Hong Kong's new Arbitration Ordinance

A new Arbitration Ordinance came into operation in Hong Kong on 1 June 2011. The new Ordinance removes the distinction between domestic and international arbitrations under the previous law and creates a new unified regime based on theUNCITRAL Model Law on International Commercial Arbitration. At the request of the construction industry some of the domestic arbitration provisions from the previous law have been retained as 'opt-in' provisions. These cover:

• determination of a dispute by a single arbitrator in the absence of agreement;
• consolidation of arbitrations;
• the abilities of the court to decide a preliminary question of law or set aside an award due to serious irregularity;
• the ability of a party to appeal to the court on a question of law.

The Model Law makes its own provisions for an award to be set aside. However the grounds for this are limited and relate mostly to procedural irregularities. They do not include errors of law, no matter how serious.

Applying the opt-in provisions

The opt-in provisions may apply to all types of contracts - not just construction contracts - either expressly or automatically. They may be deemed to apply to construction subcontracts in certain circumstances.

Express provision: any or all of the opt-in provisions will apply if expressly provided for by the parties in their arbitration agreement. This is not limited to construction cases. In these circumstances, the parties can expressly choose whether to apply some or all of the opt-in provisions.

Automatic application: all of the provisions will automatically apply to an arbitration if the arbitration agreement was/is entered into:

• before the new Ordinance came into force on 1 June 2011 if the agreement provides that the arbitration is a domestic arbitration;
• at any time within six years after the new Ordinance came into force if the agreement provides that the arbitration is a domestic arbitration.

In these circumstances, by providing in an arbitration agreement that the arbitration is a domestic arbitration, the parties automatically choose all the opt-in provisions. Again, this is not limited to construction cases.

Opt-in provisions do not apply: the provisions will not apply where no express arrangement is made for them in the agreement, and where the arbitration agreement does not make provision for arbitration to be a domestic arbitration within the time periods above.

Even if an arbitration agreement provides for arbitration to be a domestic arbitration and falls within the relevant time periods, the opt-in provisions will also not apply if:

• the parties to the arbitration agreement agree in writing that they do not apply;
• the arbitration agreement expressly excludes the opt-in provisions.

Construction subcontracts

All the opt-in provisions will apply to a subcontract at any level if:

• all the opt-in provisions automatically apply to an arbitration agreement in a construction contract as above;
• the whole or any part of the construction operations is subcontracted to another party; and
• that subcontract also includes an arbitration agreement

In these cases, where the arbitration agreement in the main construction contract provides that the arbitration is to be a domestic arbitration, the arbitration agreement in the subcontract is deemed to be a domestic arbitration regardless of what is provided in the subcontract itself. Accordingly, all the opt-in provisions will automatically apply.

The opt-in provisions will not be deemed to apply to construction subcontracts where:

• the subcontractor has no connection with Hong Kong - this means that the subcontractor is not a Hong Kong company or its central management and control is exercised outside Hong Kong;
• the subcontractor has no place of business in Hong Kong;
• a substantial part of the construction operation under the subcontract is to be performed outside Hong Kong;
• the parties to the subcontract arbitration agreement agree in writing that the opt-in provisions do not apply;
• the subcontract arbitration agreement expressly excludes the opt-in provisions.

What do I need to do?

The extent of what you will have to do will depend on whether or not you want the opt-in provisions to automatically apply to all your arbitrations and what your contracts currently provide.

If you would like all the opt-in provisions to apply automatically to your contracts and subcontracts down the line: if the arbitration agreements in your existing contracts provide for arbitration to be a domestic arbitration then you do not need to do anything. This will be the position for six years after 1 June 2011.

If the arbitration agreements in your existing contracts do not provide for arbitration to be a domestic arbitration then you should amend them to make such a provision or agree so in writing.

If you would like all the opt-in provisions to apply but do not wish to trigger the automatic opt-in scheme for subcontracts down the line: amend your existing contracts to remove any reference to domestic arbitration. Instead, you can state expressly that the opt-in provisions will apply to that contract or agree so in writing.

It would be a good idea to also expressly exclude the application of the opt-in provisions to any subcontracts down the line.

If you would only like some of the opt-in provisions to apply: then you must state them expressly in your arbitration agreement or agree so in writing. If your arbitration agreement provides for arbitration to be a domestic arbitration, it would also be a good idea to remove this reference.

Since this will break the automatic opt-in scheme, if you would like the same provisions to apply to subcontracts down the line then you must make it a requirement that all subcontracts down the line contain a like arbitration agreement.

If you do not wish any of the opt-in provisions to apply: then your arbitration agreement should expressly state this. If you also wish to ensure the opt-in provisions are not deemed to apply to subcontracts down the line, this should also be expressly excluded.

If you have already begun arbitration under the previous Arbitration Ordinance, it will continue to be governed in this way as if the new Ordinance had not been enacted.