The Hong Kong International Arbitration Centre (the “HKIAC”) launched its revised arbitration rules (the “2013 Rules”) last month, replacing the 2008 HKIAC rules (the “2008 Rules”). The 2013 Rules will enter into force on 1 November 2013 and will apply to arbitrations in which the notice of arbitration is submitted on or after that date, unless the parties have agreed otherwise. This client alert gives a general description of the HKIAC, discusses the key changes that the 2013 Rules will effect, and offers some comments about those changes and the general objective behind them.
General Description of the HKIAC
The HKIAC was established in 1985 in response to the growing demand for arbitral services in Asia. The HKIAC administers arbitrations and other dispute resolution mechanisms, such as adjudication and mediation. According to the statistics published on the HKIAC’s website, the HKIAC dealt with 456 dispute resolution cases in 2012, of which 293 were arbitrations (in comparison with the 235 and 177 arbitrations dealt with by the Singapore International Arbitration Centre and Arbitration Institute of the Stockholm Chamber of Commerce (“SCC”) respectively). Of those 293 arbitration cases, 38% concerned maritime disputes, 27% were of a commercial nature, 24% involved construction, 8% involved corporate disputes and 3% related to insurance. The total amount in dispute for cases administered by HKIAC in 2012 was approximately US $1.8 billion.
Of those arbitrations handled by the HKIAC, 68% were international, involving parties from jurisdictions such as Angola, Brazil, China, Costa Rica, Denmark, India, Italy, Netherlands, Russia, South Africa, the United Kingdom and United States. Since China’s resumption of sovereignty over Hong Kong in 1997, arbitral awards rendered in Hong Kong are enforceable in more than 140 jurisdictions through the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).
Key Changes under the 2013 Rules
Under Schedule 4 of the 2013 Rules, a party may now seek emergency relief prior to the constitution of the arbitral tribunal. Where a party believes it requires emergency relief, it may submit an application for the appointment of an emergency arbitrator concurrent with, or following the filing of, a notice of arbitration to HKIAC. If the application is accepted, HKIAC will seek to appoint an emergency arbitrator within two days after receipt of both the application and the application deposit. The application deposit consists of HKIAC’s administrative expenses and the fees and expenses of the emergency arbitrator (as calculated by HKIAC by reference to the emergency arbitrator’s hourly rate and subject to the terms of Schedule 2 of the 2013 Rules).
A decision, order or award must be made by the emergency arbitrator within fifteen days from the date on which HKIAC transmitted the file to the emergency arbitrator (unless extended by agreement between the parties or by HKIAC in “appropriate circumstances”). Thus, this timeframe of fifteen days for obtaining emergency relief now matches that available through other arbitral institutions, such as the International Court of Arbitration of the International Chamber of Commerce (the “ICC”) or the Swiss Chambers’ Arbitration Institution (“SCAI”). However, the HKIAC’s emergency procedure still remains considerably slower than that available through the SCC, where an emergency decision on interim measures must be rendered within five days of referral of the application.
Joinder of additional parties
Under Article 27 of the 2013 Rules, an arbitral tribunal is now vested with the power to allow an additional party to be joined to the arbitration provided that, prima facie, the additional party is bound by an arbitration agreement under the 2013 Rules giving rise to the arbitration. An additional party may submit a request for joinder on its own volition, or, alternatively, a party who wishes to join that additional party to the arbitration may submit such a request to the HKIAC.
If the joining of an additional party occurs before the date on which the arbitral tribunal is constituted, all parties to that arbitration are deemed to have waived their right to designate an arbitrator and the HKIAC may revoke the appointment of any arbitrators already designated or confirmed. In those circumstances, HKIAC will appoint the entire arbitral.
Under Article 28 of the 2013 Rules, the HKIAC may now exercise the power to consolidate two or more pending arbitrations. In order to do so, the HKIAC must have been requested by a party to do so and have consulted with the parties (and any confirmed arbitrators). In addition, either: (a) the parties must have agreed to consolidate; or (b) the claims have been made under the same arbitration agreement; or (c) the claims have been made under more than one arbitration agreement, they raise a common question of law or fact which arises in both (or all) of the arbitrations, the right to relief claimed arises in respect of the same (or series of) transaction(s) and the HKIAC deems the arbitration agreements to be “compatible”.
As with joinder of additional parties, HKIAC may revoke the appointment of any arbitrators already designated or confirmed as the parties are deemed to have waived that right. In that situation, the HKIAC will appoint the arbitral tribunal to hear the consolidated proceedings.
Fees and Expenses of the Arbitral Tribunal
As with the 2008 Rules, the 2013 Rules provide that a tribunal’s fees and expenses can be determined either: (i) on an hourly basis; or (ii) ad valorem (i.e., on the basis of the sum in dispute). The ability of the parties to choose the basis on which arbitrators’ fees will be calculated is seen as one of the HKIAC’s unique strengths. The new 2013 Rules will introduce a cap on the hourly rate, which cannot exceed the rate set by HKIAC as stated on its website on the date on which the notice of arbitration is submitted. This cap may only be exceeded if expressly agreed in writing by the parties or, alternatively, if the HKIAC deems “exceptional circumstances” to exist (Schedule 2, Article 9).
In a 2013 survey of 10 popular commercial arbitral institutions which calculate the costs of an arbitration on an ad valorem basis, the HKIAC was deemed one of the most affordable choices for disputes valued at US $5 million when heard by a sole arbitrator (US $63,975 as compared with US $132,349 at the ICC). Similarly, a dispute valued at US $100 million could be heard by a sole arbitrator at HKIAC for US $178,800 when compared with US $383,555 at the SCAI.
Single arbitration under multiple contracts
The 2013 Rules also allow claims arising out of, or in connection with, more than one contract to be dealt with in a single arbitration, provided that certain conditions are met (e.g., that a common question of law or fact arises under each arbitration agreement giving rise to the arbitration).
The 2013 Rules now regulate many topical and increasingly important issues in arbitration such as emergency relief and multi-party proceedings through the joinder of additional parties, consolidation of multiple arbitrations and conducting of single arbitrations under multiple contracts. These revisions to the 2013 Rules represent the HKIAC’s desire to meet the demands of the Asian market and also remain competitive with other global arbitral institutions by keeping pace with contemporary developments in international arbitration.