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       Newsletter   



An Introduction To The Hong Kong Basic Law
Stay of Proceedings - Application of Warsaw Convention, Choice of Law and Forum Considerations
Ship Finance: Financing of Hong Kong Flag Vessels
Security for Costs
Changes to the HK Arbitration Rules
Establishment of Trading Offices in Shanghai

Changes to the HK Arbitration Rules

The Arbitration (Amendment) Ordinance 1996, came into effect on 27 June 1997, and made significant changes to arbitration in Hong Kong. Some reflect the changes made in the UK by the Arbitration Act 1996, whilst others have been introduced to address conditions peculiar to Hong Kong. There follows below a broad summary of the main changes.

The Changes

  • Section 2AA states the object and principles now governing the Ordinance which are: "... to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense". The two guiding principles are, "... that... subject to the observance of such safeguards as are necessary in the public interest, the parties to the dispute should be free to agree how the dispute should be resolved and ... the court should interfere in the arbitration of a dispute only as expressly provided by [the] Ordinance". As will be seen, the new amendments limit the role of the courts in both domestic and international arbitrations.

  • Section 2AC defines "an agreement in writing" which is a pre-condition for a valid arbitration agreement. The new definition is wider and now includes (i) where the agreement is not itself in writing, but there is written evidence of the agreement, (ii) where the parties to the agreement agree otherwise than in writing by referring to terms that are in writing, (iii) where the agreement, although made otherwise than in writing, is recorded by one of the parties, or by third party, with the authority of each of the parties to the agreement, and (iv) where there is an exchange of written submissions in arbitral or legal proceedings in which the existence of an agreement otherwise than in writing is alleged by one party and is not denied by the other party.

    Whilst these expanded definitions should be welcomed, they may lead to more disputes regarding whether a valid arbitration agreement exists. For example, where one party purports to record in writing the other party's agreement to arbitrate, but which is denied by the other party. This will not necessarily mean that there will be greater court involvement because the tribunal, in both domestic and international arbitrations, now has the power to rule on the existence and validity of an arbitration agreement. Ultimately, however, disputes may require the court's help through cases giving guidelines on recognition of arbitration agreements under the new definition.

  • Section 2GB confers new powers on the arbitral tribunal including the power to:-
    1. require a claimant to give security for the costs of the arbitration;
    2. require the parties to give security for the amount in dispute;
    3. direct discovery of documents or the delivery of interlocutories;
    4. direct evidence to be given by affidavit;
    5. direct inspection, photographing, preservation, custody, detention or sale of relevant property by the tribunal, a party to the arbitration or an expert;
    6. direct that samples are taken from, observation of, or experiments on relevant property; and,
    7. grant interim injunctions or other interim measures to be taken.

  • In the absence of a contrary agreement by the parties, the tribunal is empowered by Section 2GB (6) to, "... take the initiative in ascertaining the facts and law relevant to..." an arbitral dispute.

  • Under Section 2GD (2) the tribunal now has power to extend any contractual time limit within which a dispute must be referred to arbitration. This power was formerly exercised by the Court and under the new rules the court retains residual power to extend time if the tribunal has not yet been constituted.

  • The tribunal has also been conferred with the power by Section 2GE to dismiss a party's claim and prevent that party from commencing further proceedings in relation to the same claim if satisfied that that party or its adviser has unreasonably delayed in bringing or prosecuting the claim. This power was also previously exercised by the court.

  • Section 2GH allows the tribunal to award compound as well as simple interest. Interest is payable on the amount of the award from the date of the award at the judgment rate unless the award otherwise provides.

  • The tribunal may now direct that the recoverable costs of an arbitration be limited to a specified amount (Section 2GL (1)). However, the power is subject to any contrary agreement by the parties.

As can be seen from the above summary, the changes are aimed at reducing the scope for court intervention and giving the parties more control over the arbitration process.

Point to Note

Parties to a dispute should exercise care to accurately record any agreement to arbitrate so as to avoid potential disagreements. They should also familiarise themselves with aspects of the new arbitration process on which they may agree in the event of the dispute be referred to arbitration.

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