Client briefing January 2011

New Arbitration Law for Hong Kong

Introduction
On 10 November 2010, the Hong Kong Legislative Council passed the Hong Kong Arbitration Bill. The objective of the Arbitration Bill is to reform the current Arbitration Ordinance (Cap. 341), with a view to making the law of arbitration more user-friendly to arbitration users and the arbitration regime in Hong Kong more consistent with widely accepted international arbitration practices and development. After the Secretary for Justice completes the formality of publishing a notice in the Government Gazette, the new Arbitration Ordinance will come into effect. It is anticipated that this will happen within the next several months.

Key Issues Establishment of a unitary regime for arbitration Modifications/supplements to the UNCITRAL Model Law

Background
The passing of the Arbitration Bill is the culmination of over 10 years of deliberation/consultation in Hong Kong: in 1998, the Hong Kong Institute of Arbitrators and the Hong Kong International Arbitration Centre established a committee to consider the reform of the arbitration law in Hong Kong. The committee issued a report in 2003 recommending that the current Arbitration Ordinance be revamped, including the creation of a unitary regime with the UNCITRAL Model law governing both domestic and international arbitrations (with the 2006 amendments incorporated). The Department of Justice then set up a working group in September 2005 to implement the report of the committee and published a consultation paper and a draft Arbitration Bill on 31 December 2007. Various interested parties submitted their views to the government throughout the entire consultation process. It is fair to say that the passing of the Arbitration Bill opens a new chapter in Hong Kong arbitration law various important changes will be made to the Hong Kong arbitration law and a large part of the Arbitration Ordinance will be redrawn. In this bulletin, we highlight two key elements introduced by the new Arbitration Ordinance, namely: 1) the establishment of a unitary regime for arbitration; 2) the modifications/supplements to the UNCITRAL Model Law.
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1. Establishment of a unitary regime for arbitration

The current Arbitration Ordinance provides for separate regimes for the conduct of domestic and international arbitrations in Hong Kong: domestic arbitration is governed by specific provisions under the current Arbitration Ordinance (which are largely based on UK arbitration legislation), whereas international arbitration is governed by the UNCITRAL Model Law.

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Client briefing New Arbitration Law for Hong Kong

One of the important changes to be introduced by the Arbitration Bill is to remove the distinction between domestic and international arbitration. Going forward, both domestic arbitration and international arbitration will be governed by the UNCITRAL Model Law (as modified by certain provisions under the new Arbitration Ordinance), subject to the following:

Certain provisions that were applicable to domestic arbitration only are retained in Schedule 2 of the new Arbitration Ordinance, including: (i) the appointment of sole arbitrators; (ii) the consolidation of arbitral proceedings by the court; (iii) determination of preliminary questions of law by the court; (iv) the challenge of the arbitral award on grounds of serious irregularity; and (v) appeals against arbitral awards on questions of law. Parties may provide expressly in an arbitration agreement to opt-in to one or more of the above provisions contained in Schedule 2. The opt-in provisions under Schedule 2 will apply automatically to an arbitration agreement entered into before the commencement of the new Arbitration Ordinance which has provided for domestic arbitration, or an arbitration agreement entered into at any time within 6 years after the commencement of the new Arbitration Ordinance which provides for domestic arbitration.

2.

Modifications/supplements to the UNCITRAL Model Law

Under the new regime, it is expressly stated that the provisions of the UNCITRAL Model Law will have the force of law in Hong Kong, subject to the modifications and supplements as expressly provided for in the new Arbitration Ordinance. Chapters I to VII of the UNCITRAL Model Law have been incorporated into the new Arbitration Ordinance. Some of the more important modifications/supplements that have been made include the following:

Confidentiality (a newly added supplement): the new Arbitration Ordinance expressly states that any court proceedings under the new Arbitration Ordinance are not to be heard in open court (subject to any court order to the contrary), and that no party may publish, disclose or communicate any information relating to the arbitral proceedings or any award made in those proceedings unless otherwise agreed by the parties. Arbitration Agreement (Article 7 of the UNCITRAL Model Law): under the new regime, it is expressly stated that an arbitration agreement will be considered to be in writing if the agreement, although made otherwise than in writing, is recorded by one of the parties to the agreement, or by a third party, with the authority of each of the parties to the agreement. Arbitration agreement and substantive claim before court (Article 8 of the UNCITRAL Model Law): under the new regime, it is expressly provided that if a dispute under an arbitration agreement involves a claim or other dispute that is within the jurisdiction of the Labour Tribunal, the court may refuse to refer the parties to arbitration. Number of arbitrators (Article 10 of the UNCITRAL Model Law): the default number of arbitrators under the new regime is either one or three, to be determined by the HKIAC. Appointment of umpires (a newly added supplement): a new mechanism for the appointment of an umpire for arbitrations with an even number of arbitrators has been included. Appointment of mediator (a newly added supplement): under the new regime, the HKIAC may, on the application of any parties, appoint a mediator; such appointment is not subject to appeal. Recognition and enforcement of interim measures (Article 17H of the UNCITRAL Model Law): section 61 of the new Arbitration Ordinance replaces Article 17H of the UNCITRAL Model Law. It specifically provides that an order or direction made in relation to arbitral proceedings by an arbitral tribunal is enforceable in the same manner as an order or direction of the court only with the leave of the court. Court-ordered interim measures (Article 17J of the UNCITRAL Model Law): Article 17J has not been adopted. Under the new regime, section 45 of the new Arbitration Ordinance governs the grant of interim measures by the Court.

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Client briefing New Arbitration Law for Hong Kong

Equal treatment of parties (Article 18 of the UNCITRAL Model Law): the new Arbitration Ordinance replaces the right of a party to have "a full opportunity of presenting his case" with "a reasonable opportunity to present their case". Default of a party (Article 25 of the UNCITRAL Model Law): under the new regime, if a party, without showing sufficient cause, fails to comply with any order or direction of the arbitral tribunal, the arbitral is empowered to make a peremptory order prescribing the time for compliance. If a party fails to comply with a peremptory order, the arbitral tribunal may, among other matters, draw adverse inferences from the non-compliance, or make any award on the basis of the materials before the arbitral tribunal. Expert appointed by arbitral tribunal (Article 26 of the UNCITRAL Model Law): a new mechanism has been inserted for the arbitral tribunal to appoint experts for the assessment of the costs of the arbitral proceedings (other than the fees and expenses of the arbitral tribunal). General powers exercisable by an arbitral tribunal (a newly added supplement): Section 56 of the new Arbitration Ordinance outlines various orders that an arbitral tribunal may make when conducting arbitral proceedings. Special powers of the court in relation to arbitral proceedings (a newly added supplement): Section 60 of the new Arbitration Ordinance outlines various orders that a court may, on the application of any party, make in relation to any arbitral proceedings which have been or are to be commenced in or outside Hong Kong

Finally, it should be noted that Chapter VIII of the UNCITRAL Model law is not incorporated into the new Arbitration Ordinance. The new Arbitration Ordinance contains separate provisions regarding the recognition and enforcement of the New York Convention awards and Mainland Chinese awards, which are substantially the same as the corresponding provisions under the old regime. ____________ The objective of the new Arbitration Ordinance is to make a Hong Kong a more attractive place and a regional centre for dispute resolution. The extent to which the new Arbitration Ordinance will achieve such an objective remains to be seen. This will be closely watched by Clifford Chance and we will be keeping you updated on the implementation of the new Arbitration Ordinance in Hong Kong. We would be pleased to answer any questions you may have on this bulletin and share our thoughts on its implications, so please do not hesitate to contact your usual Clifford Chance contact or a member of the Asia arbitration team.

This Client briefing does not necessarily deal with every important topic or cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice.

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