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8 Hong Kong

Michael Moser, John Choong

From: Choice of Venue in International Arbitration

Edited By: Michael Ostrove, Claudia Salomon, Bette Shifman

Content type:
Book content
Product:
International Commercial Arbitration [ICMA]
Published in print:
09 January 2014
ISBN:
9780199655717

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 07 June 2023

Subject(s):
UNCITRAL Model Law — Arbitral tribunals — Conduct of proceedings — Place of arbitration

(p. 189) 8  Hong Kong

8.1  Background1

8.1.1  Introduction

8.01  Hong Kong is a Special Administrative Region of the People’s Republic of China (PRC). British rule ended in 1997, with the PRC assuming sovereignty under the ‘one country, two (p. 190) systems’ principle. The Hong Kong Special Administrative Region’s constitutional document is the Basic Law,2 which is akin to a mini-constitution, and ensures that the current political situation will remain in effect for 50 years.

8.02  Under the Basic Law, Hong Kong enjoys a high degree of autonomy, except in areas relating to foreign affairs and defence. In particular, the Hong Kong Special Administrative Region exercises executive, legislative, and independent judicial power, including that of final adjudication.

8.03  The Basic Law ensures that laws previously in force in Hong Kong (ie the common law, rules of equity, ordinances, subordinate legislation, and customary law) will, in general,3 be maintained. The national laws of the People’s Republic of China do not apply in Hong Kong, save for a few exceptions.4

8.04  Hong Kong has long been one of the leading arbitral seats in Asia. Hong Kong’s prominence as a leading arbitral seat is due in large part to the establishment of the Hong Kong International Arbitration Centre (HKIAC) in 1985 and Hong Kong’s adoption in 1990 of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration.

8.05  In 1997, the PRC resumed sovereignty over Hong Kong. Importantly, arbitration law and practice in Hong Kong has remained unaffected by the handover,5 and today Hong Kong continues to be widely regarded as one of the leading arbitral venues in Asia, particularly for China-related disputes. In addition, Hong Kong is also increasingly seen as one of the leading international arbitration seats worldwide.

8.1.2  Arbitration in Hong Kong

8.06  For many years, there has been strong support for arbitration in Hong Kong, both from the courts and from regional users of arbitration. The courts are respectful of party autonomy, and recognize that when parties have agreed to arbitration, the courts should uphold this agreement and provide support to ensure that disputes are effectively resolved by arbitration. In addition, the Hong Kong courts regularly enforce arbitral awards, both foreign and domestic, in Hong Kong.

8.07  The users of Hong Kong arbitration typically come from Hong Kong and the PRC, although given Hong Kong’s international links, a significant number also come from further afield.

8.08  Hong Kong is the leading international arbitration venue for PRC-related disputes, with many Hong Kong-affiliated arbitrators having the necessary expertise, cultural background, and language skills to handle such disputes. In addition, Hong Kong is also seen as a leading arbitration venue for disputes relating to the wider Asian region.

(p. 191) 8.1.3  The Hong Kong Arbitration Ordinance

8.09  In November 2010, Hong Kong passed its long-awaited new Arbitration Ordinance (Arbitration Ordinance).6 The Ordinance takes into account the 2006 amendments to the Model Law and largely abolishes the previous distinction between international and domestic arbitrations.

8.10  Schedule 2 to the Ordinance, which is based on provisions previously applied to domestic arbitrations under the old regime, allows the court to deal with preliminary questions of law, provides for challenges to the award on grounds of serious irregularity, and allows for appeals on questions of law.7 Parties may expressly opt into Schedule 2. More significantly, Schedule 2 also automatically applies (unless the parties opt out) to:

  • •  arbitration agreements entered into before the commencement of the Ordinance that provide for domestic arbitration; or

  • •  agreements entered into within six years after commencement of the Ordinance that provide for domestic arbitration.

8.11  In practice, parties to domestic arbitrations often fail to opt out of Schedule 2, with the result that the schedule applies by default to such arbitrations. More significantly, Schedule 2 does not by default apply to non-domestic arbitrations, including Hong Kong ‘international’ arbitrations.

8.12  As in other Model Law countries, the Ordinance does not provide a complete code for the conduct of arbitrations, but is intended to provide a framework within which all kinds of ad hoc and institutional arbitrations may be carried out in Hong Kong.

8.13  In addition to adopting the Model Law articles, the Arbitration Ordinance also contains a number of helpful amendments and clarifications. Proportionately, there are many such provisions although, in reality, many of these are less significant, and the Ordinance retains the original intent and approach of the Model Law.

8.14  Apart from the Arbitration Ordinance, the High Court Ordinance8 and Rules of the High Court9 also contain relevant provisions dealing with arbitration-related court proceedings.

8.15  The Arbitration Ordinance does not expressly list which provisions are mandatory. In line with the general approach under the Model Law, many of its provisions allow, either expressly or by implication, for the parties to contract out of them. Nonetheless, there are a number of key provisions in the Arbitration Ordinance that are mandatory. These include, for example, Article 18 of the UNCITRAL Model Law, the ‘Magna Carta of arbitral procedure’.10

8.16  Structurally, the Ordinance is divided into 14 parts:

  • •  Part 1 deals with preliminary issues;

  • •  Parts 2 to 9 are based on Articles 1 to 34 of the Model Law, with various modifications to the Model Law provisions, as well as additional sections supplementing the Model Law provisions;(p. 192)

  • •  Part 11 sets out opt-in provisions as well as those that automatically apply in certain cases; and

  • •  Parts 12 to 14 set out miscellaneous provisions.

8.17  Compared to the legislation in other jurisdictions in Asia, the Arbitration Ordinance is a lengthy statute, containing over 100 sections. One of its unusual features is that in most cases, the drafters have chosen to reproduce the full text of each Model Law provision in the Ordinance proper, followed by subsections under each article that modify or supplement the Model Law provision. The advantage of this approach is that readers can easily see the extent to which a Model Law provision has been adopted in Hong Kong.

8.18  Parties to Hong Kong international arbitrations typically agree to arbitrate under a set of arbitration rules. These rules usually contain more detailed provisions governing the procedure, which often prevail over the default provisions in the Arbitration Ordinance.

8.19  As already noted, although the Arbitration Ordinance adopts many provisions found in the Model Law, it also contains additional provisions that clarify or supplement the Model Law provisions. Most importantly, the Arbitration Ordinance:

  • •  applies the Model Law to both international and domestic arbitrations;11

  • •  omits the provision that the default number of arbitrators is three;12

  • •  states that the parties shall have a ‘reasonable opportunity’ to present their cases, rather than a ‘full opportunity’;13

  • •  adds confidentiality provisions that apply to information relating to arbitral proceedings, awards, and related court proceedings;14

  • •  adds provisions providing for mediator-arbitrators;15

  • •  expressly lists the general powers exercisable by the tribunal, and by the courts;16

  • •  allows arbitrators to limit the amount of recoverable costs;17

  • •  adds more extensive provisions dealing with costs, the taxation of costs, and disputes over the tribunal’s fees and expenses;18

  • •  adds more extensive provisions dealing with the enforcement of various categories of awards which are relevant to Hong Kong;19

  • •  adds a Schedule 2, dealing with provisions that parties may opt into or opt out of;20 and

  • •  adds provisions limiting the liability of the tribunal and related parties.21

8.20  There are no significant legislative amendments to the Arbitration Ordinance on the horizon.

(p. 193) 8.1.4  The HKIAC

8.21  The HKIAC is the leading arbitral institution in Hong Kong. It was established in 1985 to promote the use of arbitration and other forms of alternative dispute resolution. Formed as a non-profit making company limited by guarantee under Hong Kong law, the HKIAC was originally funded by contributions from the business community and the Hong Kong government. Today the HKIAC is completely independent of both business and government and operates with its own budget and funds. It has grown to become a major international arbitration institution and in its current role, it provides the focus for arbitration activity in Hong Kong.

8.22  The role of the HKIAC has grown substantially over the last decade. In 1993 the HKIAC (acting either in an administrative capacity or as an appointing authority) handled 139 cases, rising to 218 in 1997, 257 in 1999, 307 in 2001, and 448 in 2007.

8.23  In 2011, the HKIAC handled 502 dispute resolution matters.22 These included:

  • •  275 arbitration cases;

  • •  127 domain name cases; and

  • •  100 mediations.

Of the 275 arbitration cases in 2011, 65 per cent were international in nature and 35 per cent were domestic. Of the total, 41 cases were fully administered by the HKIAC in accordance with its own rules. Of all the arbitration cases, 14 per cent were construction disputes, 29 per cent were commercial disputes, 15 per cent were corporate disputes, 4 per cent were insurance disputes, and 38 per cent were maritime disputes.

8.24  In practice, a significant number of cross-border commercial contracts, including many PRC-related contracts, provide for arbitration instead of litigation. This is for a variety of reasons, including the belief that a Hong Kong arbitral tribunal is more impartial than the PRC courts or a PRC tribunal, and because a Hong Kong arbitral award is more easily enforceable in the PRC than a Hong Kong court judgment.

8.25  The more distinctive features of arbitration under the HKIAC Administered Arbitration Rules include the following:23

  • •  a ‘light touch’ approach: the HKIAC adopts a ‘light touch’ role in administering arbitrations, compared to other rules which provide for a more institutionalized process, such as those of the International Chamber of Commerce (ICC) and the Singapore International Arbitration Centre—for example the HKIAC rules do not provide for a scrutiny process for the award;

  • •  no time limit: there is no time limit within which a tribunal must render its award;

  • •  confidentiality: the rules contain strict confidentiality provisions imposed on the parties, the arbitrators, the HKIAC, and other involved parties;

  • •  expedited procedure: the rules provide for an expedited procedure which applies where the aggregate value of the amounts in dispute is less than US$250,000, unless the parties agree or the HKIAC Secretariat decides otherwise; and(p. 194)

  • •  flexibility on costs: the HKIAC rules give the parties considerable flexibility on the issue of costs, and the parties may opt to have the fees calculated according to the HKIAC’s scale of fees, or in accordance with fee arrangements agreed with the arbitrator(s).

8.26  The Arbitration Ordinance authorizes the HKIAC to carry out two significant statutory functions:

  • •  determining whether the tribunal should have one or three arbitrators;24 and

  • •  appointing arbitrators when (a) parties fail to agree or designate an appointing authority or (b) the designated appointing authority fails to carry out its function.25

8.27  It is also worth noting that in 2008, the ICC opened an Asia office of the ICC Court’s Secretariat in Hong Kong. The office is the ICC Court Secretariat’s first branch outside Paris and has a case management team which administers cases in the region under the ICC Rules of Arbitration. Also, in September 2012, the China International Economic and Trade Arbitration Commission (CIETAC) opened its Hong Kong Arbitration Center—its first branch outside Mainland China.

8.1.5  Comparison with alternative seats

8.28  Given Hong Kong’s status as a leading regional arbitration venue, it is unsurprising that most Hong Kong-related arbitration disputes are arbitrated in Hong Kong itself. Even when only one of the parties is connected to Hong Kong, informed foreign parties do not view this as a major concern, given the large pool of impartial international arbitrators available in Hong Kong.

8.29  When there is a concern over a perceived lack of neutrality, and if parties do not agree that Hong Kong should be the place of arbitration, popular alternatives include Singapore (if a regional seat is sought, and if none of the parties are connected to Singapore) or, further afield, seats such as London or Stockholm.

8.30  Which seat is eventually chosen depends largely on the backgrounds of the parties and their lawyers. When all the parties to the transaction are based in the region, it is likely that there will be a preference for arbitration in the region (particularly in Singapore); if there are foreign parties that are not based in the region, there may be a stronger likelihood of a venue outside Asia (such as London); and when Chinese parties are involved and they agree to arbitrate outside Asia, some may incline towards Stockholm (partly for historical reasons).

8.31  Given Hong Kong’s close integration with the PRC, a significant number of Hong Kong transactions involve the PRC. When both parties have connections to Hong Kong or the PRC (even if the ultimate parent companies are not based there), there is often less of a concern with agreeing to arbitration in Hong Kong. However, when one of the parties has particularly close connections with the PRC and Hong Kong, and the other does not, the alternatives already mentioned may also be considered.

8.32  Hong Kong and Singapore are often compared as leading venues for arbitration in the region. They share many of the same attributes that make for successful arbitral venues, including modern arbitral legislation based on the Model Law, a supportive judiciary, modern (p. 195) facilities, and good infrastructural support. However, whereas Hong Kong has very much become the leading venue for PRC-related arbitrations, Singapore has come into its own in handling South Asia-related arbitrations.

8.2  Commencing the Arbitration

8.2.1  Requirements for a valid arbitration agreement

8.33  The Arbitration Ordinance adopts option I of Article 7 of the Model Law (as amended in 2006),26 which provides that an ‘arbitration agreement’ is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

8.34  The arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. The agreement must be in writing and, for this purpose, it may be recorded in any form, whether the arbitration agreement or contract has been concluded orally, by conduct, or by other means. The writing requirement is met even when electronic communications are used (as further detailed in Article 7 of the Model Law), and the agreement may be contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other.

8.35  In addition, section 19 of the Arbitration Ordinance expressly clarifies that the writing requirement is met if the arbitration agreement is contained in a document, whether or not it is signed by the parties, and when the agreement, although not in writing, is recorded by one of the parties to the agreement or by an authorized third party. The effect of this amendment is to extend the meaning of ‘written agreement’.

8.36  However, it seems that arbitration agreements that are entirely oral fall outside the Ordinance. In the rare event that a party should seek to commence arbitral proceedings based on a wholly oral arbitration agreement, the proceedings would be governed by the common law.27

8.2.2  Legal capacity

8.37  In general, under Hong Kong law, any person who has the capacity in law to enter into contracts may also enter into an arbitration agreement. Whether persons have or lack such capacity is determined under general contract law; legal infants (persons under 18 years of age) and persons lacking mental capacity do not have contractual capacity. Different rules may apply to certain categories of persons, including bankrupts,28 partners, personal representatives, and trustees; these are subject to the principles ordinarily applicable to such persons.

(p. 196) 8.38  Of greater practical importance, it must be noted that under Hong Kong law29 a person dealing as a consumer30 may not, in general,31 agree to submit future disputes to arbitration. Instead, consent will be binding only if it is made after the disputes in question have arisen, or when the consumer himself or herself invokes the arbitration agreement.

8.39  Outside such situations, in most ordinary commercial transactions parties have the capacity to agree to, and be bound by, arbitration agreements they enter into.

8.2.3  Arbitrability

8.40  Hong Kong law adopts a broad view of the types of dispute that are arbitrable. Generally, any dispute affecting the civil interests of parties is arbitrable. This includes claims for breach of contract, tort, breach of trust, and claims relating to real or personal property. This broad approach is also suggested by the decision32 in Hong Kong to extend the scope of the Model Law beyond just ‘international commercial arbitrations’, to cover all arbitrations ‘under an arbitration agreement’33 (as the term is defined in the Ordinance).34

8.41  The Hong Kong courts are also strongly supportive of international arbitration, and regard a broad range of matters as arbitrable, including tort claims. Recent English authorities have highlighted a trend of construing arbitration clauses broadly and of moving away from technical constructions based on the precise wording of the clause.35 This approach has been viewed favourably in Hong Kong.36

8.42  That said, under Hong Kong law, pre-dispute agreements to arbitrate consumer disputes are generally not valid. In addition, restrictions apply in the case of employment disputes. In particular, the Court of Final Appeal has held that claims falling within the scope of the Employees’ Compensation Ordinance (c 282) fall within the jurisdiction of the district court, to the exclusion of arbitration. Accordingly, the court has no power to stay such proceedings in favour of arbitration.37

8.43  In the case of matters that fall within the jurisdiction of the Labour Tribunal,38 section 20(2) of the Arbitration Ordinance provides that the court may, if a party so requests, refer the parties to arbitration if there is ‘no sufficient reason’ why the parties should not be so referred, and provided the party requesting arbitration is ready and willing to do all things necessary in the arbitration.

(p. 197) 8.44  In addition, and in the absence of direct Hong Kong authority, it is generally believed that the usual restrictions on arbitrability that apply under English law also apply in Hong Kong. Thus, for example, disputes relating to family (marriage, divorce, children), intellectual property (when third-party rights are affected—in particular, the validity of copyrights, patents, registered designs, or trademarks), and criminal activity are unlikely to be arbitrable.

8.2.4  Court enforcement of multi-tiered dispute resolution clauses

8.45  In many international contracts with a connection to Hong Kong, it is common for parties to include a proviso that the parties should endeavour to settle their disputes by negotiation before commencing arbitration. A provision for mediation prior to arbitration is considerably less common. However, this may become more commonplace, given the current push for mediation by the Hong Kong courts.

8.46  Clauses that envisage more than one form of dispute resolution are known as multi-tiered or stepped clauses, since they usually envisage that parties will attempt to resolve their dispute using the first ‘tier’ or step in the dispute resolution process, and if that fails, proceed to the next step.

8.47  In Hong Kong, it is common for there to be a time limit imposed on the negotiation component of multi-tiered dispute resolution clauses, with a typical period being 30 days (or 45 or 60 days). Often, the clause will provide that if no settlement is reached within the stipulated period, parties may (or shall) then proceed to the next step in the dispute resolution process, such as arbitration. Such clauses are usually straightforward, and experienced parties will often issue a formal written notice to the other disputant(s) referring to the dispute resolution clause, when they begin negotiations. This ensures that there is no subsequent dispute over whether the parties have fulfilled the negotiation step prior to moving on to the next step in the procedure.

8.48  More difficult issues arise, however, when the clause provides that the parties should carry out such negotiations ‘in good faith’, using their ‘best endeavours’ or other similar wording, and no time limit is specified. In England, the courts have historically been reluctant to enforce obligations to negotiate in good faith, holding that these are merely agreements to agree.39 In recent years, however, they have been more prepared to enforce agreements to engage in an alternative dispute resolution process, provided that the process is sufficiently identified and defined by objective criteria.40 In Hong Kong, in one case, the Court of Appeal held that the clause in question lacked sufficient precision in not defining any specific steps that had to be taken. On this basis, the provision was held to be imprecise and unenforceable.41

8.2.5  Stay of proceedings

8.49  Hong Kong has adopted Article 8 of the Model Law, with a few supplementary provisions.42 If a party to an arbitration agreement commences court proceedings in respect of a dispute that is subject to an arbitration agreement, the other party (usually the defendant) may apply (p. 198) to the Court of First Instance for an order to stay those proceedings. The only significant limitations on a defendant’s right to obtain a stay of court proceedings are that:

  • •  the request must be made not later than when the defendant submits its first statement on the substance of the dispute; and

  • •  the court is entitled to refuse to grant a stay if it finds that the arbitration agreement is null and void, inoperative, or incapable of being performed.

8.50  If the defendant files a defence (or other pleading) without requesting a stay in favour of arbitration, it will be unable to move to stay the court proceedings at a later stage. Otherwise, if the request is timely and the arbitration agreement is enforceable, the court must order a stay. Section 20(5) of the Arbitration Ordinance also makes it clear that when the court refers the parties to arbitration, it must also make an order staying the legal proceedings in that action.

8.51  In the unusual case in which the plaintiff is the party seeking a stay of its own court proceedings, there is case authority suggesting that the court may have inherent jurisdiction to grant the stay, and it may do so even when the plaintiff has already taken a substantive step in the proceedings.43

8.52  The Hong Kong courts have made it clear that the court’s role is not to investigate whether the defendant has an arguable basis for disputing the claim. If a claim is made in a matter that is the subject of an arbitration agreement and the defendant does not admit the claim, there is a dispute within the meaning of the article. If the defendant seeks a stay of the action, the court must grant a stay unless these limitations apply.44

8.53  A decision of the court to refer the parties to arbitration under Article 8 of the Model Law is not subject to appeal.45 In contrast, if the court refuses to refer the parties to arbitration, an appeal is allowed with leave of the court.46 This indicates the pro-arbitration stance taken by the Ordinance. In addition, it is clear that Article 8 applies regardless of whether the agreed place of arbitration is in or outside Hong Kong.47

8.2.6  Number of arbitrators

8.54  Under the Arbitration Ordinance, the parties have the freedom to determine the number of arbitrators. This determination may be set out in the parties’ arbitration agreement. By agreeing to adopt specific arbitration rules, the parties may have accepted the default number in the rules or authorized an arbitral institution to make the determination on their behalf. Failing agreement, section 23(3) of the Arbitration Ordinance provides that the number of arbitrators is to be either one or three, as decided by the HKIAC. This is the case unless section 1 of Schedule 2 to the Arbitration Ordinance applies (primarily in domestic arbitration, as discussed). Section 1 of Schedule 2 provides for a sole arbitrator.

(p. 199) 8.2.7  Appointment of arbitrators

8.55  The Arbitration Ordinance largely adopts Article 11 of the Model Law, dealing with the appointment of arbitrators. A number of supplementary provisions have also been included to deal with less common situations.

8.56  Article 11 sets out the general principle that no person shall be precluded by reason of his nationality from acting as an arbitrator, unless otherwise agreed by the parties. In practice, it is not unusual for parties to Hong Kong arbitrations to include a nationality prohibition on the chairman or sole arbitrator, either expressly or by agreeing to arbitrate under arbitral rules that include such a prohibition.

8.57  Article 11 further allows the parties the freedom to agree on a procedure for appointing the arbitrator or arbitrators. When they have agreed to adopt certain arbitration rules, the rules will set out the appointment procedure.

8.58  Failing such agreement, the default appointment procedure is:

  • •  in an arbitration with three arbitrators, each party appoints one arbitrator, and the two arbitrators thus appointed appoint the third arbitrator; if a party fails to appoint the arbitrator within 30 days of receipt of a request to do so from the other party, or if the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment, the appointment will be made, upon request of a party, by the HKIAC; and

  • •  in an arbitration with a sole arbitrator, if the parties are unable to agree on the arbitrator, the arbitrator will be appointed, upon request of a party, by the HKIAC.

8.59  Hong Kong has also adopted the fallback provision in Article 11(4). Under an appointment procedure agreed upon by the parties, when (a) a party fails to act as required under that procedure, or (b) the parties or two arbitrators are unable to reach the agreement expected of them under that procedure, or (c) a third party, including an institution, fails to perform any function entrusted to it under that procedure, any party may request the HKIAC to take the necessary measures (unless the agreement on the appointment procedure provides another means for securing the appointment).

8.60  Under Article 11(5), the HKIAC’s decision is not subject to appeal. The HKIAC, in appointing an arbitrator, must have due regard to any qualifications required of the arbitrator by the agreement of the parties, to such considerations as are likely to secure the appointment of an independent and impartial arbitrator, and, in the case of a sole or third arbitrator, also take into account the advisability of appointing an arbitrator of a nationality other than that of a party.

8.61  In this regard, the Arbitration (Appointment of Arbitrators and Umpires) Rules set out criteria to be taken into account by the HKIAC in making appointments.48 In practice, the HKIAC will attempt to appoint an arbitrator who is on the HKIAC’s Panel of Arbitrators. When the appointment sought requires skills and experience not readily available on the Panel, the HKIAC may appoint non-panelists.

(p. 200) 8.62  Section 24 of the Arbitration Ordinance, which gives effect to Article 11 of the Model Law, also sets out certain supplementary provisions dealing with arbitrations with an even number of arbitrators, and an uneven number of arbitrators greater than three. Both situations are rare.

  • •  In an arbitration with an even number of arbitrators:

    1. (a)  if the parties have not agreed otherwise, each party is to appoint the same number of arbitrators; or

    2. (b)  if the parties have agreed otherwise and (in effect) there is a default in the appointment process, then the HKIAC must make the necessary appointment upon a request to do so from any party.

  • •  In an arbitration with an uneven number of arbitrators greater than three:

    1. (a)  if the parties have not agreed otherwise, each party is to appoint the same number of arbitrators; and unless otherwise agreed, the HKIAC must appoint the remaining arbitrator or arbitrators; or

    2. (b)  if the parties have agreed otherwise and (in effect) there is a default in the appointment process, then the HKIAC must make the necessary appointment upon a request to do so from any party.

8.63  Section 24(4) of the Arbitration Ordinance addresses the appointment of arbitrators in multi-party arbitrations and provides that in a deadlock situation, the HKIAC shall step in.

8.64  Finally, section 24(5) of the Arbitration Ordinance makes it clear, among other things, that where an appointment is made by the HKIAC, the appointment has effect as if it were made with the agreement of all the parties.

8.65  Under the Arbitration Ordinance, as already noted, it is the HKIAC and not the court that steps in to appoint arbitrators when there is a deadlock. In practice, this procedure has proved to be efficient and cost-effective, and has helped progress arbitrations expeditiously in Hong Kong.

8.2.8  Appointment of arbitrators—Hong Kong considerations

8.66  Apart from the usual considerations that apply in choosing arbitrators, in the context of Hong Kong arbitrations, there are a number of factors that are particularly important:

  • •  Language: many Hong Kong disputes involve more than one language, particularly the Chinese language. Foreign parties are not always comfortable choosing ethnic Chinese arbitrators as their party-appointed arbitrator. If this is the case, they may turn to the (limited) pool of well-established non-ethnic Chinese arbitrators who are fluent in Chinese;

  • •  Cultural affinity: as in many other jurisdictions, cultural affinity is an important trait for a successful arbitrator. In Hong Kong, there have in previous cases been difficulties in some Sino-foreign disputes where parties have appointed arbitrators from very different backgrounds. Thus, a PRC party may appoint an eminent arbitrator who is familiar with PRC law (which places a greater emphasis on equity and justice), whereas the foreign party may appoint an arbitrator from its home jurisdiction (who may take a strictly ‘black letter law’ approach to the case). In such cases, unfortunate disagreements can occur among the arbitrators; a presiding arbitrator who has the necessary cultural affinity can help to bridge the gap.

  • •  PRC law: a significant number of contracts that provide for Hong Kong arbitration are governed by PRC law. Even where the governing law is not PRC law, when the subject matter relates to the PRC, questions of PRC law often arise. Appointing an arbitrator who (p. 201) has the necessary experience in dealing with PRC law issues can be important, since the arbitrator is able to draw on his or her past experience and, in certain cases, realize when parties are overstating the position under PRC law.

8.67  Experienced parties are often very careful in appointing their arbitrators, and it is increasingly common for parties to substantial international arbitrations to interview prospective arbitrators, particularly when counsel are less familiar with them. This is a practice that some Hong Kong arbitrators are comfortable with, provided various safeguards are in place,49 while others, as well as certain counsel, are less accepting.

8.2.9  Jurisdictional objections

8.68  Article 16 of the Model Law, which embodies the competence-competence doctrine, applies in Hong Kong. Accordingly, the arbitral tribunal is authorized to rule on its own jurisdiction, including on the existence or validity of the arbitration agreement. In addition, the Arbitration Ordinance specifically provides that the arbitral tribunal has the power to decide whether the tribunal is properly constituted, and what matters have been submitted to arbitration in accordance with the arbitration agreement.50

8.69  As for the actual procedure, Article 16 provides that any objection to jurisdiction must be raised not later than the submission of the statement of defence. Where the plea relates to the tribunal exceeding the scope of its authority, this must be raised as soon as the matter alleged to be beyond the scope of authority is raised during the arbitration. In both cases, the tribunal may admit a later plea, if justified.

8.70  The tribunal is entitled to rule on the objection either as a preliminary question, or in an award on the merits. If the tribunal rules as a preliminary question that it has jurisdiction, any party may, within 30 days after the ruling, request the Court of First Instance to decide the matter, which decision is not subject to appeal. While the request is pending, the tribunal may continue the arbitral proceedings and make an award.51 Any such application to the courts can usually be dealt with in several months.

8.71  Conversely, the Ordinance makes it clear that a ruling of the tribunal that it does not have jurisdiction cannot be referred for review to the Court of First Instance.52

8.2.10  Anti-suit injunctions

8.72  The Hong Kong courts recognize that they are able to grant anti-suit injunctions, and have in a small number of cases granted such orders outside the arbitration context.53 In the context of anti-suit injunctions granted in relation to arbitral proceedings, it has been suggested that in addition to their general power, the courts may also be empowered by section 45(2) of the Arbitration Ordinance to grant such an injunction.54 This would be on the basis that (p. 202) an anti-suit injunction qualifies as an ‘interim measure’, which the court is empowered to order.55

8.73  Applications for anti-suit injunctions have failed in a number of Hong Kong cases. In the context of arbitrations, it is suggested that the Hong Kong courts may be prepared to grant such orders more readily, particularly where it is clear that a party has commenced court proceedings overseas in clear breach of an agreement to arbitrate in Hong Kong. Relevant factors would be whether the application has been brought promptly and how far advanced the foreign proceedings are. In this regard, the Hong Kong courts are likely to apply the general principles set out in English cases.56

8.74  PRC parties involved in Hong Kong court proceedings have sometimes commenced parallel court proceedings in the PRC. Thus far, the Hong Kong courts have been prepared to consider granting anti-suit injunctions in connection with such proceedings, on normal principles. However, in practical terms this may raise difficult issues of comity, given the relationship between Hong Kong and the PRC under the Basic Law.

8.75  There is no published Hong Kong case where an anti-arbitration injunction has been granted to restrain a party from proceeding with an arbitration.57 In principle, there is no clear prohibition to such an order being made, although the actual test applied by the courts may differ.

8.3  During the Arbitration

8.3.1  Challenges to arbitrators

8.76  Section 25 of the Arbitration Ordinance gives effect to Article 12 of the Model Law, which sets out the grounds for challenging an arbitrator. It provides that a prospective arbitrator must disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence, and that an arbitrator, from the time of his appointment and throughout the arbitral proceedings, must without delay disclose any such circumstances to the parties, unless the arbitrator has already informed the parties of the circumstances.

8.77  Correspondingly, an arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons the party becomes aware of after the appointment has been made.

8.78  Although parties and tribunals in Hong Kong often refer to the International Bar Association (IBA) Guidelines on Conflict of Interest in International Arbitrations for guidance, the extent to which the Guidelines reflect Hong Kong law is less clear. In one case involving (p. 203) a challenge to an arbitrator, the Court of First Instance held that the ‘apparent bias’ test, which applies to judges, also applies to arbitrators: namely, whether a hypothetical, objective, fair-minded, and informed observer, having considered the relevant facts, would conclude that there was a real possibility that the tribunal was biased.58

8.79  Section 26 of the Arbitration Ordinance gives effect to Article 13 of the Model Law, and sets out the procedure for challenging an arbitrator. Article 13 recognizes that the parties are free to agree on a procedure for challenging an arbitrator, subject to oversight from the courts. This agreement would, in practice, be set out in any arbitration rules agreed upon by the parties.

8.80  Failing such agreement, a party who intends to challenge an arbitrator must, within 15 days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any ground for challenge, send a written statement of the reasons for the challenge to the arbitral tribunal. Unless the challenged arbitrator withdraws from his office or the other party agrees to the challenge, the arbitral tribunal decides on the challenge.

8.81  Article 13(3) then sets out the court’s overriding powers when a challenge has been unsuccessful: in such a situation, the challenging party may, within 30 days of notice of the tribunal’s decision rejecting the challenge, request that the Court of First Instance decide on the challenge, which decision is not subject to appeal. While the request is pending, the tribunal, including the challenged arbitrator, may continue the arbitral proceedings and make an award.

8.82  Section 26 further supplements Article 13, by providing, among other things, that:

  • •  although Article 13 allows the tribunal to continue with the proceedings pending a challenge, the court may refuse to grant leave to enforce any resulting award, pending the challenge;

  • •  an arbitrator who is challenged is entitled voluntarily to withdraw from office;59 and

  • •  the mandate of a challenged arbitrator terminates in certain specified situations, consequent upon a challenge.

8.83  In recent years, and consistent with the increasingly adversarial nature of arbitration proceedings, there have been more challenges made to Hong Kong arbitrators. However, the challenges have generally not been successful, and the number of actual challenges is still relatively small.

8.3.2  Liability of arbitrators

8.84  The Arbitration Ordinance provides that an arbitral tribunal is liable in law for acts done or omitted to be done by it (or an employee or agent) in relation to the exercise or performance, or purported exercise or performance, of the tribunal’s functions only if it is proved that the act was done or omitted to be done dishonestly.60

(p. 204) 8.85  The Ordinance61 also includes provisions dealing with the immunity of arbitral institutions and related parties.62

8.86  To date, there have been no reported court decisions in Hong Kong dealing with the authority or immunity of arbitrators, or of institutions such as the HKIAC.

8.3.3  Legal representation

8.87  The Arbitration Ordinance enshrines the principle that the parties to an arbitration have complete freedom to choose their own representatives, advisers, and advocates regardless of their qualifications or nationality.63 Thus, parties are fully permitted to, and often do instruct foreign lawyers to represent them in international arbitrations conducted in Hong Kong.

8.88  This freedom contrasts with the requirement that only Hong Kong-admitted barristers and solicitors may conduct litigation in the Hong Kong courts, and must therefore be retained to present any arbitration-related applications in the courts.

8.89  In Hong Kong, the legal profession is divided into two distinct branches—barristers and solicitors. Solicitors have limited rights of audience before the courts whereas barristers have unlimited rights of audience. Conversely, barristers can generally only accept instructions from a firm of solicitors (or members of other recognized professional bodies). Lawyers practising within one branch of the profession are not allowed to practice within the other.

8.90  In virtually all substantial international arbitration cases heard in Hong Kong, parties are represented by solicitors or foreign lawyers. As for barristers, the practice varies among firms, and also depends on what is at stake. In law firms with a more substantial arbitration practice, it is increasingly the case that advocacy is done by solicitors instead of barristers. It is argued that the solicitors who have been conducting the case will present the case in a more consistent manner, without incurring the additional fees associated with briefing barristers. Conversely, it is argued that barristers often have specialist knowledge; they have considerably more experience with advocacy; and are often able to bring a fresh perspective to the case.

8.91  In some cases, there may also be an element of one-upmanship: when one party engages a Queen’s Counsel or Senior Counsel, the other party may feel obliged to do the same.

8.3.4  Party autonomy

8.92  Article 19(1) of the Model Law64 recognizes that, subject to the provisions of the Model Law, the parties are free to agree on the arbitral procedure. Section 3(2)(a) also provides that, subject to the public interest, the parties are free to agree on how the dispute should be resolved.

8.93  In practice, the principle of party autonomy is widely followed by Hong Kong tribunals. Thus, the parties may opt for an elaborate, full-blown court-type proceeding with solicitors, barristers, extensive written submissions, and lengthy oral hearings involving the presentation of evidence and the examination and cross-examination of witnesses, or they may choose to conduct the proceedings by the simple exchange of written statements without any hearings at all.

(p. 205) 8.3.5  Equality of treatment

8.94  Although Article 18 of the Model Law has not been adopted wholesale in Hong Kong, section 46(2) of the Arbitration Ordinance provides that the parties must be treated with equality. In practice, this principle is of paramount importance and has been carefully followed by tribunals in Hong Kong.

8.3.6  Reasonable opportunity to present their case

8.95  Section 46(3) of the Arbitration Ordinance provides that the arbitral tribunal is required:

  • •  to be independent;

  • •  to act fairly and impartially as between the parties, giving them a reasonable opportunity to present their cases and to deal with the cases of their opponents; and

  • •  to use procedures that are appropriate to the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for resolving the dispute to which the arbitral proceedings relate.

8.96  Notably, section 46(3) deliberately departs from Article 18 of the Model Law, which refers to each party’s entitlement to be given a ‘full opportunity of presenting his case’. Instead, the Arbitration Ordinance refers to a ‘reasonable opportunity to present their cases’. In practice, this distinction has not been material. It is thought by some commentators that the use of ‘reasonable opportunity’ rather than ‘full opportunity’ merely underscores the objective of the Arbitration Ordinance to facilitate the fair and speedy resolution of disputes while preserving the rules of natural justice.

8.97  Article 24 of the Model Law has been adopted wholesale in Hong Kong. It expressly provides that unless the parties have agreed that no hearings shall be held, the arbitral tribunal is obliged to hold hearings at an appropriate stage of the proceedings, if so requested by a party. In practice, it is certainly rare for an entire international arbitration of any complexity to be conducted on a ‘documents only’ basis without oral hearings, and this would certainly not happen if at least one of the parties requested a hearing.

8.3.7  Language

8.98  The Arbitration Ordinance has adopted Article 22 of the Model Law wholesale, which gives parties the freedom to agree on the language or languages to be used in the arbitral proceedings.

8.99  Failing such agreement, the arbitral tribunal will determine the language or languages to be used in the proceedings. This agreement or determination, unless otherwise specified therein, will apply to any written submission by a party, any hearing, and any award, decision or other communication by the arbitral tribunal.

8.100  In addition, Article 22(2) provides that the arbitral tribunal may order that any documentary evidence be accompanied by a translation into the language or languages agreed upon by the parties or determined by the arbitral tribunal.

8.101  In practice, the most common languages encountered in Hong Kong arbitrations are English and Chinese. This is because foreign parties are often reasonably conversant with English, and many of their documents are likely to be in English, whereas PRC parties often prefer Chinese, and many of their internal documents are in Chinese.

(p. 206) 8.102  A significant number of arbitrators and counsel in Hong Kong are bilingual in English and Chinese. However, in practice, there will often be only one working language in the arbitration. As between Chinese and English, this will often be the latter, because one or more of the arbitrators may not be familiar with Chinese; or even if they are bilingual, their primary working language may still be English. In some cases, barristers from outside Hong Kong are engaged, who are unfamiliar with Chinese.

8.103  In these situations, it might appear logical for English to be the only language of the arbitration. In practice, however, this may not happen. First, it is fairly common practice for Sino-foreign contracts to provide expressly that the languages of the arbitration are English and Chinese. This is often considered an acceptable compromise by both parties, and little thought is given at the drafting stage to the cost consequences of such a decision. Secondly, many disputes arbitrated in Hong Kong have a strong PRC connection, with the subject matter of the dispute often being in the PRC, the governing law being the PRC law (or otherwise subject in some way to PRC law principles), the core documentation being in Chinese, and the agreements being in both languages.

8.104  As a result of these factors, a number of Sino-foreign disputes in Hong Kong are conducted in both English and Chinese, notwithstanding that English may still be the main working language. This can result in significant amounts being spent on translating the submissions and conducting the oral hearings in both languages, and translating the eventual award. Fortunately, with respect to documentary evidence, tribunals may not always require full translations (much less certified or official translations) of all disclosed documents.

8.3.8  Confidentiality

8.105  Section 18 of the Arbitration Ordinance contains a confidentiality provision. Even if these express provisions do not apply, there may be an implied duty of confidentiality. Under English law, such a duty is an implied term of an arbitration agreement,65 and it is likely that the Hong Kong courts would be influenced by the English authorities to this effect.66

8.3.9  Oaths and affirmations

8.106  Section 56(8) of the Arbitration Ordinance expressly empowers the tribunal to:

  • •  administer oaths to, or take the affirmations of, witnesses and parties; and

  • •  examine witnesses and parties on oath or affirmation.

The tribunal has this power unless the parties have agreed otherwise, but such an agreement is rare in practice.

8.3.10  Role of courts in compelling testimony/evidence

8.107  In Hong Kong international arbitrations, documentary evidence is of considerable importance and, in many cases, may be given greater weight than witness testimony.

(p. 207) 8.108  Under Article 27 of the Model Law, which is given effect by section 55 of the Arbitration Ordinance, the tribunal or a party with the approval of the tribunal may request assistance from a Hong Kong court in taking evidence. The court may execute the request within its competence and according to its rules on taking evidence.

8.109  Section 55(2) of the Ordinance builds on this, by making it clear that the court may order a person, including a person who is not a party to the arbitration agreement,67 to attend proceedings before an arbitral tribunal to testify or to produce documents or other evidence. Furthermore, section 55(3) provides that these powers may be exercised by the court irrespective of whether or not similar powers may be exercised by a tribunal under the Ordinance. This power is exercised by the Court of First Instance, and section 55(4) provides that the court’s decision or order is not subject to appeal.

8.110  In practice, it is relatively uncommon for parties to invoke this provision, in part because it is a relatively time-consuming, cumbersome procedure, and also because it is less effective against parties which are outside the court’s jurisdiction.

8.111  Under the Arbitration Ordinance, the tribunal is also empowered to make an order directing the discovery of documents, and to direct the attendance of witnesses before the tribunal in order to testify or to produce documents or other evidence.68 In turn, section 61 of the Arbitration Ordinance provides that, with the leave of the Court of First Instance, an order or direction made in relation to arbitral proceedings by a tribunal is enforceable in the same manner as an order or direction of the court that has the same effect. If leave is granted, the court may enter judgment in terms of the order or direction. This can be useful given that the court has more extensive powers for ensuring compliance with an order or direction. This provision also applies, with some limitations, to orders or directions made outside Hong Kong.69

8.3.11  Evidence

8.112  When conducting arbitral proceedings, an arbitral tribunal is not bound by the rules of evidence and may receive any evidence (excluding evidence protected by privilege) that it considers relevant to the arbitration. However, it must give the evidence the weight ‘that it considers appropriate’.70 Thus, for example, evidence that is hearsay carries less weight than direct evidence.

8.113  In practice, in most Hong Kong international arbitrations, tribunals will not apply strict court rules of evidence, although principles underlying the court rules of evidence may still influence tribunals’ evidentiary findings.

8.114  Under the Arbitration Ordinance, a tribunal may take the initiative to ascertain the facts relevant to the proceedings.71 However, the arbitrator or tribunal should not decide solely on the basis of evidence obtained through their own investigations without sharing such evidence with the parties beforehand. If an award is based in whole or in part on evidence (p. 208) ascertained through the arbitral tribunal’s own investigations or specialized knowledge, the tribunal must first put that evidence before the parties for comment, otherwise the award may be set aside or refused enforcement because the parties have not been given a reasonable opportunity to present their case.72

8.3.12  Default by a party

8.115  The Arbitration Ordinance contains provisions that extend the powers of the tribunal granted under Article 25 of the Model Law to deal with a defaulting party. This was a deliberate decision when the Ordinance was drafted73 and is in line with the current trend in international arbitral practice to ensure that proceedings move along more quickly.

8.116  Section 53 of the Arbitration Ordinance gives effect to the Article 25 Model Law provisions, which generally allow the tribunal:

  • •  to terminate the proceedings, if the claimant fails to communicate its statement of claim;

  • •  to continue the proceedings if the respondent fails to communicate its statement of defence (albeit without treating such failure as an admission of the claimant’s allegations); and

  • •  to continue the proceedings and to make the award on the evidence before it, if any party fails to appear at a hearing or to produce documentary evidence.

8.117  Importantly, as noted in paragraph 8.116, even if the respondent fails to submit its statement of defence, or to appear at the hearing, Article 25 of the Model Law envisages that the tribunal should still continue with the proceedings to reach a final decision. In practice, this is the approach taken by most tribunals in Hong Kong, and while proceedings may move more quickly in a default situation, there would still be no automatic ‘default award’ in the claimant’s favour.

8.118  Sections 53(3) and (4) of the Arbitration Ordinance expand on the previous discussion, by providing that:74

  • •  if, without sufficient cause, a party fails to comply with any order or direction of the tribunal, the tribunal may make a ‘peremptory order’ prescribing the time for compliance; and

  • •  if a party fails to comply with a peremptory order, the tribunal may:

    1. (a)  direct that the party is not entitled to rely on any allegation or material which was the subject matter of the peremptory order;

    2. (b)  draw any adverse inferences that the circumstances justify;

    3. (c)  make an award on the basis of materials properly provided to the tribunal; or

    4. (d)  make any order that the tribunal thinks fit as to payment of the costs of the arbitration consequent upon the non-compliance.

8.119  In the past, Hong Kong tribunals, as with tribunals elsewhere in Asia, have generally been reluctant to impose draconian consequences on defaulting parties. However, with the increasing emphasis on cost and efficiency in arbitrations, as well as more dilatory tactics being emplyed by parties in recent years, Hong Kong tribunals have been taking a tougher (p. 209) stance. The latest provisions found in section 53 are consistent with this, although it remains to be seen how often they will be used.

8.3.13  Settlement

8.120  Article 30 of the Model Law applies in Hong Kong.75 During the arbitration, if the parties settle the dispute, the tribunal will terminate the proceedings and may, if requested by the parties, record the settlement in the form of an arbitral award on agreed terms.

8.121  In addition, section 66(2) of the Arbitration Ordinance provides that settlement agreements entered into by the parties are also, for purposes of enforcement, to be treated as an arbitral award.

8.122  Section 33 of the Arbitration Ordinance expressly recognizes that if all parties consent, an arbitrator may act as a mediator after the arbitration has commenced. In such a situation:

  • •  the arbitration must be stayed to facilitate the mediation;

  • •  the arbitrator-mediator:

    1. (a)  may communicate with the parties collectively or separately, and

    2. (b)  must treat the information obtained as confidential, unless otherwise agreed; and

    3. (c)  if the mediation proceedings terminate without a settlement, the arbitrator must disclose to all parties as much of the confidential information received as is considered material.

8.123  Section 33(5) provides that no objection may be made against the conduct of the arbitral proceedings by an arbitrator solely on the ground that he or she acted previously as a mediator.

8.124  In practice, mediation-arbitration has not been used much in international arbitrations in Hong Kong.

8.4  The Award

8.4.1  Types of Awards

8.125  In Hong Kong, two types of awards are generally recognized:

  • •  a final award, which disposes of all the issues currently before the tribunal; and

  • •  an interim or partial award, in which the tribunal deals with some of the issues, such as jurisdiction.

If the parties have reached a settlement, the terms can be incorporated into the form of an award on agreed terms.

8.126  In substantial international arbitrations, it is not uncommon for a Hong Kong tribunal to render more than one award. In such cases, separate awards on jurisdiction and liability are common.

(p. 210) 8.4.2  Form of arbitral award

8.127  Under the Arbitration Ordinance, there are no detailed statutory requirements for a valid arbitral award, although the basic requirements set out in Article 31 of the Model Law apply, whereby the award must:76

  • •  be in writing;

  • •  be signed by at least a majority of the tribunal, provided that the reason for any omitted signature is stated;

  • •  state the reasons, unless the parties have agreed otherwise; and

  • •  state the date and place of arbitration.

8.128  Other basic requirements are provided by the common law. These are, essentially, that the award must be final in relation to the issues dealt with, in a manner that is cogent, consistent, clear and unambiguous, and capable of enforcement by a court. If it is a final award, it must deal with all matters in dispute.

8.129  In substantial international arbitrations, detailed reasons for the decision are usually set out, and it is rare for parties to agree for these to be dispensed with. The award may run into a hundred pages or more, with close analysis of the facts, evidence, and law.

8.130  In Hong Kong, a dissenting arbitrator cannot insist that dissenting reasons form part of the award, unless the arbitration agreement or arbitration rules provide for this. In practice, at the dissenting arbitrator’s request, the dissenting opinion will usually be included with the award.

8.131  The Arbitration Ordinance does not specify any time limit for the making of an international award. However, if an arbitrator fails to act in a timely manner, he or she can be removed by agreement of the parties or by order of the Hong Kong courts.77 In such a situation, a substitute arbitrator will be appointed in accordance with the rules that applied to the original appointment.

8.132  There is no requirement under Hong Kong law for Hong Kong awards to be registered in order to be effective. However, the HKIAC does provide an authentication service for Hong Kong awards. This can be useful if a party is seeking to enforce a Hong Kong award overseas.

8.4.3  Ex aequo et bono and amiable compositeur

8.133  The Arbitration Ordinance expressly envisages that the arbitral tribunal may decide ex aequo et bono or as amiable compositeur, only if the parties have expressly authorized it to do so.78 Such agreement is rare in practice.

8.4.4  Remedies

8.134  In general, a Hong Kong tribunal may award any remedy or relief that could have been ordered by a court if the dispute had been the subject of civil proceedings.79 Thus, the tribunal is empowered to grant a wide range of remedies. In practice, the primary remedy in Hong (p. 211) Kong is for damages, although declarations and specific performance are also available, and are granted in appropriate situations.

8.4.5  Interest

8.135  In Hong Kong, as in many other jurisdictions, questions relating to interest in international arbitrations may be subject to different laws. For example, when a party is claiming interest based on a contractual provision, this will usually be subject to the governing law of the contract. In contrast, post-award interest is usually a matter of procedural law.

8.136  In practice, Hong Kong tribunals frequently rely on the relevant provisions in the Arbitration Ordinance, which give an arbitral tribunal the discretion to award simple or compound interest on the principal sum awarded (or on an amount claimed in the arbitration but paid before the award is made) from such dates, and at such rates as it considers appropriate for any period up to the date of payment.80 Unless the award provides otherwise, simple interest is payable on the amount of the award from the date of the award at the same rate as for a judgment debt (as determined from time to time by the Chief Justice).81 Interest is also payable on costs awarded or ordered by the tribunal at the judgment rate, unless otherwise provided.82

8.137  Interest may be awarded in a foreign currency, provided that the award has been made in that currency. Such interest is commonly awarded where appropriate.

8.4.6  Costs

8.138  Section 74(1) of the Arbitration Ordinance empowers the tribunal to include in an award directions with respect to the costs of arbitral proceedings (including the fees and expenses of the tribunal). Section 74(2) further provides that the tribunal may, having regard to all the relevant circumstances (including any settlement offer), direct in the award to whom and by whom and in what manner the costs are to be paid. Subject to any agreement by the parties to have the costs of arbitral proceedings taxed by the court, the tribunal must assess the amount of costs to be awarded or ordered to be paid (other than the fees and expenses of the tribunal), and award or order those costs (including the fees and expenses of the tribunal).83

8.139  However, the tribunal’s discretion is not unfettered. It must only allow costs that are reasonable having regard to all the circumstances, although (unless otherwise agreed by the parties) it may allow costs incurred in the preparation of the arbitral proceedings prior to the commencement of the arbitration. Subject to the foregoing, the tribunal is not obliged to follow the scales and practices adopted in court taxation of costs.84

8.140  A provision in an arbitration agreement that the parties must pay their own costs is void,85 unless contained in an agreement to submit present disputes to arbitration. In the course of the arbitration, the tribunal is also entitled to direct that the recoverable costs of proceedings be limited to a specified amount, although this provision is rarely used in substantial international arbitrations.86

(p. 212) 8.4.7  Allocation of costs

8.141  Hong Kong tribunals apply a wide range of factors in deciding how costs should be awarded. Many of these principles are similar to those applied in international arbitrations seated elsewhere. In the context of Hong Kong, parties do not always take equal care in preparing their cases, or hire counsel who are from the same jurisdiction. As a result, tribunals have sometimes had to consider whether it is relevant that the parties incurred significantly disproportionate costs in the preparation of their cases.

8.142  In recent years, with the rising complexity of disputes, cost recovery has become an increasingly contentious issue. Many international arbitrators in Hong Kong decline to apply the court scale in awarding costs,87 but typically, when costs are awarded in favour of a successful party, the recovery is ordinarily significantly more than 50 per cent of actual costs, subject to reasonableness.

8.143  The decision on costs may either be included as part of the award, or issued as a separate costs award. In both cases, the tribunal will typically invite the parties to make submissions on who should be liable for costs, and on the quantum of costs, following which it will render its decision. When proceedings are carried out in stages, separate costs awards may also be issued at each stage.

8.144  If the parties have agreed that costs are taxable by the court, the tribunal must direct accordingly in its award (other than for the tribunal’s fees and expenses); and on taxation by the court, it must make an additional award of costs reflecting the result of such taxation.88

8.145  If there is a dispute over the tribunal’s fees and expenses, the tribunal may refuse to deliver an award, and a party may apply to the court, which:

  • •  may order the tribunal to deliver the award on the payment into court of all or part of the fees and expenses specified by the court; and

  • •  may order that the tribunal’s fees and expenses are to be determined by the means and on terms the court may direct, and then paid to the tribunal from the amount paid into court.89

The arbitrator is entitled to appear and be heard on the determination.90

8.146  This procedure is not available if there is an available arbitral process for appeal or review of the fees or expenses demanded, or the total amounts of fees and expenses have been fixed by a written agreement between a party and the arbitrators.91 In practice, both situations are uncommon.

8.4.8  Correction, interpretation, and supplementation of awards

8.147  Article 33 of the Model Law applies in Hong Kong. Accordingly:

  • •  within 30 days of receipt of the award, a party may request the tribunal:

    1. (p. 213) (a)  to correct in the award any errors in computation, clerical, or typographical, or other similar errors,

    2. (b)  to give an interpretation of a specific point or part of the award, if the parties so agree;

  • •  if the tribunal considers the request justified, it shall make the correction or give the interpretation within 30 days of the request, and the interpretation shall form part of the award;

  • •  the tribunal may also correct any error of the this type on its own initiative.

8.148  When claims have been presented in the proceedings but omitted from the award, a party may also, within 30 days, request an additional award. If the tribunal considers the request justified, it must make the additional award within 60 days. The tribunal may, however, extend the period for making a correction or interpretation, or for issuing an additional award.92

8.149  In addition, section 69 of the Arbitration Ordinance sets out supplemental provisions empowering the tribunal to:

  • •  change the award when this is necessitated by or a consequence of the correction or interpretation process just discussed; and

  • •  review an award of costs within 30 days if, when making the award, the tribunal was not aware of any information relating to costs (including any offer for settlement) which it should have taken into account. Following a review, the tribunal may confirm, vary, or correct the award of costs.

8.5  After the Award

8.5.1  Overview

8.150  A Hong Kong award may be set aside in the following circumstances:

  • •  under section 81 of the Arbitration Ordinance, which gives effect to Article 34 of the Model Law, setting out grounds that mirror those found in the New York Convention; and

  • •  under section 26(5) of the Arbitration Ordinance, following a successful challenge to an arbitrator who has participated in proceedings resulting in an award.

8.151  A Hong Kong award may also be:

  • •  the subject of a challenge under section 4 of Schedule 2 to the Arbitration Ordinance, for serious irregularity; and

  • •  appealed against on a question of law under section 5 of Schedule 2; in the limited circumstances in which those provisions apply, as just explained.

In addition, a decision or award on jurisdiction may also be challenged under Article 16 of the Model Law, as explained in paragraph 8.70.

8.152  However, the court does not otherwise have jurisdiction to set aside or remit an arbitral award for errors of fact or law on the face of the award, or to deal with appeals on the law or on the merits.93

(p. 214) 8.5.2  Setting aside

8.153  The Arbitration Ordinance adopts the narrow setting-aside grounds found in the Model Law, which are essentially based on the New York Convention grounds94 for resisting enforcement. In essence, an arbitral award may be set aside only for procedural defects, lack of jurisdiction, or on public policy grounds:95

  • •  the arbitral award may be set aside by the court of its own volition if it finds that:

    1. (a)  the subject matter of the dispute is not capable of settlement by arbitration under the laws of Hong Kong; or

    2. (b)  the award is in conflict with the public policy of Hong Kong;

  • •  an award may also be set aside if the losing party proves that:

    1. (a)  a party to the arbitration was under some incapacity or the arbitration agreement is not valid under Hong Kong law—there is therefore no valid agreement or arbitration agreement;

    2. (b)  the applicant was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, or the applicant was otherwise unable to present its case—thereby being in breach of rules of natural justice or due process;

    3. (c)  the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration—the arbitrator exceeded the jurisdiction given to him or her, and if that part of the award can be severed it would be severed so as to preserve the rest of the award which does not exceed jurisdiction; or

    4. (d)  the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or was not in accordance with the Model Law—thereby not preserving party autonomy and being in breach of the arbitration agreement/arbitration law.

8.5.3  Case law

8.154  Brunswick v Shanghai Zhonglu96 is a leading authority on applications to set aside an arbitral award under Article 34 of the Model Law. In Brunswick, in construing a particular clause in the contract in dispute, the tribunal relied on certain PRC law requirements dealing with the validity of contracts, even though this approach had not been considered by the parties. The applicant argued that the tribunal ought to have canvassed with the parties its ‘secret view’ on contractual requirements under PRC law before deciding the issue. In contrast, the respondent argued that the arbitrators were entitled to rely on their own expertise on PRC law.

8.155  The Court decided that the requirement of contractual validity under PRC law had to be decided on the evidence before the tribunal, and that on primary factual disputes, the tribunal has to act on evidence and give a reasonable opportunity to the parties to put forward their respective cases on such evidence. On the facts, the Court held that the tribunal’s failure to do so was a breach of Article 34(2)(a)(ii) of the Model Law (the party was ‘unable to present his case’).

(p. 215) 8.156  Despite this, the Court held that it still had to consider whether the award should be set aside as a matter of discretion. The Court declined to import the English law requirement that a party applying to set aside an award has to show that a violation under Article 34(2) has caused ‘substantial injustice’.

8.157  Instead, it held that the test was whether the violation would affect the outcome of the dispute, or the tribunal would have reached a different conclusion but for the matter complained of. On the facts, the Court held that the violation had no real impact on the result, and even in the absence of the violation, the tribunal would have reached the same conclusion, in the light of the other reasons in its award. Therefore, the Court in Brunswick declined to set aside the award on this ground.

8.158  In addition, the applicant also complained about a conversion issue, in which both parties had argued the matter on the basis that Illinois law was the governing law for the claim. In its award, however, the tribunal considered that the conversion claim should be governed by PRC law, and decided the matter by reference to PRC law, even though neither party had adduced any evidence of PRC law applicable to the claim.

8.159  Again, the Court held that the tribunal was not entitled to apply its secret view on PRC law without giving the parties an opportunity to address it. On the facts, the Court held that the applicant was successful in establishing that it had been deprived of the opportunity to present its case on PRC law pertaining to the conversion claim, leading the Court to partially set aside the award.

8.160  In Pacific China Holdings Ltd v Grand Pacific Holdings Ltd,97 the Hong Kong Court of Appeal overturned a decision of the Court of First Instance setting aside an ICC award under Article 34(2) of the Model Law. The Court of Appeal made it clear that in order to establish a ground for setting aside, it must be shown that the tribunal’s conduct was of such a ‘serious’ or ‘egregious’ nature as to amount to a denial of due process, which was not the case here. The Court of Appeal recognized that the tribunal is given wide discretionary case management powers, and acknowledged that the court has discretion not to set aside an award even when there are grounds for setting aside under Article 34(2)(a), if it is satisfied that the result would not have been different. In February 2013, the Hong Kong Court of Final Appeal refused Pacific China’s application for leave to appeal against the Court of Appeal judgment.98

8.5.4  Substantive challenges

8.161  In addition to a setting aside application, a Hong Kong arbitral award may also be the subject of:

  • •  a challenge under section 4 of Schedule 2 to the Arbitration Ordinance, for serious irregularity affecting the tribunal, the arbitral proceedings, or the award; or

  • •  an appeal on a question of law arising out of an award made in the arbitral proceedings under section 5 of Schedule 2.

(p. 216) 8.162  Significantly, the provisions of Schedule 2 do not apply, unless:

  • •  the parties expressly opt in to these provisions; or

  • •  it is a domestic arbitration, and the arbitration agreement was entered into before, or within six years of, commencement of the Arbitration Ordinance.99

In practice, parties to international arbitrations will rarely opt in to the provisions of Schedule 2. This is in part because they are often reluctant to increase the degree of oversight by the Hong Kong courts. Accordingly, the Schedule 2 provisions are, in practice, only of significance to domestic arbitrations.

8.5.5  Procedure

8.163  An application to set aside an arbitration award under section 81 of the Arbitration Ordinance is made by originating summons to the judge in charge of the Construction and Arbitration List. An application must be made within three months of the date on which the applicant received the award or, if a request has been made to correct or interpret the award (or for an additional award), from the date on which that request has been disposed of by the arbitral tribunal.100

8.164  The court, when asked to set aside an award may, ‘where appropriate’ and if requested by a party, suspend the setting-aside proceedings in order to give the tribunal an opportunity to resume the arbitral proceedings or to take such other action as will eliminate the grounds for setting aside.101

8.165  Apart from an application to set aside an award under section 81, the award may also be set aside as part of a challenge to an arbitrator. When a challenge to an arbitrator is upheld, the court ‘may’, as part of that application, set aside any award that was made with the participation of the challenged arbitrator. In practice, this provision is not often relied on, and most applications for setting aside are made pursuant to section 81.

8.166  A typical setting aside application will take several months to resolve at first instance, assuming that it is contested. The cost varies significantly, depending on the complexity of the arguments and the materials before the court. In fairly complex applications, the cost is likely to be in the six-figure US dollar range.

8.6  Conclusion

8.167  With the coming into effect of the new Arbitration Ordinance in 2011, arbitration in Hong Kong has entered a new era. Having largely abolished the distinction between domestic and international arbitrations, the Arbitration Ordinance has created a unitary regime based on the UNCITRAL Model Law, which is familiar to participants from both civil and common law jurisdictions. This allows parties to draw on and benefit from a vast amount of international experience. Together with its supportive judiciary, good infrastructure, and first class legal and arbitration professionals, the Arbitration Ordinance further cements Hong Kong as a world-class arbitration centre for resolving international disputes.

Footnotes:

1  For more detailed discussion of the issues mentioned in this chapter, see ‘Hong Kong SAR’ in MJ Moser and J Choong (eds), Asia Arbitration Handbook (OUP, 2011), which formed the basis for this chapter.

2  Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China 1990.

3  Save for laws which contravene the Basic Law, and subject to subsequent amendment by the Hong Kong legislature.

4  In general, laws relating to defence and foreign affairs listed in Annex III to the Basic Law apply.

5  Save for the recognition and enforcement of Hong Kong awards in the PRC and vice versa, which is discussed later.

6  Cap 609.

7  All with various limitations; see the Arbitration Ordinance, Sch 2.

8  Cap 4.

9  Cap 4A.

10  See P Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions (3rd edn, Sweet & Maxwell, 2010) 282.

11  See Arbitration Ordinance, s 5. But note that the provisions of Sch 2 will often still apply to domestic arbitrations.

12  Arbitration Ordinance, s 23.

13  Arbitration Ordinance, s 46(3)(b).

14  Arbitration Ordinance, ss 16–18.

15  Arbitration Ordinance, ss 32 and 33.

16  Arbitration Ordinance, ss 56 and 60.

17  Arbitration Ordinance, s 57.

18  Arbitration Ordinance, ss 74–77.

19  Arbitration Ordinance, Pt 10.

20  Read with Arbitration Ordinance, Pt 11.

21  Arbitration Ordinance, ss 104 and 105.

22  HKIAC Annual Report 2011 <http://hkiac.org/images/stories/hkiac/2011_Annual_Report.pdf> (accessed 6 July 2012).

23  HKIAC Arbitration Rules and Guidelines, available at <http://www.hkiac.org/index.php/arbitration/arbitration-rules> (accessed 25 January 2013).

24  Arbitration Ordinance, s 23(3). For further discussion, see para 8.54.

25  Arbitration Ordinance, ss 13(2) and 24(1). For further discussion, see paras 8.55–8.65.

26  Model Law, Art 7 is given effect by the Arbitration Ordinance, s 19.

27  Unless, of course, there is an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other: the Model Law, Art 7(5) given effect by the Arbitration Ordinance, s 19. The old Arbitration Ordinance, s 2AC(2)(f) brings such an agreement within the scope of the ‘writing’ requirement.

28  This used to be dealt with under the old Arbitration Ordinance (cap 341), s 5 in relation to domestic arbitrations, but the provision has been deleted from the current Arbitration Ordinance, in line with the recommendations of the Report of Committee on Hong Kong Arbitration Law (2003) that the subject should more appropriately be dealt with by the legislation on insolvency.

29  Control of Exemption Clauses Ordinance (cap 71), s 15.

30  ‘Dealing as a consumer’ is defined in the Control of Exemption Clauses Ordinance (cap 71), s 4 and generally includes situations where the ‘consumer’ does not make the contract in the course of a business and the counterparty does.

31  The limitation imposed on arbitration agreements with consumers does not apply in certain cases: see the Control of Exemption Clauses Ordinance (c 71), Sch 1 read together with s 15(2)(b).

32  See the Consultation Paper: ‘Reform of the Law of Arbitration in Hong Kong’ (Department of Justice, 2007) 6ff.

33  Arbitration Ordinance, s 5.

34  See Arbitration Ordinance, s 19.

35  Fiona Trust and Holding Corp and ors v Privalov and ors [2007] UKHL 40 (HL).

36  UDL Contracting Ltd v Apple Daily Printing Ltd and Lai Chee Ying Jimmy HCA 1209/2007; 厦門新景地集團有限公司‎ v Eton Properties Ltd et al HCA 961/2008 (16 March 2010, CFI).

37  See generally Arbitration Ordinance, s 20(2) and the CFA decision in Paquito Lima Buton v Rainbow Joy Shipping Ltd Inc [2008] 4 HKC 14, 55.

38  The Labour Tribunal Ordinance (c 25), s 7 and Schedule set out the contracts within the Labour Tribunal’s jurisdiction. These cover a range of claims, including those based on breach of a term in a contract of employment.

39  See generally Walford v Miles [1992] 2 AC 128.

40  See generally Cable & Wireless plc v IBM UK Ltd [2003] 1 BLR 89.

41  Hyundai Engineering and Construction Co Ltd v Vigour Ltd [2005] 1 HKC 579.

42  Model Law, Art 8 is given effect by the Arbitration Ordinance, s 20.

43  See Chok Yick Interior Design & Engineering Co Ltd v Fortune World Enterprises Ltd HCA 2394/2008; HCA 280/2009.

44  Tai Hing Cotton Mill Ltd v Glencore Grain Rotterdam BV and anor [1996] 1 HKC 363 (CA).

45  Arbitration Ordinance, s 20(8).

46  Arbitration Ordinance, s 20(9).

47  Arbitration Ordinance, s 5(2) expressly provides that s 20 applies when the place of arbitration is outside Hong Kong.

48  These are: (a) the nature of the dispute; (b) the availability of arbitrators or umpires, as the case may be; (c) the identity of the parties; (d) the independence and impartiality of the arbitrator or umpire; (e) any stipulation in the relevant arbitration agreement; and (f) any suggestions made by the parties themselves. See the Arbitration (Appointment of Arbitrators and Umpires) Rules, s 7.

49  See eg Guideline on the Interviewing of Prospective Arbitrators, published by the Chartered Institute of Arbitrators; although in practice, not all arbitrators agree with or consider that the guidelines should be applied in their entirety.

50  Arbitration Ordinance, s 34, which also gives effect to the Model Law, Art 16.

51  Model Law, Art 16(3) given effect by Arbitration Ordinance, s 34.

52  See Arbitration Ordinance, s 34(4).

53  See eg China Light & Power Co Ltd v Wong To Sau Heung and ors [1993] 2 HKC 238 (CA), involving an interim anti-suit injunction.

54  On the face of it, this might include arbitral proceedings taking place outside Hong Kong, although the fact that there are no substantive proceedings taking place in Hong Kong would be a significant hurdle.

55  ‘Interim measures’ that a Hong Kong court is able to order are defined by reference to ‘interim measures’ that an arbitral tribunal may grant: Arbitration Ordinance, s 45(9). Correspondingly, it would seem that the reference to ‘interim measures’ in Model Law, Art 17(2)(b) is broad enough to cover an anti-suit injunction: see Binder (n 10) 244, summarizing the views of the UNCITRAL Working Group.

56  Although, of course, the complications raised by the Brussels Regulation regime are not relevant to Hong Kong.

57  See also the discussion in Lin Ming and anor v Chen Shu Quan and ors HCA 1900/2011.

58  Jung Science Information Technology Co Ltd v ZTE Corp [2008] 4 HKLRD 776 (CFI); see also Gao Haiyan and anor v Keeneye Holdings Ltd and anor CACV No 79 of 2011 which touches on similar issues in the context of an application to enforce an award.

59  Model Law, Art 14(2) provides that such a withdrawal does not imply acceptance of the validity of the challenge.

60  Arbitration Ordinance, s 104.

61  Arbitration Ordinance, s 105.

62  Note, however, the UK Supreme Court decision of Jones v Kaney [2011] UKSC 13 which abolished the longstanding immunity from suit afforded to expert witnesses. The case may be persuasive in Hong Kong, particularly with respect to the position of party-appointed experts.

63  Arbitration Ordinance, s 63.

64  Given effect in Hong Kong by the Arbitration Ordinance, s 47.

65  See generally Hassneh Insurance Co of Israel v Stuart J Mew [1993] 2 Lloyd’s Rep 243; cf the more liberal Australian position expressed by the High Court of Australia in Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10.

66  See generally Hong Kong Housing Authority v Sui Chong Construction & Engineering Co Ltd and anor [2008] 1 HKLRD 84; Nam Tai Electronics Inc v PricewaterhouseCoopers [2008] 1 HKLRD 666 for a discussion of some of the general confidentiality issues.

67  See Hong Kong Civil Procedure (Sweet & Maxwell, 2013), Vol 2, para G1/55/4. The Arbitration Ordinance, s 55(5) also specifies the court’s power to compel a prisoner to testify.

68  Arbitration Ordinance, s 56(1)(b) and (8)(c).

69  Arbitration Ordinance, s 61(1), cf s 61(2).

70  Arbitration Ordinance, s 47(3).

71  Arbitration Ordinance, s 56(7).

72  See Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd and Chen Rong HCCT 66/2007 (10 February 2009).

73  See generally, ‘Report of Committee on Hong Kong Arbitration Law’ (2003) paras 25.21ff.

74  Arbitration Ordinance, s 53(3) and (4) do not apply in relation to an application for security for costs: s 53(2).

75  Given effect by the Arbitration Ordinance, s 66.

76  Given effect by the Arbitration Ordinance, s 67.

77  Model Law, Art 14(1) given effect by Arbitration Ordinance, s 27.

78  Model Law, Art 28(3) given effect by Arbitration Ordinance, s 64.

79  Arbitration Ordinance, s 70; save for specific performance relating to land: s 70(2).

80  Arbitration Ordinance, s 79.

81  Arbitration Ordinance, s 80(1).

82  Arbitration Ordinance, s 80(2).

83  Arbitration Ordinance, s 74(5).

84  Arbitration Ordinance, s 74(6) and (7).

85  Arbitration Ordinance, s 74(8).

86  Arbitration Ordinance, s 57.

87  Arbitration Ordinance, s 74(6) recognizes that the tribunal is, in general, not obliged to follow the scales and practices in court taxation.

88  Arbitration Ordinance, s 75.

89  Arbitration Ordinance, s 77.

90  Arbitration Ordinance, s 77(8).

91  Arbitration Ordinance, s 77(4).

92  Model Law, Art 33(4) given effect by Arbitration Ordinance, s 69.

93  Arbitration Ordinance, s 81(3).

94  New York Convention, Art V.

95  Model Law, Art 34.

96  Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd and Chen Rong HCCT 66/2007 (10 February 2009).

97  Pacific China Holdings Ltd v Grand Pacific Holdings Ltd [2012] HKEC 645.

98  Pacific China Holdings Ltd (in liquidation) v Grand Pacific Holdings Ltd [2013] HKEC 248. The Court of Final Appeal stated that ‘the rulings complained of were made by the tribunal in the proper exercise of its procedural and case management discretions’ and could not be of ‘great general or public importance’ for granting leave under the Court of Final Appeal Ordinance (Cap 484), s 22(1)(b).

99  See also Arbitration Ordinance, s 101, which deals with the specific case of Hong Kong construction subcontracting cases.

100  Model Law, Art 34(3).

101  Model Law, Art 34(4).