by Nicolas Wiegand, Mariel Dimsey and Sherlin Tung*
On 1 November 2018, the Hong Kong International Arbitration Centre’s (hereafter, “HKIAC”) new arbitration rules (hereafter, “2018 Rules”) came into effect. The 2018 Rules apply to all arbitrations in which: (i) a Notice of Arbitration is submitted on or after 1 November 2018; and (ii) where the arbitration agreement provides for the 2018 rules to apply or for arbitration “administered by HKIAC” or words to similar effect, unless the parties explicitly agree otherwise.
The 2018 Rules contain a number of changes, primarily implemented to enhance the efficiency of arbitral proceedings and, at the same time, provide for greater flexibility in order to better address parties’ needs and react to the complexity of modern disputes that can result from multi-contract and multi-party situations.
Streamlining of the arbitral procedure through early determination
The 2018 Rules introduce an early determination procedure. The purpose of this procedure is to ensure the efficiency and expeditiousness of the arbitral proceedings.
The early determination procedure empowers the arbitral tribunal, upon a party’s motion, to decide cases in a summary manner on the basis that such point is manifestly without merit or manifestly outside the arbitral tribunal’s jurisdiction, or on the assumption that even if submitted points of law or fact are assumed to be correct, no award could be rendered in favour of the submitting party (Article 43). The procedure is similar to initiatives in other Rules (e.g. Article 41(5) of the ICSID Rules, Article 29 of the SIAC Rules or Article 39 of the SCC Rules). The early determination procedure helps to streamline arbitration proceedings in order to promote efficiency of time and costs as the arbitral tribunal has the ability to decide on an issue that can either end an arbitration early or help speed up the rest of the arbitration by narrowing the list of issues in dispute.
Disclosure of third party funding
The 2018 Rules reflect the recent legislative changes in Hong Kong clarifying that parties are permitted to seek third party funding to fund their claims and implementing conditions to promote the transparency of proceedings and avoid potential conflicts of interest.
The 2018 Rules require all parties to an arbitration to disclose any third party funder’s identity (Article 44.1). This disclosure is important because the third party funder’s identity can be a relevant concern in determining whether an arbitral tribunal is impartial and independent. For example, if an arbitrator is repeatedly appointed by (different) parties funded by the same third party funder, or if an arbitrator has acted as counsel in another dispute whereby its client is funded by the same third party funder, these factors could be relevant in assessing the existence of bias. By requiring parties to disclose the use of third party funding, the 2018 Rules not only expressly recognize the permissibility of third party funders in arbitration proceedings but also ensure transparency in the proceedings and help to ensure that the described conflicts of interest are avoided.
Promotion of settlements through alternative dispute resolution
Recognizing parties’ needs for fast and sustainable resolution of disputes, Article 13.8 of the 2018 Rules gives the arbitral tribunal express authority to suspend the arbitration proceedings if the parties agree to attempt resolution through alternative settlement methods such as mediation.
By formalizing the arbitral tribunal’s ability to suspend arbitration proceedings while the parties attempt to settle, the 2018 Rules emphasize the importance of alternative dispute resolution methods. With the promotion of these methods, parties are encouraged to find a flexible solution for their dispute at lower costs even after the commencement of the arbitration. Article 13.8 also allows the parties to resume the arbitration proceeding at a later stage upon one party’s request.
Addressing multi-party and multi-contract disputes
Following the trend of other arbitral institutions, the HKIAC has addressed the rising complexity of international arbitration proceedings by including improvements on how to deal with multi-party and multi-contract situations.
The 2018 Rules allow a party to commence one single arbitration based on multiple agreements between multiple parties. Article 29 allows for a party to commence one single arbitration even if such arbitration agreements were entered into between different parties if the issues in dispute arise out of the same questions of law or fact, claimant’s relief sought against the multiple respondents relates to the same transaction or series of transactions, and the respective arbitration agreements are compatible. This new rule promotes efficiency of time and costs by removing the additional step of requiring a party to commence multiple arbitrations and then having to file an application for consolidation.
The 2018 Rules also introduce the mechanism of concurrent proceedings as another option – with less restrictive requirements – available to parties. For multiple arbitrations where: (i) the composition of the arbitral tribunal is the same; and (ii) a common question of law or fact exists; the arbitral tribunal is given the discretion and power to decide how to deal with related arbitration proceedings, such as holding the hearings concurrently, holding the hearings consecutively, or suspending one (or more) arbitration proceedings until another proceeding is decided. This new mechanism can lead to substantial cost savings, for example by lower travel expenses, legal costs, and experts’ costs as well as by reducing administrative work and coordination efforts for hearings.
Effective legal protection by faster emergency procedures
While the emergency arbitration procedure was introduced with the 2013 Rules, the 2018 Rules expand the availability of the emergency arbitrator process to the parties while at the same time shortening the entire process. These amendments to the emergency arbitrator procedure support the urgent nature of such proceedings while at the same time enhance the legal protections afforded to parties who have agreed to resolve their disputes under the HKIAC Rules.
The 2018 Rules allow for a party to file an application for emergency relief up to seven (7) days before a Notice for Arbitration is submitted. This affords a party legal protection under arbitration even before a formal Notice of Arbitration is filed to address situations when the status quo is imminently threatened or has unexpectedly deteriorated. However, the requirement to submit a formal Notice of Arbitration within seven (7) days thereafter emphasizes the provisional nature of such procedure.
The 2018 Rules now also require the HKIAC to appoint an emergency arbitrator within 24 hours after receipt of both the application and the application deposit (para 4 of Sch. 4). This shortening of the deadline to appoint an emergency arbitrator is also in line with the urgent nature of the need for emergency arbitrator proceedings.
The 2018 Rules also set a cap on the emergency arbitrator’s fees in an effort to lower costs and promote efficiency of emergency arbitrator proceedings.
Efficiency by technology
The 2018 Rules expressly recognize the evolution of technology and its impact on the time and costs of arbitral proceedings. With the rise in cross-border disputes, arbitrations are becoming more “international” with parties and evidence based in locations worldwide. The geographic locations of such parties and evidence often result in an increase in costs and time in arbitration proceedings.
Article 13.1 of the 2018 Rules expressly requires the arbitral tribunal to consider an effective use of technology (such as skype video conferencing) when adopting suitable procedures for the conduct of arbitration. Article 3.1 of the 2018 Rules introduces an option for parties to communicate by uploading communications to a secured online repository, making communication safer and more efficient.
Formal deadlines for rendering awards
Taking time-effectiveness one step further, the HKIAC has introduced a default three-month time limit from the closure of arbitral proceedings for the arbitral tribunal to render its arbitral award. The time limit can only be extended by agreement of the parties or, in appropriate circumstances, by the HKIAC (Article 31.2).
By establishing a deadline for the arbitral tribunal to render an award, the 2018 Rules give the parties certainty on when they can expect to receive an award since, subject to party agreement or extraordinary circumstances, the arbitral tribunal is obligated to render such award within a set period of time.
The 2018 Rules reaffirm the HKIAC’s status as one of the world’s leading arbitral institutions, and in particular, in Asia, with its innovative developments addressing not only international standards but also key market trends. The amendments and improvements ensure that the HKIAC rules remain state-of-the-art and reinforce Hong Kong’s status as an arbitration-friendly jurisdiction and an arbitration hub in the region.
The full text of the 2018 Rules is available on the HKIAC website: www.hkiac.org.
*Originally published on CMS-Law Now.