The Practice of International Commercial Arbitration: A Handbook for Hong Kong Arbitrators [1 ed.] 1138202282, 9781138202283

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T H E P R A C T IC E O F IN TERNATI ONAL C O MME R C IA L A R BI TRATI ON

LLOYD’S ARBITRATION LAW LIBRARY Series editors: Robert Merkin and Hakeem Seriki

LLOYD’S ARBITRATION LAW LIBRARY The Practice of International Commercial Arbitration A Handbook for Hong Kong Arbitrators By Anselmo Reyes (2018) Singapore Arbitration Legislation: Annotated Second Edition By Robert Merkin and Johanna Hjalmarsson (2016)

Injunctive Relief and International Arbitration By Hakeem Seriki (2015) Arbitration Act 1996 Fifth Edition By Robert Merkin and Louis Flannery (2014)

THE P R AC T I C E OF I N T E RN AT IO N A L COMME R C I AL ARB IT RAT IO N A H A N D B O O K F O R HONG KONG A R B I T R ATORS

ANS ELMO R E YE S

First published 2018 by Informa Law from Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN And by Informa Law from Routledge 711 Third Avenue, New York, NY 10017 Informa Law from Routledge is an imprint of the Taylor & Francis Group, an informa business © 2018 Anselmo Reyes The right of Anselmo Reyes to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Whilst every effort has been made to ensure that the information contained in this book is correct, neither the author nor Informa Law can accept any responsibility for any errors or omissions or for any consequences arising therefrom. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Reyes, Anselmo, author. Title: The practice of international commercial arbitration : a handbook for Hong Kong arbitrators / by Anselmo Reyes. Description: Abingdon, Oxon [UK] ; New York : Informa Law from Routledge, 2017. | Series: Lloyd’s arbitration law library Identifiers: LCCN 2017024197 | ISBN 9781138202283 (hbk) | ISBN 9781315474335 (ebk) Subjects: LCSH: Arbitration and award—China—Hong Kong. | International commercial arbitration. Classification: LCC KNQ9337.5 .R49 2018 | DDC 347.5125/09—dc23 LC record available at https://lccn.loc.gov/2017024197 ISBN: 978-1-138-20228-3 hbk eISBN: 978-1-315-47433-5 ebk Typeset in Times New Roman by Apex CoVantage, LLC

C O N T E NT S

Preface Table of cases Table of conventions Table of legislation

ix xiii xv xvii

CHAPTER 1 INTRODUCTION 1.1 Terminology 1.2 Popularity 1.3 Problems of cost and due process paranoia Appendix A UNCITRAL and the Model Law B New York Convention

1 2 7 11 13 13 14

CHAPTER 2 THEORY 2.1 Theory 1: Law of seat as source of validity 2.2 Theory 2: Laws of enforcing states as source of validity 2.3 Theory 3: Transnational law as source of validity 2.4 Conclusion

16 16 21 23 26

CHAPTER 3 INFRASTRUCTURE 3.1 Hong Kong 3.1.1 Legislation 3.1.2 Organizations 3.1.3 Government support 3.1.4 Judicial support 3.1.5 ADR initiatives 3.1.5.1 Mediation 3.1.5.2 Med-arb 3.1.5.3 Adjudication 3.2 Singapore 3.2.1 Legislation 3.2.2 Organizations 3.2.3 Government support 3.2.4 Judicial support

27 27 27 28 29 30 31 31 31 33 34 34 34 35 35 v

CONTENTS 3.2.5 ADR initiatives 3.2.5.1 Mediation 3.2.5.2 Med-arb 3.2.5.3 Adjudication 3.3 Mainland China 3.3.1 Legislation 3.3.2 Organizations 3.3.3 Government support 3.3.4 Judicial support 3.3.5 ADR initiatives 3.3.5.1 Mediation 3.3.5.2 Med-arb 3.3.5.3 Adjudication Appendix: Concordance of Model Law articles and Arbitration Ordinance sections

36 36 36 36 37 37 37 38 38 38 38 39 39

CHAPTER 4 RULES 4.1 HKIAC-administered arbitration rules 4.1.1 Appointment of tribunal 4.1.2 Pleadings 4.1.3 Conduct of proceedings 4.1.4 Award 4.2 SIAC arbitration rules 4.2.1 Appointment of tribunal 4.2.2 Pleadings 4.2.3 Conduct of proceedings 4.2.4 Award 4.3 CIETAC arbitration rules 4.3.1 Appointment of tribunal 4.3.2 Pleadings 4.3.3 Conduct of proceedings 4.3.4 Award 4.4 UNCITRAL Arbitration Rules 4.4.1 Appointment of tribunal 4.4.2 Pleadings 4.4.3 Conduct of proceedings 4.4.4 Award 4.5 ICC Arbitration Rules 4.5.1 Appointment of tribunal 4.5.2 Pleadings 4.5.3 Conduct of proceedings 4.5.4 Award 4.6 Conclusion

42 42 43 44 44 46 47 47 48 48 49 50 50 51 51 53 53 54 54 55 55 56 56 57 57 58 59

vi

40

CONTENTS CHAPTER 5 APPOINTMENT 5.1 Appointment procedures under the Arbitration Ordinance and Model Law 5.2 Conflicts of interest 5.3 Duty of impartiality and independence

60 60 63 70

CHAPTER 6 START 6.1 Order for directions no.1 6.2 Arbitration agreements and choice of law 6.3 Case management Appendix: Sample comprehensive order for directions no.1

73 73 78 85 90

CHAPTER 7 INTERLOCUTORY 7.1 Powers 7.2 Freezing orders 7.3 Security for costs 7.4 Other interlocutory applications 7.4.1 Challenges to the jurisdiction 7.4.2 Applications for preliminary issues 7.4.3 Applications for further and better particulars and for interrogatories 7.4.4 Applications for specific discovery 7.4.5 Applications for expert evidence 7.4.6 Applications to preserve property or conduct experiments

93 93 96 101 105 105 105 105 106 106 106

CHAPTER 8 EVIDENCE 8.1 Documentary evidence 8.1.1 General and specific discovery 8.1.2 IBA Rules on the Taking of Evidence 8.1.3 Practical considerations 8.2 Factual and expert witnesses 8.2.1 Factual witnesses 8.2.2 Expert witnesses 8.2.3 Hot-tubbing of experts Appendix: Sample order for directions on expert evidence

108 108 108 110 113 115 115 118 122 123

CHAPTER 9 TRIAL 9.1 Substantive hearing 9.2 Maintaining a level playing field 9.3 Managing cross-examination

125 125 131 134

CHAPTER 10 FINISH 10.1 Award 10.1.1 Preliminary matters 10.1.2 Drafting

141 141 141 144

vii

CONTENTS 10.2 Costs of the arbitration 10.3 Costs of the tribunal

150 152

CHAPTER 11 ADR SUPPORT 11.1 Mediation 11.2 Med-arb 11.3 Adjudication

154 154 157 159

CHAPTER 12 JUDICIAL SUPPORT 12.1 Powers 12.1.1 General principles 12.1.2 Specific powers 12.2 Exercise of powers 12.2.1 Jurisdictional challenges 12.2.2 Interlocutory orders in aid of arbitrations 12.2.3 Applications to set aside an award 12.2.4 Applications for the recognition and enforcement of awards 12.3 Conclusion

162 163 163 165 167 167 169 171 174 175

CHAPTER 13 COMPLEX ARBITRATIONS 13.1 General considerations 13.1.1 Joinder 13.1.2 Consolidation 13.2 Class arbitrations and third party funding

177 177 179 181 183

CHAPTER 14 SPECIALIZED ARBITRATIONS 14.1 Specialized commercial arbitrations 14.1.1 Arbitrations involving mainly private interests 14.1.1.1 Maritime arbitrations 14.1.1.2 Construction arbitrations 14.1.1.3 Financial arbitrations 14.1.2 Arbitrations involving private and public interests 14.1.2.1 Intellectual property arbitrations 14.1.2.2 Competition law arbitrations 14.2 Investment treaty arbitrations

187 187 187 187 190 191 193 193 194 196

CHAPTER 15 CHALLENGES 15.1 Singapore International Commercial Court (SICC) 15.2 Cost of international commercial arbitration 15.3 Capacity-building among judiciaries 15.4 Capacity-building among young arbitrators 15.5 The Belt and Road Initiative

198 198 201 203 204 206

Index

209

viii

P R E FA CE

There is a paradox in the title of this book. On the one hand, it refers to international commercial arbitration. On the other, it purports to be a handbook for Hong Kong arbitrators. Should not a handbook on the practice of international commercial arbitration be valid for all arbitrators wherever they may be? What is unique about Hong Kong that its arbitrators need a handbook specially addressed to them? The tension inherent in the title reflects the development of my own understanding of international commercial arbitration. In March 2012, just before I stepped down from the Hong Kong Judiciary, I delivered a series of five lectures for the Hong Kong Maritime Law Association (HKMLA) under the title How to Be an Arbitrator: A Personal View.1 The lectures were heavily influenced by my experience as a judge in Hong Kong. They proceeded on the basis that arbitration was just litigation by another name, so that Hong Kong court practice could be directly followed in arbitration. But, having left the judiciary to become Professor of Legal Practice at the University of Hong Kong, I have also had a chance to read and reflect more about the practice of international commercial arbitration. It now seems to me that, while not wrong, my HKMLA lectures placed too much emphasis on Hong Kong court practice. That may be fine in so far as domestic arbitration is concerned. But in terms of the paradox in this book’s title, I may have put too much stress on the Hong Kong aspect, without giving sufficient weight to the international aspect, of international commercial arbitration. The Hong Kong Arbitration Ordinance (Cap.609) sets out a framework for the conduct of international commercial arbitration in Hong Kong. That framework is based on the 2006 UNCITRAL Model Law, an international instrument. The framework in the Ordinance and in the Model Law is skeletal. Much is left to the discretion of an arbitral tribunal to deal with as it sees appropriate, having regard to the Model Law’s international origin and to “the need to promote uniformity in its application and the observance of good faith”.2 Gaps in the Model Law are to be “settled in conformity with the general principles on which this Law is based”.3 The consequence is that a Hong Kong arbitrator should not really be looking to Hong Kong court practice for guidance on procedural and other questions that may arise in the 1 The lectures were later published as A Reyes, 淺談香港仲裁法 (How to be an Arbitrator – A Personal View) (Sunny Chan trs, Joint Publishing (HK) Co Ltd, 2013). 2 Article 2A(1) of the Model Law, enacted by section 9 of the Arbitration Ordinance. 3 Article 2A(2) of the Model Law.

ix

PREFACE course of international commercial arbitration. Instead, the arbitrator should be looking to international practice, including the general principles (such as observance of good faith) on which the Model Law as an international instrument is based. The Model Law makes this imperative. The Hong Kong arbitrator considering questions, such as conflict of interest, security for costs, discovery, and interim measures, must have regard to international practice on the matter. But how is “international practice” on the matter to be determined? Where should the Hong Kong arbitrator look to find international practice? Here is the second difference between a judge’s approach and that of an arbitrator. The Hong Kong judge will naturally look to the White Book and Hong Kong case law for court practice. But neither source can be authoritative in international commercial arbitrations, where parties of different nationalities with little or no connection with Hong Kong may have simply chosen Hong Kong as the place of arbitration because of its convenience as a neutral venue. The Hong Kong arbitrator will have to look further afield at internationally accepted guidelines published by organizations such as the International Bar Association (IBA) and the Chartered Institute of Arbitrators (CIArb) for guidance on international best practice on a subject. Judges do not normally base their decisions on soft law instruments. In contrast, a number of soft law instruments (for example, the IBA Rules on the Taking of Evidence) have become widely accepted in common law and civil law jurisdictions as authoritative statements of best international practice on particular topics. A third difference in the way judges and international commercial arbitrators conduct themselves is tied up with the question of enforcement. Judges do not worry about the enforcement of their judgments. But international commercial arbitrators worry. They are duty-bound to produce an enforceable award, not just an award that will be enforceable in Hong Kong, but one that will be enforceable in some other state or states in which a losing party has assets. The difficulty is that different states have different standards of what constitutes due process. Since an award may be refused enforcement under the New York Convention if a losing party did not have a reasonable opportunity to present its case to an arbitral tribunal, arbitrators are understandably concerned about how they manage cases, allow applications for extension, or impose sanctions for non-compliance. The robustness in dealing with interlocutory applications that I advocated in my HKMLA lectures (basing myself on Civil Justice Reform (CJR) in Hong Kong court practice) may not have been wholly apposite in the context of international commercial arbitration. There, greater attention has to be paid to producing a decision that will withstand scrutiny in Hong Kong and elsewhere. This book is therefore a counterpoint and a complement to my earlier lectures. It seeks to put greater emphasis on international practice and to guide Hong Kong arbitrators on the content of that practice. This does not mean that it eschews looking at Hong Kong court practice altogether. That would be to veer to the opposite extreme. There is much in Hong Kong court practice that makes eminent good sense from an international or any standpoint, in so far as the fair, cost-effective and efficient disposal of a commercial dispute is concerned. This book accordingly attempts to resolve the tension inherent within its title. It aspires, as a handbook, to present a more balanced view on the application of international and Hong Kong practice to international commercial arbitration. x

PREFACE I am grateful for the assistance of Hughes Tang, Kazuaki Nishioka, Brian Lo, Li Pak Hei and Wilson Lui in the writing of this book. I also thank Sunny Chan and Adrian Leung for their support. I dedicate this book to Peter Stein (1926–2016), in memory of our fortnightly discussions long ago. Anselmo Reyes Hong Kong 1 July 2017

xi

TA B L E O F C AS E S

A v R [2009] 3 HKRLD 389 ........................................................................................................172 Abaclat v Argentina, ICSID Case No.ARB/07/5 ..........................................................................183 American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL).......................................................100 Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55 .................................................106 ARMAR, The [1981] 1 WLR 207 (CA) .........................................................................................82 Astro Nusantara International BV v PT Ayunda Prima Mitra HCCT No.45 of 2010, 17 February 2015; on appeal CACV No.272 of 2015, 29 March 2017 .................................................................................17, 21, 162, 171, 173, 175 Browne v Dunn (1893) 6 R 67.............................................................................................. 137, 138 Chan Chi Keung t/a Tadi Land International and Another v Delmas Hong Kong Ltd [2004] 4 HKC 28 ............................................................................82 Chimbusco International Petroleum (Singapore) Pte Ltd v Fully Best Trading Ltd HCA No.2416 of 2014, 3 December 2015 ......................................................167 China Nanhai Oil Joint Service Corporation Shenzhen Branch v Gee Tai Holdings Co Ltd [1995] 2 HKLR 215 ..................................................................................................173 Compagnie Financiere du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA) .....................108 Dow Chemical v Isover Saint Gobain, ICC Case No. 4131 of 1982, (1984) 9 YB Com Arb 136 ....................................................................................................180 Eco Swiss China Time Ltd v Benetton International NV, Case C126/97, ECLI:EU:C:1999:269, [1999] ECR I-3055 ...........................................................................196 Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111 ............................................................................................................. 173, 175 Hsin Chong Constructive (Asia) Ltd v Henble Ltd [2005] 3 HKC 27 .......................................100 Gao Haiyan v Keeneye Holdings [2012] 1 HKLRD 627 ............................................................175 Granton Natural Resources Co Ltd v Armco Metals International Ltd HCCT No. 5 of 2012, 7 December 2012 ......................................................................................................64 GE Transportation (Shenyang) Co Ltd v Lu Jinxian HCCT No.16 of 2012, 24 April 2012; further committal proceedings HCMP No.1792 of 2013, 22 January 2014 .......................................................................................................................97 H v L [2017] 1 WLR 2280 (QBD), [2017] EWHC 137 (Comm) .................................................70 Honsaico Trading Ltd v Hong Yiah Seng Co. Ltd [1990] 1 HKLR 235 .....................................101 Gipping Construction Ltd v Eaves Ltd [2008] EWHC 3134 ........................................................159 Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 .........................................................................................................................155 Greenclose Ltd v National Westminster Bank plc [2014] EWHC 1156 (Ch) ..............................164 Handytankers KS v The Owners and/or Demise Charterers of the Ship or Vessel M/V “ALAS” HCMP No. 2315 of 2014, 9 July 2015 .............................................143

xiii

TABLE OF CASES Hospital Services NHS Trust v Compass Group UK & Ireland Ltd [2013] EWCA Civ 200 ......................................................................................................................164 Ikarian Reefer, The [1993] 2 Lloyd’s Rep 68 ..............................................................................121 Intercontinental Housing Development Ltd v Quek Teck Huat [1986] HKLR 1153 (CA) ................ 101 KB v S [2016] 2 HKC 325 ...........................................................................................................175 Klöckner Pentaplast Gmbh & Co KG v Advance Technology (HK) Co Ltd [2011] 4 HKLRD 262 ..........................................................................................................................80 LG International Corp v J & J Chemtrading Company Ltd HCA No. 2557 of 2008, 30 December 2008 .................................................................................................................100 Linfield v Taoho Design Architects Ltd HCCT No.68 of 2001, 19 August 2002 ......................182 Mareva Compania Naviera SA v International Bulk Carriers SA (The Mareva) [1980] 1 All ER 213, [1975] 2 Lloyd’s Rep 509 (CA) .......................................................................96 Mayers v Dlugash [1994] 1 HKC 755 ..........................................................................................155 Musawi v RE International (UK) Ltd [2008] 1 All ER (Comm) 607 ...........................................82 Paklito Investment Ltd v Klockner (East Asia) Ltd [1993] 2 HKLR 39 ....................................173 Parakou Shipping Pte Ltd v Jinhui Shipping & Transportation Ltd [2011] 2 HKLRD 1 ................. 179 Porter v Magill [2002] 2 AC 357, [2001] UKHL 67 .....................................................................64 Practice Direction 3.3 (Voluntary Mediation in Petitions Presented under Section 724 of the Companies Ordinance (Cap.622) and Section 177(1)(f ) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32)) .................155 Practice Direction 6.1 (Construction and Arbitration List) .................................................... 30, 155 Practice Direction 15.10 (Family Mediation) .................................................................................155 Practice Direction 18.1 (The Personal Injuries List) .....................................................................155 Practice Direction 18.2 (The Employees’ Compensation List) .....................................................155 Practice Direction 31 (Mediation) ..................................................................................................203 Prest v Petrodel Resources Ltd [2013] 2 AC 415, [2013] UKSC 34 ..........................................180 PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others [2013] SGCA 57 .........................................17 Tensacciai SPA v Freyssinet Terra Armata SRL, Decision of Swiss Supreme Court of 8 March 2006, 132 ATF III 389 .......................................................................................196 W Limited v M SDN BHD [2016] 1 CLC 437, [2016] 1 Lloyd’s Rep 552, [2016] EWHC 422 (Comm) ................................................................................................................69 Wu Yim Kwong Kindmind v Manhood Development Limited [2015] 4 HKC 598 ..................155 Upplan Co Ltd v Li Ho Ming [2010] 6 HKC 457 ......................................................................154

xiv

TA B L E O F C O N V E NT I ONS

UNCITRAL Model Law on International Commercial Arbitration 2006 ............... ix, x, 13, 14, 17, 18, 28, 37, 60, 204 Article 1 ............................................3, 5 Article 2A.....................................25, 164 Article 2A(1) .........................................ix Article 2A(2) .........................................ix Article 4 .............................................165 Article 5 .............................................164 Article 7 ...............................................78 Article 7(1) ...........................................79 Article 7(5) .........................................180 Article 7(6) ...........................................79 Article 8 .................................................6 Article 10 .............................................61 Article 10(2) .........................................61 Article 11..............................................61 Article 11(1) .........................................61 Article 11(2) .........................................61 Article 11(3) .........................................61 Article 11(4) ...................................61, 62 Article 11(5) .........................................61 Article 12 .............................................63 Article 12(1) .........................................67 Article 12(2) ...................................63, 67 Article 13(1) .........................................62 Article 13(2) .........................................62 Article 13(3) .........................................62 Article 14 .............................................63 Article 15 .............................................63 Article 16 ...........................................167 Article 17 .......................................94, 95 Article 17(2)(a) ....................................96 Article 17(2)(b) ....................................96 Article 17(2)(c) ..............................95, 96 Article 17(2)(d) ............................95, 106 Article 17A  ..................................99, 100

Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) ...........5, 10, 13, 21, 22, 23, 26, 28, 34, 36, 37, 86, 129, 194, 195, 197, 199, 200 Article I ................................................28 Article I(1) ...........................................14 Article I(3) .......................................6, 14 Article II ...............................................14 Article III .............................................14 Article IV .......................................13, 14 Article V...............................................14 Article V(1) .....................13, 21, 22, 172 Article V(1)(a)......................................21 Article V(1)(b) .................. 11, 21, 85, 86 Article V(1)(c)......................................21 Article V(1)(d) .....................................21 Article V(1)(e)..............................21, 172 Article V(2) .....................13, 21, 22, 172 Article V(2)(a).............21, 175, 187, 194 Article V(2)(b) .................... 21, 175, 195 Article VI .............................................15 Article VII ............................................15 Convention on the Settlement of Investment Disputes between States and Nationals of Other States .....................................34, 196 Geneva Convention on the Execution of Foreign Arbitral Awards 1927 ................21 Article 1(d) ...........................................21 Article 4(2) ...........................................21 Hague Choice of Court Agreements Convention 2005 ...............................10, 199 UNCITRAL Model Law on International Commercial Arbitration 1985 .......................... 13, 28, 34

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TABLE OF CONVENTIONS Article Article Article Article Article Article Article Article Article Article Article Article Article Article Article Article Article Article

17B ...........................................98 17C ...........................................98 17C(2) ......................................98 17C(3) ......................................98 17C(4) ......................................98 17C(5) ......................................98 17D...........................................98 17E ...........................................98 17E(1) ......................................97 17F ...........................................98 17F(2).......................................98 17G.....................................97, 98 18 .....................................71, 134 18(3)(c) ....................................85 19(1) ...................................73, 85 19(2) .........................................73 21 .............................................73 22 .............................................90

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Article Article Article Article Article Article Article Article Article Article Article Article Article Article Article Article Article Article

23 .............................................75 23(1) .........................................75 23(2) .........................................75 24 .....................................92, 125 24(1) .................................92, 126 25 .......................................87, 88 26 ...........................................120 27 .......................... 112, 117, 171 28 ................................ 19, 20, 83 28(1) .........................................83 28(2) ...................................84, 85 28(4) ...................................84, 85 30 .....................................36, 144 31 .....................................36, 144 31(1) .......................................144 31(3) .......................................144 34 ...........................................171 34(3) .......................................173

TA B L E O F L E G IS L AT I ON

Apology Ordinance (Cap.631) (Hong Kong) .............................................157 section 7(1).........................................157 section 7(2).........................................157 section 8(2).........................................157 section 10(2).......................................157 Arbitration Act 1950 (UK)...........................28 Arbitration Act (Cap.10) 2002 (Sing) ............34 Arbitration Act 1996 (UK)...................82, 188 section 16 ...........................................188 section 46(1)(b) ....................................83 Arbitration (International Investment Disputes) Act (Cap.11) (Sing) ..................34 Arbitration Law 1994 (China) ...............37, 38 Article 16 .............................................37 Article 18 .............................................37 Article 51 .............................................39 Arbitration Ordinance (Cap.341) 1963 (Hong Kong) .......................................27, 28 section 6B...........................................182 Arbitration Ordinance (Cap.609) 2017 (Hong Kong) ................ix, 2 4, 5, 7, 27, 60, 103, 156, 162, 179, 194 section 2 .............................................166 section 3(1).......................... 28, 165, 167 section 3(2)...................................28, 163 section 3(2)(a) ....................................163 section 3(2)(b) ............................163, 164 section 5 .........................................4, 165 section 9 ................................. ix, 25, 164 section 11 ...........................................165 section 12 ...........................................164 section 12(2).......................................181 section 12(5).......................................181 section 14 .............................................89 section 18 ........................................... 112 section 18(1)...........................................9 section 19 ...........................................180

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section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section

19(1).........................................79 19(2).........................................79 19(3).........................................79 20 .................................. 4, 6, 165 20(1)...................................6, 167 21 ...............................................4 22A...........................................98 22B.........................................165 22B(1) ......................................99 22B(2) ......................................99 23 .............................................61 23(2).........................................61 23(3).........................................61 24 .............................................61 24(2).........................................62 24(4).........................................62 25 .............................................63 26 .....................................62, 165 26(5)...................................62, 63 27 .............................................63 28 .............................................63 29 .............................................63 30 .............................................61 31 .............................................61 31(8).......................................165 32 .............................................32 32(3).........................................32 33 .............................................32 33(1).........................................32 33(2).........................................32 33(4)...................................32, 33 33(5).........................................33 34 .......................... 165, 167, 168 34(4).......................................168 34(5).......................................168 35 .......................................94, 96 35(1).................................94, 106 35(2)...................................94, 95

TABLE OF LEGISLATION section 35(3).........................................94 section 36 .............................................99 section 37 .............................................98 section 38 .............................................98 section 39 .............................................98 section 40 .......................................97, 98 section 41 .............................................98 section 42 .............................................98 section 45..................97, 98, 165, 169, 170 section 45(3).......................................170 section 45(4).......................................170 section 45(5)(a) ..................................169 section 45(5)(b) ..................................169 section 45(7).......................................169 section 45(8).......................................169 section 46 .............................. 71, 85, 134 section 46(2).........................................70 section 46(3).........................................70 section 47 .......................................73, 85 section 47(2).........................................73 section 47(3).......................... 73, 74, 113 section 49 .............................................73 section 50 .....................................90, 112 section 51 .............................................75 section 52 .....................................92, 125 section 53 .............................................88 section 53(1).........................................87 section 53(1)(d) ..................................101 section 53(2).................................87, 101 section 53(3).................................87, 101 section 53(4)...................................87, 88 section 53(4)(c) ............................88, 101 section 54(1).......................................120 section 54(2).......................................120 section 55 .............. 112, 117, 166, 169, 171 section 55(1).......................................171 section 55(2)....................................... 112 section 55(4)....................................... 112 section 55(5)....................................... 112 section 56 .......................................94, 96 section 56(1)(a) ............................95, 104 section 56(1)(b) ..................................106 section 56(1)(d) ..................................106 section 56(1)(d)(i) ................................95 section 56(8)(a) .................................. 116 section 56(8)(b) .................................. 116 section 56(8)(c) .................................. 117 section 57 ...........................................150 section 58 .............................................89 section 58(4).........................................89

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section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section section

58(7).......................................166 59(1).........................................88 59(2).........................................88 59(3).........................................88 59(4).........................................88 59(5).................................89, 166 60 ............................. 4, 107, 165, 166, 169, 170 60(3).......................................170 60(4)...............................107, 170 60(5).......................................107 60(6).......................................169 60(7).......................................169 60(8).......................................169 61 ...........................4, 96, 97, 98, 117, 165, 166, 170 61(1).................................97, 144 61(2).................................97, 144 61(3).......................................144 61(5).......................................144 62 ...........................................166 63 .......................................6, 131 64 .......................................19, 83 66 .....................................36, 144 67 ...........................................144 71 ...........................................142 72 ...................................142, 166 73 ...........................................143 74 ...........................................151 74(1).......................................152 74(2).......................................151 74(5).......................................151 74(6).......................................152 74(7).......................................152 74(8).......................................152 74(9).......................................152 77 ...........................................166 77(1)...............................104, 152 77(2).......................................152 77(3).......................................152 77(4).......................................152 77(5).......................................152 77(6).......................................152 77(7).......................................152 77(8).......................................152 77(9).......................................152 77(10).....................................152 78(1).......................................152 79 ...........................................149 80 ...........................................149

TABLE OF LEGISLATION section 81 ......... 166, 171, 172, 173, 174 section 81(1)(2)(a)(ii).........................172 section 81(1)(2)(b)(i) .........................172 section 81(1)(2)(b)(ii) ........................172 section 81(4).......................................172 section 86 ..................165, 166, 173, 174 section 89 .......................... 165, 166, 174 section 93(1).......................................174 section 93(2).......................................174 section 95 ...................................166, 174 section 98D ....................... 165, 166, 174 section 99 ...........................................166 section 99(b).......................................182 section 103B.......................................194 section 103C.......................................194 section 103D ......................................194 section 103F .......................................194 section 103G ......................................194 Sch 2.....................................166–67, 182 Building and Construction Industry Security of Payment Act (Cap.30B) (Hong Kong) .............................................36 Building and Construction Industry Security of Payment Act 1999 (NSW) ......160 Building and Construction Industry Security of Payment Act 2004 (Sing)....... 160 Building and Construction Industry Security of Payment (Amendment) Regulations 2012 (Hong Kong) ................36 Building and Construction Industry Security of Payment Regulations 2005 (Hong Kong) ...............................................36 Choice of Court Agreements Act (No.14 of 2016) (Sing).............................199 Civil Law (Amendment) Act 2017 (Sing)...........................................................35 Civil Law (Third Party Funding) Regulations 2016 (Sing)............................35 section 5A(2)........................................35 section 5B.............................................35 Companies Ordinance (Cap.622) (Hong Kong) section 724 .........................................155 Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32) (Hong Kong) section 177(1)(f).................................155 Construction Contracts Act 2002 (NZ).........160 Construction Industry Payment and Adjudication Act 2012 (Malaysia) .........160

Contracts (Rights of Third Parties) Ordinance (Cap.623) (Hong Kong) section 4 .............................................180 Control of Exemption Clauses Ordinance (Cap.71) (Hong Kong) section 15 ...............................................6 Crimes Ordinance (Cap.200) (Hong Kong) section 32 ........................................... 117 Estate Agents (Dispute Resolution Schemes) Regulations 2011 (Hong Kong) ...............................................34 Federal Rules of Civil Procedure (US) rule 23 ................................................185 High Court Ordinance (Cap.4) (Hong Kong) section 12B(6A) .................................167 section 49(1)(b) ..................................149 Housing Grants, Construction and Regeneration Act 1996 (UK) .................160 International Arbitration Act (Cap.143A) (Sing)......................................34 section 5 ...............................................34 section 12A...........................................35 Law on Mediation and Arbitration of Employment Disputes (China) ............37 Legal Practitioners Ordinance (Cap.159) (Hong Kong) sections 44..............................................6 section 47 ...............................................6 Limitation Ordinance (Cap.347) (Hong Kong) ...............................................89 Mediation Bill (Bill No.37/2016) (Sing).......... 36 Mediation Ordinance (Cap.620) (Hong Kong) .............................. 31, 154, 156 section 3 ...............................................31 section 4 ...............................................31 section 4(1).........................................154 Sch 1.....................................................32 Private Education (Dispute Resolution Schemes) Regulations 2010 (Sing) ..........34 Reciprocal Enforcement of Commonwealth Judgments Act (Cap.264) (Sing) .....................................199 Reciprocal Enforcement of Foreign Judgments Act (Cap.265) (Sing) ..........199 Rules of the High Court (Cap.4A) (Hong Kong) ...........................................7, 18 SMC Adjudication Procedure Rules (Hong Kong) ...............................................36

xix

CHAPTER 1

Introduction

This book concerns the practice of “international commercial arbitration in Hong Kong”. It is addressed to persons who are or would like to be international commercial arbitrators in Hong Kong. But it is also intended to be a handbook for anyone (students, academics, legal practitioners, and non-Hong Kong based arbitrators) wishing to know how the practice of international commercial arbitration is conducted in Hong Kong. From time to time, it also suggests ways in which that practice can be improved and developed. It might seem at first blush that a surplus of words has been used in describing the subject of this book. Why not simply say “commercial arbitration in Hong Kong”? Or should not “arbitration in Hong Kong” suffice? What is it about “international commercial arbitration” that makes it worthwhile to devote a book to that subject alone as it is practised in Hong Kong? The Hong Kong Arbitration Ordinance (Cap.609) which came into force on 1 June 2011 unified the domestic and international arbitration regimes in Hong Kong. Consequently, is there anything that a book can say about the practice of international commercial arbitration in Hong Kong that would be materially different from a book about (say) domestic arbitration in Hong Kong? The author believes that there is, and it will be the function of this book not just to explain why, but also to show how, the conduct of international commercial arbitration in Hong Kong gives rise to special considerations. This will be done step by step. As a first step towards this goal, this chapter will perform three functions. First, it will define basic terms (including the expression “international commercial arbitration”, which will be repeatedly used here). Second, it will suggest why international commercial arbitration has become so popular, not just in Hong Kong, but worldwide, as a means of resolving disputes arising out of business contracts. Third, it will highlight two related problems, costs and “due process paranoia”, that are leading many to become disenchanted with international commercial arbitration. These two problems pose a threat to the further development of international commercial arbitration as a means of dispute resolution in Hong Kong and elsewhere. The rest of this book will examine in detail the process of international commercial arbitration as currently practised in Hong Kong. In so doing, it will propose ways in which the two problems highlighted in this chapter might be tackled, at least up to a point. One says “at least up to a point” because it may be that, at the end of the day, the problems are not capable of complete solution.1

1 See further the discussion on costs in Chapter 12.

1

INTRODUCTION It should be acknowledged from the beginning that there are already many excellent books on the market that provide a detailed commentary on the Arbitration Ordinance and the law relating to arbitration in Hong Kong.2 This book is not meant to supplant those references or cover precisely the same grounds as they have. This book is meant to be different. It is meant to be read straight through, not unlike a novel that one buys at an airport bookshop, rather than to serve as a comprehensive reference into which one only dips here and there for guidance on specific legal questions arising in the course of a professional career as an arbitrator or lawyer. The key difference is that, starting only from the premise that the reader would like to establish himself or herself as an international commercial arbitrator in Hong Kong and assuming little or no prior knowledge of arbitration or Hong Kong arbitration law, this book sets out what the reader will need to know in order to be a competent international commercial arbitrator in Hong Kong. Assume that the reader gets his or her first arbitration case. What problems are likely to arise and how might the individual tackle such problems? In due course, more and more complicated situations might arise in the course of one’s practice as an international commercial arbitrator in Hong Kong. What are those problems likely to be and what principles should the individual bear in mind in resolving the same? These are the sorts of questions that it is hoped the book can help answer. 1.1 Terminology Arbitration is a process whereby a dispute between two or more parties is decided by a tribunal (typically consisting of one or three persons) appointed pursuant to the agreement of the disputing parties. The agreement among the disputing parties is referred to as an arbitration agreement. A tribunal appointed in accordance with an arbitration agreement will have jurisdiction or power to decide the disputes that have been expressly or impliedly reserved for the tribunal’s determination by the parties’ agreement. Having heard the parties’ evidence and arguments, the tribunal will usually determine the disputes referred to it by publishing a decision in the form of an award. Parties may agree to resolve their disputes by arbitration either before or after disputes have arisen. In either case, once the parties have agreed to settle their dispute through arbitration, the resulting arbitration agreement is legally binding. It will be a breach of contract, if a party to an arbitration agreement initiates court proceedings against another party to the same agreement, in respect of one or more of the disputes covered by the agreement. The latter party can apply to the Hong Kong court for a stay of the court proceedings and compel the party in breach to have the dispute decided by a tribunal appointed in accordance with the arbitration agreement. Arbitrations may be “administered” or “ad hoc”. Administered arbitrations are those conducted under the supervision of an institution, such as the Hong Kong International Arbitration Centre (HKIAC). Typically, the institution will have published rules (such as the 2013 Administered Arbitration Rules in the case of the HKIAC), which parties can adopt as the rules for an arbitration conducted 2 See, for example, J Choong and R Weeramantry, The Hong Kong Arbitration Ordinance: Commentary and Annotations (2nd ed, Sweet & Maxwell Hong Kong, 2015) and G Ma and D Brock, Arbitration in Hong Kong: A Practical Guide (3rd ed, Sweet & Maxwell Hong Kong, 2014).

2

INTRODUCTION pursuant to their arbitration agreement.3 The institution will oversee the conduct of an arbitration by a tribunal appointed in accordance with the institution’s rules. Among other matters, the institution will ensure that the arbitration is conducted in a timely manner. The institution will usually charge for its administrative services in accordance with a tariff to be found in its rules. Ad hoc arbitrations are not supervised by an administering body. The parties simply appoint a tribunal pursuant to the terms of their arbitration agreement. The tribunal once constituted then conducts the arbitration and is responsible for ensuring that the proceedings are completed in a timely fashion. This book will adopt a definition of “international arbitration” similar to that found in Article 1 of the 2006 UNCITRAL Model Law on International Commercial Arbitration (the Model Law).4 For the purposes of the exposition here, an arbitration will be treated as “international” if it falls within one or other of the following situations: (1) (2) (3) (4) (5)

at least one of the parties to the arbitration agreement has its place of business outside Hong Kong; the place of arbitration is different from the place (or places) where the parties have their business; a substantial part of the obligations of the parties’ commercial relationship is to be performed outside Hong Kong; the place with which the subject-matter of the parties’ dispute is most closely connected is outside Hong Kong; the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one state.

Certain points should be noted in connection with the definition of “international arbitration” just given. First, the definition refers to the “place” where a party has a business, the “place” of an arbitration, or the “place” with which the subject-matter of the arbitration is connected. The word “place” should not be taken as necessarily designating a “country”. It would instead be more accurate to treat “place” as designating a “state” in the private international law sense. For example, under private international law, the Hong Kong Special Administrative Region would be regarded as a “state,” although it is certainly not an independent country. Mainland China would be another “state” for the purposes of private international law. The United States is a single country, but from a private international law perspective it should be treated as a conglomeration of 50 “states” and a federal “state”. It follows that where one party to an arbitration agreement has a place of business in Hong Kong and the other has a place of business in Mainland China, an arbitration between the two parties would be “international” within the definition used in this book. Second, reference is made to the “place of arbitration”. The expression “seat of arbitration” is sometimes used in preference to “place of arbitration”. In this book the two expressions will be used interchangeably. The orthodox view is that every arbitration must have a seat. In other words, every arbitration must be tied to a specific state (in the sense just explained) and that state’s 3 The parties will normally have specified the applicable rules in their arbitration agreement. 4 For a brief description of the Model Law, see Appendix A to this chapter.

3

INTRODUCTION laws will govern the way in which arbitrations tied to that state are to be conducted. The seat will usually have been identified by the parties in their arbitration agreement or, if not identified, will be deemed to be the state of closest connection to the arbitration. Although the author would agree that in practical terms every arbitration will have a seat, it will be argued in Chapter 2 that this need not necessarily be so and that it is possible for certain arbitrations to be “de-localized” in the sense of not being tied to any particular seat. The place or seat of an arbitration is to be distinguished from the location where an arbitration is actually heard. The mere fact that an arbitration agreement provides for a Hong Kong seat does not constrain a tribunal constituted pursuant to the agreement from sitting in locations other than Hong Kong when hearing the arbitration. Thus, for the convenience of everyone concerned, the tribunal may in consultation with the parties agree that an arbitration with a Hong Kong seat should sit in Manila for all or part of the substantive hearing, because (say) all or some witnesses are resident there. Another possibility that often arises is for interlocutory hearings or case management conferences to be conducted with the parties and tribunal members in places other than Hong Kong. For example, notwithstanding a Hong Kong seat to an arbitration, the members of a three-person tribunal may be based in Hong Kong, London and Paris respectively, while the claimant and its lawyers may be based in Shanghai and the respondent and its lawyers in Singapore. In such situation, it will usually be more convenient for a directions hearing and other interlocutory meetings among the tribunal members and the parties to take place by telephone conference, with the various individuals involved dialling in from the place in which they are located at the agreed time for the conference. Third, the definition of international arbitration used here is wide enough to cover arbitrations with a foreign (non-Hong Kong) seat, but which are heard in Hong Kong in whole or part for some reason. It is possible, for example, for a Hong-Kong based claimant and a Singapore-based respondent to agree that an arbitration is to be heard in Hong Kong, although the arbitration is to be administered by the Singapore International Arbitration Centre and to have a Singapore seat. The Arbitration Ordinance expressly provides for a limited number of its provisions to govern such arbitrations.5 However, this book will mainly be concerned with international arbitrations having a Hong Kong seat, including those situations where (despite having a Hong Kong seat) the interlocutory or merits hearings of the arbitration are held outside of Hong Kong. Fourth, how is the place “most closely connected” with the subject-matter of the parties’ dispute determined? That is a question of fact, to be decided on the basis of all relevant circumstances. The most important circumstance is likely to be the place where the substantive contractual obligation was to have been performed. In many situations, the place of performance is likely to be determinative of the place most closely connected with the subject matter of a dispute. But there may be cases (as where goods are shipped from State X and delivered in State Y) in which it may plausibly be argued that more than 5 See section 5: “If the place of arbitration is outside Hong Kong, only this Part [that is, Part I entitled ‘Preliminary’], sections 20 [‘Arbitration agreement and substantive claim before court’] and 21 [‘Arbitration agreement and interim measures by court’], Part 3A [entitled ‘Enforcement of Emergency Relief’], sections 45 [‘Courtordered interim measures’], 60 [‘Special powers of Court in relation to arbitral proceedings’] and 61 [‘Enforcement of orders and directions of arbitral tribunal’], Part 10 [entitled ‘Recognition and Enforcement of Awards’] and sections 103A, 103B, 103C, 103D, 103G and 103H [concerning various aspects of arbitrations relating to intellectual property rights] apply to the arbitration.”

4

INTRODUCTION one place is “most closely connected” with the subject matter of the parties’ dispute. In such situations, so long as at least one of the plausible places of closest connection is outside Hong Kong, the arbitration would be international. An arbitration is “commercial” in the sense proposed in a footnote to Article 1 of the Model Law. Thus, the word “commercial” as used here is to have “a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not”. The footnote to Article 1 continues: “Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road.”

The focus in this book is on international commercial arbitration for three reasons. First, Hong Kong is a Model Law jurisdiction. Article 1 of the Model Law (which has not been enacted in Hong Kong by the Arbitration Ordinance) limits the application of the Model Law to commercial arbitrations. The Model Law is universally regarded today as the gold standard or lingua franca of international commercial arbitration. Jurisdictions seeking to modernize their arbitration regimes typically do so by adopting the Model Law in whole or part, often in an attempt to attract greater foreign direct investment (FDI). Accordingly, the snapshot of international commercial arbitration practice given here should enable readers to assess the degree to which Hong Kong practice mirrors and harmonizes with practice elsewhere in the world. Conversely, it will allow readers in other Model Law states to consider whether some or all of Hong Kong practice in international commercial arbitration can and should be adopted in their jurisdiction, as consonant with a universal best practice. Note that the Arbitration Ordinance has a wider ambit than merely commercial matters. It enacts most (but not all) of the Model Law in Hong Kong. It makes those parts of the Model Law so enacted applicable to domestic and international arbitrations generally. The result is that the Arbitration Ordinance covers domestic and international arbitrations in Hong Kong of a commercial and non-commercial nature. Second, with the resolution of cross-border disputes, an important question must be whether the end result (for instance, a judgment, arbitral award or mediated settlement agreement) obtained in one state will be recognized and enforced in another state. In the case of arbitral awards, recognition and enforcement is achieved by resort to the 1958 New York Convention.6 There are currently 157 contracting states7 to the New York Convention. In theory at least, that means that an arbitral award will be readily recognized and enforced in the remaining 156 jurisdictions that are party to the New York Convention. Given that there are about 195 countries in the world, the large number of contracting states to the New

6 The full name of the New York Convention is “Convention on the Recognition and Enforcement of Foreign Arbitral Awards”. For a summary of the main provisions of the Convention, see Appendix B to this chapter. 7 The Convention entered into force in Angola (the 157th contracting state) on 4 June 2017.

5

INTRODUCTION York Convention should have the consequence that arbitral awards will be readily recognized in most parts of the world. However, Article I(3) of the New York Convention allows a country acceding to the instrument to declare that “it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration”. A number of countries (within Asia, for example, Bhutan, China (including Hong Kong), India, Indonesia, the Republic of Korea, Malaysia, Mongolia, Nepal, the Philippines, and Vietnam) have made such a declaration. Third, the courts in many countries have a discretion whether or not to enforce arbitration agreements in certain non-commercial contexts, such as where a party deals as a consumer with another or an employee deals with an employer. In Hong Kong, under section 158 of the Control of Exemption Clauses Ordinance (Cap.71), an arbitration agreement can only be enforced against a consumer in limited circumstances. Where a dispute governed by an arbitration agreement falls within the jurisdiction of the Labour Tribunal, section 20 of the Arbitration Ordinance gives the court a discretion not to stay the litigation in favour of arbitration. In contrast, in commercial disputes governed by an agreement to arbitrate differences between the parties, the court is obliged to stay litigation brought in breach of the arbitration agreement and to require the parties to refer their disputes to arbitration, unless the court finds that the arbitration agreement is “null and void, inoperative or incapable of being performed”.9 International commercial arbitration is frequently distinguished from investor–state arbitration or investment treaty arbitration. The latter are arbitrations between investors from State X and State Y for the breach of obligations said to be owed by State Y to investors from State X. Those obligations will typically have arisen from Free Trade Agreements (FTAs) or from Bilateral or Multilateral Investment Treaties (BITs or MITs) between States X and Y. The law applicable to disputes between investors and a state under an FTA, BIT or MIT will usually be public international law, as opposed to a specific country’s law. Investor–state arbitration will be described in more detail in a later chapter. It is possible to lose sight of the big picture in the minutiae of definition. The important point to bear in mind from the definition adopted above is that, despite an “international commercial arbitration” having a Hong Kong seat, the dispute may have little (if any) connection with Hong Kong, apart from the agreement to bring disputes between the parties to arbitration in Hong Kong. Neither of the parties may be based in Hong Kong; the place of performance of the parties’ obligations or the place of closest connection with the dispute may not be Hong Kong; and the laws or rules governing the parties’ substantive obligations may not be Hong Kong law. Further, in Hong Kong the restrictions against persons who are not legally qualified as Hong Kong barristers or solicitors giving legal advice or acting as counsel, do not apply to arbitral proceedings.10 Foreign lawyers who are not legally qualified in Hong 8 As against a person dealing as consumer, an arbitration agreement would only be enforceable with the person’s written consent signified after the dispute has arisen or where the person has opted to bring the relevant dispute to arbitration. 9 See section 20(1) of the Arbitration Ordinance, enacting Article 8 of the Model Law. 10 Section 63 of the Arbitration Ordinance. The restriction against unqualified persons doing the work of solicitors and barristers is found in the Legal Practitioners Ordinance (Cap.159), sections 44 and 47.

6

INTRODUCTION Kong and are not familiar with Hong Kong law, or even persons who have no legal training at all, may act as advisors or advocates in arbitrations in Hong Kong. If one factors this possibility into the scenario in the previous paragraph, one can readily imagine the degree to which, apart from the parties’ agreement designating Hong Kong as the seat, an international commercial arbitration may be completely divorced from Hong Kong. In consequence, there is no obvious reason why a tribunal should, merely by analogy with litigation before the Hong Kong court, follow or be guided by Hong Kong substantive laws and court procedures. International commercial arbitration in Hong Kong cannot simply be regarded as Hong Kong litigation by another name or as little more than dispute resolution conducted by private judges (designated as arbitrators) instead of the public judges of the Hong Kong judiciary. International commercial arbitration is significantly different from litigation in court. A tribunal in an arbitration with a Hong Kong seat will need to address its mind to just what procedural rules (apart from the bare minimum stipulated by the Arbitration Ordinance) should be followed in the international commercial arbitration and what substantive laws and principles should be applied when deciding the merits of the dispute. It should not be assumed that the procedures found in the Rules of the High Court (Cap.4A sub leg) or that Hong Kong substantive law (whether statutory or case law) will apply by default, just because Hong Kong is the seat of an arbitration. 1.2 Popularity The popularity of international commercial arbitration and the reasons for it may most conveniently be gleaned from the results of the 2015 survey on Improvements and Innovations in International Arbitration carried out by Queen Mary University of London in conjunction with the law firm White & Case LLP.11 The survey was conducted in two stages in early 2015. The initial stage was the administration of an online questionnaire among a sample of 763 individuals having significant involvement with arbitration, either as users (including in-house lawyers), counsel, arbitrators, administrators in arbitral institutions, or academics. In the second stage, the questionnaire results having been compiled, the investigators conducted telephone interviews of 105 persons drawn from all walks of the arbitration industry. Those surveyed came from Europe (53%), Asia (26%), the Americas (18%), Africa (2%) and Oceania (1%). Arbitration was the preferred mode of dispute resolution of 90% of those surveyed. The five most popular seats for arbitration (in order of preference) were London, Paris, Hong Kong, Singapore and Geneva with “reputation” and “recognition” given as the main factors for preferring a particular seat. The five locations were chosen because of their established legal framework; the perceived fairness of their legal systems; their arbitration law; and the degree to which they were viewed as arbitration-friendly in the sense of enforcing arbitration agreements and awards. Singapore was regarded as “the most improved arbitral seat” over the previous five years. Hong Kong came next.12 Among institutions administering arbitrations, the five most popular among the persons surveyed were (in order of preference) the International Chamber of Commerce (ICC) 11 Available at . 12 Survey (n 11), p. 11.

7

INTRODUCTION based in Paris, the London Court of International Arbitration (LCIA), the HKIAC, the Singapore International Arbitration Centre (SIAC), and the Stockholm Chamber of Commerce (SCC). Factors that determined an administering body’s popularity included their professionalism in the conduct of arbitrations, their degree of “internationalism”, their reputation, and the extent to which they were a recognized name. It was thought that “the most improved arbitral institution” over the previous five years was the HKIAC. The SIAC, ICC and LCIA followed in that order. Asked to identify the three most valuable characteristics of international arbitration, the survey obtained the following results (in order of the percentage of respondents giving the reason): “enforceability of arbitral awards” (65%), “avoiding specific legal systems/ national courts” (64%), “flexibility” (38%), “selection of arbitrators” (38%), “confidentiality and privacy” (33%), “neutrality” (25%), “finality” (18%), “speed” (10%), “cost” (2%) and “other” (2%).13 The results may be thought surprising. For instance, it is frequently suggested that one of the attractions of arbitration is its “flexibility”. Commercial arbitration has been touted as being more robust and less pedantic in its procedures, than commercial litigation. Tribunals are not supposed to be bound by the normal rules of evidence, so that they need not put the parties to strict proof of every jot and tittle of their case, but may accept more informal means of establishing relevant facts. But the survey points to stakeholders not really regarding “flexibility” as a substantial factor in favour of arbitration. A second feature of arbitration that is thought to be one of its strengths is the ability to choose your arbitrator. If one goes to court, one has little control over who is assigned to judge one’s case. In Hong Kong, judges are assigned to particular cases by the Listing Clerk. When filing an application, a party may request that the case be assigned to a specific judge, but there is no guarantee that the Listing Clerk will do so. Even if a case is assigned to a specific judge at the time when an application is filed, that designation can be changed at the last minute on the hearing date itself and a party will frequently find itself before a different judge from the one originally assigned. Further, because there is no docket system, interlocutory hearings in a case may be heard by different judges, who will not necessarily agree with the directions given by the judge who previously heard the matter. A party may have its case placed in the Commercial List in the hope that the judge in charge of that list will hear the case from beginning to end. But the demands on the Hong Kong judiciary are such that there is no guarantee of this either. Currently, a number of judges are designated as capable of dealing with Commercial List cases. Thus, there is no assurance that a case in the Commercial List will be heard by the judge in charge of that list, as opposed to some other judge assigned to the case at the last minute. In contrast, arbitration is supposed to give a degree of control over who hears one’s case. It is often the case that a tribunal of three arbitrators will hear an arbitration. The usual way in which such a tribunal is constituted will be for each party to designate its arbitrator and or the two arbitrators so designated to nominate a third arbitrator to act as chairperson. There is obviously control over whom a party designates as its arbitrator. Further, when so doing, especially when a claim is large, a party and its legal advisers

13 Survey (n 11), p. 6.

8

INTRODUCTION may engage in a sophisticated calculus whereby an attempt is made to predict whom the opposing party is likely to designate as its arbitrator and whom the two arbitrators so appointed are likely to nominate as chairperson. Parties may thus spend some considerable time and effort working out whom it would be best to designate as their arbitrator, in the hope of influencing the eventual composition of the tribunal in a manner that will favour their case. While it may be thought that the possibility of a greater say over who is to decide one’s case would be a major attraction of arbitration, the survey indicates that is not actually the case. The ability to appoint one’s arbitrator may be a factor for preferring arbitration, but it is not a principal factor. A third aspect of arbitration, that of “confidentiality”, is sometimes said to be a real advantage of arbitration over litigation. In the common law world, the majority of court proceedings are open to the public. Anyone can walk unannounced into court on a given day and observe what is happening in a case. Open justice is a paramount principle of the common law. Justice must be seen to be done. It must not be dispensed in secret or hidden from the world. Proceedings should be conducted in the glare of public scrutiny and there must be no perception among the public of something private or furtive going on behind closed doors. In Hong Kong, court proceedings are either heard in “open court”, “in chambers open to the public”, “in chambers not open to the public”, or “in camera”. Trials are always heard in “open court”. Anyone can walk into court and listen to the conduct of a trial. Open court simply means that the judge and counsel are robed. Most interlocutory hearings are heard “in chambers open to the public”. As its name suggests, the interlocutory proceedings are open to the public. The only difference with open court hearings is that judges and counsel are not robed, but simply wear business suits. Some interlocutory hearings are heard “in chambers not open to the public”. Here the public are not allowed. This happens when it is important to protect confidentiality, normally in cases involving children and other vulnerable persons. Finally, parties may apply to the court for interlocutory proceedings or parts of a trial to be heard “in camera”. That means that the public may not attend the hearing. However, compelling reasons must be given for “in camera” hearings. Leave is rarely given for such mode of proceeding. No such distinctions are drawn in arbitration. All arbitrations take place “in camera” in the sense that the public are excluded. Persons who are not connected with the parties may not walk into arbitration hearings, whether interlocutory or substantive, without the permission of the parties and the tribunal. Thus, arbitrations afford a means to parties of settling their disputes without unflattering and inconvenient details of their conduct coming under the glare of public scrutiny. In commercial disputes, the private nature of arbitration enables confidential information (financial details, secret manufacturing processes, customer information, etc) to be disclosed to the tribunal with minimized risk of the information leaking out to the public.14 Nonetheless, despite confidentiality being a significant distinguishing feature between arbitration and litigation, it apparently ranks relatively low among stakeholders as a reason 14 In the absence of agreement by the parties to an arbitration agreement and subject to limited exceptions, section 18(1) of the Arbitration Ordinance prohibits the publication, disclosure or communication of any information relating to arbitral proceedings or an arbitral award.

9

INTRODUCTION for preferring arbitration. The reality appears to be that users are not overly concerned about confidentiality. What seems most important to users is the enforceability of an arbitral award. The perception is that, by reason of the New York Convention, an arbitral award will be recognized and enforced just about anywhere in the world. Whether or not that perception is justified will be discussed in a later chapter.15 For now, it will simply be observed that, if the perception is true, then there is no equivalent to the New York Convention in so far as the recognition and enforcement of judgments is concerned. The instrument that comes closest to enabling judgments by the court of one state to be enforced in another is the 2005 Hague Choice of Court Agreements Convention.16 By that convention, where the parties to an international commercial contract designate the court of a contracting state as the forum to resolve disputes arising out of the contract, the designated court alone will have jurisdiction to resolve such disputes. Other than in a limited number of circumstances, the courts in other contracting states must decline jurisdiction. Once a designated court has rendered a judgment on the merits, then that judgment will be recognized and enforced in all other contracting states, except in a limited number of situations. Those limited situations are similar to the situations when a court may refuse recognition and enforcement of an arbitral award under the New York Convention. The 2005 Hague Convention came into effect on 1 October 2015. But there are only 30 states that are parties to the convention at present. Those are Mexico, the countries of the European Union with the exception of Denmark, and Singapore. The United States and the Ukraine have signed the convention, although have yet to ratify and enact the same. This is nothing like the number of parties to the New York Convention. Looked at crudely in terms of numbers of states in which enforcement should be more or less automatic, an arbitral award would seem to be clearly superior to a court judgment. The second most popular reason for choosing arbitration over other forms of dispute resolution (including litigation) is the avoidance of specific legal systems of national courts. The percentage of respondents citing avoidance (64%) is nearly the same as the percentage giving enforceability as the reason for preferring arbitration. It is suggested that the two reasons are most likely related to each other. Where the judicial system of state X is notorious for being slow, costly or unpredictable, business persons are likely to shun the courts of state X. They will prefer arbitration, especially where an arbitral award may be readily recognized and enforced in state X as a party to the New York Convention. Arbitration becomes a way of getting around all the inconvenience and expense of litigation in state X. It would be a further plus for arbitration that, at least to an extent, the parties can determine the composition of the tribunal deciding their dispute. The parties would not be left to the vagaries of state X’s judicial system, which could assign a judge lacking the commercial expertise to deal with their dispute. Consider, however, where P from state Y enters into a commercial contract with D from state X. D’s assets are located in state X. A dispute arises between the two and P sues D. If an award in P’s favour will not be recognized and enforced by state X, there

15 See Chapter 12. 16 Available at .

10

INTRODUCTION would be little point in P commencing arbitration proceedings against D. P would instead be compelled to litigate in state X. The 2015 Survey therefore indicates that the main reason for the popularity of international commercial arbitration as a means of dispute resolution is the prospect that an award in the successful party’s favour will be readily recognized and enforced elsewhere, in most (if not all) states where a losing party is likely to have its assets. 1.3 Problems of cost and due process paranoia It is instructive to look at the flip side of the equation. The 2015 Survey also asked those surveyed to identify the three worst characteristics of international arbitration. The result was as follows: “cost” (68%) ; “lack of effective sanctions during the arbitral process” (46%); “lack of insight into arbitrators’ efficiency” (39%); “lack of speed” (36%); “national court intervention” (25%); “lack of third party mechanism” (24%), “lack of appeal mechanism on the merits” (17%), “lack of insight into institutions’ efficiency” (12%), “other” (9%), and “lack of flexibility” (3%).17 It thus appears that the greatest threat to international arbitration as a preferred means of dispute resolution is its high cost. The 2015 Survey found, in the course of interviews with respondents on how international arbitration might be improved, that “due process paranoia” was “repeatedly raised in responses, and in nearly all the personal interviews”. The 2015 Survey defines “due process paranoia” as the “reluctance by tribunals to act decisively in certain situations for fear of the arbitral award being challenged on the basis of a party not having had the chance to present its case fully”.18 It was suggested by some of those interviewed that “due process paranoia” might at least partly explain the increased cost of arbitration. Under Article V(1)(b) of the New York Convention, an enforcing court may refuse to recognize an arbitral award on the ground that the party against whom enforcement is sought was not given a fair opportunity to present one’s case. Given that a tribunal is under an obligation to produce an enforceable award, many arbitrators may hesitate to impose strict deadlines on parties or to reject last-minute evidence, prolix submissions, and late applications, because they fear that, come the time for enforcement of an award, the tribunal will be accused of having failed to give the losing party a reasonable opportunity to be heard and the enforcing court will consequently refuse to recognize or enforce the tribunal’s award. The result is that arbitrations become overly long and costs are racked up, because tribunals bend over backwards to accommodate the demands of the respondent to an arbitration. At least in so conducting the arbitration, the tribunal (the justification goes) cannot be accused of having denied the respondent a reasonable opportunity to present its case and to be heard. Similarly, in drafting its award, the tribunal may feel that it has to summarize every procedural twist and turn that the proceedings have taken (including every interim application (however minor) by one or other party) and every piece of evidence (including nearly verbatim paraphrases of what each witness has said) that has been adduced. All this is done in an effort to pre-empt an enforcing court from finding that the tribunal took into account something that ought not to have been considered and failed to take into 17 Survey (n 11), p. 7. 18 Survey (n 11), p. 10.

11

INTRODUCTION account something that ought to have been considered. The lengthy award that results will be costly as the tribunal will need to take more time in its drafting, but (the thinking goes) at least the award will be safe and will not be set aside or refused recognition. All this is contrary to what arbitration was supposed to be when it was being developed as a means of dispute resolution. In its infancy, arbitration was supposed to offer a cost-effective and time-efficient alternative to court proceedings. It was meant to offer an alternative to litigation, precisely because it was supposed to be less technical and more robust than court proceedings. But, ironically, it seems that, because of due process paranoia, the very success of arbitration in establishing itself as a means of cross-border dispute resolution is in danger of causing it to become more technical, more costly and less time-efficient than court proceedings. International arbitration is the preferred mode of dispute resolution because of the perceived ease of enforcing an arbitral award in a multitude of jurisdictions. But the perception of many arbitrators is that arbitration proceedings and awards must comply with a great number of formalities if they are to be capable of recognition and enforcement elsewhere. Paradoxically, the supposed “ease” of enforcement of arbitral awards across borders apparently comes with an ever-increasing price tag. If arbitration is to remain a preferred mode of dispute resolution for international commercial disputes, the related problems of cost (in the sense of value for money) and due process paranoia will have to be confronted. What exactly can be done to solve the twin problems and what (if any) limits there are to any solutions is a theme that will run through this book as it describes and reflects upon the process of international commercial arbitration.

12

APPENDIX

Throughout this chapter there has been repeated reference to the Model Law and the New York Convention. These instruments will be mentioned over and over in the course of this book. Accordingly, it may be helpful for the reader who is unfamiliar with one or other instrument briefly to describe here what they contain. A UNCITRAL and the Model Law The United Nations Commission on International Trade Law (UNCITRAL) promulgated the Model Law on International Commercial Arbitration on 21 June 1985. It was approved by the United Nations General Assembly on 11 December 1985. UNCITRAL put out a revised Model Law on 7 July 2006. The revisions dealt with the form of arbitration agreements and the granting of interim measures by arbitral tribunals. The General Assembly approved the revised Model Law on 4 December 2006. The structure of the Model Law is straightforward and logical. The succession of articles in the Model Law generally mirror the progress of an arbitration from the agreement to arbitrate; to the making of procedural directions and the granting of interim measures; to the substantive hearing; to the making of an award; to applications to set aside an award; and to the recognition and enforcement of an award. Thus, Chapter I of the Model Law contains “General Provisions”. That is followed by Chapter II dealing with the “Arbitration Agreement”. Chapter III then covers the “Composition of the Arbitral Tribunal”, while Chapter IV concerns the “Jurisdiction of the Arbitral Tribunal”. Chapter IVA was introduced in 2006 and involves “Interim Measures and Preliminary Orders”. Chapter V deals with the “Conduct of Arbitrations”. Chapter VI concerns the “Making of Awards and Termination of Proceedings”. Chapter VII sets out means of “Recourse Against Award” and, finally, Chapter VIII deals with the “Recognition and Enforcement of Awards”. The provisions of Chapter VIII (Articles 35 and 36) are very much like Articles IV, V(1) and V(2) of the New York Convention. UNCITRAL suggests in an Explanatory Note to the 2006 Model Law that over the years the Model Law “has come to represent the accepted international legislative standard for a modern arbitration law”. This is because the Model Law is “easily recognizable, meets the specific needs of international commercial arbitration and provides an international standard based on solutions acceptable to parties from different legal systems”. Consequently, where a country adopts the Model Law “the smooth functioning of . . . arbitral proceedings is enhanced”. 13

INTRODUCTION Countries are free to adopt as many or as few of the provisions of the Model Law as may be conducive to their needs. Hong Kong has adopted most (but not all) of the articles of the Model Law. B New York Convention The 1958 New York Convention is also a United Nations instrument. It offers a convenient mechanism for the recognition and enforcement by a contracting state of an arbitral award made in another contracting state. The Convention contains 16 articles. Those worth noting for the purposes of the exposition in this book are summarized below. Article I(1) sets out the operative principle of the Convention, namely, the recognition and enforcement of “arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal”. However, by Article I(3), a state “may on the basis of reciprocity declare that it will apply the Convention to . . . awards made only in the territory of another Contracting State”. A state may under Article I(3) also declare that the Convention will only apply to “differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the [relevant state]”. The Convention imposes two important obligations on a state. These are found in Article II and III. Article II obliges a state party to recognize arbitration agreements in writing. This means that, if an action arising out of a dispute covered by an arbitration agreement is brought before the court of that state, then such court “shall, at the request of one of the parties, refer the parties to arbitration”. The court is required to do so, unless the arbitration agreement is “null and void, inoperative or incapable of being performed”. Article III is in a sense the corollary to Article II. By Article III, a contracting state must “recognize arbitral awards as binding” and “enforce them in accordance with the rules of procedure of the [contracting state]”. Moreover, a contracting state cannot require more onerous conditions or fees for enforcing a foreign award than are imposed for the enforcement of a domestic award. Articles IV to VI qualify the duty to recognize and enforce foreign awards imposed by Article III. Article IV deals with the formalities that a court may require before recognizing or enforcing an award. For instance, a state may require the production of a “duly authenticated original award or . . . certified copy thereof” and of the “original [arbitration] agreement . . . or . . . certified copy thereof”. The state may also request translations of the award or arbitration agreement. Article V sets out the limited grounds upon which the court or competent authority of a contracting state may refuse to recognize or enforce an award. Article V states: 1.

Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) The parties to the agreement referred to in Article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under

14

INTRODUCTION

(b) (c)

(d)

(e)

2.

the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country.

Article VI states that, if there is a pending application to stay or set aside an award in the seat of arbitration, the court of a contracting state may adjourn any decision on recognizing or enforcing the award. One other provision worth noting is Article VII. By the article, if it would be more advantageous to enforce an arbitral award through some other treaty, a party is free to rely on that other treaty. The New York Convention is without prejudice to a party’s rights under the other treaty.

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CHAPTER 2

Theory

This chapter will consider three different theories purporting to explain what gives validity to an arbitral award. It will do so by summarizing Professor Emmanuel Gaillard’s seminal 2008 Hague Academy of International Law lecture1 on the philosophical aspects of international arbitration and by teasing out the implications of Professor Gaillard’s account on the conduct of international commercial arbitrations. This chapter will argue that a person acting as an international commercial arbitrator, whether in Hong Kong or elsewhere, will need to identify to which one of the three theories he or she subscribes. The necessity of choosing a theory arises because the way in which one conducts an international commercial arbitration will hinge on, and be heavily influenced by, the theory that, consciously or subconsciously, one espouses. It is possible that many arbitrators today are unaware of or, if dimly aware, have not devoted thought to the different theories described here. However, a failure actively to consider the three theories might well lead to arbitrations being conducted too pedantically, essentially as pale imitations of court proceedings, without a full appreciation of the wide range of options that are available and that distinguish arbitration from litigation as a means of settling international commercial disputes. 2.1 Theory 1: Law of seat as source of validity This is probably the theory to which, consciously or not, most arbitrators dealing with international commercial disputes would subscribe. Professor Gaillard identifies this theory as one that is strongly held within common law jurisdictions, having been defended by prominent lawyer-academics, such as Dr. F A Mann and Professor Roy Goode.2 The theory is that an award is valid to the extent that it is recognized and enforceable within the seat of the arbitration. Accordingly, if an award is set aside by the court of the arbitral seat for some reason or another, the award will cease to have validity and will be incapable of recognition and enforcement in any other state. Having been set aside by the court of the seat, the award becomes a nullity and it will be impossible to enforce something that has ceased to exist. This simple theory is intuitively appealing, not least because it appears to be extremely logical. An illustration of the theory influencing one’s approach to arbitration may be

1 E Gaillard, Aspects philosophiques du droit l’arbitrage international (Martinus Nijhoff, 2008). 2 Gaillard (n 1), at [11]–[22].

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THEORY found in the Hong Kong case of Astro Nusantara International BV and others v PT Ayunda Prima Mitra and others.3 There, the Singapore Court of Appeal had refused to enforce certain awards against particular respondents.4 The Singapore Court had done so because in its view the tribunal did not have jurisdiction to make the awards against the particular respondents. The seat of the arbitrations was Singapore. The relevant respondents then applied belatedly to set aside the award in Singapore. In the meantime, Astro sought to enforce the award against the relevant respondents’ assets in Hong Kong. In the course of a directions hearing before the Hong Kong court in relation to the enforcement of the claimant’s awards against the particular respondents, the judge in charge of the Arbitration List (Mimmie Chan J) noted that: [I]t will indeed be remarkable if, despite the Singapore Court of Appeal judgment on the invalidity of [the] arbitration awards, Astro will still be able to enforce a judgment here [in Hong Kong] based on the same arbitration awards that were made without jurisdiction.5

In fact, despite the arbitration awards being to all and intents and purposes nullities in their seat (Singapore) and contrary to Mimmie Chan J’s observation, the first instance judge who eventually heard the claimant’s application (Anderson Chow J) ordered that the awards against the particular respondents should be recognized in Hong Kong and enforced as judgments of the Hong Kong court. The Hong Kong Court of Appeal upheld the first instance judge’s decision. Consequently, it would seem that, however apparently attractive as a matter of logic, the first theory is unsatisfactory as an explanation of what gives validity to an arbitral award. Professor Gaillard criticizes the first theory, because at a philosophical level it runs contrary to the spirit of international commercial arbitration. If such arbitration is supposed to be a truly “international” means of resolving commercial disputes having a cross-border element, then it would be contradictory to that spirit to allow the arbitration laws of one jurisdiction (the seat of the arbitration) to dictate whether or not an award should be recognized and enforced elsewhere.6 The aspiration is for the Model Law to become the lingua franca of international commercial arbitration. As a result of more and more countries adopting the Model Law, there should be a gradual harmonization of the general regulatory framework governing international commercial arbitration throughout the world. Such regulatory framework will not necessarily be identical across jurisdictions in terms of detail. There may be variations in what different states adopt of the Model Law. Some states will adopt more of the Model Law than other states. Some jurisdictions may go further than the Model Law in being pro-arbitration, as a result (say) of the competition among states to become leading international, regional or sub-regional dispute resolution centres and to bring in a more lucrative share of the cross-border dispute resolution market. However, the essential framework for international commercial arbitration across jurisdictions should broadly 3 HCCT No.45 of 2010, 17 February 2015 (Anderson Chow J), upheld on appeal in CACV No.272 of 2015, 5 December 2016 (Kwan JA and Lok J). 4 PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others [2013] SGCA 57. 5 Quoted by Anderson Chow J in Astro Nusantara (n 3), at [6]. 6 Gaillard (n 1), at [20]–[22].

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THEORY be the same and should increasingly reflect a best practice in respect of the Model Law provisions most commonly adopted by states. In such environment, espousal of the first theory provides little incentive for a jurisdiction to embrace a more global perspective and to modernize its regulatory framework for international commercial arbitration along the lines of the Model Law. If every state and every arbitrator were to adhere to the first theory, there would be the danger of the “tail wagging the dog”. The regulatory framework of one state (the seat of arbitration), however restrictive, would determine the extent to which an award rendered in that state in respect of a cross-border dispute, can be recognized internationally. That being said, even if only tacitly, precisely because it is intuitively appealing as a matter of practical logic, many international commercial arbitrations in Hong Kong today are conducted on the basis of the first theory. Tribunals thus run international commercial arbitrations as if they were essentially just court litigations. The Model Law only provides the barest of guidelines as to the procedures to be followed in an arbitration. Arbitral rules are equally skeletal. Much is left to a tribunal’s discretion in light of the circumstances of a given case. Therefore, questions will inevitably arise as to whether and (if so) how the tribunal should exercise some power (for instance, the power to grant interim measures or the power to order security for costs) in interlocutory proceedings or substantive hearings. Lip-service may be paid to the notion that an arbitration is not bound by court practice. But, when push comes to shove, many arbitrators simply end up applying “by analogy” court practice as found in the Rules of the Hong Kong High Court (Cap.4A, sub leg) whenever a question arises as to how the tribunal is to exercise its power arises. That is perfectly understandable, especially within the context of the first theory. Mimicking domestic court procedure is a “safe” option. If one closely adopts court practices and procedures, the likelihood of the supervising court (that is, the court of the seat of arbitration) setting aside an award for failing to follow due process or for acting in excess of jurisdiction will be practically nil. The Hong Kong court can hardly say that adherence to its procedures and practices amounts to an abuse of process. But the danger is that the procedure followed in international commercial arbitration will be or become just as technical, if not more so, than that followed in court litigation. There is much talk about arbitration being “hijacked” by lawyers. There is a danger that procedures will become more technical than in court, because many arbitrators come to international commercial arbitration, after substantial careers as judges or lawyers. The former will be tempted to conduct arbitrations much in the same way as they conducted litigation. The latter, especially those coming to arbitration after having had substantial practice in litigation, may see arbitration as little different from what they have been used to doing in court. Further, any non-lawyers on a tribunal will often defer to the professional experience of the judge or lawyer sitting with them, because such strategy will probably best ensure that an award is not set aside by a supervising court. The nonlawyers will assume that the judge or lawyer knows best when it comes to following court practice and procedure. Given that to a lesser or greater extent all arbitrators will be prone to due process paranoia (that is, the fear that their award will not be enforceable due to a failure to observe due process), a tribunal operating under the first theory will be concerned that the arbitral process passes muster when compared to court procedure. Otherwise, the 18

THEORY award will be susceptible to being set aside in the seat and there may be nothing left to enforce elsewhere. Consider an example of how adherence to the first theory can lead to too much readiness to plug procedural or substantive gaps by reference to the law of the seat of arbitration (Hong Kong, in the specific instance being examined in this book). In common law jurisdictions including Hong Kong, foreign law is treated as a matter of fact. In Hong Kong court practice (as well as that of other common law jurisdictions), this means that, where the applicable law of a given dispute is foreign law, a party must specifically plead the foreign law upon which it proposes to rely. That party must then adduce evidence, typically evidence from an expert (such as a foreign lawyer or law professor), that the foreign law is as has been pleaded. The experts are subject to crossexamination, much as any other witness. Where a party fails to plead foreign law or if a party does not adduce any evidence of foreign law, the court will proceed on an assumption that the foreign law and the law of the forum (here Hong Kong law) are identical. Many Hong Kong arbitrators hearing an international commercial arbitration will mechanically follow court practice on foreign law. They will feel uncomfortable in hearing submissions on foreign law directly from an advocate (even an advocate qualified in the foreign law) appearing before them. Where foreign law has not been pleaded, they will simply assume that foreign law on the relevant issue is the same as Hong Kong law on the matter. But why should Hong Kong court practice be assumed to be applicable in an international commercial arbitration merely because it has a Hong Kong seat and the substantive hearing is taking place in Hong Kong? Model Law Article 28 (which has effect in Hong Kong by section 64 of the Arbitration Ordinance) requires, where the parties to an international commercial contract have failed to designate the applicable law in their agreement, that the tribunal “shall apply the law determined by the conflict of laws rules which it considers applicable”. The tribunal will therefore have to be more proactive than simply assuming that, foreign law not having been mentioned, foreign law can automatically be treated as the law of the forum in accordance with Hong Kong practice. Article 28 imposes a duty on a tribunal to apply foreign law, where it considers on private international law or conflict of law principles that such law applies to a given question before it. The tribunal should therefore at least invite the parties to address it on the applicable foreign law. If the parties respond that they are content for the tribunal to proceed on the footing that the applicable foreign law is the same as Hong Kong law, then the tribunal may safely proceed on the basis of the parties’ express agreement. What one cannot do is blithely to ignore a glaring possibility of foreign law applying to a disputed matter on the slim basis that, since Hong Kong is the seat of the arbitration, Hong Kong law and practice apply by default. In other words, if an award solely derives its validity from the law of the seat, then the typical practice followed by many Hong Kong arbitrators might be justifiable. But Article 28 suggests that the first theory is too crude and that an arbitral award derive its validity from something more than just the law and practices of the seat. Note that the approach to foreign law just described can lead to other, possibly more economical or practical, approaches to the determination of foreign law in international commercial arbitration being rejected out-of-hand for no good reason. In civil law countries, questions of foreign law are treated as questions of law, not fact. There would seem 19

THEORY to be no good reason for an arbitration in a Hong Kong seat automatically to accept the Hong Kong court’s approach to treating questions of foreign law as questions of fact as the only way of proceeding. If one regards questions of foreign law as questions of law (as would be the more intuitively obvious approach), then that opens up a number of avenues of proving foreign law in an international commercial arbitration taking place in Hong Kong. The tribunal can of course always direct that normal court practice (that is, resort to foreign law expert evidence) will be followed. But that way of proceeding will typically involve experts preparing and exchanging “without prejudice” expert reports, meeting to work out points of agreement and disagreement, issuing a joint report identifying points of agreement and disagreement, and submitting “with prejudice” reports dealing only with points of disagreement. That procedure may be far too expensive, in the sense of being disproportionate to the amount at stake, for a large number of international commercial arbitrations. There may be a prevailing view that international commercial arbitrations involve large sums of money running to the millions of Hong Kong dollars. But the reality is far from glamorous. Many international commercial arbitrations involve relatively small sums of money. The typical shipping arbitration, for example, might only involve a few hundred thousands of Hong Kong dollars. It would be too costly in such cases to use the traditional means of proving foreign law through expert evidence. In civil law jurisdictions (where judges can be under a duty to apply foreign law even when none of the parties has pleaded the same), it is open to courts to determine substantive foreign law in different ways, depending on the circumstances. The way in which the law is determined can be calibrated to the amount at stake. Accordingly, in disputes involving relatively low values, a judge may even ascertain foreign law by resorting to the internet. That would, of course, be subject to the judge being satisfied that a website purporting to set out foreign law on a matter is reliable. Alternatively, judges may hear submissions directly from suitably qualified counsel on matters of foreign law.7 It is submitted that similar methods can be applied in Hong Kong international commercial arbitrations. The approach, where a tribunal hears submissions directly on matters of foreign law, may be particularly apposite in arbitration. That is because often, where an arbitration involves foreign law, one or more members of the tribunal will be appointed on account of their knowledge of (or at least acquaintance with) that foreign law. In the interests of due process in such circumstance, the tribunal would need to give interlocutory directions to ensure that each side was made aware in good time of the other side’s position on the substance of the relevant foreign law, so that the direct submissions heard by the tribunal will be responsive to each other and no one will be taken by surprise. This method of hearing direct submissions from advocates appearing before a tribunal may well be less expensive and time-consuming than the traditional mode of expert 7 For further discussion on Article 28 of the Model Law and the determination of the foreign law applicable to an arbitration agreement and to the contract in which the arbitration agreement is contained, see Chapter 6. For further discussion on the proof of foreign law in arbitrations, see Chapter 9. For useful background information on how foreign law is proved in the common law and civil law jurisdictions of the EU, see Institut suisse de droit comparé, “The Application of Foreign Law in Civil Matters in the EU Member States and Its Perspective for the Future: Synthesis Report with Recommendations”, JLS/2009/JCIV/PR/0005/E4 (Lausanne, 2011). Available at: .

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THEORY evidence used in court. But this method might be too readily dismissed as inappropriate, if a tribunal was slavishly to follow Hong Kong procedure because that is the safest way of ensuring (especially in light of the first theory) that an award will not be set aside. 2.2 Theory 2: Laws of enforcing states as source of validity The second theory takes its cue from the New York Convention. It posits that the validity of an award hinges on whether enforcing states will or will not recognize and enforce the award. Thus, the validity of an award stems from the sum total of the laws of enforcing states.8 This does not necessarily mean that the law of the seat of arbitration becomes irrelevant. This is because in deciding whether to recognize and enforce an award, an enforcing state may take account of the fact that the award has been set aside by the court of its seat. In this respect, Article V(1)(e) of the New York Convention permits an enforcing state to refuse recognition and enforcement where the award “has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made”. The fact that the court of the arbitral seat has set aside an award or (as happened in the Astro Nusantara case) has held an award to have been made outside of a tribunal’s jurisdiction will undoubtedly be a factor, perhaps a significant factor, in an enforcing court’s deliberations whether or not to recognize and enforce an award. But, under the second theory, the status of an award in its seat will not be conclusive.9 As happened before the Hong Kong court in Astro Nusantara, an award can still be recognized and enforced, despite having been set aside in its seat. This outcome is explicable under the second (but not the first theory) because what ultimately matters (and what gives validity to an award) is not what has happened in the seat, but whether the laws of other states will or will not permit recognition and enforcement. A corollary of the second theory is that there is no necessity for a respondent to apply to set aside an award in the seat of arbitration. It is instead open to the respondent to sit tight and contest recognition and enforcement of the award in states other than the seat. The precursor to the New York Convention was the 1927 Geneva Convention on the Execution of Foreign Arbitral Awards.10 Article 4(2) of the Geneva Convention required a claimant seeking to enforce an arbitral award in a state other than the seat to provide “[d]ocumentary or other evidence to prove that the award has become final, in the sense defined in Article 1(d), in the country in which it was made”. Article 1(d) of the Geneva Convention stipulated that an award would not be enforceable elsewhere unless (among other matters) the award: has become final in the country in which it has been made, in the sense that it will not be considered as such if it is open to opposition, appel or pourvoi en cassation (in the countries where such forms of procedure exist) or if it is proved that any proceedings for the purpose of contesting the validity of the award are pending.

8 Gaillard (n 1), at [23]–[39]. 9 Articles V(1) and (2) say that recognition and enforcement “may be refused” (not “shall be refused”) if any of the grounds listed in Articles V(1)(a) to (e) or V(2)(a) or (b) are established. The court of an enforcing state thus retains a discretion to recognize and enforce a foreign arbitral award, even when it has been set aside in its seat. 10 Available at .

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THEORY The two articles in conjunction gave rise to the “double exequatur” requirement under the Geneva Convention. It had to be shown that an award was valid in the seat of arbitration, before an award could be recognized and enforced as valid in another state. The New York Convention was supposed to do away with the cumbersome double exequatur requirement. Instead, under the New York Convention regime, a respondent can adopt a “come and get me attitude”. The respondent can refuse to take any part in arbitration proceedings in the seat and opt instead to contest an award when the claimant seeks to enforce the same in the respondent’s home state or in a jurisdiction in which the respondent has assets. This suggests that it is the plurality of the laws of enforcing states, rather than the law of the seat, that validates an arbitral award. But the second theory has its own difficulties. For instance, there are presently widely discrepant practices among states on the implementation of the New York Convention within their territories. The second theory could thus easily lead to the situation where a state that gives an idiosyncratically wide interpretation to the New York Convention grounds for refusing recognition and enforcement in Article V(1) and (2), can dictate whether an award is or is not recognized. By what principles is one able to say to such state that its practices are not consonant with the exigencies of international commercial arbitration? Is there a universally accepted standard by which one can argue that the implementation of the New York Convention in a given state is erroneous, because what should be regarded as valid awards are wrongly being refused recognition and enforcement in that state? It is this universal or transnational standard that the third theory is supposed to provide. But, before moving to the third theory, it is worth examining how arbitrators who espouse the second theory might conduct an international commercial arbitration. In that circumstance, the tribunal’s purview will need to go beyond the law of the seat and examine the laws of enforcing states in so far as recognition and enforcement are concerned. The tribunal’s duty would be to make all reasonable effort to produce an award that was enforceable in a relevant state. Obviously, a tribunal could not be expected to know the requirements for an enforceable award in every one of the 156 other states party to the New York Convention. That would be impossible and impractical. Many (if not all) of the major financial centres of the world (London, Paris, New York, Geneva, Hong Kong, Stockholm, Singapore, and Tokyo) are known to be arbitration-friendly. Their courts can no doubt be expected to be pro-enforcement, provided that widely accepted standards of due process are observed. Where an award is to be enforced in such jurisdictions, the tribunal should be able to conduct an arbitration in accordance with well-established standards of fairness. The tribunal should not feel bound religiously to follow the court practices of the seat. The tribunal can be more robust, so long as it is fair. But other jurisdictions may be less sophisticated. These may not yet have a welldeveloped jurisprudence as to what constitutes fair or unfair procedure. The courts in such jurisdictions may require evidence that formal procedures have been strictly observed, in order to be satisfied that there has been due process. Such jurisdictions may place a high premium of procedural formality over substantial fairness. They may have little experience in assessing whether the procedures adopted by a tribunal were generally reasonable, whether any deviations from procedural rules were merely trivial, and whether a party was substantively prevented from presenting its case. 22

THEORY It may be incumbent on a tribunal to inquire of the parties precisely where it is intended to enforce an award that may result from the arbitration. If the arbitrators are told that their award is meant to be enforced in a jurisdiction with unfamiliar rules as to recognition and enforcement, the tribunal may wish to inquire of the parties what the requirements for recognition and enforcement in such places are. Then, in addition to observing generally accepted standards of fairness in terms of procedure, the tribunal may take into account any special requirements for recognition and enforcement in the jurisdictions identified. That may be a reasonable and practical way of proceeding.11 Above all, however, one should avoid falling into an over-abundance of due process paranoia and, without seeking clarification from the parties, simply assume that the award might be enforced in any or all of the other 156 states that are party to the New York Convention. The arbitrator who espouses the second theory may decide that playing “safe” (in terms of producing an enforceable award) will entail not only following court practice in the seat of arbitration, but also bending over backwards to accommodate a respondent’s requests for procedural indulgences. The arbitrator may take such a view for fear that otherwise the award could be unenforceable in less sophisticated jurisdictions where the award might conceivably be enforced, however remote the prospect of a claimant actually seeking to enforce in such a place. To proceed in that way would lead to the worst of all possible worlds. One would follow the technicalities of court procedure in the seat (say, Hong Kong), as well as real or imagined constraints on recognition and enforcement in other jurisdictions. The tribunal will hesitate to be robust in dealing with interlocutory applications, not wishing to be seen to be denying one or other party a reasonable chance to be heard. The danger will be that nothing is ever decided as the arbitration proceeds along. There will be case management paralysis. Everything will be left to be determined “once all the evidence is in” at the end of the day, because that will be the surest way of ensuring that everyone has had a reasonable opportunity to be heard. 2.3 Theory 3: Transnational law as source of validity The third theory, the one favored by Professor Gaillard, is that the validity of arbitral awards hinges on transnational legal principles or an independent “arbitral juridical order”. Thus, international commercial arbitration is “de-localized” in the sense of not being tied to the law of a seat or of an enforcing state. Instead, the international commercial arbitration regime transcends domestic law. It is governed by international commercial law principles that exist separately from the laws of a given state. The consequence is that, even where an award has been set aside in its seat or is not enforceable within one or more contracting states to the New York Convention, the award can still be valid and enforceable in other states.12 The obvious question is how these transnational principles are to be identified. It does not seem that there can be any comprehensive answer to this question. It may be possible to say at a given time that some principle is such a transnational legal principle, because 11 See J Spigelman, “The Centrality of Contractual Interpretation: A Comparative Perspective” (2013), pp. 19–20, available at: . 12 Gaillard (n 1), at [40]–[58].

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THEORY it has been widely accepted by custom or by universal or near universal acceptance in the arbitral laws of many states. But it will not be possible to draw up an exhaustive list of all principles that will be accepted by all stakeholders in the arbitration industry as applying to international commercial arbitration at any given time. Thus, the “arbitral juridical order” posited by Professor Gaillard is more of a theoretical construct, much like the lex mercatoria or law merchant, used to justify the notion that international commercial arbitration floats above all domestic legal systems, without being tied to any particular body of domestic law. Does that mean that the third theory should be rejected as too metaphysical? On the contrary, there is much to commend the theory. Adherence to the notion of a transnational validating regime can liberate one’s approach as arbitrator to international commercial arbitration. Consider, for instance, the question of who is bound by an arbitration agreement. In the course of negotiating an international commercial deal, a Mainland Chinese company C employs officers from a variety of subsidiaries in discussions with a Singapore company S. The contract that is eventually executed is signed by company C1 only (one of C’s subsidiaries). The contract includes an arbitration agreement designating Hong Kong as the seat of arbitration, but does not identify an applicable law. Apart from the designation of Hong Kong as the seat of any arbitration between the parties, the contract has no other connection with Hong Kong. When a dispute arises, S wishes to commence proceedings against particular subsidiaries of C (apart from C1) that took part in various stages of the contractual negotiations. S wishes to do this because C’s assets are directly held by those other subsidiaries and are not held by C1. But, strictly read, the arbitration agreement is only between S and C1, not with C’s other subsidiaries. To what extent can S bring arbitration proceedings against C’s other subsidiaries? One answer would be to characterize joinder of parties as a procedural issue. If so, applying the Hong Kong principle of private international law used in litigation, one could say that the law of the forum governs matters of procedure. So Hong Kong law (equating the law of the seat of the arbitration with the law of the forum) should govern whether C’s other subsidiaries can be joined. Under Hong Kong law, it is only possible to pierce the corporate veil in limited circumstances, none of which would be applicable here. Further, under Hong Kong law, it would only be possible to treat C1 as agent for all the other subsidiaries of C, if there is evidence of the subsidiaries actually or apparently authorizing C1 to act for them. In the absence of evidence to that effect, it will not be possible to rely on agency. This solution to the problem may well be one strongly favored by an adherent to the first theory, as it impeccably appears to deal with the question in the way that a Hong Kong court would. An adherent of the third theory would query why it should automatically be assumed that the principle that the law of the forum governs procedure is applicable, just because that is the principles applied in court litigation. The mechanical application of the rule does not pay sufficient attention to the principle of party autonomy. That principle could be regarded as a by now widely accepted transnational commercial principle. The contract being an international commercial agreement involving a party from Mainland China and a party from Singapore, there is no reason to pre-suppose that they 24

THEORY intended Hong Kong law to govern in any significant way, simply because they agreed on Hong Kong as a neutral state in which to resolve their differences. What the problem requires (an advocate of the third theory would suggest) is to ascertain whether the parties did or did not regard it as material that only C1 signed the contract. It often happens that, in negotiations, a variety of subsidiaries are introduced, such that there is “confusion” as to whether one is negotiating collectively with an entire group of companies, or solely with one company on behalf of itself alone, or with one company on behalf of all of the subsidiaries involved in the negotiation. Thus, although the contract was only signed by C1, that may have been done merely as a matter of convenience and the intention of the parties was for the entire group of C companies to be bound by C1's signature. This would be a question of fact, namely, whom did the parties intend to be bound by the contract. The answer to the question would involve the tribunal in an objective consideration of all relevant facts to ascertain the parties’ intentions. The point is that the exercise of ascertaining whether a person can be joined should not be treated as a consequence of applying the law of a particular jurisdiction (such as the law of the seat of the arbitration). The matter is instead dealt with as a consequence of applying a recognized or accepted transnational commercial principle, such as party autonomy. Even though it may not be possible to enumerate all transnational commercial principles, it will often be possible to identify key transnational principles (such as the primacy of party autonomy) that can lead to a determination on a disputed issue.13 Indeed, simply relying on the principle of party autonomy (that is, ascertaining what the parties must have intended or willed) can probably take the tribunal far into an analysis of the parties’ cases. For instance, the parties’ intention in regard to the law, rules, or regulations applicable to relevant parts of a contract, could lead the tribunal to a decision in relation to disputes arising out of those parts of the contract, which will be more in accord with the parties’ expectations, than the mechanical application of some state’s choice of law rule. As far as due process paranoia is concerned, an arbitrator advocating the third theory would wish to ensure that his or her award conformed to transnational norms of fairness and due process, regardless of any idiosyncratic notions of fairness and due process followed in the seat of the arbitration or a given state where the award is to be enforced. Support for Theory 3 may also be found in the Model Law, which provides in Article 2A (as enacted by section 9 of the Arbitration Ordinance) that, in interpreting the Model Law, “regard is to be had to its international origin and to the need to promote uniformity in its application” and “matters governed by this Law which are not expressly settled in it are to be settled in conformity with the general principles on which this Law is based”. The “general principles” on which the Model Law are based should (it is submitted) be equivalent to the transnational commercial principles of Theory 3.

13 An analogy may be drawn with the common law. At any given time, it will not be possible to enumerate all principles of the common law. But this fact would not prevent a judge from discerning the common law principle applicable to a given situation and applying that principle to the facts. Likewise, the mere fact that the transnational commercial principles validating international commercial arbitration are incapable of enumeration should not be taken as an argument militating against the third theory.

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THEORY 2.4 Conclusion Each of the three theories has its pros and cons. Nonetheless, one needs to reflect on which theory one espouses as an international commercial arbitrator. This chapter has argued that the manner in which an arbitrator conducts an international commercial arbitration is likely to be dictated by the theory that the arbitrator consciously or unconsciously considers as validating an arbitral award. Given that tribunals will understandably “play safe” in order to produce an enforceable award, the theories will guide the extent to which arbitrators will feel free to deviate from court practice in the seat of arbitration and from the requirements for enforcement imposed by the most stringent states that are parties to the New York Convention. The third theory will liberate arbitrators to go beyond state or national laws, to discern the underlying principles that apply in all international commercial disputes. The more widely applied those transnational principles are, the more harmonized commercial practice will become. That may be a welcome outcome for cross-border businesses. But the problem is that many jurisdictions do not currently accept that arbitration can be “delocalized”. There remains a serious risk that arbitral awards by tribunals espousing the third theory will not be recognized and enforced in many New York Convention states.

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CHAPTER 3

Infrastructure

This chapter will provide a snapshot of the infrastructure of international commercial dispute resolution in Hong Kong. By “infrastructure” is meant the legal machinery and organizations (public and private) supporting international commercial arbitration and alternative dispute resolution (ADR) in Hong Kong. This chapter will also describe the corresponding infrastructure of two rival jurisdictions, more specifically the legal machinery and organizations supporting international commercial arbitration and ADR in Singapore and Mainland China. This will be done not merely for purposes of comparison, but also because arbitrators doing business in or out of Hong Kong are likely to be involved at some stage in their careers with arbitrations and other modes of dispute resolution in Singapore and Mainland China. Both are important Asian centres competing with Hong Kong for a larger share on the international commercial dispute resolution market. This chapter will focus on the following aspects of the three jurisdictions: (a) legislation, (b) organizations, (c) government support, (d) judicial support and (e) ADR Initiatives. In terms of the latter, this chapter will consider mediation, mediation-arbitration (med-arb), and adjudication. 3.1 Hong Kong Hong Kong is one of the most popular seats for arbitration, especially for disputes involving parties from Mainland China. Arbitration in Hong Kong is well organized in its legislative and institutional framework and the Hong Kong judiciary has established a reputation as being robustly pro-arbitration. In addition to arbitration support, Hong Kong has a well-developed infrastructure for the mediation of domestic and international disputes. 3.1.1 Legislation The Arbitration Ordinance (Cap.609) governs international and domestic arbitrations in Hong Kong. The Ordinance was enacted on 11 November 2010 and came into force on 1 June 2011. The Arbitration Ordinance was most recently amended in 2017, after an Amendment Bill was passed by the Legislative Council and gazetted on 23 June 2017. The Arbitration Ordinance replaced the former Arbitration Ordinance (Cap.341), which had been enacted in 1963 and amended in 1975 and 1982. 27

INFRASTRUCTURE The former Arbitration Ordinance adopted a dual-track regime. International arbitrations were governed by the 1985 Model Law, while domestic arbitrations were governed by a system based on the English Arbitration Act of 1950. In contrast, the new Arbitration Ordinance promulgated a unitary regime based on the 2006 Model Law. This meant that, subject to transitional provisions, international and domestic arbitrations would be governed from then on by the same regime. This was the major reform under the new statute. The reason for switching to a unified regime following the 2006 Model Law was made clear in section 3(1) of the new Arbitration Ordinance: “to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense”.1 In the rest of this book, references to the “Arbitration Ordinance’ will be to Cap.609 and references to the “Model Law” will be to the 2006 Model Law. The Arbitration Ordinance consists of 112 sections and three schedules. It adopted a substantial portion of the Model Law. It did this by enacting individual articles of the Model Law (in whole or part) in individual sections of the statute. For a concordance table showing which Model Law article corresponds with which Arbitration Ordinance section, see the Appendix to this chapter. In addition to the Arbitration Ordinance, other legal instruments are of importance. The first is the New York Convention. China acceded to the Convention in 1987 with the result that Hong Kong, as a part of China, is also bound by the New York Convention. But the New York Convention will not apply to arbitral awards with Mainland China or Macao seat, as such awards would be Chinese awards in Hong Kong and would not accordingly be “foreign” awards within Article I of the New York Convention. There would be a similar problem in enforcing Hong Kong arbitral awards in Mainland China and Macao. Consequently, Hong Kong has had to enter into Arrangements with Mainland China2 and Macao3 for the reciprocal enforcement of arbitral awards. The Arrangements are similar in their provisions to those of the New York Convention. 3.1.2 Organizations There are numerous organizations in Hong Kong that are involved in promoting arbitration in some way. The organizations can be classified into two groups. The first group comprises institutions which administer arbitrations. The principal such institution is the Hong Kong International Arbitration Centre (HKIAC), which was established in 1985. Other such institutions are the China International Economic and Trade Arbitration Commission Hong Kong Arbitration Centre (CIETAC Hong Kong), the International Chamber of Commerce Hong Kong (ICC Hong Kong), and the Permanent

1 Note also section 3(2) of the Arbitration Ordinance: “This Ordinance is based on the principles: (a) 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 (b) that the court should interfere in the arbitration of a dispute only as expressly provided for in this Ordinance”. Arbitration in Hong Kong today is therefore premised on three cardinal principles: (1) the speedy resolution of disputes in a fair and cost-effective manner; (2) party autonomy; and (3) minimal judicial intervention. 2 See Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the HKSAR, available at: . 3 See Arrangement Concerning Reciprocal Recognition and Enforcement of Arbitral Awards Between the HKSAR and the Macao SAR, available at: .

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INFRASTRUCTURE Court of Arbitration (PCA). Each institution will typically have one or more of its own set of arbitration rules for arbitrations administered by it. For instance, HKIAC has its 2008 or 2013 HKIAC Administered Arbitration Rules, CIETAC has its 2012 or 2015 CIETAC Arbitration Rules, and the ICC has its 2012 or 2017 ICC Arbitration Rules. The second group comprises institutes that organize conferences, seminars, workshops, and other activities to complement the work of arbitration centres and organizations (such as those in the first group). Examples are the Chartered Institute of Arbitrators (East Asia Branch) (CIArb East Asia) and the Hong Kong Institute of Arbitrators (HKIArb). The institutes typically run regular training courses for persons intending to practise as arbitrators. Persons who pass the requisite training courses of an institute may become Fellows of that institute and earn the right to attach certain letters (for example, CA,4 FCIArb,5 or FHKIArb6) after their name. The institutes may themselves administer arbitrations or provide support to ad hoc arbitrations by compiling list of persons (usually Fellows of the institute) qualified to sit as arbitrators in given types of disputes. The Hong Kong Institute of Arbitrators is a Hong Kong company limited by guarantee established in 1996 for professionals and others with an interest in arbitration, mediation and other modes of dispute resolution. A main objective of the institute is to hold workshops, seminars and other educational activities designed to build capacity among members of the public interested in developing the skills and knowledge needed by arbitrators or mediators. The Chartered Institute of Arbitrators is a non-profit United Kingdom registered charity that provides a wide range of arbitration and ADR-related services and support for members and others involved in dispute resolution. The Chartered Institute offers the only professional arbitration qualifications (for example, the CA and FCIArb qualifications) recognized worldwide. The East Asia Bench of the Chartered Institute is based in Hong Kong, but represents not only members from Hong Kong, but also those in Mainland China, Japan, Vietnam, Korea, Indonesia, the Philippines and Taiwan. 3.1.3 Government support The Hong Kong government promotes arbitration largely through the efforts of the Department of Justice. The latter has proactively undertaken numerous initiatives to market Hong Kong as an international dispute resolution hub in the Asia-Pacific and the rest of the world. The reform of the Arbitration Ordinance was largely spearheaded by the Department of Justice with the assistance of Hong Kong lawyers and business people. To further promote arbitration as a means of dispute resolution, the Secretary for Justice has set up an Advisory Committee on Promotion of Arbitration. by its Terms of Reference, the Committee is to perform the following functions (among others):7 (a)

4 5 6 7

considering, advising on and coordinating ongoing and new initiatives and overall strategies for the promotion of the HKSAR’s arbitration services in and outside Hong Kong;

Chartered Arbitrator. Fellow of the Chartered Institute of Arbitrators. Fellow of the Hong Kong Institute of Arbitrators. The Terms of Reference are available at .

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INFRASTRUCTURE (b) (c)

serving as a forum for discussing such issues as may be raised by the legal and dispute resolution sector concerning the promotion of the HKSAR as a leading centre for arbitration services in the Asia Pacific region; and such matters as may be incidental to the matters stated in (a) and (b) above (including, but not limited to, the conduct of researches or studies relating to arbitration).

The Committee is made up of representatives from the Department of Justice and from the legal, arbitration and other relevant sectors in Hong Kong. Overseas arbitration experts may also be appointed. The Law Reform Commission of Hong Kong has also played a role in supporting the development of Hong Kong as an international dispute resolution hub. Recently, the Commission issued its Report on Third Party Funding for Arbitration.8 Under the present law, third party funding of parties engaged in arbitration in Hong Kong is prohibited. Third party funding would constitute maintenance and champerty, which remain in existence as common law criminal offences and tortious wrongs in Hong Kong.9 The Report recommends that, to enhance Hong Kong’s competitive position as an international arbitration centre, the Arbitration Ordinance should be amended to permit third party funding for arbitration-related matters and to that extent the common law prohibition of maintenance and champerty should be abolished. 3.1.4 Judicial support Hong Kong has established its pre-eminence as an arbitration-friendly jurisdiction. A major contributor to that pre-eminence has been the minimum intervention by the court in the arbitration process. There are several stages where courts are able to intervene in arbitration, such as in relation to the determination of the validity of an arbitration agreement; the grant of anti-suit injunctions, interim measures and other interlocutory relief; and the recognition and enforcement of arbitral awards. The court’s stance in respect of international commercial arbitration will be considered in greater detail in Chapter 12. For now, attention is drawn to the Practice Direction 6.110 of the Hong Kong court. That creates and regulates a specialized Construction and Arbitration List within the High Court to deal with arbitration-related matters. The List is managed by a judge who has knowledge and experience of arbitration to ensure that cases within the List are dealt with expeditiously in accordance with the principles underlying the Arbitration Ordinance and the Model Law. All cases touching on arbitration are supposed to be heard in the Construction and Arbitration List (whether or not a party has issued a writ within that List) and are to be dealt with by the specialist judge in charge.

8 Available at . 9 Maintenance occurs when a third party funds litigation in which he or she has no interest or connection. Champerty occurs when a third party funds litigation in return for a share of any monies that might be obtained through such proceedings and, apart from the funding arrangement, the third party has no interest or connection with the litigation. 10 See .

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INFRASTRUCTURE 3.1.5 ADR initiatives 3.1.5.1 Mediation Mediation is a voluntary and private dispute resolution process. It is in effect negotiation conducted with the assistance of a neutral third party intermediary known as the “mediator”. Unlike a judge or an arbitrator, a mediator has no power to decide the parties’ dispute. The mediator merely uses his or her skills to facilitate the amicable settlement of a dispute. In Hong Kong, mediation is governed by the Mediation Ordinance (Cap.620), which was enacted in 2012 and came into force in 2013. The Mediation Ordinance has 11 sections and two schedules. The objective of the statute is to promote, encourage and facilitate the resolution of disputes by mediation and to protect the confidential nature of mediation communications.11 Section 4 of the statute defines what a mediation involves and, in so doing, provides a convenient summary of the techniques that are at a mediator’s disposal in facilitating settlement. The section states: Mediation is a structured process comprising one or more sessions in which one or more impartial individuals, without adjudicating a dispute or any aspect of it, assists the parties to the dispute to do any or all of the following: (a) identify the issues in dispute; (b) explore and generate options; (c) communicate with one another; and (d) reach an agreement regarding the resolution of the whole, or part, of the dispute.

There are a number of institutions providing mediation services in Hong Kong. These include the Hong Kong Mediation Accreditation Association Limited (HKMAAL), the Hong Kong Institute of Mediation (HKIMed), the Hong Kong Mediation Centre (HKMC), the Hong Kong Mediation Council (HKMC), the Centre for Effective Dispute Resolution (CEDR), and the Conflicts Resolution Centre (CRC). Each organization will have its own mediation rules and will administer mediations in accordance with those rules within the framework of the Mediation Ordinance. HKIAC itself provides mediation-related services. For this purpose, it has issued a number of publications to facilitate the conduct of mediations These are the HKIAC Mediation Rules, the Hong Kong Mediation Code, Rules for Handling Complaints against an Accredited Mediator, a General Ethical Code, and Guidelines for Professional Practice of Family Mediators.12 3.1.5.2 Med-arb Med-arb is a multi-tier dispute resolution method combining mediation and arbitration. In med-arb, the proceedings take place in two (or perhaps more) stages. The parties initially attempt to reach a settlement through mediation. If parties reach a settlement, the proceedings will come to an end and with the parties' settlement

11 Section 3 of the Mediation Ordinance. 12 Available at .

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INFRASTRUCTURE agreement will be embodied in an arbitral award. The award will then be enforceable under the New York Convention. But, if the parties cannot achieve a mediated settlement, the proceedings will enter a second stage in which their dispute will be resolved by an arbitrator. The arbitrator in the second stage may (and, at least in some jurisdictions such as Mainland China, often is) the same person as the mediator in the first stage. In the course of the second stage, the parties and the arbitrator may feel that it would be useful for the former to resume the initial aborted mediation. In that case, the arbitration can be stayed while the parties go back to attempting to reach a settlement through mediation. The proceedings can switch back to arbitration and so on until the dispute is settled in whole or part through mediation and whatever has not been settled is determined by the arbitrator. In the course of a mediation, it is common for the mediator to meet with the parties separately, that is, without the other party being present. The idea is that, in a separate meeting, a party will feel more comfortable in unburdening itself and explaining to the mediator its concerns, objectives and constraints in so far as reaching a settlement is concerned. Everything said or done in a mediation is confidential. All unilateral communications between one party and the mediator are confidential as between the communicating party and the mediator. The mediator may not reveal such unilateral communications to the other side without authority from the party making the communication. Nonetheless, the mediator will not be able to rid his or her mind of the communications, if the med-arb proceedings should progress to an arbitration stage. If the mediator in the first stage becomes the arbitrator in the second stage, there is a real danger that matters communicated in confidence to a mediator, will consciously or sub-consciously influence the same person acting as arbitrator between the parties in the same dispute. There is a high risk of conflict of interest in med-arb proceedings where the same individual is to act as mediator and arbitrator. Med-arb in Hong Kong is governed by sections 32 and 33 of the Arbitration Ordinance.13 Those provisions enact necessary safeguards to minimize the possibility of conflict of interest where the same person acts as mediator and arbitrator. Sections 32(3) and 33(1) make it clear that there is no objection in principle to a person acting as both mediator and arbitrator in a dispute. Where there is to be med-arb, the arbitration must be stayed to allow the mediation to take place (section 33(2)). Section 33(4), on the other hand, imposes certain limitations on how the mediatorarbitrator is to proceed. In particular: If: (a) (b)

confidential information is obtained by an arbitrator from a party during the mediation proceedings conducted by the arbitrator as a mediator; and those mediation proceedings terminate without reaching a settlement acceptable to the parties, the arbitrator must, before resuming the arbitral proceedings, disclose to all other parties as much of that information as the arbitrator considers is material to the arbitral proceedings.

13 Item 12 of Schedule 1 to the Mediation Ordinance.

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INFRASTRUCTURE It is far from clear that the safeguard in section 33(4) will be adequate. Presumably, where parties have agreed for med-arb to be conducted by the same person, the parties will be aware of section 33(4) and will go through their separate meetings with the mediator on the understanding that anything said may later be disclosed to the other party to the extent that “the arbitrator considers is material to the arbitral proceedings”. The question is how the mediator can be sure, at any time before resuming the arbitral proceedings, that all relevant information communicated to him or her during the mediation has been disclosed. Some apparently innocent piece of information communicated to the arbitrator during the mediation may, in the course of the arbitration, assume a significance that was not appreciated until later in the arbitration when the real issues in dispute between the parties finally emerge. There will always be the danger of the parties and the arbitrator discovering that some piece of information conveyed in the mediation ought to have been disclosed at the outset of the resumed arbitral proceedings. Section 33(5) provides that: “No objection may be made against the conduct of the arbitral proceedings by an arbitrator solely on the ground that the arbitrator had acted previously as a mediator in accordance with this section.” But can a complaint be made about the arbitration proceedings where, inadvertently, an arbitrator has failed to disclose a relevant communication, the significance of which was only realized late in the arbitration? Further, would an omission to disclose some material communication mean that the arbitrator had not acted in accordance with section 33 and so cannot rely on the protection in section 33(5)? For all the foregoing reasons, med-arb – in which the same person performs the function of mediator and arbitrator – is uncommon in Hong Kong. 3.1.5.3 Adjudication Adjudication is mainly used in the construction industry for resolving disputes quickly in the course of a project. The dispute comes before an adjudicating panel of one or more persons. The panel will have a limited number of days in which to come up with an adjudication. There will otherwise be the danger that a construction project will come to a standstill and be significantly delayed, if the dispute is not resolved speedily. Once the project is completed, a party is at liberty to re-open the panel’s adjudication. The party may do so before an arbitral tribunal or whatever forum the parties have agreed to for that purpose in their contract. Until such time as the adjudication is set aside, the panel’s order is binding on the parties and is enforceable by the court. HKIAC administers adjudication in accordance with HKIAC Adjudication Rules.14 The Rules are based on a number of English and Hong Kong sources.15 The Rules consists of five sections: (1) Object and Administration of Adjudication, (2) The Referral Process, (3) Conduct of the Adjudication, (4) Adjudication Decisions and Costs, and (5) Supplementary Provisions. The Hong Kong government is intending to introduce security of payment (SOP) legislation for the construction industry at some stage. The SOP legislation will include a

14 Available at . 15 For details, see the Introductory Notes to the Rules.

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INFRASTRUCTURE statutory scheme of adjudication. However, the detailed provisions of the proposed SOP legislation and when it will come into effect are unknown at present.16 3.2 Singapore Singapore is perceived to be a rival of Hong Kong in competing for a share of the international dispute resolution market. It will be seen that, although there are significant differences in the approaches of Hong Kong and Singapore to the promotion of arbitration and ADR, there are also a large number of similarities. 3.2.1 Legislation Singapore maintains a dual-track system of arbitration. Arbitrations based on domestic agreements are governed by the Arbitration Act (Cap.10), promulgated in 2001 and amended in 2012. The Act is based on the 1985 Model Law. Arbitrations arising out of international agreements are governed by the International Arbitration Act (Cap.143A) (IAA), also based on the 1985 Model Law. The IAA may also apply to non-international arbitrations if the parties agree in writing that Part II of the IAA and the 1985 Model Law will apply to the arbitration (section 5 of the IAA). There is a statute for international investment disputes, the Arbitration (International Investment Disputes) Act (Cap.11, 2002 rev. ed.), which follows the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (also known as the ICSID Convention). There are in addition some statutory arbitration schemes for certain types of disputes, such as the Private Education (Dispute Resolution Schemes) Regulations 2010 and the Estate Agents (Dispute Resolution Schemes) Regulations 2011. Singapore acceded to the New York Convention in 1986. 3.2.2 Organizations Much as Hong Kong, there are numerous organizations in Hong Kong providing arbitration-related services. Again, the organizations fall into two categories. The first category comprises organizations that administer arbitration. The principal such organization is the Singapore International Arbitration Centre (SIAC). Other examples are the International Centre for Dispute Resolution-Singapore (ICDR-Singapore), the International Division of the American Arbitration Association (AAA), the Permanent Court of Arbitration (PCA), the International Chamber of Commerce (ICC), and the World Intellectual Property Organization (WIPO) Arbitration and Mediation Centre. Each institution will have usually have its own arbitration rules. Many have offices in Maxwell Chambers, an international dispute resolution complex located on 32 Maxwell Road. The second category consists of institutes which complement the work of organizations in the first group. Examples are the Singapore Institute of Arbitrators (SIArb) and the Chartered Institute of Arbitrators Singapore Branch (CIArb Singapore Branch). The 16 For further information, see .

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INFRASTRUCTURE Singapore Institute of Arbitrators is an independent professional body established in 1981. A main objective of the Institute is to promote knowledge of arbitration and other forms of ADR by organizing talks, seminars and training courses for members and the public on a regular basis. The Chartered Institute of Arbitrators Singapore Branch provides similar services and support as the East Asia Branch in Hong Kong. 3.2.3 Government support The Ministry of Law (MINLAW) has played a significant role in the development of Singapore as an international dispute resolution hub. The Ministry has undertaken numerous initiatives to ensure that a comprehensive range of services and facilities are available in Singapore at competitive rates, so that parties have available a wide choice of means to resolve their cross-border commercial and other disputes. A recent bold initiative has been the establishment of the Singapore International Commercial Court (SICC) to handle disputes arising out of international commercial agreements containing a choice of court clause designating the SICC as the forum to resolve disputes. The Ministry of Law has also supported the Centre for International Law and the Faculty of Law at the National University of Singapore (NUS) in setting up the Singapore International Arbitration Academy in 2012 to develop practitioners’ skills in and knowledge of arbitration. Two recent developments might be noted. First, an act to allow third party funding of international commercial arbitration proceedings seated in Singapore, namely, the Civil Law (Amendment) Act 201717 was passed by the Singapore Parliament and assented to by the President in early 2017. The new law abolishes the common law torts of maintenance and champerty18 and, in conjunction with the Civil Law (Third-Party Funding) Regulations 2017,19 paves the way for third-party funding agreements of international arbitration and related court or mediation proceedings. Secondly, to strengthen Singapore standing as an international dispute resolution centre, the size of Maxwell Chambers will be tripled. 3.2.4 Judicial support Singapore courts have also shown a pro-arbitration attitude on a number of important issues such as the validity of an arbitration agreement, interim orders issued by an arbitral tribunal, challenges against arbitral awards, and the recognition and enforcement of arbitral awards. It should be noted in this connection that section 12A of the IAA empowers the Singapore court to order interim measures in support of arbitration proceedings, regardless of the seat of arbitration.

17 Available at: . 18 But the Act adds in a new section 5A(2) that, subject to section 5B (allowing third party funding under certain conditions), the abolition of the torts of maintenance and champerty “does not affect any rule of that law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal”. 19 Available at: .

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INFRASTRUCTURE 3.2.5 ADR initiatives 3.2.5.1 Mediation Mediation in Singapore is mainly served by the Singapore Mediation Centre (SMC) and the Singapore International Mediation Centre (SIMC). The former was established in 1994 and deals with domestic commercial disputes. The latter was established in 2014 and focuses on international commercial disputes. Each has its own mediation rules. Together with the SIAC, the SIMC has developed multi-tiered dispute resolution procedures such as med-arb and arb-med-arb (see further below). A recent legislative development was the passage of the Mediation Bill (Bill No.37/2016) at the beginning of 2017. The short title of the legislation describes its purpose as (among others) “to promote, encourage and facilitate the resolution disputes by mediation and for connected purposes”. 3.2.5.2 Med-arb Med-arb is possible in Singapore. But another dispute resolution product, arb-med-arb, has been recently developed and is recommended by SIMC and SIAC. In this connection, SIAC and SIMC have issued an SIAC-SIMC Arb-Med-Arb (AMA) Protocol.20 In AMA parties first refer their disputes to arbitration. The arbitration is then stayed for mediation. If parties are able to reach settlement, the agreement is recorded as a consent award21 enforceable under the New York Convention. If parties are unable to settle their dispute, the arbitration resumes. Under the SIAC-SIMC AMA Protocol, the arbitrator and the mediator will be separately and independently appointed by SIAC and SIMC. Therefore, the arbitrator and the mediator will be different persons, unless the parties agree otherwise. 3.2.5.3 Adjudication Adjudication is typically used in Singapore for resolving construction disputes. Adjudication in Singapore is administered by the SMC, which is the first Authorised Nominating Body under the Building and Construction Industry Security of Payment Act (Cap.30B) (Rev Ed 2006). SMC-administered adjudication is governed not only by the Act, but also by the Building and Construction Industry Security of Payment Regulations 2005, the Building and Construction Industry Security of Payment (Amendment) Regulations 2012, and the SMC Adjudication Procedure Rules.

20 Available at . 21 This is possible under Article 30 of the Model Law (enacted in Hong Kong by section 66 of the Arbitration Ordinance and in Singapore by section 18 of the IAA). Article 30 provides: “(1) If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms. (2) An award on agreed terms shall be made in accordance with the provisions of article 31 and shall state that it is an award. Such an award has the same status and effect as any other award on the merits of the case”. Article 31 deals with the form and content of an award. Note that, under Article 30, the settlement has to be reached “during arbitral proceedings”. Thus, if AMA is to be effective, an arbitration must have commenced before a mediated settlement is reached. Note, further, that the tribunal has a discretion whether or not to convert a settlement into an award.

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INFRASTRUCTURE 3.3 Mainland China The legal framework for arbitration in Mainland China is unique in comparison to that in Hong Kong and Singapore. In Mainland China, the Supreme People’s Court plays both a supervisory and quasi-legislative role. Further, the law in Mainland China does not permit ad hoc arbitration. All arbitrations (including international commercial arbitrations) with a Mainland China seat must be administered by an officially recognized arbitral institution. 3.3.1 Legislation Arbitrations in Mainland China are governed by the Arbitration Law, although in certain cases special legislation (for example, the Law on Mediation and Arbitration of Employment Disputes) may be applicable. The Arbitration Law was enacted in 1994. It came into force in 1995. Like Hong Kong and Singapore, the Arbitration Law has adopted many Model Law principles. But there are notable differences between the Arbitration Law and the Model Law. For instance, as noted above, arbitrations in Mainland China have to be conducted through recognized arbitral institutions (Articles 16 and 18 of the Arbitration Law). The Arbitration Law consists of eight chapters: (1) General Provisions, (2) Arbitration Commissions and Arbitration Associations, (3) Arbitration Agreements, (4) Arbitration Proceedings, (5) Applications for Setting Aside Arbitration Awards, (6) Enforcement, (7) Special Provisions for Arbitrations Involving Foreign Elements, and (8) Supplementary Provisions. The Arbitration Law applies to international and domestic arbitration, except that Chapter 7 is limited to “foreign-related” arbitrations. The effect of this is that the Arbitration Law may be more favourable to “foreign-related” arbitrations.22 Unlike in Hong Kong or Singapore, from time to time the Supreme People’s Court may issue judicial interpretations of the law relating to arbitrations. Although the interpretations have legal effect, they are not considered to be legislation. Mainland China acceded to the New York Convention in 1987. Hong Kong and Macau awards are enforced in Mainland China through the Arrangements mentioned above. Similarly, Mainland China awards are enforced in Hong Kong and Macau under the Arrangements. 3.3.2 Organizations In Mainland China, there are numerous organizations involved with arbitration. One group consists of arbitration commissions or institutions. Major institutions dealing with international arbitrations in Mainland China include the China International Economic and Trade Arbitration Commission (CIETAC), the Shanghai International Arbitration Center (SHIAC) and the Shenzhen Court of International Arbitration (SCIA). SHIAC and SCIA were formerly divisions of CIETAC, but broke away from CIETAC in 2012. There

22 Weixia Gu, “China's Arbitration Modernization under Judicial Efforts and Marketization Waves” in A Reyes and W Gu (eds), The Developing World of Arbitration: A Comparative Study of Arbitration Reform in the Asia Pacific (Hart, forthcoming).

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INFRASTRUCTURE are also the China Maritime Arbitration Commission (CMAC), the Beijing Arbitration Commission (BAC), the Beijing International Arbitration Centre (BIAC), the Shanghai Arbitration Commission (SAC), the Hangzhou Arbitration Commission and the Wuhan Arbitration Commission. Some foreign institutions have offices in Mainland China, as for instance the International Chamber of Commerce (ICC) and SIAC. But these offices are not allowed to administer international arbitrations from Mainland China. A second group is composed of institutes that provide training or education for persons who wish to be more involved in arbitration. But, unlike in Hong Kong and Singapore, there are few specialized centres for training and education in Mainland China. Note that CIETAC and the Beijing Arbitration Commission also provide training and education for arbitrators. 3.3.3 Government support The China Council for the Promotion of International Trade (CCPIT),23 the Supreme People’s Court and arbitration commissions (such as CIETAC) have together played an important role in the development and promotion of arbitration in Mainland China. Important reform initiatives have originated in large measure from the efforts of the Supreme People’s Court and of Mainland China’s arbitration commissions. 3.3.4 Judicial support As in Hong Kong and Singapore, the courts play an important part in supervising arbitrations in Mainland China and in recognizing and enforcing awards. But there is a key difference between the role of the courts in Mainland China and the role of the courts in Hong Kong and Singapore. That difference is the part played by the Supreme People’s Court in the interpretation and enforcement of the Arbitration Law. The Supreme People’s Court has the power to issue judicial interpretations of the Arbitration Law. It has done so on four occasions and those interpretations have become an important source of arbitration law in Mainland China. The four interpretations have been: (1) Notice on Implementing the Convention on Recognition and Enforcement of Foreign Arbitral Awards (effective from 10 April 1987); (2) Notice on the Handling of Relevant Issues Pertaining to Foreign-related Arbitrations and Foreign Arbitrations (effective from 28 August 1995); (3) Notice on Matters Relating to the Setting Aside of Foreign-related Arbitral Awards (effective from 23 April 1998); (4) Interpretation on Certain Issues Relating to the Application of the Arbitration Law of the PRC (effective from 8 September 2006). 3.3.5 ADR initiatives 3.3.5.1 Mediation The traditional institution for mediation in Mainland China has been the China Council for the Promotion of International Trade CCPIT-Mediation Centre (formerly, the Beijing 23 Established by the Chinese government in 1952 to attract foreign trade and investment in Mainland China. See further: .

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INFRASTRUCTURE Conciliation Centre (BCC)). The CCPIT-Mediation Centre has also developed a Joint Mediation (Conciliation) Scheme. In addition to the CCPIT-Mediation Centre, some organizations (such as the Beijing Arbitration Commission) provide mediation services and have developed their own mediation rules. Examples of mediation centres are the Beijing–Hamburg Conciliation Centre, the Italy–China Business Mediation Centre (ICBMC), the Chinese European Arbitration Centre (CEAC), and the US–China Business Mediation Centre. These centres have their own mediation rules. 3.3.5.2 Med-arb Med-arb is commonly used in Mainland China. According to Article 51 of the Arbitration Law, a tribunal may carry out conciliation before making an award. Indeed, the tribunal is required to carry out conciliation, if both parties voluntarily agree. If the conciliation proves unsuccessful, an arbitral award should be made promptly. Med-arb is permitted by the rules of most Mainland China arbitration commissions. But the administration of med-arb differs among arbitration commissions. For example, Article 47 of the 2015 CIETAC Arbitration Rules and Article 41 of SHIAC Arbitration Rules allow a tribunal to conduct mediation at the request of the parties. But Articles 50 and 51 of the Shanghai Pilot Free Trade Zone Court of Arbitration (SFTZCA) Arbitration Rules and Articles 42 and 43 of the Beijing Arbitration Commission Arbitration Rules allow a tribunal and a mediator to conduct mediation. 3.3.5.3 Adjudication Adjudication is available in Mainland China for resolving disputes in relation to certain matters, such as trademark. In other jurisdictions, adjudication is mainly used for resolving construction disputes with the assistance of a Dispute Adjudication Board (DAB) formed under the International Federation of Consulting Engineers (FIDIC) forms of contract. But DAB adjudication has not been popular in Mainland China. Nonetheless, dispute resolution schemes are provided by CIETAC and the Beijing Arbitration Commission. Each of the latter two bodies has its own rules: the Construction Dispute Review Rules (Trial)24 for CIETAC and the Construction Dispute Board Rules for the Beijing Arbitration Commission.25

24 Available at . 25 Available at .

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APPENDIX

Concordance of Model Law articles and Arbitration Ordinance sections

Model Law Article

Section in Arbitration Ordinance

1

Substituted by section 5 (see section 7)

2 2A 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 17A 17B 17C 17D 17E 17F 17G 17H 17I 17J

Substituted by section 2 (see section 8) Section 9 Section 10 Section 11 Section 12 Substituted by sections 13(2) to (6) (see section 13(1)) Section 19, adopting Option 1 Section 20 Section 21 Section 23(1) enacts Article 10(1) but not 10(2). Section 24 Section 25 Section 26 Section 27 Section 28 Section 34 Section 35 Section 36 Section 37 Section 38 Section 39 Section 40 Section 41 Section 42 Substituted by section 61 (see section 43) Not enacted (see section 44) Not enacted (see section 45)

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INFRASTRUCTURE Model Law Article

Section in Arbitration Ordinance

18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

Substituted by section 46(2) and (3) (see section 46(1)) Section 47(1) enacts Article 19(1) but not 19(2) Section 48 Section 49 Section 50 Section 51 Section 52 Section 53 Section 54 Section 55 Section 64 Section 65 Section 66 Section 67 Section 68 Section 69 Section 81 Not enacted (see section 82) Not enacted (see section 83)

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CHAPTER 4

Rules

International commercial arbitrators practising in Hong Kong are likely to find themselves appointed in arbitrations governed by a variety of arbitral rules. The arbitrations may have their seat in Hong Kong or elsewhere (such as Mainland China or Singapore) and may be ad hoc or administered. The purpose of this chapter then is to introduce arbitral rules that an international commercial arbitrator may encounter in the course of a practice in Hong Kong. It is not intended for this chapter to be a comprehensive catalogue of all arbitral rules or even all arbitral rules that one might commonly encounter in the course of practice. That would be impossible to do and would probably have little practical utility. Further, when an arbitrator is appointed in a case governed by particular rules, it will be incumbent on the arbitrator at the time of appointment to study the rules to obtain a precise idea of what can and cannot be done in the course of the arbitration. This chapter is not meant to relieve an arbitrator of the task of downloading a copy of the operative rules and studying the same in depth. This chapter cannot be a substitute for the detailed study of the operative rules in an arbitration. To maintain a competitive edge, international commercial arbitrators will need conversational familiarity with salient features of at least some commonly-encountered rules. The more rules that one is familiar with, the better for one's practice. Familiarity with a wide variety of rules should enable an arbitrator, upon appointment in a case, to zero in quickly on distinctive (possibly unique) features in a set of rules that may require one to conduct a reference differently from the routine. This chapter will accordingly summarize the provisions of five arbitration rules that an international commercial arbitrator based in Hong Kong might encounter in the course of practice. The sets of rules are: (1) the 2013 HKIAC Administered Arbitration Rules, (2) the 2016 SIAC Arbitration Rules, (3) the 2015 CIETAC Arbitration Rules, (4) the 2010 UNCITRAL Arbitration Rules, and (5) the 2017 ICC Arbitration Rules. The focus here will be on four areas covered by these five sets of rules: (1) appointment of a tribunal, (b) pleadings, (c) conduct of proceedings, and (d) award. 4.1 HKIAC-administered arbitration rules HKIAC-administered arbitrations are overseen by the HKIAC Council, headed by a Chairperson. The day-to-day management of arbitration cases is undertaken by a Secretariat, headed by the Secretary-General. The files of individual arbitration cases are supervised by counsel of the Secretariat. 42

RULES The latest HKIAC Rules came into effect on 1 November 2013.1 The Rules consist of six sections: (1) General Rules; (2) Commencement of the Arbitration; (3) The Arbitral Tribunal; (4) Conduct of Arbitration; (5) Awards, Decisions and Orders of the Arbitral Tribunal; and (6) Other Provisions. There are four schedules to the Rules. 4.1.1 Appointment of tribunal Article 6 provides that, if the parties have not agreed upon the number of arbitrators, HKIAC shall decide the number of arbitrators. HKIAC will do so by taking into account the circumstances of the case, such as the complexity of the arbitration, the nationalities of the parties, trade customs, the availability of potential arbitrators and the urgency of the matter. The parties will be invited to comment before HKIAC decides. Where a sole arbitrator has been agreed by the parties or decided by HKIAC, the appointment should be made within 30 days.2 If the parties fail to make an appointment within that period, HKIAC shall appoint the sole arbitrator.3 If the arbitral tribunal is to consist of three arbitrators on the basis of the parties’ agreement or HKIAC’s decision, Article 8 sets out the procedure for appointing the tribunal. Normally, each party will designate an arbitrator and the two arbitrators so designated will nominate a third person to act as presiding arbitrator. If the third arbitrator is not appointed within 30 days from the second arbitrator’s confirmation, HKIAC shall appoint the third arbitrator. The appointment of a person as arbitrator (whether by the parties or by the two party-designated arbitrators) will not be effective unless and until confirmed by HKIAC.4 What if there are more than two parties to the arbitration and the dispute is to be referred to three arbitrators? In such situation, each side (all the claimants on one side and all the respondents on the other) will normally designate an arbitrator and the two arbitrators so designated will nominate the presiding arbitrator.5 Where the designation of an arbitrator by either side has failed for some reason or where the parties do not agree in writing that they represent two separate factions for the purposes of designating arbitrators, HKIAC may appoint all the arbitrators without regard to any party’s designation. Article 11.1 stipulates that an arbitral tribunal confirmed by HKIAC “shall be and remain at all times impartial and independent of the parties”.6 To ensure the impartiality and independence of a tribunal, Article 11.2 provides that where the parties are of different nationalities, a person who has the same nationality as either party should not, in principle, be designated as a sole or the presiding arbitrator.7 Article 11.4 provides that a person designated as arbitrator is obliged to “disclose any circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence”. Article 11.7 provides that where a party has doubts about the suitability of an arbitrator, the party may mount a challenge within 15 days of the arbitrator’s 1 Available at: . 2 Article 7.1. 3 Article 7.2. 4 Article 9. 5 Article 8.2. 6 In other words, party-designated arbitrators should not regard themselves as advocates of their appointing party’s position during the tribunal’s deliberations. 7 In practice, in the absence of agreement among the parties, HKIAC will normally adhere to this principle.

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RULES appointment or after the party became aware or ought reasonably to have become aware of the impediment. Challenges to the appointment of an arbitrator are determined by HKIAC and, if a challenge succeeds, the relevant arbitrator is replaced.8 4.1.2 Pleadings9 The claimant shall submit its statement of claim, with supporting documents attached, to the other parties and the tribunal within the time directed by the arbitral tribunal. Article 16.2 stipulates that the statement of claim should at least contain: (1) the parties’ information, (2) the facts supporting the claim, (3) the points at issue, (4) the legal arguments supporting the claim, and (5) the relief sought. The statement of claim may be submitted together with the notice of arbitration or in a separate document.10 The respondent should in turn submit its statement of defence, with supporting documents attached, to the other parties and the tribunal within the time directed by the tribunal.11 Article 17.2 stipulates that the statement of defence should respond to the statement of claim and, if there is an objection to the tribunal’s jurisdiction, the statement of defence shall state the factual and legal basis of the objection. Article 17.3 provides that, if there is a counterclaim or a set-off defence, the statement of defence should at least plead: (1) the facts supporting the counterclaim or set-off defence, (2) the points at issue, (3) the legal arguments, and (4) the relief sought. Article 18 permits amendments to be made to the pleadings with the tribunal’s permission. In deciding whether to allow any amendments, the tribunal will have regard to all the circumstance of the case. Article 20 empowers the tribunal to decide whether further pleadings (for example, a statement of reply or a statement of rejoinder) are required. Article 21 stipulates that the periods of time directed by the tribunal for submission of pleadings should not exceed 45 days. But the tribunal may extend that time, if appropriate. 4.1.3 Conduct of proceedings Article 13.1 provides that the tribunal “shall adopt suitable procedures for the conduct of the arbitration in order to avoid unnecessary delay or expense”. But the obligation is qualified. The tribunal must see to it that any procedures adopted “ensure equal treatment of the parties and afford the parties a reasonable opportunity to present their case”. Article 13.5 imposes a corresponding obligation on the tribunal and the parties to “do everything necessary to ensure the fair and efficient conduct of the arbitration”. Article 14.1 provides that the parties may agree on the seat of arbitration. Where there is no such agreement, the seat shall be Hong Kong, unless the tribunal determines that another seat is more appropriate. The tribunal will take into account the circumstances of a case when making its decision. In any event, regardless of the seat, the tribunal may meet or hear witnesses and submissions “at any location outside of the seat of arbitration 8 Article 12. 9 Articles 16 to 18. 10 Article 16 11 Article 17.

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RULES which it considers appropriate for consultation among its members”. Despite hearings take place in locations other than the seat, by Article 14.2 the arbitration shall treated be for all purposes as an arbitration conducted at the seat. Article 19 deals with the tribunal’s jurisdiction. Article 19.1 preserves the principle of “competence-competence”. In this connection, Article 19.2 imports the principle of the separability of the arbitration agreement. Thus, the tribunal may rule on whether it has or does not have jurisdiction to hear the arbitration or some part of it. Article 19.3 stipulates that, if possible, a plea of no jurisdiction should be raised in the respondent’s answer to the notice of arbitration. Otherwise, the challenge must be raised no later than in the statement of defence or, if the claimant is objecting to the tribunal’s jurisdiction to entertain a counterclaim, in the claimant’s statement of reply and defence to counterclaim. If, before the tribunal is constituted, a question arises as to the existence, validity or scope of an arbitration agreement or HKIAC’s competence to administer an arbitration, HKIAC “may” decide whether and to what extent the arbitration should proceed.12 Article 22 concerns the evidence to be adduced at trial. Article 22.1 provides that each party “shall have the burden of proving the facts relied on to support its claim or defence”. Article 22.2 empowers the tribunal to “determine the admissibility, relevance, materiality and weight of the evidence, including whether to apply strict rules of evidence”. By Article 22.3 the tribunal may allow or require a party to produce documents or other evidence that the tribunal believes to be relevant to a case and material to its outcome. The tribunal may also ask the parties for summaries of the documents and evidence upon which each proposes to rely. Under Article 22.5 the parties must inform the tribunal of the names and addresses of their respective witnesses and experts within the time directed by the tribunal. In addition, Article 25 enables the tribunal itself to appoint one or more experts after consulting with the parties. Article 22.4 empowers the tribunal to determine whether to hold oral hearings for the presentation of evidence or for argument. The tribunal may instead decide to conduct the arbitration on the basis of documents alone. However, if a party requests an oral hearing, the tribunal “shall” hold such a hearing at an appropriate stage of the proceedings. Article 22.7 provides that hearings are to be private, unless the parties agree otherwise. Article 23.1 stipulates a party may apply for emergency relief before a tribunal is constituted. In such case, HKIAC will appoint an emergency arbitrator to deal with the application in accordance with the procedures set out in Schedule 4. Article 23.2 allows the tribunal, once constituted, to order interim measures as necessary. By Article 23.4 the tribunal will take into account the circumstances of a case when considering the request. The tribunal may make peremptory orders where a party acts in default of directions “without showing sufficient cause for such failure”.13

12 Article 19.4. 13 Article 26.

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RULES The tribunal may allow an additional party to be joined to the arbitration, “provided that, prima facie, the additional party is bound by an arbitration agreement under these Rules giving rise to the arbitration, including any arbitration under Article 28 or 29”.14 At the request of a party and any designated arbitrators, HKIAC may consolidate two or more pending arbitrations so long as certain requirements are met.15 In deciding whether to order consolidation, HKIAC will takes into account the circumstances of a case. If there is to be consolidation, the arbitrations shall be consolidated into the arbitration that started first, unless the parties agree or HKIAC decides otherwise. The parties to the consolidated arbitration will be deemed to have waived any objection to the validity or enforcement of any award made by the tribunal in the consolidated proceeding.16 The arbitral tribunal may entertain two or more claims arising out of more than one contract so long as the requirements in Article 29.1 are met.17 The parties to the single arbitration will be deemed to have waived any objection to the validity or enforcement of any award made by the tribunal.18 Article 30 provides that the tribunal may declare proceedings closed where it is “satisfied that the parties have had a reasonable opportunity to present their cases”. Article 31 deals with waiver. Where a party knows or ought reasonably to have known that the Rules have not been followed, it should object promptly. If it proceeds with the arbitration without objecting, it may be deemed to have waived compliance with the Rules. 4.1.4 Award Where there is more than one arbitrator, decision is by a majority.19 If there is no majority (such as where there is an even number of arbitrators), the presiding arbitrator will decide. In addition to final awards, the tribunal may make interim, interlocutory or partial awards and issue interim awards on costs.20 An award shall be in writing and shall be final and binding on the parties and any person claiming thorough or under them.21 An award “shall state the reasons upon which it is based unless the parties have agreed that no reasons are to be given”.22 It should be signed by the members of the tribunal and state the date of the award and the seat of arbitration. It shall be deemed to have been made at the seat of the arbitration. An award shall be affixed with the seal of HKIAC to be valid and effective.23 Article 35.1 states that the tribunal’s decision shall be in accordance with the rules of law chosen by the parties or, in the absence of a choice of law, the rules of law that the tribunal determines to be appropriate. The tribunal shall decide as amiable compositeur

14 Article 27.1. Article 28 deals with the consolidation of arbitrations. Article 29 concerns the holding of a single arbitration under multiple contracts. See below. 15 Article 28. 16 Article 28.8. 17 Article 29. 18 Article 29.2. 19 Article 32.1. 20 Article 34.1. 21 Article 34.2. 22 Article 34.4. 23 Article 34.6.

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RULES or ex aequo et bono24 only if the parties have expressly agreed that it should do so. At all times the tribunal must decide the case in accordance with terms of the relevant contract. It may take into account applicable trade usages. Article 36 sets out the procedure to be followed where the parties have agreed to settle an arbitration before an award has been issued. Articles 37 to 39 deal with the correction of awards, the interpretation of awards, and the making of additional awards at the request of a party respectively. The tribunal may correct an award on its own initiative.25 4.2 SIAC arbitration rules SIAC-administered arbitrations are overseen by a Court of Arbitration headed by a President and Vice-President. The day-to-day administration of SIAC arbitrations is in the hands of a Secretariat headed by a CEO and a Registrar. The Registrar is assisted by a Deputy Registrar and several counsel. The latest SIAC Rules came into effect on 1 August 2016.26 There are 41 rules and one schedule. 4.2.1 Appointment of tribunal There will be a sole arbitrator, unless the parties have agreed otherwise, or the Registrar directs that there should be three arbitrators in light of the complexity or other circumstances of the dispute.27 Nominations for arbitrator by the parties or by any third person including by the arbitrators already appointed have to be approved by the President. Rules 10 and 11 respectively deal with the process for nomination of a sole arbitrator and three arbitrators. Rule 12 concerns the process for nomination of a sole arbitrator or three arbitrators where there are two or more parties to an arbitration. An arbitrator “shall be and remain at all times independent and impartial”.28 In appointing an arbitrator, the President is to consider “whether the arbitrator has sufficient availability to determine the case in a prompt and efficient manner that is appropriate given the nature of the arbitration”. Upon appointment, an arbitrator must as soon as possible disclose “any circumstances that may give rise to justifiable doubts as to his impartiality or independence”.29 Rules 14 to 18 concern the process for the challenge of arbitrators and the replacement of arbitrators. Challenges to an arbitrator’s suitability should be made with 14 days from the arbitrator’s appointment or after certain circumstance specified in Rule 14.1 or Rule 14.2 have become known or ought reasonably to been known to the challenging party. Challenges will be decided by the SIAC Court.30 A decision by the SIAC Court on 24 That is, to decide a dispute on the basis of what is fair and equitable in all the circumstances. 25 Article 37.3. 26 Available at: . 27 Rule 9. 28 Rule 13.1. 29 Rules 13.4 and 13.5. 30 Rule 16.

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RULES challenges to an arbitrator is final and not subject to appeal. If a challenge succeeds, the arbitrator will be replaced. 4.2.2 Pleadings The tribunal is to give directions as necessary for the submission of a statement of claim, a statement of defence, and other written statements.31 All such pleadings are to be accompanied by supporting documents. The claimant must either submit a statement of claim as a part of its notice to arbitration or within the time directed by the tribunal.32 The respondent must submit a statement of defence and counterclaim (if any) as a part of its response to the notice of arbitration or within the time directed by the tribunal.33 A party may amend its claim, counterclaim and other submissions, unless the tribunal considers it inappropriate.34 4.2.3 Conduct of proceedings Before the constitution of the tribunal, a party may apply for the arbitration to be conducted under SIAC’s Expedited Procedure, so long as the requirements in Rule 5 are satisfied.35 Rules 6 to 8 respectively concern arbitrations arising out of more than one contract, joinder of additional parties and the consolidation of arbitrations. A party may apply for joinder of an additional party or the consolidation of arbitrations. A non-party to an arbitration may make an application to be joined.36 Where such an application is made before the constitution of the tribunal, the SIAC will decide whether to grant the application. The tribunal “shall conduct the arbitration in such manner as it considers appropriate, after consulting with the parties to ensure the fair, expeditious, economical and final resolution of the dispute”.37 To this end, the tribunal may “direct the order of proceedings, bifurcate proceedings, exclude cumulative or irrelevant testimony or other evidence and direct the parties to focus their presentations on issues the decision of which could dispose of all or part of the case”.38 Unless agreed otherwise, the presiding arbitrator may make procedural rulings alone, but subject to revision by the tribunal.39 Rule 21 allows the parties to agree on the seat of arbitration. In the absence of agreement, the seat of the arbitration shall be decided by the tribunal, taking account of the circumstances of the case. The tribunal may hold hearings and meetings at any location it considers appropriate. The tribunal shall determine the language of the arbitration, unless agreed otherwise.40 It may order that a party submitting a document also provide a translation. 31 32 33 34 35 36 37 38 39 40

Rule 20. Rules 20.1 and 20.2. Rules 20.1, 20.3 and 20.4. Rule 20.5. Rule 5. Rule 7.1. Rule 19.1. Rule 19.4. Rule 19.5. Rule 22.

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RULES The parties may be represented by legal practitioners or any other authorised representatives.41 Rules 24 to 26 respectively deal with the process for hearings, the treatment of witnesses, and the use of tribunal-appointed experts. They are similar to the corresponding provisions of the 2013 HKIAC Rules. Rule 27 confers additional powers on a tribunal, unless agreed otherwise. But such powers may not derogate any applicable mandatory law. Extra powers may include the power to rectify contracts and to determine any claim for legal professional privilege. An interesting additional power is one to “direct any party to take or refrain from taking actions to ensure that any Award which may be made in the arbitration is not rendered ineffectual by the dissipation of assets by a party or otherwise”.42 Rule 28 sets out the principles of competence-competence and the separability of the arbitration agreement. Where an objection to the existence or validity of the arbitration agreement or to SIAC’s competence of SIAC is made before a tribunal is appointed, the Registrar shall initially determine if such objection shall be referred to SIAC. If referred, SIAC shall decide whether it is prima facie satisfied that the arbitration should proceed. A party may apply to the tribunal for the early dismissal of a claim or defence.43 If the tribunal allows such an application, it shall make an order or award on the application with reasons. At the request of a party, the tribunal may issue an order or an award granting an injunction or other interim relief.44 The tribunal may request security for any measure granted. Where the tribunal has not yet been constituted, a party may apply to an emergency arbitrator appointed under Schedule 1. Rule 31 stipulates that the tribunal must apply the law or rules of law chosen by the parties. In the absence of a choice, the tribunal must apply the law or rules of law that it determines to be appropriate. Where the parties have expressly authorized the tribunal to decide as amiable compositeur or ex aequo et bono, the arbitral tribunal must do so. 4.2.4 Award The tribunal shall declare the proceedings closed when satisfied that “the parties have no further relevant and material evidence to produce or submission to make”.45 A draft award shall be submitted to the Registrar within 45 days from the close of proceedings.46 The Registrar “may . . . suggest modifications as to the form of the Award and, without affecting the Tribunal’s liberty to decide the dispute, draw the Tribunal’s attention to points of substance”. No award may be issued by the tribunal until the Registrar has approved its form. An award must be in writing and state the reasons upon which it based, unless the parties have agreed otherwise.47

41 42 43 44 45 46 47

Rule 23. Rule 27i. Rule 29. Rule 30. Rule 32.1. Rule 32.3. Rule 32.5.

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RULES Where the tribunal consists of more than one arbitrator, an award is by a majority. If the arbitrators do not have a majority decision, the presiding arbitrator alone may make the award for the tribunal.48 Rule 32.11 provides that: By agreeing to arbitration under these Rules, the parties agree that any Award shall be final and binding on the parties from the date it is made, and undertake to carry out the Award immediately and without delay. The parties also irrevocably waive their rights to any form of appeal, review or recourse to any State court or other judicial authority with respect to such Award in so far as such waiver may be validly made.

Rule 33 deals with the correction and interpretation of awards and the making of additional awards. 4.3 CIETAC arbitration rules The China International Economic and Trade Arbitration Commission (CIETAC) has its headquarters in Beijing with sub-commissions in Shenzhen, Shanghai, Tianjin and Chongqing. CIETAC and its sub-commissions constitute a single entity. CIETAC has an Honorary Chairperson. It also has a Chairperson, several Vice-Chairpersons, and Members. Each sub-commission has a Secretariat with its own Secretary-General. The Chairperson of CIETAC oversees CIETAC’s administered arbitrations in accordance with the CIETAC Rules. CIETAC has an Arbitration Court, which performs functions set out in the CIETAC Rules under the direction of a Vice-Chairperson and the President of the Arbitration Court. The latest CIETAC Rules came into effect on 1 January 2015.49 The Rules consist of seven chapters and the three appendixes. The Rules contain a Chapter VI entitled “Special Provisions for Hong Kong Arbitration”. That applies to arbitration cases accepted and administered by the CIETAC Hong Kong Arbitration Centre. The latter is the first CIETAC branch established outside Mainland China and administers CIETAC arbitrations with a Hong Kong seat. 4.3.1 Appointment of tribunal An arbitrator “shall be and remain independent of the parties and treat them equally”.50 The tribunal shall be composed of three arbitrators, unless the parties agree otherwise or the Rules provide otherwise.51 The parties typically nominate arbitrators from the CIETAC Panel of Arbitrators.52 The parties may nominate a person who is not on the Panel, but the nomination will be subject to confirmation by the Chairperson. Detailed provisions for the appointment of three-person tribunals, a sole arbitrator tribunal, and multiple-party tribunals are respectively to be found in Articles 27 to 29. When appointing arbitrators, the Chairperson takes into account “the law applicable to 48 49 50 51 52

Rule 32.7. Available at . Article 24. Article 25. Article 26.

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RULES the dispute, the place of arbitration, the language of arbitration, the nationalities of the parties, and other [relevant] factor(s)”.53 Article 31 provides that an arbitrator “must disclose any facts or circumstances likely to give rise to justifiable doubts as to his/her impartiality or independence”. The procedure for challenging an arbitrator is in Article 32. Arbitrators may be replaced in accordance with Article 33 and the arbitration may continue in accordance with Article 34. 4.3.2 Pleadings Article 12 requires the claimant to submit a statement of claim with supporting documents and evidence as a part of its request for arbitration. Upon the receipt of a request for arbitration, CIETAC will forward the same together with a notice of arbitration and a list of CIETAC’s panel of arbitrators to the respondent.54 Article 15 requires the respondent to submit its statement of defence in writing within 45 days from the receipt of the notice of arbitration. The respondent may file a counterclaim at the same time.55 Article 17 allows the claimant to apply to amend its claim and the respondent to amend its counterclaim, unless the arbitral tribunal finds “amendment is too late and may delay the arbitral proceedings”. 4.3.3 Conduct of proceedings Article 6 empowers CIETAC to determine the existence and validity of an arbitration agreement and its jurisdiction over a case. But CIETAC may, where necessary, delegate such power to the tribunal. In this sense, the competence-competence principle is partially preserved. Any objection to an arbitration agreement or to the CIETAC’s jurisdiction shall be made in writing before the first oral hearing held by the tribunal.56 Where the case is administered by CIETAC Hong Kong Arbitration Centre, the tribunal has the power to rule on the existence and validity of an arbitration agreement and its jurisdiction over a case.57 Article 7 allows the parties to agree on the place of the arbitration. In the absence of agreement, the place of the arbitration shall be “the domicile of CIETAC or its subcommission/arbitration centre administering the case”. But CIETAC may also determine the place of the arbitration to be another location by taking into account the circumstances of the case. Article 9 requires the arbitration participants “to proceed with the arbitration in good faith”. Article 10 deals with waiver of right to object on account of non-compliance with the Rules. Article 14 allows the claimant to initiate a single arbitration concerning disputes arising out of two or more contracts so long as the requirements set out in Article 14 are met.

53 54 55 56 57

Article 30. Article 13. Article 16. Article 6(4). Article 75.

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RULES A party wishing to join an additional party to the arbitration may file a request for joinder, provided that “the arbitration agreement invoked in the arbitration that prima facie binds the additional party”.58 Where the request is filed after the constitution of the tribunal, CIETAC shall make a decision “after the arbitral tribunal hears from all parties including the additional party if the arbitral tribunal considers the joinder necessary”. Article 19 empowers CIETAC to consolidate two or more arbitrations, if any of the requirements in Article 19 are met. A party may be represented by authorized Chinese or foreign representatives in handling matters relating to the arbitration.59 A power of attorney shall be submitted to the Arbitration Court by the party or its representatives. A party may apply to CIETAC for conservatory measures available under PRC law. CIETAC will then forward the application to the competent court chosen by that party.60 A party also may apply to the Arbitration Court for emergency relief in accordance with the CIETAC Emergency Arbitrator Procedures.61 The tribunal may order or award interim measures it deems necessary or proper. Where the arbitration is administered by CIETAC Hong Kong Arbitration Centre, Article 77 deals with interim measures and emergency relief. The tribunal can order appropriate interim measures at the request of a party, unless the parties have agreed otherwise.62 Where the tribunal is yet to be formed, a party may apply for emergency relief under the CIETAC Emergency Arbitrator Procedure.63 Hearings are to be conducted in accordance with Articles 35 to 40. Details for the handling and use of evidence are set out in Articles 41 to 44. The parties may mediate or conciliate their differences or settle their dispute by themselves.64 Where the parties have reached a settlement through mediation or conciliation by the tribunal or by themselves, they may withdraw their claim or counterclaim, or request the tribunal to render an award or conciliation statement. If conciliation or mediation fails, the tribunal will resume the arbitration. Article 47.9 provides that: Where conciliation is not successful, neither party may invoke any opinion, view or statement, and any proposal or proposition expressing acceptance or opposition by either party or by the arbitral tribunal in the process of conciliation as grounds for any claim, defence or counterclaim in the subsequent arbitral proceedings, judicial proceedings, or any other proceedings.

Chapter IV (Articles 56 to 64) sets out the summary procedure applicable in cases where the amount in dispute does not exceed RMB 5 million (unless the parties agree otherwise); where the amount exceeds RMB 5 million but a party applies for the summary procedure and the other party agrees in writing; or where both parties have agreed to apply the summary procedure.

58 59 60 61 62 63 64

Article 18. Article 22. Article 23. Appendix III. Article 77.1. Article 77.2. Article 47.

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RULES 4.3.4 Award An award is to be rendered within six months of the constitution of the tribunal.65 The President of the Arbitration Court may extend the time limit at the request of the tribunal. The tribunal “shall independently and impartially render a fair and reasonable arbitral award based on the facts of the case and the terms of the contract, in accordance with the law, and with reference to international practices”.66 The award must state “the claims, the facts of the dispute, the reasons on which the award is based, the result of the award, the allocation of the arbitration cost, and the date on which the place at which the award is made”.67 The facts and the reasons, however, need not to be stated if the parties have so agreed. The seal of CIETAC shall be affixed to the award.68 Where the administration is administered by the CIETAC Hong Kong Arbitration Centre, the seal of the latter shall be affixed to the award.69 The award is final and binding upon the parties. No party may bring a lawsuit or as any other organization to revise the award.70 The tribunal may render a partial award. A partial award is final and binding upon the parties.71 An award shall be submitted to CIETAC for scrutiny before signing by the arbitrators.72 CIETAC may “bring to the attention of the arbitral tribunal issues addressed in the award on the condition that the arbitral tribunal’s independence in rendering the award is not affected”. Articles 53 and 54 respectively deal with the correction of awards and making of additional awards. 4.4 UNCITRAL Arbitration Rules The United Nations Commission on International Trade Law (UNCITRAL) is a UN body tasked with “formulating modern, fair, and harmonized rules on commercial transactions” so as to foster “faster growth, higher living standards, and new opportunities through commerce” at an international level.73 As part of its work, UNCITRAL has put out the Model Law. It has also published UNCITRAL Arbitration Rules. The most recent edition of the Rules came into effect on 15 August 2010.74 The sets of rules so far canvassed have been primarily designed for use in arbitrations administered by the relevant institution (HKIAC, SIAC, CIETAC). It is possible to adopt 65 Article 48. 66 Article 49(1). 67 Article 49(3). 68 Article 49(4). 69 Article 78. 70 Article 49.9. 71 Article 50. 72 Article 51. 73 See UNCITRAL’s home page at . 74 Available at . The UNCITRAL Rules may be (and often are) used in investor–state arbitrations, not just in international commercial arbitrations. A new Article 1(4) relating to investor–state arbitrations was added to the 2010 UNCITRAL Rules in 2013.

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RULES the latter rules for ad hoc arbitrations. But this would only be with some considerable difficulty, as it will be necessary for the parties wishing to use such rules for an ad hoc arbitration to consider how to deal with references in the rules to the administering institution or its officer performing a specific function. In contrast, the UNCITRAL Rules were originally intended for ad hoc arbitrations.75 4.4.1 Appointment of tribunal In the absence of agreement, the tribunal is to consist of three arbitrators.76 But, the appointing authority77 may at the request of a party appoint a sole arbitrator “if it determines that, in view of the circumstance of the case, this is more appropriate”. The authority must appoint the sole arbitrator as promptly as possible.78 If three arbitrators are to be appointed, each party is to appoint one arbitrator and the two persons so designated are to appoint the third (presiding) arbitrator.79 If the two party-designated arbitrators fail to appoint the presiding arbitrator within 30 days, the appointing authority shall appoint the presiding arbitrator. Article 10(2) allows the parties to agree that the tribunal is to be composed of other than one or three arbitrators. In such case, the arbitrators shall be appointed in the manner agreed by the parties. Where the tribunal fails to be constituted, the appointing authority shall at the request of a party constitute the tribunal.80 An arbitrator must “disclose any circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence”.81 Articles 12, 13, and 14 deal with challenges to and replacement of arbitrators. 4.4.2 Pleadings The claimant is to submit a statement of claim with supporting documents in the notice of arbitration (Article 3) or in separate document (Article 20). The statement of claim must contain the matters listed in Article 20(2). Within the time determined by the tribunal, the respondent must submit a statement of defence with supporting documents.82 The respondent may submit its statement of defence as part of a response to the notice of arbitration or as a separate document. The respondent may also make a counterclaim.

75 It is possible to use the UNCITRAL Arbitration Rules in administered arbitrations. For example, the Permanent Court of Arbitration (PCA) (based in The Hague) administers arbitrations under its Arbitration Rules 2012. As acknowledged in the Introduction to those Rules, the PCA based its Rules on the 2010 UNCITRAL Arbitration Rules with changes made to “(i) Reflect the public international law elements that may arise in disputes involving a State, State-controlled entity, and/or intergovernmental organization; (ii) Indicate the role of the Secretary-General and the International Bureau of the PCA; and (iii) Emphasize flexibility and party autonomy”. HKIAC also has issued a protocol for the administration by HKIAC of arbitrations under the UNCITRAL Rules. See HKIAC’s Procedures for the Administration of Arbitration under the UNCITRAL Arbitration Rules, available at: . 76 Article 7. 77 On the procedure for designating an appointing authority, see Article 6. 78 Article 8. 79 Article 9. 80 Article 10(3). 81 Article 11. 82 Article 21.

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RULES Subject to the tribunal’s direction, a party may amend or supplement its claim or defence (including counterclaim).83 4.4.3 Conduct of proceedings The tribunal may conduct the arbitration in such manner as it considers appropriate.84 But the tribunal must secure that “the parties are treated with equality and that at an appropriate stage of the proceedings each party is given a reasonable opportunity of presenting its case”. Further, the tribunal should “conduct the proceedings so as to avoid unnecessary delay and expense and to provide a fair and efficient process for resolving the parties’ dispute”. The parties may agree the place of arbitration.85 In the absence of agreement, the tribunal must determine the place by taking into account the circumstances of the case. The tribunal may conduct hearings and deliberations at any location. But the award will be deemed to have been made at the place of arbitration. Article 23 preserves competence-competence and the severability of the arbitration clause. The tribunal may therefore rule on its own jurisdiction and on the validity of the arbitration agreement. The tribunal may grant interim measures.86 In so doing, the tribunal can require a requesting party to “provide appropriate security in connection with the measure” and “disclose any material change in the circumstances on the basis of which the interim measure was requested or granted”. The treatment and use of evidence is dealt with in Article 27. Hearings are to be conducted in accordance with Article 28. The arbitral tribunal may appoint one or more experts under Article 29. The tribunal may declare the hearings closed if the parties no longer have “any further proof to offer or witnesses to be heard or submissions to make”.87 If a party fails to “object promptly to any non-compliance with these Rules or with any requirement of the arbitration agreement”, such failure shall be deemed to be a waiver, unless the party proves that its failure to object was justified.88 4.4.4 Award The tribunal may publish separate awards on different issues at different times.89 An award must be in writing, and must be final and binding on the parties. An award must contain the reasons upon which the award is based, unless the parties have agreed otherwise. An award must be signed by the arbitrators and must state the date on which the award was made and the place of arbitration. The parties may agree that an award is to be made public. 83 84 85 86 87 88 89

Article 22. Article 17. Article 18. Article 26. Article 31. Article 32. Article 34.

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RULES The tribunal must apply the rules of law chosen by the parties.90 In the absence of such choice, the tribunal must apply the law it considers appropriate. Where the parties have expressly authorized the tribunal to decide as amiable compositeur or ex aequo et bono, the tribunal must do so. The tribunal must decide in accordance with the terms of the relevant contract and must take into account applicable trade usages. If the parties agree to settle, the parties may request the tribunal to issue an award based on the terms of settlement.91 Articles 37 to 39 deal with the interpretation of awards, the correction of awards and the making of additional awards. 4.5 ICC Arbitration Rules The International Chamber of Commerce (ICC) was established in Paris in 1919 as a non-profit organization. It consists of national committees and groups, trade organizations and companies. It has as its object the promotion of global trade and commerce. The ICC has a World Council and an Executive Board. In 1923 it established its International Court of Arbitration as an independent arbitration body attached to the ICC. The ICC Court administers arbitrations conducted under the ICC Arbitration Rules. The latest Rules came into effect on 1 March 2017.92 There are 42 articles and six appendixes. 4.5.1 Appointment of tribunal Arbitrators “must be and remain impartial and independent of the parties involved in the arbitration”.93 Article 12 concerns the process of constituting a tribunal. The parties may agree on the number of arbitrators. If there is no agreement, the ICC Court shall appoint a sole arbitrator, unless it is of the view that the dispute warrants the appointment of three arbitrators. The parties may nominate arbitrators, but the nominations will be subject to confirmation by the ICC Court. If they fail to nominate an arbitrator, appointment shall be by the ICC Court. Article 13 relates to the process followed by the ICC Court in confirming and appointing arbitrators. The ICC Court shall “consider the prospective arbitrator’s nationality, residence and other relationships with the countries of which the parties or the other arbitrators are nationals and the prospective arbitrator’s availability and ability to conduct the arbitration in accordance with the Rules”. When the ICC Court appoints arbitrators, it will usually act upon the proposals of the relevant national committee or group. A sole arbitrator or the presiding arbitrator shall be of a nationality other than those of the parties, save in suitable circumstances and provided none of the parties objects.94 Articles 14 and 15 deal with challenges to arbitrators and the replacement of arbitrators.

90 Article 35. 91 Article 36. 92 Available at: . 93 Article 11(1). 94 Article 13(5).

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RULES 4.5.2 Pleadings Article 4 requires the claimant to state its claim in a request for arbitration. The request shall contain the information specified in Article 4(3). The Secretariat may impose time limit for a claimant to comply with the requirements for a request. If the claimant fails to comply within the stipulated time, the file shall be closed. Article 5 requires the respondent to submit an answer to the request. The answer shall contain the matters identified in Article 5(1) and may include a counterclaim. If there is a counterclaim, the claimant must submit a reply within 30 days. Challenges to the jurisdiction of the tribunal are determined by the tribunal.95 But the Secretary-General may refer a challenge to the ICC Court. The latter will then consider whether there is a prima facie case for jurisdiction. Articles 7 to 10 respectively deal with the joinder of additional parties; the treatment of claims between multiple parties or claims arising out of multiple contracts; and the consolidation of arbitrations. 4.5.3 Conduct of proceedings The parties may agree on the place of the arbitration.96 If there is no agreement, the place of arbitration will be determined by the ICC Court. The tribunal may conduct hearings and deliberate at any location it considers appropriate. In the absence of agreement by the parties, the tribunal shall determine the law applicable to a dispute.97 The tribunal shall decide as amiable compositeur or ex aequo et bono only if the parties have agreed that it should do so. Article 22 requires the tribunal and the parties to “make every effort to conduct the arbitration in an expeditious and cost-effective manner, having regard to the complexity and value of the dispute”. To this end, the tribunal may take such procedural measures as it considers appropriate. But, at all times, the tribunal must “act fairly and impartially and ensure that each party has a reasonable opportunity to present its case”. In their turn, the parties must comply with the tribunal’s orders. Article 23 concerns terms of reference (TOR), which is a special feature of ICC arbitrations. As soon as possible after receiving the file from the ICC Secretariat, the tribunal must draw up a TOR based on the parties’ documents and the parties’ input. The TOR must include the matters specified by Article 23(1). The TOR must be submitted to the ICC Court for approval within 30 days of transmittal of the file. Once the ICC Court has approved the TOR, no party “shall make new claims which fall outside the limits of the TOR, unless it has been authorised to do so by the arbitral tribunal”. The tribunal must also hold a case management conference as soon as possible after drawing up the TOR.98 The purpose of the conference is to work out necessary procedural measures and establish a procedural timetable for the conduct of the arbitration. The procedural timetable is to be submitted to the ICC Court.

95 96 97 98

Article 6. Article 18. Article 21. Article 24.

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RULES Article 25 stipulates that the tribunal “shall proceed within as short a time as possible to establish the facts of the case by all appropriate means”. The tribunal may determine what witnesses and experts will need to be heard or whether the arbitration can proceed solely on documents. Hearings are to be conducted in accordance with Article 26. The proceedings will close “as soon as possible after the last hearing concerning matters to be decided in an award or the filling of the last authorised submissions”.99 The tribunal will then declare the proceedings closed and inform the ICC Secretariat and the parties of the date when it expects to submit a draft award to the ICC Court. At the request of a party, the tribunal may grant interim or conservatory measures.100 Where a tribunal has yet to be constituted, a party may apply for an emergency arbitrator, to be appointed according to Appendix V of the Rules, for urgent interim measures.101 Article 30 deals with the Expedited Procedure (the rules for which are to be found Appendix VI entitled “The Expedited Procedure Rules”). This is a feature that has been introduced by the 2017 Rules. Article 30 and Appendix VI will apply where the amount in dispute does not exceed US$2 million.102 The parties may also agree to use the Expedited Procedure Rules in lieu of the ordinary procedure.103 But the Expedited Procedure does not apply where an arbitration agreement was concluded before 1 March 2017; where the parties have agreed to opt out of the Expedited Procedure; and where the ICC Court determines that it is inappropriate.104 4.5.4 Award Article 31 provides that the “time limit within which the arbitral tribunal must render its final award is six months”. Times starts to run from the date of the signature or approval of the TOR. The ICC Court may extend the time limit. An award must contain the reasons upon which it is based. It is deemed to be made at the place of arbitration and on the date stated in the award.105 Before the award is signed, the tribunal must submit a draft to the ICC Court for scrutiny.106 The ICC Court “may lay down modifications as to the form of the award and, without affecting the arbitral tribunal’s liberty of decision, may also draw its attention to points of substance”. The award is binding on the parties, who undertake to carry out the award without delay and are “deemed to have waived their right to any form of recourse in so far as such waiver can validly be made”.107 Article 36 deals with the correction, interpretation and remission of awards.

99 Article 27. 100 Article 28. 101 Article 29. 102 Appendix VI, Article 1(2). 103 Article 30(2)(b). 104 Article 30(3). 105 Article 32. 106 Article 34. On 5 January 2016, the ICC announced that, where there is unjustifiable delay in the submission by a tribunal of a draft award for scrutiny, the ICC Court will consider reducing the tribunal's fees by between 5% to 20%, depending on the extent of delay. This measure is likely to be copied in the future by other arbitral institutions. 107 Article 35(6).

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RULES 4.6 Conclusion In essence, the rules examined here are standard “off-the-peg” packages, which parties can readily adopt in the arbitration clauses of their international commercial contracts. The “packages” save parties and tribunals from the trouble, inconvenience and time of designing their own procedural rules from scratch every time there is a dispute. Arbitrations under the rules will often be administered, with a fee (which may be high) being payable to an institution or centre for administering the arbitration. From the sample of rules surveyed, it will be seen that arbitration rules are essentially the same, differing from each other in relatively minor ways (such as time limits for certain steps or the TOR requirement for ICC arbitrations). Subject to a basic framework, the rules attempt to give the tribunal a wide discretion to tailor the conduct of the arbitration to the needs of a case. The “sameness” of arbitration rules is not surprising. Given intense competition among bodies administering arbitrations to attract business to themselves, the successful innovations of one institutional set of rules are likely to be copied by everyone else, for fear of being left out. On the other hand, any troublesome or overly bureaucratic rules are bound to be dropped from the next edition of an institution’s rules for the same reason. It would therefore appear that, in the future, there will be a growing convergence in the bodies of rules issued by arbitration institutions. This greater convergence of rules may be welcomed as a precursor to the development and articulation of internationally accepted minimum standards of due process.

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CHAPTER 5

Appointment

This chapter will look into the appointment of arbitrators and the constitution of an arbitral tribunal. The first section will summarize the procedures for appointing an arbitrator and constituting a tribunal under the Arbitration Ordinance and the Model Law. The second section will consider the matter of appointment from the viewpoint of someone deciding whether to accept an appointment as arbitrator. It will discuss when one should turn down an appointment because of a real or apparent conflict of interest. The focus of this section will be on the IBA Guidelines on Conflict of Interest as a practical tool for helping persons to decide whether it would be proper to accept an appointment as arbitrator. Finally, the third section will briefly look into factors that parties take into account when deciding whom to appoint as arbitrator. 5.1 Appointment procedures under the Arbitration Ordinance and Model Law To obviate deadlock where the arbitrators on a tribunal are evenly divided, tribunals typically consist of an odd number of arbitrators. Usually, there is either a sole arbitrator or (if the parties are unable to agree on one person as arbitrator) a panel of three arbitrators. A single arbitrator should normally be less expensive than a three-person tribunal. But so often parties are just not able to agree on a single person.1 In that case, a frequently used mechanism for the appointment of a tribunal will be for each party to nominate an arbitrator and then for the two arbitrators so designated to agree on a third arbitrator. The third arbitrator will normally act as chairperson or presiding arbitrator of the tribunal. In that capacity, it will be his or her job (1) to monitor the arbitration, (2) to ensure that the arbitration proceeds smoothly and efficiently, (3) to communicate with the parties (usually nowadays by email) and issue interlocutory directions on behalf of the tribunal, and (4) to prepare a draft arbitral award for comment and consideration by the other parties. In some cases (albeit not normally encountered in Hong Kong) the third member may merely be appointed as an “umpire”. In other words, the third member may only exercise a casting vote where the party-designated arbitrators are unable to agree on some matter. Otherwise, in the absence of disagreement between the two party-appointed 1 Anecdotally, it appears that in practice Hong Kong lawyers recommend that their clients reject any initial suggestion by the opposite party to appoint a given person as sole arbitrator, regardless of who that person may be.

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APPOINTMENT arbitrators, the umpire can attend arbitration hearings, but does not express a view (and has no say) on the outcome of the dispute.2 Consistently with the principle of party autonomy, section 23 of the Arbitration Ordinance (adopting Article 10 of the Model Law) gives the parties the freedom to determine by agreement among themselves the number of arbitrators to hear a dispute. The parties may in their arbitration agreement also provide for a third party to determine the number of arbitrators.3 Article 10(2) of the Model Law provides that, if the parties fail to agree on the number of arbitrators, the default position is that there will be three arbitrators. But the Ordinance has not enacted Article 10(2) into Hong Kong law. Instead, section 23(3) authorizes the HKIAC to determine how many arbitrators should be appointed. This approach allows greater flexibility. Where the parties’ dispute is simple or does not involve a substantial sum, it may not be cost-effective to appoint three persons to hear the dispute. In such situation, the HKIAC might decide that it would be more appropriate to have a sole arbitrator. The number of arbitrators having been determined either by the parties’ agreement or with the HKIAC’s assistance, individual arbitrators up to that number will then have to be appointed. Section 24 of the Ordinance provides for this by enacting Article 11 of the Model Law. The basic principle is again that of party autonomy. Thus, the parties may agree on a precise mechanism for appointing arbitrators. Although there is no restriction on nationality, Article 11(1) allows the parties to agree that nationals of particular countries may not be appointed as arbitrators. For example, where the parties have agreed that HKIAC Rules will govern their application, they will by their agreement be bound by the provision in those Rules4 that, in principle, the presiding arbitrator should be of a different nationality from that of the parties to the arbitration. Where the parties have not agreed (or are unable to agree) how arbitrators are to be appointed, Article 11(2) provides a default procedure. Where there are three arbitrators, each party is to designate one arbitrator and the two persons so appointed shall appoint a third arbitrator. Where there is to be a sole arbitrator, if the parties are unable to agree whom to designate, HKIAC is to appoint the arbitrator. Article 11(3) further provides a means for breaking deadlock in operating the mechanism for appointment of an arbitrator. Where there is to be a tribunal of three persons, a party may fail to make an appointment or the two arbitrators may not be able to agree on whom to appoint as third arbitrator. In such situations, if there is a failure to appoint a person within 30 days from (i) the request by one party to the other party for the appointment of an arbitrator or (ii) the appointment of the two party-appointed arbitrators, HKIAC shall make the necessary appointment. It will be seen that, under the Arbitration Ordinance, breakdowns in the appointment of arbitrators are normally dealt with through HKIAC’s intervention. This is confirmed by Article 11(4). Even where an arbitration is not an administered one, HKIAC is empowered to decide whom to appoint. HKIAC’s decision in this regard is not subject to appeal (Article 11(5)). Instead, that decision “has effect as if it were made with the agreement of 2 See further sections 30–31 of the Arbitration Ordinance on the appointment and functions of an umpire. 3 Section 23(2). 4 Article 11(2).

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APPOINTMENT all parties”. It should be borne in mind, however, that where an arbitration is subject to the rules of some arbitral institution, the rules are likely to have provisions to deal with breakdowns in the appointment mechanism. In such situation, following the principle of party autonomy, those provisions will apply, since that is what the parties have accepted by agreeing to the relevant rules. The Model Law requires HKIAC when designating an arbitrator pursuant to its powers under the Arbitration Ordinance to “have due regard to any qualifications required of the arbitrator by the agreement of the parties and to such considerations as are likely to secure the appointment of an independent and impartial arbitrator”. Further, where it is a matter of appointing a sole or third arbitrator, HKIAC “shall take into account as well the advisability of appointing an arbitrator of a nationality other than those of the parties”. Section 24(2) also provides for the situation, uncommon in Hong Kong international commercial arbitrations, where there are to be an even number of arbitrators or where a tribunal is to consist of an odd number of arbitrators greater than three. An interesting situation (and one which occasionally arises) is where there are more than two parties. For example, suppose that the claimant initiates arbitration proceedings against two respondents. In the absence of an express agreement setting out what is to happen in order to constitute a tribunal, does each party get to nominate an arbitrator? In practice, what often happens is that the claimant appoints an arbitrator and the respondents collectively agree on another arbitrator. The two arbitrators so appointed then designate a presiding arbitrator in the usual way. But, if the parties cannot agree on a pragmatic mechanism for constituting a tribunal, by section 24(4) of the Ordinance, Article 11(4) of the Model Law is supposed to apply “as in the case of a failure to agree on an appointment procedure”. This presumably means that, if the parties cannot agree on who is to appoint whom, then a party may apply to the HKIAC for a determination on the matter. There may be a challenge to the designation by one party of a particular individual as arbitrator or to the nomination by the two party-appointed arbitrators of a presiding arbitrator. Article 13(1) of the Model Law (as enacted by section 26 of the Arbitration Ordinance) permits the parties to agree how challenges to an arbitrator are to be handled. Where there is no agreed procedure, a challenge must be brought within 15 days after an opposing party becomes aware of an appointment (Article 13(2)). The challenge must include a written statement setting out the party’s reasons for objecting to an appointment. If the challenged arbitrator does not withdraw, the tribunal shall decide on the challenge (Article 13(2)). This is possible because of the principle of competence-competence. By this principle, the tribunal can rule on its own competence to hear an arbitration, including the question whether a particular member of the tribunal is or is not competent for some reason (including apparent bias or conflict of interest) to sit in the matter. But a tribunal’s ruling on its own competence will not be conclusive. Article 13(3) allows a party whose challenge has been rejected by a tribunal to have the court re-hear the challenge. If the court likewise rejects the challenge, there will be no further appeal on the matter. Meanwhile, despite the fact that a challenge to an arbitrator is pending before the court, the tribunal may hear the arbitration and even render an award. The court may nevertheless refuse leave to enforce such award, until after its decision on the validity of the impugned arbitrator’s appointment. Where a challenge to an arbitrator is upheld, the court may set aside the award (section 26(5)). Notwithstanding use of the permissive 62

APPOINTMENT word may in section 26(5) (indicating that the court retains a discretion whether or not to enforce the award), it is difficult to see how the court can enforce an award which, by the court’s own decision, has not been made by a properly constituted tribunal. Article 14 of the Model Law (enacted by section 27 of the Arbitration Ordinance) is a useful provision, that might easily be overlooked. It provides (among other matters) that where an arbitrator “becomes . . . unable to perform his functions or for other reasons fails to act without undue delay, his mandate terminates if he withdraws from his office or if the parties agree on the termination”. If the tribunal disputes its inability or failure to act, the parties may apply to the court for a determination of the question. There will in such case be no appeal from the court’s decision. Thus, for instance, where a tribunal has been guilty of inordinate delay in taking some step in the proceedings, the parties may by agreement terminate the tribunal’s mandate and, possibly, take their dispute to a speedier and more effective forum. Section 29 of the Arbitration Ordinance deals with an arbitrator’s death. That will have the effect of terminating the arbitrator’s mandate. Section 28 of the Arbitration Ordinance enacts Article 15 of the Model Law, concerning the appointment of a substitute arbitrator when an existing arbitrator withdraws or the latter’s mandate is terminated for some reason. 5.2 Conflicts of interest Article 12 of the Model Law (enacted by section 25 of the Arbitration Ordinance) defines an arbitrator’s continuing duty of disclosure and sets out the grounds upon which an appointment may impeached. Article 12 provides: (1)

(2)

When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties unless they have already been informed of them by him. An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

The duty of disclosure will be considered below. It is convenient to consider first the test in Article 12(2) for determining whether a person should be disqualified from acting as an arbitrator in a particular matter. An appointment may be challenged on two grounds. One ground is straightforward. A person is not qualified to sit as arbitrator in a particular matter, if he or she does not have a qualification that the parties have previously identified in their arbitration agreement as something that a person determining their dispute should possess. That would be a question of fact. Either one has the requisite quality or one does not. There may on occasion be a difficulty in ascertaining whether the parties have agreed that an arbitrator should have some qualification or (if so) what exactly that qualification is supposed to be or entail. But that is a matter of construing 63

APPOINTMENT the parties’ intentions as manifested by the terms (which may have been badly expressed) in their agreement. The other ground is less straightforward. An appointment may be challenged “if circumstances exist that give rise to justifiable doubts as to his impartiality or independence”. On the face of it, the second ground is similar (if not identical) to the test for apparent bias identified in the oft-cited case of Porter v Magill.5 The latter test is “whether an objective fair-minded and informed observer, having considered the relevant facts, would conclude that there was a real possibility that the tribunal was biased” and the test has been applied by the Hong Kong court to the question of apparent bias in an arbitrator.6 It would consequently be tempting to think that, in deciding whether one is qualified to sit as an arbitrator in a case, a person should go through similar considerations as a Hong Kong judge would when deciding whether or not to recuse one’s self from hearing a case. But caution is necessary when dealing with international commercial arbitration. A party to the arbitration may not be from a common law jurisdiction. The party may be unfamiliar with practices that are taken for granted in litigation before the Hong Kong court. Thus, in Hong Kong, a distinction is drawn between solicitors and barristers. Solicitors typically act in a firm in partnership with each other. A solicitor would consequently have an interest in the outcome of a case being handled by another solicitor in the firm, because the handling of the case will affect the profits and liabilities of the partnership that is the solicitors’ firm. In contrast, barristers are sole proprietors. They cannot enter into partnership with one another. They may form “chambers” and share certain common expenses (for example, secretarial and administrative staff salaries; rental of premises; and payments for equipment (photocopiers, fax machines and telephone systems, etc)). But they remain independent from each other. A barrister does not share profits or liabilities with other barristers in chambers. Accordingly, it is not uncommon for a barrister to appear before a deputy judge or recorder who is also from the same chambers. In Hong Kong litigation, this circumstance would not normally be thought to justify an application that the deputy judge or recorder recuse himself or herself from hearing a case. The barristers are regarded as wholly independent from each other. But, in an arbitration, a party not accustomed to Hong Kong practice might query whether it is appropriate for a barrister to sit as arbitrator in a case where another barrister from his or her chambers is acting as counsel for the other side. In the complaining party’s view, there may not be a practical difference between barristers working from a set of chambers and solicitors operating as a firm. The difficulty may be compounded by the fact that, frequently, barristers are not instructed in a case until long after the constitution of a tribunal. Barristers may not be appointed to represent a party until shortly before the substantive hearing of an arbitration. If it is objectionable for an arbitrator and a party’s counsel to be from the same chambers, how does one deal with the situation where a barrister from the same chambers is appointed and objection is taken by the other side? Can a party in effect prevent the opposite party from using a particular barrister (who

5 [2002] 2 AC 357 (HL). 6 See Granton Natural Resources Co Ltd v Armco Metals International Ltd HCCT No. 5 of 2012, 7 December 2012 (Anthony To J), at [22].

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APPOINTMENT may be highly capable) by objecting on the basis that the latter was appointed after the members of the tribunal were known? For similar reason, a party might query the appropriateness of two barristers from the same set of chambers sitting in a panel of arbitrators. The two barristers will be said to share the same interest, since they work out of the same chambers and share common expenses. It will be argued that, as colleagues in the same chambers, they would be more prone to agree with each other, rather than to approach a dispute with truly independent minds. From what standpoint then does a barrister evaluate for the purposes of an international commercial arbitration “whether circumstances exist that give rise to justifiable doubts as to his impartiality or independence”? If one looks at the matter from the viewpoint of a fair-minded observer who is informed about Hong Kong litigation practice, it might be said that nothing exists that can give rise to a justifiable doubt. But if one looks at the matter from the standpoint of a fair-minded observer who is informed about international standards of due process, but not necessarily knowledgeable about the practices in Hong Kong as a common law jurisdiction, it is possible to arrive at a different conclusion. After carefully reviewing available case law on the matter, Hollander and Salzedo7 (both barristers) reluctantly acknowledge: Whatever the English law position, there does seem to be increasing evidence of cases where an arbitrator has been disqualified because counsel was in the same chambers. There is a decision of the International Court of Arbitration for Sport where the tribunal disqualified an arbitrator because he was in the same chambers as one of the advocates: in Brescia Calcio SpA v West Ham United Plc8 Judge Coates, the Australian president of ICAS, ruled that gave rise to ‘legitimate doubts’ over the arbitrator’s independence within the meaning of CAS Rule 34. The tribunal applied the Swiss Federal Code. So too in 2010 the ICC upheld a challenge to the claimant-appointed arbitrator on the basis that she was a member of the same barristers’ chambers as two members of the claimant’s additional counsel.9 There are probably . . . other cases to the same effect that have not been reported.

Hollander and Salzedo believe that this trend of disqualifying barristers from acting as arbitrators when they come from the same set as counsel is less than satisfactory. They point out:10 An inexperienced litigant before the English courts might have all sorts of legitimate concerns from the fact that the part-time judge was in the same chambers as opposing counsel, but the fair-minded observer who knew the facts would be taken to know that there was no reason to be concerned. So as a matter of English law and practice, the foreign client who is concerned about the arbitrator being connected with the same chambers as counsel should have no better right to object. Yet that is not how it seems to be perceived amongst the arbitration community.

An attempt by the international arbitration community to provide guidance on questions of conflict of interest may be found in the latest version of the IBA Guidelines on Conflict of Interest. These were adopted by resolution of the International Bar Association (IBA)

7 C Hollander and S Salzedo, Conflicts of Interest (5th ed, Thomson Reuters, 2016), at [14–027]. 8 [2012] ISLR SLR-40. 9 ICC Case No.16553/GZ. 10 Conflicts (n 7), at [14–028].

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APPOINTMENT Council in October 2014.11 The Guidelines were drafted by a sub-committee of the IBA Arbitration Committee comprising lawyers from the civil and common law traditions. The Guidelines set out “General Standards” and “Explanatory Notes” with a view to bringing consistency in the way that conflict of interest questions are determined in international commercial arbitrations and investor–state arbitrations. Under the Guidelines, the General Principle (identified as General Standard 1) is that: Every arbitrator shall be impartial and independent of the parties at the time of accepting an appointment to serve and shall remain so until the final award has been rendered or the proceedings have otherwise finally terminated.

As its terms indicate, this General Principle applies from start to finish of an arbitration. Thus, if a matter arises in the course of an arbitration that affects an appointee’s ability to be impartial and independent, the person must step down as arbitrator. The Guidelines cover both actual and apparent bias. General Standard 2 stipulates: (a) (b)

(c)

(d)

An arbitrator shall decline to accept an appointment or, if the arbitration has already been commenced, refuse to continue to sit as an arbitrator, if he or she has any doubt as to his or her ability to be impartial or independent. The same principle applies if facts or circumstances exist, or have arisen since the appointment which, from the point of view of a reasonable third person having knowledge of the relevant facts and circumstances, would give rise to justifiable doubts as to the arbitrator’s impartiality or independence, unless the parties have accepted the arbitrator in accordance with the requirements set out in General Standard 4. Doubts are justifiable if a reasonable third person, having knowledge of the relevant facts and circumstances, would reach the conclusion that there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case as presented by the parties in reaching his or her decision. Justifiable doubts necessarily exist as to the arbitrator’s impartiality or independence in any of the situations described in the Non-Waivable Red List.

How does a person assess whether one is impartial and independent in so far as a given arbitration is concerned? The scheme of the Guidelines is to distinguish three types of situation. Each type is matched to one of the three colours of a traffic light. The first type is known as the Red List. If a person is in a position identical or analogous to a situation in the Red List, one will normally have to decline appointment as an arbitrator. The Red List is broken down into two sub-categories: (a) Non-Waivable Red and (b) Waivable Red. If a person’s position is in the Non-Waivable Red List, one is disqualified from acting as an arbitrator. The parties cannot waive the inability to act in such circumstances. In contrast, if a person’s situation falls within the Waivable Red List, General Standard 4(c) permits one to act as arbitrator if “(i) all parties, all arbitrators and the arbitration institution, or other appointing authority (if any), have full knowledge of the conflict of interest” and “(ii) all parties expressly agree that [one] may serve as arbitrator, despite the conflict of interest”. The second type of situation is known as the Orange List. If a person falls within the Orange List, General Standard 3 requires that the would-be arbitrator disclose the 11 Available at: .

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APPOINTMENT relevant facts or circumstances to the parties, the arbitral institution, and (if there is one) the appointing authority. Disclosure must be made before accepting an appointment or as soon as one learns of a potential impediment within the Orange List. What are the relevant facts or circumstances that must be disclosed? These are any “facts or circumstances that may, in the eyes of the parties, give rise to doubts as to the arbitrator’s impartiality or independence”. If there is uncertainty whether a fact or circumstance would give rise to doubts in the eyes of the parties, a person must resolve such uncertainty in favour of disclosure (General Standard 3(d)). Recall that Article 12(1) of the Model Law imposes a duty of disclosure on a person being appointed as arbitrator. General Standard 3 spells out the sorts of circumstances that are “likely to give rise to justifiable doubts as to . . . impartiality or independence” within the terms of Article 12(1). The key point to bear in mind (and one that is repeatedly stressed in the Guidelines) is that disclosure because one is in the Orange List does not of itself mean that a person is disqualified from sitting as arbitrator in a particular reference. A person may still reasonably take the view that he or she is able to act impartially or independently. Disclosure is simply of facts or matters that are “likely to” (in the words of Article 12(1)) or “may” (in the words of General Standard 3(a)) give rise to justifiable doubts as to one’s impartiality or independence. The relevant facts or matters having been disclosed, a party to the arbitration will have to decide whether or not to challenge the arbitrator’s ability to act independently and impartially and (if so minded) seek a determination from the tribunal or other appropriate body (such as the administering institution or appointing authority) on that question. The tribunal or other body will then assess (applying Article 12(2) and General Standard 2(b)) whether a reasonable third person would have justifiable doubts. Under General Standard 4(a), a party will have 30 days from the disclosure of a potential Orange List impediment, to object to an arbitrator’s appointment. If there is no objection, the party will be deemed to have waived any potential conflict of interest in respect of the matters disclosed. The third type of situation is called the Green List. Situations in the Green List do not disqualify a person from acting as arbitrator and do not give rise to a duty of disclosure. Part II of the Guidelines set outs the Red, Orange and Green Lists. But the situations in each List are merely examples and by no means exhaustive. The examples are intended to help would-be arbitrators assess, by analogy, whether or not they can sit or need to make any disclosure. How do the Guidelines deal with barristers sitting as arbitrators? The Orange List in para.3.3.2 requires disclosure where “[t]he arbitrator and another arbitrator, or the counsel for one of the parties, are members of the same barristers’ chambers”. The Explanation to General Standard 6 states: Although barristers’ chambers should not be equated with law firms for the purposes of conflict, and no general standard is proffered for barristers’ chambers, disclosure may be warranted in view of the relationship among barristers, parties or counsel.

The commentary is equivocal. On the one hand, there is “no general standard”, but on the other hand “disclosure may be warranted” and indeed is required by para.3.3.2. Given further that doubts should be resolved in favour of disclosure, the safest course under the Guidelines must be for a barrister being appointed as arbitrator to disclose at the earliest 67

APPOINTMENT opportunity that a barrister from the same set of chambers has been instructed by a party or has been appointed to the same tribunal. It will then be for a party to decide whether to mount a challenge. The outcome of a challenge will depend on the circumstances. For example, where counsel is instructed after a tribunal has been constituted, it may not be a question of an arbitrator from the same set of chambers stepping down. It is more likely to be an issue (if at all) whether the fact of counsel representing a party in such circumstances would give rise to justifiable doubts as to the impartiality and independence of the arbitrator and (if so) whether the counsel belatedly instructed should be allowed to continue representing the party. Otherwise, a party could derail an arbitration by deliberately instructing a barrister from the same chambers as a previously appointed arbitrator and then challenging that arbitrator’s ability to continue sitting. Usually, a person contemplating appointment as an arbitrator will have some idea who a party’s legal representatives are, because the relevant names will be set out in the notice of arbitration and answer to the notice. General Standard 7(b) imposes a duty on a party to inform the tribunal and the other side at the earliest opportunity of the names of its counsel “as well as of any relationship, including membership of the same barristers’ chambers, between its counsel and the arbitrator”. Therefore, an arbitrator should be aware at any given point in time whether there is need for disclosure of a relationship with counsel or an arbitrator from the same chambers. One other situation that is likely to give rise to questions of potential conflict is the case where persons are repeatedly appointed as arbitrators by a party or its legal representatives. To what extent should the frequency of one’s appointments by a particular party or firm of solicitors have to be disclosed under the Guidelines? Might not an arbitrator in drawing up awards favour a party that repeatedly appoints him or her as arbitrator? To do otherwise would potentially be to bite the hand that feeds one. So (it might be suggested) consciously or sub-consciously an arbitrator would realize that an adverse finding against the party appointing him or her, could lead to re-appointments from that party drying up. That could seriously curtail one’s career as arbitrator, especially at the moment when one is just starting out. Under the Guidelines, disclosure is necessary where there have been re-appointments within a period of three years. The Orange List in para.3.1.3 provides that an arbitrator must disclose the fact that he or she “has, within the past three years, been appointed as arbitrator on two or more occasions by one of the parties, or an affiliate of one of the parties”. “Affiliate” is defined in footnote 4 of the Guidelines as a term that “encompasses all companies in a group of companies, including the parent company”. But para.3.1.3 is qualified by footnote 5 of the Guidelines. That states: It may be the practice in certain types of arbitration, such as maritime, sports or commodities arbitration, to draw arbitrators from a smaller or specialized pool of individuals. If in such fields it is the custom and practice for parties to frequently appoint the same arbitrator in different cases, no disclosure of this fact is required, where all parties in the arbitration should be familiar with such custom and practice.

The exception in footnote 5 makes sense in specialized arbitrations where the pool of experienced arbitrators, especially those available in a small jurisdiction such as Hong Kong, is limited. 68

APPOINTMENT Paragraph 3.1.5 of the Orange List further requires disclosure where an arbitrator “currently serves, or has served within the past three years, as arbitrator in another arbitration involving one of the parties, or an affiliate of one of the parties”. Presumably, para.3.1.5 would also be qualified in the situations described by footnote 5. In commodities or shipping arbitrations, the pool of experienced arbitrators to be found in Hong Kong is not large. It may additionally not always be practical to appoint arbitrators from outside Hong Kong for arbitrations with a Hong Kong seat, especially where the amount in a dispute is relatively small (as in many shipping arbitrations). Where one is repeatedly appointed as arbitrator by the same law firm, albeit acting for different clients, the Orange List in para.3.3.8 provides for disclosure where the arbitrator “has within the past three years, been appointed on more than three occasions by the same counsel, or the same law firm”. Again, as a practical matter, it is suggested that para.3.3.8 needs to be read in the context of footnote 5. It should be stressed that the Guidelines are precisely that. They simply give guidance. They are not intended to be applied mechanically. The situations mentioned in the Lists are merely examples to help tribunals, parties and other stakeholders to decide by analogy whether a conflict of interest arises. The Guidelines in Part II, para.6 point out that: [A]n arbitrator needs to assess on a case-by-case basis whether a given situation, even though not mentioned in the Orange List, is nevertheless such as to give rise to justifiable doubts as to his or her impartiality or independence. Because the Orange List is a non-exhaustive list of examples, there may be situations not mentioned, which, depending on the circumstances, may need to be disclosed by an arbitrator. Such may be the case, for example, in the event of repeat past appointments by the same party or the same counsel beyond the three-year period provided for in the Orange List, or when an arbitrator concurrently acts as counsel in an unrelated case in which similar issues of law are raised. Likewise, an appointment made by the same party or the same counsel appearing before an arbitrator, while the case is ongoing, may also have to be disclosed, depending on the circumstances. While the Guidelines do not require disclosure of the fact that an arbitrator concurrently serves, or has in the past served, on the same Arbitral Tribunal with another member of the tribunal, or with one of the counsel in the current proceedings, an arbitrator should assess on a case-by-case basis whether the fact of having frequently served as counsel with, or as an arbitrator on, Arbitral Tribunals with another member of the tribunal may create a perceived imbalance within the tribunal. If the conclusion is “yes”, the arbitrator should consider a disclosure.

The case-by-case basis espoused by the Guidelines can cut both ways. The mere fact that a situation is not listed will not automatically mean that an arbitrator can sit in a reference. By the same token, the mere fact that a matter falls within (say) the Orange List will not necessarily mean that disclosure is absolutely required (as opposed to being advisable). In W Limited v M SDN BHD12 Knowles J observed: 33. The 2014 IBA Guidelines make a distinguished contribution in the field of international arbitration. Their objective, to assist in assessing impartiality and independence, is to be commended. 34. It is therefore with diffidence that I say that the present case suggests there are weaknesses in the 2014 IBA Guidelines in two inter-connected respects. First, in treating

12 [2016] 1 CLC 437, [2016] 1 Lloyd’s Rep 552.

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APPOINTMENT compendiously (a) the arbitrator and his or her firm, and (b) a party and any affiliate of the party, in the context of the provision of regular advice from which significant financial income is derived. Second, in this treatment occurring without reference to the question whether the particular facts could realistically have any effect on impartiality or independence (including where the facts were not known to the arbitrator).

In the event of a challenge to an arbitrator, when a tribunal or appointing authority assesses whether or not there is an actual or apparent conflict of interest, it will always be necessary to examine whether the actual facts and circumstances of a case can realistically have an effect on the impartiality or independence of an arbitrator. The Guidelines give a strong indication when it would not be appropriate for a person to be an arbitrator or when (and what sort of) disclosure should be made. But the Guidelines are based on assumptions that may not always hold true in a given case. They need to be applied in a practical and commonsense manner case by case.13 That being said, the positive duty of disclosure under Article 12(1) should not be taken lightly or diluted. What the Guidelines highlight is that arbitrators need to conduct reasonable due diligence in determining whether there is a real or apparent conflict of interest barring them from acting in a particular case. This is apparent from General Standard 7(d) of the Guidelines: An arbitrator is under a duty to make reasonable enquiries to identify any conflict of interest, as well as any facts or circumstances that may reasonably give rise to doubts as to his or her impartiality or independence. Failure to disclose a conflict is not excused by lack of knowledge, if the arbitrator does not perform such reasonable enquiries.

There may thus be a heavier burden on the arbitrator than on a Hong Kong judge. The Hong Kong judge is not required to conduct inquiries about potential conflicts of interest for the purpose of making disclosure. It is left to a party to apply, if so minded, for a judge to recuse himself or herself from a case on the ground of apparent bias. The nature of international commercial arbitration, where arbitrators are selected by the parties or partydesignated arbitrators and may be drawn from a wide variety of backgrounds (including from outside Hong Kong), make that litigation model unsuitable. A more careful, proactive approach is required of would-be arbitrators when assessing their ability to hear a case. 5.3 Duty of impartiality and independence The Arbitration Ordinance provides that a tribunal must treat parties “with equality” (section 46(2)). In addition, a tribunal is “required” by section 46(3): (a) (b)

to be independent; to act fairly and impartially as between the parties, giving them a reasonable opportunity to present their cases and to deal with the cases of their opponents; and

13 See further H v L [2017] 1 WLR 2280 (QBD), in which M (a well-known and experienced arbitrator) failed to disclose repeat appointments by R. Refusing an application by H to replace M, Popplewell J observed (at [40]): “Nevertheless, whatever the arguments for or against making disclosure, if the arbitrator is fully informed as to the relevant circumstances and correctly judges that the circumstances do not give rise to a possibility of apparent bias, no fair minded observer would regard him as biased simply by failing to disclose those circumstances. There may be exceptional cases where the approach which the arbitrator adopts in deciding not to give the relevant disclosure generates free-standing concerns as to his impartiality by reason of things said or done in reaching that decision. However this is not such a case.”

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APPOINTMENT (c)

to use procedures that are appropriate to the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for resolving the dispute to which the arbitral proceedings relate.

The emphasis throughout is on the tribunal’s duty to show equal treatment, independence, fairness and impartiality to the parties. This is regardless of the fact that one party may have appointed a particular arbitrator. The appointed arbitrator is not supposed to act as an advocate or guardian of the interests of the party appointing him or her, as that would go against the duties imposed on a tribunal by section 46. The Model Law is in similar terms, although not couched in as peremptory terms as section 46. Article 18 (on which section 46 is based) provides that parties “shall be treated with equality and each party shall be given a full opportunity of presenting his case”. Despite this, in international commercial arbitrations where large amounts may be in dispute and where there is only limited prospect of appeal, parties and their lawyers spend significant time, energy and money calculating who might be best suited for appointment by them as arbitrator. There is a feeling that, by appointing X as arbitrator, one is more likely to obtain a favourable result, because of characteristics possessed by X. In more sophisticated analyses, parties and their lawyers may go so far as to analyze whether, if X is appointed by them, the other side is likely to appoint Y and (if so) whether X and Y are likely to appoint Z as presiding arbitrator. An assessment is then conducted as to whether Z is or is not likely to be sympathetic to one’s case. If not, perhaps one should not appoint X after all, but instead appoint X1 and perhaps engineer matters so that the other side appoints Y1 (rather than Y) and X1 and Y1 designate Z1 (rather than Z) as chairperson. That might be better (the thinking goes) since on the basis of track record Z1 is likely to be more favourable to one’s case than Z. Where the stakes are high and where there is effectively only one shot at getting a “right” result, parties might perhaps be forgiven for engaging in such complex and speculative calculations. Every little bit that might conceivably contribute to eventual victory could be worth the time, effort and expense of the exercise. At the end of the day, there may also be an empirical basis supporting the way parties seek to engineer a tribunal believed to be favourable to their cause. In his 2003 Freshfields Lecture, Professor Alan Redfern referred to evidence that, in some 95% of cases where there is a dissenting opinion in a tribunal, the dissenter is the arbitrator appointed by the losing party.14 So that, consciously or not, despite the duties of equal treatment, fairness and impartiality imposed by section 46 and Article 18, arbitrators do seem in actuality to favour the case of the party appointing them. In light of that, it may be well to conclude this chapter with a list of the factors that parties or tribunal members might consider when deciding whom to appoint respectively as arbitrator. Some factors are self-evident: (1) the fees charged by a prospective appointee; (2) the person’s nationality; (3) the person’s ability to communicate in the language or languages to be used in an arbitration; (4) the person’s reputation and experience as someone able to proceed fairly, expeditiously and cost-effectively with arbitration

14 A Redfern, “Dissenting Opinions in International Commercial Arbitration: the Good, the Bad and the Ugly” (2004) 20 Arbitration International 223. See also J Paulsson, The Idea of Arbitration (Oxford, 2013), pp. 163, 166–169.

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APPOINTMENT proceedings; (5) the person’s expertise in the subject matter of the arbitration and the laws likely to apply to the proceedings; and (6) the person’s residence and whether travel, accommodation to (say) Hong Kong will have to be covered. Other factors will depend on a particular case. For instance, in investment treaty arbitrations, but perhaps not so much in international commercial arbitrations, due diligence on a potential arbitrator would require an investigation into what he or she has written in the past in academic journals or published decisions about the law involved in a dispute. In such situation, a party is unlikely to nominate as arbitrator, a person who has in a publication or decision previously taken a position contrary to the legal argument that the party intends to advance. Indeed, a party may attempt to challenge an appointment of the person by the other side, on the ground that the views expressed by the person in past writings preclude him or her from approaching the arbitration with an open mind.

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CHAPTER 6

Start

This chapter will focus on starting an international commercial arbitration after the tribunal has been constituted. For this purpose, the chapter will take the viewpoint of the arbitral tribunal. It will focus on getting the parties to plead their case, establishing an initial timetable for the proceedings, and determining the law applicable to the substantive arbitration. The first section will consider what a tribunal should bear in mind when making its order for directions no.1. It will discuss the advantages and disadvantages of the options for the form of such directions. The second section will look into the determination of the applicable law to an arbitration agreement or to an international commercial contract. The approach here will based on the Hague Conference’s Choice of Law Principles in International Commercial Contracts. The third section will discuss case management, that is, how to ensure that an arbitration moves along expeditiously and cost-effectively, but in keeping with considerations of due process and fairness. 6.1 Order for directions no.1 Under Article 21 of the Model Law (as enacted under section 49 of the Arbitration Ordinance), subject to the parties’ agreement to the contrary, an arbitration is deemed to commence from the date on which a request for a dispute to be referred to arbitration is received by the respondent. The respondent receives the claimant’s notice of arbitration and submits an answer. The tribunal is constituted. What happens next? Section 47 of the Arbitration Ordinance enacts Article 19(1) of the Model Law, giving the parties the freedom “to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings”. Where the parties have not agreed on a procedure, under section 47(2) the tribunal may decide how the proceedings should be conducted, but subject always to the provisions of the Arbitration Ordinance.1 Court procedures, especially once pleadings are in, are normally directed at compiling the evidence (documentary and other forms of physical evidence as well as factual and expert witness statements) for the trial of a dispute. There are strict rules of court as to what is or is not admissible as evidence. For example, hearsay evidence is admissible in limited circumstances in court proceedings. In contrast, when making directions for the

1 Model Law Article 19(2) has not been made applicable in Hong Kong. Nevertheless, it is in similar terms to sections 47(2) and (3) of the Arbitration Ordinance.

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START substantive hearing of an arbitration, a tribunal needs to bear in mind (as section 47(3) highlights) that it is not bound by the rules of evidence in court proceedings. Therefore, the tribunal may receive evidence in whatever form, subject only to the tribunal deciding in due course what weight to give to such evidence. Accordingly, in directing how an arbitration is to proceed, a tribunal should not consider itself bound by the strictures of court procedure. It will frequently be the case in international commercial arbitrations that the claimant’s notice of arbitration and the respondent’s answer to the notice will only contain a general indication of a party’s claim or defence. The claimant will typically state in the notice that it reserves the right to plead its claim more fully once the tribunal has been constituted. Likewise, the respondent will say that its answer is without prejudice to a fuller response once the respondent has had sight of the statement of claim. Thus, the tribunal’s first job will be to ensure that the parties plead their respective cases fully at the outset, so that all sides and the tribunal have a clear idea what issues have to be determined in the arbitration. The parties’ arbitration agreement may expressly stipulate that certain rules are to govern the arbitration. Where this is the case the tribunal should check whether the rules include automatically applicable directions for the filing of a statement of claim, a statement of defence, and any other pleadings within so many days from particular dates. Some rules will so provide, others will leave initial directions on the submission of pleadings to the discretion of the tribunal. Still other rules may grant the tribunal a broad discretion to direct the time within which pleadings are to be submitted by the claimant and respondent, but subject to maximum periods that the tribunal should not exceed without good reason. Even where a set of rules includes automatic directions, the latter will normally be subject to an express power of variation, granted by the rules to the tribunal. It would therefore be prudent to check in all cases whatever rules may be applicable, as the tribunal should ensure that its directions do not conflict with limits to its powers found in the rules. In the rare situation where the notice and answer are sufficiently detailed, the tribunal may proceed with an order for directions no.1 which goes immediately into matters such as specific discovery, factual witness statements, a protocol for expert witnesses (in so far as necessary for the determination of some issues in the arbitration), the approximate length of the substantive hearing of the arbitration, and setting down dates for the substantive hearing. For suggestions in relation to those matters, see below. On the assumption that the parties’ full pleadings have yet to be submitted and the applicable rules give the tribunal free rein on what initial directions to make, the tribunal has to draft its order for directions no.1. The practice here would be for the tribunal to prepare an order and then circulate it in draft among the parties for comment. Depending on the complexity of the draft order, the parties might have (say) anywhere from seven to 14 days to comment on the draft, before the tribunal issues a finalized order for directions no.1, taking account of the parties’ comments. In drafting its initial order, the tribunal will generally wish to choose between two approaches. The first approach is the one favoured by the author. That is to give just enough directions in an initial procedural order to enable the tribunal and the parties to understand what issues have to be decided in the arbitration, including whether a challenge is being 74

START mounted by the respondent against the tribunal’s jurisdiction to hear the arbitration. This will essentially mean directing the claimant to put in a statement of claim and the respondent to submit a statement of defence.2 In more complex cases, it may be an idea to direct one more round of pleadings. In other words, the claimant would file a statement of reply and defence to counterclaim and the respondent put in a statement of rejoinder and reply to defence to counterclaim. A situation where a second round of pleadings might be warranted is where, for instance, the respondent has indicated in its answer to the notice of arbitration that there will be a counterclaim. In those circumstances, the tribunal might at the outset direct the respondent to outline its substantive case in a statement of defence and counterclaim. Thereafter, the claimant should have the opportunity to respond to the counterclaim and the respondent should probably have the chance to put in a statement of rejoinder and reply to the defence to counterclaim. The first approach would give the parties time in which to submit the relevant pleadings. For instance, 28 days might be allotted for submission of a statement of claim and a statement of defence respectively. If there is to be a second round of pleadings, the tribunal might grant 14 or 21 days for submission of a statement of reply and defence to counterclaim and a statement of rejoinder and reply to defence to counterclaim. Whether there are one or two rounds of pleadings, the order for directions no.1 should include a provision in these terms: “The parties are to attach all documents upon which they will be relying in support of their case (other than witness statements or expert reports) to their pleadings.” The reason for this is that international commercial arbitrations do not normally follow the practice of general discovery used in Hong Kong litigation. Instead, international commercial arbitration tends to follow the practice of specific discovery used in civil law jurisdictions, which typically do not have an institution of general discovery in litigation. Instead parties attach to their pleadings all documents upon which they propose to rely. If a party believes that some document that will be helpful to its case is in the possession, custody or control of the other side, the party may apply to the tribunal for specific discovery of the document by the other side. The handling of documentary evidence in international commercial arbitrations is further discussed in Chapter 8. To get the arbitration moving without too much waste of time, after directing that there be one or two rounds of pleading, the order for directions no.1 might conclude with a direction along the following lines: Within 14 days after the respondent files its Statement of Rejoinder and Reply to Defence to Counterclaim or indicates that it will not be filing such a pleading, the parties are to propose directions to the Tribunal for the further conduct of this arbitration. If the parties are unable to agree on directions, they are to indicate those directions upon which they agree and those upon which they disagree, with succinct statements of the reasons for their disagreement.

2 See section 51 of the Arbitration Ordinance, bringing Article 23 of the Model Law into force. By Article 23(1), the statement of claim is to “state the facts supporting [a] claim, the points at issue and the relief or remedy sought” and the statement of defence is to respond to the particulars in the statement of claim. Article 23(2) allows the parties to amend or add to their pleading, unless the parties have agreed otherwise or “unless the arbitral tribunal considers it inappropriate . . . having regard to the delay in making it”.

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START The author favours this first approach as a means of efficiently managing a case from the outset for two reasons. One reason is that it enables the tribunal to identify from the beginning what the issues in dispute between the parties actually are. This is accomplished by matching the propositions in a party’s pleading against the corresponding admission, non-admission or denial in the other party’s pleading. Dispute resolution is issue-driven. It is important for a tribunal and the parties to know from the start what exactly an arbitration is supposed to decide. In that way, as the arbitration proceeds, given good faith on everyone’s part, the issues can be narrowed. Matters where the parties are essentially agreed or where there is no real dispute can be disposed of quickly and the arbitration can concentrate on the real issues in contention. In pleadings the parties set out the contentions of fact, law and evidence upon which they each wish to rely. The pleadings thereby help in identifying what is admitted or agreed and what is disputed. The pleadings are therefore an essential roadmap for highlighting the areas of dispute (that is, the issues) that will need to be determined in the arbitration. As evidence is compiled in the course of preparations for the substantive hearing of the arbitration and each side is able to assess the strengths and weaknesses of its case and that of the opposing side on a given issue, the hope is that the parties will see sense and agree on some issues. That will narrow the matters in dispute to the real issues that the tribunal will ultimately have to decide in its award. The other reason is that, the real issues having been identified through the pleadings, the parties can propose how those issues are to be determined by the tribunal (that is, what further procedural steps need to be taken to deal with the matters in dispute between the parties in a cost-effective, efficient and fair manner). The approach respects the principle of party autonomy by giving the parties a voice on how their dispute is to be resolved. The tribunal can be flexible here and follow whatever course the parties agree upon. Where the parties are unable to agree on directions, the tribunal can at least take account of their reasons for one or other mode of proceeding and decide how the arbitration should continue. With the parties’ input, the tribunal can decide how best to deal with the issues highlighted in the pleadings. The alternative approach is to issue a comprehensive order for directions no.1 that covers all aspects of the arbitration from the filing of pleadings to the substantive hearing of the arbitration. An example of a comprehensive order for directions no.1 is in the appendix to this chapter. Some arbitrators like providing even greater detail than that contained in the example. For instance, some arbitrators give specific directions as to the time on any given due date (for example, the close of business hours) pleadings and documents are to be submitted; the electronic formats (for example, Word or pdf) in which pleadings and other documents should be submitted; how many days before a due date applications for extensions of time should be made; the dates and manner in which opening submissions should be filed; the way in which bundles for substantive hearing of the arbitration are to be compiled (including how exhibits to pleadings and witness statements should be identified); the time allotted for examining witnesses on each side during the substantive hearing; and the manner in which the substantive hearing will proceed (including the weight to be given (if any) to the evidence of a witness that has not been cross-examined). 76

START This alternative approach has the benefit of furnishing a detailed timetable for the arbitration right from the beginning. But it is not the author's preferred approach, because it assumes that there is a “one size fits all” way of proceeding with an arbitration. Moreover, the elaborate timetable in the tribunal's initial order will often be a matter of guesswork. Before full pleadings have been submitted, it will usually not be possible to have a clear idea what periods of time will be required by specific steps. What will often happen then is that, in the course of the arbitration, the parties will inevitably seek extensions of time from this or that due date stipulated in the comprehensive order. That will then necessitate a re-calibration of the remaining dates in the timetable. Sometimes matters crop up (for instance, a challenge to jurisdiction or an application for the arbitration to be bifurcated with (say) the issue of liability being heard before the determination (if any) of quantum), after the pleadings have crystallized the real differences between the parties. These new matters will then somehow have to be fitted within the comprehensive timetable directed by the tribunal at the outset in its order for directions no.1. Thus, the author’s preference is for proceeding in at least two steps. First, get the parties to plead their respective cases fully in order to identify the real areas of dispute between them. Second, once the parameters of the dispute have been defined by the pleadings and one has a better idea of what steps and durations might be involved, tailor a programme for the arbitration that will resolve the parties’ differences in the most efficient and cost-effective manner. The extra time taken by the author’s preferred approach (that is, the time attributable to obtaining the parties’ views on how the arbitration should proceed in light of the pleadings) is unlikely to delay the arbitration in a substantial way. The parties can have between one or two weeks to suggest how the arbitration should proceed to deal with the issues raised by the pleadings. In contrast, the more complex or comprehensive a proposed order for directions no.1 is going to be, the more time the parties will need to comment on the directions being proposed by the tribunal before its order for directions no.1 is even made. At the end of the day, the difference in time (if any) between the two approaches will not be much. Consider now two common situations. First, it sometimes happens that an answer to a notice signals that there will be a challenge to jurisdiction. A tribunal might think it desirable to proceed straightaway into determining the jurisdictional challenge. Its order for directions no.1 might accordingly consist solely of directions (possibly within an expedited time frame) for the respondent to state its case on lack of jurisdiction, for the claimant to explain why there is jurisdiction, and for the respondent to reply to the claimant. The tribunal might further direct that the parties are to advise whether the jurisdictional challenge can be dealt with on documents and the parties’ written submissions alone, or whether an oral hearing will be needed. If there is to be oral hearing, it will typically, in an international commercial arbitration, be in the form of a short tele-conference, saving the parties and the members of the tribunal (all of whom may be in different parts of the world) the cost of travelling to Hong Kong for a hearing that is likely to last for no more than two to three hours. Another situation that can arise is where an aggressive claimant insists on the tribunal giving the respondent a very short time frame (for example, seven days or less) in which to submit a statement of defence. In such case, the claimant will often suggest that its application is urgent and in any event the respondent really has no defence. The claimant 77

START may further suggest that it would be unfair and wrong in principle to keep the claimant out of money to which it is plainly entitled. The tribunal must always keep in mind its duty of equality and fairness to all parties. Thus, the tribunal must at all times ensure that a respondent has a reasonable opportunity to present its case, however hopeless the claimant may allege that case to be. The tribunal must avoid being railroaded by a claimant into rushing a decision on the basis of an “urgency” that is often self-induced. Many claimants delay for whatever reason in bringing their claim, so that the “urgency” (due to some looming deadline or the fact that the claimant has been out of its money for a long time) is to a large extent attributable to the claimant’s dilatoriness in prosecuting its cause of action. However tempting it may be to give the respondent only a short time due to the apparently “overwhelming” nature of the claimant’s allegations, a more cautious approach is usually warranted. It may be better, especially at the initial stage of an arbitration, to flush out the real issues between the parties by giving a respondent a reasonable time in which to present its defence. 6.2 Arbitration agreements and choice of law An arbitral tribunal will sometimes have to determine the law applicable to an arbitration agreement. It may also have to decide what law or laws are applicable to the whole contract (that is, the contract in which an arbitration agreement is contained). How the tribunal might approach these tasks is the subject of this section. But, before looking into that, it is useful to look into what formalities the Arbitration Ordinance and the Model Law require of an arbitration agreement. Article 7 of the Model Law provides a state with two definitions of an arbitration agreement and leaves the state to choose which option to adopt in its legislation incorporating the Model Law. Option 1 defines an arbitration agreement thus: (1)

(2) (3) (4)

(5) (6)

“Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. The arbitration agreement shall be in writing. An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means. The requirement that an arbitration agreement be in writing is met by an electronic communication if the information contained therein is accessible so as to be useable for subsequent reference; ‘electronic communication’ means any communication that the parties make by means of data messages; ‘data message’ means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy. Furthermore, an arbitration agreement is in writing if it is contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other. The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided that the reference is such as to make that clause part of the contract.

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START Option 2 is much simpler, consisting only of the first sentence of Article 7(1) of option 1. Hong Kong has enacted option 1 in section 19(1) of the Arbitration Ordinance. In sections 19(2) and (3), the Ordinance further clarifies what constitutes an “agreement in writing” for the purposes of Article 7(1) of option 1. Accordingly, by section 19(2), an agreement is in writing if “(a) the agreement is in a document, whether or not the document is signed by the parties to the agreement” or “(b) 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”. Section 19(3) states that “[a] reference in an agreement to a written form of arbitration clause constitutes an arbitration agreement if the reference is such as to make that clause part of the agreement”. That might, at first blush, appear to repeat Article 7(6) of option 1. But what section 19(3) clarifies is that the reference to “any document in writing” in Article 7(6) includes a reference to any document that contains an arbitration clause, even the situation where the document referred to is a precedent or form containing an arbitration clause and is not in itself part of a contract. What option 1 as implemented by the Arbitration Ordinance signals is that the requirement that an arbitration agreement be in writing should be construed generously. So that just about any record of an agreement to arbitrate (including a record in electronic format or the situation where the agreement to arbitrate is pieced together from an exchange of documents) can be treated as falling within the broad definition of arbitration agreement in section 19(3). The tribunal, having ascertained that there is an apparent arbitration agreement in writing within the terms of section 19(3) and option 1 of Article 7 of the Model Law, may occasionally have to rule on whether the arbitration agreement is valid or not under some governing law. The previous chapter briefly introduced the principle of competence-competence. By that principle, a tribunal may rule on its competence (jurisdiction) to hear an arbitration. There is a second principle to bear in mind in dealing with challenges to the validity of an arbitration agreement. Where it is alleged that a contract (including any arbitration agreement within it) is null and void or invalid for some reason, the principle of the separability of the arbitration agreement must also be considered. The principle of separability means that the arbitration agreement is treated as separate from the rest of the contract in which the arbitration agreement is found. That means the mere fact that the rest of the contract may be null and void or invalid for some reason will not prevent the tribunal from ruling on the validity of the arbitration agreement. It is perfectly possible for an arbitration agreement to be valid, but for the underlying contract (in which the arbitration agreement is found) to be invalid and unenforceable. There will broadly be four ways in which a tribunal’s jurisdiction under an arbitration agreement may be challenged. First, it might be alleged that an arbitration agreement is a nullity because the parties never agreed to arbitrate their disputes at all. Second, it might be alleged that, although the parties agreed to arbitrate their differences, the actual dispute before the tribunal does not fall within the scope of the parties’ arbitration agreement. Third, it might be suggested that, although the parties agreed to arbitrate their differences and although the dispute before the tribunal could fall within the scope of the parties’ arbitration agreement, a condition precedent to a party invoking arbitration (for instance, 79

START the need to engage in negotiation or mediation for a specified period before proceeding to arbitration) has yet to be met. Finally, it might be argued that, although the parties apparently agreed to arbitrate their differences, the agreement to arbitrate is invalid due to some factor such as mistake, misrepresentation (whether fraudulent, negligent or innocent), undue influence, duress, corruption or illegality that has the effect of vitiating the parties’ contract (including the arbitration agreement) under the relevant governing law. Given the principles of competence-competence and separability, the tribunal has the power to rule on its jurisdiction in all four of the situations just enumerated. Consider, for example, the facts of the High Court case Klöckner Pentaplast Gmbh & Co KG v Advance Technology (HK) Co Ltd.3 The question there was whether an agreement providing that “arbitration proceedings shall be held in accordance with the arbitration rules of the International Chamber of Commerce (ICC)” was a valid clause under its governing law. The seat of the arbitration was Shanghai and the arbitration was to take place there. Advance Technology contended that the arbitration agreement was null and void due to illegality under PRC law as the governing law. Klöckner, on the other hand, argued that the governing law of the clause was German law and the clause was valid under that law. There was no clear express choice of law in relation to the arbitration agreement or the underlying contract. On what principles might a tribunal determine such a case? In his judgment, Saunders J first noted that, where the parties have expressly stipulated the governing law of an arbitration agreement, that choice should be respected, even where the consequence would be that a different law would govern the arbitration agreement from the law governing the rest of the contract. The judge accepted (at [22]–[27]) that, in many cases where no express choice of law has been made, the parties might be treated as having implicitly chosen the law of the seat of arbitration as the governing law of an arbitration agreement. This would be because “practical difficulties may arise when the lex arbitri is different to that of the seat of the arbitration” (at [23]). But it is not invariably the case that law of the seat of arbitration is to be taken as the governing law of an arbitration agreement. Instead, it is necessary to construe the arbitration agreement in the context of the contract as a whole to discern what law the parties must have intended to govern the arbitration agreement. Saunders J reasoned that it would be odd if the parties had intended that what was clearly an arbitration agreement should be null and void under its governing law. Yet that would be the result, if (as Advance Technology submitted) PRC law was the governing law of the arbitration agreement.4 It was more likely, especially in light of other provisions in the rest of the arbitration agreement and the underlying contract, that the parties intended the arbitration agreement to be governed by German law. Under the latter, the agreement to arbitrate would be valid and that was more consonant with the expectations of ordinary business people. It is submitted that a tribunal’s approach in determining the law applicable to an arbitration agreement should mirror the judge’s approach in Klöckner. The key principle is 3 [2011] 4 HKLRD 262, (Saunders J). 4 This was because it is not possible under PRC law to have an ad hoc arbitration with a Mainland China seat, and PRC law at the time did not treat the reference in the clause to arbitration under ICC rules as sufficient to designate the ICC as the administering body for the arbitration.

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START party autonomy. Effect ought to be given to the parties’ intentions as manifested in the relevant contract (including the terms of an arbitration clause). Thus, where parties have in good faith chosen an applicable law to their arbitration agreement, that choice should be respected. Where the parties have not expressly chosen an applicable law, the contract as a whole needs to be construed in light of all relevant circumstances at the time of execution, to discern what the parties must have intended to be the governing law of the arbitration agreement. It may be that, on the balance of probability, given the inconveniences that can arise from discrepancies between the law of the seat and the governing law of an arbitration agreement, the parties can be assumed to have intended the latter to be the same as the former. But there is no presumption to that effect. Nor is there a presumption that the parties must have intended the law governing the underlying contract to be the same as the law governing the arbitration agreement. Again, considering all relevant facts, a tribunal might conclude that in all probability such was what the parties had in mind. However, that conclusion has to be reached as a matter of analysis of the facts of a given case, rather than by the application of some hard-and-fast a priori rule. In determining the law applicable to an international commercial contract as a whole, assistance may be derived from the Hague Choice of Law Principles in International Commercial Contracts.5 The Principles were approved by the Hague Conference on Private International Law’s General Council on General Affairs and Policy in March 2015. The Principles constitute the first soft law instrument that the Hague Conference has produced and, as mentioned in the Preamble to the Principles, are intended for application by courts and arbitral tribunals. The Principles apply to “international commercial contracts”. But the expression is deliberately left undefined. There is only a negative definition of what is to be considered “international”. Article 1(2) of the Principles states that “a contract is international unless each party has its establishment in the same State and the relationship of the parties and all other relevant elements, regardless of the chosen law, are only connected with that State”. The closest that one comes to the definition of “commercial” is in Article 1(1), referring to the Principles applying to “choice of law in international contracts where each party is acting in the exercise of its trade or profession”. Further, Article 1(1) expressly excludes consumer or employment contracts, so that presumably such contracts are not to be regarded as “commercial” contracts, however “international” they may otherwise be. It should be noted that Article 1(3)(b) expressly says that the Principles are not for use in determining the law governing arbitration and choice of court agreements. The Principles are instead on their face only meant to assist in the identification of the law governing the parties’ substantive obligations. Nonetheless, the approach to determining the governing law of a contract under the Principles is similar to the approach discussed above in relation to determination of the governing law of an arbitration agreement. In particular, the Principles in Article 2 enshrine the principle of party autonomy as the basis upon which the governing law should be determined. This is clear from Article 2(1) which provides that a contract is “governed by the law chosen by the parties”. It is

5 Available with a commentary at .

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START therefore submitted that, in practice, there should really be no difference between using the Principles to determine the law applicable to an underlying contract on the one hand and the law governing an arbitration agreement on the other.6 Article 2 goes on to enumerate what the parties can do when choosing an applicable law. The parties can agree that a law is to apply to the whole of a contract or to only part (Article 2(2)(a)). So that they can choose “different laws for different parts of the contract” (Article 2(2)(b)). They may select a law that is unconnected to their transaction (Article 2(4)). They may choose a law and later agree to vary that chosen law (Article 2(3)), but subject to the restriction that the “choice or modification made after the contract has been concluded shall not prejudice its formal validity or the rights of third parties”. The parties can even agree that a non-national body of law will apply to their contract or parts of it. Article 3 stipulates: “The law chosen by the parties may be rules of law that are generally accepted on an international, supranational or regional level as a neutral and balanced set of rules, unless the law of the forum provides otherwise.” It is apparent that the Principles envisage a much wider range of possibilities in terms of the law or rules applicable to a contract, than judges might consider in normal litigation before the Hong Kong court. For example, in Hong Kong and other common law jurisdictions, following The “ARMAR”,7 a floating choice of law clause8 is unlikely to be regarded as operative by the court. See, for instance, Chan Chi Keung t/a Tadi Land International and Another v Delmas Hong Kong Ltd.9 Similarly, applying Musawi v RE International (UK) Ltd,10 a Hong Kong court might decide that, in so far as litigation is concerned, parties can only choose the law of a country or state and not a body of non-national laws (for example, the UNIDROIT Principles of International Commercial Contracts) to apply. The common law as applied in Hong Kong might not allow the same latitude in choice of law as permitted by the Principles. But, in the context of international commercial arbitration, where a seat of arbitration can be chosen by the parties solely as a matter of convenience (for example, as a neutral forum for the resolution of a dispute between companies from different states) and where there may be little (if any) connection between the seat and the substantive dispute or the parties themselves, there is no reason to restrict the parties’ choice of applicable law or rules to national laws or the laws of a state. Allowing the parties a wide choice would be more in keeping with the principle of party autonomy, which is a lynchpin of arbitration. Richards J in Musawi noted that, in arbitrations (as opposed to litigation before the court), the UK Arbitration Act 1996 gives the parties the freedom to choose a non-national law as the body of rules governing substantive obligations under their contract. Quoting 6 It is accepted that this suggestion is controversial. For instance, in light of Article 3 of the Principles, the suggestion here would mean that the validity of an arbitration agreement may be governed not by a national law, but instead by “rules of law that are generally accepted on an international, supranational or regional level as a neutral and balanced set of rules”. This would be consonant with Theory 3 discussed in Chapter 2. But it may be difficult for some jurisdictions to accept. Nonetheless, there is the safeguard in Article 3 which contains the proviso “unless the law of the forum provides otherwise”. 7 [1981] 1 WLR 207 (CA). 8 An example of a floating choice of law clause would be: “The governing law of this contract between X and Y is to be the law of the country of Y’s habitual residence if X starts proceedings against Y and the law of X’s habitual residence if Y starts proceedings against X.” 9 [2004] 4 HKC 28, (Sakhrani J). 10 [2008] 1 All ER (Comm) 607 (Richards J).

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START Dicey, Morris & Collins on the Conflict of Law (14th ed) (paras 16–050–16–055), Richards J (at [22]) observed that section 46(1)(b) of the 1996 Act: allows the parties the freedom to apply a set of rules or principles which do not in themselves constitute a legal system. Such a choice may thus include a non-national set of legal principles (such as the 1994 UNIDROIT Principles of International Commercial Contracts) or, more broadly, general principles of commercial law or the lex mercatoria.

In the Hong Kong context, Richard J’s view (and that of Dicey, Morris & Collins) is supported by section 64 of the Arbitration Ordinance. That enacts Article 28 of the Model Law which provides: (1)

(2) (3) (4)

The arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute. Any designation of the law or legal system of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of laws rules. Failing any designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable. The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorized it to do so. In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.

Provided that the parties have so agreed, the first sentence of Article 28(1) authorizes a tribunal to apply “rules of law”. The words “[a]ny designation of the law or legal system of a given State” in the second sentence would appear to imply that the “rules of law” in the first sentence are meant to encompass more than just the “designation of the law or legal system of a . . . State”. The “law or legal system of a state” is thus merely supposed to be a subset of the wider category of “rules of law” mentioned in the first sentence. If the parties choose or designate the law or legal system of a state, then the second sentence further provides that, unless otherwise expressed, renvoi is to be excluded.11 Renvoi would only really be relevant where one is dealing with national or state laws. Renvoi should not normally arise when one is merely dealing with substantive rules such as the UNIDROIT Principles. The breadth of the reference to “rules of law” in Article 28(1) is buttressed by the reference to a tribunal being able to act ex aequo et bono or as amiable compositeur (that is, a tribunal being able to act in accordance with general principles of what is just and fair in the circumstances), if the parties agree. Given that a tribunal can simply apply general (possibly nebulous) notions of fairness if the parties agree, then it should be able to decide matters in accordance with specific non-national or non-state rules that the parties actually agree among themselves and specify in their arbitration agreement. 11 The second sentence of Article 28(1) thus has the same effect as Article 8 of the Hague Choice of Law Principles. Renvoi would arise where (for example) Hong Kong's conflict of law rules require the application of German law to a matter, but German law (including German conflict of law rules) would apply Hong Kong law to the same matter. The simplest solution to the problem is to treat the reference to German law as a reference to German substantive law only (that is, excluding German conflict of law rules). Thus, in the example, a Hong Kong court or arbitral tribunal would apply German substantive law and would reject the "return" (renvoi) back to Hong Kong law.

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START Article 3 of the Hague Principles imposes a limitation on what would constitute an acceptable body of non-national or non-state rules that a tribunal can apply. Any rules designated by the parties must be “generally accepted on an international, supranational or regional level as a neutral and balanced set of rules, unless the law of the forum provides otherwise”. If there should be a dispute, the tribunal can determine whether a set of rules meet the criterion in Article 3, as a matter of evidence and argument. It would be up to one or either party to satisfy the tribunal that a set of rules is or is not generally accepted. Consider, for example, the situation where the parties have expressly agreed that the lex mercatoria should govern. It would be an impossible task comprehensively to list out the rules comprising the lex mercatoria at any given time. Consequently, a tribunal might conclude that the lex mercatoria would not (and probably could never) meet the requirement in Article 3. On the other hand, a different tribunal may conclude that, for the purposes of qualifying under Article 3, it is unnecessary that one should be able to specify the entire body of principles making up the lex mercatoria. It would be enough if each party were to identify the specific rules applicable to their dispute and then the tribunal determines whether such rules are or are not generally accepted as forming part of the lex mercatoria in the sense of the norms governing commercial relationships among business persons. The analogy would be with the common law. It will not be possible at any given time to identify all the principles of the common law. But that fact alone will not deter a court or tribunal tasked with applying the common law of a state, from determining whether some principle raised by a party is or is not part of the common law. It should be stressed that one is dealing here with the application of a body of rules (such as the UNIDROIT Principles) as the "law" applicable to an agreement. One is not merely talking about treating (say) the UNIDROIT Principles as being incorporated lock, stock and barrel as terms of an international commercial contract. There is one other point to be noted in Article 28. By Article 28(2), a tribunal has a duty (“shall apply”) to ascertain “the law determined by the conflict of laws rules which it considers applicable”. Further, by Article 28(4), where there are relevant trade usages and customs, the tribunal is obliged to (“shall”) take account of them. These provisions are expressed in mandatory form, indicating that a tribunal has to be proactive in applying foreign law or trade usage when applicable to a case. The tribunal cannot simply stand by passively and permit questions relating to the applicability of foreign law and trade usage go by default. In litigation practice, it is left to the parties to raise foreign law or trade usages and customs. If the parties do not plead foreign law or trade usages, the Hong Kong judge is not obliged to ask the parties whether any foreign law or trade usage is applicable and (if so) what the content of that foreign law or trade usage is. Where the parties are silent on (say) foreign law, the judge may simply assume that, if foreign law is applicable, it is the same as Hong Kong law as the lex fori. The judge can accordingly proceed to apply Hong Kong law. However, would a similar approach be permissible in an international commercial arbitration with a Hong Kong seat? Would a tribunal be entitled to assume that, no mention having been made of foreign law by the parties, foreign law is the same as the lex fori and that the lex fori of an arbitration with a Hong Kong seat is Hong Kong law? 84

START It is submitted that, where on its face a case appears to raise questions of foreign law, Article 28(2) requires a tribunal to inquire of the parties or their lawyers how they envisage such questions of foreign law are to be dealt with in the course of the arbitration. If the parties agree that the tribunal can simply proceed on the basis that foreign law is the same as the law of the seat of arbitration (say, Hong Kong), the tribunal may safely proceed on that basis given the principle of party autonomy. But it would not be appropriate merely to apply Hong Kong law by default on the assumption that a rule of civil procedure before the Hong Kong court (namely, the rule that foreign law will be treated as equivalent to Hong Kong law, unless pleaded otherwise) applies equally in international commercial arbitrations with a Hong Kong seat. Article 28(4) points to a like approach where trade usages or customs are concerned, although here it will be less apparent on the face of a case (unless a party actually brings up the matter) that a trade usage or custom is involved. If a party says that foreign law is indeed relevant and that it intends to rely on the same, there will then be a question of how foreign law is to be determined in the course of the arbitration. Suggestions on how that may be done will be found in Chapter 9. 6.3 Case management Article 18(3)(c) of the Model Law (enacted by section 46 of the Arbitration Ordinance) imposes an obligation on a tribunal: “to use procedures that are appropriate to the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for resolving the dispute to which the arbitral proceedings relate”. The tribunal, therefore, has a duty to manage proceedings proactively in order to ensure that matters proceed without unnecessary delay. In this respect, the Arbitration Ordinance and the Model Law give the tribunal significant powers to progress an arbitration, including (as noted above in relation to section 47 and Article 19(1)) the power to determine whatever procedures may be appropriate for disposing of a case fairly, expeditiously and cost-effectively. But what happens when a party refuses to play ball and either refuses to follow the tribunal’s directions at all or constantly seeks adjournments? It is on such situation, not uncommon in international commercial arbitrations, that this section concentrates. It is tempting in the case of a defaulting party for a tribunal to respond in the manner of the Hong Kong court. The judge makes directions and, if there is no compliance with the directions within a reasonable time, the court can impose proportionate sanctions, including (where appropriate) the making of a judgment in default. But it is not as straightforward in the context of international commercial arbitration. A tribunal is duty-bound to produce an enforceable award. Arbitration is not an academic exercise. At the end of the process, it is meant to produce a concrete result that will be of practical value to the claimant. That concrete and practical result should be an award that will be enforceable where the respondent has assets. The difficulty is that the many jurisdictions that are party to the New York Convention do not all share the same notions of due process. Some are more stringent than others. Some might find what could be regarded as trivial lapses in other jurisdictions, as tantamount to a substantial denial of a respondent’s right to be heard, such that an award may be denied recognition and enforcement under Article V(1)(b) of the New York Convention. 85

START The most difficult situation is where a party refuses to cooperate at all. Under the New York Convention, there is no obligation on a party to apply to the court of the seat of arbitration to set aside an arbitral award against that party. A respondent may simply opt to do nothing, not even to acknowledge receipt of a notice of arbitration. Subsequently, when a claimant comes to the respondent’s home jurisdiction where the respondent’s assets are located and the claimant attempts to enforce an award obtained in default of the respondent’s participation, the respondent may raise Article V(1)(b) as a ground for refusing recognition and enforcement. The respondent will draw attention to a plethora of alleged failings of due process in the arbitration procedure followed by the tribunal and argue that it has accordingly been denied a reasonable opportunity to present its case in the arbitration. Case management in international commercial arbitration is a balancing act between (a) the duty to progress an arbitration without unnecessary cost and delay and (b) the duty to produce, to the extent reasonably possible, an enforceable award. The tribunal must constantly ask itself several questions in the course of progressing or case managing an international commercial arbitration where there is a difficult respondent: (1) (2) (3) (4)

Has enough been done to bring the arbitration to the notice of the defaulting respondent? Has enough been done to bring each and every one of the tribunal’s directions and other communications intended for both parties to the attention of the defaulting respondent? Has enough been done to bring to the defaulting respondent’s attention all communications from the claimant to the tribunal? Have the tribunal’s directions given the defaulting respondent sufficient time to respond with its views or submissions if it wished to do so?

These are not easy questions to answer. They are fact-sensitive and it is not possible at present to provide a single formula or generally accepted guidelines that will usefully deal with all situations that might crop up. In relation to question (1) (whether there has been sufficient notice of the arbitration proceedings given to the respondent), the tribunal should ascertain how exactly notice was given. Was notice given, for example, in full accordance with any term for the giving of notice in the arbitration agreement? In the absence of such a term, was notice given by post, courier, fax, or email? If one or other of these methods were used, is there some record of receipt by the respondent of the relevant communication (for instance, an acknowledgment of receipt by registered post)? How did the claimant decide to which address and (in the case of a corporation) to which individual to send the notice of arbitration? Were the parties and addresses to which the claimant sent the notice of arbitration appropriate and reasonable in all the circumstances? Where the tribunal is in any doubt as to whether sufficient notice has been given, it might wish to direct the claimant to deal with the perceived omission. For example, if notice has only been sent to some company executive’s email address (albeit an address frequently used for communications between the parties prior to the dispute), the tribunal might out of an abundance of caution, direct that the relevant notice and all future communications should also be sent by courier or registered post to the company’s address as identified in the relevant corporate registry. 86

START A similar approach might be taken on questions (2) and (3) (relating to whether sufficient notice has been given of communications from the claimant to the tribunal and from the tribunal to the parties). It may be that all communications to the respondent should be sent by a variety of means (courier, registered post, fax and email) and records should be kept whenever there has been a rejection or bounce-back of a transmission. But what about question (4) (on the appropriate period of time for the respondent to provide its views or submissions on any given question or on the dispute itself)? Section 53(1) of the Arbitration Ordinance (which brings into effect Article 25 of the Model Law) offers some assistance. Article 25 provides: Unless otherwise agreed by the parties, if, without showing sufficient cause, (a) (b) (c)

the claimant fails to communicate his statement of claim . . . , the arbitral tribunal shall terminate the proceedings; the respondent fails to communicate his statement of defence . . . , the arbitral tribunal shall continue the proceedings without treating such failure in itself as an admission of the claimant’s allegations; any party fails to appear at a hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the award on the evidence before it.

Sections 53(2), (3) and (4) supplement Article 25. These provide that, except in relation to applications for security for costs and in the absence of agreement among the parties, where a party unreasonably fails to comply with an order, the tribunal may make “a peremptory order to the same effect, prescribing the time for compliance with it that the arbitral tribunal considers appropriate”. If the defaulting party fails to comply with the peremptory order, the tribunal may under section 53(4): (a) (b) (c) (d)

direct that the party is not entitled to rely on any allegation or material which was the subject matter of the peremptory order; draw any adverse inferences that the circumstances may justify from the non-compliance; make an award on the basis of any materials which have been properly provided to the arbitral tribunal; or make any order that the arbitral tribunal thinks fit as to the payment of the costs of the arbitration incurred in consequence of the non-compliance.

Thus, when faced with a non-compliant respondent, the tribunal will need to keep on going. It cannot simply stop the arbitration for that reason alone. Nor can the tribunal follow what normally happens in litigation before the Hong Kong court. Where there is a failure in court proceedings to acknowledge a writ, a Hong Kong plaintiff may obtain judgment in default, sometimes on the basis of a paper application alone. Where there is a failure to file a defence, the Hong Kong court will treat a defendant as having admitted all facts pleaded in the statement of claim and it will be open to the plaintiff to obtain judgment on the basis of such deemed admissions. That is not the situation in international commercial arbitration. It will still be for the claimant to prove its case before the tribunal in order to obtain an award that will be enforceable elsewhere pursuant to the New York Convention. In proving its case, the claimant cannot rely on a failure by the respondent to submit a statement of defence as equivalent to an implicit admission of the facts alleged in the statement of claim. 87

START Section 53 suggests that the failure by a respondent to comply with one deadline set by the tribunal would not of itself merit a sanction. The tribunal would have to consider whether to grant an extension or make a peremptory order at that stage. Only if the recalcitrant party fails to comply with the time limit imposed by a peremptory order is the tribunal entitled to impose one or other or a combination of the four sanctions in section 53(4). But note that the arbitration still continues. None of the sanctions listed in section 53(4) authorize the tribunal to make a default award. At the very least, section 53(4)(c) requires the tribunal to consider the material already available before it and to make an award on the basis of that material. None of the foregoing deals with the question of how much time should be given to a respondent to comply with a direction. That will have to depend on the circumstances. For example, it may be relevant to take account of the following: (1)

(2)

(3) (4)

What is the direction that is being given? Is it something simple (for example, to comment on some proposed procedure to be taken in the arbitration) or complex (for example, to submit a document such as a pleading, witness statement of expert report)? How are the tribunal’s directions communicated to the parties? If by email or fax, communications are to all intents and purposes instantaneous (subject perhaps to the parties or their lawyers checking business emails or faxes over weekends and holidays). On the other hand, if communication is by post or courier, the extra time taken should be factored into any time limit. Will the time limit include a holiday period where parties’ offices or businesses may be closed? Is there any urgency (for example, because the rules governing the arbitration impose an expedited procedure)?

Ultimately, the factors that a tribunal can take into account when setting a reasonable time frame in which to do something will be myriad. It would be impossible to draw up an exhaustive list. Finally, there is the converse situation where a claimant fails to progress an arbitration within a reasonable time frame. We have seen that, by Article 25, if a claimant fails to submit a statement of claim within a reasonable time frame and has no good excuse for the failure, the tribunal “shall terminate the proceedings”. What happens when there is non-compliance by the claimant after a statement of claim is submitted? Section 59(1) of the Arbitration Ordinance imposes a duty on a claimant to “pursue [a] claim without unreasonable delay”. By section 59(2), where there is unreasonable delay in pursuing a claim, the tribunal: (a) (b)

may make an award dismissing a party’s claim; and may make an order prohibiting the party from commencing further arbitral proceedings in respect of the claim.

The arbitral tribunal may make such an award or order on its own initiative or upon the application of the respondent (section 59(3)). According to section 59(4), delay is “unreasonable” in circumstances where the delay “gives rise, or is likely to give rise, to a

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START substantial risk that the issues in the claim will not be resolved fairly” or “has caused, or is likely to cause, serious prejudice to any other party”.12 It sometimes happens that a claimant is bound by the terms of an arbitration agreement to commence arbitration proceedings within a specified time, otherwise the claimant will be barred from bringing a claim altogether. Section 58 empowers an arbitral tribunal to extend the time within which the claimant may commence arbitration proceedings, but only on limited grounds.13 The tribunal has to be satisfied (section 58(4)): (a)

that: (i) the circumstances were such as to be outside the reasonable contemplation of the parties when they entered into the arbitration agreement; and, (ii) it would be just to extend the time or period; or

(b)

that the conduct of any party makes it unjust to hold the other party to the strict terms of the agreement.

12 Under section 59(5), where the tribunal is incapable of exercising the powers conferred under section 59, an application may be made to the Hong Kong court to exercise the relevant powers. In such case, an order by the court exercising the section 59 powers will not be subject to appeal. 13 The court may make an order in terms of section 58, where the tribunal is incapable of doing so. Section 58, however, is expressly subject to section 14 of the Arbitration Ordinance, which provides that the time limits for commencing suit in the Limitation Ordinance (Cap.347) apply in arbitrations.

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APPENDIX

Sample comprehensive order for directions no.1

A. Pleadings 1. By [date], the claimant shall submit a Statement of Claim. 2. By [date], the respondent shall submit a Statement of Defence and Counterclaim (if any). 3. By [date], the claimant shall submit a Reply and Defence to any Counterclaim (if any). 4. By [date], if the claimant submits a Defence to Counterclaim, the respondent shall submit a Statement of Reply to Defence to Counterclaim. B. Documentary evidence 5. Save as provided otherwise by any directions from the tribunal, the arbitration shall follow the IBA Rules on the Taking of Evidence. 6. The parties are to attach to their pleadings all documents (apart from factual witness statements and expert reports) upon which they wish to rely in support of their case. All documents not in English are to be translated into English. Subject to any extension granted by the tribunal, objections to the authenticity of a document must be made within 21 days of the submission by a party of that document.14 7. By [date], each party is to submit its request (if any) for disclosure by the other party of specific documents. A request is to be accompanied by succinct statements explaining why a requested document is believed to be in the possession, custody or control of the other party and why the document is relevant to any issues in the arbitration. 8. By [date], each party is to respond to a challenge to the authenticity of a document or to a request for specific documents. If a document’s authenticity is 14 Section 50 of the Arbitration Ordinance enacts Article 22 of the Model Law. That empowers the tribunal, failing agreement by the parties, to determine the language or languages of the arbitration and to order that documents or parts of documents be translated into such language or languages. Note that it is possible for an arbitration to proceed in more than one language (including simultaneous or consecutive interpretation during hearings and documents (or relevant parts of documents) in one language translated into the other language of the arbitration). That sometimes happens when the parties are unable to agree on the arbitration proceeding in one language (for example, English or Chinese), and the arbitrators are reluctant to choose one language over the other, because parties and witnesses may speak one or other language but not both and documents are in one or other language but not both. Such a mode of proceeding, while possibly convenient to all parties, may be an expensive undertaking, due to the amount of translation involved.

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START challenged, a party’s response should either withdraw the document or state why the objection to authenticity is not accepted. If a document is requested, a party’s response should either disclose the document or succinctly state why the document cannot be disclosed. 9. By [date], each party objecting to the authenticity of a document or requesting disclosure of a specific document is to answer any negative response made under the previous paragraph. 10. By [date] the tribunal will determine whether to uphold an objection to authenticity or to allow a request for disclosure of a specific document. 11. By [date] any documents that the tribunal orders to be disclosed, shall be produced to the other party. C. Factual witness evidence 12. By [date], the parties are to exchange factual witness statements. 13. By [date], the parties are to exchange factual witness statements in reply. 14. All factual witness statements are to be in English. Where a witness makes his or her statement in Chinese, the original Chinese version of the factual witness statement is to be submitted with an English translation of the same. 15. All factual witness statements shall include a statement of truth. 16. All factual witness statements shall stand as evidence in chief, subject only to brief top-questions in chief at the substantive hearing to clarify obscurities in a statement or to deal with relevant matters that have arisen since the submission of the factual witness statement. D. Expert reports 17. By [date], the parties are to agree the following with each other: (1) the number of experts to be adduced by each side during the substantive hearing; (2) the disciplines of such experts; (3) the specific questions which the experts of each discipline are to answer in their report; (4) the date by which the experts of each discipline are to exchange without prejudice reports on the specific questions set for them to answer; (5) the date by which the experts of each discipline are to hold a without prejudice meeting to work out points of agreement and disagreement; (6) the date by which the experts of each discipline are to submit joint reports identifying their points of agreement and disagreement; and, (7) the date by which the experts of each discipline are to submit with prejudice reports dealing solely with their points of disagreement. 18. If the parties are unable to agree on any of the matters in paragraph 17, they are to provide to the tribunal by [date] succinct statements identifying those expert directions upon which they agree and those upon which they disagree. in so far as the parties disagree, they are to set out in their statements the reasons for their disagreement. 91

START 19. By [date], the tribunal will rule upon the parties’ disagreements in relation to expert directions and will issue directions for the submission of expert reports. 20. Save as provided in this Order, expert reports shall comply with the CIArb Protocol for the Use of Party-Appointed Expert Witnesses. E. Hearing 21. The substantive hearing of the arbitration will take place in Hong Kong on [date]. The parties are to arrange a venue for the arbitration.15 22. By [number] weeks before the substantive hearing date, unless the tribunal directs otherwise, there will be a pre-hearing telephone conference among the parties and the tribunal to deal with any outstanding matters. 23. By [number] weeks before the substantive hearing date, each party shall submit an Opening Statement in Word format to the tribunal. 24. By [number] weeks before the substantive hearing date, each party shall notify the other side of the factual witnesses and expert whom it intends to crossexamine. Those factual witness statements or experts not required for crossexamination will be excused from attending the substantive hearing. 25. The substantive hearing will be in English. If a witness will give evidence in a language other than English, the party tendering the witness shall provide for simultaneous translation of the witness’ evidence. F. Miscellaneous 26. The costs of this Order are reserved, to be dealt with at the end of the arbitration. 27. There will be liberty to apply.

15 Under Article 24 of the Model Law (as enacted by section 52 of the Arbitration Ordinance), the tribunal shall decide whether there are to be oral hearings for the presentation of evidence or for oral argument. The tribunal may also decide whether an arbitration is to be decided on documents alone (including written submissions). But Article 24(1) stipulates that, “unless the parties have agreed that no hearings shall be held, the arbitral tribunal shall hold such hearings at an appropriate stage of the proceedings, if so requested by a party”. Thus, it would seem that if one party to an arbitration insists on a hearing for the presentation of evidence or oral argument, a tribunal is obliged to hold the same at an appropriate stage.

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CHAPTER 7

Interlocutory

Interim measures are necessary evils in any legal proceedings, including arbitration. They are a reason why court proceedings can become lengthy and costly. Ironically, although applications for interim measures are intended to provide a party with procedural means to ensure due process and a fair hearing, they are susceptible to being abused to obtain tactical advantages in settlement negotiations, to wear out a party’s determination and financial resources through the interposition of procedural hurdles along the way, or simply to delay as much as possible the “evil day” when one has to pay the opposite party. The propensity for abuse may lead some to think that interim measures are inconsistent with arbitration as a speedy and inexpensive means of resolving disputes with finality. Thus, not all jurisdictions allow arbitral tribunals to grant interim measures.1 However, pursuant to the 2006 amendments to the Model Law, Hong Kong allows tribunals in Hong Kong to grant interim measures. This first section of this chapter will summarize in general terms a tribunal’s powers in relation to the grant of interim measures. The second and third sections will respectively consider two specific types of interim measures commonly sought from tribunals in the course of an arbitration: (1) a freezing order or Mareva injunction and (2) an order for security for costs. The sections will set out the considerations that a tribunal might take into account when deciding whether or not to grant such interlocutory relief. Finally, the fourth section will briefly comment on other types of interlocutory orders that a tribunal might make. 7.1 Powers A tribunal needs to identify the source and scope of its powers when faced with an application for interim measures. There are two possible sources of power in Hong Kong: (a) the arbitration agreement and (b) the Arbitration Ordinance. The first source is straightforward. As the basis of an arbitration is essentially contractual, the parties are free to come up with their own procedural rules to suit their needs, for example, by excluding the tribunal’s ability to order interim measures such as an injunction or security for costs. Often, the arbitration agreement will expressly adopt a set of

1 For example, in Mainland China, interim measures in support of arbitration proceedings are only available from the courts.

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INTERLOCUTORY arbitral rules and those rules will specify whether and (if so) what powers a tribunal has in relation to interim measures. If the arbitration agreement is silent on the tribunal’s powers, the default position may found in sections 35 and 56 of the Arbitration Ordinance. Section 35(1) enacts Article 17 of the Model Law. The Article provides: (1) (2)

Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, grant interim measures. An interim measure is any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to: (a) maintain or restore the status quo pending determination of the dispute; (b) 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; (c) provide a means of preserving assets out of which a subsequent award may be satisfied; or (d) preserve evidence that may be relevant and material to the resolution of the dispute.

Section 35(2) provides that the power to grant interim measures under Article 17 is “to be construed as including an injunction but not including an order under section 56”. Section 35(3) adds that, where a tribunal has granted an interim measure, the tribunal “may, on the application of any party, make an award to the same effect as the interim measure”. In contrast, section 56 is an extensive provision that lists out the general powers of a tribunal. Although lengthy, it is worth setting out in full now as it will be referred to frequently in the course of this chapter: (1)

Unless otherwise agreed by the parties, when conducting arbitral proceedings, an arbitral tribunal may make an order: (a) requiring a claimant to give security for the costs of the arbitration; (b) directing the discovery of documents or the delivery of interrogatories; (c) directing evidence to be given by affidavit; or (d) in relation to any relevant property: (i) directing the inspection, photographing, preservation, custody, detention or sale of the relevant property by the arbitral tribunal, a party to the arbitral proceedings or an expert; or (ii) directing samples to be taken from, observations to be made of, or experiments to be conducted on the relevant property. (2) An arbitral tribunal must not make an order under subsection (1)(a) only on the ground that the claimant is: (a) a natural person who is ordinarily resident outside Hong Kong; (b) a body corporate: (i) incorporated under the law of a place outside Hong Kong; or (ii) the central management and control of which is exercised outside Hong Kong; or (c) an association: (i) formed under the law of a place outside Hong Kong; or (ii) the central management and control of which is exercised outside Hong Kong. (3) An arbitral tribunal: (a) must, when making an order under subsection (1)(a), specify the period within which the order has to be complied with; and (b) may extend that period or an extended period.

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INTERLOCUTORY (4)

(5) (6)

(7)

(8)

(9)

An arbitral tribunal may make an award dismissing a claim or stay a claim if it has made an order under subsection (1)(a) but the order has not been complied with within the period specified under subsection (3)(a) or extended under subsection (3)(b). Despite section 35(2), sections 39 to 42 apply, if appropriate, to an order under subsection (1)(d) as if a reference to an interim measure in those sections were an order under that subsection. Property is a relevant property for the purposes of subsection (1)(d) if: (a) the property is owned by or is in the possession of a party to the arbitral proceedings; and (b) the property is the subject of the arbitral proceedings, or any question relating to the property has arisen in the arbitral proceedings. Unless otherwise agreed by the parties, an arbitral tribunal may, when conducting arbitral proceedings, decide whether and to what extent it should itself take the initiative in ascertaining the facts and the law relevant to those arbitral proceedings. Unless otherwise agreed by the parties, an arbitral tribunal may: (a) administer oaths to, or take the affirmations of, witnesses and parties; (b) examine witnesses and parties on oath or affirmation; or (c) direct the attendance before the arbitral tribunal of witnesses in order to give evidence or to produce documents or other evidence. A person is not required to produce in arbitral proceedings any document or other evidence that the person could not be required to produce in civil proceedings before a court.

One obscurity is why there are two separate sections in the Arbitration Ordinance governing the tribunal’s interlocutory powers. As a matter of first impression, there would seem to be substantial overlap between the two sections. For example, Article 17(2)(c) talks about an interim measure preserving assets against which an award may be enforced. That might be thought to include an order that a claimant provide security for the costs of the respondent, so that a costs order against the claimant in favour of the respondent might be enforced against such security. In that respect, Article 17(2)(c) might be thought to cover ground similar to section 56(1)(a). But section 35(2) goes out of its way to state that Article 17 is not to be construed as including orders made under the general power in section 56. Broadly speaking, the two sections may be distinguishable, in that section 35 provides more intrusive powers (such as the power to grant freezing orders) against property (assets) belonging to a respondent, while section 56 concerns a tribunal’s general powers of case management capable of being used against a claimant or respondent. On this basis, Article 17 would enable a claimant to obtain an order that the respondent preserve certain property to which the claimant alleges entitlement. In contrast, under section 56(1)(d)(i), any party (including the respondent) may apply to the tribunal for the preservation of property that would be relevant evidence in support of the applicant’s case in the arbitration. But the suggested distinction is not wholly apt, since Article 17(2)(d) also deals with an interim measure to preserve relevant evidence. It may be that section 56 clarifies what the tribunal can do, in the sense that there may be doubt as to whether a particular power is available under Article 17. For instance, there may be a question whether an order for the provision of security for costs is an “interim measure” within Article 17(2), since it is possible for security for costs to be put up by third parties on behalf of a claimant (for instance, shareholders or directors on 95

INTERLOCUTORY behalf of their company). In that case, the funds put up as security might not be regarded as “assets” belonging to the claimant against which a preservation order may be made pursuant to Article 17. Whatever the distinction between the two provisions, it would seem that a tribunal’s general powers in relation to interim measures and other interlocutory directions are to be found in sections 35 and 56. In the absence of the parties’ agreement, the prudent tribunal should check that any interlocutory order or provision is firmly based upon a provision in one or other section. 7.2 Freezing orders A freezing order is an injunction prohibiting a respondent from dealing with some or all of its assets. The purpose of the order is to prevent a respondent from artificially dissipating its assets or spiriting its assets away to some secretive jurisdiction, in an attempt to frustrate enforcement against those assets if the claimant should be successful in the arbitration. A freezing order accordingly meets the criteria for an interim measure in Articles 17(2)(a), (b) and (c) of the Model Law. In litigation before the Hong Kong court, freezing orders are frequently referred to as Mareva injunctions.2 As in court litigation for a Mareva, applications for a freezing order in arbitration are sometimes coupled with an application that the respondent disclose the whereabouts of its assets up to the amount sought by the claimant. Enforcement is obviously an important consideration in freezing injunction applications. When a court makes an Mareva injunction freezing a defendant’s assets, the plaintiff will normally show the court’s order to the defendant’s bank. Having had notice of the court’s order, the bank would have to obey the order and prevent the defendant from withdrawing monies from its account with the bank. If the bank ignores the court order and allows the defendant to withdraw assets despite the order, the bank and its officers will be liable for contempt of court. In the absence of good excuse, the bank and its officers will be subject to penal sanctions, including imprisonment and a fine, for the contempt. In contrast, disobedience of a tribunal's order by a third party, would not put the third party in contempt of court. Arbitration is purely consensual. The third party (for example, the respondent’s bank) can ignore the tribunal’s order without fear of imprisonment or fines, because the third party is not privy to the arbitration agreement between the claimant and respondent. The third party is not bound by the tribunal’s order. For this reason, section 61 of the Arbitration Ordinance provides a means whereby the tribunal’s freezing order may be converted into an order of the Hong Kong court. Section 61 stipulates: (1) (2)

An order or direction made, whether in or outside Hong Kong, in relation to arbitral proceedings by an arbitral tribunal is enforceable in the same manner as an order or direction of the Court that has the same effect, but only with the leave of the Court. Leave to enforce an order or direction made outside Hong Kong is not to be granted, unless the party seeking to enforce it can demonstrate that it belongs to a type or

2 After the case Mareva Compania Naviera SA v International Bulk Carriers SA (The MAREVA) [1980] 1 All ER 213, [1975] 2 Lloyd’s Rep 509 (CA).

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(3) (4) (5)

description of order or direction that may be made in Hong Kong in relation to arbitral proceedings by an arbitral tribunal. If leave is granted under subsection (1), the Court may enter judgment in terms of the order or direction. A decision of the Court to grant or refuse to grant leave under subsection (1) is not subject to appeal. An order or direction referred to in this section includes an interim measure.

A claimant who has obtained a freezing order (or indeed any other interim measure) from a tribunal may seek leave from the Hong Kong court to make the tribunal’s order enforceable in the same way as an order or judgment of the court. The tribunal's order is in effect converted into a court order through the procedure in section 61. Note that sections 61(1) and (2) make it clear that the freezing order need not have been made in an arbitration with a Hong Kong seat. The court will also assist in the enforcement of interim measures (including freezing orders) granted by tribunals outside Hong Kong, provided that the tribunal's order is something known to Hong Kong law and is an order that the court can make in Hong Kong litigation proceedings. Where a tribunal orders a form of interim relief that is unknown to, or has no precise equivalent under, Hong Kong law, the court may consider granting relief pursuant to section 61 that is similar to (but does not go beyond) that ordered by the tribunal. Once converted into an order or judgment of the Hong Kong court, the tribunal’s freezing order can be enforced in the same way as a Mareva injunction made in the course of litigation. The converted order would entail a sanction of imprisonment or fine if disobeyed without good excuse.3 When making a freezing order, the tribunal has the power to order that the claimant provide security.4 The security should cover “any costs and damages caused by the measure . . . to any party if the arbitral tribunal later determines that .. the measure or the order should not have been granted”. The tribunal may award such costs and damages at any point during the proceedings.5 Normally, applications for interlocutory relief are made inter partes, that is, with notice of the application and any documents in support of it being provided to the respondent and the latter being given an opportunity to make submissions in response to the application. Exceptionally, freezing orders are often sought ex parte, that is, without notice of the application being made to the respondent until after an order has been obtained from the tribunal. This is done because of the risk of the respondent dissipating its assets. Once the respondent has a whiff of an application for a freezing order, it may well spirit away its monetary assets to some more reclusive jurisdiction, if only as a matter of prudence to safeguard the assets against a possibly adverse ruling. The respondent would be able to accomplish this at the touch of a smartphone button with the electronic facilities for transferring money that are now widely available to bank customers. It is thus usually important that a claimant move secretly and swiftly in order to obtain a freezing order.

3 GE Transportation (Shenyang) Co Ltd v Lu Jinxian HCCT No.16 of 2012, 24 April 2012 (Au J) appears to be the only case so far of the Hong Kong court granting leave under section 61. See also the further committal proceedings at HCMP No.1792 of 2013, 22 January 2014 (Marlene Ng DHCJ). 4 See section 40 of the Arbitration Ordinance, enacting Article 17E(1) of the Model Law. The tribunal may also exercise this power in conjunction with preliminary orders. 5 See section 42 of the Arbitration Ordinance, enacting Article 17G of the Model Law. The tribunal may also exercise this power in connection with preliminary orders.

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INTERLOCUTORY Where initial secrecy is essential, the Arbitration Ordinance (in sections 37 to 42) provides a regime for obtaining from a tribunal an initial ex parte order (called a “preliminary order”) in aid of an application for an interim measure (including a freezing order). Sections 37 to 42 respectively enact Articles 17B to 17G of the Model Law. A “preliminary order” is described in Article 17B (section 37) as “an order directing a party not to frustrate the purpose of the interim measure requested”. Thus, a preliminary order must be coupled with a request for an interim measure. Where a preliminary order has been granted ex parte, the tribunal should notify the respondent of the request for the interim measure; the application for the preliminary order; the terms of the tribunal's preliminary order; and all other unilateral communications between the claimant and the tribunal (Article 17C (section 38)). Where communications with the claimant have been oral, the tribunal should indicate the content of such communications. This is done to enable the respondent to have “an opportunity . . . to present its case at the earliest practicable time” (Article 17C(2)). The tribunal is obliged to decide any objection to the preliminary order promptly (Article 17C(3)). In any event, a preliminary order “shall expire” after 20 days, although the 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” (Article 17C(4)). Despite it being binding on the parties, a preliminary order cannot be enforced by the Hong Kong court under section 61 and does not constitute an award (Article 17C(5)).6 Further, the tribunal may “modify, suspend or terminate an interim measure or a preliminary order, upon application of any party or, in exceptional circumstances and upon prior notice to the parties, on [its] own initiative” (Article 17D (section 39)). Article 17F (section 41) imposes a duty of full and frank disclosure on a party applying for a preliminary order or an interim measure. In the case of a preliminary order, the claimant is under a duty to “disclose all circumstances that are likely to be relevant to the arbitral tribunal’s determination . . . , and such obligation shall continue until [the respondent] has had an opportunity to present its case” (Article 17F(2)). In the situation of an interim measure, the claimant may be required by the tribunal “promptly to disclose any material change in the circumstances on the basis of which the measure was requested or granted”. There are no specific provisions in the Model Law dealing with the breach of the duty of disclosure. As a matter of common sense, in such a situation, the tribunal must have a discretion whether or not to discharge the order for non-disclosure. It is suggested that, in the absence of compelling reasons, the breach of the duty of full and frank disclosure in a material way should normally lead to the discharge of the interim measure granted. Part 3A of the Arbitration Ordinance recognizes the possibility that emergency interim relief is granted by an emergency arbitrator. Section 22A defines an emergency arbitrator as a person “appointed under the arbitration rules . . . agreed to . . . by the parties to deal with . . . applications for emergency relief before an arbitral tribunal is constituted”.7 6 But the Hong Kong court has a concurrent jurisdiction to grant an ex parte Mareva injunction in aid of arbitration. See section 45 of the Arbitration Ordinance. 7 Different emergency arbitrator procedures are provided in different arbitration rules. See, for example, Article 23.1 and Schedule 4 of the 2013 HKIAC Administered Arbitration Rules and Article 29 of the 2017 ICC Arbitration Rules.

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INTERLOCUTORY Only emergency relief granted by an “emergency arbitrator” within that description can, with the court’s leave, be made enforceable in the same manner as an order of the court (section 22B(1)). Section 22B(2) restricts the court’s ability to grant leave to enforce the order of an emergency arbitrator outside Hong Kong. A claimant would then need to demonstrate that the order for emergency relief consists of temporary measures (including injunctions) by which the emergency arbitrator has ordered the respondent to: (a) (b) (c) (d) (e) (f)

maintain or restore the status quo pending the determination of the dispute concerned; 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; provide a means of preserving assets out of which a subsequent award made by an arbitral tribunal may be satisfied; preserve evidence that may be relevant and material to resolving the dispute; give security in connection with anything to be done under paragraph (a), (b), (c) or (d); give security for the costs of the arbitration.

In deciding whether or not to grant a freezing order, a tribunal needs to balance between two injustices: (1) the injustice that a successful claim will go unsatisfied if the respondent is not restrained from depleting its assets; and (2) the injustice that the respondent who is successful at the end of the day will have been denied access to its funds pending the arbitration proceedings. How should a tribunal go about balancing these two opposite factors? First, the tribunal should be satisfied that there is a real risk of dissipation of assets by the respondent. If there is no such risk, the grant of a freezing order may be too intrusive and may unduly stifle the respondent’s access to liquidity, especially the cashflow necessary to fund a defence in the arbitration. One situation that frequently occurs is where a claimant has unreasonably delayed in bringing an application for a freezing order. In that case, the Hong Kong court will normally refuse a Mareva injunction. That is because the claimant may be the author of its own misfortune by failing to act promptly. If ever there was a risk of dissipation, presumably the respondent would already have made itself award-proof during the claimant’s delay. If the respondent has not already so conducted itself, then it would be difficult to argue that there is a real risk of dissipation, since (despite the time that has lapsed) the respondent has not actually spirited away its assets. Second, a tribunal has to guard against fanciful allegations of dissipation. When faced with (say) the prospect of protracted arbitration, a respondent may legitimately decide to liquidate some of its assets, in order to have the financial means to pay lawyers and defend itself in the arbitration. The mere fact that a respondent has sold some of its property should not automatically be taken as evidence of a real risk of dissipation of assets. A hard-nosed commercial perspective is required when analyzing the evidence said to point to a risk of dissipation. Third, Article 17A of the Model Law (enacted by section 36 of the Arbitration Ordinance) provides a standard for the grant of interim measures (including freezing orders). The Article 17A test clarifies how the balancing exercise mentioned above should be carried out. Article 17A states: (1)

The party requesting an interim measure under article 17(2)(a), (b) and (c) shall satisfy the arbitral tribunal that: (a) Harm not adequately reparable by an award of damages is likely to result if the measure is not ordered, and such harm substantially outweighs the harm that is

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(2)

likely to result to the party against whom the measure is directed if the measure is granted; and (b) There is a reasonable possibility that the requesting party will succeed on the merits of the claim. The determination on this possibility shall not affect the discretion of the arbitral tribunal in making any subsequent determination. With regard to a request for an interim measure under article 17(2)(d), the requirements in paragraphs (1)(a) and (b) of this article shall apply only to the extent the arbitral tribunal considers appropriate.

In practical terms, the Article 17A test is similar (if not identical) to the well-known American Cyanamid test8 applied by the Hong Kong court (and many other common law jurisdictions) in deciding whether to grant an interlocutory injunction. American Cyanamid requires a court to ask the following questions as a guide to whether an interlocutory injunction is justified: (1) (2)

Does the plaintiff have a good arguable case on the substantive merits of its claim? Does the “balance of convenience” favour the grant of interim relief? In particular: (a) If an interim injunction is refused, would the plaintiff be adequately compensated by damages, if the plaintiff ultimately succeeds in its claim? (b) If the answer to (a) is no, would the defendant be adequately compensated by damages, if an interim injunction is granted, but the defendant ultimately succeeds in having the claim dismissed? (c) If the answer to (b) is no, would the status quo best be preserved by the grant or refusal of an interim injunction? (d) If the answer to (c) is unclear, are there any special factors favouring the grant or refusal of an interim injunction? (e) If there are no special factors, what does a prima facie assessment of the merits of the case indicate should be done in the interim?

Fourth, some guidance may be obtained from Hong Kong practice on the grant of Mareva injunctions. But a tribunal should be careful when referring to such cases as a guide. Each case must be determined on its own facts. Nonetheless, it may be helpful to note the following: (1)

It should not normally be a factor for the grant of a freezing order that a respondent is reticent in providing information about its financial position9 or gives no assurance as to the retention of assets within the jurisdiction.10 A respondent has no duty to accommodate a claimant or to arrange its business affairs in such a way as to make it easy for the claimant to enforce an award.

8 Named after the case American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL), where the principles were first expounded. 9 LG International Corp v J & J Chemtrading Company Ltd HCA No 2557 of 2008 (30 December 2008) (Sakhrani J). 10 Hsin Chong Constructive (Asia) Ltd v Henble Ltd [2005] 3 HKC 27.

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The ease with which assets can be liquidated and removed from Hong Kong may be a factor in favour of granting a freezing order.11 The previous dealings between the parties may favour the grant of a freezing order, especially where in the past the respondent has acted to a low commercial standard by being dishonest or fraudulent.12

Fifth, reference may be made to Chartered Institute of Arbitrators (CIArb) Guideline on Applications for Interim Measures (2016).13 The Guideline consists of eight articles with accompanying commentary on current best practice in relation to the grant of interim measures. Attention is drawn to Article 4 which sets out possible grounds (by no means exhaustive) for refusing an interim measure: (i) (ii) (iii) (iv)

the the the the

measure measure measure measure

sought sought sought sought

is is is is

incapable of being carried out; incapable of preventing the alleged harm; tantamount to final relief; and/or applied for late and without good reason for the delay.

Article 4(2) adds that a tribunal may deny an interim measure “where the opposing party declares, or undertakes, in good faith that it will take steps to render the interim measure unnecessary”. 7.3 Security for costs Section 53(1)(d) empowers a tribunal to order security for a party's costs in an arbitration. But, unlike the practice in Hong Kong litigation, security is not to be ordered merely because a claimant is normally resident or has its place of business outside Hong Kong (section 53(2)).14 When making an order for security, the tribunal must specify the period within which the security must be provided (section 53(3)). It may extend that period. If security has not been provided within the period or extended period specified, the tribunal may stay the claim pending the provision of security or make an award dismissing the claim (section 53(4)). What principles should guide a tribunal when deciding to order security for costs? There is a widespread perception that arbitrators from common law jurisdictions routinely order security for costs against a claimant, while arbitrators from civil law jurisdictions seldom do so. An attempt to reconcile the common law and civil law approaches is to be found in the Chartered Institute of Arbitrators (CIArb) Guideline on Applications for Security

11 Intercontinental Housing Development Ltd v Quek Teck Huat [1986] HKLR 1153 (CA). 12 Honsaico Trading Ltd v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235 (Godfrey J). 13 Available at: . 14 The CIArb Guideline on Applications for Security for Cost (n 15) comments in paragraph (f) of the commentary to Article 3 that “discrimination on the grounds of foreign residence would be contrary to the fundamental principles of international arbitration which enable parties from different jurisdictions to choose where their disputes should be resolved”.

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INTERLOCUTORY for Costs (2016).15 The Guideline (which consists of 6 articles and a commentary) is recommended as reflective of current best practice in international commercial arbitration.16 Article 1(2) of the Guideline provides that, as a general rule or starting point, when determining whether or not to order security, a tribunal should assess: (i) (ii)

the prospects of success of the claim(s) and defence(s) . . .; the claimant’s ability to satisfy an adverse costs award and the availability of the claimant’s assets for enforcement of an adverse costs award . . . ; and (iii) whether it is fair in all of the circumstances to require one party to provide security for the other party’s costs . . . .

Article 2 and its commentary emphasize that, in evaluating a party’s prospects of success, the tribunal should avoid pre-judging matters. It should instead act on a preliminary broadbrush basis. Indeed, experience shows, that unless the tribunal is careful, it may inadvertently encourage each party to put in detailed submissions on the strengths of one's case and the weaknesses of the other, in an effort to show that the opposite side has little or no prospect of success. The result would be that, on an interlocutory question that should be dealt with expeditiously, vast amounts of time and money are spent by the parties on presenting “evidence” of allegations and counter-allegations yet to be tested by cross-examination. Article 3(2) suggests that, if there is a real or serious risk that a respondent will not be able to enforce a costs award in its favour against the claimant, the tribunal may lean towards ordering security. However, the tribunal should refrain from doing so, if the claimant’s impecuniosity or the difficulty of enforcing a costs award against it “were considered and accepted as part of the business risk at the inception of the parties’ relationship”. Even where a claimant’s finances have worsened over time, the commentary to Article 3 warns that this may have been “a normal commercial risk known at the inception of the [parties’] relationship”. Further, Article 4 of the Guideline emphasizes that, even where the tribunal determines that there is a serious risk that a respondent will not be able to enforce against a claimant, the tribunal must still ask itself whether it is fair to order security against the claimant. The tribunal must, for instance, satisfy itself that in making an order for security it will not be stifling a claim with a reasonable prospect of success. The order for security must not, if made, prevent the claimant from advancing a genuine claim. Article 5 deals with the amount, form and timing of any security ordered. A tribunal needs to consider what is an appropriate amount to order as security, bearing in mind the schedule of costs provided by the party seeking security. The tribunal should not simply take the schedule at face value but should scrutinize whether alleged items of costs are unnecessary, duplicative or excessive. Where the amount of security sought is large, the tribunal might wish to order that security be provided in stages. For instance, the tribunal might initially order security to cover all costs incurred in the arbitration until just before the substantive hearing. Thereafter, the respondent can apply for top-up

15 Available at: . 16 Article 1(1) of the Guideline refers to the CIArb Guideline on Applications for Interim Measures (n 13), which it points out are equally applicable to security for costs applications.

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INTERLOCUTORY security to cover the trial or substantive hearing, with the amount to be determined at that later stage by the tribunal. The tribunal should consider how much time a claimant should have to put in security and what form (cash, a bank guarantee, a letter of indemnity from a third party (such as a P & I Club in a shipping dispute)) the security might take. In relation to the latter, having decided that security for costs should be ordered for a particular amount, the tribunal might give the parties a period of time to agree on some reasonable form of security. If the parties fail to agree, the tribunal can decide the appropriate form of security after receiving short submissions on the matter. Where the security takes the form of cash, the Guideline comments that it “would not be appropriate for arbitrators themselves to take any role in the handling of the security, such as holding it in a bank account they control”.17 The tribunal will need to consider what sanction to impose if security is not provided. The Arbitration Ordinance empowers a tribunal to stay proceedings or dismiss a claim in such eventuality. It is submitted, however, that dismissal will be too draconian in most cases and the normal measure should be to stay proceedings until security is provided. Where a stay is imposed and the claimant fails to provide security within a reasonable time thereafter, it would be open to the respondent to apply to have the arbitration dismissed. Article 6 deals with the release of security. It notes that, in its final award, the tribunal will have to make an order for the release of any security to one party or the other, depending on the result. The foregoing has referred to security for costs against the claimant. In principle, a respondent should be entitled to defend itself against a claimant's allegations. That means that security for costs should not normally be ordered against a respondent. But it is possible in limited situations to seek security for costs against the respondent, in particular where the respondent makes a counterclaim. Paragraphs (c) to (e) of the commentary to Article 1 are pertinent: (c) (d)

(e)

When faced with an application for security for costs in respect of a counterclaim, arbitrators should determine the nature of the counterclaim and assess the merits of such counterclaim along with the assessment of the (primary) claim. If a counterclaim raises a matter which is distinct from the claim, or goes significantly beyond that claim, or if the value of the counterclaim hugely exceeds the value of the claim, then security may be ordered specifically in respect of the costs of defending the counterclaim. However, specific security should not be ordered in respect of a counterclaim that is inseparable from or closely connected with the original claim. Where a counterclaim is by way of set-off, to diminish or extinguish the claim (for example, where the claim is for the value of goods and services provided, and the counterclaim is that the goods and services were defective), the counterclaim is in effect a defence to the claim, and an order for security might stifle that defence.

The situation that typically arises is that in the last sentence of paragraph (d) of the commentary to Article 1. The claimant makes a claim and the respondent makes a counterclaim that is, in effect, the mirror image of the claim. The counterclaim is to all intents and purposes the defence to the counterclaim and it would not be appropriate to order security

17 Paragraph 3(a) of the commentary to Article 5.

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INTERLOCUTORY against the respondent in such case, as the latter should be entitled to defend itself against the claimant and that is really all the respondent is doing. In litigation before the Hong Kong court, the practice where claim and counterclaim are the flip sides of the other is not to order security at all against a plaintiff or defendant. The reasoning is that, if security is not provided by a plaintiff, the usual sanction would be to stay the plaintiff’s action pending the provision of security. On the other hand, the counterclaim will be treated by the court as an independent claim with its own life. The court would therefore still have to proceed with the counterclaim unless it was withdrawn. If, however, the counterclaim proceeds, the plaintiff should be allowed to defend itself against the counterclaim, including by raising the points made in its claim. It follows that ordering a stay of the claim in this specific situation would be pointless. The matters pleaded in the claim would have to be considered by the court as the plaintiff’s defence to the counterclaim. Court practice where claim and counterclaim overlap may be some guide to the approach in international commercial arbitration. The fact that a counterclaim coincides in part with a claim is certainly a factor to be taken into account when deciding whether to order security against a claimant. But the tribunal should still assess the degree of overlap. If a claim goes well beyond the issues raised by a counterclaim, it may be appropriate to order security against the claimant, as the respondent will incur extra resources in defending itself in respect of that part of the claim that goes beyond the issues in the counterclaim. There is lastly the question of security for the tribunal’s own costs. The rules governing an arbitration will typically empower a tribunal to order security for its fees from time to time. Normally, each party is supposed to contribute an equal share towards the tribunal’s costs, including any deposits made as security for the same. Where the respondent fails to put up the security requested by the tribunal for its costs, the tribunal can invite the claimant to state whether it wishes to proceed with the arbitration by paying in the outstanding balance. If the claimant fails to pay the latter, arbitration rules will normally give the tribunal (or the administering body) the power to stay or even dismiss proceedings. But what happens if the governing arbitration rules do not authorize the tribunal to seek security for its costs? Under section 56(1)(a) of the Arbitration Ordinance, the tribunal may “make an order requiring a claimant to give security for the costs of the arbitration”. That wording is conceivably wide enough to cover security for the tribunal’s costs of the arbitration. In other words, initially, the tribunal might ask both sides to provide security for its costs in equal shares. If the respondent fails to do so, then the tribunal may order the claimant to put up the respondent’s share. If the claimant does not comply, then (on the assumption that section 56(1)(a) covers security for the tribunal’s costs) the tribunal may stay or dismiss the proceedings under section 56(4). However, the sanction of dismissal may be too draconian in most circumstances, so that in practice the arbitration will probably be stayed unless and until the claimant puts up the requisite security. The alternative of the tribunal just proceeding with an arbitration without any security for its costs, will not be satisfactory. It exposes the tribunal to the risk, especially in a protracted or complex dispute, of performing a substantial amount of work for no remuneration. By section 77(1) of the Arbitration Ordinance, the tribunal has a lien on its award. It may “refuse to deliver an award to the parties unless full payment of the fees and expenses of the tribunal is made”. The tribunal can of course do all work required of it to determine the dispute, without seeking or obtaining any security against its fees, 104

INTERLOCUTORY in the hope that the parties (or the claimant at least) will be prepared to pay the tribunal its costs in order to obtain the release of the tribunal’s award. This hope, however, may be illusory where (say) the parties settle a dispute prior to an award being issued or the claimant decides for whatever reason that the award is no longer worth obtaining. 7.4 Other interlocutory applications It will have been apparent from Sections 1, 2 and 3 of this chapter, that there are many different types of interlocutory applications that can be mounted by a party. Although it would not be possible exhaustively to list the sorts of applications that can be made, it may be convenient to identify some of the more common ones that are attempted and to make a few observations on each. 7.4.1 Challenges to jurisdiction These applications were discussed in Chapter 6. 7.4.2 Applications for preliminary issues A typical application would be for the arbitration to be bifurcated, usually by proceeding first on the question of liability and afterwards, only if liability is found, on all issues relating to the quantum of damages. It is often argued that such mode of proceeding will save time and cost. This is because (for example) there will be no need to have a trial on quantum (including adducing expensive expert evidence in that connection), if the tribunal finds for the respondent on the question of liability. In litigation, the Hong Kong court is normally circumspect about proceeding in such a manner. This is because the supposed saving in time and cost may be illusory, given that a plaintiff might appeal against a finding of no liability on the defendant’s part. If the appeal court overturns the first instance judge on the question of liability, one is back to square one, having probably lost more than a year and a significant amount of money dealing with the question of liability alone. Within the time taken to hear the preliminary issue and the appeal against the finding of no liability, a first instance judge could have heard the entire case, both on liability and quantum. In arbitration, where there is normally no appeal against an award, a tribunal should be more willing to entertain hearing a case in tranches of issues. This should especially be so, if there is a reasonable prospect of the dispute being resolved early depending on how the tribunal rules on particular issues. 7.4.3 Applications for further and better particulars and for interrogatories Requests for further and better particulars are frequently made to clarify obscurities in a party’s pleading. But a tribunal must exercise caution with such applications. The particulars sought must be reasonably necessary to clarify real (as opposed to fanciful) ambiguities in a party’s case. Usually, for instance, particulars are sought when it is merely pleaded that a contract was concluded on some date. The standard request would then be something like this: 105

INTERLOCUTORY (a) (b) (c)

Insofar as it is alleged that the contract was entered into orally, please specify when, where, between whom, and how (by telephone, by face-to-face meeting, by Skype, etc) agreement was reached? Insofar as it is alleged that the contract was entered into in writing, please identify all documents relied upon. Insofar as it is alleged that the contract was entered into as a result of conduct, please give particulars of the conduct (what particular acts, and by whom on behalf of each party, when, and where such acts were performed).

It sometimes happens that a party makes a long request for particulars merely to harass the other side when the gist of the latter's pleaded case is clear enough. Such requests often ask the other side to give particulars of the evidence to be adduced in support of its case. The tribunal should not normally allow such requests. The purpose of requests for particulars is to clarify the key facts and matters that a party will seek to prove to establish its case. A request is not meant to elicit the evidence by which such key facts and matters will be proved by a party. Interrogatories are questions directed at the opposing party in relation to aspects of its case.18 In contrast to requests for particulars that are limited to clarifications of the facts and matters upon which a party’s claim or defence are based, there is no restriction on the types of questions that can be asked by way of interrogatories. But interrogatories cannot be used as a fishing expedition, that is, an attempt to see whether fortuitously one can come up with some lines of attack against the other side’s case. The questions to be administered must be relevant to the issues in the arbitration. They must also be necessary in the interests of fairness and, depending how they are answered, have the potential of saving time and cost overall in the arbitration. 7.4.4 Applications for specific discovery These are discussed in Chapter 8. 7.4.5 Applications for expert evidence These are discussed in Chapter 9. 7.4.6 Applications to preserve property or conduct experiments This is roughly equivalent to what is referred to in Hong Kong court litigation as an Anton Piller order.19 The order sought under this type of application is an interim measure covered by Article 17(2)(d) of the Model Law and sections 35(1) and 56(1)(d) of the Arbitration Ordinance. This measure can be draconian and highly intrusive if granted, especially when obtained ex parte through a preliminary order procedure. Thus, an application should only be allowed where there is a serious risk that important evidence in an arbitration will be destroyed by a party in the absence of the measure.

18 A tribunal may order interrogatories under section 56(1)(b) of the Arbitration Ordinance. 19 Named after the case Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55.

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INTERLOCUTORY Under section 60 of the Arbitration Ordinance, similar applications may be made to the Hong Kong court (as opposed to the arbitral tribunal) in support of an ongoing Hong Kong arbitration. But the court may refuse to make an order if it “considers it more appropriate for the matter to be dealt with by the arbitral tribunal” (section 60(4)). The Hong Kong court can also make an order under section 60 in aid of arbitrations outside Hong Kong. But that would be “only if the [foreign] arbitral proceedings are capable of giving rise to an arbitral award (whether interim or final) that may be enforced in Hong Kong” (section 60(5)).

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CHAPTER 8

Evidence

The evidence adduced at the substantive hearing of an arbitration may either be documents or other objects (such as the property or “thing” over which the parties are in dispute) or live evidence from factual or expert witnesses. The time between the issue of the tribunal’s order for directions no.1 and the substantive hearing or trial of the arbitration will largely be taken up by interlocutory applications and by the process of gathering and preparing the evidence to be adduced at the substantive hearing. Interlocutory applications were the subject of the previous chapter. This chapter will focus on the process of getting the evidence ready to be presented at trial. The first part of this chapter will deal with documentary evidence. It will discuss the production of documents and general and specific discovery and will introduce the IBA Rules on the Taking of Evidence. It will also suggest how a tribunal might deal with applications for specific discovery. The second part of this chapter will deal with factual and expert evidence. It will deal with factual witnesses and their statements, then with expert witnesses and their reports. Finally, it will discuss the hot-tubbing of expert witnesses. 8.1 Documentary evidence 8.1.1 General and specific discovery The default rule in Hong Kong litigation is for the parties to engage in general discovery following the close of the pleading stage. That means the plaintiff and defendant are under an obligation to disclose all relevant documents in their possession, custody or control that may be relevant to the issues identified by the pleadings. Discovery happens automatically in the course of civil litigation. The court does not normally make an order before the parties embark on general discovery. A document is “relevant” if it meets the Peruvian Guano test.1 The test requires a party to disclose any document in its possession, custody or control, which: (1) (2)

will advance the other party’s case or detract from one’s own case; or, might reasonably be thought capable of leading to an inquiry that would have the result of advancing the other party’s case or detracting from one’s own case.

1 Named after the case Compagnie Financiere du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA).

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EVIDENCE The test accordingly has two limbs. The first might be called the “directly relevant” limb. The second might be called the “train of inquiry” limb. If a document meets either limb, it must be disclosed to the other side. Discovery is a continuing duty so that, if at a later stage in the litigation a “relevant” document comes into the hands of the party, the document must be disclosed. A document is in a party’s “possession, custody or control” if it is in the hands of a party or an employee or other agent of the party or if it in the hands of a person who is accustomed to receive and act upon the instructions of the party. Thus, for example, a document may be under the control of a company in litigation, if it is in the possession of a wholly-owned subsidiary of the company. The expression “document” is given a wide meaning. It does not only refer to material in paper medium or printed format, but can include electronic, video, or digital records. The record of an email exchange in a laptop or server would qualify as documents covered by the obligation to make general discovery. All the above means that general discovery can be an onerous and costly exercise in today’s world where there are extensive electronic records in computers, laptops, servers, and smartphones of emails and other documents passing daily among individuals in (say) a company. To go through such records in the course of a complex litigation involving an investigation into long-term commercial relationships among the parties may require significant amounts of time, as well as the involvement of specialist consultants in electronic discovery. Consequently, there have been initiatives by the Hong Kong court to persuade parties to limit discovery in the interests of saving time and cost. During consultations leading to the introduction of Civil Justice Reform (CJR) in April 2009, it was proposed that, as a default position, discovery might be limited to the “directly relevant” limb of the Peruvian Guano test. But Hong Kong lawyers felt uncomfortable with that proposal and made clear their preference for Peruvian Guano as the standard test for relevance. The feeling was that, if a narrower test of relevance, was adopted, there would be a serious risk that fraud would go undetected. That remains the position today, nearly a decade after CJR was introduced. In contrast to the Hong Kong position (which reflects the traditional common law), civil law jurisdictions do not have a process of automatic general discovery. The practice in civil law jurisdictions is for the parties to attach to their pleadings the documents that they wish to rely on in support of their case. Thereafter, a party may apply to the court for the disclosure of specific or classes of documents believed to be in the possession, custody or control of the other side. When seeking specific discovery, the requesting party must establish that the documents sought are likely to be with the other side, are relevant to the issues in the pleadings, and are likely to be of assistance in resolving the parties’ dispute. The civil law approach of specific discovery thus takes up less time and is less costly than the common law procedure of general discovery. The Hong Kong court (in keeping with most common law jurisdictions) also has a procedure for specific discovery. If a party is unhappy with the other side’s general discovery, it may apply to the court for specific discovery of documents or classes of documents thought to be in the possession, custody or control of the other side. The court will only order specific discovery if it is satisfied that disclosure of the requested documents is necessary in the interests of justice and for the saving of time and cost. 109

EVIDENCE International commercial arbitration typically follows the civil law approach, as the more economical and time-efficient. There is normally no general discovery in international commercial arbitration. Instead, each party should attach to its pleadings the documents upon which it relies in support of its case. If a party wishes to obtain specific documents or classes of documents from the other side in order to support a case, the party may apply to the tribunal for specific disclosure. The use of the civil law approach does not necessarily mean that discovery in an international commercial arbitration will be a straightforward process. In a complicated case requiring investigation of events that have taken place over many years and involving relevant documents (even just in the “directly relevant” sense alone) stored in multiple servers, computers, laptops and smartphones, civil law style discovery can still be expensive. In such cases, tribunals may have to work closely with the parties to come up with reasonable ways of limiting discovery to what is reasonable, proportionate and fair in the circumstances. Thus, in a complicated case, the tribunal (following discussion with the parties) might refine requests for the specific disclosure of potentially wide classes of documents down to records meeting certain criteria directed by the tribunal. One criterion, for example may be that specific disclosure is to be limited to documents identified through key word computer searches, the key words ideally being agreed by the parties rather than imposed by the tribunal. 8.1.2 IBA Rules on the Taking of Evidence Standard practice for the handling of documents in international commercial arbitration are conveniently summarized in the International Bar Association Rules on the Taking of Evidence,2 as approved by the IBA Council on 29 May 2010. The Rules may be adopted in whole or part by a tribunal or modified to meet the needs of an arbitration. As its name suggests, the Rules cover all aspects of the taking of evidence in arbitrations (including evidence from factual and expert witnesses). The Rules are not confined to documentary evidence. Paragraph 2 of the Preamble to the Rules states that they are “not intended to limit the flexibility that is inherent in, and an advantage of, international arbitration, and Parties and Arbitral Tribunals are free to adapt them to the particular circumstances of each arbitration”. Article 3 deals specifically with documents. A number of points might be noted in connection with the Article. First, in accordance with the directions and time limits ordered by the tribunal, the parties are to produce the documents upon which they wish to rely in support of their case. There is, however, no need for the parties to produce documents that are in the public domain (Article 3(1)). Second, after initial disclosure by the parties of the document upon which they are relying, if a party wishes the other side to produce additional documents, it shall make a “request to produce”. The latter should include (Article 3(3)):

2 Available with a commentary at: .

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EVIDENCE (a)

(b) (c)

(i) a description of each requested Document sufficient to identify it, or (ii) a description in sufficient detail (including subject matter) of a narrow and specific requested category of Documents that are reasonably believed to exist; . . .; a statement as to how the Documents requested are relevant to the case and material to its outcome; and (i) a statement that the Documents requested are not in the possession, custody or control of the requesting Party or a statement of the reasons why it would be unreasonably burdensome for the requesting Party to produce such Documents, and (ii) a statement of the reasons why the requesting Party assumes the Documents requested are in the possession, custody or control of another Party.

Third, Article 3(4)–(7) sketch out the procedure for a party to object to the request to produce, for the requesting party to respond to the objections, and for the tribunal to decide whether or not to order disclosure. It is common to use the Redfern Schedule as an aid in this process. The Redfern Schedule3 is a chart, usually in landscape format, consisting of five columns and an indefinite number of rows. In the first column, a party lists in each row the specific documents or categories of documents that it wishes the other side to produce. In the second column, the party succinctly states alongside each row the grounds for requesting the particular document or category of documents identified in the first column of a row. The grounds should comply with the requirements in Article 3(3). Within the time directed by the tribunal, the parties then exchange their respective Redfern Schedules with the first and second columns filled out. Having received the other side’s Redfern Schedule, a party then fills out column 3 of that Schedule. The party states alongside each row whether it agrees or objects to the production of the document or category of documents identified in the first column of that row. If the party objects, it should succinctly state in the third column why it is not prepared to comply with the particular request. Within the time directed by the tribunal, the parties must complete column 3 and return the Redfern Schedule to the other side. A party having obtained its original Redfern Schedule with column 3 filled out by the other side, the party completes column 4 by responding to the other side’s objections to disclosure. The party states alongside each row whether it accepts the objection raised. If it does not agree with an objection, it explains why not. Within the time stipulated by the tribunal, the parties fill out the fourth column and submit the Redfern Schedule to the tribunal for decision. Having received the parties’ Redfern Schedule, the tribunal determines whether or not to allow a disputed request. The tribunal does so by filling in column 5 of the Redfern Schedule. It specifies alongside each row whether it is or is not requiring disclosure of the document or category of documents identified in the first column of the row. The tribunal also gives brief reasons for its decision in relation to a document or class of documents. Fourth, Articles 3(9) and (10) deal with the situation where a party wishes to obtain disclosure from a non-party to the arbitration. A party may apply to the tribunal for an order that the other side take all reasonable steps that it can to obtain the document from the non-party. But, since a non-party is not bound by the arbitration agreement, it

3 Named after Professor Alan Redfern.

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EVIDENCE is unlikely Articles 3(9) and (10) will be of much use in practice. If a document is not within the possession, custody or control of a party to the arbitration, it is hard to see how the party can reasonably be asked to obtain the document from a non-party. It would probably be more helpful to resort to section 55 of the Arbitration Ordinance. Section 55 enacts Article 27 of Model Law, empowering the party seeking production to request the Hong Kong court’s assistance in obtaining the document. The party may, for instance, apply to the judge for an order that the non-party produce documents or other evidence in the arbitration (section 55(2)).4 The court’s refusal to make an order against the non-party is not subject to appeal (section 55(4)). Fifth, Article 3(12) stipulates what is supposed to be produced where disclosure of documents is ordered by the tribunal. It states that: (a) (b)

(c) (d)

copies of Documents shall conform to the originals and, at the request of the Arbitral Tribunal, any original shall be presented for inspection; documents that a Party maintains in electronic form shall be submitted or produced in the form most convenient or economical to it that is reasonably usable by the recipients, unless the Parties agree otherwise or, in the absence of such agreement, the Arbitral Tribunal decides otherwise; a Party is not obligated to produce multiple copies of Documents which are essentially identical unless the Arbitral Tribunal decides otherwise; and translations of Documents shall be submitted together with the originals and marked as translations with the original language identified.

This is not the same as in court litigation, where typically all copies of a relevant document will have to be produced (to deal with the possibility that there are handwritten annotations by a person on some copy document). Further, unless the court orders otherwise, parties are not normally expected to provide translations of documents that they are ordered to produce.5 Article 3(13) is important because it sets out the extent of the parties’ duty (and that of the tribunal) to keep confidential documents disclosed in the arbitration. Arbitrations are confidential. Documents produced in the arbitration are protected by that confidentiality. Without the permission of the disclosing party, a document may not normally be used for purposes unrelated to the arbitration in which they have been produced.6 Article 3(13) provides: Any Document submitted or produced by a Party or non-Party in the arbitration and not otherwise in the public domain shall be kept confidential by the Arbitral Tribunal and the other Parties, and shall be used only in connection with the arbitration. This requirement shall apply except and to the extent that disclosure may be required of a Party to fulfil a legal duty, protect or pursue a legal right, or enforce or challenge an award in bona fide legal proceedings before a state court or other judicial authority. The Arbitral Tribunal may issue orders to set forth the terms of this confidentiality. This requirement shall be without prejudice to all other obligations of confidentiality in the arbitration.

4 The court’s power extends to ordering production from someone in prison (section 55(5)). 5 See also Article 22(2) of the Model Law (enacted by section 50 of the Arbitration Ordinance): “The arbitral tribunal may order that any documentary evidence shall be accompanied by a translation into the language or languages agreed upon by the parties or determined by the arbitral tribunal.” 6 See also section 18 of the Arbitration Ordinance on the duty to keep confidential any information disclosed in arbitration proceedings.

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EVIDENCE 8.1.3 Practical considerations When deciding whether or not to allow a request for the production of specific documents or categories of documents, a tribunal might first consider what the evidentiary function the materials sought is supposed to serve. A document may be evidence that something was written by a person or persons at a given point in time. Alternatively, a document might be adduced as evidence of the existence of some state of affairs. In the former instance, the document constitutes direct evidence. The document may (for example) be an actual written instruction by A to B to do something. The document is therefore evidence that A instructed B by the document. On the other hand, the document may simply record that “A instructed B to do X”. Where the document is adduced as evidence that A instructed B to do X, the situation falls within the second instance. The statement in the document is mere hearsay evidence. It is evidence that, at some point in time, the maker of the document was apparently under the impression that A instructed B to do X. Whether A actually instructed B to do X remains to be established. The maker would need to explain to the tribunal why he or she took the view that there was an instruction from A to B. Having heard the maker’s evidence, the tribunal will have to assess, on the basis of the explanation given, whether in all likelihood A actually instructed B to do X. The modern common law approach (as followed by the Hong Kong court in civil proceedings) is generally to treat hearsay evidence as admissible evidence. But, in the absence of corroborative evidence showing that it was reasonable for a maker to take the view that something or other was said or done as recorded in a document, the court is likely to accord little or no weight to mere hearsay evidence. In international commercial arbitrations, tribunals are not bound by the strict rules of evidence followed by the Hong Kong court.7 But it is difficult to see how mere hearsay evidence can be compelling evidence that something was actually done. In the absence of other supporting evidence, a hearsay remark can hardly be probative of much. Thus, it is suggested that, where a party requests a document solely to rely on some statement within the document as evidence of the truth of the statement, the requested document is unlikely to be of much probative value. The tribunal should probably reject the request for production of the document. On the other hand, if a document is sought because it is direct evidence of some crucial act or some important view, then as a matter of first impression disclosure should be ordered of the document. Even when a document is supposed to serve as direct evidence that something was done, the tribunal must satisfy itself that the document is relevant, before ordering specific disclosure. The IBA Rules are silent on the test for relevance. It is submitted that, in the absence of special circumstances, the tribunal should only apply the “directly relevant” limb of Peruvian Guano. The “line of inquiry” limb may be too remote a basis for ordering specific discovery. In Hong Kong litigation, specific discovery will not be ordered unless disclosure is in the interests of justice and fairness and is likely to lead to a saving in time and cost. It would make sense for a similar restriction to apply in international commercial arbitration. Given the tenuousness and breadth of the “line of inquiry” limb, if a document merely 7 See section 47(3) of the Arbitration Ordinance.

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EVIDENCE falls within that criterion, it is unlikely that it would meet the requirements in Hong Kong litigation for specific discovery. The “line of inquiry” limb only encourages speculative requests, that is, attempts to get as many documents as possible in the hope of “hitting it lucky” and obtaining support for a party's bare allegations. That sort of fishing exercise should be discouraged in international commercial arbitration. Frequently, requests for disclosure are couched in extremely wide terms. Parties seek disclosure not just of specific documents, but of categories or classes of documents. The terms used to describe the category of documents sought are often vague and imprecise, perhaps deliberately so, in an attempt to cast the net for discovery as widely as possible. If a tribunal were to allow disclosure of broad ill-defined classes of documents, that would in effect be allowing general discovery into international commercial arbitration through the back door. It is submitted that such outcome is undesirable. Arbitrators should therefore carefully scrutinize requests for disclosure of categories of documents. A common request is for discovery of all documents “relating to X”. The expression “relating to” is vague and imprecise. A document may “relate to” X, even though on its face it says nothing about X, if (for instance) it could possibly lead to a train of inquiry that would have some bearing (however remote) on X. In litigation, a request for such a class of documents is likely to be turned down by the court because it is too vague. Of any given document, it would be difficult for a party to determine whether or not it relates to X. Different persons may even reasonably differ on whether a document relates to X. The request ought similarly to be rejected in international commercial arbitration. A more precise formulation should be used, as for example: “All written communications (including but not limited to letters, faxes and emails) passing among person A and person B between date 1 and date 2 in which X is specifically mentioned or discussed.” For the same reason, another common type of request, that for the disclosure of documents “evidencing X”, should be refused. A document may be evidence (however tenuous or remote) of X, even if it does not even mention X. Again, different persons may disagree whether a given document is or is not evidence of X, even if only tendentiously. Accordingly, use of the formula documents “evidencing X” should be discouraged. Instead, requests for categories of documents should clearly describe what is being sought, with the result that a person looking at a document should have little trouble deciding whether or not such document falls within the class ordered. It happens on occasion that a party responds to a request for documents by stating that it does not have any documents of the sort requested. Alternatively, a party might reply that it once had the documents requested, but no longer does. In those cases, the tribunal will normally ask the party to submit an affirmation or affidavit to confirm that it does not have the documents requested or (if it once had the documents) explaining how the documents left the party’s possession, custody or control. The tribunal will not go behind the party’s affirmation or affidavit. But if subsequently in the course of (say) cross-examination, it transpires that the party actually has been withholding documents of the sort ordered to be disclosed, reference can be made to the affirmation or affidavit as indicative that a party lacks credibility on the relevant issue and the party’s evidence on the matter should be disbelieved. Parties may refer to documents in their pleadings or witness statement, but fail to attach copies of the same. The documents upon which a party relies may themselves refer to other documents that have not been disclosed. In litigation, the practice is for the court 114

EVIDENCE to order disclosure of all such documents more or less routinely. In international commercial arbitration, a tribunal might consider whether discovery of the requested document is necessary in order to make sense of an already disclosed document, to understand a pleading or witness statement, or to allow a party to verify what is stated in a pleading or witness statement. It is submitted that, in most cases, there should be an order for disclosure of documents mentioned in pleadings or witness statements, if only to enable a party to check that what is pleaded or what has been stated by a witness is accurate. As for documents mentioned in documents already disclosed by a party, it is suggested that a tribunal should assess whether the document mentioned is necessary to make sense of the disclosed document. If the document is needed to make sense of what has been disclosed, specific discovery should be ordered. But if the document referred to is only of peripheral relevance, the tribunal might think that disclosure is not really warranted. When resisting disclosure, parties may raise issues of confidentiality, legal professional privilege (also known as LPP), and litigation privilege. It may be alleged by one side that a requested document contains commercially sensitive (and thus confidential) information about a party’s business operations. In such a situation, the tribunal may order disclosure of the document in so far as relevant, but allow the party objecting to the request to black out the confidential information (typically monetary amounts in accounts or technical information about a product) from the document. If the requesting party is unhappy with the redacted document, it may re-apply to the tribunal, explaining why it should be allowed to see some or all of the blacked-out portions. The tribunal will then have to weigh whether fairness requires disclosure of the redacted parts or whether to uphold the requested party’s right to confidentiality.8 Documents containing advice from a party’s lawyers are subject to legal professional privilege. They are exempt from disclosure. A party may voluntarily disclose such privileged documents. It will then be deemed to have waived privilege in respect of the advice given. The tribunal should be alert as to whether a requested document is likely to contain privileged information in whole or in part. If such a document is relevant and if some parts of the document are likely to include legal advice, the party claiming privilege should be allowed to black out those portions containing legal advice. Litigation privilege might arise where a party's lawyers write to a third party to obtain information from that person for possible use in arbitration proceedings. Any information provided by the third party in response to the request could be subject to litigation privilege. The party requesting the information may then have valid grounds for resisting disclosure of the information to the other side in an arbitration. 8.2 Factual and expert witnesses 8.2.1 Factual witnesses Where there are significant differences between the parties at to what has happened or what was said before, during or after a dispute arose, the parties will almost certainly

8 See IBA Rules (n 2), Article 9(2) and (3).

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EVIDENCE wish to adduce live factual evidence. The testimony of these witnesses can then be tested by cross-examination at trial. Depending on how such witnesses fare under crossexamination, the tribunal should be better able to assess the degree to which their evidence should or should not be accepted as credible or in keeping with the balance of probability. The modern approach is to obviate surprise. This means that, during the period leading up to the substantive hearing of the arbitration, each party will normally be expected to submit statements setting out what every one of their proposed witnesses will be saying at the trial. The tribunal will (typically in its order for directions no.1 (where the comprehensive form us used) or in some subsequent order for directions) have directed that the parties exchange such witness statements by a given date. The tribunal will sometimes also have directed, especially in complicated disputes, that the parties exchange a second round of statements responding to what the other side’s witnesses have set out in their initial statements. The result of the foregoing exchange of one or two rounds of statements will be that the parties’ representatives will know well in advance what the other side’s witnesses are proposing to say and will be able to prepare cross-examination accordingly. Although the parties will be allowed to ask “top-up” questions of their respective witnesses at the start of their oral testimony before the tribunal, the practice today is for the tribunal to restrict such “top-up” to clarifying obscurities in the witness statements already provided and to dealing with matters that have arisen since the witness statements were exchanged. Parties will not (and should not) be permitted by the tribunal to use “top-up” as an occasion in effect to submit another witness statement dealing with wholly new matters. Otherwise, there will be unfairness to the other side, which will be taken by surprise and thereby deprived of the opportunity to prepare a proper cross-examination of the witness on his or her new evidence. On occasion, it may be argued that the new evidence is absolutely crucial to one party’s case, so that for the tribunal to refuse to allow that party to adduce evidence on the matter would be disproportionately prejudicial to that party’s prospects of success. In that situation, taking into account all circumstances (including any explanations as to why the new evidence is only being raised at the last minute), the tribunal has the option of granting an adjournment, but on stringent terms as to costs (for instance, on terms that the party adducing the late evidence pay or provide security for the other side’s wasted costs due to the adjournment). The point therefore is for the parties to be sure that the factual witness statements submitted by them contain a comprehensive account of the important points upon which the success or failure of their claim or defence (as the case may be) will depend. Note that, while witness statements need not be sworn or affirmed, tribunal will routinely direct that they be accompanied by a statement of truth. In other words, at the end of one’s statement, the witness is to sign a declaration that to the best of one’s knowledge, information or belief, the facts and matters set out in the statement are true. Under section 56(8)(a) of the Arbitration Ordinance, unless otherwise agreed by the parties, the tribunal has the power to administer oaths to or take affirmations of witnesses and the parties. The tribunal may also examine witnesses on oath or affirmation (section 56(8)(b)). Thus, the consequences of a witness submitting a false statement and swearing 116

EVIDENCE to or affirming the same in the course of the trial in the arbitration proceedings may be potentially serious. By section 32 of the Crimes Ordinance (Cap.200), if a person: authorized by law to make any statement on oath for any purpose and being lawfully sworn (otherwise than in a judicial proceeding) wilfully makes a statement which is material for that purpose and which he knows to be false or does not believe to be true, he shall be guilty of an offence and shall be liable on conviction upon indictment to imprisonment for 7 years and to a fine.

Section 56(8)(c) of the Arbitration Ordinance empowers the tribunal to “direct the attendance before the arbitral tribunal of witnesses in order to give evidence or to produce documents or other evidence”. It may be that third persons who have personal knowledge or material facts or who have relevant documents or other physical evidence in their possession are not among the parties, their agents or employees of the parties. The parties acting by themselves could not compel such third persons to give evidence in the arbitration or to produce the relevant documents in their possession. In such instance, a party may apply to the tribunal for a direction under section 56(8)(c) that the third persons appear before the tribunal to give evidence or produce the material documents in their hands. However, since the third persons are not bound by the arbitration agreement, they may not feel under any compulsion to obey the tribunal’s direction. They might just ignore the tribunal’s order. One way to deal with this is for the party to convert the tribunals’ direction into an order of the court using the procedure in section 61 of the Arbitration Ordinance. Another way is to rely on section 55 of the Arbitration Ordinance (enacting Article 27 of the Model Law). By that provision, the tribunal (or a party acting with the tribunal’s approval) may request the court to issue a subpoena requiring a third person to appear before the tribunal to give evidence or to produce relevant documents or other physical evidence. Witness statements are routinely drafted nowadays by the parties’ legal representatives. They are thus often seen as way of arguing a party’s case, rather than (as they are meant to be) a means of summarizing a witness’ relevant personal knowledge and experience. Witness statements accordingly commonly suffer from certain vices. They are overly long, repetitive and verbose. They include considerable irrelevant material and thus are rambling accounts. They indulge in hearsay material, much of which carries little weight as evidence. They are emotional and engage in legal submission. What is needed and what is more likely to assist the tribunal is a succinct account of what a witness knows, has done or has experienced in connection with the matters in dispute. The account should be of relevant facts. Relevance here is to be defined by reference to the key issues or questions of fact that the tribunal ultimately has to resolve in its award. To encourage the parties to produce meaningful witness statements, especially in a complicated arbitration with many factual disputes to be resolved, it may be a good idea for the tribunal to suggest in the course of a case management conference or in some order of directions, precisely what it expects to see in witness statements. This might involve identifying with the parties what the real areas of factual dispute in the arbitration are and inviting the parties to focus on just those disputed factual issues in their respective witness statements. By itself, such guidance may not definitely lead to better or more succinct statements, but the parties will at least know what they should 117

EVIDENCE be concentrating on and there is likely to be some attempt to provide the tribunal with what it wants. As with pleadings, documents referred to should be appended to witness statements. Since many documents will already have been attached to the parties’ pleadings, where a document is mentioned in a witness statement, a page reference might be added to the statement to indicate where in the pleadings bundle previously submitted the document is to be found. A more sophisticated alternative might be for the tribunal at an early stage to discuss with the parties the possibility of compiling running document bundles as the arbitration proceeds. In other words, as and when a document is mentioned in a party’s pleading, witness statement or expert report or when a document is disclosed in the process of specific discovery, each party is to ensure that the document is included in its document bundle. The document bundle could be put together in an electronic or digital format. It will be submitted to the tribunal in such format and the tribunal’s file can be augmented or updated from time to time by means of a suitable electronic app. As the arbitration proceeds, documents can be “inserted” into their correct chronological place in the electronic bundle. A suitable page numbering or reference system can be developed, so that every time a document is added to the electronic bundle, page numbers or references given to already inserted documents do not need to be changed or adjusted. Not every party or their representatives will have knowledge of the technology required to create electronic bundles of the sort just described. Further, not every arbitration will require such an approach. Straightforward disputes with relatively few documents may not justify the time and cost involved in compiling electronic bundles of relevant documents for eventual use in the trial. The suggestion is simply made here as something that the tribunal might want to consider in light of the circumstances of a given arbitration. 8.2.2 Expert witnesses There could be a dispute in an arbitration as to whether from a scientific, technical or professional standpoint, something was done by a party that ought not to have been done, or something was not done by a party that ought to have been done. There could be a dispute about how an applicable foreign (non-Hong Kong) law would assess the propriety of what a party has done or omitted to do. There could be a dispute about the economic valuation of some real or personal property or work done or not done. There might be a dispute whether a valuation ought to be carried out in light of current or historical market prices. These sorts of disputes are examples of issues that might be resolved through the parties adducing expert evidence in support of their respective positions and the tribunal determining the dispute following cross-examination of the experts on each side on their points of difference. If there is to be expert evidence on disputed scientific, technical, professional or legal issues of the nature described in the preceding paragraph, it will be necessary in the interests of good order for the tribunal to give appropriate directions for such evidence at an early stage of the arbitration proceedings. This might be done right at the beginning by means of the comprehensive order for directions no.1 described in Chapter 6. More likely, it will be in the form of an order for directions no.2 or even no.3 issued after pleadings have been submitted and the parties have had an opportunity to discuss 118

EVIDENCE among themselves (and hopefully agree on) the precise questions that the parties’ experts of specified disciplines are supposed to answer in expert reports. The key to managing expert evidence is to ensure that the precise questions that the parties' experts are supposed to comment on in their expert reports have been precisely identified from the beginning. Otherwise, there is the danger that each side will independently instruct their experts to prepare reports on different questions. The tribunal will be faced with expert reports that do not respond or debate with one another, much less deal with similar issues. The tribunal will then have the difficult task of making sense of divergent opinions on divergent issues (as opposed to divergent opinions on agreed issues) when drafting its award. It is therefore recommended that, before any specific directions are given by the tribunal on expert evidence, the parties should be asked to specify (and as much as possible agree) on the following matters: (1) (2) (3)

the number of experts to be called by each side, the broad scientific, technical, professional or legal disciplines that the persons to be called as witnesses are supposed to represent, the questions that the experts of each relevant discipline are supposed to answer.

In relation to (3), the questions should not be vague or general. They should not be openended or discursive (“what is the nature of X?”, “how does Y happen?”, or “why is Z the way it is?”). The tribunal does not need scientific or technical treatises. The questions should instead be in the form of a multiple-choice examination – either “yes” or “no” questions or questions where the expert is to choose from among suggested options “(a),” “(b),” “(c)” or “(d) none of the above and, if so, what”. In that way, the tribunal will be able to come to a definitive view on the expert issues presented to it, by picking and choosing from the divergent expert opinions on a question. If the parties are unable to agree on any of the three matters identified above (including the questions to be put to their experts), the tribunal might arrange for a case management conference with the object of resolving the parties’ differences on the three matters. Alternatively, the tribunal might ask the parties to send in written submissions identifying the expert directions on which the parties agree and those on which they disagree, with succinct explanations for their disagreement. The tribunal can then decide what specific expert directions to make on the basis of such submissions. Expert directions might be made in a form similar to the sample order for directions in the appendix to this chapter.9 Some points to note in the sample order are as follows: (1)

(2)

The order sets out the precise questions that the parties’ experts in each discipline are to answer in initial “without prejudice” reports. “Without prejudice” means that the reports are not to be copied to the tribunal, but are simply to be exchanged between the parties for discussion purposes. The initial reports are to be exchanged within the time specified in the order. The experts in each discipline are thereafter to have a “without prejudice” meeting within the time specified in the order to work out those questions upon which

9 The sample order is adapted from the Standard Directions used by the Hong Kong court for cases in the Admiralty and the Construction Lists.

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EVIDENCE

(3)

(4)

they agree the answers and those questions upon which they disagree. The experts in each discipline are to submit joint reports to the tribunal identifying their points of agreement. Finally, within the time stipulated in the order, the experts in each discipline are to exchange “with prejudice” reports dealing solely with the questions upon which they disagree, explaining why the other side’s answer is inadequate, and why their proposed answer is superior. As a result of the suggested procedure, the tribunal’s task should be straightforward. On each question upon which the experts of a discipline disagree, the tribunal will have to decide whose answer they prefer. In giving the reasons for its preference, the tribunal will presumably be adopting the reasons advanced by the expert whose answer they prefer.

Expert evidence is usually expensive. The tribunal should, therefore, always be asking itself whether expert evidence is really needed on specific topics. Thus, for instance, in a case involving letters of credit, it may be unnecessary for there to be expert evidence on bank practice as to the operation of Uniform Customs and Practice for Documentary Credits 600 (UCP 600). A tribunal comprised of experienced commercial lawyers should be able to draw on its own specialist knowledge, aided as appropriate by the direct submissions of counsel, to make determinations on the operation of UCP 600 without the intervention of experts. By the same token, in matters of foreign law where some or all members of the tribunal are familiar with the applicable law, the tribunal can dispense with expert evidence and simply invite the parties’ representatives to make submissions directly on disputed points of law. For example, if a case involves a question of Bermuda company law, Bermuda being a common law jurisdiction with statutes in the English language subject to interpretation in accordance with ordinary common law principles, it should be possible for arbitrators from other common law jurisdictions to hear submissions on the relevant law without the need to resort to the time-consuming and expensive mechanism of expert witnesses. If the option of direct submissions is taken, however, the tribunal should ensure that the parties’ representatives are aware early enough exactly what questions of foreign law should be addressed. Ideally, the parties should be directed by the tribunal to provide to the opposite side in advance the gist of their respective submissions on the applicable foreign law. In that way, no one (least of all the tribunal) is taken by surprise and no time will be wasted on adjournments to deal with points of foreign law that suddenly arise in the midst of trial. A further possibility would be for the tribunal to appoint its own experts. Section 54(1) of the Arbitration Ordinance (enacting Article 26 of the Model Law) authorizes a tribunal to appoint experts to assist in the determination of specific scientific and technical issues arising in an arbitration. The tribunal’s powers include requiring a party to give the expert so appointed any relevant information or to produce relevant documents, goods or other property for inspection by the tribunal’s expert. The tribunal's expert having delivered a report on the matters requested, the tribunal will (in the absence of agreement to the contrary) have to provide the parties with an opportunity to put questions to the expert.10

10 Note that the tribunal may also appoint assessors to help in the assessment of the costs of the arbitration. Where assessors are appointed to sit with the tribunal, the parties must have “a reasonable opportunity to comment on any information, opinion or advice offered” (section 54(2) of the Arbitration Ordinance).

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EVIDENCE Hong Kong lawyers, however, are not keen on the appointment of experts by the tribunal (sometimes also referred to as single joint experts). What often happens when such an expert is appointed is that each of the parties will appoint their own experts (sometimes called “shadow experts”) to advise on the specific issues in contention. That means that instead of two experts (one on each side), there will be three experts, making the arbitration proceedings more costly. Guidelines on an expert’s role in litigation were famously set out by Cresswell J in National Justice Compania Naviera SA v Prudential Assurance Co. Ltd.11 The guidelines have been treated in Hong Kong litigation and elsewhere in the common law world as the equivalent of a code of conduct for experts. Experts who fail to meet the standard set by this code of conduct will find that the court is likely to dismiss their evidence as partisan and unreliable. It is submitted that the guidelines should be regarded as equally applicable in international commercial arbitrations. Cresswell J’s guidelines may be paraphrased as follows in the arbitration context: (1) (2)

(3) (4) (5)

The evidence given by an expert should reflect, and should be seen to reflect, the independent and impartial views of the expert, uninfluenced by the demands of the case being advanced by the party instructing the expert. Experts should therefore be objective, truthful and unbiased in the expression of their opinion. Their function is to assist the tribunal to decide the disputed issues. Consequently, experts owe a duty to the tribunal to be truthful and frank about the strengths and weaknesses of the position being advanced by the party instructing them. It follows that experts should not act as advocates or “hired guns” arguing their client’s case. It further follows that experts should consider all material facts and matters that might impact (however prejudicially) on their view. Experts should also candidly and unambiguously identify the limits of their expertise and should not express an opinion that goes beyond those limits.

A number of organizations have issued useful guidance on expert witnesses and expert reports in international commercial arbitrations, including the ethical standards expected of experts. For example, reference has already been made to the IBA Rules on the Taking of Evidence.12 Articles 5 and 6 of the Rules deal respectively with party-appointed and tribunal-appointed experts. Both articles contain useful suggestions on what should be included in an expert report and how such evidence should be adduced. They also stress the expert’s duty of impartiality and independence The Chartered Institute of Arbitrators (CIArb) has published a Protocol for the Use of Party-Appointed Expert Witnesses in International Arbitration (2007).13 The Protocol sets out a comprehensive regime for the giving of expert evidence. It offers guidance on the identification of expert issues, the number of experts, the determination of the requisite tests or analyses, the ethical standards to be expected of independent experts, 11 Better known as The “Ikarian Reefer” [1993] 2 Lloyd’s Rep 68, at 81–82. 12 See n 2. 13 Available at: .

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EVIDENCE the contents of expert reports, privilege,14 the conduct of meetings of experts, and the manner of expert testimony. Tribunals may adopt the Protocol in whole or in part as they see fit in a given arbitration. 8.2.3 Hot-tubbing of experts Hot-tubbing is increasingly playing a significant role in the examination of experts in the course of international commercial arbitrations. Oral evidence is heard from all experts of a like discipline at the same time. This is accomplished through the tribunal (in particular, the presiding arbitrator) chairing a discussion among the experts and the parties’ representatives in relation to the matters at issue. A feature of hot-tubbing is that the experts of either party may ask questions of each other directly. The procedure is supposed to make the process of adducing expert evidence more dynamic and interactive. Supporters of the process of hot-tubbing claim that it is not only effective in flushing out the strengths and weaknesses of each party’s case, but that it also saves significant time and cost. Hot-tubbing of expert witnesses is now the norm in Australia, but it still seems to be seldom used in Hong Kong. A tribunal may want to consider whether to direct that there be hot-tubbing of expert witnesses at trial. However, the tribunal should appreciate that hot-tubbing will normally require a high degree of preparation on the tribunal’s part, as it will be the tribunal leading the discussion. Not all arbitrators are trained or experienced in conducting discussions or meetings. Further, even where a tribunal is experienced, in the Hong Kong context, there is the issue of language to take into account. Not all experts may be equally proficient in English or Chinese. If the hot-tubbing is to be conducted in (say) English, there may have to be translation of what is being said into Chinese for the benefit of an expert who is insufficiently confident of his or her ability in English. The need for interpretation may slow down the discussion and, at the end of the day, there may be no real saving of time between hot-tubbing and adducing evidence sequentially from the experts. Hot-tubbing will probably be most useful where there are numerous technical questions upon which the parties’ experts (who all speak the language of the arbitration with some fluency) are in disagreement (for instance, in relation to the items of a Scott Schedule). In such situation, it may be faster and more efficient for the tribunal to have both sides’ experts before it and to run systematically through the disputed issues one by one, seeking each expert’s succinct views on why the other is wrong. The tribunal might then decide each technical issue as soon as it has heard the views of both experts on a question or item. As the tribunal moves through the questions or items, earlier determinations may render later questions or disputes over particular items superfluous. The tribunal can confirm that such is the case with the experts and then move quickly on to the next outstanding question or item until all technical issues have been resolved.

14 On privilege, it is worth noting Article 5.2 of the Protocol, stipulating that the drafts, working papers or other documents created by an expert for the purposes of providing expert evidence in an arbitration should be privileged from production and not be disclosable.

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APPENDIX

Sample order for directions on expert evidence15

1.

2.

3.

4.

Evidence will be adduced by experts in the following disciplines: (1) [Discipline 1]. (2) [Discipline 2]. (3) [Discipline 3]. For each discipline identified in paragraph 1, each party may call the following number of experts: (1) In Discipline 1, [number] expert(s). (2) In Discipline 2, [number] expert(s). (3) In Discipline 3, [number] expert(s). The experts in each discipline are to answer the following specific questions: (1) In Discipline 1: (a) Question 1A. (b) Question 1B. (c) Question 1C. (d) Question 1D. (e) Question 1E. (2) In Discipline 2: (a) Question 2A. (b) Question 2B. (c) Question 2C. (d) Question 2D. (e) Question 2E. (3) In Discipline 3: (a) Question 3A. (b) Question 3B. (c) Question 3C. (d) Question 3D. (e) Question 3E. Provisional expert reports by the experts in each discipline shall be exchanged on a without prejudice basis by no later than [date].

15 Adapted from the Standard Directions used by the Hong Kong court for cases in the Admiralty and the Construction Lists.

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EVIDENCE 5. 6.

7.

Within [time period] from the date of exchange of their provisional expert reports, the experts in each discipline are to meet on a without prejudice basis to agree a common opinion on the questions within their discipline. Within [time period] following their without prejudice meetings, the experts in each discipline are to prepare signed joint reports which succinctly identify: (1) the questions on which the experts have reached a common opinion and (in respect of each such question) what that common opinion is; and, (2) the questions on which the experts have failed to reach a common opinion. Within [time period] following their joint reports, the experts in each discipline are to exchange final signed reports. The final reports should succinctly state the following: (1) (2) (3) (4)

the questions within a discipline on which it was not possible to reach a common opinion; the competing views on each such question; why a given expert’s views on each such question are right; and, why any opposing expert’s views on each such question are wrong.

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CHAPTER 9

Trial

This chapter will consider what a tribunal does when it hears a case substantively. The first section will describe how the substantive hearing of an international commercial arbitration might normally proceed. The second section will discuss the problem of maintaining a level playing field during the substantive hearing, so that the proceedings do not unfairly favour one party over the other. It will comment on the difficulty of differing professional standards among advocates from different jurisdictions appearing in an international commercial arbitration and how a tribunal might ensure that party representatives in the arbitration are held to the same minimum professional standards. In this respect, reference will be made to the IBA Guidelines on Party Representation. The third section will cover techniques for ensuring that a hearing proceeds in an expeditious, cost-efficient and fair manner. It will examine cross-examination in particular and how time-wasting on pointless cross-examination can be avoided. In the author’s view, much valuable time in a substantive hearing is lost on prolonged, but ineffective, crossexamination. Unless the tribunal acts to curb such practice, the trial can easily overrun its allotted time, leading to substantial increases in cost and unwelcome adjournments. 9.1 Substantive hearing Subject to the parties’ contrary agreement, Article 24 of the Model Law (as enacted by section 52 of the Arbitration Ordinance) empowers a tribunal to decide whether to hold one or more oral hearings for the presentation of oral evidence and argument or whether to decide the parties’ dispute on the basis of documents alone. If the tribunal decides to proceed on the basis of “document alone”, it should make clear to the parties exactly what “documents” it will be considering. Thus, a “documents alone” arbitration can mean that the tribunal will consider the parties’ pleadings, the documentary evidence adduced by each side, any witness statements and expert reports submitted by the parties, and written submissions provided to the tribunal by the parties. A “documents alone” arbitration therefore need not be confined to just the documentary evidence adduced by the parties. Indeed, in practice, where an arbitration is to be decided on “documents alone” it will be usual for the tribunal to request the parties to provide written closing submissions setting out how each side thinks the tribunal should evaluate the evidence and law in the dispute. Written closing submissions can be exchanged sequentially. Where the parties’ positions are clear enough from their pleadings, the tribunal might ask the respondent to put in its 125

TRIAL written closing submissions first and then within a given number of days thereafter the claimant would be directed to put in its written closing submissions. But often the parties’ cases might be far from clear, even after witness statements and expert reports have been filed. In such situation, a better way to proceed might be to request both parties to exchange initial written closing submissions within a given time frame, say within 14 days of the tribunal’s direction for exchange. This first exchange will be followed by a second round of written closing submissions, say seven days later. In the second exchange of written closings, each party replies to the first round submissions made by the other side. The sequential mode of proceeding described earlier gives the claimant a final say in a matter. In contrast, the double exchange of written closing submissions will give each party a final say in the dispute. For this reason, the double exchange might be regarded as fairer, especially in the situation where the respondent has a counterclaim or where it is unclear precisely what one or other side’s case is at the time first round submissions are being prepared. Once the written closing submissions are all in, the tribunal can deliberate and, in due course, issue its award. The “documents alone” approach is commonly used in ad hoc shipping arbitrations where the amounts in dispute may be relatively small (say in the order of US$100,000 or thereabouts) and where there is unlikely to be much (if any) evidence from live witnesses. Where, for example, a small value cargo is delivered damaged, it will normally have been subjected to some sort of contemporaneous joint survey at the discharge port. The tribunal will have been provided with the joint survey report, along with other documents (such as the bill of lading, ship’s log, etc) relating to the carriage of the cargo. It is unlikely that anyone in particular will remember much else about the cargo and so oral evidence on what happened to the cargo in the course of the voyage will probably be of little (or no) assistance to the tribunal. In such case, it would make sense to proceed on documents alone. Contrast the situation where what happened at some time and place is critical to the determination of liability, but is hotly disputed between the parties and contradictory witness statements have been submitted. It will be difficult for a tribunal to evaluate the evidence without recourse to cross-examination to test the reliability of one witness’ testimony over another. The documents alone approach would not be appropriate and it will more likely be necessary to hold an oral hearing. Many disputes will fall within the second category, calling for an oral hearing. In case of doubt into which category a case falls, in the absence of agreement among the parties, the tribunal should err on the side of caution and direct that there at least be a substantive hearing of the oral evidence, to enable any disputed facts to be tested in cross-examination. Note further that Article 24(1) of the Model Law requires that a tribunal shall hold an oral hearing if there is no agreement between the parties and one side requests that there be an oral hearing. Once it has decided that there is to be an oral hearing, the tribunal (if it has not already done so1) may want to give directions on how the parties are to prepare for the hearing and how the hearing is actually to be conducted. 1 It is assumed that the tribunal has not already made a comprehensive Order for Directions No.1 governing all aspects of the arbitration right up to the first day of the substantive hearing. See the Appendix to Chapter 6.

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TRIAL For example, the tribunal might direct that the parties provide an agreed list of issues by a certain date before the substantive hearing. If the parties are unable to agree on whether a matter is an issue in the arbitration, they might be asked to identify the issues upon which they agree and those upon which they differ. If the history underlying the dispute is long or complicated, with a number of persons being involved at different times, the tribunal might also ask for an agreed chronology, an agreed statement of facts, and an agreed dramatis personae to be submitted before the oral hearing. Most importantly, the tribunal should specify a time by which the parties are to exchange written opening submissions, setting out their respective positions on the matters identified in the agreed (or as the case may be, non-agreed) list of issues submitted to the tribunal. All of the documents described in the last paragraph are intended as aids to the members of the tribunal in their individual preparations for the substantive hearing. Plainly, the more prepared the members of the tribunal are in terms of familiarity with the background facts and the issues in dispute, the more efficiently the oral hearing can be conducted, without too much time being taken up by the parties’ representatives introducing the case to the tribunal. However, it should be borne in mind that it is not every arbitration that calls for there to be an agreed list of issues, an agreed chronology, an agreed statement of facts, and an agreed dramatis personae. Every such document will take time for the parties to prepare and will therefore entail extra cost. A tribunal must use common sense, based on its assessment of the materials (pleadings, documents, witness statements and expert reports) already lodged by the parties, whether or not it would be helpful to have one or more of such agreed documents. Indiscriminately directing that the parties to an arbitration provide aids to the tribunal, when the issues and facts arising or the key persons involved in a dispute are readily discernible, will not only add to the parties’ costs unnecessarily, but might also distract the parties from getting on with the proper preparation of their cases for trials. It will not be of any assistance to the tribunal, if over-burdened by the tribunal’s pre-hearing directions, the parties are not well-prepared to present their positions on the first day of the substantive hearing of an arbitration. In terms of directions for the hearing itself, the tribunal should set out the dates and the times in the morning and afternoon of any given date when the hearing is to sit. The tribunal might also request the parties to arrange for the venue (for instance, at the HKIAC) where the hearing is to take place. Frequently, the time for a substantive hearing may be tight. This will normally be because the arbitrators, the parties, their factual or expert witnesses, or their lawyers can all only be available for the hearing on a limited number of days. It is not an easy task, where a dispute is international, for all persons involved to find common free dates in their busy diaries when everyone can be together long enough for a substantive hearing in Hong Kong. For that reason, the tribunal might want to give directions on how the limited time is to be fairly allotted between the parties. An option is for the tribunal to stipulate that the oral hearing will follow a “chess clock procedure”. That will typically entail the tribunal allocating half of the available time for the hearing to the claimant and the other half to the respondent. How each party makes use of its allocated time, whether (say) to spend x hours on oral opening submissions and y hours on the examination and cross-examination of witnesses, will be up to each party. Once a party’s allotted time has been exhausted, the party will have to stop. The tribunal should, however, retain a discretion to allow extra “injury time” to a party, where 127

TRIAL the allocated time has been used up in large part by circumstances beyond the party’s control (for example, many questions being asked by the tribunal, difficulties in translating a witness’ oral evidence from a foreign language into the language of the arbitration, and numerous unwarranted interventions by the other side’s counsel). It is common in Hong Kong litigation, especially in long trials, for one side or the other to mount a barrage of interlocutory applications on the first hearing day. Such applications might run the gamut from applying (1) to amend one’s pleaded case in minor or substantial ways, (2) to introduce a late witness statement or expert report, (3) to strike out or exclude some part or the whole of the pleadings, witness statements or expert reports relied on by the other side, or (4) to seek late discovery of specific documents said to be critical to the outcome of the trial. It is not unusual for a whole day or more of a court trial to be taken up by these preliminary matters, with the result that the substantive hearing itself does not start until a day or even days later than originally scheduled. Where the court grants leave to amend a pleading or introduce new material, the opposite party will typically apply for an adjournment in order to deal with the new allegations or evidence. The court will then use up more time considering the application for adjournment. Such practice of late interlocutory applications should be rare in international commercial arbitration. It is suggested that, in the absence of compelling reason or extenuating circumstances, the tribunal should not entertain last-minute interlocutory applications for any great length of time. Since the applications could have been readily raised by way of an email to the tribunal before the substantive hearing, it would be unfair to the opposite party if last-minute applications were allowed to derail the timetable of the substantive hearing. The tribunal can thus deal robustly with last-minute applications. As already noted, it is not easy to gather all persons (including witnesses) involved in an arbitration in one place at one time. If interlocutory applications are sprung on a tribunal without prior warning and if time is taken up dealing with the applications, the available time for the substantive hearing will be substantially reduced. That could mean that the arbitration will have to be postponed or adjourned part-heard to the next time (possibly well into the future) when all those involved will be available. Where the respondent makes last-minute applications, the claimant will be thwarted in its hope of enforcing a meritorious claim expeditiously and, where the claimant is the last-minute applicant, the respondent will not be able to obtain the speedy dismissal of an unmeritorious claim. The tribunal should therefore have no qualms about being tough on late applications and dealing with them quickly over no more than a half hour at the start of the substantive hearing. The one situation in which it may prove awkward or difficult to be tough is where a respondent who has previously refrained from taking part in the arbitration at all, suddenly puts in an appearance on the first day of the substantive hearing and seeks an adjournment to enable it to prepare its defence. The respondent may claim that it only recently learned that the arbitration was proceeding and so cannot be blamed if it had not taken part in the arbitration beforehand. Clearly, where the tribunal takes the view that the respondent deliberately chose not to take part in the arbitration until the last minute, the tribunal would be entitled to refuse an adjournment. The tribunal might reasonably suspect that it is just the respondent seeking by all means to delay the arbitration and buy more time. Nonetheless, since ultimately 128

TRIAL it is the claimant who will be seeking to enforce any award in its favour against the respondent under the New York Convention, the tribunal should ask the claimant whether it wishes to push on with the scheduled hearing or to have an adjournment to enable the respondent to prepare and present its case on another date. The hearing proper will usually start with oral opening submissions from the parties. Where written opening submissions have been provided to the tribunal in advance of the hearing, time can be saved by dispensing with oral opening submissions altogether. Alternatively, as is more usual in Hong Kong practice, the tribunal can ask the parties simply to focus on their key points in brief oral opening statements. The tribunal might additionally direct that each party limit its opening to no more than (say) an hour or (in complicated matters) half a day. After opening statements from the representatives of each party, oral evidence is taken from the claimant’s factual witnesses. The respondent’s factual witnesses are heard next. Then, the claimant’s expert witnesses are heard, followed by the respondent’s experts. It is common for both sides’ experts in a particular discipline to be heard together, followed by the parties’ experts in another discipline and so on. Suppose, for instance, that in a construction arbitration each side will be adducing a quantum surveyor (QS) and a programming expert. It may be advisable for oral evidence from the claimant’s QS to be followed by oral evidence from the respondent’s QS and then for oral evidence from the claimant’s programming expert to be followed by oral evidence from the respondent’s programming expert. Whether oral evidence is being taken from a factual or expert witness, a similar procedure is usually observed in Hong Kong. On occasion, there may be “hot-tubbing” of expert witnesses as described in the previous chapter. But the latter practice is currently not often resorted to in Hong Kong. A witness is first examined in chief by the representative of the party adducing that witness. The examination in chief will normally consist of the witness being asked to verify his or her witness statement or expert report. The statement or report having been verified, it will be taken to stand as the witness’ evidence-in-chief. After verification, the representative examining the witness or expert in chief may ask “top-up” questions. These are questions that are intended to elicit answers from the witness or expert to clarify obscurities within that witness’ statement or expert report or to deal with relevant matters that have arisen since the witness statement or expert report was submitted. In any event, the “top-up” is not intended to take more than a few minutes. The possibility of top-up is not to be regarded as an occasion whereby a witness can in effect introduce new evidence that could or should have been dealt with in his or her earlier statement or expert report. The whole reason for the parties exchanging witness statements and expert reports in advance is to ensure that no one is taken by surprise by what a person will be saying in oral evidence. This up-front, transparent or “cards on the table” approach to dispute resolution is supposed to enable each party accurately to assess the strength and weaknesses of its case before the substantive hearing and, where appropriate, to settle a dispute at the earliest opportunity, ideally before the substantive hearing even takes place. It would be unfair to allow one party suddenly to spring new material on the other side without some compelling reason. If, exceptionally, the new material is to be allowed in as evidence, the other side should have a reasonable opportunity to deal with the same. 129

TRIAL If there has to be an adjournment, the side introducing the new material late should have to bear the costs of an adjournment. Hong Kong court practice only allows non-leading questions to be asked in the course of examination-in-chief and “top-up”. Arbitrations invariably follow that practice. That means that a party’s representative cannot ask questions that suggest their answer (“you did this, did you not?”; “you said this, did you not?”). Questions must instead be openended (“what did you do?”; “what did you say?”). Where matters are not controversial, a party’s representative may be allowed to lead (“you live at this address, do you not?”). In Hong Kong court practice, where fraud is being alleged, those parts of a witness statement that are relevant to the supposed fraud will frequently not be allowed to stand as evidence without an oral examination-in-chief. Many judges will insist that counsel examine a witness in chief on the alleged fraud. That means that counsel will have to elicit the witness’s evidence on the fraud by asking open-ended, non-leading questions. In international commercial arbitration, it will be for the tribunal to decide whether to follow court practice in this respect or simply to wait for the other side’s representative to cross-examine the witness on the alleged fraud. After a witness or expert is examined in chief, he or she will be cross-examined by the other side’s representative. In contrast to the position in examination-in-chief, the cross-examiner may (and invariably will) ask leading questions. After cross-examination, there is re-examination by the representative of the party adducing the witness or expert. Here again the examiner is limited to asking non-leading questions. The examiner is further restricted to asking questions on matters raised in cross-examination. In some jurisdictions (for example, the Philippines) it is possible for a witness or expert to be further re-examined (sometimes called “re-direct”) on matters raised in the other side’s re-examination. But this is not the practice in Hong Kong, where the process of examining a witness ends with re-examination by the side adducing the witness. The members of the tribunal may ask questions of a witness or expert at any time. Their questions may be open-ended or leading in form. Nonetheless, for the sake of good order, it is suggested that, unless it is necessary immediately to clarify what a witness or expert has said or means to say, the tribunal should probably refrain from asking questions until after the cross-examination. At that point, the members might in turn pose whatever questions they have. The cross-examining party can then be invited to raise any questions that he or she might have arising out of the tribunal’s examination of the witness. Thereafter, the witness can be re-examined. In this way, all parties will have a chance to amplify or qualify whatever responses the tribunal elicits from the witness or expert in the course of the tribunal’s examination. Once all factual and expert witnesses have been examined, the tribunal may straightaway move to oral closing submissions. The respondent’s representative will usually start off and the claimant’s representative will then reply and thereby have the final word. Because actual hearing time may be limited and because the parties will usually want time to reflect on the evidence that has emerged at the substantive hearing (especially where the hearing has run for many days), it is frequently the case that closing submissions are not made orally. Instead, the parties may invite the tribunal (which will usually agree) to direct that there be written closing submissions. Such submissions might then be made sequentially or using the double exchange method described above. On some occasions, the tribunal may ask that the written submissions be supplemented with an 130

TRIAL oral hearing. But given the logistical arrangements that will be needed if there is to be another face-to-face hearing after the exchange of written closing submissions, this mode of proceeding is not the norm and is not recommended. After closing submissions (whether oral or written), the tribunal will adjourn the arbitration to deliberate upon and draft its award. 9.2 Maintaining a level playing field There is no restriction on who can represent a party in an arbitration hearing in Hong Kong.2 Thus, for example, where an arbitration taking place in Hong Kong has little or no connection with Hong Kong apart from the fact that the parties agreed to arbitrate their differences there, it would be hardly surprising if the parties instruct non-Hong Kong lawyers to represent them. A Hong Kong judge can expect that barristers or solicitors appearing before the court will abide by the professional duties set out in the Hong Kong Bar Association’s Code of Conduct or the Solicitor’s Guide to Professional Conduct. In contrast, in an international commercial arbitration, the parties are likely to be represented by lawyers from jurisdictions outside Hong Kong who may be subject to widely differing codes of conduct or professional guidelines, if at all. How then is an arbitral tribunal to ensure that the parties’ representatives appearing before it, adhere to certain minimum professional standards? Unless there can be such assurance, there would be potential unfairness to one side or the other in the way that the representatives conduct their case. For instance, in Hong Kong (as in England, Singapore and many other common law jurisdictions), it is professional misconduct for a solicitor or barrister to coach witnesses, in the sense of telling them what to say when cross-examined. In some other jurisdictions (for example, the United States and Mainland China), it is acceptable for lawyers to coach witnesses and it may even be considered professional misconduct not to do so. What happens when, in a Hong Kong international commercial arbitration, parties are represented by lawyers from Hong Kong and Mainland China? The Hong Kong lawyer will refrain from coaching his or her witnesses in keeping with Hong Kong professional ethics, whereas the lawyer from Mainland China may feel duty-bound to coach the witnesses to be adduced on his or her side. If the tribunal does nothing, there will not be a level playing field at the substantive hearing of an arbitration. Counsel from Mainland China will enjoy an edge in being able to conduct a case in a manner not open to the Hong Kong lawyer. The tribunal therefore needs to be sensitive to the problem of ensuring a level playing field where the parties’ representatives are from different legal jurisdictions. One way of dealing with the problem is for the tribunal to direct, at some stage before the substantive hearing, that the arbitration will be conducted in accordance with certain professional rules of conduct. One such widely accepted body of rules is the IBA Guidelines on Party Representation in International Arbitration (adopted by the IBA Council on 25 May 2013).3 2 See section 63 of the Arbitration Ordinance. 3 Available at: .

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TRIAL The Preamble to the Guidelines states that it has been “inspired by the principle that party representatives should act with integrity and honesty and should not engage in activities designed to produce unnecessary delay or expense, including tactics aimed at obstructing the arbitration proceedings”.4 The Preamble adds that tribunals should feel free to “apply the Guidelines in their discretion, subject to any applicable mandatory rules, if they determine that they have the authority to do so”. Guidelines 9 to 11 are of particular relevance to the trial stage of an arbitration. Guideline 9 imposes a duty on a party’s representative not knowingly to make a false submission of fact to the tribunal. Where the representative later finds out that he or she has made a false submission of fact, the representative is under a duty to correct such submission promptly, subject only to “countervailing considerations of confidentiality and privilege” (Guideline 10). Guideline 11 deals with witnesses and is worth setting out in full: A Party Representative should not submit Witness or Expert evidence that he or she knows to be false. If a Witness or Expert intends to present or presents evidence that a Party Representative knows or later discovers to be false, such Party Representative should promptly advise the Party whom he or she represents of the necessity of taking remedial measures and of the consequences of failing to do so. Depending upon the circumstances, and subject to countervailing considerations of confidentiality and privilege, the Party Representative should promptly take remedial measures, which may include one or more of the following: (a) (b) (c) (d) (e)

advise the Witness or Expert to testify truthfully; take reasonable steps to deter the Witness or Expert from submitting false evidence; urge the Witness or Expert to correct or withdraw the false evidence; correct or withdraw the false evidence; withdraw as Party Representative if the circumstances so warrant.

Guideline 11 does not prohibit the coaching of witnesses. That is probably an implicit recognition of the fact that the Guidelines were drafted by a task force of lawyers from a variety of jurisdictions, some of which permit witness coaching, while others do not. Instead, Guideline 11 attempts to reconcile the two different approaches to coaching by stipulating that, however a representative prepares a witness or expert, the representative must ensure that the witness or expert does not give evidence known to be false. One may coach a witness, but one cannot and should not coach a witness to give false or misleading evidence. A witness should be told and encouraged to use his or her own words, not words suggested by a party's lawyers, when giving evidence. This reading of Guideline 11 is supported by Guidelines 20 to 25, which are also of relevance to the substantive hearing of an arbitration. Guideline 20 confirms that a representative “may assist Witnesses in the preparation of Witness Statements and Experts in the preparation of Expert Reports”. This is amplified by Guideline 24 which provides that a representative “meet or interact with Witnesses and Experts in order to discuss and prepare their prospective testimony”. This is consonant with litigation practice in Hong Kong, where typically statements and reports are drafted by solicitors on the basis of discussions and comments from witnesses and experts respectively. 4 Guidelines (n 3), p. 2.

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TRIAL But, even where a statement is drafted in such manner, the cardinal rule is that a “representative should seek to ensure that a Witness Statement reflects the Witness’s own account of relevant facts, events and circumstances” (Guideline 21). Similarly, the representative should “seek to ensure that an Expert Report reflects the Expert’s own analysis and opinion” (Guideline 22). In all cases, the representative “should not invite or encourage a Witness to give false evidence” (Guideline 23). Guideline 25 provides that (a) witnesses and experts may be paid their reasonable expenses incurred in preparing their evidence and testifying in the arbitration; (b) witnesses may additionally have a reasonable compensation for the time taken up; and (c) experts may be paid reasonable fees for their professional services. Where a barrister or solicitor falls short of the professional standards expected of one by the Hong Kong court, the judge may report the matter to the Bar Association or Law Society. The lawyer will then be subject to disciplinary proceedings in accordance with the applicable code of conduct. But what happens in an international commercial arbitration, where a representative from a non-Hong Kong jurisdiction fails to meet the standards expected by the tribunal? The option available to a tribunal in the case of misconduct by a representative are dealt with in Guidelines 26 and 27. Guideline 26 empowers the tribunal to impose certain sanctions for misconduct, but only “after giving the Parties notice and a reasonable opportunity to be heard”. The suggested sanctions that may be imposed are one or more of the following: (a) (b) (c) (d)

admonish the Party Representative; draw appropriate inferences in assessing the evidence relied upon, or the legal arguments advanced by, the Party Representative; consider the Party Representative’s Misconduct in apportioning the costs of the arbitration, indicating, if appropriate, how and in what amount the Party Representative’s Misconduct leads the Tribunal to a different apportionment of costs; take any other appropriate measure in order to preserve the fairness and integrity of the proceedings.

Guideline 27 sets out the factors that a tribunal should take into account when deciding whether or not to sanction a representative for misconduct. Those considerations are: (a) (b) (c) (d) (e) (f)

the need to preserve the integrity and fairness of the arbitral proceedings and the enforceability of the award; the potential impact of a ruling regarding Misconduct on the rights of the Parties; the nature and gravity of the Misconduct, including the extent to which the misconduct affects the conduct of the proceedings; the good faith of the Party Representative; relevant considerations of privilege and confidentiality; and the extent to which the Party represented by the Party Representative knew of, condoned, directed, or participated in, the Misconduct.

Depending on the degree of misconduct involved, a barrister or solicitor subject to disciplinary proceedings as a result of a judge’s complaint, may be fined, warned, temporarily suspended from practice, or permanently disbarred. The options available to a tribunal are not as draconian or extensive, since the tribunal’s jurisdiction only extends to the determination of the parties’ dispute and not strictly to the disciplining of a parties’ representative. 133

TRIAL Although it may be tempting to express dissatisfaction over the way in which a party’s representative has conducted a hearing by making findings against that party, the tribunal should resist doing so. The tribunal remains duty-bound to decide a case on the merits, regardless of a representative’s misconduct. At best, the tribunal can only show its displeasure by an adverse costs order, but even that will depend on the extent to which the party “knew of, condoned, directed, or participated in, the misconduct”. Such knowledge or complicity will be difficult to establish without breaching legal professional privilege. Thus, in practical terms, it will often be that the sanctions available to a tribunal against misconduct are extremely limited. 9.3 Managing cross-examination The tribunal is responsible for moving an arbitration hearing along. Under Article 18 of the Model Law (as enacted by section 46 of the Arbitration Ordinance), the tribunal is “to use procedures that are appropriate to the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for resolving the dispute to which the arbitral proceedings relate”. The substantive hearing of a dispute roughly falls into three stages. There are firstly opening submissions by the parties’ representatives. The opening submissions are followed by examination-in-chief, cross-examination and re-examination of factual and expert witnesses. Finally, the parties’ representatives make closing submissions. Suggestions were made in the first section of this chapter for cutting down on the time for oral openings, largely by directing the parties to put in written opening submissions ahead of the substantive hearing and limiting the time allotted to each party for opening remarks. Suggestions were also made for cutting down on the time spent on examining witnesses and experts in chief, largely by treating their statements and reports (once verified at the start of their testimony) as their evidence-in-chief subject to brief “top-up”. Section 1 lastly suggested that the time for closing submissions at the oral hearing might be reduced or eliminated, by giving the parties time to prepare and exchange written closing submissions either sequentially or in two rounds. Adoption of the suggestions in section 1 will leave the bulk of the oral hearing for the cross-examination of factual and expert witnesses. It is here that, in the author’s view, much time is wasted during international commercial arbitrations in pointless cross-examination that goes nowhere towards establishing one’s own (or demolishing the other side’s) case. Most party representatives (whether legally trained or not) and possibly a good number of arbitrators have little idea of how a proper cross-examination should be conducted and what it can and cannot achieve. This section will therefore consider the nature of cross-examination in the hope that a better understanding of its purpose and techniques will lead to a significant saving of time and cost in international commercial arbitrations. Before embarking on a consideration of cross-examination, attention is drawn to the second edition of the ICC’s Techniques for Controlling Time and Costs in Arbitration,5 published in 2012 by the ICC Commission on Arbitration and ADR Task Force on Reducing Time and Costs in Arbitration. The booklet offers numerous helpful suggestions on

5 Available at: .

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TRIAL how time and costs might be saved in relation to procedural steps taken before, during and after the substantive oral hearing of an arbitration. A comment in paragraph 60 of the ICC publication on limiting witness evidence is worth bearing in mind in the context of what cross-examination at the oral hearing entails. Paragraph 60 states: Every witness adds to the costs, both when a witness statement is prepared and considered and when the witness attends to give oral evidence. Costs can be saved by limiting the number of witnesses to those whose evidence is required on key issues. The arbitral tribunal may assist in identifying those issues on which witness evidence is required and focusing the evidence from witnesses on those issues. This whole process will be facilitated if the parties can reach agreement on non-controversial facts that do not need to be addressed by witness evidence.

Thus, well before the substantive oral hearing, a tribunal can seek to shorten the time taken in cross-examination by holding a case management conference for the purpose of identifying which witnesses genuinely need to be examined on exactly what issues. As much as possible, the parties should be encouraged to agree inconsequential or trivial matters, in order that everyone’s attention may be focused at trial on the real issues on which the parties’ witnesses and experts differ. The second matter that might usefully be clarified before discussing the nature of crossexamination is to consider how a tribunal assesses whether or not to accept a witness’ evidence. How does an arbitrator evaluate whether or not a witness’s evidence is actually what happened? How does one know when a witness is being truthful? Arbitrators are ordinary human beings. They do not have a special built-in lie detector that will alert them to whether what a witness says is true or false. Consequently, it is submitted that there is really only one way in which an arbitrator can evaluate a witness’ evidence. That is by taking a view on whether what the witness says accords with the balance of probability. In other words, an arbitrator can only ask one’s self whether the witness’ evidence is more likely than not to be what actually happened. An arbitrator should bear in mind that a witness, being also human, can develop false memories over the course of time. This will mean that a witness might fervently believe that something happened in some way, when no such thing actually occurred. The witness might even have a vivid blow-by-blow image in his or her mind’s eye of what has supposedly transpired, but nothing of those supposed recollections will correspond with reality. The point is that, merely because a witness attests to something that is untrue, does not mean that the witness is lying, in the sense of being deliberately dishonest. The tribunal’s task in assessing evidence is not simply to detect the telling of lies. That would be too limited a view of the tribunal’s role. What the tribunal has to do is to determine what in all likelihood must have happened. The tribunal does not come to its assessment in a vacuum. It measures up the likelihood of evidence being true or false by reference to contemporaneous documents. Is a witness’s account consistent with what contemporaneous documents, which came into existence at the relevant time, suggest was actually said or done? The tribunal will of course have to guard against a situation where the documents themselves give a misleading picture, as for instance when a project manager of a construction site “papers” a file with complaints as a precaution in the event of future disputes with a contractor. In the course of construction works, the project manager might issue 135

TRIAL numerous emails with non-stop complaints (some justified, some not) about a contractor’s performance. The strategy would be that, if there should be a dispute later, the project manager will be able to produce dossiers of his “contemporaneous” complaints against a contractor as “evidence” that the contractor must have been doing something wrong in the course of the project. By way of further assistance to a tribunal, evidence will typically be tested in crossexamination. A witness will be asked to explain in cross-examination whether and why he or she did or did not act in a particular way or whether and why he or she did or did not communicate something to someone else. The tribunal can then assess if the witness’ explanation is plausible in light of all the circumstances, including contemporaneous documents and the incontrovertible evidence of others. Plausibility does not mean that a witness’s account of what he or she did or omitted to do must be logically coherent. One frequently acts in irrational ways. One may possibly think in the heat of the moment that the course one has decided to take is perfectly reasonable. Alternatively, one may act impulsively without giving a matter much thought. The tribunal must be alive to the prevalence of human foibles when determining what has actually happened and why. One characteristic that the tribunal should watch out for is whether a witness is being glib or avoiding answering a question. The witness might be overly talkative, but actually say nothing meaningful, or the witness might use vague and obscure language to cover up his or her lack of credibility or reasonable explanation. The witness may still be telling the truth, but the answer to cross-examination questions may be so vague or incoherent that the tribunal might decide that it would be unsafe to rely on the witness’s account. At the other end of the spectrum, there are witnesses who are well-meaning, but whose account of what happened is so variable and contradictory that the tribunal cannot be sure that the witness’ evidence is accurate and reliable. In such case, the tribunal might again reject the witness’s evidence as too uncertain to constitute a basis for credible findings of fact. An error that the tribunal might guard against is determining truth or falsity on the basis of whether a witness answers questions fluently or inarticulately. In Hong Kong criminal proceedings, it is commonplace for Hong Kong magistrates to state in their reasons for their verdict that they believed PW1’s evidence because she was unflustered in cross-examination and disbelieved DW1’s evidence because he spoke in a disorganized manner. A witness’s demeanour is an uncertain, possibly treacherous guide to truth or falsehood. The trickster may be smooth-talking and amiable, while the saint may stammer and be nervous. It is difficult to come to any assessment based solely on the way a person behaves when answering a question. The other error is to allow questions to test a witness’s credibility on irrelevant matters. A lawyer will typically embark on a series of questions that have little or nothing to do with the issues in dispute. When asked to explain the relevance of such questions, the lawyer will answer that one is testing the witness’s “credibility”. Usually, this means ascertaining whether in the past the witness has lied or done something wrong in relation to a matter wholly unconnected with the dispute, the apparent logic being that if the witness was untrustworthy in the past, he or she must be equally untrustworthy in the present and indeed for all time. This is not a good way to ascertain the truth or falsehood of what a witness has said. A person may indeed have lied or done something wrong in the past, but that is no indication that he or she is lying in the arbitration. When a party’s 136

TRIAL representative gives as the reason for asking obviously irrelevant questions that one is exploring a witness’ credibility, it may be best for the tribunal politely to suggest that the representative move on to more substantial matters. In Hong Kong court practice (as in many other common law jurisdictions), there is a principle known as the rule in Browne v Dunn.6 The rule is rooted in fairness. If counsel is going to say in closing submissions that a witness’ evidence is untrue or wrong for whatever reason, counsel must give the witness an opportunity when giving evidence to rebut the suggestion that the witness’s evidence is untrue or wrong. Counsel will therefore have to put it to the witness in the course of the latter’s cross-examination that what the witness is saying is false. The witness can then say whatever he or she wants in response to the accusation of falsity. If counsel has not given the witness a fair chance to deal with the accusation of falsity, then the court will not allow counsel to submit in closing that the witness’s evidence is to be disbelieved as untrue. The rule in Browne v Dunn makes good sense and is to be recommended in international arbitrations. But the difficulty is that representatives from non-common law jurisdictions coming to Hong Kong for an international arbitration may be unaware of the rule. How then is the tribunal to ensure that witnesses are treated fairly by all counsel appearing before the tribunal, regardless of counsel’s home jurisdiction? How will the tribunal ensure that witnesses will have a fair opportunity to deal with accusations of falsehood that might be made by counsel in closing submission? The easiest way would be for the tribunal to make clear at the outset how it is to approach allegations of falsity that might be made in cross-examination. The tribunal might explain either in pre-hearing directions or at the start of the substantive oral hearing that, where counsel intends to challenge the veracity of a witness’s evidence in the course of closing submissions, counsel must put it to the witness in cross-examination that his or her evidence is not to be believed. Where several witnesses are to give similar evidence for an opposing side, the tribunal might state that counsel is expected to put one’s case on a disputed issue to at least the key witnesses of an opposing party on that issue. The tribunal should stress that it does not necessarily expect counsel to put a party’s case on an issue to a given witness by expressly saying to a witness “I put it to you that . . .”. The tribunal is more concerned about fairness. Provided that the opposing side’s key witnesses have each had a fair chance to deal with suggestions that their evidence is flawed or false, the tribunal will not prevent counsel from characterizing the other side’s witness evidence as untrue in the course of closing submissions. How then should the tribunal approach cross-examination? To answer the question, consider how a party’s representative might prepare his or her cross-examination questions for the other side’s witnesses. The tribunal’s job is to resolve the issues in dispute between the parties. Arbitration is accordingly issue-driven. Prior to the substantive hearing, the issues will have been highlighted by the parties’ pleadings and specifically identified in any list of issues (whether agreed or non-agreed) provided by the parties to the tribunal. Counsel representing a party will consider which witnesses on one’s own side and on the opposing side respectively, will be giving evidence in connection with each issue in

6 So called after a House of Lords decision of that name (reported in (1893) 6 R 67).

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TRIAL dispute. By studying the witness statements submitted by the parties in advance, counsel can assess the extent to which the evidence to be adduced on a particular issue by the witnesses on one side or the other is consistent or contradictory. Where the evidence is consistent, there will be little need to cross-examine. But where the evidence on an issue is contradictory, then consistently with the rule in Browne v Dunn (or whatever variant of that rule has been directed by the tribunal for the purposes of the arbitration), counsel will have to cross-examine the relevant witnesses on that issue. In so doing, counsel will at least have to put it to a witness that his or her evidence is wrong. However, there will be little mileage in simply putting it to a witness that he or she has got it wrong. The witness will simply say “I disagree” and the tribunal is none the wiser. As much as possible, counsel would like to highlight to the tribunal and to the witness facts and matters indicating that the witness is wrong. The expectation must be that, when counsel puts his or her client’s case on a given issue to a witness by way of an initial proposition in cross-examination, the witness will reject the proposition. Obviously, if the witness agrees with the proposition, counsel should immediately cease that line of cross-examination and move on to some other disputed issue. If counsel is able to get agreement from a witness on a disputed matter, counsel will have hit a “forensic target”. One should not thereafter linger on the disputed issue, repeatedly putting the same proposition, since the witness will sooner or later realize that he or she has made a prejudicial admission and will seek to muddy the waters with more ambiguous responses, if given an opportunity to do so by counsel dwelling on the disputed issue.7 However, if (as is more likely) the witness denies counsel’s initial proposition, what happens next? Counsel should have follow-up “ammunition” in the form of contradictory contemporaneous statements in documents or incontrovertible evidence from other persons that can be put to the witness being cross-examined. It will be suggested to that witness that he or she cannot be right in denying counsel’s initial proposition, because what the witness is now saying is flatly contradicted by contemporary documents (either written, prepared or at least previously seen by the witness) or by incontrovertible facts. The witness may still disagree. But counsel will have planned the cross-examination so that each piece of contradictory documentary or factual evidence is put to the witness one by one. With each piece of evidence, counsel will pause to enable the witness to say whatever the witness would like to say to explain any apparent discrepancy between the piece of evidence and the witness’s oral testimony. Typically, especially where there are many pieces of contradictory evidence, it will be difficult for a witness coherently to explain all the discrepancies. The witness may be able to explain away a discrepancy 7 The expression “forensic target” is used in the Middle Temple Advocacy Course on which the account of cross-examination in the text is based. “Forensic targets” are the important points that, in keeping with the rule in Browne v Dunn (or its variants), counsel must either establish with, or at least put to, a witness in the course of cross-examination. Forensic targets are determined by reference to the issues in a dispute. It is a canon of the Middle Temple Advocacy Course that “more is the enemy of the good”. Thus, if counsel should get a witness apparently to admit to a forensic target in the course of cross-examination, that should suffice. The forensic target has been hit and to linger on the matter would only give the witness a chance to retract from or dilute the admission apparently made. Counsel should move on and not attempt to clarify or confirm the seeming concession made by the witness. Two common mistakes encountered in cross-examination in international commercial arbitrations are: (1) counsel moving on before hitting a forensic target and (2) counsel hitting a forensic target and then putting the apparently already admitted proposition to the witness numerous times.

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TRIAL in the first piece of evidence put to him or her. However, by the time the third piece of evidence is put, the witness will be tying one’s self in knots trying to explain away, in cogent manner, the discrepancies not just between his or her oral testimony and a piece of evidence, but also the discrepancies (as there are bound to be) between his or her explanations in respect of the first and successive pieces of discrepant evidence. The witness’ difficulties would then form the basis of counsel’s closing submission that the witness should not be believed, because his or her oral testimony does not match up to the documentary or other factual evidence before the tribunal. That is one way of preparing cross-examination. It can be highly effective, but it will take a significant amount of time to prepare. It will require a detailed knowledge of the facts and documents in a case. It will also require careful planning as to the order in which discrepant pieces of evidence or fact are put to a witness. There is another style of conducting a cross-examination and this seems to be the one more frequently used in Hong Kong. This style is essentially premised on persuading a witness to accept as a matter of logic that his or her evidence cannot be right. The method involves closing off all avenues of escape that a witness might have in respect of the logical conclusion that his or her evidence must be wrong. The cross-examination thus proceeds like a Socratic dialogue. Counsel first asks a witness whether something must clearly be the case in relation to situation A. Then counsel does the same in relation to situation B. Counsel proceeds in similar vein covering situations C, D, E and onwards. Finally, counsel arrives at the facts in dispute and puts it to the witness that, given what he or she has said in relation to situations A, B, C, D, E, etc, the only possible conclusion must be that what the witness is saying about the facts in dispute cannot be right. The witness will usually disagree, but counsel will have complied with the duty to put one’s case to the witness. It will be noticed that, in a cross-examination following the first method described, a witness is given a chance to defend his or her evidence against facts or materials said to contradict that evidence. What the witness says in response may or may not make sense. Counsel does not argue with the witness, but simply elicits his or her responses to the contradictory facts and materials put to the witness. Whether or not the witness’ evidence makes sense or is plausible will be a matter of closing submissions and for the tribunal to decide. In contrast, with the second method described, counsel will inevitably engage in protracted argument with the witness, because counsel is trying to get the witness to agree a particular characterization of the facts in dispute. Unless the witness accepts specific premises in respect of situations A, B, C, D, E, etc, counsel’s proposition that the matters in dispute can only be understood in a particular way will be unconvincing. The witness’ rejection of counsel’s proposition on the matters in dispute will not be seen to be clearly wrong. It is submitted that the first method of cross-examination is more conducive to saving time and cost. The second method can be extremely elegant and a joy to watch and hear in the hands of a skillful cross-examiner who has spent time designing the questions to be asked and their logical sequence. But most are unfortunately not so gifted or adept. In less skillful hands, the second method can lead to extended, repetitive and excruciating wrangling over what should or should not be done in one or more of situations A, B, C, D, E, etc. As a result of such wrangling, the punch line will not be convincing, because 139

TRIAL the witness’s avenues of escape from counsel’s final proposition will not have been unambiguously shut off by counsel’s prior questions. The result is that the second style of cross-examination, although one often resorted to by counsel, is not only conducive to much time wasting, but frequently also proves to be ineffective and unconvincing as a way of testing the veracity of evidence. If the foregoing analysis is right, in most arbitrations a tribunal could express a preference for the first method of cross-examination, as being more likely to test a witness’s veracity effectively and efficiently. That expression of preference should not, however, constrain the parties from adopting the second method, if that is their wish. The parties should be free to conduct their cases in the way they deem appropriate. Finally on cross-examination, there is the question of how to deal with allegations of fraud. Clearly, a party will have to put its case on fraudulent conduct to relevant witnesses. But there is a further issue. Hong Kong court practice in respect of allegations of fraud is clear. It is a disciplinary offence for lawyers to allege fraud against anyone unless there is a sound evidential basis on which to do so. Accusations of fraud should not be made lightly. It is the judge’s duty to ensure that court procedure is not abused by a party making frivolous or unwarranted allegations of fraud simply to embarrass a party in open court. What about the practice in international commercial arbitrations? Although arbitrations take place in private and the proceedings are confidential, it is submitted that a tribunal should likewise prevent, forestall or sanction allegations of fraud made without sound evidential basis. Accusations of fraud are likely to stoke parties’ animosities and make it difficult to resolve a dispute. Unwarranted accusations of fraud should thus not be allowed to poison the atmosphere of an arbitration in any circumstances. It is suggested that frivolous accusations of fraud should be dealt with in the same way as professional misconduct.8 Arbitration being purely consensual between the parties, the tribunal may not be able to initiate disciplinary proceedings against counsel where inappropriate allegations of fraud are made in pleadings or in cross-examination. But the tribunal might make clear at some stage when such unfounded allegations are persisted in by counsel, that the tribunal may reflect its views on the inappropriateness of the allegations in an adverse costs order against the relevant party.

8 See section 2 of this chapter.

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CHAPTER 10

Finish

The substantive hearing or trial having taken place, the tribunal will have to draft its award to complete the arbitration. Having issued its award on the merits, the tribunal will likely have to rule on the costs of the arbitration. That means that the tribunal will have to rule on two broad issues. One is the “incidence” of costs, that is, whether one or other party or both should be liable for all or part of the costs of the arbitration. The other is the “taxation” of costs, that is, the assessment or quantification of the costs payable by one party to the other as a result of the tribunal’s ruling on costs. Finally, the tribunal will have to tax its own costs and decide whether one or other or both of the parties should ultimately bear such costs in whole or part. The tribunal’s rulings on the incidence and taxation of the parties’ and the tribunal’s costs may themselves be in the form of one or more awards. The first section of this chapter will deal with the drafting of an award. It will examine what should go into an award and how the award might be structured. The tribunal cannot take too long to come up with an award. It is duty-bound to proceed without unreasonable delay and in a manner that is fair, efficient and cost-effective. How might it go about meeting such obligations? The second section will consider costs. It will discuss how the tribunal might decide the incidence of costs as well as how the tribunal can quantify those costs. Finally, the third section will consider what the tribunal can and should do about its own costs. 10.1 Award 10.1.1 Preliminary matters Before considering what should go into an award, it would be best to clear up some terminology. On the face of things, there are a bewildering array of outputs that a tribunal can produce. A tribunal might make an order or direction, issue a decision or determination, hand down a ruling, or publish an award. In respect of the latter, the tribunal may make an interim award, a partial final award, a final award (save as to costs, interest and taxation), or a final award. Moreover, as far as interim awards are concerned, the tribunal can issue a second interim award, a third interim award, and so on. Similarly, the tribunal can have its second partial final award, a third partial final award and so on. When should one use one term as opposed to another? 141

FINISH Apart possibly from an award, none of the other expressions (order, direction, decision, determination or ruling) are terms of art. Different arbitrators may use some or none of those other expressions and may use them consistently and inconsistently in different situations. It is, therefore, suggested that matters be kept as simple as possible and an aspiring arbitrator should stick to using a minimum of expressions in a consistent manner. Thus, this book has been using the expression “order for directions” to denote procedural directions for moving an arbitration forward, including orders for directions covering (among other matters) the submission of pleadings, witness statement and expert reports. Other types of orders have also been mentioned in the course of this book as for instance: an “order for security for costs”, an “order for an interim measure” and an “order for specific discovery”. Parties may ask the tribunal to rule on its own jurisdiction to hear an arbitration. Having heard the parties’ submissions, the tribunal may wish to hand down a “ruling on jurisdiction”. Others might prefer the tribunal to issue a “decision on jurisdiction” or a “determination on jurisdiction”. There is no real difference among the three titles. The only point is perhaps that it may be difficult as a matter of English language to characterize the tribunal’s output on the question of jurisdiction as an “order”, since the tribunal is not really ordering that it has or does not have jurisdiction. It is simply confirming or declaring the existence or non-existence of a state of affairs. By the same token, where a party applies for an interim measure and the application is refused by the tribunal, it would again be difficult as a matter of language to describe the tribunal’s decision as an “order,” since the tribunal is in fact doing the opposite. It is not ordering the interim measure sought. Consider now the term “award”. In its normal English language sense, it denotes the giving of something to someone. Thus, an award may “give” to one party or the other in an arbitration a sum of money for the reasons stated in the award. But, in arbitrations generally, an award might also dismiss the claimant’s case. The award might go on to “give” the respondent the costs of the arbitration. However, the document may also instead reserve the question of costs to a subsequent award. Nonetheless, it still seems appropriate in the context of international arbitration to call the latter output an “award”. Despite the fact that, in the last situation, the “award” does not give anything tangible to the respondent, it “gives” the respondent the right to claim costs later on against the claimant whose case has been dismissed. It “gives” the respondent the right to have the tribunal’s output “recognized” in a New York Convention state. If, for example, the claimant attempts to start fresh proceedings based on the same cause of action in another New York Convention state, the respondent can apply to have the “award” recognized and enforced by the court of the latter state. The result of the court recognizing and enforcing the “award” would be that the state dismisses the claimant’s fresh proceedings as an abuse of process on the ground of res judicata (namely, that the cause of action has previously been heard by an arbitral tribunal and determined against the claimant). Tribunals may make “interim awards” with the intention that other “awards” may follow.1 An “interim award” is not intended to be the final word in an arbitration. Some arbitrators prefer to use the expression “partial final award” instead of “interim award”. 1 A tribunal may make an award at any time or times on different aspects of a dispute. See sections 71 and 72 of the Arbitration Ordinance.

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FINISH The intent remains the same. One or more “partial final awards” may follow, as the arbitration has yet to be concluded. At common law, there is a doctrine of merger whereby a cause of action is deemed to become “merged” in a judgment. Consequently, once a judge issues his or her judgment in a matter (say) determining that a sum X is due from the defendant to the plaintiff, the latter’s cause of action against the former ceases to exist. The cause of action is converted into a judgment debt. From the date of the judgment, the plaintiff can no longer sue on the cause of action, but must instead seek to enforce (or bring an action upon) the judgment debt. It appears that, as a matter of Hong Kong law, the doctrine of merger may not apply to arbitration awards. In other words, a claimant’s cause of action does not merge with an arbitral award. For instance, in The “ALAS”2 the Court of Appeal held that the making of an arbitral award did not preclude the arrest of a ship where the facts underlying the award gave rise to a statutory lien against the ship. In the ordinary course of events in Admiralty actions, a judgment debt cannot be enforced as a statutory lien against a ship. A plaintiff’s original cause of action in so far as it involves a ship may give rise to a statutory lien and lead to the arrest of the ship as security. However, since the original cause of action is merged in any judgment, the original cause of action ceases to exist upon delivery of a judgment and, having ceased to exist, there is no longer anything to be enforced by way of a statutory lien against a ship. If, on the basis of The “ALAS”, a statutory lien arising out of a maritime claim may still be enforced against a ship despite an arbitral award having been made in respect of the underlying maritime claim, the implication must be that the original cause of action survives the issue of the arbitral award. In other words, the technical common law doctrine of merger that has developed in connection with judgments should not be treated as applying by analogy to awards. Awards should not be equated with judgments. Another consequence of the handing down of a judgment at common law is that the judge become functus. That means, typographical corrections apart, he or she is unable to re-open or correct the judgment in any significant way. Unless in the judgment the judge has reserved certain matters (such as the incidence of costs and interest) for later consideration, the parties will not be able to come to the judge and ask for further relief on matters that should have been raised prior to the handing down of the judgment. Given that awards are not the same as judgments, it is unclear whether the doctrine of a judge becoming functus after handing a judgment applies by analogy in international commercial arbitration.3 Again, the latter doctrine is a technicality that has developed at

2 Handytankers KS v The Owners and/or Demise Charterers of the Ship or Vessel M/V “ALAS” HCMP No. 2315 of 2014, 9 July 2015 (Cheung CJHC and Barma JA). The claim arose out of the failure to pay charterhire. The plaintiff’s stated purpose in arresting the charterer’s vessel was to provide security for the judgment that it hoped to obtain in the Admiralty proceedings. The Court of Appeal noted at [4] that, as found by Ng J below, “it was clear from the writ that the plaintiff’s claim was brought on the basis of the original cause of action which led to the arbitration (i.e. the claim for unpaid hire) and not on the award itself”. 3 To be functus means that the judge no longer has jurisdiction to decide further matters in the case. Section 73 of the Arbitration Ordinance provides that, unless the parties agree otherwise, is “final and binding” on the parties and “any person claiming through or under the parties”. That means an award is final and binding on the matter which the award decides. That does not mean, however, that the tribunal is functus following the making of an award.

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FINISH common law in connection with judgments; there is no reason why it should automatically apply to awards. Nonetheless, to be on the safe side, unless a tribunal is certain that an award is the last that it will be issuing in a particular case, the tribunal should avoid any possibility of being said to be functus despite disputed issues remaining unresolved in an arbitration. The tribunal should thus refrain from using the expression “final award” to describe an award, if it is any doubt as to whether there are any outstanding issues between the parties. The tribunal should instead as a matter of caution use expressions such as “interim award”, “partial final award” or even “final award (save as to costs, interest and taxation)”. Otherwise, come the time for enforcement of later awards, a losing party may complain to the enforcing court of a New York Convention state that, a final award having been issued early on in the arbitration, the tribunal’s mandate to arbitrate ceased and the tribunal lacked jurisdiction to issue any further awards in the arbitration. There is one further provision that a tribunal might take into account when deciding how to describe its output. Under section 61(1) of the Arbitration Ordinance, the order or direction of a tribunal may be converted into the order or direction of the Hong Kong court, with leave of the latter. If leave is granted, the court may further turn the order or direction into a judgment of the court (section 61(3)). Section 61 extends to orders or directions of a tribunal granting interim measures (section 61(5)).4 10.1.2 Drafting The focus here will be on drafting a partial final award (save as to costs and interest), following the substantive hearing of an international commercial arbitration. Under the Arbitration Ordinance, there are only a few requirements that an award must meet. Thus, section 67 (enacting Article 31 of Model Law) stipulates that the award must be in writing and signed by the members of the tribunal or at least a majority of them.5 The award must state the reasons for the tribunal’s conclusions, unless the parties have agreed that no reasons need to be given or the award merely incorporates a settlement agreement reached by the parties during the arbitration proceedings.6 The award must finally state its date and the place of arbitration (Article 31(3)). Some arbitral rules, however, may impose further requirements on what needs to be in an award. The tribunal should therefore confirm that the applicable rules do not require anything more than what is needed under the Model Law. In terms of format for the award, two are commonly used. The first method is to split the award into two parts: (1) formal award and (2) reasons for award. The formal award might comprise the following:

4 See also section 61(2). Where an order or direction is made outside Hong Kong, application may similarly be made to convert the order or direction into an order or direction of the Hong Kong court. But leave will not be granted “unless the party seeking to enforce [the order or direction] can demonstrate that it belongs to a type or description of order or direction that may be made in Hong Kong in relation to arbitral proceedings by an arbitral tribunal”. 5 Where a member of the tribunal does not sign, the reason for the omission needs to be stated in the award (Article 31(1)). 6 For the latter types of awards, see Article 30 of the Model Law (enacted by section 66 of the Arbitration Ordinance).

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FINISH (a)

(b)

Preamble. A series of statements recording that the parties entered in an international commercial contract, that the contract included an arbitration agreement, that disputes have arisen out of the contract, that the tribunal was appointed pursuant to the arbitration agreement, and that the tribunal makes its dispositive order after having considered the pleadings, evidence and submissions of the parties. Dispositive order: a declaration that the tribunal is granting or refusing the relief (for example, damages) sought by the claim or counterclaim and that interest and cost are to be dealt with in the manner stated in the award.

The reasons for the award would constitute a separate document and contain the detailed reasons for the tribunal’s decision to order or refuse the reliefs sought by the parties. The advantage of this first method is that, a party can disclose the formal award whenever necessary to prove that it has obtained an award in its favour from a tribunal. But the detailed reasons for the award, including any confidential information therein, can be kept private, outside the public glare. The second method (probably the more common) is to combine everything (dispositive order and reasons) into one document. What about the substance of an award? What should go into it?7 Many international commercial arbitrators see their awards as essentially a record of (1) the history of the parties’ dispute from the time of entering into a contract to the commencement of arbitration proceedings, (2) the procedural steps taken by the parties in the arbitration up to the substantive hearing, (3) the parties’ opening submissions, (4) the oral evidence of each witness during the substantive hearing, (5) the parties’ closing submissions, (6) the issues in dispute between the parties, and (7) the tribunal’s reasons for preferring one set of submissions over the other on a given issue. Typically, in many awards that the author has seen, the last part (7) consists of little (if any) analytical discussion of the facts and law relevant to an issue. Instead, there is simply an assertion that the tribunal prefers one side’s submissions to those of the other on a given issue and that the reasons for so preferring are those already summarized in parts (3) and (5) of the award. The result is that part (7) is extremely brief, while parts (1) to (6) occupy the bulk of a tribunal’s award. Such an approach makes for long awards (effectively “cut and paste” from the totality of materials submitted by the parties to tribunal). They serve as a detailed account of everything that has happened before, during and after a dispute arose between the parties, but little more. Long awards take time and are costly to prepare. One might therefore ask is that what the parties really want and do long awards really serve the parties’ interest? On that question, the author has serious doubts.

7 The answer to these questions in the text have been heavily influenced by the work of Professor James Raymond on judgment writing. See J Raymond, “The Architecture of Argument” (2004) 7 The Judicial Review: Journal of the Judicial Commission of New South Wales 39, available at: . The thesis here is that the principles espoused by Professor Raymond for the writing of judgments are equally applicable to the writing of awards, especially in international commercial arbitrations. The author is aware, however, that there is a prevalent view among some arbitrators that writing judgments is not the same exercise as writing awards.

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FINISH It might be suggested that, unless everything and anything even remotely connected to the parties’ dispute and the arbitration has been included somewhere in the award, there is a danger that the award will not be recognized and enforced in some strict New York Convention jurisdiction. There will be a danger that such jurisdiction will refuse recognition or enforcement because a detail that ought to have been considered was not mentioned in the award. Consequently, the argument is that, to be safe, the tribunal should mention everything in its award, even if the tribunal in its reasons ultimately does not do very much with many of the facts and matters mentioned purely as background. At least, since everything that can be mentioned has been referred to in the award, the tribunal (the argument goes) cannot be accused of having failed to consider a potentially relevant matter. But that would merely be to indulge one’s due process paranoia. In the author’s view, a tribunal is being paid to take professional responsibility. That means that a tribunal must be selective or discriminating in what it puts into an award. The tribunal’s job is to produce an award that is confined to what is relevant towards determining the real issues in dispute between the parties. The tribunal is duty-bound to state the reasons for deciding each disputed issue in some way as opposed to another. That means explaining why it rejects one party’s case and accepts the other side’s position on an issue. That means that the tribunal has to (1) identify the specific facts, law and logic that according to a party should lead to a decision in its favour on an issue and (2) explain, by reference to countervailing facts, law and logic, why the party is wrong and the other side is right. When so doing, the tribunal should not pad out the award. The tribunal must have a justification for the inclusion of every fact or matter referred to in its award. The tribunal will not be performing its duty if it stuffs its award full of everything merely to preclude accusations of having failed to consider something. The tribunal needs to be more transparent and identify exactly what it has taken into account and why. Mere padding will be tantamount to asking the parties to pay for a tribunal failing to discriminate between what is important and what is not. It does not really help a party to read long passages in an award that do nothing more than summarize, practically verbatim, what a witness and counsel have said in the course of a substantive hearing. An award is not meant to be a transcript. A summary of what has been written, said or done in the course of an arbitration would not constitute findings of fact or law. A summary will give no indication of the tribunal’s thought processes, that is, which specific facts or law out of all the evidence adduced and submission advanced, the tribunal considered important in coming to its decision. Everything else would only be surplus. What parties are most interested in in an award is whether and why their arguments on an issue have been accepted or rejected and with what outcome on a given issue. The award should consequently direct itself to doing just that, nothing more and nothing less. If the foregoing is right, it would be wrong to fill an award with irrelevant matters with a view to producing a comprehensive record of what has transpired. An arbitrator is not being paid to be a transcript writer. There is little point in mechanically recording in an award what each party or witness has said. On the contrary, the tribunal’s task in an award is to identify and resolve the main issues in the arbitration in a reasoned and analytical manner, referring by way of justification whenever necessary and appropriate to specific facts or law that have emerged in the course of evidence and submissions. 146

FINISH Where there is a conflict in the evidence or law, the tribunal will have to explain exactly why it prefers one view to another. With this is mind, it is suggested that an award have a straightforward structure of four sections, as follows: (I) (II) (III) (IV)

Introduction Background Discussion Conclusion

An award should identify the main disputed issues in the arbitration in its section I (“Introduction”). The Introduction in effect poses the questions that the tribunal will be answering in the course of the award. Note that the tribunal should not feel alone in this task. It can seek assistance from the parties and their representatives on the identification of issues. The parties and their lawyers/representatives should be required to help the tribunal from the outset of the arbitration right up to the substantive hearing and the exchange of closing submissions to identify what the real questions dividing the parties are. Section II of the award might sketch out the “Background” needed to understand the tribunal’s analysis of the issues identified in section I. Facts or law (typically undisputed) common to all of the previously identified issues can be set out in a logical (probably chronological) sequence in section II. But this part should not be a pretext for putting in everything that has happened in the lead up to the dispute and in the course of the arbitration. Selectivity and discipline are required. Only relevant facts and matters should be included by way of background. What is “relevant” for the purposes of section II are the matters necessary to understand the analysis of the issues to be found in section III. The “Background” in section II will likely consist of two sub-sections. The first will set out how the dispute arose, highlighting details that will feature in the tribunal’s analysis and resolution of the issues. This sub-section will summarize the relevant provisions of the parties’ contract, including the terms of the arbitration agreement. The second sub-section will highlight the key procedural steps in the arbitration, in particular, how the tribunal came to be constituted. Where a party has failed or ceased to take part in the arbitration, the tribunal should explain here why it is of the view that the defaulting party (1) is fully aware that the arbitration is going on, (2) has been given a reasonable opportunity to present its case in the course of the arbitration, and (3) has deliberately taken a decision not to take part in the arbitration. In section III (“Discussion”), the award can work through each identified issue one after the other. How should this be done? The focus should be to explain to the losing side on an issue why it has lost. This is because the losing side will be anxious to know whether its arguments have been given a fair hearing and addressed. Take issue 1 as an example. The award should begin the tribunal’s analysis by expressing the losing side’s best argument on issue 1 in the strongest form that the tribunal is able to do. The tribunal then identifies the weakness in that argument. The tribunal then moves to state the losing side’s next strongest argument on that issue. Thereafter, it explains why that argument is wrong. It continues in similar fashion through the third, fourth, fifth, etc arguments of the losing side, until all of the losing side’s arguments on the issue have been exhausted. 147

FINISH The tribunal concludes by stating the outcome on that issue. Having dealt with issue 1, the tribunal proceeds to issue 2 and deals with that using the same approach. One does likewise for issues 3, 4 and so on. Once the award has covered all issues, it can end with a section IV (“Conclusion”), setting out the position reached and on each issue and the resultant overall outcome. The tribunal can also set out its dispositive order in accordance with the overall outcome. On occasion, it may be that issues will need to be broken down into sub-issues for the purposes of rigorous analysis. In such instances, the award should deal with each subissue within an issue in a similar fashion to that described above. In other words, within an issue, one deals with each sub-issue by methodically taking each of the argument being advanced by the losing side on that issue and in turn pointing out the weaknesses of those arguments. At the end of each sub-issue, one takes stock of the outcome on that issue and one then moves on to the next sub-issue. Thereafter, once all sub-issues have been considered, the tribunal comes to an overall conclusion on that main issue, before moving on to the next main issue. It is possible that one side is not completely victorious on an issue or sub-issue. One side loses on most, but not all, of the disputed matters in an issue. In such case, the tribunal can acknowledge that, pointing out the weaknesses of both sides’ arguments on the issue or sub-issue and explaining how that result impacts on the overall resolution of the issue or sub-issue. When push comes to shove, a party and its representatives may adduce numerous arguments in support of their position on an issue. It is not necessary that the tribunal expressly deal with all arguments advanced, but simply the principal ones. This is a matter of the tribunal exercising a judgment as to how many arguments of the losing side in an issue should be discussed. Experience suggests that, when numerous arguments are advanced, many of the arguments are essentially variants of a few (in all likelihood, no more than two or three) principal arguments. This means that if the two or three principal arguments are not persuasive, the variants are unlikely to be any more convincing. Having disposed of the principal arguments, the tribunal can simply state that for analogous reasons the losing side’s other arguments are equally flawed. Assume now that the tribunal has decided that the claimant succeeds in its claim for amount X. The tribunal would still have to deal with interest on X (at what rate and for what period or periods) and on the incidence and taxation of costs. Costs will be considered in the next section. As for interest, if the tribunal has heard submissions on interest from the parties in the course of their closing submissions, the tribunal can proceed to award interest. How should it do so? In Hong Kong litigation, interest in an international commercial dispute will commonly be awarded at what is referred to as a “commercial rate” (typically, about 1% over HSBC’s Best Lending Rate8 if X is a Hong Kong dollar amount or 1% over the US$ prime rate9 if X is in US dollars). The “commercial rate” is assumed to be the rate that a bank would charge a plaintiff for borrowing X. The argument is that, the plaintiff having been denied X by the defendant, the plaintiff would instead have had to borrow X from 8 At present, 5%. 9 At present, 4.25%.

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FINISH the bank at the commercial rate. In the premises, the plaintiff should be compensated for the cost of borrowing X from the bank. In Hong Kong commercial litigation, interest will normally run at the commercial rate from the date of the writ until the date of judgment and thereafter at the judgment rate until payment. The judgment rate is an interest rate set by the Chief Justice of Hong Kong from time to time.10 Interest accrues on a judgment debt from the date of judgment until payment. The judgment rate is normally significantly higher than the commercial rate in order to encourage early payment of a judgment debt by a defendant. Currently, the judgment rate is 8%. In commercial cases, interest may be awarded on a simple or compound basis. Under section 79 of the Arbitration Ordinance, subject to the parties’ agreement, a tribunal: may award simple or compound interest from the dates, at the rates, and with the rests that the tribunal considers appropriate, subject to section 80, for any period ending not later than the date of payment – (a) (b) (c)

on money awarded by the tribunal in the arbitral proceedings; on money claimed in, and outstanding at the commencement of, the arbitral proceedings but paid before the award is made; or on costs awarded or ordered by the tribunal in the arbitral proceedings.

Section 80 further provides that: (1)

Interest is payable on money awarded by an arbitral tribunal from the date of the award at the judgment rate, except when the award otherwise provides. (2) Interest is payable on costs awarded or ordered by an arbitral tribunal from – (a) the date of the award or order on costs; or (b) the date on which costs ordered are directed to be paid forthwith, at the judgment rate, except when the award or order on costs otherwise provides . . ..

It is submitted that the tribunal should follow the practice of the Hong Kong court in commercial cases at least in part. In the example under consideration, it is suggested that interest be awarded on X on a compound basis11 at the commercial rate from the date of the notice of arbitration to the date of payment. Note that, by section 80, unless the award provides otherwise, interest will automatically run at the judgment rate from the date of an award. Interest at 8% being well above what one can earn nowadays on many investment instruments, it is not recommended that this part of Hong Kong litigation practice be followed. Instead, interest should simply run at the commercial rate on any outstanding amount until payment. The current commercial rate of 6% on Hong Kong dollar amounts is in any event still much higher than the return that one can obtain from an ordinary investment instrument at this time. There is no reason why a party should, as a default principle, be entitled to the even higher current judgment rate of 8%. Suppose, however, that there were no submissions on interest at the end of the substantive hearing. In that situation, the tribunal will need to give the parties a reasonable 10 See section 49(1)(b) of the High Court Ordinance (Cap.4). 11 Typically, in commercial cases, interest is ordered to be compounded with quarterly rests. It is suggested that interest be compounded, because in all likelihood if a claimant had borrowed X from a bank, the latter would be charging interest on a compound basis. Commercial enterprises normally lend and borrow money on a compound basis.

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FINISH opportunity to be heard on the question of interest. One way to deal with this is to make a provisional order12 of interest in the partial final award. The tribunal might provisionally order that interest is to run on X at a commercial rate for a particular period until payment. The provisional order will further state that, if a party wishes to vary the tribunal’s provisional decision on interest, the party may apply within (say) 28 days of the publication of the award for the interest component of the award to be varied. The tribunal might then impose a short timetable on the parties for receiving written submissions on interest. If no request to vary the interest component is received within 28 days, the provisional order can state that it will become absolute. 10.2 Costs of the arbitration At some point, the tribunal will have to deal with the costs of the arbitration. Typically, this will be done at the end of an arbitration,13 after the tribunal has published its partial final award on the substantive questions of liability and quantum. The tribunal can then direct the parties to exchange written submissions on the incidence and taxation (assessment) of costs, given what the tribunal has decided in its award. Following a sequential or double round of submissions on costs in accordance with the tribunal’s directions, the arbitrators can proceed to an award on costs and taxation.14 Alternatively, in its partial final award, the tribunal can make a provisional order in relation to the incidence of costs. Much as with the provisional order as to interest discussed in the previous section, a dissatisfied party can apply to vary the provisional costs order within the time stipulated by the tribunal. What circumstances might lead to a variation of a provisional order on costs? A common ground for varying the provisional order arises when a party makes a written settlement offer, before the publication of the tribunal’s award, on a “without prejudice, save as to costs” basis.15 For example, assume that, before the partial final award, one party made such a settlement offer to the other party. The other party rejected the offer. In the normal course of events, the settlement would not have been (and should not be) disclosed to the tribunal, because the making of a “without prejudice” settlement offer is privileged information that may (if disclosed) potentially influence the tribunal’s mind when making its partial final award on liability and quantum. Nonetheless, if the amount of the settlement offer was more generous than what the winning side has obtained by the partial final award, the rejection of the settlement offer could be relevant to the incidence

12 Sometimes also called an order nisi. 13 Attention is drawn to the useful (albeit probably not much used) provision in section 57 of the Arbitration Ordinance. That empowers a tribunal at any stage of the proceedings, unless the parties agree otherwise, to direct that “the recoverable costs of arbitral proceedings before it are limited to a specified amount”. The tribunal may limit recoverable costs on its own motion or on the application of a party. The tribunal may change its cap on recoverable costs from time to time. But, if it is to do so, it must give the parties sufficient notice of its intention to vary the limit. 14 There are a number of options in this respect. The tribunal may issue a partial final award on costs and taxation or, if the tribunal is of the view that there are unlikely to be any further awards, the tribunal can issue a final award on costs and taxation. Alternatively, the tribunal may feel that it would be more appropriate to deal with the matter in two steps. The tribunal would first issue a partial final award on the incidence of costs and, only afterwards, a partial final award (or a final award) on the taxation of costs. 15 Such type of offer is sometimes referred to in Hong Kong litigation as a Calderbank offer.

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FINISH of costs. The winning party would likely have saved significant time and cost and would probably have been better off by accepting the settlement offer. In such situation, the losing party will normally apply to vary the provisional order on the basis that the settlement offer was made and wrongly rejected. The submission would be that the winning party should at least be denied its costs from the date when the settlement offer was made.16 One difficulty, where costs are dealt with after a partial final award on liability and quantum has been published, is that the losing party in the arbitration will have little incentive to spend more money on cost submissions. The party may instead choose to be uncooperative, in an effort to forestall or delay any costs award likely to be made against it. Another problem is that the winning party may have every incentive to inflate its costs, in a bid to recover as much as possible from the losing party. A method of dealing with these problems is to invite the parties to make submissions on costs (including quantum) before any partial final award is released. In that way, being uncertain whether they will prevail in the arbitration or not, the parties are more likely to submit accurate or realistic estimates of the costs incurred by them in the arbitration. A refinement on this method17 is to ask the parties to submit their cost schedules to the tribunal electronically in password-protected files before the partial final award is issued. However, the passwords are only to be provided to the tribunal by each party after the release of its partial final award, when the tribunal deals with the incidence and taxation of costs. On the incidence and taxation of costs, the tribunal has full discretion in awarding costs under section 74 of the Arbitration Ordinance. When exercising that discretion, the tribunal is to have regard to all relevant circumstances (section 74(2)). The tribunal also has the power to tax (assess) costs and order the amounts so taxed (assessed) to be paid by a party (section 74(5)).18 In Hong Kong court litigation, as a matter of principle, costs normally “follow the event”. That means that the losing party is to pay the winning party’s costs. That is also a convenient starting point (being intuitively justifiable and fair) in international commercial arbitration. But the analysis should not stop there. The tribunal is entitled to take all relevant factors (such as whether the winning party has conducted the arbitration in an unreasonable way by alleging fraud without proper grounds or whether there has been a written settlement offer) in deciding whether ultimately the winning party should have all, some or none of its costs. Further, in court litigation, costs are ordered in a party’s favour on some “basis” as determined by the court. Usually, costs are to be paid on a “party-and-party” basis. That means a party will recover about 60% of its costs. Where the losing party has conducted the litigation in a way that the court strongly disapproves of, or that constitutes an abuse of process, costs may ordered to be paid on a more generous basis, for example, on an “indemnity basis” (allowing recovery of about 90% of the winning party’s costs). There are other bases, although these are less frequently ordered (for instance, the “solicitor and own client” basis and the “common fund” basis). Moreover, if a case is brought in the High Court, when it should have been brought before the District Court, the High 16 Note, in this connection, section 74(2) of the Arbitration Ordinance. 17 I am grateful to Dr. Colin Ong QC SC for this suggestion. 18 But the parties may agree to have their costs of the arbitration proceedings taxed by the court (section 75).

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FINISH Court may only award costs on the District Court scale (as opposed to the more generous High Court scale). The foregoing matters do not apply in international commercial arbitrations. By section 74(6), a tribunal is “not obliged to follow the scales and practices adopted by the court on taxation when assessing the amount of costs”. Instead, the tribunal “(a) must only allow costs that are reasonable having regard to all the circumstances” and “(b) unless otherwise agreed by the parties, may allow costs incurred in the preparation of the arbitral proceedings prior to the commencement of the arbitration” (section 74(7)). Interestingly, where parties contract that they are to bear their own costs of arbitral proceedings that might arise between them after entering into their arbitration agreement, section 74(8) renders such contractual provision void.19 What will typically happen in a taxation by the tribunal is that the party in whose favour costs have been ordered (say, the winning party) will present a bill of costs. In court litigation, these bills of costs are normally drawn by specialized law costs draughtspersons. The court bills of costs are often elaborate and both expensive and time-consuming to produce. But in international commercial arbitrations, a more robust, broadbrush and less costly approach is called for. It should be sufficient if the bill of costs is simply drawn up by the winning party’s representatives in the arbitration. The losing party will then be given an opportunity to comment on the bill of costs and query such items as it sees fit. Frequently, the losing side will point out (for instance) that there has been inefficient duplication of effort on the part of the winning party’s representatives and that specific items cannot be regarded as having been “reasonably” incurred in all the circumstances. The winning party will thereafter respond to the losing party’s criticisms. Finally, the tribunal will decide how much of the bill of costs to allow as reasonable and how much to disallow as unreasonable. Having come up in a rough-and-ready manner with its assessment, the tribunal will draw up an award that briefly explains the reasons for the assessment and orders the losing party to pay the assessed amount to the winning party. 10.3 Costs of the tribunal Under section 74(1) of the Arbitration Ordinance, the tribunal has the power to tax (assess) its own fees. It will normally state in its partial final award what its taxed fees are and require the parties to pay such fees before the latter award is released to them. It is entitled to exercise a lien on the award pending payment by the parties of its fees (section 77(1)). The parties are jointly and severally liable for the tribunal’s fees and expenses (section 78(1)). If a party disputes the tribunal’s fees or expenses, it may apply to the court for a determination of the reasonableness of the tribunal’s fee under the procedure in sections 77(2)–(10) of the Arbitration Ordinance.20 However, in practical terms, a tribunal will wish to be reasonably certain that it is going to be remunerated for its efforts. The prudent tribunal will therefore have obtained 19 Section 74(8) does not nullify a similar provision in respect of already existing disputes that the parties only later agree to bring to arbitration. See section 74(9). 20 Under the procedure the judge may order the dissatisfied party to pay into court the amount of the disputed fees and expenses of the tribunal.

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FINISH security for its own costs of the arbitration, long before an award is even drafted. Otherwise, the tribunal will be seriously exposed to the risk of non-payment, especially where during trial one party or the other or both form the view that one is unlikely to succeed. For the sake of good order, the tribunal should ensure that its fees are fully covered by deposits from the parties, paid in (say) before the start of the substantive hearing at the latest. Where an arbitration is administered, the tribunal can usually request the administering body to ask each of the parties to deposit half of the tribunal’s estimated fees by some reasonable date before the substantive hearing. In default of the full estimated fees being deposited into the administering body’s bank account by the stipulated date, the arbitration may have to be stayed. Where an arbitration is ad hoc, the tribunal will itself have to request that the parties deposit the tribunal’s total estimated fees into an HKIAC account specially opened for that purpose21 or into the account of one of the arbitrators. The tribunal would be well-advised never to put itself in a position of having to hunt out the parties in wherever their home jurisdiction may be in order to obtain payment of outstanding fees.

21 HKIAC charges an administrative fee for acting as a neutral stakeholder in respect of monies held in an HKIAC account. If the tribunal orders that monies be paid into an HKIAC account, the tribunal should also make clear who is to bear HKIAC's charges in respect of the same.

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CHAPTER 11

ADR support

Chapter 3 described the infrastructure of alternative dispute resolution (ADR) (including mediation, med-arb and adjudication) in Hong Kong, Singapore and Mainland China. This chapter will examine how mediation, med-arb and adjudication can and do support international commercial arbitration in Hong Kong and make the latter more effective as an expeditious and cost-effective means of resolving cross-border disputes. 11.1 Mediation Mediation can start as soon as the parties have agreed and signed a mediation agreement and appointed a mediator.1 Mediation in Hong Kong is regulated by the Mediation Ordinance (Cap.620), which came into the effect on 1 January 2013. Section 4(1) defines mediation as: a structured process comprising one or more sessions in which one or more impartial individuals, without adjudicating a dispute or any aspect of it, assist the parties to the dispute to do any or all of the following: (a) (b) (c) (d)

identify the issues in dispute; explore and generate options; communicate with one another; reach an agreement regarding the resolution of the whole, or part, of the dispute.

The definition is important, because it emphasizes that, even where mediation does not achieve a complete or partial settlement, the process may still result in significant benefits. Mediation can assist the parties to identify (and hopefully agree) what the real issues between them are. Such issues may not be limited to legal matters, but may involve economic, social, cultural or other concerns. Having identified the issues, the parties can “explore and generate options” for dealing with their problems. This would involve considering whether some issues (legal disputes) might be more efficiently resolved by obtaining a ruling from a court or arbitral tribunal, while other issues (economic, social, cultural and political concerns) might more effectively be resolved through other

1 It is rare in Hong Kong for parties to apply to the court for the appointment of a mediator. Nonetheless, in Upplan Co Ltd v Li Ho Ming [2010] 6 HKC 457, (Registrar Lung), the court gave some guidance on the factors that will be taken into account when deciding whether to appoint a person as mediator. Those factors include the issues and sums in dispute, the person’s expertise in the underlying subject matter, the person’s experience and availability as mediator, and the fees proposed to be charged.

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ADR SUPPORT means (further negotiation, longer mediation, expert determination,2 non-binding neutral evaluation,3 etc). There are limits to what arbitration can resolve. It is effective for determining disputes of fact and law, but is not particularly helpful in resolving non-legal issues, involving financial, social, political or cultural considerations. By simply getting the parties to talk and identify all issues of whatever nature keeping them apart, mediation can help to reduce the time taken in arbitration dealing with matters that are not really capable of being resolved through arbitration. A complex cross-border dispute will have many angles, not all of them legal in nature. Mediation will enable the parties first to identify specific issues and then to match the issues identified to the mode of dispute resolution best suited to resolve an issue quickly. In other words, especially when undertaken early on in a dispute, mediation may be regarded as a form of super case management. It differs from conventional case management in litigation or arbitration only in being more flexible and imaginative in the “procedural directions” that it can generate to resolve legal and non-legal questions. The potential for mediation to lead to a quicker settlement of disputes, if only through getting the parties to identify the real issues separating them and to discuss realistic ways of dealing with those issues, has implicitly been recognized by the Hong Kong court itself. The court actively encourages4 resort to mediation for the resolution of litigation through Practice Direction 315 (which came into effect on 1 January 2010). The Practice Direction penalizes a party that unreasonably rejects a proposal by another party to attempt to resolve their dispute through mediation.6 Under the Practice Direction, the refusing party may not be able to recover some or all of its costs, even if it eventually wins the court case. The logic is that, had the winning party accepted the proposal from the other side to mediate, in all likelihood the case would have settled earlier on favourable terms. Therefore, the costs of the litigation from the time when a mediation should have taken place to the time of the court’s judgment, ought without good reason to be regarded as largely wasted or unnecessary costs.

2 In expert determination, the parties appoint an “expert” to make a binding “determination” in respect of some dispute between them. The determination may be “speaking” (with reasons) or “non-speaking” (without reasons). However, in either case the determination can only be challenged on extremely limited grounds. The determination cannot be enforced as an arbitral award. See, generally, Mayers v Dlugash [1994] 1 HKC 755 (Kaplan J). 3 In non-binding neutral evaluation, the parties appoint a “neutral” to make a non-binding assessment of their respective positions on a disputed issue. 4 In Wu Yim Kwong Kindmind v Manhood Development Limited [2015] 4 HKC 598, (Deputy Judge Mak), the court noted (at [24]) that “those involved in litigation should be prepared to explore all possible means of resolving the dispute” and reminded the parties’ lawyers that they have an obligation to advise clients about the consequences of Practice Direction 31. The court noted that bilateral discussions between the parties to settle a case was not the same process as mediation. 5 Other Practice Directions promote mediation: Practice Direction 3.3 (Voluntary Mediation in Petitions Presented under Section 724 of the Companies Ordinance (Cap.622) and Section 177(1)(f) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32)); Practice Direction 6.1 (Construction and Arbitration List); Practice Direction 15.10 (Family Mediation); Practice Direction 18.1 (Personal Injuries List Part D – ADR); and Practice Direction 18.2 (Employees’ Compensation List Part B – ADR). 6 The party refusing to mediate has the burden of establishing a reasonable explanation for the refusal, while the party suggesting mediation does not have the burden of showing that the proposed mediation had a reasonable prospect of success (Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 (Lam J), at [44]).

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ADR SUPPORT Mediation may be conducted in a variety of styles. There are, for instance: (1) facilitative mediation, (2) evaluative mediation, (3) transformative mediation and (4) narrative mediation. Is there a style that is more suited to support or complement the arbitration process? Facilitative mediation is perhaps the most commonly used style in Hong Kong mediators. The mediator meets with the parties in joint and private sessions and “facilitates” the discussion of options put forward by the respective parties. The mediator will often ask questions to test whether a party’s position or proposals on a matter are tenable or realistic. But the mediator will not put forward settlement proposals of his or her own motion, nor will he or she venture an opinion on the merits of a party’s case. Evaluative mediation is more common in Mainland China than in Hong Kong. The mediator assists the parties to resolve their differences by highlighting the strengths and weaknesses of their respective cases and indicating how a court might decide particular issues in dispute. The mediator may put forward settlement proposals on his or her own motion. The evaluative mediator will accordingly need to be someone with a degree of authority (for example, a senior lawyer or retired judge), whose views will be respected by the parties. In his opening remarks at the Hong Kong session of the Global Pound Conference Series 2017, the Secretary for Justice noted that the Department of Justice’s Steering Committee on Mediation was now examining the possibility of evaluative mediation becoming more widely used in Hong Kong. The Department of Justice is currently consulting with mediation industry stakeholders to see what measures need to be taken and infrastructure to be put in place for encouraging greater resort to evaluative mediation in Hong Kong. Transformative mediation is an emerging style of mediation. The mediator attempts to repair or ameliorate the parties’ dysfunctional relationship as a prelude to the resolution of their immediate dispute. Narrative mediation is another emerging style of mediation. The mediator encourages the parties to “tell their stories” and thereby rebuild their relationship. The mediator encourages the parties to probe into the grey areas of their relationship and explore the underlying reasons for their conflicts. Of the four styles, transformative and narrative mediation are unlikely to be of much assistance in resolving purely commercial cross-border disputes. The latter two styles would probably be more appropriate in inter-personal or family disputes where a more intimate approach may be beneficial and therapeutic. It is thus submitted that, in international commercial disputes of the sort that frequently go to arbitration, the facilitative and evaluative styles will almost certainly be the preferred methods of mediating between the parties in an effort to get them to settle early or narrow down the issues for determination by the arbitral tribunal. Further, given the popularity of evaluative mediation and med-arb in Mainland China, the development in Hong Kong of evaluative mediation capacity could attract companies from Mainland China to make greater use of Hong Kong mediation services in conjunction with the arbitration dispute resolution services already provided by HKIAC and other Hong Kong-based organizations. The Hong Kong Government has recently spearheaded two legislative initiatives that may have a significant impact on the international commercial arbitration market in Hong 156

ADR SUPPORT Kong. One initiative was the introduction and passage of a Bill7 to amend the Arbitration Ordinance and the Mediation Ordinance, so as to allow third party funding of arbitration proceedings, mediation proceedings, and arbitration-related court proceedings. The potential consequences of third party funding on international commercial arbitration will be discussed in Chapter 13. For present purposes, it suffices to note that the availability of third party funding in connection with arbitration and mediation should make it easier for meritorious parties to resort to both as a means of resolving their commercial disputes. Given that the funder’s investment in an international commercial arbitration will be at risk in the event of an adverse award, it should be in the funder’s interest to encourage the funded claimant to engage in mediation relatively early on, in parallel with the funded arbitration proceedings. As a rule of thumb, mediations are successful in about 70% of cases. Accordingly, there should usually be a good prospect of the mediation achieving a satisfactory settlement, commensurate with the merits of the funded claimant’s case, at an early stage. The funder would thereby receive an early dividend on its investment and avoid the high costs associated with international commercial arbitration. The second initiative was the introduction and passage of the Apology Ordinance (Cap.631)8. The Ordinance’s object, as stated in its section 2, is “to promote and encourage the making of apologies with a view to preventing the escalation of disputes and facilitating their amicable resolution”. The Ordinance will apply to civil and non-criminal forms of proceedings (such as disciplinary proceedings). The Ordinance provides that an apology “does not constitute an express or implied admission of the person’s fault or liability in connection with the matter” (section 7(1)), and “must not be taken into account in determining fault, liability or any other issue in connection with the matter to the prejudice of the person” (section 7(2)). Evidence of an apology is not admissible in those proceedings unless “the decision maker is satisfied that it is just and equitable to do so, having regard to the public interest or the interests of the administration of justice” (section 8(2)). Also, an apology “does not void or otherwise affect any insurance cover, compensation or other form of benefit for any person in connection with the matter under a contract of insurance or indemnity” (section 10(2)). Parties in mediation will now be able to propose the making of an apology in lieu of some or all of the monies claimed by one side or the other. The legislation thus adds to the options available for avoiding further arbitration or litigation and resolving a dispute early. 11.2 Med-arb The focus here will be on situations where the same person acts as mediator and arbitrator. There is an advantage to a mediator becoming the arbitrator in the event of an abortive mediation. The mediator turned arbitrator will already be familiar with the case from the 7 The Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 was passed by the Legislative Council on 14 June 2017 and is expected to come into effect in December 2017 or January 2018. The Bill provides that the common law offences of maintenance, champerty and barratry will not apply to the third party funding of arbitration, mediation and arbitration-related court proceedings. The Bill also provides safeguard mechanisms to prevent abuse by third party funders. See sections 98E to 98W of the new Part 10A of the Arbitration Ordinance (Cap.609) and Part 7A of the Mediation Ordinance (Cap.620). 8 The Apology Bill was passed by the Legislative Council on 13 July 2017, and gazetted as the Apology Ordinance (Cap.631) on 20 July 2017.

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ADR SUPPORT mediation stage. So there will be a saving of time and cost. It will not be necessary to pay someone else to read in and become acquainted with a case. But there are significant disadvantages. There is the question whether the arbitrator will consciously or sub-consciously be influenced in his or her decision by confidences communicated during the mediation. The Arbitration Ordinance provides some safeguards. But, as noted in Chapter 3, it is far from clear that the safeguards are sufficient. The difficulties may be compounded where a mediator took an evaluative style during the mediation and indicated to the parties in joint or private session what his or her views were of the strengths of weaknesses of each side’s case. The arbitrator will be accused of not having come to the arbitration with an open mind and of instead holding pre-conceived notions. Nonetheless, on the assumption that one has been appointed to be mediator and (if the mediation proves unsuccessful) arbitrator, how should one conduct one’s self? In 2009 the CEDR Commission on Settlement in International Arbitration published a Final Report with an Appendix 2 proposing “Safeguards for Arbitrators Who Use Private Meetings with Each Party as a Means of Facilitating Settlement”.9 The purpose of Appendix 2 (as noted in the first paragraph) is to offer principles that may minimize the considerable risks in med-arb.10 The Safeguards essentially require a mediator-arbitrator who will be holding private sessions with the parties to explain the risks involved to the parties and confirm that they are willing to run those risks.11 It is further recommended that the mediator obtain the parties’ written consent as to how information obtained in the mediation can be used. The parties “may require the arbitrator to disclose any such information to all parties and provide them with an opportunity to comment on it” or, alternatively, “[to] disregard any confidential information that may have been disclosed during private meetings, and . . . be under no duty to disclose it”. The necessary consent should be obtained prior to the arbitration, both before the mediation starts and (ideally) also after the mediation fails. The CEDR requirements may well have the result that “an arbitrator will be discouraged from engaging in a med-arb process, which involves meeting privately with each party as part of the mediation phase”.12 Even where the parties agree to med-arb on these stringent conditions, where “any arbitrator develops doubts as to his or her ability to remain impartial or independent in the future course of the arbitration proceedings, that arbitrator should resign”.13 Obviously, if there is a resignation, med-arb in the case will not have resulted in a saving of time and cost, but will have led to more time and cost being spent. It is therefore doubtful that med-arb can be recommended with any confidence as a way of complementing international commercial arbitration in Hong Kong. By all means, one can try a combination of mediation and arbitration where the mediator and arbitrator are different persons. A twin-tier process of that nature may lead to significant savings in time and cost for the reasons outlined in section 1. Trying to save time and cost further by using the same person as mediator and arbitrator might work in some cases, but can easily lead in many case to the creation of more problems than are resolved. 9 The Safeguards are at p. 14 ff of the Final Report, available at: . 10 But CEDR stresses in the same paragraph that it is not specifically recommending med-arb. 11 Safeguards (n 9), at [6] and [7]. 12 Safeguards (n 9), at [1.2]. 13 Safeguards (n 9), at [7.6].

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ADR SUPPORT 11.3 Adjudication Adjudication is a simple, effective and expeditious method of resolving disputes. It is sometimes described as “rough justice”.14 The adjudicator or adjudicating board is appointed and conducts the adjudication in accordance with the rules and terms of the parties’ contract and its applicable law, including the usually short time frame stipulated. The determination is binding on the parties in the short term, so that the parties can move ahead with whatever project has engaged them. The adjudicator’s decision can later be re-visited and re-opened in another forum such as arbitration. But, in practice, the parties may be content to abide by the quick decision of the adjudicator or adjudicating board. Adjudication is well-suited to construction disputes. Unless quick decisions are taken to resolve such disputes, multi-million or billion dollar projects will be held up. Delays due to disagreements result in contractors’ and sub-contractors’ payments being held up with serious consequences on their cash-flow. Delays also lead to millions of dollars of liquidated damages becoming payable. The 2001 Report of the Construction Industry Review Committee (the Tang Report)15 recommended that Hong Kong take a proactive approach to improving dispute resolution in the construction industry. The proposal was to make greater use of contractual provision requiring parties to resort to ADR processes, including adjudication, for the speedier resolution of their disagreements.16 The Tang Report also highlighted a need for enacting security of payment (SOP) legislation, taking account of local circumstances and overseas experience.17 In 2011 the Hong Kong Government’s Development Bureau and the Construction Industry Council (CIC) conducted a survey of payment practice in the local construction industry (DEVB survey).18 The DEVB survey showed that the average outstanding payments per annum were:19 (1) (2) (3) (4)

HK$9.4 billion for main contractors (equivalent to 8% of total business receipts). HK$9.9 billion for sub-contractors (equivalent to 12% of total business receipts). HK$1.4 billion for consultants (equivalent to 10% of total business receipts). HK$0.4 billion for suppliers (equivalent to 5% of total business receipts).

The survey suggested that main contractors, sub-contractors, consultants and suppliers had all experienced significant payment problems in the course of construction projects, especially within the private sector.20 The DEVB survey also showed that, with the exception of developers, relatively high percentages of different stakeholder groups (main contractors, sub-contractors, consultants and suppliers) considered payment problems in the construction industry as either “very serious” or “serious”:21

14 See, for instance, Gipping Construction Ltd v Eaves Ltd [2008] EWHC 3134 (TCC), at [8]. 15 Available at: . 16 Tang Report (n 15) at [5.79]. 17 Tang Report (n 15) at [5.80] and p. 172. 18 Available at: . 19 DEVB Survey (n 18), at [13]. 20 DEVB Survey (n 18), at [16]. 21 DEVB Survey (n 18), at [19].

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ADR SUPPORT (1) (2) (3) (4)

45% 57% 37% 49%

of of of of

main contractors. sub-contractors. consultants. suppliers.

Disagreements and disputes between contracting parties appeared to be the major reason for payment problems in construction contracts. The DEVB survey further revealed that conditional payment terms, such as “pay when/if paid”, were often at the heart of payment disputes.22 All of this prompted the Hong Kong Government to consider addressing the problem of delayed payments in construction projects through security of payment legislation (SOPL) similar to that enacted elsewhere.23 In June 2015 the Government issued a Consultation Document on Proposed Security of Payment Legislation for the Construction Industry for public comment.24 A Report on the outcome of the public consultation came out in April 2016.25 The results of the consultation were mixed. There was general consensus in favour of the following:26 (a) (b) (c) (d) (e) (f) (g) (h) (i)

(j)

SOPL applying to all Government contracts, and contracts entered into by the specified statutory and/or public bodies and corporations. Limiting coverage of SOPL to contracts relating to construction activities in Hong Kong. SOPL applying to contracts for the supply of materials or plant. Retaining full freedom for parties to agree when payments can be claimed and the basis of valuation of the same but limiting the maximum payment periods which can be imposed once a party is entitled to claim. Providing a recognised mechanism to ensure those who undertake work or provide services, materials or plant can claim payments and payers can respond to the same. Providing “default” payment terms in the event that parties do not make express provision in their contracts as to when payments can be claimed, how they are to be valued and responded to and when amounts due must be paid. No set off against a payment claim to be allowed unless notified in a timely payment response. “Pay when paid” and conditional payment provisions will be unenforceable, including in relation to nominated sub-contracts. Parties who have not been paid an amount admitted as due in a payment response or decided as due by an adjudicator will be entitled to suspend or slow down works and will be entitled to additional costs and extensions of time to compensate them for any resulting delays. Either party to a contract will be entitled to refer disputes arising in relation to payment claims under their contract to adjudication for a decision within 55 working days (or longer period agreed by the parties). There is a 28 calendar day time limit for commencing adjudication once a right to adjudicate arises.

22 DEVB Survey (n 18), at [28]—[36]. 23 For example, United Kingdom (Housing Grants, Construction and Regeneration Act 1996); New South Wales (Building and Construction Industry Security of Payment Act 1999); New Zealand (Construction Contracts Act 2002); Singapore (Building and Construction Industry Security of Payment Act 2004); and Malaysia (Construction Industry Payment and Adjudication Act 2012). 24 Available at: . 25 Available at: . 26 Report (n 25), at [143].

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ADR SUPPORT (k) (l)

Parties are free to agree adjudicator nominating bodies in their contracts. Adjudicator’s decisions to be enforced in the same way as court judgments without set off or deduction and allowing paying parties only a short period within which to challenge the enforceability of a decision.

But there were “divergent views” on a number of important matters such as:27 (a) (b) (c) (d) (e) (f) (g) (h) (i)

Whether private sector coverage should be limited to contracts for “new buildings” with a main contract value in excess of HK$5 million. Whether SOPL should apply to oral and partly oral contracts as well as written contracts. Whether SOPL should apply to professional services contracts. The setting of appropriate maximum permissible payment periods and whether there should be different periods applicable to interim and final payments. The setting of the maximum period to be allowed to payers to respond to a payment claim. Whether payers who fail to serve a timely payment response should or should not be automatically liable to pay the full amount of the relevant payment claim. Whether parties should be entitled to refer disputes in relation to extension of time under their contracts to adjudication. Whether a better process/procedure is needed for appointment of an adjudicator and referral of the dispute to the adjudicator once a notice of adjudication is served. Whether parties should only be able to agree an adjudicator after a dispute has arisen or whether it would be better if they could do so in their contracts or after their contracts are entered into. Whether the default nominating body should be HKIAC or whether a different or other bodies should be able to carry out default nominations of adjudicators.

Accordingly, further discussion among stakeholders and work on refinements still need to be done before SOPL (including a system of adjudication in support) becomes a reality in Hong Kong. The Government remains committed nonetheless to introducing SOPL and has said that, after studying the results of the consultation, it will be submitting a Bill incorporating a finalized SOPL framework to the Legislative Council.28 In summary, the introduction in Hong Kong of SOPL, along with a supporting system of adjudication, will no doubt have an impact on the arbitration of construction disputes, possibly cutting down on the number of payment disputes that go all the way to a final arbitral award. Unfortunately, given the current “divergent views” among stakeholders, the reality is that construction dispute adjudication is unlikely to take off in the near future as a popular mode of ADR in Hong Kong.

27 Report (n 25), at [144]. 28 Report (n 25), at [146].

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CHAPTER 12

Judicial support

The Hong Kong court is famously pro-arbitration. A succession of specialist judges in charge of the Hong Kong court’s Construction and Arbitration List has ensured that the Hong Kong court is fully supportive of the parties’ agreement to have their dispute resolved through arbitration, instead of through litigation. Hong Kong judges have further repeatedly stressed the need for arbitrations to be conducted in a manner that is costefficient, expeditious and fair to all parties. The first section of this chapter will summarize the key provisions in the Arbitration Ordinance empowering the court to intervene or assist, in so far as necessary or appropriate, in international commercial arbitration proceedings. In so doing, it will attempt to identify the general principles that should guide the court when deciding whether to intervene or assist in international commercial arbitration proceedings seated in Hong Kong or elsewhere. The second section will consider how the court should exercise its powers in specific paradigm situations. The section will examine (among other matters) the setting aside of awards by the court when Hong Kong is the seat of arbitration, as well as the recognition and enforcement of awards when Hong Kong is not. In the course of this discussion, the section will consider the Court of Appeal’s recent judgment in the Astro Nusantara case.1 The case will serve as a springboard for some observations on estoppel and waiver in the setting aside of awards in the seat of arbitration and on the recognition and enforcement of awards in other jurisdictions. As frequent reference will be made to the Astro Nusantara case throughout this chapter, the facts are briefly set out here: (1)

First Media applied in Hong Kong for an extension of the time in which to set aside a Hong Kong court order recognizing a Singapore award and making it enforceable as a judgment of the Hong Kong court. First Media had not applied to set aside the award in Singapore (the seat of arbitration) within the three-month period allowed in Singapore for so applying.

1 Astro Nusantara International BV v PT Ayunda Prima Mitra CACV No.272 of 2015, 5 December 2016 (Kwan JA and Lok J), on appeal from HCCT No.45 of 2010, 17 February 2015 (Chow J). Leave to appeal to the Court of Final Appeal was refused by the Court of Appeal: CACV No.272 of 2015, 29 March 2017 (Lam VP, Kwan JA and Lok J). An application for leave to appeal before the Court of Final Appeal will be heard in midAugust 2017. Both Chow J and the Court of Appeal referred extensively in their judgments to the related decision handed down by the Singapore Court of Appeal on 31 October 2013. That is reported at [2013] SGCA 57, [2014] 1 SLR 372 (Menon CJ, Rajah JA and Prakash J).

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(3)

(4)

But, when the relevant claimants applied to enforce the award against First Media in Singapore, First Media successfully resisted enforcement of the award in Singapore. The Singapore Court of Appeal held that there was no arbitration agreement between the relevant claimants and First Media and so the tribunal lacked jurisdiction to join First Media as a party and make an award against it. First Media had not resisted the Hong Kong court order making the Singapore award enforceable, because First Media believed (it turned out wrongly) that it had no assets in Hong Kong against which the award could be enforced. When First Media realized its error, it sought to apply (14 months out of time) to set aside the Hong Kong court order. To achieve its objective, First Media first had to seek from the Hong Kong court an extension of the time in which to apply to set aside the Hong Kong order. The question before Chow J at first instance and the Court of Appeal was whether First Media was entitled to an extension of the time in which to apply to set aside the Hong Kong court order. Chow J held that, as matter of discretion, he was not prepared to extend the time available to First Media. The Court of Appeal upheld Chow J’s exercise of discretion.

12.1 Powers 12.1.1 General principles General guidance on how the Hong Kong court should exercise its powers in respect of judicial intervention and assistance in arbitration proceedings is found in sections 3, 9, 11 and 12 of the Arbitration Ordinance (Cap.609). Section 3(2) expresses two cardinal guiding principles, one in section 3(2)(a) and the other in section 3(2)(b). Section 3(2)(a) is the familiar principle of party autonomy. This is 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”. The parties having voluntarily agreed to arbitrate, the court should respect the bargain that the parties have struck to the fullest extent possible. If there is an overriding public interest at stake, the court may interfere, but then only to the degree permitted by the second principle in section 3(2)(b) (discussed below). One might ask what would constitute an overriding “public interest”? It is submitted, by way of example and without any attempt at being exhaustive, that a public interest may arise in consumer or employment disputes. In those situations, there will often be unequal bargaining power between the parties to a contract and so there may be justification for court intervention to protect the more vulnerable party from exploitation by the stronger one. But the focus in this book is on disputes arising out of international commercial contracts. It would be surprising in such situation, where contracts (including the arbitration agreement or dispute resolution mechanism) are negotiated at arm’s length, that there will be an overriding public interest justifying intervention. Further, it is not likely that in purely commercial deals there will be some contractual element contrary to the fundamental legal, religious, social, political, cultural or moral norms of 163

JUDICIAL SUPPORT Hong Kong. In the absence of a contractual element of that nature, it is submitted that the principle of party autonomy should prevail and the court should not intervene on grounds of public policy or interest. Section 3(2)(b) may be regarded as a corollary of party autonomy. It is a principle of general judicial restraint and minimal interference in arbitration proceedings. This is that “the court should interfere in the arbitration of a dispute only as expressly provided for in this Ordinance”. Thus, there is no question of the court claiming some “inherent jurisdiction” to interfere in arbitration proceedings. If it wishes to intervene, the court must at all times be able to point to a provision in the Arbitration Ordinance that expressly entitles it to intervene in the intended manner. If it cannot point to a provision, then it should not interfere. Section 12 (enacting Article 5 of the Model Law) confirms the principle of minimal intervention by the court: “In matters governed by this Law, no court shall intervene except where so provided in this Law.” Section 9 enacts Article 2A of the Model Law. The latter requires a court (not just a tribunal) when interpreting the Model Law to have “regard” to the latter’s “international origin and to the need to promote uniformity in its application and the observance of good faith”. Where the Model Law has not expressly dealt with a question, then the difficulty should be “settled in conformity with the general principles on which this [Model] Law is based”. This means that, in interpreting the Model Law, the court should not be afraid to look at the jurisprudence of other Model Law states (both common law and civil law jurisdictions) and should decide any gaps or uncertainties in the Model Law in a manner that promotes uniformity with what has been decided in other Model Law jurisdictions. There is a tendency in the Hong Kong court only to have regard to its own previous decisions and possibly English and Australian court judgments when construing the Model Law. But section 9 mandates (and may require) that the Hong Kong court venture much more widely and deeply into the global case precedents on the Model Law.2 Further, whenever appropriate the court should be guided by a principle of the “observance of good faith”. It can therefore ask itself how parties acting in “good faith” would (or would not) conduct themselves in the situations under consideration by the court. It is sometimes pointed out that, in common law jurisdictions such as Hong Kong and England, there is no implied obligation of good faith as a matter of law.3 This is in distinction to civil law jurisdictions where the law readily implies a duty of good faith. However, in this instance, the Model Law expressly requires the court to interpret the Model Law in a way that promotes good faith. Accordingly, it is irrelevant whether or not as a matter of abstraction there is a general duty of good faith at Hong Kong common law. Instead, the Model Law as enacted in Hong Kong expressly stipulates a duty of good faith.

2 Cases on UNICTRAL instruments (including the Model Law) may be found in . 3 See Greenclose Ltd v National Westminster Bank plc [2014] EWHC 1156 (Ch) (Andrews J), at [150]: “[T]here is no general doctrine of good faith in English contract law and such a term is unlikely to arise by way of necessary implication in a contract between two sophisticated commercial parties negotiating at arms’ length.” See also Hospital Services NHS Trust v Compass Group UK & Ireland Ltd. [2013] EWCA Civ 200, at [105] (per Jackson LJ): “[T]here is no general doctrine of ‘good faith’ in English contract law, although a duty of good faith is implied by law as an incident of certain categories of contract. . . . If the parties wish to impose such a duty they must do so expressly.”

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JUDICIAL SUPPORT Section 11 (enacting Article 4 of the Model Law) expresses what might be called a weak form of waiver or estoppel principle. If a party is or becomes aware of some procedural non-compliance during an arbitration, but does not object within a reasonable time thereafter, and proceeds with the arbitration instead, the party will be treated as having waived any right to object to the non-compliance at a later point. The principle is a weak form of waiver or estoppel because on its terms it only applies where a party “proceeds with the arbitration without stating his objection”. A respondent may elect to not to participate at all in an arbitration and so remain silent when the claimant proceeds to obtain an award in default of the respondent’s appearance. But in that case it is doubtful that the respondent can be said to have “proceeded with the arbitration”. The principle of weak waiver in section 11 may be regarded as a logical offshoot of the object of the Arbitration Ordinance explicitly acknowledged in section 3(1): “The object of this Ordinance is to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense.” Indeed, section 3(1) may be treated as providing the rationale behind the principles of party autonomy, minimal interference, uniformity of approach, good faith and waiver discussed above. The parties having voluntarily agreed to settle any disputes by arbitration and not through litigation, the court should respect their bargain (principle of party autonomy). To this end, the court should only intervene when necessary and as authorized by the Ordinance (including the Model Law) (principle of minimal interference). In deciding what to do if and when it intervenes, the court is entitled to consider international practice in respect of the Model Law (principle of uniformity of approach) and that the parties will observe good faith in their dealings with each other (principle of good faith). Further, the court must be astute not to let a party delay matters by only belatedly taking procedural points that ought to have been made much earlier in the arbitration proceedings (principle of waiver). That will ensure that disputes are settled through arbitration in accordance with the parties’ wishes in a fair and speedy manner without unnecessary expense (objective to be attained by reference to the general principles embodied in the Arbitration Ordinance and the Model Law). 12.1.2 Specific powers The court has the following powers under the Arbitration Ordinance:4 (1) To stay court proceedings and refer parties to arbitration when litigation is commenced in breach or apparent breach of an arbitration agreement (section 20). (2) To grant leave for the enforcement of emergency relief (section 22B). (3) To deal with challenges to the appointment of an arbitrator (section 26). (4) To decide whether an umpire is to replace a tribunal (section 31(8)). (5) To decide whether a tribunal has correctly decided that it has jurisdiction to hear an arbitration (section 34). (6) To grant interim measures (section 45).

4 Note that, by section 5 of the Arbitration Ordinance, when an arbitration takes place outside Hong Kong, the court only has the powers under sections 20, 22B, 45, 60, 61, 84, 87, 92 and 98A.

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JUDICIAL SUPPORT (7) To order a person to attend an arbitration to give evidence or produce documents (section 55). (8) To extend the time for an arbitration (section 58(7)). (9) To make orders where there has been delay in pursuing a claim by arbitration (section 59(5)). (10) To give directions for the inspection, photocopying, preservation, custody, detention or sale of relevant property or for taking samples in connection with arbitration proceedings (section 60). (11) To grant leave to enforce the order or direction of the tribunal as an order or direction of the court (section 61). (12) To assist in the recovery of fees paid to an arbitrator (section 62). (13) To extend the time for making an award (section 72). (14) To determine a tribunal’s fees and expenses (section 77). (15) To set aside an award made in Hong Kong (section 81). (16) To enforce awards which are not Convention, Mainland or Macau awards5 as a judgment of the court (section 84). (17) To enforce Convention awards as a judgment of the court (section 87). (18) To enforce Mainland awards as a judgment of the court (section 92). (19) To enforce Macau awards as a judgment of the court (section 98A). In short, the court has four major supporting roles in arbitration proceedings. First, it can determine whether an arbitral tribunal has jurisdiction to hear an arbitration. Second, it can make a diverse set of interlocutory orders (including orders determining challenges to the appointment of an arbitrator or tribunal, granting leave for the enforcement of emergency relief, granting interim measures, ordering witnesses to appear in an arbitration, giving directions in relation to evidence for the arbitration, dealing with arbitrators’ fees and expenses, and converting the interlocutory orders and directions of the tribunal into orders and directions of the court) in aid of arbitrations. Third, it can set aside awards made in Hong Kong. Fourth, it can recognize and enforce awards as judgments of the court. It should be noted that there are opt-in provisions in the Arbitration Ordinance. Section 99 allows the parties to opt in at the time of entering into the arbitration agreement to some or all of the provisions in Schedule 2 of the Arbitration Ordinance. The provisions offer the possibility of a greater involvement of the court (including the Court of Appeal) in arbitration proceedings. Thus, for example, section 3 of Schedule 2 if incorporated into an arbitration agreement would enable a party to apply to the court for the determination of a question of law arising in the course of the arbitral proceedings. The determination would be appealable, subject to the grant of leave, to the Court of Appeal. Section 4 of Schedule 2 if incorporated would entitle a party to challenge an award on the ground of serious irregularity. Again, the court’s determination may be appealed, subject to the grant of leave. Sections 5 and 6 of Schedule 2 would allow the parties to appeal to the court on a 5 The terms are defined in section 2 of the Arbitration Ordinance. A “Mainland award” as an “award made in the Mainland by a recognized Mainland arbitral authority in accordance with the Arbitration Law of the People’s Republic of China”. A “recognized Mainland arbitral authority” is defined in the same section as “an arbitral authority that is specified in the list of recognized Mainland arbitral authorities published by the Secretary for Justice under section 97”. A “Convention award” is an award made in a contracting state to the New York Convention. A “Macau award” is an award made in Macau according to its arbitration law.

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JUDICIAL SUPPORT question of law arising out of an award. The court must then decide the question of law on the basis of the findings of fact in the award (section 5(3)). Leave to appeal further is not to be granted by a court if no question of general importance or no special reason is involved. 12.2 Exercise of powers It is now proposed to examine how the court exercises its power when performing each of the four supporting rules identified in the previous section. 12.2.1 Jurisdictional challenges Section 20(1) of the Arbitration Ordinance (which enacts Article 8 of the Model Law) provides: A court before which an action is brought in a matter which is a subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

Therefore, the court’s approach when litigation is commenced in apparent breach of an arbitration agreement, should be robust. The court proceedings actions should be stayed,6 unless the court is satisfied that the agreement is “null and void, inoperative or incapable of being performed”. It will sometimes be argued by a plaintiff who has commenced the court proceedings that an apparent agreement to arbitrate is “null and void, inoperative or incapable of being performed”. The defendant in the proceedings may dispute this. In those circumstances, unless there is a clear admission by the defendant that an apparent arbitration agreement is “null and void, inoperative or incapable of being performed”, the matter should be stayed to a tribunal to determine whether or not there is a valid arbitration agreement.7 In other words, in the absence of a clear admission, it should invariably be the tribunal that first considers whether an alleged arbitration agreement is or is not valid. That practice would be consonant with the principles of party autonomy and minimal interference by the court. The parties agreed to have their disputes arbitrated, including any dispute as to whether the parties validly agreed to have their disputes arbitrated. It is unnecessary in the absence of a plain admission of nullity, for the court to interfere in the first instance, since the parties are always entitled to come back to the court if they disagree with a ruling by the tribunal that it has jurisdiction (section 34 of the Arbitration Ordinance, enacting Article 16 of the Model Law). It is true that, when the author was the judge in charge of the Construction and Arbitration List of the Hong Kong court, he proceeded on a different basis. He took the view that, where it could readily be determined in a short hearing whether or not there was a valid arbitration agreement, it would save time and cost (in keeping with section 3(1)) for the 6 Where Admiralty in rem proceedings are commenced in breach of an alleged arbitration agreement, the court has the option of staying the proceedings “subject to any conditions that it may impose, including the making of an order for the property arrested or the bail or security given in those proceedings to be retained as security for the satisfaction of any award made in the arbitration” (High Court Ordinance (Cap.4), section 12B(6A)). 7 Chimbusco International Petroleum (Singapore) Pte Ltd v Fully Best Trading Ltd HCA No.2416 of 2014, 3 December 2015 (Mimmie Chan J), at [19].

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JUDICIAL SUPPORT court to make a ruling on whether an alleged arbitration agreement was or was not valid. In that way, the parties would not waste time and cost constituting a tribunal, when the arbitration agreement was all along invalid. Further, if the court ruled early on that the arbitration agreement was valid, the parties could proceed to arbitration, without having to worry about an appeal to the court against a ruling by the tribunal on its jurisdiction. The court will already have given a definitive decision on the matter. If, on the other hand, the parties were first required to argue jurisdiction before a tribunal, there would remain the possibility of a party appealing against the tribunal’s ruling on jurisdiction. The court could then find that the tribunal was wrong and all the time and cost spent arguing jurisdiction before the tribunal would be wasted. Attractive though that thinking seemed at the time, the author is now firmly of the opinion that he was wrong in his approach, because he did not give sufficient weight to the principles of party autonomy and minimum interference. Suppose that a tribunal has ruled that it has jurisdiction and a dissatisfied party appeals to the court against that decision. The court is plainly mandated by section 34 to re-hear the question of jurisdiction.8 The question is: what standard of review does the court apply when considering the jurisdictional challenge afresh? There would broadly be two standards. First, the court can conduct a complete re-hearing, including a re-hearing of any factual or expert witness evidence adduced by one side or the other before the tribunal in support of its case. As a complete re-hearing, this first approach would not preclude a party from presenting new evidence, including new factual or expert evidence in support of a case that there was or was not a valid arbitration agreement. The second approach would also be a “re-hearing” of sorts, but would be more akin to the approach on a judicial review. The court reviews the tribunal’s reasoning on the material placed before it by the parties and assesses whether the tribunal’s decision is one that a reasonable tribunal could have reached on the evidence and submissions before it. Only if the tribunal’s decision was one that no reasonable tribunal could have made would the court set aside the tribunal’s ruling on the validity of the arbitration agreement. Under this second approach, the parties would not be able to adduce fresh evidence, without some compelling reason why the material was not previously made available to the tribunal. It is submitted that a choice between the two approaches will depend on the nature of the jurisdictional challenge. As explained in Chapter 6,9 there are essentially four types of jurisdictional challenge that can be mounted: (1) (2) (3) (4)

An allegation that an arbitration agreement is a nullity because the parties never agreed to arbitrate their disputes at all. An allegation that the parties’ dispute does not fall within the scope of an admittedly valid arbitration agreement. An allegation that a condition precedent to a party invoking an admittedly valid arbitration agreement has not been met. An allegation that an otherwise valid arbitration agreement has been vitiated by mistake; fraudulent, negligent or innocent misrepresentation; undue influence; duress; or corruption and other illegality.

8 If the tribunal rules that it has no jurisdiction, there is no appeal to the court against that decision. The court must hear the substantive dispute. See sections 34(4) and (5) of the Arbitration Ordinance. 9 See pp. 79–80.

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JUDICIAL SUPPORT It will be noted that, it is only in the first type of case that a party denies that an arbitration agreement ever came into existence. In the second and third types of case, it is conceded that there is an arbitration agreement. In the fourth type of case, it is argued that, as a result of some event, an arbitration agreement has been rendered null, void or unenforceable. It is submitted that the first approach (which is likely to be the more costly and timeconsuming) should only be used in the first type of case. That is because, although a tribunal has the power to rule on its own jurisdiction, where it is possible that the parties never agreed at all to arbitrate, the tribunal’s ruling on its jurisdiction can carry no weight at all in the absence of confirmation by the court. It may be that the parties never agreed at all to be bound by any tribunal’s ruling. On the other hand, in the second to fourth types of cases, there is apparently an arbitration agreement and the only real questions are whether a dispute is within its scope, or whether a condition precedent to triggering arbitration has been met, or whether an event has invalidated the arbitration agreement. Given the apparent existence of the arbitration agreement, the parties must be presumed to have agreed that it should be for an arbitral tribunal to decide the questions of scope, condition precedent or invalidating event. From an objective point of view, the parties have apparently agreed to abide by a tribunal’s decision as to its jurisdiction. In the circumstances, the court should only be concerned to check that the tribunal has not acted in an irrational manner in determining that it has jurisdiction. A judicial review of the tribunal’s ruling on the evidence and submissions before the tribunal should be sufficient in the interests of fairness, time and cost. 12.2.2 Interlocutory orders in aid of arbitrations The focus here will be on the court’s power to grant interim measures (section 45), to order a person to appear as a witness in arbitrations (section 55), and to give directions in relation to evidence in the arbitration (section 60). The powers in sections 45 and 60 may be exercised in aid of arbitrations that have been or are about to be commenced outside Hong Kong, but only if the latter proceedings are capable of giving rise to an arbitral award enforceable in Hong Kong.10 Where interim measures are concerned, there is the additional restriction that the court can only order “interim measures that may be granted in Hong Kong in relation to arbitral proceedings”.11 It will be convenient to consider the powers under sections 45 and 60 together, before moving on to the power under section 55.

10 See sections 45(5)(a) and 60(6). Section 60(6) is applicable even if “the arbitral proceedings would not, apart from that subsection, give rise to a cause of action over which the court would have jurisdiction” or “the order sought is not ancillary or incidental to any arbitral proceedings in Hong Kong” (section 60(7)). In the case of orders under section 45 and 60 in aid of arbitrations outside Hong Kong, the court “must” have regard to the fact that the power being exercised is “ancillary to the arbitral proceedings outside Hong Kong” and is “for the purposes of facilitating the process of a court or arbitral tribunal outside Hong Kong that has primary jurisdiction over the arbitral proceedings” (sections 45(7) and 60(8)). 11 See section 45(5)(b). As a corollary to this, the court has the “same power to make any incidental order or direction for the purposes of ensuring the effectiveness of an interim measure granted in relation to arbitral proceedings outside Hong Kong as if the interim measure were granted in relation to arbitral proceedings in Hong Kong” (section 45(8)).

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JUDICIAL SUPPORT The court’s powers under sections 45 and 60 are concurrent with the arbitral tribunal’s powers to grant similar interlocutory relief.12 Further, regardless of the existence of an arbitration agreement, it is “not incompatible . . . for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such protection”. Thus, a party may apply to the court for an interim measure at any time. How then should the court approach the question of granting interlocutory relief under sections 45 and 60? What the court would like to avoid as much as possible is the situation where court and tribunal are at cross-purposes with one forum ordering one thing and the other forum directing something else. Further, the court would as much as possible wish to minimize or avoid a wasteful duplication of applications, before the tribunal and the court, seeking similar (possibly identical) interlocutory relief. In general terms, there are five scenarios that might arise: (1) (2) (3) (4) (5)

An arbitration (whether in Hong Kong or outside) has yet to be commenced and a party seeks interim relief pending the constitution of a tribunal. Similar to situation (1), except that the parties’ agreement provides for administered arbitration under rules allowing for the appointment of an emergency arbitrator. The arbitration has commenced and a tribunal has been constituted, but a party applies to the court for interim relief without first making an application for that relief to the tribunal. The arbitration has commenced and a party applies to the court for interim relief after a similar application to the tribunal has been rejected. The arbitration has commenced and the party applies to the court under section 61 of the Arbitration Ordinance for the conversion of a tribunal's order for interim relief into an order of the court.

It is submitted that the following approaches might be taken in the five situations: In situation (1), relief should only be granted if the court is of the view that the matter is urgent, so that waiting for a tribunal to be constituted would lead to the applicant suffering possibly irreparable harm. Likewise, in situation (2), relief should only be granted if the court is of the view that the matter is urgent, so that waiting for an emergency arbitrator to be appointed would lead to the applicant suffering possibly irreparable harm. In contrast, in situation (3), the court should refuse relief in the absence of a good explanation for the party not having applied in the first instance to the tribunal for the relevant relief.13 In situation (4), the court should generally defer to the tribunal and refuse relief on the ground of res judicata or issue estoppel, unless it can be shown that the tribunal’s refusal was so irrational that no reasonable tribunal properly advised could have come to such decision. Similarly, in situation (5), the court should generally defer to the tribunal and enforce the latter’s order, unless it can be shown that the tribunal’s decision was so irrational that no reasonable tribunal properly advised could have come to such conclusion. In any event, in situations (1), (2) and (3), the court should refuse 12 See section 45(3) and 60(3). 13 Compare sections 45(4) and 60(4). The court may decline to grant an interlocutory relief if it believes that (1) the relief is currently the subject of an arbitral proceedings and (2) it would be more appropriate for the matter to be dealt with by the tribunal.

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JUDICIAL SUPPORT an application for interim relief where an applicant has unreasonably delayed in having a tribunal appointed or in applying to an emergency arbitrator or a fully-constituted tribunal for the same relief. It is submitted that the approach just outlined is consistent with the principles of party autonomy, minimal judicial interference and good faith identified earlier. In stressing the need to act without unreasonable delay, the approach is also consonant with the objective of ensuring that arbitrations proceed in a fair, cost-effective and time-efficient manner. Section 55 deals with the summonsing of a person to attend an arbitration to give live evidence or to produce documents. Accordingly, situations (1) and (2) are unlikely to arise in connection with section 55. Further, under section 55, the tribunal itself applies to the court for an order that a person attend proceedings before the tribunal. A party may apply to the court for an order, but only “with the approval of the arbitral tribunal”.14 Therefore, situations (3) and (4) cannot arise. That means that the only relevant scenarios for section 55 are where the tribunal itself applies for an order that a person appear as a witness or where a party applies having first obtained the tribunal’s approval or direction for the person to appear as a witness. In those circumstances, subject to being satisfied that what is in effect a subpoena would not be oppressive towards the person summonsed,15 the court should defer to the tribunal and grant the application. 12.2.3 Applications to set aside an award Section 81 enacts Article 34 of the Model Law which is entitled “Applications for setting aside as exclusive recourse against arbitral award”. The difference between an application for recourse against (that is, setting aside) an award and an application for refusing enforcement of an award was explained in Chow J’s first instance decision in Astro Nusantara. Adopting the submission of counsel16 in the related proceedings before the Singapore Court of Appeal, Chow J said:17 There is a well-understood and accepted conceptual difference between setting-aside proceedings and enforcement proceedings. Setting-aside proceedings are a means of “recourse against the award”, that is, they are proceedings to attack the award itself. If successful, the award is annulled and (in general) no longer exists. The legal and practical consequence is that (in general) the award is no longer capable of enforcement anywhere else . . . It also means that the award no longer binds the parties and fresh proceedings may be commenced. This is very different from a party merely raising defences to enforcement. A court’s ruling on whether to enforce an award within its own jurisdiction is not an attack against the award itself but a statement by the court that it will not lend its aid to the enforcement of the award in that jurisdiction. The effect of such a ruling is in principle confined to that jurisdiction alone and it is possible for an award to be refused enforcement in one jurisdiction but enforced in another.

14 Article 27 of the Model Law (as enacted by section 55(1)). 15 There might be oppression where, for instance, the application is made late and the intended witness would have insufficient time to re-arrange his or her diary to free up time to appear before the tribunal, or where the person is asked to produce to the trinbunal at short notice a large number of documents or classes of documents that may or may not be in his or her possession, custody or control. 16 Mr. Toby Landau QC. 17 Astro (Chow J) (n 1), at [129].

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JUDICIAL SUPPORT By its nature, a setting-aside application should only be brought before the court tasked with supervising an arbitration (that is, the court in the seat of arbitration). In contrast, applications for an award to be refused recognition or denied enforcement may be brought in one or more of the jurisdictions (including the seat of the arbitration) where a claimant seeks to enforce an award in its favour. The grounds for setting aside an award under section 81 mirror the grounds for refusing recognition and enforcement under Articles V(1) and (2) of the New York Convention.18 Therefore, the section 81 grounds for setting aside should, as much as possible, be interpreted and applied in a manner consistent with the interpretation and application of Articles V(1) and (2) of the New York Convention. Attention is drawn in particular to sections 81(1)(2)(a)(ii), 81(1)(2)(b)(i) and 81(1)(2)(b)(ii). These are respectively that an award “may” be set aside where a party was not given “proper notice” of an arbitration or “was otherwise unable to present his case”; where the subject-matter of the dispute is “not capable of settlement by arbitration under the law of this State”; or where the award is “in conflict with the public policy of this State”. Clearly, in applying sections 81(1)(2)(b)(i) and (ii), the Hong Kong court is to gauge whether the subject matter of a dispute is arbitrable or whether an award is in conflict with public policy by reference to Hong Kong law (“the law of this State”). Further, consistently with the New York Convention, if the public policy ground is to be raised, there must be a substantial injustice arising out of an award that is so shocking to the court’s conscience as to make the award repugnant.19 In other words, for the public policy ground to succeed, the award must be shown to offend against Hong Kong’s fundamentally held legal, social, cultural, political or religious norms. As for section 81(1)(2)(a)(ii), one might ask by what law the court determines whether due process was observed and the respondent was afforded a reasonable opportunity to present its case. There would be two obvious candidates: (1) Hong Kong law as the law of the seat of the arbitration or (2) internationally accepted minimum standards of due process. As a matter of principle, it is submitted that, in setting aside proceedings, the court should apply whichever standards of due process are the more demanding. In other words, the court should apply the minimum standards required by Hong Kong law, in so far as those are as good (if not better) than internationally accepted standards of due process. It is hoped that the minimum standards of due process under Hong Kong law are at least in conformity with (if not higher than) internationally accepted minimum standards of due process under Hong Kong law. If somehow Hong Kong standards are below the 18 Article V(1)(e) of the New York Convention provides that an award may be refused recognition and enforcement on the ground that “the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made”. In the setting-aside context, the analogous provision is in section 81(4) of the Arbitration Ordinance as follows: “The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.” 19 Paraphrasing, in the setting-aside context, the test for the public policy ground in the New York Convention expressed in A v R [2009] 3 HKLRD 389, (Reyes J) (an enforcement case). A v R is normally cited as authority for the proposition that, in the absence of good reason, where there is an unsuccessful challenge to an award, the court will award costs on an indemnity basis against the losing party. That principle in A v R has since been extended by the Hong Kong court to apply to unsuccessful challenges to arbitration agreements and the arbitral process. See, for example, Chimbusco (n 7), at [14]–[15].

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JUDICIAL SUPPORT globally accepted norm, then it is submitted that, in litigation relating to international commercial arbitrations, the court should be seeking to uphold internationally-accepted minimum standards.20 What connection (if any) is there between section 81 on recourse against an award made in Hong Kong and an application under section 86 for the recognition and enforcement by the Hong Kong court of an award made in Hong Kong? The grounds for refusing recognition and enforcement in section 86 are similar to the grounds in the New York Convention. Where a party has applied to set aside an award and failed under section 81, there will be little point in also resisting recognition and enforcement under section 86, since the grounds in sections 81 and 86 are similar. But what if (say) a respondent has not applied to set aside an award under section 81?21 Is the respondent precluded from arguing that the court should refuse recognition and enforcement of an award under section 86? In Astro Nusantara,22 the Court of Appeal distinguished between “active” and “passive” remedies against an award under the Model Law and the New York Convention. It accepted a “choice of remedies” principle in the application of the Model Law and the New York Convention. Setting aside under section 81 is an “active” remedy. It requires a party to apply to the court to set aside an award. In contrast, section 86 only gives rise to a “passive” remedy in the party seeking to resist an award. On an application to the court by the successful party for the recognition and enforcement of an award, the resisting party may raise one or more of the grounds in section 86. In the normal course of events, a person wishing to challenge an award will have a “choice of remedies” and can choose as he or she deems appropriate between pursuing active and passive remedies or both. An application to set aside an award under section 81 is consequently not a prerequisite to a party resisting recognition and enforcement under section 86. The resisting party has an option. He or she is not precluded from resisting enforcement proceedings under section 86 merely because a decision was taken not to pursue an active remedy under section 81. The difficult question in Astro Nusantara was the interplay between the choice of remedies principle and the good faith principle. An established line of Hong Kong case law23 has established that it would be acting in bad faith for a party not to raise and to keep silent about some procedural or jurisdictional irregularity in the course of arbitration proceedings. A party taking part in an arbitration cannot simply keep some objection up one’s sleeve to be introduced only later on, when a successful party seeks to have an award recognized or enforced. The party will be deemed to have waived the objection or, alternatively, will be estopped from raising the

20 Unfortunately, guidelines on internationally accepted norms of due process have yet to be developed, much less published. Therefore, for the time being, in any given case, it may have to be a matter of submission from counsel whether or not a tribunal adhered to internationally recognized standards of due process. 21 A party has three months from the date of receipt of an award in which to apply to set aside (Article 34(3), enacted by section 81 of the Ordinance). Given that enforcement proceedings may take place long after a period of three months from the date of receipt of an award, section 86 would (if available) give a party more time in which to argue that an award is invalid for some reason. 22 See Astro Nusantara (Court of Appeal) (n 1), at [13] (explaining the concept behind “active” and “passive” remedies) and [69]. 23 Paklito Investment Ltd v Klockner (East Asia) Ltd [1993] 2 HKLR 39 (Kaplan J), at pp. 48–49; China Nanhai Oil Joint Service Corporation Shenzhen Branch v Gee Tai Holdings Co Ltd [1995] 2 HKLR 215 (Kaplan J), at p. 225; Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111, at p. 138.

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JUDICIAL SUPPORT objection in section 81 and 86 proceedings. This is in keeping with the weak principle of waiver discussed earlier. Where a party objects and reserves its position on jurisdiction (as First Media repeatedly did) in the course of arbitration proceedings, in the normal course of events the duty of good faith did not also require the party actively to apply to set aside an adverse award in the seat of jurisdiction. This is a consequence of the choice of remedies position. But the Court of Appeal did not wholly rule out the possibility that, in particular circumstances, the principle of good faith may require a party to pursue an active remedy. The Court of Appeal stated (at [69]): Applying the principle of “good faith” too rigorously whenever there is a failure to pursue active remedies might bring this into conflict with the “choice of remedies” principle. The answer may be that regard should be had to the full circumstances why an active remedy is not pursued or other relevant considerations (such as whether there was a clear reservation of rights so the opposite party was not misled).

The good faith principle may therefore be applicable depending on the facts of a given case. 12.2.4 Applications for the recognition and enforcement of awards Much of the court’s approach in relation to the recognition and enforcement of awards has already been covered in the foregoing discussion on the interplay between sections 81 and 86. The grounds for refusing recognition or enforcement to Convention awards, Mainland awards and Macau awards under sections 89, 95 and 98D are similar to those in the New York Convention.24 So that the points made previously (including on waiver and estoppel in connection with section 86) should apply equally to sections 89, 95 and 98D. Accordingly, there would normally be no requirement that the party resisting enforcement in Hong Kong should have first applied to set aside the award in its seat. In the absence of special circumstances, the principle of good faith does not require a party to pursue its active remedies against an award, as a prerequisite to reliance on its passive remedies. There may, however, be consequences depending on what remedies or combination of them a party pursues. First, if a party applies to set aside an award in its seat and is successful in its application, the award will effectively have become a nullity and in practice it should be relatively straightforward to resist enforcement of the award in most (if not all) New York Convention states. On the other hand, assume a party does not apply to set aside an award in the seat, but decides only to resist enforcement of the award in (say) some New York Convention states. The party may succeed in resisting the award in state X. However, that will not guarantee that the court in another state will also refuse enforcement. It would remain open to every Convention State in which recognition and enforcement is sought to decide whether or not the award should be enforceable within the jurisdiction.

24 By section 93(1), enforcement of a Mainland award may also be refused “if an application has been made on the Mainland for enforcement of the award”. But, if the enforcement proceedings in the Mainland or elsewhere, do not lead to the award being fully satisfied, the unsatisfied balance may be enforced in Hong Kong (section 93(2)).

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JUDICIAL SUPPORT Second, suppose that a party applies to set aside an award in its seat, say (for example) Singapore. The party argues a number of reasons, based on the Model Law and the New York Convention, why the award should be set aside. The court of the seat rejects the settingaside application. Can the party raise the same grounds when arguing against recognition of the award in Hong Kong, or will the Hong Kong court regard the party as estopped from doing so on the basis that the grounds have been raised and rejected by the Singapore court? The answer would seem to depend on the grounds raised in the setting-aside application before (in the example of Astro Nusantara) the Singapore court. Thus, for instance, if it was argued in Singapore that the award should be set aside because it violated the norms of due process and that argument was rejected, the Hong Kong court will likely place “weight” on the decision of the supervisory court of the seat of arbitration. This emerges from the Court of Appeal’s decision in Gao Haiyan v Keeneye Holdings.25 Although there may not be an estoppel, the Hong Kong court is likely to follow the decision of the court of the seat, unless the decision may somehow be characterized as perverse or irrational. If, however, the grounds argued were analogous to those in Article V(2)(a) and (b) of the New York Convention (arbitrability and public policy), there can be no question of estoppel. The Hong Kong court would have to determine as a matter of Hong Kong law, whether a matter is arbitrable under Hong Kong law or whether an award or part of it is contrary to Hong Kong public policy.26 The conclusions of the Singapore court on whether a matter is arbitrable under Singapore law or contrary to Singapore public policy would not be relevant to the Hong Kong court’s determination. Third, there may be timing considerations. It may be too late to change one’s mind, if one has deliberately decided not to pursue a setting-aside application and then (after time has passed) realizes that such decision was erroneous. In Astro Nusantara it was open to First Media to decide, for commercial reasons, not to apply to set aside the award in Singapore or to contest the relevant claimants’ application to have its Singapore award enforced in Hong Kong as a judgment of the Hong Kong court. Essentially, the Court of Appeal held that the mere fact that, much later, it was learned that the award exceeded the tribunal’s jurisdiction, was not a sufficient basis for extending the time in which to apply to set aside the Hong Kong court order making the award enforceable. In exercising his discretion against the extension of time, Chow J could not be said to have been acting unreasonably. On the contrary, he was upholding the objective that arbitration should be a speedy and cost-effective means of fairly resolving commercial disputes. Since the Court of Appeal could not fault the reasonableness of Chow J’s exercise of discretion, it followed that First Media’s appeal failed. 12.3 Conclusion In KB v S,27 the judge in charge of the Construction and Arbitration List (Mimmie Chan J) encapsulated the Hong Kong court’s attitude towards support of arbitration agreements

25 [2012] 1 HKLRD 627 (Tang VP, Fok JA and Sakhrani J), at [65]–[69], cited with approval by the Court of Appeal in Astro (n 1), at [44]. 26 See, for instance, on public policy, Hebei Import & Export Corp (n 23), at p. 139 (Sir Anthony Mason NPJ). 27 [2016] 2 HKC 325, (Mimmie Chan J). The ten principles are set out in the first paragraph of the decision. The authorities cited by the judge have been omitted.

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JUDICIAL SUPPORT and awards in ten succinct principles. Those principles provide a convenient summary of the matters discussed in this chapter. The ten principles are: (1) “The primary aim of the court is to facilitate the arbitral process and to assist with enforcement of arbitral awards.” (2) “[T]he court should interfere in the arbitration of the dispute only as expressly provided for in the [Arbitration] Ordinance.” (3) “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 their dispute should be resolved.” (4) “Enforcement of arbitral awards should be ‘almost a matter of administrative procedure’ and the courts should be ‘as mechanistic as possible’.” (5) “The courts are prepared to enforce awards except where complaints of substance can be made good. The party opposing enforcement has to show a real risk of prejudice and that its rights are shown to have been violated in a material way.” (6) “In dealing with applications to set aside an arbitral award, or to refuse enforcement of an award, whether on the ground of not having been given notice of the arbitral proceedings, inability to present one’s case, or that the composition of the tribunal or the arbitral procedure was not in accordance with the parties’ agreement, the court is concerned with the structural integrity of the arbitration proceedings. In this regard, the conduct complained of ‘must be serious, even egregious’, before the court would find that there was an error sufficiently serious so as to have undermined due process.” (7) “In considering whether or not to refuse the enforcement of the award, the court does not look into the merits or at the underlying transaction.” (8) “Failure to make prompt objection to the Tribunal or the supervisory court may constitute estoppel or want of bona fide.” (9) “Even if sufficient grounds are made out either to refuse enforcement or to set aside an arbitral award, the court has a residual discretion and may nevertheless enforce the award despite the proven existence of a valid ground.” (10) “[P]arties to the arbitration have a duty of good faith, or to act bona fide.”

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CHAPTER 13

Complex arbitrations

The term “complex arbitration” is used here in the same sense as in Professor Bernard Hanotiau’s seminal study Complex Arbitrations: Multiparty, Multi-contract, Multi-Issue and Class Actions.1 As may be inferred from the title of Professor Hanotiau’s book, this chapter will primarily deal with the management of (1) a single arbitration involving numerous parties with different interests and (2) multiple (but related) arbitrations involving identical or closely-connected parties. But it will also say a few words on class arbitrations in international commercial disputes. The first section of this chapter will illustrate some of the complications that may arise in multi-party and multi-contract situations. It will discuss ways in which those difficulties may be dealt with in Hong Kong practice. The second section will consider the potential for class arbitrations in Hong Kong, especially in light of the abolition of the common law strictures against the third party funding of arbitration-related proceedings. 13.1 General considerations Examples of questions that may arise in multi-party or multi-contract situations are: (1) (2) (3) (4)

How is a three-panel tribunal appointed where there are more than two parties? X and Y enter into a contract to confer some benefit on Z. The contract has an arbitration agreement. Can Z apply to be joined as a party to an arbitration in connection with a contractual dispute between X and Y? On the same facts as in situation (2), can X apply to join Z to the arbitration, even though neither Y nor Z agree to Z’s joinder? Where there are several arbitrations in respect of disputes arising out of different (but related) contracts between different parties, can the arbitrations be consolidated and (if so) how?

Situation (1) has been covered in Chapter 5. The reader is referred to the discussion there.2 The remaining situations roughly fall into two categories. The first category (situations (2) and (3)) concerns “joinder” issues, that is, whether a third party (not apparently party to an arbitration agreement) may be joined as a party, either on the third party’s application 1 Kluwer Law International, 2006. 2 See p. 62.

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COMPLEX ARBITRATIONS or on the application of a party to the arbitration agreement. The second category (situation (4)) deals with “consolidation” issues, that is, whether multiple arbitrations can be consolidated together and heard by the tribunal. It may be asked why anyone should be concerned about different parties being joined to a single arbitration or different arbitrations being consolidated into a single arbitration. The standard response would be that, for the sake of good order, a tribunal and the parties to an arbitration agreement should ensure that, as much as possible, all relevant persons are bound by the tribunal’s determination. Where many parties are involved in a cross-border commercial contract, it would not be conducive to business certainty and efficacy if only some (but not all) of the parties are bound by the tribunal’s decision on the merits of a dispute. If the parties who are not bound by the decision of (say) Tribunal A start their own arbitration before a differently constituted Tribunal B in relation to the same questions being dealt with by Tribunal A, there will be a danger of conflicting or “limping” decisions with Tribunal A finding “X” and Tribunal B finding “not-X”. Further, the fact that two tribunals will have examined the same questions, listening to some or all of the same witnesses and argument, will mean a duplication of time and cost. Such wasteful duplication should be avoided to the extent possible. Even if the same arbitrators hear the separate arbitrations, the evidence presented and the submissions made in one arbitration may not be precisely the same as in the others. The tribunal may not then be able to reach like conclusions in the different arbitrations, because of the differences in materials and arguments presented to the tribunal in each arbitration. This cannot be an efficient, cost-effective and fair manner of resolving a complicated cross-border commercial dispute. Fairness normally requires that a person or body exercising adjudicative power (including an arbitral tribunal) allows a third party to be heard prior to making a decision that may adversely affect the interests of that third party. If third parties are to be bound by the determination of a tribunal, they should as a matter of principle be entitled in the absence of good reason to the contrary: (1) to apply to be joined as a party to the arbitration; (2) to present their side of a matter; and (3) to test the positions advanced by one or other of the existing parties to the arbitration, especially where such positions are prejudicial to their own. Likewise, where parties in one arbitration may be adversely affected by what is said and done in a related arbitration, it would plainly be in the interests of fairness to consolidate the two arbitrations as far as possible. This would allow all relevant parties: (1) to present their respective positions to the tribunal in each arbitration, and (2) to test any contrary positions advanced by the other parties in each arbitration. Joinder and consolidation can thus achieve a fairer result more efficiently in multi-party and multi-contract situations. It might be suggested that it is in the nature of international commercial arbitration that there will on occasion be many relevant parties or many related arbitrations. There will therefore inevitably be the risk of multiple parties and multiple contracts leading to multiple arbitrations and limping awards. The parties ought to have known of such risk (the argument would run), so that a tribunal must not be overly concerned if some relevant parties are not joined or some connected arbitrations are not consolidated. That is just a fact of life in the untidy world in which human beings live. While there is force in the foregoing argument as a matter of general principle, it is not really helpful to a tribunal faced with an application of joinder or consolidation. The 178

COMPLEX ARBITRATIONS tribunal will have to consider whether it is technically possible to join or consolidate and (if so) whether it should exercise any discretion that it might have, to allow or disallow joinder or consolidation. The tribunal cannot fob off the application with the observation that a messy situation is just one of life’s harsh realities. How then may joinder and consolidations issues be handled in international commercial arbitrations taking place in Hong Kong? 13.1.1 Joinder In situations (2) and (3) above, a tribunal would first have to ascertain what powers (if any) it has to join, as parties to an arbitration, any persons who are not apparently parties to the arbitration agreement read at face value. The Arbitration Ordinance is silent on a tribunal’s powers of joinder. But, under many institutional arbitration rules, an additional party may be joined to ongoing arbitrations. Article 27.1 of the 2013 HKIAC Administered Arbitration Rules (for example3) provides: The arbitral tribunal shall have 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 these Rules giving rise to the arbitration, including any arbitration under Article 28 or 29.

Application for joinder of a third party under the HKIAC Rules may be made by an existing party (Article 27.3) or the third party itself (Article 27.6). The tribunal may decide whether or not to allow the requested joinder. The third party may apply for joinder even before a tribunal has been confirmed (Article 27.8). In that case, HKIAC will decide whether to allow joinder. If HKIAC allows the joinder, all parties to the arbitration “shall be deemed to have waived their right to designate an arbitrator, and HKIAC may revoke the appointment of any arbitrators already designated or confirmed” (Article 27.1). Where HKIAC revokes any appointments or confirmations already made, HKIAC will appoint the replacement tribunal. By joining the arbitration, the parties (including the third party) “waive any objection to the validity and/or enforcement of any award made by the arbitral tribunal in the arbitration, in so far as such waiver can validly be made” (Article 27.13). How should the tribunal exercise its power to join a third party? In the normal course of events, the signatories of a contract can be parties to an arbitration under an arbitration agreement. When an award is made, only signatories to the arbitration agreement and their privies will be bound by it.4 Who is privy to an arbitration agreement and any resultant arbitration? Assume that person A is a signatory to a contract (including an arbitration agreement) with person B. A and B subsequently enter into an arbitration pursuant to their arbitration agreement. Some other person A1 is a “privy” of A where there is “privity of interest” between A and A1. There is “privity of interest” between A and A1, if A shares a “commonality” 3 Examples of similar provisions may be found in Article 18 of the 2015 CIETAC Rules; Article 7 of the 2017 ICC Rules; and Article 17 of the 201 UNCITRAL Arbitration Rules. 4 On who is a “privy” and the extent to which they may be bound by a decision in an arbitration, see Parakou Shipping Pte Ltd v Jinhui Shipping & Transportation Ltd [2011] 2 HKLRD 1 (Reyes J), at [97]–[103]; approved in CACV No.225 of 2010, 30 November 2010 (Tang Ag CJHC, Andrew Cheung J). The definition of “privy” in the following paragraph is based on the discussion in Parakou.

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COMPLEX ARBITRATIONS with A1, so that both persons have a direct interest in the subject matter of an arbitration, not simply a financial interest in the outcome of the arbitration. Companies within the same group, for instance, may be privies of one another. But it is unlikely that companies with substantially different beneficial interests behind them will be privies of each other. It is submitted that, if a person is the “privy” of a party to an arbitration agreement in the sense just described, a tribunal should in general favour joinder on an application by that person, especially if (as a privy) he or she will be bound by the tribunal’s award in any event. This is situation (2) above. However, what if the application for joinder of a third party is made by an existing party to the arbitration and the third party does not wish to be joined? This is situation (3) above. As a matter of principle, a tribunal has no power to force a non-signatory to an arbitration agreement (even a privy) to become party to an arbitration against their will. This is because the source of the tribunal’s jurisdiction is the agreement of the signatory parties. In practice, the tribunal’s jurisdiction under the arbitration agreement may be “extended” to non-signatories by resort to an agency argument or to the “group of companies doctrine”. Agency arguments are straightforward. The argument would be that, in light of the available evidence, a signatory was in fact acting both for itself as principal and as agent for and on behalf of the third party whose joinder is being sought. The inference to be drawn would be that, as a matter of fact, the intention of all parties (the signatories and the non-signatory third party) was for the arbitration agreement to be binding on them all.5 On this basis, joinder would simply be a consequence of the principle of party autonomy, that is, enforcing what the parties previously agreed among themselves. The “group of companies doctrine” is more controversial. It originates from Dow Chemical v Isover Saint Gobain, where it was used to “extend” the scope of an arbitration agreement to companies within the same group as a signatory party. Use of the doctrine was justified on the basis of party autonomy, that is, giving effect to the parties’ intentions.6 The doctrine is probably more often used in civil law jurisdictions than in common law states. The common law has a doctrine of “piercing the corporate veil”, the use of which in some instances may be regarded as equivalent to applying the “group of companies” doctrine.7 But the latter doctrine is far more extensive in scope than the common law notion. In Hong Kong, the group of companies doctrine has not so far been accepted, and it is unclear the scope of an arbitration agreement may be extended to a non-signatory in that way. Arbitration agreement may, nonetheless, be extended to that party under other contractual principles such as agency and piercing the corporate veil. In situation (2), the contract between X and Y was entered into for the benefit of Z. Under section 4 of the Contracts (Rights of Third Parties) Ordinance (Cap.623), a third party in the position of Z may enforce the contract, although it is not a signatory and 5 Note that under Article 7(5) of the Model Law (as enacted by section 19 of the Arbitration Ordinance) “an arbitration agreement is in writing if . . . the agreement is in a document, whether or not the document is signed by the parties to the agreement”. 6 ICC Case No.4131 of 1982, (1984) 9 YB Com Arb 136. 7 Such as where a person uses one or more companies under his or her control to evade contractual liability and thereby perpetrate fraud. In such situation, the companies interposed by the fraudster could be joined to an arbitration on the basis that the companies are actually the same person as the fraudster who signed the arbitration agreement. On piercing the corporate veil, see Prest v Petrodel Resources Ltd [2013] 2 AC 415, at [35].

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COMPLEX ARBITRATIONS has provided no consideration for the benefit conferred under the contract. Further, by sections 12(2) and (5) of the statute,8 Z may be treated as a party to the arbitration agreement between X and Y for the purpose of enforcing the benefit conferred by the contract against the promisor of the benefit. It follows that Z may apply to be joined as a party to an ongoing arbitration between X and Y in so far as the dispute between the latter relates to the conferral of the agreed benefit on Z. The position may be different in situation (3). Where Z does not wish to enforce the contractual benefit and refuses to be joined as a party to an arbitration between X and Y, the ordinance would not enable the tribunal to join Z upon the application of X or Y. That is because section 12(2) only deems Z to be a party to the arbitration agreement “[a]s regards a dispute between the third party and the promisor relating to the enforcement of the term [conferring the benefit] by the third party”. This restriction is reflected in section 12(5) which only treats Z as a party to the arbitration agreement if Z “enforces the arbitration agreement under section 4”. 13.1.2 Consolidation Multiple arbitrations may be “consolidated” in a number of ways. They might be consolidated by procuring that all of the arbitrations are heard at the same time by the same tribunal. Where there are two arbitrations and the claimant in one proceedings is the respondent in the other and vice versa, the arbitrations may be consolidated to be heard as one arbitration by directing that the claim in one arbitration is to stand as the claim in the consolidated proceedings and the claim in the other arbitration is to stand as the counterclaim in the consolidated proceedings. Where there are two or more related arbitrations, they may be consolidated by a direction that the arbitrations are to be heard one immediately after the other by the same tribunal. Whatever method of consolidation is used, the questions to be answered are similar: Are the arbitrations sufficiently related in subject matter and parties, so that it would make sense for them to be consolidated? Who is going to procure or direct that there be consolidation of related arbitrations, especially where the parties in the different arbitrations are not exactly the same and where the tribunals in each arbitration may be differently constituted? To what extent will a party in one arbitration be bound by findings in the other arbitrations (once all arbitrations have been consolidated in some way)? Especially where a party will be bound by findings in the other arbitrations that have been consolidated with the arbitration in which the party is concerned, to what extent will the party be able to adduce witnesses, question witnesses, and make submissions in the other arbitrations? In Hong Kong, multiple arbitrations (such as in situation (4)) may be consolidated by order of the High Court made pursuant to the Arbitration Ordinance. Alternatively, arbitrations may be consolidated in so far as the rules governing the arbitrations so provide. Article 28 of the 2013 HKIAC Rules, for example, allow for the consolidation of arbitrations administered by the HKIAC.9

8 Section 12(5) applies where section 12(2) is not applicable for some reason. 9 Other institutional arbitration rules have similar provisions as, for instance, Rules 6 and 8 of the 2016 SIAC Rules; Articles 14 and 19 of the 2015 CIETAC Rules; and Articles 8 to 10 of the 2017 ICC Rules.

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COMPLEX ARBITRATIONS Section 2 of Schedule 2 of the Arbitration Ordinance allows the High Court to consolidate proceedings, but only if the parties to an arbitration agreement have expressly opted in to the provision.10 Section 2(1) of Schedule 2 states: If, in relation to 2 or more arbitral proceedings, it appears to the Court: (a) (b) (c)

that a common question of law or fact arises in both or all of them; that the rights to relief claimed in those arbitral proceedings are in respect of arise out of the same transaction or series of transactions; or that for any other reason it is desirable to make an order under this section,

the Court may, on the application of any party to those arbitral proceedings(d) (e)

order those arbitral proceedings(i) to be consolidated on such terms as it thinks just; or (ii) to be heard at the same time or one immediately after another; or order any of those arbitral proceedings to be stayed until after the determination of any other of them.

If the court orders arbitral proceedings to be consolidated under sub-section 2(1)(d)(i) or to be heard at the same time under sub-section 2(1)(d)(ii), it may give directions as to the payment of the costs of those arbitral proceedings11 or appoint an arbitrator for those arbitrations.12 The HKIAC Rules provide for consolidation of arbitrations with the aim of increasing procedural efficiency. Article 28.1 states: HKIAC shall have the power, at the request of a party (the “Request for Consolidation”) and after consulting with the parties and any confirmed arbitrators, to consolidate two or more arbitrations pending under these Rules where: (a) the parties agree to consolidate; or (b) all of the claims in the arbitrations are made under the same arbitration agreement; or (c) the claims are made under more than one arbitration agreement, a common question of law or fact arises in both or all of the arbitrations, the rights to relief claimed are in respect of, or arise out of, the same transaction or series of transactions, and HKIAC finds the arbitration agreements to be compatible.

HKIAC will take into account all circumstances when deciding whether to grant such application,13 including whether similar or different arbitrators have already been designated or confirmed in the arbitrations to be consolidated. Where HKIAC orders consolidation, the arbitrations will be consolidated into the arbitration that started first, unless all parties agree or HKIAC decides otherwise.14 It is useful to note here Article 29 of the HKIAC Rules. That deals with claims arising out of or in connection with more than one contract. A single tribunal may be appointed to handle all the claims, provided that: (a) all parties to the arbitration are bound by each arbitration agreement giving rise to the arbitration; (b) a common question of law or fact arises under each arbitration agreement 10 The requirement of an express opt-in is in section 99(b) of the Arbitration Ordinance. 11 Section 2(2)(a) of Schedule 2. For the considerations that the court may take into account in deciding whether to consolidate arbitration proceedings may be found in Linfield v Taoho Design Architects Ltd HCCT No.68 of 2001, 19 August 2002 (Ma J), at [13]–[20] (discussing Arbitration Ordinance (Cap.341) section 6B, the predecessor of Schedule 2, section 2 of the current Arbitration Ordinance). 12 Section 2(2)(b) of Schedule 2. 13 Article 28.3. 14 Article 28.4.

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COMPLEX ARBITRATIONS giving rise to the arbitration; (c) the rights to relief claimed are in respect of, or arise out of, the same transaction or series of transactions; and (d) the arbitration agreements under which those claims are made are compatible.15

Where the criteria are satisfied, the parties may consolidate all the potential arbitrations into a single arbitration, thereby saving time, costs and inconvenience. 13.2 Class arbitrations and third party funding Class arbitration is a form of collective redress similar to class actions in litigation before a national court, where a group of claimants or respondents are parties to an arbitration as representatives of a wider class of persons. Class arbitrations enable the victims of a wrong (for example, consumers) to consolidate similar individual claims and to bring proceedings against the wrongdoer for the consolidated amount of their claims. By themselves, the individual claims of the victims may not be large enough to justify the time and cost involved in bringing proceedings, including arbitration proceedings, against the wrongdoer. But, amalgamated together, the total value of the victims’ claims may be worth pursuing in proceedings as a class. Class proceedings have been brought in investment treaty arbitrations.16 On the other hand, they have been rare in international commercial arbitration. This is not surprising. The concept behind class proceedings may seem at first impression to be inconsistent with a fundamental principle of arbitration, namely, the primacy of the parties’ agreement. By their nature, class arbitrations cannot be based on a single agreement between two individuals. For there to be viable class arbitrations in an international commercial context, there would have to be a consolidation of similar claims held by a large number of individuals arising out of similar (if not identical) commercial contracts made with some financially well-off (possibly multinational) respondent. Each commercial contract would have to incorporate similar (if not identical) arbitration agreements. Moreover, there would be significant initial procedural and later enforcement hurdles to consider (such as how to give notice of the arbitration to all relevant persons, how to define the relevant class of claimants, and how to give each member of the class the chance to opt in or out of any proceedings). Left unaddressed, these hurdles may leave any award at the end of the day vulnerable to being set aside or refused recognition and enforcement on due process or public policy grounds. Class arbitration has, nevertheless, been witnessed in some jurisdictions, such as the United States.17 There are a few institutional arbitration rules providing for class arbitration (for example, the Supplementary Rules for Class Arbitrations of the American Arbitration Association (AAA),18 the JAMS Class Action Procedures,19 and the Supple-

15 Article 29.1. 16 For example, Abaclat v Argentina, ICSID Case No.ARB/07/5. 17 On the development of class arbitration in the United States, see Hanotiau (n 1), pp. 257–280. 18 Available at: . 19 Available at: .

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COMPLEX ARBITRATIONS mentary Rules for Corporate Law Disputes 09 (SRCoLD) of the Deutsche Institut für Schiedsgerichtsbarkeit (DIS)).20 Rule 4(a) of the AAA Supplementary Rules stipulates that: If the arbitrator is satisfied the arbitration clause permits the arbitration to proceed as a class arbitration, as provided in Rule 3, or where a court has ordered that an arbitrator determine whether a class arbitration may be maintained, the arbitrator shall determine whether the arbitration should proceed as a class arbitration. For that purpose, the arbitrator shall consider the criteria enumerated in this Rule 4 and any law or agreement of the parties the arbitrator determines applies to the arbitration. In doing so, the arbitrator shall determine whether one or more members of a class may act in the arbitration as representative parties on behalf of all members of the class described. The arbitrator shall permit a representative to do so only if each of the following conditions is met: (1) (2) (3) (4) (5) (6)

the class is so numerous that joinder of separate arbitrations on behalf of all members is impracticable; there are questions of law or fact common to the class; the claims or defenses of the representative parties are typical of the claims or defenses of the class; the representative parties will fairly and adequately protect the interests of the class; counsel selected to represent the class will fairly and adequately protect the interests of the class; and each class member has entered into an agreement containing an arbitration clause which is substantially similar to that signed by the class representative(s) and each of the other class members.21

In addition, class arbitrations must be maintainable. An arbitration may be maintained as a class arbitration, if the foregoing conditions are met, and: the arbitrator finds that the questions of law or fact common to the members predominate over any questions affecting only individual members, and that a class arbitration is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (1) (2) (3) (4)

the interest of members of the class in individually controlling the prosecution or defense of separate arbitrations; the extent and nature of any other proceedings concerning the controversy already commenced by or against members of the class; the desirability or undesirability of concentrating the determination of the claims in a single arbitral forum; and the difficulties likely to be encountered in the management of a class arbitration.22

Once the arbitrator determines that an arbitration is to proceed as a class arbitration, the determination shall be made in a reasoned, partial final award.23 The arbitrator shall also “direct that class members be provided the best notice practicable under the circumstances (the Notice of Class Determination)”.24 The notice of class determination must be given

20 Available at . 21 Rule 4(a) of AAA Supplementary Rules. 22 Rule 4(b) of AAA Supplementary Rules. 23 Rule 5 of AAA Supplementary Rules. 24 Rule 6 of AAA Supplementary Rules.

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COMPLEX ARBITRATIONS to all members who can be identified through reasonable effort and must state the items specified in Rule 6(b). The JAMS Class Action Procedures are similar to the AAA Supplementary Rules. Under the JAMS Procedures, the arbitration agreement must permit the arbitration to proceed as a class arbitration, and a class must be certified by the arbitrator in accordance with US Federal Rules of Civil Procedure Rule 23.25 Once the arbitrator determines that an arbitration should proceed as a class arbitration, a notice of class determination must be given to all members who can be identified through reasonable effort.26 Unlike the AAA Supplementary Rules and the JAMS Procedures, the DIS Supplementary Rules only require that the parties agree to conduct arbitration proceedings under the DIS Supplementary Rules. DIS does not set out conditions for class certification or a notice of class determination. Further the DIS Supplementary Rules only apply to corporate law disputes (gesellschaftsrechtliche Streitigkeiten). These class arbitration rules are highly specialized. Most institutional arbitration rules do not have anything analogous. In Hong Kong there are no explicit provisions for class arbitration in the Arbitration Ordinance or the HKIAC Rules. It is, therefore, unknown whether class arbitrations of the sort countenanced by the AAA, JAMS and DIS will ever take off in Hong Kong. But, as has been seen, the HKIAC Rules include provisions for joinder and consolidations of arbitrations. Those provisions make it possible to determine issues arising from different contracts in a single arbitration without necessarily having the consent of all parties to the arbitrations covered by those contracts. It may, therefore be possible with some ingenuity to fashion a crude class arbitration procedure using the joinder and consolidation provisions (Articles 27, 28 and 29) discussed earlier. Certainly, in order to make class arbitrations truly functional in Hong Kong, it would be far better for HKIAC to have explicit supplementary rules similar to those published by AAA and JAMS. There is an additional matter to consider in connection with class arbitrations. That is the possibility of using third party funding27 to encourage financially weaker groups of persons (such as consumers and MSMEs28) to bring class arbitrations in Hong Kong against (say) stronger multinational enterprises, in relation to particular types of crossborder disputes (such as those involving questions of product liability and environmental damage). Funders may in the future be able to organize specific groups of individuals to bring consolidated class claims involving cross-border consumer, environmental and other infringement issues (that is, commercial claims in a broad sense). That potentially could have an impact in raising wider regional and international awareness and debate about standards in the areas just mentioned. But in such case there will still be a necessity of basing any funded class claims on arbitration agreements between the individual

25 Rule 3 of JAMS Procedures. 26 Rule 4 of JAMS Procedures. 27 See Chapter 11 on amendments to the Arbitration and Mediation Ordinances to make third party funding of arbitrations and mediations possible under Hong Kong law. Crowdfunding is arguably a form of third party funding and one might wonder whether, if there is a future to third party funding of class arbitrations in the international commercial context, there might be a similar future for the crowdfunding of class arbitrations. 28 That is, Micro, Small & Medium Enterprises.

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COMPLEX ARBITRATIONS claimants of a class and specific respondent enterprises. The extent to which arbitration agreements are common in standard form contracts between multinationals or other crossborder enterprises on the one hand and consumers or MSMEs on the other is something that might usefully be researched, to see whether third party funding of class arbitrations is something that will become a reality in the future.29

29 Crowdfunding is arguably a form of third party funding and one might equally ask whether, if there is a future to third party funding of class arbitrations, there might be a similar future for the crowdfunding of class arbitrations.

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CHAPTER 14

Specialized arbitrations

This chapter surveys specialized forms of arbitration. Section 1 will describe maritime arbitrations, construction arbitrations, the arbitration of financial disputes, the arbitration of intellectual property (IP) disputes and the use of arbitration in disputes involving questions of competition law or anti-trust legislation. Section 2 will briefly introduce investment treaty arbitration (also referred to as investor–state arbitration). 14.1 Specialized commercial arbitrations Certain types of arbitrations address the needs and technical requirements of certain industries (for example, the maritime, construction and financial industries). In response to those needs and technical requirements, special arbitral systems and rules have usually been developed by particular organizations for those industries. The first part will deal with disputes in such industries. On the other hand, certain commercial disputes involve not just private rights, but also the public interest. Examples of these are disputes in relation to intellectual property rights and the maintenance of fair competition. Where a dispute has public ramifications, an arbitral tribunal may have to consider whether the dispute is capable of being resolved through arbitration1 and (if so) where to strike the balance between conflicting private and public interests. The second part will deal with commercial arbitrations having this mixed public and private nature. 14.1.1 Arbitrations involving mainly private interests 14.1.1.1 Maritime arbitrations Arbitration has played an important role in the resolution of disputes involving ships (especially disputes arising out of shipbuilding contracts, charterparties and the carriage of goods by sea). Although a country’s shipping industry can be purely domestic in the sense of being confined to the waters of that country, a substantial part of shipping today is inevitably international in character. Thus, a ship might be built in one country, registered in a second country, manned with crew predominantly from a third country, and be

1 There may be enforcement problems under Article V(2)(a) of the New York Convention, since many jurisdictions may regard certain disputes involving public elements as not arbitrable, while other jurisdictions may view the same disputes as arbitrable.

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SPECIALIZED ARBITRATIONS contracted under a charterparty governed by the law of a fourth country to carry goods from a loading port in a fifth country to a discharge port in a sixth country. Not surprisingly, shipping arbitrations reflect this international character, with arbitrators having specialist maritime experience, drawn from a variety of jurisdictions, including Hong Kong. A large number of shipping arbitrations do not involve large amounts. Thus, the rules for shipping arbitrations will typically stress the need for simple, expeditious procedures. Further, shipping arbitrations are normally ad hoc arbitrations, the interposition of an administering body being viewed as adding unnecessarily to the expense of the dispute resolution process. A large number of shipping arbitrations are conducted pursuant to LMAA Terms. These are rules issued by the London Maritime Arbitration Association for the conduct of ad hoc maritime arbitrations. The latest edition of the LMAA Terms were published on 7 February 2017 and came into effect on 1 May 2017.2 The LMAA Terms are designed to apply in conjunction with the English Arbitration Act 1996.3 Article 3 of the LMAA Terms brings home the need for expedition and cost-effectiveness in the determination of a dispute pursuant to the Terms: “The purpose of arbitration according to these Terms is to obtain the fair resolution of maritime and other disputes by an impartial tribunal without unnecessary delay or expense.” Under the LMAA Terms, arbitrators in respect of a given dispute may be appointed by the parties or, in default of such appointment and subject to section 16 of the Arbitration Act 1996, by the President of the LMAA.4 Subject to variations directed by the tribunal, the normal procedure to be followed will be that in Schedule 2 to the LMAA Terms.5 The tribunal’s fees are governed by Schedule 1 of the LMAA Terms.6 In terms of the procedure to be followed during an LMAA arbitration, paragraph 13 of Schedule 2 urges: Parties and tribunals should actively consider ways in which to make the arbitral process as cost-effective and efficient as possible. In doing so, they should take account of the guidelines set out in the Checklist set out in the Fourth Schedule, in relation to matters such as: the preparation of factual and expert evidence; the use of documents; skeleton arguments, and transcripts.

Article 22 of the LMAA Terms is also of interest as it again highlights the need for expedition: The time required for preparation of an award must vary with the circumstances of the case. The award should normally be available within not more than six weeks from the close of the proceedings. In many cases, and in particular where the matter is one of urgency, the interval should be substantially shorter. At the end of the hearing or in the case of an arbitration on documents alone, upon receipt of final submissions the tribunal will, if asked, do its best to indicate when its award will be available. 2 Available at: . 3 Parties will often specify in their arbitration agreement that English law is to govern and the edition of the LMAA Terms in effect when an arbitration commences is to apply. The seat of the arbitration will usually be England. See Articles 6 and 7 of the LMAA Terms. 4 See Article 8 of the LMAA Terms. 5 See Article 14 of the LMAA Terms. 6 See Article 13 of the LMAA Terms.

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SPECIALIZED ARBITRATIONS Thus, the LMAA Terms offer a set of robust, no-nonsense rules and guidelines by which to ensure that a speedy result is obtained in maritime arbitrations. The Singapore Chamber of Maritime Arbitrators (SCMA) has developed its own set of rules for maritime arbitrations based on the LMAA Terms.7 In contrast, although there have been discussions in Hong Kong about developing rules for LMAA-style arbitrations with a Hong Kong seat, rules have yet to be finalized and published. Within the HKIAC, there is a Maritime Arbitration Group, which advised on matters and procedures of interest to the Hong Kong shipping and trading industry. As a result of the Group’s work, two special procedures have been developed: (1) the HKIAC Small Claims Procedures and (2) the HKIAC “Documents Only” Procedures.8 The rules for these procedures are based on similar procedures developed by the LMAA. It should be noted that, given the relatively small amounts at stake, documents-only arbitrations are particularly well-suited to maritime arbitrations, in particular because they obviate the need for the parties, their witnesses and their representatives (all of whom may be scattered around the world) to gather in one location for an oral hearing. The HKIAC Small Claims Procedures came into effect in July 2003. The Procedures are available where parties have agreed on their application and neither the claim nor counterclaim (if any) exceeds US$50,000.9 Therefore, paragraph 1 of the Procedures emphasizes that they are “not suitable for use where there are complex issues or where there is likely to be examination of witnesses, but may be suitable for handling larger claims where there is a single issue at stake”. By adopting the Small Claims Procedure, the parties are deemed to have waived all rights of appeal to the courts.10 Under the Procedures, the claimant starts the arbitration by sending a notice and letter of claim with relevant documents to the respondent. If the parties cannot agree on a sole arbitrator within 14 days of being notified by the claimant to do so, any party may write to the HKIAC to appoint a sole arbitrator.11 The respondent may file a letter of defence and counterclaim with relevant documents within 28 days from receipt of the letter of claim or from the date of appointment of a sole arbitrator.12 Where the respondent has a counterclaim, the claimant may file a letter of reply and defence to counterclaim within 21 days13 and the respondent must file a letter of reply to defence to counterclaim within 14 days thereafter.14 Under the Small Claims Procedure, there is no discovery, but if a party has failed to produce any relevant document, the arbitrator may order that party to produce the document.15 Paragraph 9 allows the arbitrator, in exceptional cases, to depart from or vary the provisions of the Procedures at his or her discretion. 7 The latest (3rd edition) of the SCMA Rules were published in October 2015 and are available at: . 8 The rules of both Procedures are available at: . 9 Paragraph 1 of the HKIAC Small Claims Procedures. Unfortunately, the limit of US$50,000 may be too small for many maritime claims. 10 Paragraph 4 of the HKIAC Small Claims Procedures. 11 Paragraph 2(b) of the HKIAC Small Claims Procedures. 12 Paragraph 5(a) of the HKIAC Small Claims Procedures. 13 Paragraph 5(b) of the HKIAC Small Claims Procedures. 14 Paragraph 5(c) of the HKIAC Small Claims Procedures. 15 Paragraph 6 of the HKIAC Small Claims Procedures.

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SPECIALIZED ARBITRATIONS The arbitrator issues an award within one month from the date when the arbitrator has received all relevant documents and submissions or, where there is an oral hearing, from the close of the hearing.16 Paragraph 8 sets out limits to the fees payable to the arbitrator and the costs recoverable by a successful party. The HKIAC Documents Only Procedures came into effect in January 2000. These Procedure are intended to encourage speed and economy. They are available where the tribunal determines that a dispute is to be decided without an oral hearing or when the parties have so agreed.17 Within 28 days of the parties’ agreement or the tribunal’s decision, the claimants must send its claim submissions with supporting documents to the respondent.18 Within 28 days thereafter, the respondent must send its submissions with supporting documents to the claimant.19 If there is no counterclaim, the claimant is to send its final submissions to the respondent within 21 days after receipt of the respondent’s submissions.20 If there is a counterclaim, the claimant must make submissions in defence to the counterclaim with supporting documents within 28 days.21 The respondent may make final submissions on the counterclaim within 21 days. Before issuing an award, the tribunal must notify the parties of its intention to proceed to the award. It may issue the award, unless within seven days a party requests (and is thereafter granted) leave to serve further submissions.22 14.1.1.2 Construction arbitrations Hong Kong has established pre-eminence as an arbitration seats for international construction disputes. Within Hong Kong, Mainland China and Macau, there have been and continue to be numerous major construction infrastructure projects involving joint ventures between Hong Kong companies, Mainland China and other foreign companies. These projects give rise to disputes that are typically settled through mediation, adjudication, arbitration, or a combination of one or more of those modes of resolution. As has been mentioned, there has been interest in recent years in the development of adjudication in Hong Kong.23 But mediation24 and arbitration remain the preferred modes for resolving construction disputes. Although the HKIAC handles construction arbitration,25 Hong Kong also has a specialist institution for construction arbitrations, the Hong Kong Construction Arbitration Centre (HKCAC). The latter has published the HKCAC Construction Arbitration Rules, the most recent edition of which came into effect in 2015.

16 Paragraph 7 of the HKIAC Small Claims Procedures. 17 Paragraph 2(a) of the HKIAC Documents Only Procedures. 18 Paragraph 3(a) of the HKIAC Documents Only Procedures. 19 Paragraph 3(b) of the HKIAC Documents Only Procedures. 20 Paragraph 3(c) of the HKIAC Documents Only Procedures. 21 Paragraph 3(d) of the HKIAC Documents Only Procedures. 22 Paragraph 3(e) of the HKIAC Documents Only Procedure. 23 See Chapters 3 and 11. 24 Since 2009 the Hong Kong Government has been promoting a “Mediate First” approach to disputes, including disputes within the construction industry. For an example of a “Mediate First” event to promote greater public awareness of mediation, see: . 25 Domestic construction arbitrations often use HKIAC’s 2014 Domestic Arbitration Rules, available at: .

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SPECIALIZED ARBITRATIONS Article 1 of the Rules provides for the commencement of an arbitration. The claimant must send an arbitration notice in writing to the respondent and to the Secretary of the HKCAC. The arbitration notice must contain the items specified in Article 1.1. Within seven days from the receipt of the arbitration notice, the respondent must submit a response to the arbitration notice.26 HKCAC is the appointing authority for arbitrations under the Rules.27 Article 3 provides for the appointment of arbitrators. A tribunal is to consist of a sole arbitrator unless the parties agree otherwise.28 The arbitrator must be and remain “at all times wholly independent and impartial”; must “act fairly as between the parties”; and “must not act as advocate for any party”.29 The arbitrator must disclose to the parties any circumstance likely to create an impression of bias or prevent a prompt resolution of the dispute between the parties. When the parties consensually nominate an arbitrator, HKCAC must appoint the nominated arbitrator within seven days of the arbitration notice. Article 6 provides for the submission of written statements, documents and evidence. Articles 7 to 14 deal with the arbitration proceedings, including representation, hearings, witnesses, the possibility of an assessor appointed by the arbitrator, the powers and jurisdiction of the arbitrator, default of appearance by a party, venue and language. The latter rules are similar to the HKIAC Rules. Article 15 concerns deposits and security. The arbitrator may request the parties to make deposits in order to secure the arbitrator’s fee and expenses. Articles 16 and 17 deal with awards. An award must be in writing unless the parties agree otherwise. It must state the reasons upon which the award is based. The parties may agree for the arbitration to be conducted on a documents only basis.30 Under such procedure, the arbitrator must render the award solely on the basis of submitted documents submitted. But, if the arbitrator is of the view that it will not be possible to make an award on the basis of the documents submitted, oral (or further written) evidence and submissions may be requested. The parties may also agree that the arbitration be stayed for mediation. It is possible for there to be arb-med, including where the same person acts as arbitrator and mediator.31 14.1.1.3 Financial arbitrations On 10 April 2017 the ICC Commission on Arbitration and ADR held the Hong Kong launch of its Report on Financial Institutions and International Arbitration.32 The Report argues strongly for the greater use of arbitration as a means of resolving international financial disputes, including disputes relating to derivatives (Section V of the Report), sovereign finance (Section VI), banking and finance disputes (Section VII), regulatory matters (Section VIII), international financing disputes (Section IX), Islamic finance disputes (Section X), the work of development finance institutions

26 Article 1.2 of the HKCAC Rules. 27 Article 2.1 of the HKCAC Rules. 28 Article 3.1 of the HKCAC Rules. 29 Article 3.2 of the HKCAC Rules. 30 Article 25 of the HKCAC Rules. 31 Article 27 of the HKCAC Rules. 32 The Hong Kong launch was followed by similar events in Singapore (11 April 2017) and London (17 May 2017). The Report is available at: .

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SPECIALIZED ARBITRATIONS and export credit agencies (Section XI), advisory matters (Section XII) and asset management (Section XIII). The Report found surprisingly limited resort to arbitration among financial institutions for the resolution of disputes. For example, the Report observed that:33 interviews conducted by the Task Force reveal that most financial institutions do not have substantial experience of international arbitration: 70% of interviewees were not aware of whether their financial institutions had participated in any international arbitration proceedings in the last five years; 24% of the financial institutions interviewed had participated in a small number of international arbitration proceedings in the previous five years representing 5% or less of all the financial institution’s disputes; and 6% of the financial institutions interviewed had participated in a larger number of arbitration proceedings.

Nevertheless, the Report is optimistic that the changing landscape of financial disputes now favours a greater use of arbitration. It states: 29. Arbitration is increasingly a part of the strategic options considered for cross-border banking and financial disputes. For example, organised exchanges such as Euronext refer to arbitration as a method of resolving disputes related to market transactions. Trade, export and project finance contracts/documentation sometimes provide for arbitration agreements, especially in dealings with state instrumentalities in emerging countries. Where arbitration has not been initially contemplated, it may be subsequently considered following the exercise of step-in rights or the assignment of receivables stemming from contracts providing for arbitration. 30. Recently, there has been an increase in the number of industry-specific arbitration initiatives, including the introduction in 2013 of the “ISDAfied” optional arbitration clauses into the ISDA34 Master Agreement. These initiatives complement the existing bodies and rules that specifically target arbitration in the banking and financial sector, such as PRIME Finance35 in The Hague (working jointly with the Permanent Court of Arbitration), Hong Kong’s Financial Dispute Resolution Centre (FDRC), the United States’ Financial Industry Regulatory Authority (FINRA) and CIETAC’s Financial Disputes Arbitration Rules. In addition, countless colloquia, articles and academic works have recently been devoted to this topic.

The Financial Dispute Resolution Centre Limited (FDRC) referred to in the Report commenced operations in June 2012. It is a non-profit organization under a board of directors (headed by a Chairperson). Day-to-day management is in the hands of a chief executive officer. The FDRC operates a Financial Dispute Resolution Scheme (FDRS) which offers mediation and arbitration services for “eligible claimants” in respect of “eligible disputes”. The FDRS operates on a “mediation first, arbitration next” basis. An “eligible claimant” is a customer who has received financial services or obtained financial products from an FDRS member. Membership in the FDRS comprises all Hong Kong Monetary Authority (HKMA) authorized or Securities and Futures Commission licensed financial institutions, except those solely providing credit rating services. An “eligible dispute” is a dispute between an eligible claimant and an FDRS member in relation to the provision of financial services. The amount in dispute must be no more than HK$500,000. An eligible claimant must have lodged his or her complaint with the

33 Report (n 32), at [41]. 34 That is, the International Swaps and Derivatives Association Inc. 35 That is, the Panel of Recognized International Market Experts in Finance.

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SPECIALIZED ARBITRATIONS FDRC member and attempted to settle the matter over a period of 60 days. Further, an eligible claimant must have made his or her claim within 12 months from the date when the financial services were provided or from the date when the eligible claimant knew that he or she had suffered loss from the relevant financial services. The FDRC has published Mediation and Arbitration Rules for the FDRS.36 The latest version of the Rules came into effect in February 2014. The Rules allow for arbitration of an eligible dispute following the breakdown of mediation.37 The arbitrator is appointed from a list of arbitrators.38 The arbitration is to be conducted on a documents only basis, although there is the possibility of an arbitrator deciding in his or her sole discretion to have an in-person hearing.39 At any point, the arbitrator may terminate the proceedings with the parties’ approval, if the arbitrator is of the view that it would be more suitable for the court to deal with the dispute.40 Unless the parties agree otherwise, an appeal against the arbitrator’s award may be brought before the court on a question of law.41 The fees payable for mediation and arbitration under the FDRS are fixed by Rule 5. The FDRS has proved to be an innovative means of resolving financial disputes. However, the limit of HK$500,000 imposed by the FDRS is relatively low and there are ongoing discussions to see whether the limit can be raised to at least HK$1 million. 14.1.2 Arbitrations involving private and public interests 14.1.2.1 Intellectual property arbitrations Modern international commercial transactions often involve intellectual property (IP) rights, including patents, trademarks, design and copyright. A corollary is that disputes over the validity, ownership, licensing and infringement of IP rights across national borders is commonplace in today’s world. In so far as the arbitration of such disputes is concerned, the key question is whether claims involving IP rights are arbitrable in whole or part. Many jurisdictions have affirmed the arbitrability of IP rights disputes, with the exception of disputes over the validity of a registration of an IP right in the registry of some country. A distinction is typically drawn between cases where the validity of a registration of an IP right arises as a main or only as an incidental question. Thus, imagine a dispute before an arbitral tribunal over an agreement to license an IP right. The IP right holder (the licensor) claims for unpaid licence fees. The licensee in its defence alleges that no licence fees are payable because the IP right purportedly licensed did not in fact belong to the licensor and the latter's registration of the IP right in country Y is invalid. In such case, the question of the validity of the registration of the licensor’s right simply arises as an incidental question. The main issue in the arbitration is the licensor’s entitlement to be paid licence fees. The validity of the registration is a 36 37 38 39 40 41

Available at . Rule 3.8.1. Rule 3.4.1. Rules 3.2.2, 3.8.3 and 3.9.1. Rule 3.8.7. Rule 3.12.1.

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SPECIALIZED ARBITRATIONS question that the tribunal needs to determine, solely as between the licensor and licensee, for the purpose of deciding whether or not the former is entitled to claim unpaid licence fees from the latter. If the tribunal decides that the registration is valid, the licensee will need to pay the licensor. If the tribunal decides that the registration is invalid, it dismisses the licensor’s claim. In neither eventuality does anything have to be done in respect of the registration of the licensor’s right in country Y. Consequently, the tribunal’s award should be enforceable under the New York Convention. The issue before the tribunal merely concerns the private rights of the licensor and licensee against each other. The public interest is not actually engaged or relevant to the dispute. Contrast an award made in country X purporting to invalidate the registration of an IP in the registry of country Y. In practical terms, such award would only be made where the validity of the registration is the main (as opposed to only incidental) question for the tribunal to determine. Such award will probably not be enforceable in country Y. That is because many states regard the validity of a registration of an IP right in their country’s registry as a question involving public (and not just private) considerations. Accordingly, the validity of a registration would not be regarded as capable of settlement as a main question in an arbitration and a tribunal’s award ordering that the registration be struck out would be unenforceable under Article V(2)(a) of the New York Convention. The question of the validity of the registration will need to be litigated in the court of country Y where the registry is kept. The Arbitration Ordinance was recently amended in June 2017 to add a Part 11A to the Arbitration Ordinance specifically dealing with the arbitrability of IP rights.42 The new Part 11A also deals with matters such as recourse against an award involving IP rights and the recognition and enforcement of awards involving IP rights. Section 103B defines an IP right broadly to cover: (a) a patent, (b) a trade mark, (c) a geographical indication, (d) a design, (e) a copyright or related right, (f) a domain name, (g) a layout design (topography) of an integrated circuit, (h) a plant variety right, (i) a right in confidential information, trade secret or know-how, (j) a right to protect goodwill by way of passing-off or similar action against unfair competition, and (k) any other IP right of whatever nature. Under section 103C, a dispute over IP rights includes disputes over the enforceability, infringement, substance, validity ownership, scope, duration or any other aspect of an IP right; disputes over a transaction in respect of an IP right; and disputes over any compensation payable for an IP right. Section 103D expressly confirms the arbitrability of IP rights disputes, whether or not the IP right dispute is the main issue or an incidental issue. Section 103F clarifies that an award may not be set aside only because the dispute relates to IP rights. Section 103G also makes clear that enforcement of an award may not be refused only because the dispute relates to IP rights. 14.1.2.2 Competition law arbitrations Competition law in most jurisdictions allows victims to seek a private law remedy, usually monetary compensation, where business undertakings engage in unfair competition

42 Available at: .

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SPECIALIZED ARBITRATIONS practices or abuse their dominant market position. International commercial disputes relating to competition law take many forms. For example, there are disputes where a party to a contract sues the other party for a declaration of the nullity of a contract by arguing that the other party abused its dominant position when concluding the contract. There are also disputes where the buyer of a cartel product sues members of the cartel for damages. These sorts of claims will be referred to below as “competition law claims”. The question of arbitrability also arises in respect of competition law claims. Can victims seek a private law remedy against a business undertaking or the members of a cartel through arbitration? One can use similar reasoning to that discussed in connection with IP rights to conclude that some competition law claims should be arbitrable, while others may not be. Where the main question in an arbitration is whether there has been a breach of competition law and the claimant seeks a declaration to that effect, it is doubtful that an award declaring an undertaking to have breached competition law would be capable of being recognized and enforced under the New York Convention. The outcome would be different where the issue of whether there has been a breach of competition law only arises as an incidental question, that is, as merely a step towards a determination whether a respondent business undertaking should compensate a claimant victim in damages. In this latter situation, the tribunal’s award ordering the respondent to pay the claimant a certain amount would solely be a private matter between the two parties. The public interest would not be truly engaged. Some jurisdictions (such as the United States) have affirmed the arbitrability of competition law claims. Nonetheless, the issue has yet to be systematically analyzed and it remains unclear whether competition law claims will be regarded as arbitrable in Hong Kong. Another question that can arise is choice of law in the arbitration of competition law claims. This question is closely connected with the issue of the enforceability of arbitral awards made on competition law claims. If competition law claims are arbitrable, which competition law should a tribunal apply? Arbitration is a private dispute resolution system based of the parties’ agreement. The arbitrator resolves disputes as a “private judge”. Consequently, an arbitrator will not be acting on behalf of a government organization and will not normally be in a position to protect the public interest of a given state. So an arbitrator may not be obliged to apply any particular competition law and, through agreement or otherwise, the parties may be able to avoid the application of a particular competition law in an arbitration. By contrast, competition law is public in nature. A national court faced with a competition law claim would be required to apply its competition law so long as that law touches on the case before the court. In those circumstances, what will happen if a winning party comes to the court of country Y to enforce an arbitral award in a competition law claim, but the arbitrator has not correctly applied Y’s competition law? Would Y’s court be entitled to refuse recognition and enforcement of the award on the public policy ground in Article V(2)(b) of the New York Convention? There is no uniform approach among jurisdictions. Under EU case law, enforcement is likely to be refused on the basis of public policy.43 But, under 43 Eco Swiss China Time Ltd v Benetton International NV, Case C126/97, ECLI:EU:C:1999:269 ([1999] ECR I-3055), at [39].

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SPECIALIZED ARBITRATIONS Swiss case law, competition law provisions do not give rise to issues of public policy. A mere breach of such provisions would not consequently be sufficient basis for nonenforcement of an arbitral award.44 The possibility of class arbitrations and third party funding for such arbitrations could play an important role in the future development in Hong Kong of expertise in the handling and resolution of competition law claims through ADR. In competition law claims, the aggregated loss that the totality of victims suffer may well be substantial. But victims are reluctant to bring claims as the individual amounts of their losses are small relative to the legal costs that would be involved. The availability of third party funding may mitigate the litigation risks for victims and encourage them to band together as a class to commence proceedings against abusive business undertakings. 14.2 Investment treaty arbitrations Investment treaty or investor–state arbitrations are typically arbitrations between an investor and a state, initiated pursuant to the terms of bilateral or multilateral investment treaties (BITs or MITs) or free trade agreements (FTAs). Most BITs, MITs, and FTAs contain a detailed dispute resolution clause stipulating one or more means of resolving any disputes that arise under the relevant instrument. Such clauses may, for instance, provide for resolution of disputes under the International Centre for Settlement of Investment Disputes Convention (ICSID Convention),45 the ICSID Arbitration Rules,46 the ICSID Arbitration (Additional Facility) Rules,47 the UNCITRAL Arbitration Rules, or the ICC Arbitration Rules. The International Centre for Settlement of Investment Disputes Convention (ICSID) is an organization within the World Bank Group. It was established in 1966 by the ICSID Convention “to provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States”.48 It is based in Washington DC. There are currently 153 contracting states and eight signatory states to the ICSID Convention. The ICSID Additional Facility was established in 1978 to cover disputes falling outside the ICSID Convention (such as when a party to a dispute is not a member state or is not a national of a member state). The seat of an ICSID arbitration is at the principal office of the International Bank for Reconstruction and Development (the World Bank).49 Section VI of the ICSID Convention contains rules for the recognition and enforcement of ICSID awards by member states. Consequently, ICSID awards are not enforced through the New York Convention. The Permanent Court of Arbitration (PCA) was established in The Hague in 1899 by the Convention on the Pacific Settlement of International Disputes (revised in 1907).

44 Tensacciai SPA v Freyssinet Terra Armata SRL, Decision of Swiss Supreme Court of 8 March 2006, 132 ATF III 389, Reason 3. 45 Available at: . 46 Available at: . The latest edition of the ICSID Arbitration Rules was published in 2006. 47 Available at: . The latest edition of the ICSID Arbitration (Additional Facility) Rules was published in 2006. 48 Article 1 of the ICSID Convention. 49 Article 2 of the ICSID Convention.

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SPECIALIZED ARBITRATIONS The PCA currently has 121 member states. According to its 2015 Annual Report, having initially concentrated on the resolution of disputes between states, the PCA has since widened its sphere of activities and “now administers cases involving various combinations of States, State-controlled entities, international organizations, and private parties”.50 The PCA’s policies are determined by an Administrative Council comprised of the diplomatic representatives of member states and chaired by the Minister for Foreign Affairs of the Netherlands. The day-to-day work of the PCA is managed by an International Bureau headed by the Secretary-General. On 4 January 2015 the PCA entered into the Host Agreement with China for the conduct of PCA-administered dispute settlement proceedings in Hong Kong. At the same time the PCA entered into a Memorandum of Administrative Arrangements with the Hong Kong Government.51 In the field of investment arbitration, ICSID and the PCA have been the dominant institutions for many years. However, competition in the investor–state dispute settlement market (ISDS) is looming. The European Union (EU) is currently seeking to establish a Permanent Investment Court as an alternative dispute resolution forum for investor–state disputes. The EU has already included a clause in some international treaties (for example, the EU–Vietnam Free Trade Agreement52 and the EU–Canada Comprehensive Economic and Trade Agreement53) that allows disputes to be resolved by the Permanent Investment Court. Although described as a “court”, it appears that the decisions of the Permanent Investment Court are to be deemed as equivalent to ICSID or New York Convention “awards”, enforceable under the ICSID Convention or the New York Convention as appropriate. How precisely this outcome is to be achieved remains unclear. The Singapore International Commercial Court (SICC) (established on 5 January 2015) has likewise sought to become a forum for the settlement of investor–state disputes. Examples of questions that frequently arise in investment treaty arbitrations (whether before ICSID or any other forum) include: (1) whether a matter constitutes an “investment” within the meaning of a BIT, MIT or FTA; (2) whether there has been a breach of (a) a most favoured nation (MFN) clause, (b) a full protection and security (FPS) clause, or (c) a fair and equitable treatment (FET) clause, in a BIT, MIT or FTA; and (3) whether there has been expropriation by a state of an investment without adequate compensation being made to the investor.

50 2015 Annual Report, p. 10, available at: . 51 Available at: . 52 Available at . 53 Available at .

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CHAPTER 15

Challenges

This final chapter identifies five challenges that international commercial arbitration will have to face if it is to develop in the future in Hong Kong and elsewhere. The five challenges mentioned here are by no means the only ones facing international commercial arbitration. However, they are challenges upon which the author feels that he can usefully comment on the basis of his personal experience. 15.1 Singapore International Commercial Court (SICC) The SICC has been mentioned in Chapter 3. It was established on 5 January 2015, as a division of the Singapore High Court. It has 12 international judges from both civil and common law jurisdictions (four judges from the UK, three from Australia and one each from France, Austria, Delaware, Japan and Hong Kong). In addition, judges of the Singapore High Court may also sit in the SICC. The SICC essentially has jurisdiction in two types of case: (1) disputes arising out of international commercial contracts with a choice of law agreement designating the SICC as the forum in which such disputes are to be resolved and (2) cases transferred to the SICC from the Singapore High Court. In due course, it is expected that disputes falling within the first type will be the principal source of the SICC’s caseload. As of July 2017, it has had nine cases and issued 11 judgments. The SICC is a significant component of Singapore’s efforts to become an international dispute resolution centre, offering quality litigation, arbitration, mediation and other ADR services. The SICC can hear offshore cases with little or no connection with Singapore apart from a choice of court agreement designating the SICC as forum. The rationale underlying the SICC is thus a desire to attract international commercial disputes that would not normally come to Singapore for resolution. The hope is that in so doing the SICC will complement the dispute resolution options already on offer in Singapore through the SIAC in arbitration and the Singapore International Mediation Centre (SIMC) in mediation. Non-Singapore lawyers (whether trained in the common or civil law traditions) with at least five years’ advocacy experience may register as foreign counsel accredited to appear before the SICC in a specific case or in cases generally. However, to be registered, an applicant must agree to abide by the SICC’s Code of Ethics. Once registered, foreign lawyers may address the court directly on matters governed by the foreign law in which they are qualified. Submissions are to be made in English, which is the language of the SICC. In its procedures, the SICC combines the best practices of common and civil law jurisdictions and of arbitration and litigation. For example, cases will normally follow 198

CHALLENGES arbitration and civil law (as opposed to common law) practice in relation to pleadings, which should be succinct statements of the facts and law relevant to a party’s case and to which the documents on which the party seeks to rely have been attached. In the normal course of events, there will be no general discovery, only specific discovery. On the other hand, the SICC puts a premium on regular and robust case management to ensure that cases come to trial and are resolved in a fair, time-efficient and cost-effective manner. The SICC offers a dispute resolution product that is similar, but not identical, to international commercial arbitration. For example, in contrast to arbitration, the SICC has wider power to join third parties as proper and necessary parties to an action, much as any other common law court can do. The power of joinder can be exercised even if the persons being joined are not privy to the operative choice of court agreement and do not consent to their joinder. Unlike arbitration, although the parties can apply for a matter to be heard in private as opposed to open court, it is envisaged that the majority of cases will be heard by the SICC in public. Again, unlike arbitration, unless the parties agree otherwise, first instance decisions of the SICC are subject to appeal before appellate division of the SICC in the Court of Appeal. Finally, unlike arbitration, the SICC’s decisions are issued as judgments, not awards. The SICC’s decisions are thus enforceable as judgments in other jurisdictions. They are not enforceable as awards under the New York Convention. The question most often asked about the SICC is whether it is competitive with international commercial arbitration, given that its judgments cannot be enforced by means of the New York Convention. In contrast to the 157 jurisdictions that are party to the New York Convention, Singapore only has bilateral or multilateral arrangements for the reciprocal enforcement of judgments with about 40 jurisdictions (including the 29 states and one REIO party to the 2005 Hague Choice of Court Agreements Convention).1 It might be thought that, purely on numbers, arbitration should win hands down. However, that would be too simplistic. In most common law countries (including the states within the United States), judgment debts can be enforced by way of summary judgment procedure (that is, without the need to go to trial) on the basis that there is no arguable defence to the judgment creditor’s claim. Thus, subject to proof that a judgment debtor submitted to the SICC’s jurisdiction, the likelihood is that an SICC judgment will be readily enforceable in most common law jurisdictions through the summary judgment procedure. In so far as proof of submission to the SICC’s jurisdiction is concerned, there should be no real difficulty since that can established by reference to the parties’ choice of court agreement. The parties’ agreement to refer any disputes arising out of their international commercial contract to the SICC should constitute a submission to jurisdiction under the conflict of law rules of most common law states. If that is right, SICC judgments should be readily enforceable in most common law jurisdictions, not just those covered by REFJA and RECJA.

1 See the Singaporean statutes of Reciprocal Enforcement of Commonwealth Judgments Act (Cap.264) (“RECJA”) and the Reciprocal Enforcement of Foreign Judgments Act (Cap.265) (“REFJA”) for the jurisdictions with which Singapore has a bilateral arrangement for the reciprocal enforcement of judgments. Singapore ratified the 2005 Hague Convention on 2 June 2016. The provisions of the Convention were enacted into Singapore law through the Choice of Court Agreements Act (No.14 of 2016) which came into effect on 1 October 2016.

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CHALLENGES On the other hand, many civil law jurisdictions have modernized their codes of civil procedure to enable foreign judgments to be enforced where two key conditions are met. The first condition is reciprocity. It must be shown that the judgments of the enforcing state are capable of enforcement in the state from which the judgment being enforced originated. Second, it must be shown that the originating state founded jurisdiction on one of the grounds of indirect jurisdiction set out in the enforcing state’s code of civil procedure. In respect of the first condition, Singapore being a common law country, it may be sufficient to establish reciprocity that foreign judgments are enforceable by means of the summary judgment procedure mentioned above. In respect of the second condition, it is likely that a jurisdiction (such as that of the SICC) founded on a choice of court agreement between the parties will be an acceptable ground of indirect jurisdiction under the laws of many civil law countries. If that is correct, then SICC judgments should be enforceable, regardless of the absence of a treaty arrangement, in many civil law states. There will of course be problem jurisdictions in which it will be difficult to enforce SICC or any foreign judgments. The situation is the same with Convention awards. Although in theory Convention awards should be readily enforceable in all Convention states, the reality is that in many Convention states it will take years (if at all) to enforce a Convention award. The point of the foregoing discussion is merely to point out that a crude numbers comparison is likely to give a misleading picture of the enforceability of SICC judgments in comparison to Convention awards.2 What implication does the SICC have for the future development of international commercial arbitration in Hong Kong? The main implication would appear to be enhanced competition between Hong Kongbased arbitration and Singapore-based litigation as modes of international commercial dispute resolution. This increased competition can only be of benefit to everyone. The competition has the prospect of bringing down the high cost of cross-border dispute resolution across the board. If international commercial arbitration is becoming too expensive (as it appears to be), more and more businesses should be prepared to consider litigation (including litigation in the SICC) as an option. Instead of arbitration agreements, parties and their legal advisers should be thinking about incorporating choice of court agreements into their contracts. If, as a result, litigation (say) becomes too expensive one day, parties can switch back to arbitration or some other ADR mode as means of resolving their differences. What the SICC means is that, at least within Asia and possibly beyond, there exists a real choice among practical alternatives for resolving cross-border commercial disagreements. It is no longer the case that the New York Convention is the only way to enforce one’s commercial rights on a global scale. Parties can now freely pick whatever best suits their needs from a variety of options (including the SICC, arbitration, mediation or any combination of them), taking account (among other considerations) the likely cost of each mode.

2 For a detailed analysis of the laws relating to the recognition and enforcement of judgments in different countries, see B Elbalti, “Spontaneous Harmonization and the Liberalization of the Recognition and Enforcement of Foreign Judgments” (2014) 16 Japanese Yearbook of Private International Law 264; B Elbalti, “Reciprocity and the Recognition and Enforcement of Foreign Judgments: A Lot of Bark But Not Much Bite” (2017) 13 (1) Journal of Private International Law 184.

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CHALLENGES 15.2 Cost of international commercial arbitration Much has been written, including in Chapter 1 of this book, about the need to reduce the cost of international commercial arbitration. But what exactly does that mean and what would it entail? There is no shortage of suggestions over the years on how to cut down on the overall costs of an international commercial arbitration. But none of those suggestions appear to have had any real effect and international commercial arbitration just seems to be getting more and more expensive. In the previous section of this chapter, it has been suggested that the development of greater competition among different modes of international dispute resolution may help to bring down overall cost. Unfortunately, the effects of increased competition among different modes of ADR will be difficult to measure empirically and, even if some empirical metric could be developed, it may take years for a real effect (if any) to be noticed. Reference was made in Chapter 11 to the Hong Kong event of the Global Pound Conference (GPC)3 held on 23 February 2017. Some of the results of that event have caused the author to think again about what the proper response to the costs of arbitration should be. The results of the event help to piece together a profile of a typical Hong-based end-user (client) of dispute resolution services (including arbitration). That profile may suggest what the end-user is looking for and how arbitration can best cater to that expectation. Accordingly, the results of the GPC Hong Kong event will first be qualitatively described. A preliminary profile will then be inferred from those results. Thereafter, a suggestion will be made as to how the challenge of the high cost of international commercial arbitration in Hong Kong might be viewed and tackled. Attendees at the GPC Hong Kong event were polled throughout the day on a series of questions designed (among other matters) to elicit whether there was a mismatch between the expectations of end-users on the one hand and their legal and other professional advisers on the other. The event comprised four sessions. The results of the first two sessions are of interest here.4 The first session of the event was entitled “Party needs and expectation in commercial dispute resolution”. There were 107 persons in attendance at the first session. Five questions were asked of attendees.5 The first question was: “What outcomes do parties most often want before starting a process in commercial civil dispute resolution?” Of the options put forward as possible responses, the two outcomes that were selected by far the greatest number of participants were “Financial (e.g. damages, compensation, etc.)” and “Action-focused (e.g. prevent action or require an action from one of the parties)”. The other suggested responses (“Psychological,” “Relationship-based,” and “Judicial”) were not selected by a statistically meaningful number of attendees. The cross-sectoral breakdown of results showed that a large number of the end-users present at the first session had chosen the “Financial” and “Action-focused” responses. The same was true of the advisers (lawyers and external consultants) present. 3 See p. 156. 4 The results of the Hong Kong event are available at: . The source of the data is the International Mediation Institute (IMI), a non-profit organization that has convened the GPC Series. 5 The last three questions of the first session are not relevant to the discussion here and are omitted.

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CHALLENGES The second question was: “When parties involved in commercial disputes are choosing the type(s) of dispute resolution process(es) to use, which of the following has the most influence?” The three most popular answers were” “Efficiency (e.g. time/cost to achieve outcome)” “Advice” and “Predictability of outcome”. The remaining answers did not receive any statistically meaningful support: “Confidentiality expectations”, “Relationship” and “Industry practices”. The cross-sectoral breakdown of results for end-users and their advisers had similar results, except that a much larger percentage of both groups favoured “Efficiency”. The second session of the event was devoted to “Party expectations and current practice in commercial dispute resolution”. There were 99 attendees at the second session.6 The first question of the session was: “What outcomes do providers tend to prioritise in commercial dispute resolution?” The two most popular responses were “Financial” and “Action-focused” outcomes. The third most popular answer was “Relation-focused” outcomes. But the number selecting this third option was far less than for the two most popular responses. The cross-sector breakdown were similar, save that they indicated a preference among end-users for “Action-based” outcomes and among advisers for “Financial” outcomes. Among both sets of users “Relation-focused” outcomes was not chosen by a statistically meaningful number of persons. The second question was: “The outcome of a commercial dispute is determined primarily by which of the following?” Of the proposed answers, the most popular were “Consensus”, “Rule of Law” and “Equity” in that order. “Culture” and “Status” were ranked relatively low by attendees. The cross-sector results showed that among end-users and their advisers “Rule of Law” was rated more highly as a determinant of the outcome of a commercial dispute, with “Consensus” coming in much lower as second and “Equity” even lower as third. The reason for “Consensus” being ranked higher than “Rule of Law” in the aggregated results appears to have been because that option was selected by a large number of non-adjudicative service providers (mediators, conciliators, etc) and influencers (researchers, educators, government representatives, etc). The third question was: “In commercial disputes, what is achieved by participating in a non-adjudicative process (mediation or conciliation) (whether voluntary or involuntary – e.g., court ordered)?” The three most popular answers were: “Reduced costs and expenses”, “Better knowledge of the strengths/weaknesses of the case or likelihood of settlement” and “Improving or restoring relationships” in that order. The cross-sector breakdown has similar results for advisers. But end-users appear to have preferred “Better knowledge of the strengths/weaknesses of the case or likelihood of settlement” over “Reduced costs and expenses” and “Compliance (e.g. avoiding cost sanctions, meeting contractual obligations)” over “Improving or restoring relationships” or indeed all the other suggested responses. The results of the GPC Hong Kong event have yet to be fully analyzed in conjunction with the results of all GPC events worldwide.7 For now, it is simply suggested, on the basis of the qualitative results described above, that the Hong Kong-based end-user of dispute resolution services appears to prefer an outcome that vindicates one’s rights in

6 Five questions were asked at the second session of which the first three are relevant here and the remaining two are omitted. 7 The concluding GPC 2017 event took place in London on 6 July 2017. Interested readers may look out for the final report by accessing .

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CHALLENGES accordance with the law. He or she prefers a determination on the merits, rather than a reconciliation. Relationship, cultural or social outcomes are only distant considerations. What the Hong Kong end-user is more interested in achieving is apparently either an action-based result (for example, an order of specific performance or an injunction) or a financial outcome (for example, damages or compensation). Even when the end-user takes part in negotiation or mediation, he or she does so with the primary object of learning more about the strengths and weaknesses of one’s case or for the purposes of compliance (that is, to avoid a costs sanction by the court for unreasonably refusing to go to mediation),8 rather than to restore or achieve harmony. Moreover, the Hong Kong enduser want a determinative outcome to be attained in a timely and cost-efficient fashion. If that is an accurate profile of the Hong Kong-based end-user, one might ask whether the concern about the overall high cost of international commercial arbitration is misplaced. Might it be that international commercial arbitration is by its nature inevitably an expensive undertaking? That is due to it being a one-shot option (there being only limited or no prospect of appeal) that is supposed to end up with an award that will be enforceable in a possibly diverse number of places, some of which may not have any developed case law on due process. In the circumstances, due process paranoia or not, arbitrators will understandably want to take time and care in producing their award. That time and care comes at a cost. But provided a high quality professional service is provided and results delivered expeditiously, end-users are seemingly prepared to pay the high cost of such services. If so, the emphasis should not be so much on reducing the overall cost of international commercial arbitration, as on ensuring that end-users receive quality service and value for money. That means that the arbitral process should be conducted at all times to a highly professional and transparent standard without padding, bluffing or time-wasting. The relevant professional standards can be articulated over the course of time in internationally accepted guidelines (soft law instruments) of the sort examined in this book. Such guidelines may serve as useful benchmarks against which the quality of the service provided by arbitrators can be evaluated. The result should be that arbitrations are conducted in more cost-effective and timeefficient ways. However, that does not mean that arbitrations will necessarily be cheaper. On the contrary, it will often take considerable experience, thought, and hard work to case manage and move arbitrations along in a manner that is both fair and expeditious to all parties. Quality service comes at a price, but end-users appear to be willing to pay the price to vindicate what they believe to be their right. 15.3 Capacity-building among judiciaries Although in theory New York Convention awards should be readily enforceable in all Convention states, the reality is something else. In many jurisdictions today, it may take years to enforce a foreign arbitral award. That should obviously not be the case. But the challenge is how to deal with the problem.

8 See the discussion on Practice Direction 31 of the High Court in Chapter 11, p .155.

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CHALLENGES The difficulty may be that judges are insufficiently familiar with what international commercial arbitration involves and so are loathe to give full rein to party autonomy. There is a tendency for judges in whatever jurisdiction to regard arbitration (including international commercial arbitration) as just litigation by another name. Thus, they instinctively feel duty-bound to intervene, when they believe that domestic law has been wrongly applied in an award or that the award has come to an unfair result. The temptation to interfere in the arbitral process in the interests of justice may just be too strong to resist. If that is a correct diagnosis, at least part of the answer lies in investing in capacitybuilding about international commercial arbitration among judiciaries, especially (given Hong Kong’s geographical position) judiciaries within the Asia Pacific region. The premise is that a better understanding of what international commercial arbitration is about will mean that judges will only intervene to the minimum extent necessary in keeping with the Model Law. Judiciaries will become more arbitration-friendly. From the standpoint of a developing country, a greater restraint on the judiciary’s part in arbitration-related proceedings, including a greater willingness to recognize and enforce awards, can reap substantial benefits. Foreign investors would be more willing to invest in the country, if there is a sense that, however financially adverse an award might be to the interests of some established domestic enterprise, awards will nonetheless be recognized and enforced. The increased investment can then lead to greater economic prosperity among the citizens of the country. In time, following capacity-building, a country can start to market itself as a sub-regional or regional dispute resolution centre and compete with more established (and possibly more expensive) pro-arbitration jurisdictions (such as Hong Kong and Singapore). Just as with competition from the SICC, an increase in international dispute resolution centres in the Asia Pacific should have a salutary effect on the cost of international commercial arbitration in the region. 15.4 Capacity-building among young arbitrators The author recalls how, at the end of one of his lectures on international commercial arbitration to students of Hong Kong University’s LLM in Arbitration and Dispute Resolution, he was approached by a student. The student was a young police officer. He said that he was studying for the LLM because, after leaving the police force at the mandatory retirement age of 55 years, he wanted to do something meaningful, rather than just spend the rest of his days as a security guard. He asked how he could start off a career as an arbitrator upon his retirement. He suggested that it was easy for one to start such a career after having been a High Court judge. But what about people like him? Did he have any hope? The author was taken aback at the question and did not answer it well that night. Since then he has been reflecting on what he should have said in response. Like the young police officer, many young persons find the idea of a private dispute resolution process such as arbitration attractive. They actively set out to learn more about what it involves and how they can become arbitrators. They sign up for LLM degrees in Dispute Resolution at Hong Kong University, City University and elsewhere and enroll in Fellowship courses offered by the Hong Kong Institute of Arbitrators and the Chartered Institute of Arbitrators, all in the hope of embarking on careers as arbitrator. However, how does 204

CHALLENGES one get one’s lucky break? Do universities and arbitration-related organizations simply make money from giving courses on arbitration and possibly holding out the prospect of glamorous careers in the field, without there being any sufficient actual demand to support the large numbers of students and professionals taking those courses? The author believes that there is a growing market for the arbitration of all sorts of disputes at all levels, from small financial disputes of the sort covered by the Financial Dispute Resolution Scheme (FDRS) discussed in Chapter 149 to the large mega-claims encountered in investment treaty arbitrations.10 The last challenge discussed in this chapter (the Belt and Road Initiative) alone should present many opportunities, small and large, for dispute resolution service providers in the future. There is work, but success will not come right away. An individual will have to gain experience and build a career over many years. Arbitration, let alone international commercial arbitration, is not a career that one can simply take up and instantly expect to support one’s self financially. One will experience setbacks and disappointments, so that one would be well-advised to start off in some other job first, until one attains a fair degree of financial independence, before embarking on a career as a full-time arbitrator. If that is right, then the answer to the young police officer’s question lies in developing at least two ingredients of future success: (1) one’s capacity to help resolve disputes and (2) one’s network as a service provider. By building capacity is meant that one needs to develop one’s sense of what is fair and what is not and how to articulate and decide why some option is fairer than some other option. Developing a sense of fairness should not (and probably cannot) be done in the abstract. One cannot be an arbitrator simply by knowing about “arbitration”. Arbitration is largely about procedure or more accurately due process. One needs to know more than just procedure, if one is to be appointed as an arbitrator to resolve a dispute. Disputes are typically over substantive questions, not just proper procedure. Due process is merely a means towards attaining the end of resolving some substantive disputed issues. Therefore, one needs to develop knowledge or expertise in one or more substantive areas (for example, shipping, construction, intellectual property, commercial transactions, science, international technology etc). When one “sells” one’s services as arbitrator, what one is really marketing is one’s expertise in a subject area coupled with one’s understanding of what constitutes fair procedure or due process in the resolution of different viewpoints within that subject area. Capacity-building is consequently a two-fold process: (1) one is developing one’s specialist knowledge or expertise in some subject area or areas and (2) one is heightening one’s understanding of what is involved in managing disputes to achieve resolution fairly, expeditiously and cost-effectively. One can work hard at building one’s capacity to function as a capable arbitrator in some specialist area. But that alone will not necessarily mean that one is appointed as arbitrator. One would still need to be noticed. One might apply to go on the panels or lists of arbitrators maintained by arbitration institutions like the HKIAC or SIAC. However, there is a difficulty here. It is almost impossible to get on a list (much more so a panel) unless one has had arbitration experience. One might then ask: how does one get experience 9 See p. 192. 10 See p. 197.

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CHALLENGES if one is not even on anyone’s list? Indeed, in practical terms, even if one were lucky enough to get on a list, there are hundreds of names on a typical list. How will one even be noticed in all that crowd, so to get to that breakthrough of a first appointment? There would seem to be no alternative other than to build one’s own network. How does one do that? Every week, every month and every year, some arbitration seminar, workshop, conference, symposium or congress is taking place in Hong Kong, Shanghai, Beijing, Singapore, Malaysia, South Korea and elsewhere in the Asia Pacific region. The aspiring arbitrator based in Hong Kong can market himself or herself by attending a strategic selection of these events, exchanging name cards, discussing questions of interest, and generally making it known that one is in the market as an arbitrator in one’s subject areas. Some of the events that take place are free, others require nominal registrations fees, while yet others require heftier sums. Depending on the size of one’s budget and one’s ambition, one can decide which events to attend at what cost for the purposes of marketing one’s self. There are so many events going on at all times that every size of pocketbook is catered for by the market. The young arbitrator may be shy at first in speaking about what he or she can offer. Nonetheless, the would-be arbitrator must be bold and in any event one will soon become accustomed to the practices of networking. Surprisingly, one discovers that one is not alone and there are many others in a similar position. One can in the process develop contacts (sometimes friendships) with like-minded professionals, while at the same time sharpening one’s understanding of what the practice of arbitration (especially international commercial arbitration) involves. No one can force a party to nominate a person as arbitrator against the party’s will. Given this reality and given the context described in the previous paragraphs, arbitration institutions must do more than just run courses for aspiring arbitrators. They must also generate opportunities where end-users and their legal representatives can meet young arbitrators and become acquainted with the wide range of choice among arbitrators offered by the market today. In the long run, this will benefit arbitration (including international commercial arbitration). By increasing the pool of potential arbitrators, arbitration organizations would be enhancing competition in the industry. Enhanced competition for appointments among arbitrators will help to lower the high costs of arbitration generally. 15.5 The Belt and Road Initiative The Belt and Road Initiative (formerly referred to as One Belt One Road or OBOR) aims to boost trade and investment along five land and sea routes connecting Asia, Europe and Africa. The Initiative was first announced by President Xi Jinping of China in late 2013. The project does not lack for ambition. It is envisaged that, over time, it will extend to over 60 countries covering a total population of some 4.4 billion and an aggregate GDP of over US$20 trillion. With the growth of trade and investment activity, there will inevitably be an increase in the number of cross-border commercial disputes among the countries along the five routes and a corresponding rise in the demand for dispute resolution services (including arbitration). The Initiative should accordingly present opportunities for those aspiring to start or develop an international commercial arbitration or dispute resolution practice. 206

CHALLENGES The International Academy of the Belt and Road published a Blue Book on the Dispute Resolution Mechanism for the Belt and Road in October 2016. That proposed a uniform dispute resolution mechanism for the Belt and Road. But these are early days and it is unclear whether a uniform mechanism will be feasible and (if so) in what form. The sheer number of countries involved and the plethora of legal, cultural, religious, social and political norms and values represented along the Belt and Road, will undoubtedly make it difficult to have a single or monolithic dispute resolution system covering everyone and everything, or something even remotely near that. A more flexible, market-driven approach, relying on private initiative, may be called for instead. The question is how to kick-start such initiative. What will happen in terms of commercial dispute resolution along the Belt and Road may remain to be seen. But, even if for only that reason, these are exciting times for arbitrators and would-be arbitrators to be living in and now is the moment for all stakeholders (governments (including the Hong Kong government), arbitral institutions (including HKIAC), arbitrators, academics, lawyers and (above all) end-users) to come together in a series of sub-regional, regional, and international conferences, to map out the minimum that needs to be done to foster an environment where cross-border disputes along the Belt and Road are resolved fairly, cost-effectively and efficiently.

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INDEX

AAA 34 adjudication 33–4, 36, 39, 159–61; DEVB survey 159–60; SOPL, and 160–1; Tang Report 159 ADR initiatives 31–4 ADR support 154–61 agreement in writing 79 applications for further and better particulars 105–6 applications for interrogatories 105–6 applications for preliminary issues 105 applications to preserve property or conduct experiments 106–7 appointment of arbitrators: Arbitration Ordinance, under 60–3; breaking deadlock 61–2; chairperson 60; challenge 62; conflicts of interest 63–70 see also conflicts of interest; impartiality and independence, duty of 70–2; Model Law, under 60–3; more than two parties 62; number of 61; party autonomy, and 61; qualifications 62; termination, and 63; tribunal’s ruling on own competence 62 arbitral judicial order 23–5 arbitral rules: discretion of tribunal 18 arbitration: ad hoc 3; administered 2–3; meaning 2 arbitration agreement 2; challenge to tribunal’s jurisdiction 79–80; non-commercial contexts, in 6; who is bound by 24 arbitration–friendly financial centres 22 Arbitration Ordinance 1, 27–8 arbitration rules: sameness 59 arbitrations involving mainly private interests 187–93 arbitrations involving private and public interests 193–6 avoidance of legal systems of national courts 10–11 award 141–50; applications to set aside 171–4; background 147; discussion 147; drafting

144–50; formal 144; interest 148–50; interim 142–3; introduction 147; irrelevant matters 146; issues 148; judge becoming functus 143–4; meaning 142; merger, doctrine of 143; partial 142–3; preliminary matters 141–4; professional responsibility, and 146; reasons for 145; recognition or enforcement 146; statutory lien, and 143; structure 147; sub–issues 148; substance 145; terminology 141–2 BAC 38 barristers: conflict of interest 64–7 Belt and Road Initiative 206–7 BIAC 38 capacity–building among jurisdictions 203–4 capacity–building among young arbitrators 204–6 case management 85–9; balancing act, as 86; enforceable award 85; failure to comply with order 87; notice of proceedings 86–7; time to comply with direction 88 challenges 198–207 China see mainland China infrastructure choice of arbitrator 8–9 choice of law 78–85; Article 7 of Model Law 78; convenience 82; Hague Principles 81; law of seat of arbitration 80; lex mercatoria 84; non–national body of law 82; party autonomy 81; “rules of law” 83 CIArb East Asia 29 CIArb Singapore Branch 34 CIETAC 37 CIETAC arbitration rules 50–3; appointment of tribunal 50–1; award 53; conduct of proceedings 51–2; pleadings 51 CIETAC Hong Kong 28–9 class arbitrations 183–6 CMAC 38 commercial: meaning 5 competition law arbitrations 195–6

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INDEX complex arbitrations 177–86; consolidation 181–3; joinder 179–81 concordance of Model Law articles and Arbitration Ordinance sections 40–1 confidentiality 9–10 conflicts of interest 63–70; actual and apparent bias 66–8; challenge 68; duty of disclosure 70; Green List 67; Orange List 66–7; qualifications 63–4; Red List 66; repeated appointments 68–9; solicitors and barristers 64–7 consolidation 181–3 construction arbitrations 190–1 cost 11–12 costs of arbitration 150–2; bill of costs 152; following the event 151; party–and–party basis 151–2; provisional order 150; submissions 151 costs of international commercial arbitration: challenges 201–3 costs of the tribunal 152–3 cross–examination 130, 134–40; contradictory evidence 138–9; demeanour of witness 136; falsity, accusation of 137; fraud, allegations of 140; irrelevant matters 136; managing 134–140; protracted argument 139; shortening time for 135; Socratic dialogue 139; testing evidence 136; wasted time 134 direct submissions from advocates 20–21 documentary evidence 108–15; document, meaning 109; functions 113; general and specific discovery 108–10; practical considerations 113–15; Redfern Schedule 111; relevance 108–9; requests for disclosure 114–15; resisting disclosure 115 due process paranoia 11–12 emergency arbitrator 98–9 evidence 108–24; documentary see documentary evidence; IBA Rules 110–12 expert witnesses 118–24; agreement as to 119; appointment by tribunal 120; CIArb Protocol 121–2; directions 118–19, 120; foreign law 120; guidelines 121; hot–tubbing 122; sample order for directions 123–4 financial arbitrations 191–3 foreign law: duty to apply 19; expert evidence 20; matter of fact, as 19 freezing orders 96–101; convention into Hong Kong order 96–7; ex parte 97; factors 100–1; risk of dissipation, and 99; security 97 Green List 67

Hague Choice of Court Agreements Convention 10 HKIAC 28–9 HKIAC administered arbitration rules 42–7; appointment of tribunal 43; award 46–7; conduct of proceedings 44–6; pleadings 44 HKIArb 29 Hong Kong infrastructure 27–34; adjudication 33–4; ADR initiative 31–4; Advisory Committee on Promotion of Arbitration 29–30; Department of Justice 29; government support 29–30; judicial support 30; Law Reform Commission 30; legislation 27–8; med–Arb 31–3; mediation 31; organizations 28–9 ICC 34 ICC Arbitration Rules 56–8; appointment of tribunal 56; award 58; conduct of proceedings 57–8; pleadings 57 ICC Hong Kong 28 ICDR – Singapore 34 impartiality and independence, duty of 70–2; empirical bases, and 71 infrastructure 27–41; mainland China see mainland China infrastructure; Singapore see Singapore infrastructure intellectual property arbitrations 193–4 interest: award, and 148–50 interim measures 93–107; American Cyanamid test 100; balancing exercise 99–100; emergency arbitrator 98–9; full and frank disclosure 98; powers 93–6; preliminary order 98; section 56, Arbitration Ordinance 94–5 interlocutory matters 93–107 international arbitration: definition 3, 4 investment treaty arbitrations 6, 196–7 investor–state arbitration 6 joinder 179–81 joinder of parties 24–5 judicial support 162–76; applications for recognition and enforcement of awards 174–5; applications to set side award 171–4; Astro Nusantara case 162–3; exercise of powers 167–75; good faith 164; interlocutory orders in aid of arbitration 169–71; jurisdictional challenges 167–9 ; powers 163–7; public interest 163; specific power 165–7; weak waiver 165 law of seat as source of validity 16–21; criticisms of theory 17 laws of enforcing states as source of validity 21–3; Geneva Convention 21–2; New York

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INDEX Convention 22; recognition and enforcement of awards 21–3 lex mercatoria 84 mainland China infrastructure 37–9; adjudication 39; ADR initiatives 38–9; government support 38; judicial support 38; legislation 37; Med–arb 39; mediation 38–9; organizations 37–8 Mareva injunctions 96–101 maritime arbitration 187–90 Med–arb 31–3, 36, 39, 157–8; disadvantages 157–8; safeguards 158 mediation 31, 36, 38–9, 154–7; advantages 155; Apology Ordinance 157; definition 154; evaluative 156; facilitative 156; narrative 156; styles 156; success of 157; transformative 156 MINLAW 35 Model Law 5, 13–14; concordance of articles with Arbitration Ordinance sections 40–41; harmonisation of regulatory framework, and 17 most closely connected: meaning 4 multi–contract arbitrations 177–86 multi–party arbitrations 177–86 New York Convention 5–6, 14–15 Orange List 66–7 order for directions no.1 73–8; challenge to jurisdiction, and 77; comprehensive order 76; detailed timetable 77; initial order 74–5; time to submit defence 77–8 party autonomy 25 PCA 29, 34 place: meaning 3 pleadings 74–6; importance of 76; real issues 76; second round of 75 popularity 7–11; statistics 7–8 procedure 73–8 Redfern Schedule 111 Red List 66 rules 42–59 SAC 38 sample comprehensive order for directions no.1 90–2; documentary evidence 90–1; expert reports 91–2; factual without evidence 91; hearing 92; pleadings 90

SCIA 37 seat of arbitration 3–4 security for costs 101–5; amount 102–3; claim and counterclaim, and 103–4; principles 101–2; respondent, order against 103; sanction if not provided 103; serious risks, and 102 SHIAC 37 SIAC 34; arbitration rules 47–50; appointment of tribunal 47–8; award 49–50; conduct of proceedings 48–9; pleadings 48 SIArb 34 SICC 198–200 Singapore infrastructure 34–6; adjudication 36; ADR initiatives 36; government support 35; judicial support 35; legislation 34; Med–arb 36; mediation 36; MINLAW 35; organizations 34 specialized arbitrations 187–97 specialized commercial arbitrations 187–96 start of arbitrations 73–89 state: meaning 3 substantive hearing 125–31; adjournment 128–9; cards on the table approach 129; chess clock procedure 127–8; closing submissions 130–1; cross–examination 130; directions 127; document alone 125, 126; examination in chief 129–30; interlocutory applications 128; oral 126–7; oral opening submissions 129; time for 127; written closing submissions 125–6 terminology 2–7 third party funding 183–6 transnational law as source of validity 23–5; Model Law 25 trial 125–40; maintaining level playing field 131–4; sanctions for misconduct 133 UNCITRAL 13–14 UNCITRAL arbitration rules 53–6; appointment of tribunal 54; award 55–6; conduct of proceedings 55; pleadings 54–5 WIPO Arbitration and Mediation Centre 34 witnesses 115–22; coaching 131–2; direction for attendance 117; exchange of statements 116; expert 118–24 see also expert witnesses; factual 115–18; new evidence 116; oath or affirmation 116–17; statements 117–18

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