A Vintage Year for Hong Kong Arbitration

If anyone is wondering why Hong Kong enjoys such a great reputation as Asia’s premier hub for arbitrating international disputes, a simple review of arbitration activities over the past year should provide ample evidence. The courts, the executive arm of government and the members of the arbitration community have had an impressively productive year.

The Background: Good law, good judges, good institutions, good practitioners

 Hong Kong was one of the very first jurisdictions to adopt the UNCITRAL Model Arbitration Law; many seminal arbitration-related judgments have since issued from the Hong Kong courts. In 2011, Hong Kong again in the vanguard — among the first to adopt the amended version of the Model Law in its Arbitration Ordinance. The 2011 law is accessible and easy to navigate even for those unused to dealing with Hong Kong legislation. The Ordinance is self-contained, with all the material provisions contained within in one place. In addition to the classic Model Law provisions, Hong Kong’s law encourages arbitrators to proceed with diligence and without undue expense. It provides for the recognition and enforcement of interim measures ordered by arbitral tribunals sitting both in and outside Hong Kong. The courts are to intervene only when expressly authorised to do so, and in a supportive rather than a restrictive sense. The law recognises the confidentiality of the arbitration proceedings, but also of arbitration-related court proceedings which are generally heard in camera unless the parties agree otherwise. An opt-in system, requested by representatives of the construction industry allows for consolidation of arbitrations by the court and for a limited right of appeal on a point of law.

Hong Kong judges, as will be clear below, complement the legislation with a keen sense of their role in supporting the arbitration process.  Hong Kong is a major hub for trade and finance, so it is no surprise to learn that its courts are crowded and delays can be severe. Judges, far from regarding arbitrators as usurping their work, welcome arbitration as relieving some of the pressure by taking often complex commercial cases out of the court system and resolving them privately. Judges respect the wishes of parties who have chosen this alternative outside the court, and they realise that it is in everyone’s interest to make the arbitration process work efficiently, without interference from the courts.

Hong Kong itself is strategically placed in the centre of Asia, an accessible and comfortable venue for both Asians and western partners. It is home to the award-winning Hong Kong International Arbitration Centre, now celebrating 35 years of scholarship and service to the dispute resolution community and renowned for its first-class arbitrators, personnel and facilities for arbitration administration and hearings.  ICC Asia, the first “branch office” of the International Chamber of Commerce, was established in 1997; since 2007 parties have had the choice of initiating arbitration procedures in the Hong Kong office if it is more convenient for them than sending files to Paris.  In Hong Kong, over 1800 Asia members form the single largest contingent of the 14,000 members of the Chartered Institute of Arbitrators, providing training and qualifications to practitioners around the Asian region. The Hong Kong Institute of Arbitrators also trains practitioners and judges both in Hong Kong and in Mainland China. Arbitration Chambers is China’s first set of chambers dedicated to international arbitration, with tenants from around the world. CIETAC, China’s largest arbitration institution, has recently established a Hong Kong office to administer arbitrations.

All three of Hong Kong’s law schools offer graduate level degrees in arbitration and dispute resolution. The Vis East International Commercial Arbitration Moot[i], now in its 13^th season, hosts over a thousand students, plus coaches and arbitration professionals from around the world each spring. The Vis Moot offers law students a unique opportunity to prepare and argue a realistic case before experienced arbitration lawyers and arbitrators, and to receive valuable feedback and practical advice over a week of hard work and hard partying. Aside from the enormous educational benefits, the Moot also fosters the development of international and intercultural understanding, cooperation and friendship. Mooties (both students and professionals) often return year after year, forging friendships and contacts which can last a lifetime.

The Arbitration News of 2015

The very first milestone of 2015 was the arrival of the newest version of CIETAC’s Arbitration Rules, which entered into force on January 1. In line with other modern rules the largest Chinese arbitration institution now provides for an Emergency Arbitrator procedure, a mechanism for the Secretariat to appoint an arbitrator in disputes involving multiple contracts, a power for CIETAC to consolidate proceedings, and for the joinder of third parties by the tribunal. Special provisions for arbitrations taking place in Hong Kong include the possibility for parties to name an arbitrator who is not on the CIETAC roster, as well as a separate pay scale for arbitrators sitting in Hong Kong. In an Appendix, the new Rules also deal with the fallout of the famous “schism” of the Shanghai and Shenzhen CIETAC offices. And the monetary limit for the summary procedure provided by article 56 of the CIETAC Rules is now increased to RMB 5 million.

In March the Hong Kong Court of Appeal decided that there could be no appeal from a decision of the Court of First Instance refusing leave to appeal a decision ordering enforcement of a decision from Mainland China. The court found that there was a deliberate policy to restrict rights of appeal in arbitration-related cases, and confirmed the CFI decision.[ii]

In April, in the case of Ever Judger Holding Co. v Kromen Celik,[iii] the Court of First Instance issued the first anti-suit injunction, enjoining a claim for damaged cargo initiated in the Turkish courts, in breach of an agreement to arbitrate in Hong Kong contained in the relevant bills of lading.

On a different note, in May, when the Shanghai organisers of the 19^th International Congress of Maritime Arbitrators were suddenly unable to complete preparations, the Hong Kong Maritime Arbitration Group and the HKIAC dramatically stepped in at the last minute to host several hundred delegates at a very successful meeting. As one of the busiest ports in Asia – and indeed, in the world — Hong Kong has no shortage of maritime experts.

In a rather unfortunate case in July[iv], Hong Kong Court of First Instance had to deal with competing jurisdiction clauses in a multi-contract dispute. In this case, the arbitration clause included the respondent’s counter-claim, but did not encompass the claimant’s original claim. The judge stayed the counter-claim in favour of arbitration, but found no legal basis to stay the claim. Observing that this solution could produce a potential “forensic nightmare” of parallel proceedings and potentially contradictory decisions, the judge did suggest as a case management solution that it would be “appropriate” for the claimant to delay its action until the arbitration case finished, to avoid duplication of efforts and resources and possibly inconsistent results.

The Court of Appeal spoke out once more in August, to uphold the constitutionality of section 81(4) of the Arbitration Ordinance in the face of a challenge. Section 81(4) provides that a party wishing to appeal from a CFI decision setting aside an award must first obtain leave to appeal from the CFI. The Court of Appeal had to decide who should be the “gatekeeper” controlling access to appeals. Recognising that, by leaving control with the CFI the provision did to some extent restrict the adjudicatory power of the Court of Final Appeal, the Court of Appeal nevertheless decided that the restriction was necessary to achieve legitimate aims (of minimising court intervention in arbitration) and was thus constitutionally valid.[v]

An application in September to set aside an enforcement order provided Justice Mimmie Chan with the opportunity to emphasise Hong Kong’s policy of minimal court intervention. Referring to the Hebei Import & Export v Polytek case of 1999 and the 2012 case of Grand Pacific Holdings v Pacific China Holdings, Justice Chan enunciated ten principles to be applied by Hong Kong courts in dealing with enforcement of awards:

1. The court’s primary aim is to facilitate the arbitration and assist with enforcement.
2. The court should intervene only as expressly provided by statute.
3. Subject to public interest safeguards, parties should be free to settle their disputes as they see fit.
4. Enforcement of awards should be “mechanistic” – almost a matter of administrative procedure.
5. A party opposing enforcement must show a real risk of prejudice, and that its rights have been violated in a material way.
6. The court is concerned with the integrity of the process; complaints must be serious or even egregious.
7. In deciding whether to refuse enforcement the court does not look into the merits of the underlying transaction.
8. Failure to make timely objection may constitute estoppel, waiver or lack of bona fides.
9. Even if grounds are made out to refuse enforcement the court has discretion to enforce.
10. Parties to arbitration have a duty of good faith.

Justice Chan then dismissed the application and ordered costs on an indemnity basis against the unsuccessful applicant, in keeping with Hong Kong’s now established practice.[vi]

On a lighter note

October saw Hong Kong hosting the second annual Hong Kong Arbitration Week, with six days of conferences and social activities organised by local firms and arbitration organisations as well as visitors such as the Spanish Commercial Arbitration Court (CIMA)[vii] of Madrid, and ArbitralWomen[viii], a Paris-based international dispute resolution network. During that week, the fourth annual Hong Kong Arbitration Charity Ball attracted some 600 revellers and raised over HK$1,200,000, mainly for the benefit of “Watchdog”, a local charity providing early educational services to children affected by autism, cerebral palsy or Downs’ Syndrome. Community service is yet another facet of the arbitration community of Hong Kong.

Creative financing for the future?

Also in October, just in time for Arbitration Week, Hong Kong’s Law Reform Commission unveiled a Consultation paper recommending that third party funding be allowed for arbitrations seated in Hong Kong. Hong Kong is not only a busy place for dispute resolution; it can also be prohibitively expensive.   Supporting its proposals as increasing access to justice, the authors of the Consultation paper pointed out that third parties could provide alternate sources of funding to claimants with legitimate claims, but who lacked the cash to pursue them. The paper included a study of current law and practices in England, Australia, Singapore, China and the US.

The Commission invites comments, by January of 2016, on topics including the possible legal framework for TPF, ethical and financial standards for funders, confidentiality and potential conflicts of interest, disclosure of TPF to the tribunal and to other parties, costs, a complaints procedure, and whether regulation should be by the government or self-regulation through an industry code of ethics.

To cap a great year, on November 20 the Hong Kong International Arbitration Centre became the first and only international arbitration centre to establish an office in Mainland China. The new office in Shanghai is the second HKIAC outpost, the first being in Seoul. Speaking at the opening ceremony, Secretary for Justice   Rimsky Yuen said that the move would make Hong Kong’s first class arbitration services more accessible to those in the region.

Clearly, Hong Kong’s is a dynamic community focussed on its professional responsibilities. What sets it apart though, is that Hong Kong’s arbitration community is not content to rest on its laurels, but also possesses the vision to see the broader picture and to imagine the future. Hong Kong is, most definitely, a good place to arbitrate.

 

[i] See: www.cisgmoot.org

[ii] Guangdong Changshong Electric v Inspur [2015] 2 HKLRD 714

[iii] [2015] 3 HKC 246

[iv] CPC Construction v Harvest Engineering and anor (HCA 2096/2013)

[v] China International Fund Ltd v Dennis Lau (Secretary for Justice intervening) [2015] HKEC 1626

[vi] KB v S (HKCC 13/2015)

[vii] See: www.arbitrajecima.com

[viii] See: www.arbitralwomen.org