HKIAC issues guidance on compatibility of arbitration agreements in multi-contract disputes

The Practice Note on Compatibility of Arbitration Clauses under the HKIAC Administered Arbitration Rules (7-page / 288KB PDF) was released on 20 January, marking the first time an institution has released a practice note specifically on the compatibility of arbitration clauses.

Mohammed Talib, an international arbitration expert at Pinsent Masons, said: “The practice note emphasises that the clarity and coherence of arbitration clauses is essential.”

“When multiple contracts are interlinked, the interconnections must be carefully considered during the drafting process,” he said.

“To mitigate any risk to the resulting arbitration award, it is crucial when drafting connected contracts to thoroughly analyse the relationships between them, draft clear and precise arbitration clauses that reflect the intent of the parties involved and proactively address anticipated conflicts within the clauses.”

The HKIAC introduced a range of new powers and duties in 2024 with the aim of maintaining the integrity of proceedings, reducing delay tactics and ensuring the timely and cost-effective resolution of disputes, following the previous adoption of new rules in 2018.

The practice note sets out the general practice the HKIAC will adopt when assessing the compatibility of arbitration clauses under the 2018 and 2024 rules for the purpose of consolidation and for commencing single arbitration under multiple contracts proceedings.

The practice note also gives the HKIAC’s approach to the constitution of the arbitral tribunal if consolidation or a single arbitration is allowed to proceed.

Arbitration agreements aren’t required to be identical to be deemed compatible, but any differences must be surmountable by the parties, the tribunal and the HKIAC, according to the note.

It also sets out three factors that will contribute to determining if arbitration agreements are compatible: whether it is practically feasible and procedurally efficient for the claims to be heard as a single or consolidated arbitration; whether the consent of the parties will be undermined if claims under multiple contracts are heard as a single or consolidated arbitration; and whether a consolidated or single arbitration would change the parties’ agreement in a way that will leave any award granted open to future challenges.

There is a higher risk that the clauses will be deemed incompatible if two arbitration agreements have different mechanisms for appointing arbitrators, according to the note. 

In this instance, the parties’ willingness to cooperate will be significant. 

The practice note also gives examples of when arbitration agreements are clearly incompatible and when they can be compatible. Incompatible examples given include where one party provides a sole arbitrator while the other provides three or if the agreements require different languages of arbitration and a bilingual arbitration cannot be held.

One example of compatible clauses is if one was governed under UK law and the other under Hong Kong law because of the similarities between the two legal systems.

Under the new rules, HKIAC powers to designate arbitrators have been enhanced, as parties are now deemed to have waived their right to designate an arbitrator in both consolidation and single proceeding under multiple contracts procedures.

Against this backdrop, the note gives useful insight on how the HKIAC will designate arbitrators when following the parties’ choice is not possible.