This article was written by Paul Starr, Suraj Sajnani and Anthony Dominic Wan.
On 1 November 2018, the Hong Kong International Arbitration Centre (“HKIAC”)’s new administered arbitration rules (“2018 HKIAC Rules”) will come into effect. The 2018 HKIAC Rules introduce impactful changes that will enhance the efficiency with which disputes are resolved, while providing added flexibility and cost management to parties engaged in increasingly complex transactions.
In this alert, we summarise and comment on five key changes in the 2018 HKIAC Rules:
- refinement to emergency arbitration procedure;
- new early determination procedure;
- requirement to disclose third party funding;
- more encompassing provisions for bringing a single arbitration under multiple contracts, concurrent proceedings and HKIAC’s role in joinder applications; and
- deadline for delivery of awards.
The 2018 HKIAC Rules apply to all arbitrations in which a notice of arbitration is submitted on or after 1 November 2018, where the arbitration agreement provides for HKIAC administered arbitration (Article 1.1). However, the new early determination procedure (Article 43) and certain refined provisions for emergency relief (paragraphs 1(a) and 21 of Schedule 4) will not apply where the arbitration agreement was concluded before 1 November 2018, unless the parties expressly agree otherwise (Article 1.5).
Refinement to emergency arbitration procedure
Prior to the 2018 HKIAC Rules, emergency relief could only be sought concurrently with or after the filing of a Notice of Arbitration. The new rules provide added flexibility to parties by allowing an applicant to file an application for emergency relief up to 7 days prior to the submission of a Notice of Arbitration (or such longer time as permitted by the emergency arbitrator (“EA”)) (Paragraphs 1(a) and 21 of Schedule 4).
Additionally, there is now a much welcomed cap on the total fees payable to an EA, which cap may only be displaced if parties agree or if the HKIAC so displaces it in exceptional circumstances (Paragraph 5 of Schedule 4). As at the time of writing, the amount of the cap has yet to be published.
A key addition to the 2018 HKIAC Rules is that the provisions for the grant of interim measures expressly apply to an application for the grant of emergency relief (Paragraph 11 of Schedule 4). Arbitration institutes have had differing approaches to this matter. On the one hand, the lack of a specific test (as in the previous HKIAC Rules, the current SIAC Rules, the current ICC Rules) provides for greater flexibility to the EA to grant relief in exigent circumstances, while remaining guided in practice by the framework for interim measures. On the other hand, a specific test will provide a degree of certainty to parties and a framework for arbitrators and counsel within which to operate.
The HKIAC has also shortened timelines for emergency arbitration: an EA must be appointed within 24 hours (down from 2 days), and a decision as to relief must be granted within 14 days (down from 15 days).
Early determination procedure
The 2018 HKIAC Rules introduce an early determination procedure (Article 43). The parties can now request an arbitral tribunal to determine a point of law or fact in a summary fashion, on the basis that the points of law or fact are (i) manifestly without merit, (ii) manifestly outside the arbitral tribunal’s jurisdiction, or (iii) such that even if assumed to be correct, no award could be rendered in favour of the party submitting those points.
The early determination procedure is an incredibly powerful tool to bring a swift conclusion to a dispute (or part of a dispute), and to halt a party seeking to run unmeritorious arguments for dilatory or strategic purposes. The procedure applies equally to points of fact or law raised in claims or defences. The tribunal must determine whether to allow the request for early determination to proceed within 30 days (article 43.5), and then must make its determination within 60 days thereafter.
Although the procedure is termed “early” determination, an application for early determination can be raised quite late in the proceedings, provided that it is raised “as promptly as possible” after the relevant points of law or fact are submitted (article 43.3).
Disclosure of third party funding
In 2017, Hong Kong enacted laws permitting third party funding (“TPF”) in arbitration. Those laws have yet to fully come into effect, after promulgation of a code of conduct for third party funders.
The 2018 HKIAC Rules have been amended to remain consistent with Hong Kong legislation on TPF. In particular, under the new rules: (i) a party must disclose the existence of a TPF arrangement and the funder’s identity (Article 44.1), (ii) funded parties may disclose arbitration-related information to existing or potential funders (Article 45.3(e)), and (iii) the tribunal may take TPF arrangements into account when determining costs of the arbitration (Article 34.4).
The new rules do not specify how TPF arrangements might impact cost claims.
More encompassing provisions for bringing a single arbitration under multiple contracts, concurrent proceedings, and HKIAC’s role in joinder applications
Previously, a single arbitration could only be brought under multiple contracts if all parties were bound by each agreement giving rise to the arbitration. That requirement has now been removed from article 29 of the 2018 HKIAC Rules. This now means that in a situation where party A and party B have entered into an arbitration agreement, and party B and party C have entered into a separate arbitration agreement, it is possible for an arbitration to be brought involving all three parties under both agreements, despite the fact that there is no privity of contract between two of those parties. This change has the potential to streamline the resolution of complex disputes, such as construction disputes, where often multiple arbitrations arise from the same set of facts (e.g. between employer and main contractor, and between main contractor and subcontractors).
Under the 2018 HKIAC Rules, the tribunal may also run concurrent proceedings (i.e. two arbitrations at the same time) or consecutive proceedings, instead of consolidated proceedings as permitted under the previous rules, in situations where the same tribunal is tasked in multiple arbitrations to consider a common question of fact or law, but is not possible or preferable to consolidate the proceedings.
Another change under the new rules is that prior to constitution of the tribunal, the HKIAC determines whether or not to join additional parties (Article 27.1).
Deadline for delivery of awards
No doubt in response to an oft-heard criticism that arbitrators take lengthy periods of time within which to deliver awards, the HKIAC has now made it a requirement for a tribunal to notify parties at close of proceedings when to expect the award, and that date must be within three months. There are only two circumstances in which the date for an award can be extended: (1) by agreement of the parties, or (2) in appropriate circumstances, by the HKIAC.
The 2018 HKIAC Rules also make further amendments in relation to (i) use of online document repositories for communication (article 3), (ii) encouraging use of technology in arbitration (article 13), and (iii) providing for express rights to request a stay of proceedings pending other means of settlement (e.g. mediation) (article 13.8).
The 2018 HKIAC Rules respond to recent market trends in international arbitration and increasing demands from parties for (i) greater efficiency, (ii) flexible procedures to respond to increasingly complex commercial transactions with often unsynchronised contracts, and (iii) cost management. The amendments are sure to enhance Hong Kong’s role as a leading destination for arbitration in the Asian region, and as the preferred destination for Belt and Road and Greater Bay Area disputes.