A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in Hong Kong continues to be governed by the Arbitration Ordinance (Cap 609), to which there have been no legislative amendments.
A.2 Institutions, rules and infrastructure
A.2.1 The 2024 HKIAC administered arbitration rules
On 1 June 2024, HKIAC introduced a new version of its Administered Arbitration Rules. The 2024 Rules continue HKIAC’s “light touch” approach, respecting party autonomy, a key feature of HKIAC administered arbitrations. The changes aim to improve time and cost efficiency, uphold integrity, and encourage diversity and greener practices. Many of these updates align with HKIAC’s existing practices. A detailed overview by Baker McKenzie is available here.
Expanding powers of arbitral tribunals, HKIAC and emergency arbitrators
New article 13.6 expressly sets out certain powers of the tribunal with a view to enhancing the efficient determination of the dispute. The tribunal can, after consulting the parties, determine preliminary issues that could resolve all or part of the case; bifurcate the proceedings or sequence proceedings; decide the stage at which any issues shall be determined; and otherwise adopt procedures to decide the case efficiently.
New article 13.9 is designed to maintain the integrity of the arbitration. It empowers the tribunal to take necessary measures to avoid a conflict of interest due to changes in party representation, such as by excluding a proposed new party representative from participating in the arbitration.
HKIAC’s powers have been extended to take necessary measures to preserve the efficiency or integrity of the arbitration, such as extensive delays or excessive overcharging. In exceptional circumstances, HKIAC may revoke the appointment of an arbitrator where it considers that the arbitrator is prevented from or has failed to fulfill their functions according to the rules or within the prescribed time limits (new article 13.10). Additionally, HKIAC may adjust a tribunal’s fees if it considers it appropriate in the circumstances (schedule 2, new paragraph 5.1).
The 2024 Rules introduce two important clarifications of the powers of an emergency arbitrator (EA) under schedule 4. First, an EA may make any preliminary or interim order during emergency relief proceedings (revised paragraph 10). Whilst not new, an EA now has an express legal basis for granting temporary relief (e.g., an “interim-interim” injunction) pending their decision. Second, an EA may proceed with the emergency relief proceedings and make a decision within the prescribed time, even if the case file has already been transmitted to the tribunal (revised paragraph 13).
Enhancing information security
The 2024 Rules emphasize information security. The tribunal must now consider it when adopting suitable procedures for the conduct of the arbitration (revised article 13.1). The tribunal can, after consulting with the parties, give directions to protect the security of any information shared, stored or processed in relation to the arbitration; and make a decision, order or award in respect of any breach of the information security measures agreed by the parties or directed by the tribunal pursuant to this provision (new article 45A). It also encourages parties to agree on reasonable measures to protect information shared, stored, or processed in relation to the arbitration.
Promoting diversity and greener arbitration
New article 9A.1 encourages the parties and co-arbitrators to consider diversity when designating arbitrators. In line with user expectations and HKIAC’s commitment to the Equal Representation in Arbitration Pledge, HKIAC is now required to consider diversity when appointing an arbitrator under the 2024 Rules (new article 9A.2).
The 2024 Rules also introduce measures aimed at reducing the environmental footprint of arbitrations, demonstrating HKIAC’s commitment to promoting greener arbitration practices. Tribunals are now required to consider environmental impact when adopting suitable procedures (article 13.1), and they may consider adverse environmental impact arising out of the parties’ conduct when making certain determinations on costs (new article 34.4).
Aligning the multi-party and multi-contract regimes on arbitrator designations
The 2013 Rules introduced useful multi-party and multi-contract regimes. One of them allows a claimant to commence a single arbitration under multiple contracts where (i) a common question of law or fact arises under each arbitration agreement giving rise to the arbitration, (ii) the rights to relief claimed are in respect of, or arise out of, the same transaction or a series of related transactions, and (iii) the relevant arbitration agreements are compatible.
Under article 19.5, a single arbitration under multiple contracts shall proceed only if HKIAC is satisfied that the arbitration was properly commenced. New article 29.2 provides that where HKIAC decides that this is the case, parties shall be deemed to have waived their right to designate an arbitrator. This aligns with article 28.8 on consolidation, ensuring a uniform application of HKIAC in constituting the tribunal under both regimes where necessary to protect the parties’ fundamental right of equal treatment in constituting the tribunal.
The single arbitration regime’s effectiveness is often weakened by inadequately drafted arbitration clauses which lack compatibility regarding the appointment process. A recent example is SYL and Another v. GIF[1] (reported by Baker McKenzie here).
Shortening deadlines for tribunals to close proceedings and issue awards
Revised article 31.1 introduces a 45 day time limit for the tribunal to close the proceedings or a discrete phase (excluding costs submissions) from the last directed substantive oral or written submissions in respect of the proceedings or phase. Article 31.2 maintains the three month deadline for rendering the award after closing the proceedings or a discrete phase. It can be extended by party agreement or HKIAC in appropriate circumstances.
The revision ensures that the three month time limit for rendering the award will be triggered within the new 45 day period, rather than being subject to an indefinite declaration by the tribunal that the proceedings or a discrete phase is closed without a deadline.
Costs and new optional provision on arbitrator remuneration in HKIAC’s Model Clause
HKIAC administered arbitrations offer parties a unique choice to remunerate arbitrators based on hourly rates (schedule 2) or the sum in dispute (schedule 3), with the former applying by default. To encourage parties to consider specifying renumeration in the arbitration clause, HKIAC has added an optional provision to its model clause in the 2024 Rules.
New article 34.4 requires the tribunal to consider the circumstances of the case in determining (i) whether the costs of the arbitration are reasonable, and (ii) whether and how to apportion these costs between the parties. The tribunal may take into account any factors it considers relevant, such as the relative success of the parties; the scale and complexity of the dispute; the parties’ conduct; third-party funding; any outcome related fee structure agreement; and any adverse environmental impact arising out of the parties’ conduct.
A.2.2 Record registration numbers at ICCA Congress and Hong Kong Arbitration Week
Hong Kong hosted two record breaking-events in 2024.
In May, the XXVIth Congress of International Council for Commercial Arbitration, themed “International Arbitration: A Human Endeavour” attracted almost 1,500 ICCA delegates from over 70 jurisdictions, making it the most attended ICCA Congress to date. The theme sparked discussion on how human nature and behavior impact international arbitration and, in turn, the impact of international arbitration on people.
In October, the 2024 Hong Kong Arbitration Week saw around 1,000 registrants from 36 jurisdictions, a record since its inception in 2012. Events included Baker McKenzie’s panel on “Cultural Considerations in International Arbitration” and the Hong Kong Arbitration Charity Ball. The flagship ADR in Asia Conference focused on “Defying Convention and Breaking New Ground,” bringing together professionals from various industries to share fresh perspectives and inspire new thinking.
B. CASES
B.1 Courts maintain their robust pro-arbitration approach towards enforcing arbitration agreements and awards
2024 saw a rise in court decisions on challenges of awards, their enforcement and the tribunal’s jurisdiction. These decisions demonstrate that the Hong Kong courts maintain their robust approach when enforcing arbitration agreements and awards, while they do not hesitate to intervene when justified.
An example of one of many unsuccessful award challenges is CNG v. G and Another[2] (reported by Baker McKenzie here): the court dismissed an application of a PRC state-owned enterprise to set aside a Hong Kong award rendered in favor of US parties. The court reminded legal professionals of the exceptional nature of challenges to awards. This decision also demonstrates that the courts do not compromise in applying their robust approach when there is a PRC state-owned enterprise involved and that there remains a level playing field in Hong Kong.
By contrast, A v. R1 and Another[3] (reported by Baker McKenzie here) is a rare example of a successful enforcement challenge: the court refused to enforce two related awards made in Mainland China on grounds of due process and public policy. This decision demonstrates that Hong Kong courts (as enforcement courts) apply their own standards when determining whether enforcement violates Hong Kong’s public policy and that this principle applies equally to Mainland awards.
An example of the court setting aside a tribunal’s award on jurisdiction is SYL and Another v. GIF[4] (reported by Baker McKenzie here). The claimant commenced a single arbitration under related contracts under the single arbitration regime in article 29 of the HKIAC Rules. However, unlike the tribunal, the court found that the claimant wrongly invoked article 29 because the arbitration clauses in the contracts were not compatible.
A recent case where the court overturned a tribunal’s decision affirming jurisdiction is AAA and others v. DDD.[5] We discuss this decision further in Section B.3 below.
B.2 Court of Appeal confirms that absent countervailing factors, insolvency petitions should be stayed or dismissed where a disputed debt or crossclaim exceeding the debt is subject to an arbitration agreement
Hong Kong courts have frequently addressed whether to stay or dismiss a creditor’s petition to wind up a debtor when the parties have agreed to refer disputes over or related to the petition debt to arbitration. The question is whether the court should stay or dismiss the petition pending arbitration of the dispute if the debtor disputes the debt or raises a set-off defense, a counterclaim or crossclaim, which, if successful, would extinguish the debt and therefore defeat the petition.
The different Hong Kong courts’ answers to this fundamental question have diverged. In May 2023, the Court of Final Appeal (CFA) in Re Guy Kwok-Hung Lam[6] clarified the position in relation to exclusive jurisdiction clauses. The CFA upheld the Court of Appeal’s decision, finding that an exclusive jurisdiction clause should be upheld and the court should not proceed with an insolvency petition unless there are countervailing factors (such as a dispute that borders on the frivolous or abuse of process). The CFA did not address or comment on the appellate court’s obiter comments on arbitration agreements. It therefore remained unclear whether the principle in Guy Lam also applies to arbitration agreements. An analysis of the CFA’s decision by Baker McKenzie is here.
On 23 April 2024, the Court of Appeal delivered two key judgments in Re Simplicity & Vogue Retailing (HK) Co Ltd[7] and Arjowiggins HKK 2 Limited v. Shandong Chenming Paper Holdings Limited,[8] addressing the question. The court determined that the Guy Lam principle applies to arbitration agreements; i.e., unless there are strong reasons, the dispute should be resolved by arbitration as agreed.
B.3 Court of First Instance sets aside tribunal’s preliminary ruling that it has jurisdiction over claims under a related contract with a different arbitration clause
Arbitrations involving claims arising from multiple contracts are often characterized as “complex arbitrations” as they present unique issues not found in single-contract disputes. A common challenge is determining whether a dispute resolution clause in one contract covers disputes arising out of a related contract, especially when the related contracts have different dispute resolution clauses.
In AAA and others v. DDD, the Court of First Instance considered this issue in the context of a loan arrangement and related transaction documents. The court’s ruling is an important reminder for claimants to consider carefully how to refer claims involving multiple contracts to arbitration and how to best use multi-contract regimes under the chosen arbitration rules.
The dispute involved a lender, a borrower and two guarantors who entered into several agreements to give effect to the lender’s loan and the guarantors’ security and guarantee. Each agreement had a different dispute resolution mechanism:
- All parties entered into a loan agreement which set out the loan, the borrower’s repayment obligation and the guarantors’ guarantee obligations. It provided for Hong Kong law and HKIAC arbitration with three arbitrators. It was later amended by an amendment agreement which adopted the loan agreement’s dispute resolution and governing law provisions.
- The lender entered into share charge agreements with the borrower and guarantor 1, who charged certain assets to the lender as security. The agreements were governed by a foreign law and subject to a different dispute resolution clause than the loan agreement.
- The lender entered into a pledge with guarantor 2, which was governed by a foreign law and had no arbitration clause.
- All parties entered into a promissory note as security. The borrower undertook to repay the principal amount at a specified interest rate and the guarantors jointly and severally guaranteed the borrower’s obligation. The note provided for a 30-day negotiation period followed by HKIAC arbitration. It did not designate the number of arbitrators.
The borrower defaulted on the loan agreement, prompting the lender to start an HKIAC arbitration against the borrower and the guarantors under the loan and amendment agreements. The notice of arbitration (NOA) claimed that the borrower failed to refund the “Principal Amount” defined as the loan amount under the loan agreement. The NOA referenced and exhibited the note issued by the borrower but said nothing else on the note. The NOA also reserved the lender’s rights to expand or modify its claims and relief.
The tribunal was constituted. In its statement of claim, the lender asserted that even if the guarantors had been released from their obligations under the loan agreement, they remained jointly and severally liable under the note. However, the statement of claim did not seek payment from the guarantors under the note, nor did it request a declaration of the lender’s right to enforce the note against them.
The borrower and the guarantors disputed the tribunal’s jurisdiction over the lender’s note claim. The tribunal ruled as a preliminary question that it had jurisdiction:
- The NOA implicitly referred the lender’s payment dispute under the note to arbitration pursuant to the dispute resolution clause in the note. This was “evident” from the fact that the NOA mentioned and exhibited the note. The description of the lender’s claim against the borrower and the guarantors also “fits a claim” under the note.
- Although the NOA only sought relief under the loan and amendment agreements, it reserved the lender’s right to seek other relief.
- By exhibiting the note, the lender impliedly invoked its dispute resolution clause. Whether the pre-condition to arbitrate under the note had been satisfied was an issue of admissibility, not jurisdiction, and did not require the tribunal’s determination.
The borrower and the guarantors then requested the court to decide on the tribunal’s preliminary ruling that it had jurisdiction, in accordance with section 34(1) of the Arbitration Ordinance (Cap 609), which adopts article 16(3) of the UNCITRAL Model Law.
The court held that the tribunal did not have jurisdiction over the lender’s claim against the guarantors under the note:
- Clear words were needed to indicate that a party is referring a dispute to arbitration under a specific contract provision. The mere reference to a document and its exhibition to a request for arbitration was not sufficient to invoke the arbitration agreement in the document as the basis of arbitration. On its face, the NOA only invoked the arbitration clause in the loan and amendment agreements.
- HKIAC’s correspondence with the tribunal and the parties only acknowledged the tribunal’s appointment under the arbitration clause in the loan and amendment agreements. HKIAC did not appoint the tribunal under the dispute resolution clause in the note. The tribunal could not, of its own motion, unilaterally declare itself also appointed, whether expressly or impliedly, under the note’s dispute resolution clause.
- The dispute resolution clauses in the loan agreement and the note constituted “distinct, non-fungible regimes for the resolution of disputes.” An appointment by HKIAC under one clause could not be treated as tantamount to an appointment under the other, merely because both clauses specified HKIAC arbitration.
- The dispute resolution clauses in the loan agreement and the note differed significantly. The note had a 30-day negotiation period as a pre-condition to arbitration and no agreed number of arbitrators. In affirming jurisdiction, the tribunal deprived the parties of the flexibility of having one or three arbitrators, a potential benefit they had bargained for in the note.
- As the tribunal was only appointed under the arbitration clause in the loan and amendment agreements, it did not satisfactorily explain why it had jurisdiction over claims under the note.
The court then considered whether the Fiona Trust principle[9] applied. The principle assumes for the construction of an arbitration clause that rational businesspeople have likely intended any dispute arising out of their relationship to be decided by the same tribunal. While this principle applies to single contracts with conflicting dispute resolution clauses, this case involved multiple contracts with different clauses. This indicated that the parties contemplated resorting to more than one forum to resolve their disputes.
The court went on to consider whether the “extended” Fiona Trust principle[10][11] which approached this issue pragmatically. The court concluded that if several contracts have different dispute resolution clauses, there could be no presumption that all disputes would be resolved in a single forum. This was also the case here, even if the contracts constituted a package with the objective of providing financing for the borrower while ensuring security for the lender. Instead of applying a presumption, the court had to construe each contract to determine which disputes are covered by each dispute resolution clause.
Where disputes involve intertwined issues which might reasonably be regarded as falling within the ambit of more than one dispute resolution clause, the court had to locate the “centre of gravity” of each issue or dispute as best as it could and assess which clause was “closer” to the issue or dispute. The court concluded that whether the guarantors were liable to pay under the note fell within the “centre of gravity” of the dispute resolution clause in the note and outside the scope of the tribunal’s jurisdiction under the loan and amendment agreements.
The court quashed the tribunal’s decision on jurisdiction and declared that the tribunal had no jurisdiction to decide payment claims under the note.
A major advantage of arbitration is that it allows parties to resolve multi-jurisdictional disputes in a single forum, avoiding fragmented disputes, parallel proceedings, and inconsistent outcomes. This process can save time and costs. When entering into multiple contracts as part of a transaction or a series of transactions, parties should consciously decide whether all disputes arising out of or in relation to their contracts should be resolved in the same forum. To utilize the single forum benefit, the parties should either enter into an umbrella arbitration agreement for all relevant contracts or adopt identical (or compatible) arbitration clauses in each contract.
[1] [2024] HKCFI 1324
[2] [2024] HKCFI 575.
[3] [2024] HKCFI 1511.
[4] [2024] HKCFI 1324.
[5] [2024] HKCFI 513.
[6] Re Guy Kwok-Hung Lam, ex parte Tor Asia Credit Master Fund LP (2023) 26 HKCFAR 119.
[7] [2024] HKCA 299.
[8] [2024] HKCA 352.
[9] See Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40.
[10] See Terre Neuve SARL & Ors v Yewdale Ltd & Ors [2020] EWHC 772 (Comm).
[11] [2015] EWCA 437, cited and applied in Hong Kong, for example, by Mimmie Chan J in X v Y [2021] 2 HKC 68 and H v G [2022] HKCFI 1327.
