12/06/24

HONG KONG: Hong Kong International Arbitration Centre unveils new rules

As published on: financierworldwide.com, Wednesday 12 June, 2024. 

The new 2024 Administered Arbitration Rules of the Hong International Arbitration Centre (HKIAC) came into force on 1 June 2024 and contain significant revisions.

The new provisions aim to enhance the efficiency and integrity of the arbitration process, as well as address contemporary concerns related to diversity, the environment and information security. Despite these substantial changes, the core features of HKIAC arbitration have been preserved: they remain flexible and user-friendly, and the institution’s approach to the administration of cases will stay ‘light touch’.

Unless parties agree otherwise, the updated rules will apply to any arbitrations commencing from 1 June 2024, when the arbitration agreement specifies the use of the HKIAC’s administered rules.

This article outlines the key amendments and discusses their significance.

A focus on efficiency and integrity

The new rules contain new provisions that expand and clarify the HKIAC’s powers, as well as those of arbitral tribunals and emergency arbitrators.

Article 13.10 of the new rules now provides that the HKIAC may take “any measure necessary to preserve the efficiency or integrity of the arbitration”. This is a very broad power, both in terms of the measures it allows the HKIAC to take, and of the grounds on which it can be invoked. What the HKIAC makes of this significant new power will be keenly observed by the arbitration community.

Notably, one of the measures expressly contemplated by article 13.10 is the revocation, in exceptional circumstances, of the appointment of any arbitrator that is prevented from or has failed to fulfil his or her functions in accordance with the new rules or within the prescribed time limits. Under the prior rules, parties could make a challenge to the arbitrators in similar circumstances. Thus, the new article 13.10 seems to confer the HKIAC with an independent power to revoke an arbitrator even where no challenge is made. However, this power would only be exercised in very limited circumstances.

Article 41.4 also confers a new power on the HKIAC. Before the tribunal is constituted, the HKIAC has the power to either suspend or cease to administer the arbitration if deposits are not paid. This protects the HKIAC from having to undertake work when there is no guarantee of payment. It also discourages claimants from filing frivolous arbitrations which are then not properly prosecuted.

On the subject of costs, the new rules also give the HKIAC new powers to review and adjust the fees and expenses of the tribunal where it is remunerated on an hourly basis (article 5 of schedule 2). The HKIAC also has the final power to determine the fees and expenses to be paid to an arbitrator where they are remunerated on an ad valorem basis (article 5 of schedule 3).

In making its decision, the HKIAC may take into account the applicable method for determining the arbitrator’s fees, the work done by the arbitrator in connection with the arbitration and the complexity of the underlying dispute. These new provisions provide the HKIAC with greater costs-monitoring powers.

New powers for arbitral tribunals and emergency arbitrators. Alongside the amendments that expand the HKIAC’s case management powers, the new rules also grant arbitral tribunals and emergency arbitrators with new powers as well.

Article 13.9 now allows the arbitral tribunal to take any measure necessary to avoid a conflict of interest arising from a change in party representation, including by excluding the proposed new party representatives from participating in the arbitral proceedings. This new provision was included in response to reported cases in which a party’s change of legal representatives during the course of an arbitration has generated a conflict of interest with the tribunal. This risks disrupting the arbitration if the tribunal member is then required to step down.

As a result, article 13.9 now allows the tribunal to exclude a party’s new legal representative if it is necessary to preserve the integrity of the proceeding. This new provision should be read in conjunction with article 13.8, which tightens the rules on notification of change of legal representatives. Once the tribunal is constituted, it is now mandatory for a party to promptly communicate any ‘proposed’ changes to its legal counsel.

Taking stock of well-established practice, article 13.6 now expressly provides that the arbitral tribunal may determine preliminary issues that may dispose of all or part of the case, bifurcate the proceedings, conduct the arbitration in sequential stages, and decide the stage of the arbitration at which any issue or issues shall be determined, or otherwise adopt procedures to decide the case efficiently. This ensures that the arbitral tribunal is empowered to ‘slice and dice’ any disputed issues and decide the sequence of their resolution.

The revamped provisions that relate to emergency arbitration means that the HKIAC has joined the club of a select few institutions that expressly allow emergency arbitrators to make any preliminary or interim orders they deem appropriate before rendering their emergency decision (schedule 4, article 10). This is an important tool to preserve the status quo between the parties. It helps ensure that the emergency decision is not defeated by steps a party might have taken pending the issuance of that decision (e.g., dissipation of assets, destruction of evidence, irretrievable damage or breach of contract, etc).

Innovation in the fields of diversity, inclusion, environment and information security

Together with the amendments intended to improve the efficiency of HKIAC arbitrations, the new rules also introduce provisions that are designed to address contemporary issues such as diversity and inclusion (D&I) in the arbitrator appointment process, the environmental impact of international arbitration, and information security risks.

D&I in arbitrator appointments. Through a new article 9A, parties and co-arbitrators are now expressly encouraged to take into account considerations of diversity when designating arbitrators in accordance with the rules. This likely includes consideration of race, gender and nationality.

As far as the HKIAC is concerned, when exercising its authority to appoint arbitrators under the rules, the HKIAC must take into account considerations of diversity (together with all other relevant considerations). This provision will bolster the HKIAC’s commitment to improving D&I in arbitral appointments, furthering the goals of the ‘ERA Pledge for Equal Representation in Arbitration’ it signed in 2016.

Limiting the environmental impact of international arbitration. The post-coronavirus (COVID-19) landscape has forced practitioners to adapt to new methods of working and they have shown that arbitrations can be conducted in a greener manner (e.g., paperless and remote hearings). Two new provisions have been introduced in this respect, as outlined below.

First, a revised article 13.1 now directs the arbitral tribunal to adopt suitable procedures for the conduct of the arbitration in order to avoid unnecessary delay or expense, including by having regard to the environmental impact of the proposed procedures.

Second, article 34.4 now also allows the arbitral tribunal to consider any adverse environmental impact arising out of parties’ conduct in the arbitration, when determining whether the costs are reasonable, and whether and how to apportion the costs. These new provisions echo a push from the arbitration community and users of international arbitration to better address environmental concerns in the context of international arbitration, reflected in the ‘Campaign for Greener Arbitrations’.

Information security in international arbitrations. In addition to its directions on environmental issues, article 13.1 also directs arbitral tribunals to adopt procedures for the conduct of the arbitration that take into account information security. This is accompanied by a brand new article 45A which sets out a fuller framework for information security and provides that parties may agree on any reasonable measures to protect information shared, stored or processed in relation to the arbitration) and that the arbitral tribunal may, after consulting with parties, give directions to the parties to protect the security of any information shared, stored or processed in relation to the arbitration.

Article 45A(3) also empowers the arbitral tribunal to make a decision, order or award in respect of any breach of the information security measures agreed by the parties or directed by the arbitral tribunal. This new framework aimed at improving the security of the data shared in international arbitration works hand in hand with the HKIAC’s own online case management platform ‘Case Connect’, which it has offered to parties and arbitral tribunals since 2021 as a way of improving information security.

Conclusion

The new rules have been updated to address some of the most current issues facing the international arbitration community. They were published in conjunction with the 26th International Council for Commercial Arbitration (ICCA) Congress (5 to 8 May 2024). The timing of the new rules release further reinforces the city’s commitment to strengthening itself as a leading global hub for dispute resolution.

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