The effective date of the much anticipated Hong Kong Arbitration Ordinance (the AO) has been announced; it comes into force on 1 June 2011. 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 a regional centre for legal services and dispute resolution. Moreover, by enabling participants to operate within an arbitration regime that accords with widely accepted international practices and development and with the Model Law being familiar to participants from both civil law and common law jurisdictions, the AO is designed to promote Hong Kong to the international business community as an attractive place to conduct arbitrations.
The AO will replace the current Arbitration Ordinance (the old law). A key feature of this was the different regimes for domestic arbitrations (i.e. arbitrations involving Hong Kong parties) 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 and not merely to "international commercial arbitration". This approach is similar to the approach taken in other jurisdictions such as the United Kingdom and Singapore.
A synopsis of some of the key features of the AO is set out below.
It will remain the case that an arbitration agreement must be in writing. However, from 1 June 2011, this requirement can be satisfied by an electronic communication (including, for example, communications by electronic data exchange, electronic mail or telegram) if the information is accessible so that it may be used for subsequent reference. Obviously, this is in line with today's wide-spread use of technology in business and has brought the arbitration law up to date with modern practice.
Opt-in provisions for "domestic" arbitration
The Model Law's unitary regime will apply to all arbitrations as opposed to only those arbitrations with an international element. However, the AO allows parties to tailor their clauses by choosing to apply a number of the provisions which under the old law were only applicable to "domestic" arbitrations. These opt-in provisions, if chosen, will apply to any Hong Kong seated arbitration (whether involving Hong Kong parties or whether having an international element).
The opt-in provisions, which parties can incorporate into their arbitration agreements either individually or entirely, relate to:
- the default number of arbitrators;
- the consolidation of arbitrations;
- court decisions on preliminary points of law;
- appeals on grounds of serious irregularities; and
- appeals on points of law.
Where these opt-in provisions apply, the 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 relatively limited.
Importantly, in order to cater for the widespread use of standard form contracts in Hong Kong and to allow parties a period to change these, there is a transitional period for arbitration agreements entered into before the commencement of the AO or for six years after which provide that arbitration under the agreement is domestic arbitration. Under this arrangement, the opt-in provisions will automatically apply to these agreements unless agreed otherwise. The AO also addresses concerns raised by the construction industry and provides automatic opt-in for all Hong Kong construction subcontracting cases under the umbrella of a main contract which provides for domestic arbitration.
Interim measures and preliminary orders (in aid of arbitration proceedings)
A Hong Kong seated arbitral tribunal is able to grant interim measures and preliminary orders relating to, for example, injunctive relief and orders for the preservation of assets and evidence, in respect of any arbitration proceedings commenced (unless the parties have agreed otherwise). As an arbitration friendly jurisdiction, Hong Kong courts also have the ability to grant interim measures in aid of:
- arbitration proceedings commenced in Hong Kong; and
- so long as certain elements are satisfied, arbitration proceedings commenced outside Hong Kong.
The Hong Kong courts' ability to grant interim measures in relation to arbitration proceedings commenced outside of Hong Kong is a relatively new feature of Hong Kong arbitration law. Under the AO, the test for granting interim measures with respect to non-Hong Kong seated arbitrations is more clearly defined. Specifically, not only must the arbitration proceedings be capable of giving rise to an award (whether interim or final) that may be enforceable in Hong Kong, the interim measures sought must be of a type which may be granted by the Hong Kong courts in relation to Hong Kong seated arbitrations.
The arbitral tribunal's powers to make orders for security for costs, discovery of documents, and directions that evidence is given by way of affidavit are separately provided for under the AO.
The AO has changed the rules on confidentiality of court proceedings commenced in aid of arbitration proceedings. The default position will be that proceedings are to be heard in private but the court has the discretion to order the proceedings to be heard in open court on the application of any party, or if the court is satisfied that those proceedings ought to be heard in open court. This is to be contrasted with the position under the old law where the presumption was that proceedings should 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.
Where court hearings are conducted in private (e.g. closed court), the court must not make a direction permitting information to be published unless all parties have agreed or the court is satisfied that the information, if published, would not reveal any matter that any party reasonably wishes to remain confidential. This makes sense in light of the default position being to preserve confidentiality.
The AO preserves the rules that parties are deemed to have agreed not to publish, disclose or communicate any information relating to the arbitral proceedings or an award made in those proceedings (subject to a few statutory exceptions).
Mediation in the process of arbitration proceedings
There are some interesting provisions in the AO relating to the interplay of mediation and arbitration. As with disputes in a litigation forum, parties are increasingly turning to ADR processes. The AO allows an arbitrator sitting on the tribunal of a Hong Kong seated arbitration to act as mediator in respect of those proceedings after the arbitral proceedings have been commenced, so long as all parties have consented in writing. In the event that 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.
Whilst not a new feature of the law, having the one person wear two hats (i.e. act as arbitrator and mediator) is not a process that has been often used in Hong Kong. One concern in employing this approach is that an arbitrator who has previously acted as mediator may have acquired information during the course of the mediation which prevents him from being impartial during any subsequent arbitration. 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.
Similar to the conciliation process provided under the old law, the AO envisages that where an arbitrator obtains confidential information from a party during the course of a mediation and the mediation terminates with no settlement having been reached, the arbitrator must disclose to all other parties as much of that information as the arbitrator considers material to the arbitral proceedings. The obvious concern is that this provision may discourage parties from engaging in a full and frank discussion of their respective positions during the course of mediation, in the fear that information may be used against them at a later stage if the matter does not settle. Again, this type of system will be familiar to parties from civil law systems such as China where similar procedures apply in CIETAC arbitrations.
Looking forward past 1 June 2011
The AO will help to reinforce Hong Kong's position as one of the leading international arbitration centres, especially in relation to disputes with a China element, and to uphold its position as a pro-arbitration jurisdiction where the Hong Kong courts generally adopt a non-interventionist approach in relation to Model Law arbitrations and where they are pro-enforcement of awards.
The adoption of a unitary regime applying the Model law is in accordance with other modern arbitration jurisdictions and its familiarity will be likely to attract international users of arbitration. At the same time, the new opt-in provisions will provide comfort to Hong Kong users familiar with the domestic regime under the old law and to those parties who seek greater court intervention.
It is hoped that the AO will help to continue to portray Hong Kong to both the international and local business communities and arbitration practitioners as an attractive place to conduct arbitrations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.