Continued improvements in international arbitration driven by new HKIAC rules and case law

New powers of arbitral tribunals and the HKIAC 

Taking effect from June 2024, HKIAC’s 2024 Administered Arbitration Rules (79-page / 528KB PDF) are a major development for international arbitration in Hong Kong SAR, as the new provisions and changes in the rules are expected to bring enhanced user experience for parties seeking to resolve their disputes through HKIAC administrated arbitration. The updated rules have introduced a range of new powers and duties for arbitral tribunals and the HKIAC, aiming to maintain the integrity of proceedings, and combat delay tactics and other obstacles to ensure the timely and cost-effective resolution of disputes.  

The HKIAC can now, during the initial stages of the arbitration, take any measure it deems necessary to preserve the efficiency or integrity of the proceedings. In addition, in exceptional circumstances, it can revoke the appointment of an arbitrator who is unable to fulfil their duties even when there has not been a challenge to the tribunal by the parties. 

Once the tribunal is in place, new provisions allow the HKIAC to exclude a party's proposed new legal representatives and take any other measure necessary to avoid a conflict of interest. 

Enhanced powers have also been given to the arbitral tribunal to determine preliminary issues or otherwise adopt procedures to decide the case efficiently. This is intended to codify the existing power to decide preliminary issues, bifurcate, conduct the arbitration in stages and decide the stage at which an issue will be resolved by the tribunal. 

Important changes have made to the rules allowing for multi-party and multi-contract arbitrations, recognising the commercial reality that related claims often span multiple contracts and transactions. For example, article 27 allows for the joinder of additional parties to an arbitration, provided that the additional party is bound by the arbitration agreement and the request for joinder is made before the appointment of any arbitrator. Similarly, the consolidation of two or more arbitrations into a single arbitration is permitted if certain conditions are met. The new rules also allow for claims arising out of multiple contracts to be resolved in a single arbitration, under the condition that the contracts contain compatible arbitration agreements and the disputes arise from the same legal relationship.  

The 2024 HKIAC rules have been welcomed by practitioners as the amendments will provide clarity for the tribunal and parties and help ensure efficiency of arbitration in Hong Kong SAR.  

Notable court cases 

There have been several significant developments in Hong Kong's international arbitration case law in the past year, reinforcing the jurisdiction’s pro-arbitration stance and maintaining a robust and fair arbitration framework.   

Insolvency and arbitration  

In May 2024, the Hong Kong Court of Appeal clarified the effect of arbitration clauses on insolvency proceedings through two key rulings - Re Simplicity & Vogue Retailing (HK) Co. and Re Shandong Chenming Paper Holdings.  

The decisions confirmed that when a debtor opposes insolvency proceedings based on a defence or claim subject to an arbitration clause, the arbitration agreement will generally be upheld. This means the insolvency proceedings will be stayed or dismissed, and the relevant defence or claim will be referred to arbitration. To achieve that, the debtor needs to demonstrate certain threshold requirements, including that the defence or claim must not be frivolous or an abuse of process and the debtor has a genuine intention to arbitrate the defence or claim.  

However, important subsequent developments in this area in other jurisdictions, including the Privy Council decision in Sian Participation Corporation (In Liquidation) v Halimeda International Ltd shortly afterwards, may mean that the Hong Kong courts revisit this issue in future rulings. 

Arbitral interim measures not subject to appeal 

In the same month, the Hong Kong Court of First Instance confirmed that interim measures ordered by arbitral tribunals are not subject to appeal. The case, known as W v Contractor, was between an employer and a contractor, and the interim measures in question prevented the employer from making any demand for payment under an on-demand bond until the arbitral proceedings had been concluded. Pinsent Masons successfully advised and advocated on behalf of the contractor in this case. The arbitrator’s interim measures decision was made based on sections 35 and 36 of the Arbitration Ordinance, which give effect to articles 17 and 17A of the UNCITRAL Model Law on International Commercial Arbitration and aim to maintain the ‘status quo’ by preventing a demand for payment under the bond. 

The court confirmed that such an arbitral decision was not an ‘award’ within the meaning of the Ordinance, which allows for appeals against arbitral awards – based on a question of law – under section 6 of Schedule 2 of to the Ordinance. The court made clear from the outset that a decision must be considered an award before the court can consider any leave to appeal. 

Recognising that the term ‘award’ is not defined in the Ordinance, the court explained that: “…In principle, it is a ‘final determination’ of the claim or particular issue in the arbitration… in that it determines all the issues, or all the outstanding issues in the arbitration, in the sense of being a complete decision without leaving matters to be dealt with subsequently, or by a third party”. 

Challenge to arbitrators for apparent bias 

In a case known as P v D, the Hong Kong Court of First Instance dismissed an application to remove arbitrators in an UNCITRAL arbitration administered by the HKIAC. The challenge was brought on the basis of apparent bias due to various procedural decisions and comments made by the tribunal. 

The court clarified that as the supervisory court, it was reviewing the unsuccessful challenge brought before the institution or the tribunal afresh but that the challenging party was not allowed to introduce new grounds for challenge. 

The court found that an objective, fair-minded and informed observer would not consider there to be a real possibility of bias. According to the court, this is the test applicable to determine “apparent bias”, instead of whether a party thinks or feels that the arbitral tribunal has been or may have been biased. The court mentioned that in assessing bias from the point of view of the observer, it will not be complacent or unduly sensitive or suspicious in assessing the conduct of arbitrators. 

This case underscores the Hong Kong courts' support for arbitration and their reluctance to interfere with arbitral proceedings in the context of a challenge for arbitrator bias. 

Lack of reasoned award 

While Hong Kong SAR is known for its strong pro-arbitration judiciary, the role of the courts is also to safeguard the integrity of the arbitration process. The courts will not hesitate to refuse enforcement when procedural fairness is at play. The case of A v B & Ors is one of the latest examples: the award was set aside because the arbitrator failed to provide any reasoning at all for its decision, which is very unusual.  

The underlying dispute involved issues including the applicable law for the enforceability of non-compete covenants, the reasonableness of the non-compete covenants, and the effective termination date of the agreements. The court found that the arbitrator only reproduced the applicable contractual provisions and simply stated the orders she made without any analysis or explanation. The court noted that it is key that a party reading the award should understand why a central issue of the arbitration was decided against them. 

The arbitrator's failure to provide adequate reasons for her decisions on these critical issues was considered “sufficiently serious” by the court to affect the structural integrity of the arbitral process, and to have undermined due process. Therefore, the enforcement of the award was refused. The court reminded arbitrators that “it is fundamental to concepts of fairness, due process and justice, as recognised in Hong Kong, that key and material issues raised for determination, either by a court or the arbitral tribunal, should be considered and dealt with fairly”. 

Jurisdiction of tribunal  

In another important set-aside case, the Hong Kong Court of Appeal upheld a challenge to an arbitral award on the basis that there was no actual dispute between the parties. The court ruled that the arbitrator did not have jurisdiction to grant declaration of non-liability where no liability was alleged.  

The decision in CMBICDHAW Investments v CDH Fund V & others underscores the importance of a genuine dispute for an arbitrator’s jurisdiction to be engaged. The court also held that the award was contrary to public policy, as it identified a “clear abuse of process” due to the claimants’ misuse of arbitration proceedings to bypass the jurisdiction of the courts. Some of the claimants were non-parties to the arbitration agreement. Despite that, they commenced the arbitration with a clear purpose to have the substantive factual and legal issues, which had already been raised in the litigation, dealt with in the arbitration.  

In addition, the judgment provides clear guidance on what constitutes a “dispute” under arbitration agreements. For example, it clarifies that for a dispute to exist, there should be an assertion or adoption of a position by one party which is rejected by the other or a difference of opinion about the central issues. This helps parties understand the boundaries of arbitration and endures that only genuine disputes are referred to arbitration.

Co-written by Johanne Brocas of Pinsent Masons.