:

  1. the default number of arbitrators are three;
  2. the consolidation of arbitrations (power of the court);
  3. Hong Kong court decisions on preliminary points of law;
  4. appeals on the ground of serious irregularity; and
  5. appeals on points of law.

Where these opt-in provisions apply, the Hong Kong courts will have wider powers to intervene in the arbitration proceedings than they would have under a Model Law arbitration, where recourse to court is limited.

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Confidentiality

Under the AO, the default position is that court proceedings commenced in aid of arbitration proceedings are to be heard in private, subject to the court’s power to order the proceedings to be heard in open court. The new position accords with the general perception that arbitration is a confidential process and is intended to balance the need to protect confidentiality with public interest issues of transparency of process and public accountability of the judicial system.  An order made by the Court of First Instance in this respect is not subject to appeal.

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Norton Rose Arbitration Group

Norton Rose has a leading international arbitration group. The recent addition of Norton Rose OR LLP’s highly respected practice and Norton Rose South Africa provides an enhanced group with recognized international specialists and true global reach.

The combined practice has a portfolio of over 160 arbitration cases. Currently we have 15 practitioners sitting as arbitrators, and five practitioners listed in The International Who's Who of Commercial Arbitration, including L. Yves Fortier, undoubtedly one of the world's top arbitrators.

As Joe Tirado, Head of international arbitration and ADR London comments, “We are all very excited by the expansion of the Group. We believe that our combined practices will offer a truly unique offering that is unmatched anywhere in the world. Although our Canadian and South African colleagues formally joined on June 1st, we have been working in close co-operation since the expansion was announced.

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