Key points and implications for arbitral proceedings

Kevin Hong, Partner, Hong Kong SAR; Katie Chung, Partner, Singapore; Edward Low, Associate, Tokyo; and Jasmine Chan, Associate, Hong Kong SAR, Norton Rose Fulbright, provide a clear and practical overview of the recent changes to the Hong Kong International Arbitration Centre’s (HKIAC) arbitral rules.

On 3rd May 2024, HKIAC introduced new arbitration rules that came into effect on 1 June 2024.

The 2018 HKIAC Administered Arbitration Rules (the 2018 Rules) have been well received by users since their release and are widely recognised as a market-leading set of arbitral rules. The 2024 HKIAC Administered Arbitration Rules (the 2024 Rules) are a refinement of the 2018 Rules, but with key changes to reflect advancing social norms in relation to diversity, the environment and technological developments. They also introduce new powers and clarify the existing powers of tribunals and HKIAC.

Here is a summary of some notable changes under the 2024 Rules and their implications for commercial parties who are, or who may become, involved in arbitral proceedings.

Major changes in the 2024 Rules

Preliminary issues, bifurcation and sequential stages

The newly adopted Article 13.6 of the 2024 Rules explicitly empowers the tribunal to determine preliminary issues, as well as issues on bifurcation and the conduct of sequential stages of the arbitration. This upholds the efficiency of arbitral proceedings, and clarifies and confirms the widely adopted position in practice that the tribunal has such powers.

Multi-party and multi-contract provisions

In relation to claims made under multiple contracts in a single arbitration, the new rules specify that HKIAC must first, in accordance with Article 19.5, be prima facie satisfied that the single arbitration has been commenced in accordance with the requirements under Article 29.1. Under the new Article 29.2, where HKIAC decides that the single arbitration has been properly commenced, the parties will be deemed to have waived their rights to designate an arbitrator, with or without regard to any party’s designation.

In SYL and Another v GIF [2024] HKCFI 1324, a recent case in which a single arbitration under multiple contracts was commenced pursuant to Article 29 of the 2018 Rules, and in which the compatibility of the arbitration clauses in multiple arbitration agreements was called into question, the court set aside an interim award by ruling that the arbitration clauses were incompatible as they adopted different appointment procedures. It was found that imposing a single arbitration on the parties would infringe party autonomy and the parties’ contractual rights. It is interesting to consider whether the outcome of the case would have been different had it been commenced under the 2024 Rules instead, with the deeming provision under Article 29.2.

Where an additional party is joined to the arbitration, Article 27.13 of the 2024 Rules provides that HKIAC may revoke any confirmation or appointment of an arbitrator, even after the constitution of the tribunal, with or without regard to any party’s designation. Previously, under the 2018 Rules, HKIAC could only revoke the appointment of the arbitrator before the constitution of the tribunal.

Conduct of the arbitral proceedings

Expedited procedures. It has been clarified under Article 42.2(e) of the 2024 Rules that the tribunal can now decide a dispute based on both written submissions and documentary evidence. In contrast, the 2018 Rules only expressly allowed documentary evidence. The threshold for HKIAC to extend the six-month deadline for the issuance of an award has also been lowered, from requiring an ‘exceptional’ circumstance to requiring just an ‘appropriate’ circumstance, under Article 42.2(f) of the 2024 Rules. HKIAC is now empowered to disapply the expedited procedure under Article 42.3 at the request of the tribunal alone, provided that the parties and appointed arbitrators have been consulted.

Appointment of an arbitrator. Changes have been made to the provisions relating to the constitution of a tribunal to promote the efficiency of the appointment of an arbitrator, most of which reflect existing practice. These changes include requiring parties to provide reasons in their proposals as to the number of arbitrators, to be made in the Notice of Arbitration and the Answer to the Notice of Arbitration (Article 4.3(g) and Article 5.1(e)), allowing HKIAC to take into account any factors that may affect the efficiency and integrity of the arbitration when appointing arbitrators (Article 9.3), and empowering HKIAC to revoke the appointment of an arbitrator who has failed to fulfil his/her duties in accordance with the 2024 Rules or within the prescribed time limits (Article 13.10).

Emergency arbitration. The new provision under paragraph 10 of Schedule 4 of the 2024 Rules empowers an emergency arbitrator to make the necessary preliminary or interim orders before handing down an emergency decision. This clarification deals with the temporary gap between the appointment of an emergency arbitrator and the issuance of an emergency decision, which was previously a limbo period that could be frustrating for a party in need of an order to assert its legal rights in an emergency situation. Paragraphs 12 and 13 of Schedule 4 clarify that the emergency arbitrator may proceed with the emergency relief proceedings (ordinarily to be completed within 14 days from the date when HKIAC transmits the case file to the emergency arbitrator), even if the case file has been transmitted to the tribunal in the meantime. However, it remains the case that once the tribunal has been constituted, the emergency arbitrator will have no further power to act.

Changes in legal representation. Upon the constitution of the tribunal, parties proposing to change or add to their legal representatives shall inform all parties promptly under the tightened provision of Article 13.8 of the 2024 Rules. Previously, under the 2018 Rules, parties would only need to notify the other parties upon an actual change to their legal representation. Under the new Article 13.9, the tribunal is also empowered to take any measures necessary to avoid a conflict of interest arising from a change in legal representation, such as by excluding the proposed new legal representatives from participation in the arbitral proceedings.

Closure of proceedings. Under Article 31.1 of the 2024 Rules, the tribunal must now declare the proceedings closed no later than 45 days from the last directed substantive oral or written submissions in respect of the entire proceedings, with the exclusion of submissions on costs. This is to encourage quicker deliveries of awards by tribunals, whilst Article 31.2 continues to provide that awards should be rendered within three months from the closure of proceedings.

Costs and fees

Relevant factors in the apportionment of costs. The addition of Article 34.4 sets out a non-exhaustive list of factors that the tribunal may take into consideration in determining the apportionment of costs. The relevant factors include the relative success of the parties, the scale and complexity of the dispute, the conduct of the parties in the proceedings, any third-party funding arrangement, any outcome-related fee structure agreement and any adverse environmental impact arising out of the parties’ conduct.

Review and determination of tribunal fees. HKIAC is empowered under paragraph 5.1 of Schedule 2 of the 2024 Rules to review and adjust the fees and expenses of the tribunal, where it considers appropriate in the circumstances of the case, drawing on the work done by the arbitrator and the complexity of the subject matter (as echoed in paragraph 5 of Schedule 3). This is to ensure the reasonableness of the tribunal’s fees and to maintain the confidence of users in the integrity of the system.

Emergency arbitration costs. Article 34.1(e) of the 2024 Rules clarifies that the ‘costs of the arbitration’ to be determined by the tribunal include the costs of the emergency relief proceedings.

Non-payment of deposits. Under Article 41.4(a) of the 2024 Rules, before the tribunal has been constituted, HKIAC can now suspend or cease to administer the arbitration if the deposit for costs is not paid in full by the parties. If the tribunal has already been constituted, the rules remain unchanged in that the tribunal may order the suspension, termination or continuation of the arbitration, as it thinks fit.

Postponement fees. With the amendments to paragraph 10.1 of Schedule 2 of the 2024 Rules, a party seeking to postpone a hearing may be responsible for fees in relation to the postponement. For a detailed calculation of such fees, please refer to paragraph 10 of Schedule 2 of the 2024 Rules.

Model clause on the method of determining fees. The optional model clause under the 2024 Rules has been updated to allow greater flexibility for parties to stipulate whether the fees and expenses of the tribunal shall be determined on an hourly basis, or by reference to the sum in dispute. This gives the parties another opportunity to depart from the default position that the tribunal’s fees are to be determined on an hourly rate basis under Article 10.1.

New provisions on diversity, environmental impact and information security

New Article 9A on diversity. The new Article 9A of the 2024 Rules encourages parties and arbitrators to consider diversity when designating arbitrators. HKIAC is also required to take diversity into account when making arbitral appointments. This aligns with HKIAC’s commitment to promoting diversity and increasing the proportion of female arbitral appointments, having been a signatory to the ERA Pledge for Equal Representation in Arbitration since 2016. HKIAC has seen a marked increase in the proportion of female arbitrators for all appointments made by HKIAC, to 35% in 2023, compared with 22% in 2021 and 27% in 2022, and the new Article 9A seeks to further that trend. This is in line with the suggestion under the International Council for Commercial Arbitration’s 2022 Report of the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments and Proceedings for institutions to adopt policies to address the effects of unconscious bias and to promote gender diversity in international arbitration. Other arbitral institutions, including the International Chamber of Commerce (ICC) and the Belgian Centre for Arbitration and Mediation, have taken similar approaches. The Singapore International Arbitration Centre (SIAC) has also proposed the inclusion of similar provisions on diversity in its new set of rules.

New articles on environmental impact. The new Article 13.1 and Article 34.4(f) of the 2024 Rules encourage the tribunal to consider the environmental impact in the conduct of the arbitral procedures and to consider any possible adverse environmental impact arising out of the parties’ conduct in the arbitration when allocating costs between the parties. Other arbitral institutions appear to take a similar approach. For instance, SIAC encourages the tribunal to liaise with the parties on feasible environmentally sustainable procedures at case management conferences, whilst the London Court of International Arbitration (the LCIA) provides for electronic filings of the Request for Arbitration by default – all of which are aimed at reducing carbon footprint.

New Article 45A on information security. Under the new Article 45A of the 2024 Rules, whilst the parties may agree on any reasonable measures to protect information, the tribunal is also guided to give directions to protect the security of the information shared in relation to the arbitration. This new provision aims at promoting the parties’ awareness of information security.

Key takeaways

The 2024 Rules are a welcome refinement of the 2018 Rules and reflect HKIAC’s keen awareness of topical issues such as diversity in the appointment of arbitrators, information security and the environmental impact of international arbitrations. Some amendments in the 2024 Rules provide valuable confirmation of the tribunal’s wide-ranging powers in deciding on the arbitral process, for example, the ability to decide on preliminary issues in the arbitration to increase the efficiency of the arbitration proceedings. It is worth highlighting that in declining to include scrutiny of the awards (unlike other arbitral institutions such as ICC or SIAC), HKIAC has, like the LCIA, deliberately retained its ‘light touch’ administration style in the conduct of arbitral proceedings.

Kevin Hong, Partner, Hong Kong SAR; Katie Chung, Partner, Singapore; Edward Low, Associate, Tokyo; and Jasmine Chan, Associate, Hong Kong SAR

Norton Rose Fulbright

© Copyright Norton Rose Fulbright, May 2024