Journal of International Arbitration

Published by Kluwer Law International P.O. Box 316 2400 AH Alphen aan den Rijn The Netherlands Sold and distributed in North, Central and South America by Aspen Publishers, Inc. 7201 McKinney Circle Frederick, MD 21704 United States of America

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ISSN 0255-8106 © 2012, Kluwer Law International

This journal should be cited as (2012) 29 J. Int. Arb. 6

The Journal of International Arbitration is published six times per year. Subscription prices for 2013 [Volume 30, Numbers 1 through 6] including postage and handling: Print subscription prices: EUR 943/USD 1124/GBP 620 Online subscription prices: EUR 781/USD 1041/GBP 574 (covers two concurrent users) This journal is also available online at www.kluwerlawonline.com. Sample copies and other information are available at www.kluwerlaw.com. For further information please contact our sales department at +31 (0) 172 641562 or at [email protected]. For Marketing Opportunities please contact [email protected]. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, mechanical, photocopying, recording or otherwise, without prior written permission of the publishers. Permission to use this content must be obtained from the copyright owner. Please apply to: Permissions Department, Wolters Kluwer Legal, 76 Ninth Avenue, 7th floor, New York, NY 10011, United States of America. E-mail: [email protected]. Website: www.kluwerlaw.com. The Journal of International Arbitration is indexed/abstracted in the European Legal Journals Index. Printed on acid-free paper

General Editor

Dr. Michael J. Moser

Guide to Authors

Notes and Current Developments Editor

Dominique Hascher

Assistant Editor

Friven Yeoh

The Editor will be pleased to consider contributions provided they are not, or have been, submitted for publications elsewhere. The following is a brief guide concerning the submission of articles which may be of assistance to authors.

Advisory Board

Dominique Brown-Berset Professor Dr. Bernard Hanotiau Michael Hwang S.C. Professor Dr. Gabrielle Kaufmann-Kohler Dr. Wolfgang Kühn Toby Landau Q.C. Ramon Mullerat Dr. Horacio A. Grigera Naón Lucy Reed Samir A. Saleh Audley Sheppard Abby Cohen Smutny Dorothy Udeme Ufot V.V. Veeder Q.C.

All correspondence should be addressed to: Dr. Michael J. Moser Journal of International Arbitration c/o Hong Kong International Arbitration Centre 38th Floor, Two Exchange Square, 8 Connaught Place, Hong Kong S.A.R., China Tel: +852 3512 2398, Fax: +852 2877 0884, Email: [email protected] For subscription queries please see copyright page overleaf. © Kluwer Law International All rights reserved ISSN 0255-8106

Mode of citation: 29 J.Int.Arb. 6

1. Articles must be presented in their final form, in English. They should be double spaced with wide margins for ease of editing. Please provide the text in Microsoft Word or Word Perfect, and deliver to the General Editor at [email protected] 2. Special attention should be given to quotations, footnotes and references which should be accurate, complete and in accordance with the Journal style sheet, which is available online at www.kluwerlawonline.com/JournalofInternationalArbitration. 3. Tables should be self-explanatory and their content should not be repeated in the text. Do not tabulate unnecessarily. Keep column headings as brief as possible and avoid descriptive matter in narrow columns. 4. Please ensure a brief biographical note giving details of the professional/academic status of the author(s) is provided. 5. Due to strict production schedules it is not possible to amend texts after acceptance or send proofs to authors for correction. 6. The submission of a text indicates that the author consents, in the event of publication, to the automatic transfer of all copyrights to the publisher of the Journal of International Arbitration.

The New Arbitration Ordinance in Hong Kong Kun FAN* Hong Kong’s long-awaited new Arbitration Ordinance (Cap. 609) (the Ordinance) was enacted in November 2010 and came into force on 1 June 2011.The enactment of the new Ordinance reflects the government’s commitment to improve Hong Kong’s stature as a world-class centre for arbitration and represents a milestone in the arbitration law and practice of Hong Kong. This article outlines the background of the reform, summarizes the main features of the Ordinance and analyses its potential implications for the arbitration practice in Hong Kong.

1

BACKGROUND

Hong Kong’s long-awaited new Arbitration Ordinance (Cap. 609) (the Ordinance) was enacted in November 2010 and came into force on 1 June 2011. The enactment of the new Ordinance reflects the government’s commitment to improve Hong Kong’s stature as a world-class centre for arbitration and represents a milestone in the arbitration law and practice of Hong Kong. The now repealed Arbitration Ordinance (Cap. 341) provided for two distinct regimes for the conduct of arbitrations in Hong Kong: (i) the domestic regime, which was based largely on the English Arbitration legislation; and (ii) the international regime, which was based on the UNCITRAL Model Law on International Commercial Arbitration as amended in 2006 (the ‘Model Law’).The significant difference between the two regimes was that the domestic regime gave the Hong Kong courts additional powers to intervene in and assist with the arbitration process; the international regime, on the other hand, followed the principle that the Hong Kong courts should support, but not interfere with, the arbitration process. Reform of the arbitration regime in Hong Kong was originally proposed in 1998 by a Committee on Hong Kong Arbitration Law (the ‘Committee’) established by the Hong Kong Institute of Arbitrators (HKIArb) and the Hong Kong International Arbitration Committee (HKIAC). In 2003, the Committee issued a report recommending a unitary regime for domestic and international *

Assistant Professor, Faculty of Law, Chinese University of Hong Kong. Visiting Scholar, Harvard-Yenching Institute, Harvard University. Accredited Mediator, Domain Names Panelist, HKIAC. Senior Consultant,Arbitration Asia.

Fan, Kun. ‘The New Arbitration Ordinance in Hong Kong’. Journal of International Arbitration 29, no. 6 (2012): 715–722. © 2012 Kluwer Law International BV, The Netherlands

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arbitrations conducted in Hong Kong based on the Model Law (‘Committee Report’). The committee’s recommendations were taken on board by the Department of Justice (DoJ), which set up a Working Group in September 2005 to formulate legislative proposals to implement the recommendations in the Committee Report. The DoJ published a Consultation Paper on Reform of the Law of Arbitration in Hong Kong and draft Arbitration Bill (‘Consultation Paper 2007’) on 31 December 2007.1 The Consultation Paper 2007 was circulated widely and sought comments from arbitration stakeholders. Following over six months of public consultation, the Bill was introduced to the Legislative Council on 26 June 2009 for numerous rounds of debates and discussions.The final text of the Bill was enacted by the Legislative Council on 10 November 2010.2 2

OBJECTS AND PRINCIPLES OF THE ORDINANCE

The purposes of the reform are as follows: (i) to be more user-friendly for arbitration users in and outside Hong Kong; (ii) to enable the Hong Kong business community and arbitration practitioners to operate an arbitration regime which accords with widely accepted international arbitration practices and development as the Model Law is familiar to practitioners from both civil law and common law jurisdictions; (iii) to attract more business parties to choose Hong Kong as the place to conduct arbitral proceedings, as Hong Kong will be seen as a Model Law jurisdiction; and (iv) to promote Hong Kong as a regional centre for dispute resolution.3 Pursuant to section 3 of the Ordinance, the object of this Ordinance is to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense. The Ordinance is based on the following principles: (i) that subject to the observance of the safeguards that are necessary in the public interest, the parties to a dispute should be free to agree on how the dispute should be resolved; and (ii) that the court should interfere in the arbitration of a dispute only as expressly provided for in this Ordinance.

1

2

3

The text of the Consultation Paper 2007 is available at www.doj.gov.hk/eng/public/pdf/ 2007/arbitration.pdf>. The text of the Ordinance is available at www.legislation.gov.hk/blis_pdf.nsf/6799165D2FEE3FA 94825755E0033E532/C05151C760F783AD482577D900541075/$FILE/CAP_609_e_b5.pdf. See Hong Kong: The International Arbitration Centre for the Asia Pacific, prepared by the DoJ, available at www.doj.gov.hk/eng/public/arbitration.htm.

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3

717

MAIN FEATURES OF THE NEW ORDINANCE

The Ordinance inserts entire articles of the Model Law directly into the body of the relevant Ordinance sections, so that it is easier for users to find all relevant provisions in one place. The main features of the new Ordinances can be summarized in the following aspects.4 3.1

UNIFIED REGIME WITH AN OPT-IN SYSTEM

One of the most significant improvements of the new Ordinance is the abolition of the distinction between domestic and international arbitrations that existed under the previous Ordinance. All arbitrations in Hong Kong are now governed by a single unified regime based on the Model Law. A unified regime would simplify Hong Kong’s arbitration law and practice, and ensure that most arbitral proceedings are conducted according to the Model Law.5 This will avoid the often complicated issue of which regime governs a particular dispute. It is also likely to enhance confidence of foreign parties and practitioners to choose Hong Kong as the seat of arbitration. In the meantime, under pressure from certain sectors, particularly from the construction industry, Hong Kong legislators chose to retain the key features of the ‘domestic’ regime in a series of ‘opt-in’ provisions set out in Schedule 2 to the Ordinance. The opt-in provisions deal with a range of subject matters, including the following: (i) determination of a dispute by a sole arbitrator; (ii) consolidation of arbitrations or for proceedings to be heard at the same time or one immediately after another; (iii) determination of a preliminary question of law by the Court of First Instance; (iv) challenging an arbitral award on the ground of serious irregularity; and (v) appeal against an arbitral award on a question of law. Parties wishing to benefit from the greater court intervention and other specialized provisions of the old ‘domestic’ regime may specify the applicability of any or all of the ‘opt-in’ provisions in their arbitration agreements. In addition, unless parties agree otherwise, the opt-in provisions will automatically apply to 4

5

For commentaries on the Ordinance, see The Hong Kong Arbitration Ordinance: Commentary and Annotations (John Choong & Romesh Weeramantry eds., Sweet & Maxwell 2011); Chief Justice Geoffrey Ma & Denis Brock, Arbitration in Hong Kong:A Practical Guide (Sweet & Maxwell 2011). See more detailed discussion in Rationale and Justifications for the Drafting Approach of the Arbitration Bill, prepared by the Administration for the Bills Committee on Arbitration Bill, available at http://legco.gov.hk/yr08-09/english/bc/bc59/papers/bc590916cb2-2469-1-e.pdf.

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arbitration agreements entered into before or within six years after the commencement of the Ordinance which provide that the arbitration is a ‘domestic arbitration’.6 Subject to certain exceptions, in the case of a construction contract where the opt-in provisions apply, such provisions are also deemed to apply to any sub-contracts which contain an arbitration agreement.7 With the unified regime and an opt-in system, the new Ordinance ensures that the Model Law is now the default set of rules for Hong Kong arbitration but allows parties to continue using aspects of the previous regime, if that suits. 3.2

CONFIDENTIALITY

Another attractive feature of the new legislation is the express provisions in relation to the duty of confidentiality. Hong Kong is one of a comparatively small number of jurisdictions to have incorporated an express duty of confidentiality in its arbitration legislation. The provisions were introduced against the background of the Administration’s view that confidentiality is one of the main reasons parties choose to settle disputes by arbitration.8 The potential attractiveness for parties is that for arbitration seated in Hong Kong the duty of confidentiality will bind their proceedings, without the need for drafting a specific confidentiality clause. Section 18 of the Ordinance expressly prohibits publication, disclosure or communication of any information relating to the arbitral proceedings or an award made in those proceedings. This is subject to the usual specific exceptions: (i) disclosure is agreed by the parties; (ii) disclosure is to protect the party’s legal right or interest; (iii) disclosure is necessary to enforce or challenge the award; (iv) disclosure is required by law; and (v) disclosure is made to a professional or any other adviser of any of the parties. This provision seeks to strike a proper balance between safeguarding the confidentiality in arbitration and the need for parties in the arbitral proceedings to protect or pursue their legal rights or for them to enforce or challenge an arbitral award.9 The provisions regarding confidentiality also extend to cover court proceedings relating to arbitration. Under section 16 of the Ordinance, the default rule is that all arbitration-related court proceedings are to be conducted in camera, 6 7

8

9

Ordinance, sec. 100. See more detailed discussion in Arbitration Bill gazetted in June 2009, Automatic Opt-in for Subcontractors, prepared by the Administration for the Bills Committee on Arbitration Bill, available at http://legco.gov.hk/yr08-09/english/bc/bc59/papers/bc590512cb2-1477-3-e.pdf. See John Choong & Romesh Weeramantry, The Hong Kong Arbitration Ordinance: Commentary and Annotations 90 (Sweet & Maxwell 2011). See more detailed discussion in The Confidentiality Provisions and Related Issues of the Arbitration Bill, prepared by the Administration for the Bills Committee on Arbitration Bill, available at http://legco.gov.hk/yr08-09/english/bc/bc59/papers/bc590430cb2-1404-1-e.pdf.

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unless the court in its discretion, on the application of any party or on its initiative, orders proceedings to be heard in public.This is a shift from the position under the previous Ordinance, under which the presumption was that arbitration-related court proceedings would be heard in open court. In response to concerns that this closed court process runs contrary to the general common law practice of courts being open to the public, section 17(4) was included to provide that where a judgment is of a major legal interest, the court must direct that reports of the judgment may be published in law reports and professional publications.10 3.3

ARB-MED AND MED-ARB PROCEDURE

The new Ordinance, borrowed and enhanced from the old regime, contains express provisions on the power of arbitrators to act as mediators.These provisions follow the spirit of the recent Civil Justice Reforms in Hong Kong in promoting alternative dispute resolution (ADR). Parties who fail unreasonably to engage in mediation face adverse costs consequences.11 Section 32 of the Ordinance stipulates the procedure where a mediator is appointed to try to resolve the dispute before arbitral proceedings are commenced (med-arb). If any arbitration agreement provides for the appointment of a mediator and further provides that the person so appointed is to act as an arbitrator in the event that no settlement acceptable to the parties can be reached in the mediation proceedings, then no objection may be made against the person’s acting as an arbitrator, or against the person’s conduct of the arbitral proceedings, solely on the ground that the person had acted previously as a mediator in connection with some or all of the matters relating to the dispute submitted to arbitration.12 Section 33 of the Ordinance establishes the framework for the procedure where the arbitral tribunal assumes the role of a mediator in a pending arbitration proceeding to facilitate settlement (arb-med). The Ordinance expressly allows an arbitrator to act as a mediator after the arbitration proceedings have commenced, provided that all parties give their written consent,13 and disallows challenge made to the arbitrator solely on the ground that he or she previously served as a mediator in connection with the dispute submitted to arbitration.14 If mediation fails, the arbitrator-mediator is required to disclose to all parties any confidential 10 11

12 13 14

See Ma & Brock, supra n. 4, at 12. For a discussion, see Kun Fan, Mediation and Civil Justice Reform in Hong Kong, 27 Intl. Litig. Q. 2 (2011). Ordinance, sec. 32(3)(a). Ibid. sec. 33(1). Ibid. sec. 32(3)(a).

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information obtained during the mediation which he or she considers to be ‘material to the arbitral proceedings’.15 This disclosure requirement has aroused some criticism from practitioners who believe it may discourage candid discussions during the mediation proceeding.16 The med-arb and arb-med proceedings are widely used in Mainland China,17 but have not been very popular in Hong Kong in arbitration practice despite the legislative recognition. The main concerns are the risk of breaching due process and natural justice, and the impact on the impartiality of the mediator-turned-arbitrator, whose mind might have been contaminated by the confidential information obtained during the course of mediation.18 It remains to be seen how this provision will affect the practice. The Hong Kong court’s decision in Gao Haiyan19 sounded an alarm to arbitrators who act as mediators to be wary about the risks of apparent bias when wearing both hats in the same proceeding.20 3.4

SCOPE OF COURT INTERVENTION AND POWER OF THE TRIBUNAL

One of the central themes of the new Ordinance is the notion of minimal court intervention.The court may intervene only in circumstances as expressly provided for in the Ordinance. In general, ‘minor procedural proceedings in the court should not be subject to appeal. These include, for example, and in line with the Model Law provisions, the appointment of arbitrators, the procedure to challenge an arbitrator, and the decision terminating the mandate of an arbitrator. Only

15 16 17

18

19

20

Ibid. sec. 32(4). See Ma & Brock, supra n. 4, at 14. On the combination of mediation and arbitration in Mainland China, see Gabrielle Kaufmann-Kohler & Kun Fan, Integrating Mediation into Arbitration:Why It Works In China? 25 J. Intl. Arb. 479 (2008); Niall Lawless, Cultural Perspectives on China: Resolving Disputes Through Mediation, 5 Transnatl. Dispute Mgt. 4 (2008); Houzhi Tang, Is There an Expanding Culture that Favors Combining Arbitration with Conciliation or Other ADR Procedures? (ICCA Congress Series No. 8, Albert Jan van den Berg ed., Kluwer L. Intl. 1996); Guiguo Wang, The Unification of the Dispute Resolution System in China: Cultural, Economic and Legal Contributions 13 J. Intl. Arb. 2 (1996); Wenying Wang, The Role of Conciliation in Resolving Disputes:A PRC Perspective, 20 Ohio St. J. Dis. Res. 2 (2005); 2001) (Shengchang Wang, The Combination of Arbitration and Mediation:Theory and Practice (L. Press 2001). On the advantages and disadvantages of arb-med, see, e.g., Gabrielle Kaufmann-Kohler, When Arbitrators Facilitate Settlement:Towards a Transnational Standard, 25 Arb. Intl. 2 (2009). Gao Haiyan & Xie Heping v. Keeneye Holdings Ltd. & New Purple Golden Resources Development Ltd., [2011] HKE 514, Court of First Instance, Apr. 12, 2011. Gao Haiyan & Xie Heping v. Keeneye Holdings Ltd. & New Purple Golden Resources Development Ltd., CACV 79/2011, Court of Appeal, Dec. 2, 2011. For a commentary, see Kun Fan, The Risks of Apparent Bias When an Arbitrator Acts as a Mediator: Remarks on Hong Kong Court’s Decision in Gao Haiyan, 13 Y.B. Private Intl. L. 535, 535–56 (2011).

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proceedings which determine substantive rights or might do so may be subject to appeal’.21 The new Ordinance retains the enforcement procedure established under the previous regime, that is, arbitral awards are enforceable in the same manner as a court judgment but leave of the court is required.22 The new Ordinance distinguishes between the enforcement of the following: (i) New York Convention awards;23 (ii) Mainland Awards;24 and (iii) awards made in other jurisdictions.25 These provide a comprehensive system for the enforcement of arbitral awards, removing any ambiguities which existed under the previous regime. In practice, Hong Kong courts are extremely reluctant to refuse the enforcement of arbitral awards. To keep court intervention to a minimum, arbitral tribunals seated in Hong Kong are granted broad procedural powers, such as the power to issue interim measures. The new initiatives in the Model Law 2006 amendments were incorporated into the Ordinance,26 which provided with more certainty on the nature and scope of tribunal-ordered interim measures. Interim measures include an order for a party to do the following: (i) maintain or restore the status quo pending determination of the dispute; (ii) take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself; (iii) provide a means of preserving assets out of which a subsequent award may be satisfied; or (iv) preserve evidence that may be relevant and material to the resolution of the dispute.27 The tribunals are also granted express power to require security from the party requesting the interim measure,28 or to require disclosure of a material change in the circumstances that led to the granting of the measure.29 The party requesting

21

22 23 24 25 26 27 28 29

Hong Kong, the International Arbitration Centre for the Asia Pacific, prepared by the DoJ, available at www.doj.gov.hk/eng/public/arbitration.htm. See more detailed discussion in Ways in Which the Provisions of the Arbitration Bill Could Facilitate the Fair and Speedy Resolution of Disputes, prepared by the Administration for the Bills Committee on Arbitration Bill, available at http://legco.gov.hk/yr08-09/ english/bc/bc59/papers/bc591005cb2-2546-3-e.pdf. Ordinance, sec. 84. Ibid. secs. 87–91. Ibid. secs. 92–98. Ibid. sec. 86. By way of revisions in Art. 17 of the Model Law, incorporated in sec. 35 of the Ordinance. Ordinance, sec. 35, by reference to Model Law,Art. 17. Ordinance, sec. 40, by reference to Model Law,Art. 17E. Ordinance, sec. 41, by reference to Model Law,Art. 17F.

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an interim measure is liable for any costs or damages caused by the measure.30 Interim measures ordered by the tribunals are enforceable in court.31 In addition, a new power placed at the disposal of the arbitral tribunal is to make preliminary orders.32 The arbitral tribunal has the discretion to grant a preliminary order, upon the ex parte application of a party, provided it considers that prior disclosure of the request for the interim measure to the party against whom it is directed risks frustrating the purpose of the measure.33 Immediately after the preliminary order is made, the tribunal must give notice of that order to all parties.34 A preliminary order shall expire after twenty days from the date on which it was issued by the arbitral tribunal. However, the arbitral tribunal may issue an interim measure adopting or modifying the preliminary order, after the party against whom the preliminary order is directed has been given notice and an opportunity to present its case.35 4

CONCLUSION

Hong Kong is already a leading arbitration centre in the Asia-Pacific region. With its strong legal infrastructure, abundance of professional expertise, world class arbitration institutions (such as HKIAC), connection with Mainland China, and New York Convention signatory status, Hong Kong is a natural option for dispute settlement in Asia.With the enactment of the Ordinance, Hong Kong’s arbitration law becomes clearer, more certain, and more easily accessible to arbitration users and practitioners from around the world.The welcome reforms brought in by the new Ordinance are likely to bolster Hong Kong further as an international arbitration hub.

30 31 32 33 34 35

Ordinance, sec. 42, by reference to Model Law,Art. 17G. Ordinance, sec. 61. Ordinance, sec. 37, by reference to Model Law,Art. 17B. Ordinance, sec. 37, by reference to Model Law,Art. 17B. Ordinance, sec. 38, by reference to Model Law,Art. 17C(1). Ordinance, sec. 38, by reference to Model Law,Art. 17C(1).

General Editor

Dr. Michael J. Moser

Guide to Authors

Notes and Current Developments Editor

Dominique Hascher

Assistant Editor

Friven Yeoh

The Editor will be pleased to consider contributions provided they are not, or have been, submitted for publications elsewhere. The following is a brief guide concerning the submission of articles which may be of assistance to authors.

Advisory Board

Dominique Brown-Berset Professor Dr. Bernard Hanotiau Michael Hwang S.C. Professor Dr. Gabrielle Kaufmann-Kohler Dr. Wolfgang Kühn Toby Landau Q.C. Ramon Mullerat Dr. Horacio A. Grigera Naón Lucy Reed Samir A. Saleh Audley Sheppard Abby Cohen Smutny Dorothy Udeme Ufot V.V. Veeder Q.C.

All correspondence should be addressed to: Dr. Michael J. Moser Journal of International Arbitration c/o Hong Kong International Arbitration Centre 38th Floor, Two Exchange Square, 8 Connaught Place, Hong Kong S.A.R., China Tel: +852 3512 2398, Fax: +852 2877 0884, Email: [email protected] For subscription queries please see copyright page overleaf. © Kluwer Law International All rights reserved ISSN 0255-8106

Mode of citation: 29 J.Int.Arb. 6

1. Articles must be presented in their final form, in English. They should be double spaced with wide margins for ease of editing. Please provide the text in Microsoft Word or Word Perfect, and deliver to the General Editor at [email protected] 2. Special attention should be given to quotations, footnotes and references which should be accurate, complete and in accordance with the Journal style sheet, which is available online at www.kluwerlawonline.com/JournalofInternationalArbitration. 3. Tables should be self-explanatory and their content should not be repeated in the text. Do not tabulate unnecessarily. Keep column headings as brief as possible and avoid descriptive matter in narrow columns. 4. Please ensure a brief biographical note giving details of the professional/academic status of the author(s) is provided. 5. Due to strict production schedules it is not possible to amend texts after acceptance or send proofs to authors for correction. 6. The submission of a text indicates that the author consents, in the event of publication, to the automatic transfer of all copyrights to the publisher of the Journal of International Arbitration.