*[co-author: Max Marshall]

ARBITRATION INDEX

When parties plan to resolve disputes by arbitration, there are several key considerations regarding procedure. In the second of a multi-part series, we look at two key features to consider when drafting (and applying) your arbitration agreement:

• What rules will apply to the arbitration process? (the Rules), and
• What national law will govern the procedure? (the Seat).

This series covers a variety of Rules and Seats; this month we consider the Hong Kong International Arbitration Centre (the “HKIAC”) Rules 2024, which came into force on 1 June 2024, with the relevant arbitration seated in Hong Kong.

But first – what are the Rules of an arbitration and what is the purpose of including the Seat in your arbitration agreement?

The Rules: It is common, and typically preferred, for parties to choose an arbitral institution to administer the arbitration by choosing a set of arbitral rules. An administered arbitration significantly lowers the administrative burden on the parties and the tribunal, such as by the institution distributing documents, assisting with the establishment of the tribunal, managing fees and payments and managing the disclosure process during arbitrator appointments and conflict of interest challenges. An administered arbitration may also provide for scrutiny of the arbitral award before it is sent to the parties(though this is not always the case). In contrast, an ad hoc arbitration does not guarantee the smooth running of the arbitration or any scrutiny of the award, as the parties will have to specifically agree all of these steps. This can add to the time and cost of the arbitration process. Where an arbitral institution is chosen to administer the arbitration, that institution will generally have institutional rules that set out, amongst other things, the process and timing for commencing proceedings, how to establish a tribunal, management of hearings, and awards. It is key to carefully consider which set of rules is best for your specific circumstances, as each set of rules has a slightly different approach to various procedural issues.

The Seat: The ‘seat’ of arbitration refers to the legal jurisdiction in which the arbitration is considered to be located for procedural and administrative purposes.

The seat determines the substantive law governing the arbitration proceedings (and, depending on the jurisdiction, may also govern the arbitration agreement itself) and the arbitration award. Where the law of the seat also applies to the arbitration agreement itself, this includes laws related to the validity, interpretation, and enforcement of the arbitration agreement and the ultimate arbitral award. The seat determines where the award was made, which is key for enforceability. The courts of the seat also have a supervisory role, to support the arbitration process, including enforcement of interim measures.

A different system of law may be selected to decide the substantive issues in dispute. For example, you could have a sale and purchase agreement that is governed by the laws of England but provide for dispute resolution seated in Hong Kong. When preparing your arbitration agreement, it is key that you consult your counsel team on the potential impact of the arbitration agreement, including the interrelation between your governing law and the arbitration agreement.

The below sets out a handy checklist of key considerations if you plan to include the HKIAC Rules with the arbitration seated in Hong Kong in your arbitration agreement.

The Hong Kong International Arbitration Centre (“HKIAC”) Rules 20241
and Hong Kong as the Seat of arbitration

THE RULES

How to commence arbitration under the HKIAC Rules

Any party wishing to commence arbitration under the HKIAC Rules (the “Rules”) must submit a Notice of Arbitration to the HKIAC and to all other parties to the arbitration. The Notice of Arbitration must include:

1. 1. a request that the dispute be referred to arbitration;
   2. the name and contact details of the parties and of their representatives;
   3. a copy of the arbitration agreement(s) invoked;
   4. a copy of the contract(s) or other legal instrument(s) out of or in relation to which the dispute arises;
   5. a description of the general nature of the claim and an indication of the amount involved;
   6. the relief or remedy sought; and
   7. confirmation that copies of the Notice and supporting materials have been, or are being simultaneously, communicated to the Respondent(s)

The Notice should also include the Claimant’s nomination of an arbitrator (for a three-member panel) or proposal of a candidate as sole arbitrator. If the parties have not specified the process for selection of arbitrators in their agreement, the Notice should include the Claimant’s comments on the constitution of the Tribunal. In a move that has been replicated by a number of other institutions, the HKIAC also requires that the existence of any funding agreement and the identity of any third-party funder be disclosed, with such disclosure required as early as in the Notice of Arbitration.

The Notice of Arbitration must be accompanied by the registration fee, which is set out in the Schedule of Fees published on the HKIAC’s website. The Claimant shall also provide the HKIAC with documentary verification of the date on which the Respondent receives the Notice of Arbitration and any supporting materials.

The arbitration shall be deemed to commence on the date when a copy of the Notice of Arbitration is received by the HKIAC.

Once the Notice of Arbitration has been received, the HKIAC will request deposits for costs from both the Claimant and the Respondent.

How to respond to the Notice of Arbitration

Within 30 days of receipt of the Notice of Arbitration, a Respondent must submit an Answer to the Notice of Arbitration to both the HKIAC and the Claimant. The Answer must include:

1. 1. the name and contact details of the Respondent and of their representatives(if different from that described in the Notice of Arbitration);
   2. any plea that Tribunal constituted under the HKIAC Rules lacks jurisdiction;
   3. Respondent’s comments on the description of the general nature of the claim and the amount involved;
   4. Respondent’s answer to the relief or remedy sought by the Claimant;
   5. confirmation that copies of the Answer and supporting materials have been, or are being simultaneously, communicated to the Claimant(s); and
   6. (to the extent possible) any counterclaim, set-off defence or cross-claim.

The Answer should also include the Respondent’s designation of an arbitrator (for a three-member panel), or the Respondent’s comments or proposals regarding the appointment of a sole arbitrator.

If the parties have not previously agreed the number of arbitrators in their arbitration agreement, the Respondent must include in the Answer reasoned proposals as to the number of arbitrators, or any comments regarding the designation of a sole arbitrator.

Mirroring the requirement placed on the Claimant, the HKIAC requires that the Respondent disclose in the Answer the existence of any funding agreement and the identity of any third-party funder.

Under the HKIAC Rules: How are arbitrators appointed?

The Rules provide that the parties may agree the number of arbitrators. If the parties have not agreed the number within the arbitration agreement, the parties may seek to agree within 30 days from the Notice of Arbitration. If the parties cannot agree, the HKIAC will decide whether the case will be heard by a sole arbitrator or by three arbitrators.

The Rules set out how sole arbitrators or three-party tribunals should be appointed, unless otherwise agreed by the parties. Under the Rules, if the parties have agreed before the arbitration commences (e.g., in the arbitration agreement) to refer the dispute to a sole arbitrator, they must jointly designate a sole arbitrator within 30 days from when the Notice for Arbitration was received by the Respondent. Where the parties have agreed after the arbitration commences to refer the dispute to a sole arbitrator, they must jointly designate the arbitrator within 15 days from the date of that agreement.

If the parties have agreed on a panel of three arbitrators, under the Rules each party must nominate its arbitrator in either the Notice of Arbitration or the Answer (as applicable). If the parties agree after the Commencement Date that the dispute should be heard by a panel of three arbitrators, the Claimant shall nominate its arbitrator within 15 days of the date of the agreement and the Respondent shall nominate its arbitrator within 15 days of the Claimant’s nomination. Either way, the two nominated arbitrators shall designate a presiding arbitrator within 30 days of the second arbitrator’s appointment.

In all cases, if the parties fail to meet the time limits, the HKIAC will appoint the necessary arbitrator(s).

The HKIAC alone has the power to confirm the appointment of the Tribunal; designations by the parties only become effective once they are confirmed by the HKIAC.

It is worth noting that under the HKIAC Rules generally, where the parties to an arbitration are of different nationalities, a sole or presiding arbitrator shall not have the same nationality as any party unless specifically agreed otherwise by all parties.

Under the HKIAC Rules: What is the general timeline for arbitration?

Under the Rules, the Tribunal is under an obligation to consult with the parties and prepare a provisional timetable for the arbitration at an “early stage” of the arbitration. The Rules provide wide powers for the Tribunal to order a timeline which suits the case at hand; however, the Rules suggest that, unless the Tribunal determines otherwise, time limits for the communication of written statements should not exceed 45 days. In practice, this may be suitable for simple disputes, but will likely be extended for complex disputes with multiple witnesses and expert evidence.

The Tribunal (along with the parties) is under a general obligation to do everything necessary to ensure fair and efficient conduct of the arbitration. With the introduction of the 2024 HKIAC Rules, the Tribunal is now under a strict obligation to declare proceedings as closed, no later than 45 days from the last directed substantive oral or written submissions. Once proceedings are closed, the Tribunal must render the award within 3 months.

The Award

The Tribunal has the option to make both a single award or separate awards regarding different issues at different times, including interim, interlocutory, partial or final awards. The Tribunal may also make interim awards on costs if deemed necessary.

All awards must be made in writing and state the reasons upon which the decision is based. An award is final and binding on the parties.

The Tribunal must communicate the award to the HKIAC to be certified and transmitted to the parties, subject to any outstanding costs or fees payable to the HKIAC.

Corrections to the Award

Within 30 days of receipt of the award, either party, with notice to all other parties, may request the Tribunal to correct any errors in computation, clerical or typographical errors, or errors of a similar nature. The Tribunal must then make any corrections it considers appropriate within 30 days of such request.

The Tribunal may also make such corrections on its own initiative within 30 days of the award, and may make further corrections which are necessitated by either the interpretation of the award or the issue of any additional award.

Under the HKIAC Rules: Are there restrictions on what arbitral seat or applicable law may be selected?

The Rules do not limit the parties’ choice on the seat of the arbitration. However, if the parties do not agree on the seat of arbitration in the arbitration agreement, the seat shall be Hong Kong, unless the Tribunal decides otherwise, having regard to the circumstances of the case. Further, unless the parties have agreed otherwise, the Tribunal may meet at any location outside of the seat of arbitration which it considers appropriate for its members, hearing witnesses, experts and the parties. Regardless of where such meetings take place, the arbitration shall nevertheless be treated as an arbitration conducted at the seat for all purposes.

Under the HKIAC Rules: Is there an option for an expedited procedure?

Prior to the constitution of the Tribunal, a party may apply to the HKIAC for the arbitration to be conducted on an expedited basis. For this to be granted, the HKIAC must be satisfied that one of the following applies:

1. 1. the dispute value is less than HKD 25,000,000;²
   2. the parties agree; or
   3. it is a case of exceptional urgency.

This expedited procedure, amongst other things, provides for shorter time limits, a sole arbitrator (subject to the arbitration agreement), and, in principle, limits the pleadings to one statement of claim, one statement of defence (and counterclaim) and, where applicable, one statement of defence in reply to the counterclaim.

Under the HKIAC Rules: Can parties appoint an Emergency Arbitrator?

As from 1 June 2024, the Rules provide for an emergency arbitrator procedure. A party requiring emergency relief may submit an application for an appointment of an emergency arbitrator either before, concurrent with, or following the filing of a Notice of Arbitration, but prior to the constitution of the Tribunal.

The application for an emergency arbitrator may include any documents or information as the applicant considers appropriate or as may contribute to the application. If the HKIAC determines that it should accept that application, the HKIAC will appoint an emergency arbitrator within 24 hours from receipt of both the application and the application deposit (as set out on the HKIAC’s website).

All time limits set out in the Rules are shortened to three days, and the seat of the emergency arbitration shall be the same seat as the parties agreed for the main arbitration. If the parties have not agreed a seat for the arbitration, the seat for the emergency arbitration will be Hong Kong.

Any decision or award of the emergency arbitrator will be made within 14 days from the date on which the HKIAC transferred the case file to the emergency arbitrator.

Under the HKIAC Rules: How are the fees for arbitration assessed?

The claimant party, when submitting a Notice of Arbitration, must pay a Registration Fee. This amount is set by the HKIAC, as stated on the HKIAC’s website on the date the notice is submitted.

As soon as is practicable after the receipt of this notice, the HKIAC will request that each party deposits an equal amount as an advance on the costs of the arbitration. Administrative fees are determined in accordance with the Schedule of Fees stated on the HKIAC’s website on the date the Notice of Arbitration is submitted, and is proportionate to the sum in dispute.

Under the HKIAC Rules: Can the parties have a virtual or hybrid hearing?

Although not expressly stated in the HKIAC Administered Arbitration Rules, the HKIAC does provide for virtual and hybrid hearings. Parties are required to contact the HKIAC as early as possible to discuss hearing dates and virtual hearing services required, as well as to complete an online enquiry form.

Relevantly, the HKIAC Rules make specific provision for the parties and the Tribunal to agree or direct measures regarding information security.

Under the HKIAC Rules: How can proceedings be consolidated?

At the request of a party, and after consulting with the parties and any confirmed or appointed arbitrators, the HKIAC has the power to consolidate two or more pending arbitrations. This can only be done where

1. 1. the parties agree to consolidate,
   2. all of the claims in the arbitrations are made under the same arbitration agreement, or
   3. the claims are made under more than one arbitration agreement, but the arbitration agreements are compatible, and:
      1. a common question of law or fact arises in all of the arbitrations, or
      2. the rights to relief claimed are in respect of, or arise out of, the same transaction or a series of related transactions.

A party wishing to consolidate arbitration proceedings must communicate a Request for Consolidation to the HKIAC, which should include (among other things), the legal arguments for consolidation, and a copy of all relevant contract(s) related to the disputes. If the HKIAC decides to consolidate, the arbitrations will be consolidated into the arbitration that commenced first, subject to contrary unanimous agreement between the parties or the HKIAC deciding otherwise.

Under the HKIAC Rules: What disclosures do arbitrators and parties have to make?

For arbitrators, prior to confirmation or appointment, they must disclose any circumstances likely to give rise to justifiable doubts as to their impartiality, in particular any interests or relationships. Once confirmed or appointed, they must disclose any such circumstances to the parties without delay.

For parties, if a party is being funded by a third party, it must provide written notice of this to all other parties, the Tribunal and any emergency arbitrator and thereafter disclose any further changes to the funding agreement after its initial disclosure. . The Tribunal may also require any party to disclose any material change in the circumstances on the basis of which an interim measure was requested or granted.

Under the HKIAC Rules: Are awards and hearings confidential?

Unless otherwise agreed by the parties, no party may disclose any information relating to the arbitration, an award or Emergency Decision made in the arbitration; this includes the existence of the arbitration itself. In this case, a ‘party’ also refers to the Tribunal, any emergency arbitrator, an expert, a witness, a tribunal secretary and the HKIAC.

However, if the party is disclosing an award or Emergency Decision for the purpose of protecting or pursuing their legal rights or interests, or to enforce or challenge the award or Emergency Decision, they may do so provided it is to a certified body or person, such as the court (or other authority) or a regulatory body.

Under the HKIAC Rules: Does the HKIAC have a dedicated hearing centre?

The HKIAC Centre has dedicated hearing rooms available, currently located at 38/F Two Exchange Square, 8 Connaught Place, Hong Kong.

What is the case load of the HKIAC?

In 2023, the HKIAC received 500 matters, of which 281 were arbitration filings. The total amount in dispute across all arbitrations in 2023 was HKD 92.8 billion (approx. USD 12.5 billion). 75% of all arbitrations had at least one non-Hong Kong party.

What is the approach of the HKIAC to diversity?

Rule 9A of the HKIAC Rules explicitly encourages parties and co-arbitrators to take into account considerations of diversity when designating arbitrators, a welcome development in the new rules that came into force in June 2024. When the HKIAC is selecting arbitrators, it must also follow Rule 9A.

The HKIAC releases diversity statistics annually. In 2023, of the 172 appointments made directly by the HKIAC, 34.9% were female arbitrators, and 34.4% were arbitrators not previously appointed by the HKIAC over the previous 3 years.

The HKIAC has been a signatory to the Equal Representation in Arbitration Pledge since 2016.

THE SEAT

What legislation is applicable to the arbitration agreement?

Arbitration in Hong Kong is governed by the Hong Kong Arbitration Ordinance (Cap. 609 of the Laws of Hong Kong), effective from 1 June 2011 (Ordinance). The Ordinance is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. The Ordinance applies to an arbitration under an arbitration agreement if the place of arbitration is in Hong Kong, whether or not the agreement is entered into in Hong Kong.

Notably, the Ordinance adopts the 2006 revisions of the UNCITRAL Model Law, which allow Hong Kong courts and tribunals to grant interim measures in support of arbitration and supports the Hong Kong Court’s ability to enforce interim measures granted in other jurisdictions.

Are there any mandatory laws that impact the procedure?

Certain provisions of the Ordinance that grant powers to the Hong Kong courts will apply in relation to court proceedings that relate to an arbitration agreement, even where the place of the arbitration is not Hong Kong, for example, the courts will always have the power to:

1. 1. refer parties to arbitration;
   2. grant interim measures of protection;
   3. enforce decisions (particularly temporary measures) ordered by an emergency arbitrator; and
   4. make orders relating to evidence preservation.

Can the Tribunal rule on issues of jurisdiction?

The Ordinance empowers the Tribunal to rule on its own jurisdiction, including the existence or validity of the arbitration agreement.³ The Ordinance further permits the Tribunal to rule on whether it was properly constituted, or the arbitrability of the subject matter of the dispute.

It is worth noting that this operates consistently with the HKIAC Rules, which explicitly state that a Tribunal constituted under those Rules may rule on its own jurisdiction, and the scope of the arbitration agreement.

ENFORCEMENT AT THE SEAT

Is Hong Kong a contracting State to the New York Convention?

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention, has effect in Hong Kong, which is a Special Administrative Region (SAR) of China, as China extended the territorial application of the New York Convention to the SAR upon resuming sovereignty on 1 July 1997.

The New York Convention is a pivotal international treaty that facilitates the recognition and enforcement of international arbitration agreements and awards. Its purpose is to ensure that arbitration agreements and awards are recognised and enforced across its member states with minimal procedural difficulty by requiring contracting states to:

1. 1. recognise and enforce arbitration agreements;
   2. enforce arbitral awards made in other contracting states; and
   3. only refuse recognition or enforcement of these awards on limited prescribed grounds.

As of 2024, 173 countries are signatories to the New York Convention.

Hong Kong separately maintains arrangements on the mutual enforcement of arbitral awards with mainland China. Under these arrangements, simultaneous enforcement applications may be made in the courts of Hong Kong and in mainland China.

Enforcement challenges under Hong Kong law

The Ordinance is the primary legislation governing enforcement of arbitral awards in Hong Kong. With leave of the Hong Kong Courts, an arbitral award, whether made in or outside the jurisdiction of Hong Kong, may be enforced in the same manner as a judgment of the High Court.⁴ The Court may refuse to grant leave to enforce an award in particular circumstances, including if a party can prove that:

1. 1. a party to the arbitration agreement was under some incapacity;
   2. the arbitration agreement or the constitution of the Tribunal was not valid;
   3. there was some procedural unfairness that limited a party’s ability to present its case; or
   4. the decision goes beyond the scope of the arbitration agreement.

Hong Kong courts are also given broad power to refuse enforcement of an arbitral award if there are public policy grounds for refusal, if the subject matter of the decision is not arbitrable under the law of Hong Kong,⁵ or for any other reason the court considers it just to do so.

For an award made by a Tribunal pursuant to an arbitration seated in a state (other than Hong Kong) which is a party to the New York Convention, the Hong Kong courts may refuse recognition and enforcement if the party resisting enforcement can prove:

1. 1. that a party to the arbitration agreement was under some incapacity;
   2. the arbitration agreement was invalid;
   3. it was not given proper notice of the appointment of arbitrators, or of the arbitral proceedings, or was otherwise unable to present its case;
   4. the award deals with matters that were not within the terms of the submission to arbitration;
   5. that the composition of the Tribunal, or the arbitral procedure was not in accordance with the arbitration agreement (or otherwise with the law of the country where the arbitration took place); and/or
   6. the award has not yet become binding or has been suspended by the competent authority of the arbitral seat.

What are the requirements for a valid arbitration agreement in Hong Kong?

The arbitration agreement must be in writing and may be part of the main contract or a separate agreement.⁶ The arbitration agreement is treated as separable from the main contract, i.e. if the rest of the contract is invalid or ineffective, that will not impact the arbitration agreement, so that disputes regarding the overarching agreement will still be able to be determined in arbitration.⁷

However, from an enforcement perspective, under the New York Convention, an arbitration agreement must be:

1. 1. in writing;
   2. dealing with current or future disputes with a defined legal relationship;
   3. concerning a matter that is capable of settlement by arbitration;
   4. between parties that have legal capacity; and
   5. valid under the law chosen by the parties, or the law of the seat (if there is no choice).

Therefore, parties should consider these additional requirements in order to ensure that the arbitration agreement is not only valid in Hong Kong, but also meets the requirements of the New York Convention.

¹ For any dispute governed by the 2018, 2013 or 2008 Rules, the information provided herein may not apply.

² Parties should check the HKIAC website at the time they plan to file the Notice of Arbitration as this figure may be subject to change.

³ Part 5 of the Ordinance.

⁴ Section 84 of the Ordinance.

⁵ Matters that are not arbitrable in Hong Kong include, criminal and family law matters, employment disputes, insolvency and bankruptcy matters, and certain intellectual property disputes (particularly in relation to patents or copyrights).

⁶ Part 3 of the Ordinance.

⁷ Section 34 of the Ordinance.

* Max Marshall, a trainee solicitor in the London office, also contributed to this article.