Table of Contents
- Class 1 - Introduction & Overview of the Practice of Arbitration
- Class 2 - Discovery and Disclosure of Documents in International Arbitration
- Class 3 - Challenges to Jurisdiction and Tribunals
- Class 4 - Nuts and Bolts of Awards
- Class 5 - Preliminary Meeting
- Class 6 - Challenges to Awards and Public Policy Considerations
- Class 7 - Interlocutory Proceedings: Part 1
- Class 8 - Interlocutory Proceedings: Part 2
- Class 9 - Costs
- Class 10 - Interest
Class 1 - Introduction & Overview of the Practice of Arbitration
I. Dispute Resolution and the Role of Arbitration
A. Different forms of Dispute Resolution
1. Arbitration
(1) Definition
International commercial arbitration is a means by which international business disputes can be definitively resolved, pursuant to the parties’ agreement, by independent, non-governmental decision-makers, selected by or for the parties, applying neutral adjudicative procedures that provide the parties an opportunity to be heard. ——G. Born, §1.02 International Commercial Arbitration (3(rd) Edition, 2021)
(2) Essential elements of arbitration
① Consensual
Arbitration is based on party agreement.
UNCITRAL Model Law Art 7(1) (Hong Kong Arbitration Ordinance sec. 19)
“Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes […] in respect of a defined legal relationship, whether contractual or not.
New York Convention Art II(1)
Applies to an “agreement […] under which the parties undertake to submit to arbitration”
② Resolves a dispute
Arbitration is a process to resolve a dispute, not a process for the formation of a contract, etc.
Compare HKIAC model clause for arbitration under the HKIAC Administered Arbitration Rules:
“Any dispute, controversy, difference or claimarising out of or relating to this contract, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non- contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration administered by the Hong Kong International Arbitration Centre (HKIAC) under the HKIAC Administered Arbitration Rules in force when the Notice of Arbitration is submitted.”
③ Non-governmental decision-maker
Arbitrators are non-governmental decision maker who preside over an arbitration.
They are selected by the parties. In their capacity as arbitrators they do not discharge a function or office of government or the national courts. If parties cannot agree on the arbitrators, they are appointed by arbitral institutions selected by the parties or national courts. However, duties, role and powers of an arbitrator are often regulated by national laws and courts.
④ Final and Binding
Arbitration results in a final and binding decision (award) by the decision-maker. This final and binding decision can be enforced against the unsuccessful party and its assets
Arbitration Ordinance, section 73
(1)Unless otherwise agreed by the parties, an award made by an arbitral tribunal pursuant to an arbitration agreement is final and binding both on—
- the parties; and
- any person claiming through or under any of the parties.
⑤ Use of Adjudicatory Procedures
Arbitration is an impartial adjudicatory process which affords each party the opportunity to present its case. The arbitrator’s decision is not administrative but based on the submissions and evidence presented by the parties.
Art. 18 of UNCITRAL Model Law (Arbitration Ordinance, sec. 46)
(2)The parties must be treated with equality.
(3)When conducting arbitral proceedings or exercising any of the powers conferred on an arbitral tribunal by this Ordinance or by the parties to any of those arbitral proceedings, the arbitral tribunal is required—
- to be independent;
- to act fairly and impartially as between the parties, giving them a reasonable opportunity to present their cases and to deal with the cases of their opponents; and
- to use procedures that are appropriate to the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for resolving the dispute to which the arbitral proceedings relate.
(3) Advantages
- Flexibility: Arbitration is based on party agreement and can be flexible as to procedure, language, presiding arbitrators, etc.
- Confidentiality: Arbitral awards are not published and hearings are not open to the public.
- Impartiality: Wide range of competent arbitrators available with different qualifications (including foreign nationals).
- Enforceability: Arbitral awards are generally enforceable worldwide (pursuant to New York Convention – 168 member states).
- Availability of Interim Remedies: Since October 2019, parties of certain HK-seated arbitrations can apply for PRC interim relief.
2. Litigation
(1) Elements
① Compulsory Jurisdiction
Courts exercise the jurisdiction they are given by statute, convention, history or practice. Individuals cannot ‘opt-out’ of the Court’s jurisdiction.
High Courts Ordinance (Cap 4)
- Jurisdiction of Court of First Instance
(1)The Court of First Instance shall be a superior court of record.
(2)The civil jurisdiction of the Court of First Instance shall consist of—
(a)original jurisdiction and authority of a like nature and extent as that held and exercised by the Chancery, Family and Queen’s Bench Divisions of the High Court of Justice in England; and
(b)any other jurisdiction, whether original or appellate jurisdiction, conferred on it by any law.
② Legal disputes
Courts resolve legal disputes (not social disputes or moral / ethical disputes). Courts resolve disputes according to and by applying the law.
Not _ex aequo et bono_meaning “according to the right and good” or “from equity and conscience.”
③ State Appointed Decision Makers
Governments appoint and pay decision makers (Judges). A decision maker is assigned without input from the Parties.
High Courts Ordinance (Cap 4)
4.Constitution of Court of First Instance
(1)The Court of First Instance shall consist of—
(a)the Chief Judge of the High Court; (Amended 79 of 1995 s. 50)
(b)such judges as the Governor may appoint; (Amended 80 of 1994 s. 3)
(ba)such recorders as the Governor may appoint; and (Added 80 of 1994 s. 3)
(c)such deputy judges as the Chief Justice may appoint. (Added 52 of 1987 s. 4)
④ Subject to further review
Courts usually have a system for appeals. Appeals can exist as a matter of discretion or as a matter of right
High Courts Ordinance (Cap 4)
- Appeals in civil matters
(1)Subject to subsection (3) and section 14AA, an appeal shall lie as of right to the Court of Appeal from every judgment or order of the Court of First Instance in any civil cause or matter. (Amended 25 of 1998 s. 2; 3 of 2008 s. 24)
(2) Advantages
- Enforceability: Parties can use the coercive power of the State to enforce judgments in their favour as a matter of right.
- Interim Relief: Courts use their coercive power to order interim relief against Parties and non-Parties.
- Public: Judicial proceedings are done in the open and subject to public observation and criticism.
- Certainty: The litigation process is understood and applied by qualified experts (judges and lawyers).
- Review: Judges who make mistakes can be corrected on appeal.
(3) Litigation & Arbitration: Statistics and Context
In 2023, arbitration institutions in China handled a total of 607,000 arbitration cases but there were 45.3m court cases.
3. Mediation
(1) Definition
Mediation Ordinance (Cap 620)
4.Meaning of mediation
(1) For the purposes of this Ordinance, mediation is a structured process comprising one or more sessions in which one or more impartial individuals, without adjudicating a dispute or any aspect of it, assist the parties to the dispute to do any or all of the following—
(a) identify the issues in dispute;
(b) explore and generate options;
(d) reach an agreement regarding the resolution of the whole, or part, of the dispute.
(2) Advantages
- Flexibility: Parties choose their mediator and decide how the mediation is conducted.
- Time / Cost saving: Mediation is usually shorter and cheaper than litigation or arbitration.
- Private: Mediation and any settlement reached are confidential to the Parties.
- Relationship: Mediation delivers mutually acceptable outcomes.
4. Adjudication
(1) Elements
(2) Advantages
- Time / Cost saving: Adjudication is usually much shorter and therefore cheaper than litigation / arbitration & the other side may not be able to claim its costs.
- Cash Flow: Quick decisions allow parties to get paid now to fund their business.
- Mandatory: If imposed by statute, no agreement needed and no ability to contract out.
- Early Communication: Avoids stalling behaviour or ignoring entitlements.
- Confidentiality: Decisions are not published and hearings are not open to the public.
- Impartiality: Wide range of competent adjudicators available with different qualifications (including foreign nationals and industry professionals).
(3) HK’s Construction Adjudication Scheme: Construction Industry Security of Payment Bill
Enacted 18 Dec 2024
Payment Scheme
- Payment Claim by the contractor (s. 18)
- Payment Response in 30 days (s. 20)
- Adjudication starts within 28 days (s. 24)
- Determination within 55 days (unless extended by agreement) (s. 42(5))
Determinations
- Cover payment claim and costs of adjudication (not representation costs) (s. 42(1))
- Be in writing and contain reasons (s. 42 (6))
- Given by adjudicator to ANB and by ANB on the parties (s. 42(5) & (7))
- Binding unless set aside by the Court, settlement or court / arbitration decision (s. 44)
B. Different ways of dispute resolution and how they compare
Litigation | Arbitration | Mediation | Adjudication | |
|---|---|---|---|---|
Jurisdiction | Local law & civil procedure / Conflicts of Law Rules | Party Agreement | Party Agreement | Contract and/or statutory procedure |
Governing Procedure / Rules of Evidence | Local civil procedure laws | Flexible | Flexible | Prescribed by contract / statutory procedure |
Governing Law | Default: Local law | Flexible | Flexible (decision making not necessarily based on legal principles) | Flexible |
Confidentiality | No | Yes | Yes | Yes |
Appeal | Yes | No | No | Maybe |
Enforceability | Yes | Yes | Yes | Maybe |
Interim Relief | Yes | Yes | No | No |
II. Arbitral Institutions: Drivers of Change?
A. Basic Questions
1. Institutional Arbitration v. ad hoc Arbitration
- Institutional Arbitration: Proceedings conducted under administration of an arbitral institution with its pre-formulated arbitration rules.
- Ad Hoc Arbitration: Proceedings of which the parties select the arbitrator(s), the rules and procedures, and organize the process.
2. What is an arbitral institution?
…a permanent organization to which parties to a dispute reserve some decisional authority in order to facilitate an arbitration conducted in accordance with a set of arbitration rules. —— The Functions of Arbitral Institutions, Rémy Gerbay (2016)
B. The role of Arbitral Institutions
C. The Rise of the Arbitral Institution
Arbitral institutions began forming in the late 19(th) Century as a means of facilitating and administering arbitral proceedings.
- Alphabet soup: ICC, SIAC, HKIAC, CIETAC, MCIA, KCAB, LCIA, SCC, ICSID, PCA etc.
- Primarily commercial arbitration focused to investor-State/State-to-State
- Growth and rise of institutions
1 | 💡 Are all institutions the same? Are they all independent and neutral? |
D. Institution’s Power
1. An Institution’s Hard Power
… some decisional authority in order to facilitate an arbitration conducted in accordance with a set of arbitration rules
1 | 💡 What decisional authority? |
- Appointment of arbitrators (under a set of rules or by statute)
- Procedural decisions (prima facie, joinder, consolidation)
- Scrutiny of awards
- Time and cost controls (expedited procedure, EDP, fee caps)
1 | 💡 What about statutory authority? |
- Cap. 609, sections 23 and 24
- Cap. 609C
2. An Institutions’ Soft Power
… some decisional authority in order to facilitate an arbitration conducted in accordance with a set of arbitration rules
1 | 💡 What do we mean by soft power? |
e.g. appointment of arbitrators
1 | 💡 How do institutions influence change? |
- The Equal Representation in Arbitration Pledge
- Green Arbitration Pledge
- Mindful Business Charter
1 | 💡 Should there be limits on that influence? Are institutions instruments for social change? |
III. Practising Arbitration in a Globalised World
A. International Commercial Arbitration
1. Definition
International commercial arbitration is a means to resolve business disputes between profit-making enterprises.
2. What do Companies / Users say about Arbitration?
The five most preferred seats for arbitration are: London, Singapore, Hong Kong, Paris and Geneva.
The five most preferred arbitral institutions are: ICC, SIAC, HKIAC, LCIA and CIETAC.
In a Queen Mary University study on energy arbitration (published Jan 2023), results were similar:
- 72% of the respondents gave arbitration a score of 4/5 for suitability as a dispute resolution mechanism ranking much higher than any other form of dispute resolution.
- Neutrality (63%), choice of arbitrators / technical expertise (60%) and enforceability of awards (60%) were seen as main benefits.
- London and Singapore were named as preferred seats.
3. International Commercial Arbitration vs Cross Border Litigation
Concerns re Cross Border Litigation | International Arbitration |
|---|---|
Neutrality of local courts | Arbitrators with neutral nationalities |
Lack of expertise / familiarity with international commercial practices and/or very technical disputes | Technical experts / senior commercial arbitrators to be selected as arbitrators |
Costs and delay | Freedom to adopt specific procedural restraints to limit time / costs |
Lack of convenience | Flexible venue / broad adoption of online hearings |
Jurisdictional issues / forum selection | Very limited grounds for local courts to interfere with jurisdiction of arbitral tribunals |
Enforceability of judgments | Awards broadly enforceable due to New York Convention |
4. Fact of Fiction?
1 | 💡 Is arbitration flexible? |
Arbitration is usually more flexible.
1 | 💡 Is arbitration cheaper and quicker than litigation? |
Arbitration can be cheaper and quicker than litigation.
1 | 💡 Arbitrators better suited to deal with international / highly technical disputes? |
Arbitrators can in many situations be better suited to deal with international / highly technical disputes.
1 | 💡 Is arbitration more convenient? |
Arbitration can be more convenient (but it depends on procedure adopted by parties).
1 | 💡 Is arbitration greener? |
Arbitration can be greener (but requires party commitment to adopt relevant procedures).
B. Strategy in Cross Border Disputes
Important points to consider to identify the most appropriate dispute resolution mechanism:
- What are the available counterparties?
- Where are the assets of such counterparties located?
- What is the value of the contract / dispute?
- How / where would a potential award / judgment have to be enforced?
- Availability of interim relief?
At the time when a dispute arises, the options are usually limited and depend on the relevant dispute resolution / arbitration clause in the contract.
It is therefore important to consider these issues before or at the time a contract is entered into between the parties.
C. Case Study
Example 1
Approached by client in investment dispute: Client off-shore Holdco, with HK Listco and main operations in PRC. Counterparty with similar structure. Parties invested money together through share purchase agreement (SPA) of a target company with goal to ultimately list the target. Client had secured put-option allowing to withdraw investment after passage of time (i.e. in case initial plans do not succeed) – put-option secured by domestic parent entity of counterparty. Listing never happened. Dispute among parties on how to unwind / end investment
Difficulties
- Contracting parties under SPA are offshore Holdcos with no direct assets.
- Assets with parent company of Holdco in PRC (who provided guarantee).
- Arbitration clauses in various agreements not compatible (could not be consolidated).
Solution
- Commence HKIAC arbitration under a guarantee agreement involving PRC-based parent companies (with onshore assets).
- Use interim relief under arrangement to freeze assets in PRC.
- Assets in excess of RMB550m frozen, parties returned to negotiation table.
Example 2
Background of dispute: Large multinational client had invested in off-shore company, with HK Listco owning shares in main operating subsidiaries in PRC. Dispute arose based on allegations that counterparty had mismanaged target company / embezzled assets. Client engaged a Singapore-based law firm which had obtained a successful award in SIAC arbitration. Client only engaged HK/China law firm at the time of enforcement of award (i.e. several years after arbitration had been commenced).
Difficulties
- During ongoing arbitration proceedings, no contemporaneous asset searches were conducted.
- During ongoing arbitration, counterparty had set up parallel structure in PRC to which important assets had been transferred including key employees.
- At the time the award was issued, the remaining PRC structure was an empty shell without value.
Solution
- As this development had gone unnoticed, no assets against which award could be enforced.
- Criminal complaint, blacklisting of involved director / shareholder in PRC.
- Liquidators appointed offshore and in HK to gain access to books and records and trace assets.
- Costly asset searches, investigations, unclear whether meaningful recovery is possible.
Class 2 - Discovery and Disclosure of Documents in International Arbitration
I. Introduction
1 | 💡 What is discovery / document production? |
Discovery is a term usually used in common law countries to identify a process by which, commonly before the hearing / trial, evidence can be obtained.
The available tools to obtain evidence through discovery include:
- Requests for document production
- Interrogatories
- Inspection of documents, goods, etc.
- Requests for a person to be provided as a witness
In civil procedures, parties can apply to the court’s assisting in collecting documents from counter-parties and non-parties. They are ways to collect evidence too, but strictly speaking not the “discovery / document production” process in common law proceedings.
In arbitration, discovery of documents is called document production and is not automatic / mandatory as in litigation (under common law).
II. Discovery in Hong Kong Litigation
After the close of pleadings, discovery by the parties of the documents “which are or have been in their possession, custody or power relating to matters in question in the action.” (O.24, r.1, RHC Cap. 4A)
- Possession, custody, or power: including documents of other parties.
Any document which, it is reasonable to suppose, “contains information which may enable the party (applying for discovery) either to advance his own case or to damage that of his adversary, if it is a document which may fairly lead him to a train of inquiry which may have either of these two consequences” must be disclosed. (Compagnie Financière du Pacifique v. Peruvian Guano Co. (1882) 11 Q.B.D. 55)
Discovery by exchanging lists of documents within 14 days after close of pleading. (O.24, r.2)
To ensure completeness, the court can:
- order a party to provide a sworn affirmation verifying its list of documents, i.e. to confirm that the party has disclosed all relevant documents in his possession, custody and control.(O.24, r.3)
- order discovery of a specific document or class of documents.(O.24. r.7)
Parties need to make the documents available for inspection.(O.24, r.9)
III. Applicable rules for document disclosure in international arbitration
A. Key Sources
1 | 💡 Where to find the relevant rules on document production / use of evidence in international arbitration? |
Parties can refer to the rules on evidence / document disclosure in the arbitration agreement. Tribunals can make procedural orders that incorporate / adopt the relevant rules as guidelines for the ongoing arbitration.
Below is an extract from a procedural order in an arbitration:
DOCUMENTARY EVIDENCE
The Parties and the Tribunal may, in all matters pertaining to evidence, be guided but not bound by, the IBA Rules on the Taking of Evidence in International Arbitration.
The Parties shall identify all relevant documents in their submissions…
Either Party may request, and the Tribunal may direct, the other Party or Parties to produce any relevant documentary evidence in its or their respective possession, custody or control. Any documents which the Tribunal orders to be produced shall be transmitted to the Tribunal within any time limit directed by the Tribunal…
All documents submitted by the Parties shall be accepted as being true copies of the originals unless their authenticity is expressly challenged by the other Party.
B. National Laws
The relevant local law in Hong Kong is the Arbitration Ordinance (Cap. 609) which, as with local laws in many other countries, adopts / incorporates the UNCITRAL Model Law.
Section 47 (2)
If or to the extent that there is no such agreement of the parties, the arbitral tribunal may, subject to the provisions of this Ordinance, conduct the arbitration in the manner that it considers appropriate.
Section 47 (3)
When conducting arbitral proceedings, an arbitral tribunal is not bound by the rules of evidence and may receive any evidence that it considers relevant to the arbitral proceedings, but it must give the weight that it considers appropriate to the evidence adduced in the arbitral proceedings.
Section 56 (1)
Unless otherwise agreed by the parties, when conducting arbitral proceedings, an arbitral tribunal may make an order […]
(b) directing the discovery of documents or the delivery of interrogatories;
(c) directing evidence to be given by affidavit; or
(d) in relation to any relevant property
Other relevant local laws are:
Arbitration Law of the People’s Republic of China
- Article 43 Parties shall provide the evidence in support of their own arguments. The arbitral tribunal may, as it considers necessary, collect evidence on its own.
- Article 45 The evidence shall be presented during the hearings and may be examined by the parties.
- Article 46 Under circumstances where the evidence may be destroyed or lost or difficult to obtain at a later time, a party may apply for preservation of the evidence. If a party applies for preservation of the evidence, the arbitration commission shall submit his application to the basic people’s court in the place where the evidence is located.
The arbitral tribunal may, as it considers necessary, collect evidence on its own.
International Arbitration Act (Cap. 143A) (IAA) [Singapore]
Arbitration Act 1996 [England, Wales, Northern Ireland]
International Arbitration Act 1974 (IAA) [Australia]
C. Arbitral Institutions
Institutional rules deal with document production and feature frequently in international arbitration (as they are usually incorporated in the Parties’ arbitration agreement).
- HKIAC Administered Arbitration Rules (2024)
- ICC Arbitration Rules (2021)
- UNCITRAL Arbitration Rules (2013)
- SIAC, LCIA, various others…
1. HKIAC Administered Arbitration Rules (2024)
Scope for document production narrower than for HK court proceedings.
Art. 22.3
At any time during the arbitration, the arbitral tribunal may allow or require a party to produce documents, exhibits or other evidence that the arbitral tribunal determines to be relevant to the case and material to its outcome. The arbitral tribunal shall have the power to admit or exclude any documents, exhibits or other evidence.
Art. 13.1
[…] the arbitral tribunal shall adopt suitable procedures for the conduct of the arbitration in order to avoid unnecessary delay or expense, having regard to the complexity of the issues, the amount in dispute and the effective use of technology, and provided that such procedures ensure equal treatment of the parties and afford the parties a reasonable opportunity to present their case.
2. ICC Arbitration Rules
The tribunal is not expressly empowered to order document disclosure, but authority is implied.
Article 25(1) (2021 Rules)
[t]he Arbitral Tribunal shall proceed within as short a time as possible to establish the facts of the case by all appropriate means,
Article 25(5)
may summon any party to provide additional evidence.
D. International Guidelines
Guidance is also found in guidelines published by international organizations which can be incorporated into arbitral proceedings:
- IBA Rules on the Taking of Evidence in International Arbitration (IBA Rules)
- Inquisitorial Rules on the Taking of Evidence in International Arbitration (The Prague Rules)
- ICC Arbitration Commission Report on Managing E-Document Production
- CIArb Protocol for E-disclosure in Arbitration
1. IBA Rules
IBA Rules are widely accepted as internationally applicable standards / best practices on taking evidence (including document production) in international arbitration.
- A balanced approach taken between civil and common law procedures.
- Scope of production: a document request has to be:
- for specific documents or for specific and narrow categories of documents [3(3)(a)(ii)]
- prima facie relevant to the case and material to its outcome [3(3)(b)]
- for documents
- not in the possession, custody or control of the requesting party [3(3)(c)(i)],
- in the possession, custody or control of the requested party (Article 3(3)(c)(ii)
- not unreasonably burdensome to produce [3(3)(c)(i)]
Article 9 of the IBA Rules
- The Arbitral Tribunal shall determine the admissibility, relevance, materiality and weight of evidence.
- The Arbitral Tribunal shall, at the request of a Party or on its own motion, exclude from evidence or production any Document […] for any of the following reasons:
- lack of sufficient relevance to the case or materiality to its outcome;
- legal impediment or privilege under the legal or ethical rules determined by the Arbitral Tribunal to be applicable…;
- unreasonable burden to produce the requested evidence;
- loss or destruction of the Document that has been shown with reasonable likelihood to have occurred;
- grounds of commercial or technical confidentiality that the Arbitral Tribunal determines to be compelling;
- grounds of special political or institutional sensitivity […]; or
- considerations of procedural economy, proportionality, fairness or equality […].
- The Arbitral Tribunal may, at the request of a Party or on its own motion, exclude evidence obtained illegally.
2. Competitor to IBA Rules: Prague Rules
The Prague Rules came into effect on 14 December 2018. The working group creating the Prague Rules comprises mostly of civil law practitioners and the civil law influence is reflected in the Prague Rules.
The Prague Rules are aimed at increasing efficiency of arbitration by encouraging a more active role for arbitral tribunals in managing proceedings (as with courts in civil law countries).
Document production is discouraged and the Prague Rules require the tribunal to decide at the outset whether document production is necessary. In case the tribunal allows for production, requests have to pertain to specific document relevant and material to the outcome of the case.
IV. Comparison of litigation and arbitration
International Arbitration | Court / Litigation | |
|---|---|---|
Discovery automatic | No automatic right to request disclosure – depending on discretion of tribunal | Automatic process for actions commenced by writ [HK – common vs civil law] |
Counterparties for | Limited to parties in arbitration | Parties to dispute / third parties |
Scope | No common standard but generally less broad - relevant and material to a party’s case (IBA Rules) | Wide scope: relevant document under Peruvian Guano[HK – common vs civil law] |
Privilege protection | Yes | Yes [HK – common vs civil law] |
Confidentiality | Yes | Implied but otherwise specific court order required |
Characteristics |
|
|
V. Practical application in international arbitration
A. Guidelines for Legal Representatives Regarding Document Production
At the outset of the dispute, inform the client about the importance of preserving potentially relevant documents (continuing duty).
Also, at the outset, clients should locate / search for relevant / material documents as soon as possible (at the direction or with the assistance of the legal representative).
At an early stage of the arbitration, consider and agree applicable rules and scope of documents disclosure – whether to exclude or limit the scope of document requests, providing time for document requests and disclosure in the timetable.
During dispute, document requests (or objections to such request) should only be made for a proper purpose (and not for procedural advantage e.g. to create delay).
If production of documents is agreed by the parties or ordered by the tribunal, parties are required to abide by such agreement or orders (and do not unreasonably withhold relevant documents).
During dispute, advise client on issues such as privilege, data privacy, state secrets etc. which may affect document production.
B. Disclosure and Inspection of Documents in Arbitration Proceedings
Each party would normally produce with its submissions, witness statements and expert reports, documents in support of its propositions and facts presented therein.
Additional / specific production of documents would then only be required to obtain documents going beyond what was already produced by each party with submissions – i.e. if more documents exist that are relevant / material to the issues in the dispute.
As discussed, unless specifically provided for in the parties’ arbitration agreement, the tribunal would usually make orders at the outset of the arbitration how such document requests should be formulated and the process and timing for the same.
Here is an example from a Procedural Order given by a tribunal:
Disclosure of documents
- Disclosure or discovery of documents shall be carried out with the IBA Rules serving as a guideline.
- Any requests for disclosure of documents shall be in accordance with the procedural timetable and in the form of a Redfern schedule.
[…]- No new evidence may be submitted in the agreed hearing bundle unless agreed between the parties or permitted by the Tribunal.
C. Reasons for Objecting to Document Requests
- Failure to identify document/category of document with sufficient detail.
- Documents identified lack sufficient relevance or materiality.
- Documents cannot be produced due to:
- Privilege.
- Confidentiality.
- State secret / data privacy, other legal grounds.
- Contractual or other grounds.
- Production of documents would be an unreasonable burden.
- Loss or destruction.
- Considerations of procedural economy, proportionality, fairness or equality.
D. Redfern Schedule
1. Introduction
If parties cannot agree document requests, the tribunal will usually ask for the preparation of a joint document with requests from both sides, which allows the tribunal to rule on each request.
An example of such a document is the so-called Redfern Schedule – a schedule for document production popularized by Alan Redfern.
2. Basic Checklist for Redfern Schedule
Check which rules apply, and the procedural order for Tribunal’s directions on document disclosure. | |
CATEGORISE the different claims, counterclaims, or defence. | |
DESCRIBE requested category of document with SPECIFICITY (sufficient details to identify it) [IBA, Art. 3(a)(i) and (ii)] E.g.: “[Document category, e-mails, reports, agreements] in relation to, or pertaining to [specific topic] involving [specific entities or persons] from [date]” | |
3.1. | Name or nature of the document (e.g. mandate, e-mail, agreement) |
3.2. | Identify specific date range for requested document(s) |
3.3. | Set out individuals or entities who created, are mentioned, or somehow related to, involved with the document. |
3.4. | For e-mails, provide search keywords (e.g. “operating agreement negotiation”) |
3.5. | “Documents reasonably believed to exist” – be prepared to justify this (by inference, implication). |
EXPLAIN document’s MATERIALITY and RELEVANCE [IBA, Art. 3(b)] | |
4.1. | Identify the material (sub) issue between the parties that the documents are responsive to. |
4.2. | Explain the relevance of the document to the material (sub) issue between the Parties. |
4.3. | Explain how the documents are relevant to the case and material to its outcome |
4.4. | Provide SPECIFIC REFERENCES and quotes in the pleadings to guide the Tribunal. |
EXPLAIN why the documents requested are in the CUSTODY, POSSESSION, or CONTROL of the other party, and it is NOT UNREASONABLY BURDENSOME TO PRODUCE [IBA, Art.3(c)(i)(ii)]. | |
[For Opposing Party] OBJECT to document based on: | |
6.1. | Or, other grounds including: |
3. Real example of Redfern Schedule (anonymized)
Oil & gas dispute in relation to a gas field development project
No. | Documents or Category of Documents Requested | Relevance and Materiality According to Requesting Party | Objections to Document Request | Reply to Objections to Document Request | Arbitral Tribunal’s Decision | |
Ref. to | Comments | |||||
1. | The original mandate and/or instructions and/or service agreement agreed between Dept. A and Dept. B, including a description of scope of work and responsibilities, budget, and schedule between 2010 and 2020. | Statement of Defence (SOD) / para. 125 | It is a material issue between the Parties whether Rs complied with its obligations with respect to Project management under the Operating Agreement, which required Dept. B to report to Dept. A. | Respondents object to this request. | The Respondents do not contest that the relevant mandate and service agreements exist and can be produced without undue burden. They only take issue with the meaning of the word “instructions”. | The Request is granted |
2. | The studies and reports (and all underlying data relied on) relating to the Respondents’ attempted exploration and development of the gas field. | SOD/ 450 | It is a material issue between the Parties whether the Respondents failed to appraise the gas field and drill for additional gas. | Respondents object to this request. | Response required additional submissions to the tribunal on state secretbut the core points made were:
| The Request is granted. |
No. | Documents or Category of Documents Requested | Relevance and Materiality According to Requesting Party | Objections to Document Request | Reply to Objections to Document Request | Arbitral Tribunal’s Decision | |
Ref. to | Comments | |||||
1. | Documents generated internally by the Claimants discussing or referring to its decision to purchase Microsoft software licenses in the amount of USD 150,000 including communications, internal studies or surveys, reports and other documents regarding the Claimant’s alleged finding and purchase. | SOC / 359 | These documents should be in the Claimant’s possession or control as are Claimant’s internal documents. | Claimant will search for and produce non-privileged Documents in its possession, custody or control that are responsive to this request. | The Claimant’s position is noted, without prejudice to the generality of the Respondents’ Request as originally formulated. | It is noted that Claimant agrees to search for and produce non-privileged Documents. No further order is made. |
F. HKIAC 2024 Administered Arbitration Rules
Apart from other changes, the 2024 Rules include two additions which are relevant in terms of the Tribunal’s decision on document production:
- The Rules require the Tribunal to take into account the environmental impact of arbitration at the stage of determining procedures for the arbitration but also when ruling on costs (Articles 13.1 and 34.4(f)).
- The Rules encourage party agreement on, and empower the Tribunal to order, measures for the protection of information security in the arbitration (Articles 13.2 and 45A).
G. Other considerations for document production
E-Discovery
- Electronic aspect of identifying, collecting and producing electronically stored information in response to a request for production
- Requests are scoped by:
- Custodians, time period and key words
- Special document review and search platform used for the process
- Potential use of AI in addition to or replacing search algorithms
Green Pledge
- The Campaign for Greener Arbitrations.
- Electronic exchange of documents, no hard copy required.
- Environmental impact as consideration for procedures to be adopted in arbitration under 2024 HKIAC Rules.
Data privacy
- Consent for cross-border transfer of private data.
- Pre-approval required by relevant authorities.
- Ability for tribunal to adopt measures for information security under 2024 HKIAC Rules.
VI. Specific issues
A. Privilege
While authority on privilege is limited in international arbitration, it is universally recognized that privilege protection exists in arbitration.
The IBA Rules protect privilege in the Arts. 9(2)(b) and 9(4). While there are additional types of privilege, the two most relevant types (which are also expressly protected under the IBA Rules) are:
- Legal advice privilege Art. 9(4)(a).
- Without prejudice / settlement negotiation privilege Art. 9(4)(b).
The exact scope of legal advice privilege is defined by national laws and deciding which law applies is a choice of law issue.
Art. 9(4)(c) IBA Rules specifies that the ‘expectations of the Parties and their advisors at the time the legal impediment or privilege is said to have arisen’ should be taken into consideration. This could potentially disadvantage one party where its home jurisdiction does not have laws protecting privilege equivalent to the rules available under common law - Art. 9(4)(e) IBA Rules provide that arbitral tribunals should respect the fairness and equality of the parties when deciding on privilege.
B. Third Party Production
Generally, orders of the tribunal can only bind parties to the arbitration, therefore, third party discovery cannot be ordered by the tribunal.
Under Art. 3(9) of the IBA Rules, the tribunal can take the necessary steps for third party production if it determines that the documents would be relevant and material.
The Arbitration Ordinance provides for third party production:
Section 55(1) [Article 27 of the UNCITRAL Model Law]
The arbitral tribunal or a party with the approval of the arbitral tribunal may request from a competent court of this State assistance in taking evidence. The court may execute the request within its competence and according to its rules on taking evidence.
Section 55(2)
The Court may order a person to attend proceedings before an arbitral tribunal to give evidence or to produce documents or other evidence.
VII. Sanctions
Under the Arbitration Ordinance, the following interim measures to preserve evidence are available:
- the preservation, custody or sale of “relevant” property subject to the arbitration: ss.56(1)(d)(i), 56(6), 60(1)(a) and 60(2) AO;
- the inspection, photographing, preservation or detention of “relevant” property subject to the arbitration: ss.56(1)(d)(i), 56(6), 60(1)(a) and 60(2) AO;
- directing samples to be taken from, observations to be made of, or experiments to be conducted on “relevant” property: ss.56(1)(d)(ii), 56(6), 60(1)(b) and 60(2) AO; and
- interim injunctions or other interim measures of protection (ss.35 and 45 AO).
These powers are vested in the Tribunal. However, for some of these measures there is concurrent power of the courts (ss. 45, 60 (1), (3), (4)) and measures made by the Tribunal can be enforced in court (s.60 AO).
Preservation of evidence also available under PRC HK Interim Measures Arrangement.
Powers of tribunal to issue sanctions for non-compliance with production orders are limited. The tribunal cannot impose coercive sanctions (i.e. monetary fines, contempt).
The tribunal can seek the assistance of the courts to compel production of evidence. Alternatively and more commonly, tribunals will make use of their power to draw adverse inference from a party’s refusal to disclose evidence.
Consider the English courts’ approach in the recent case of Active Media Services Inc v Burmester, Duncker & Joly GmbH & Co Kg and others [2021] EWHC 232 (Comm) – adverse inferences were drawn against the Claimant based on the intentional deletion of emails by the Claimant’s sole witness shortly before trial, and the Claimant’s failure to call other relevant witnesses.
Class 3 - Challenges to Jurisdiction and Tribunals
I. Challenges to Arbitrators
A. Introduction
1. Basic Definition of Arbitration & Role of Arbitrator
International commercial arbitration is a means by which international business disputes can be definitively resolved, pursuant to the parties’ agreement, by independent, non-governmental decision-makers, selected by or for the parties, applying neutral adjudicative procedures that provide the parties an opportunity to be heard. —— G. Born, §1.02 International Commercial Arbitration (3rd Edition, 2021)
- Non-governmental decision-maker
- Chosen by or for the parties
- To render a final and binding decision
- Using adjudicatory procedures
2. Fundamental Duties of the Arbitrator
AO s. 46, Model Law Art 18
- Arbitrators owe the following due process duties to the parties:
- To treat the parties with equality;
- To be independent;
- To act fairly and impartially, giving them a reasonable opportunity to present their case and to address the case of their opponent;
- To use procedures appropriate for the particular case, avoiding unnecessary delays and expenses, and providing fair means for resolving the dispute.
3. Independence v Impartiality
Hong Kong requires:
Independence: the existence of a relationship between the arbitrators and one of the parties. Usually capable of objective quantification.
e.g. arbitrator is 30% shareholder in one of the partiesImpartiality: the arbitrator’s state of mind which is more difficult to assess / subjective
e.g. arbitrator actively prefers one party over the other
Not every jurisdiction requires both:
- England requires impartiality only_(s. 24(1)(a) of the Arbitration Act)_
- USA requires impartiality only (s10(a)(2) Federal Arbitration Act)
1 | 💡 Is impartiality sufficient? |
B. Entitlement to Challenge Arbitrators
1. Legal Basis
① s. 25 Arbitration Ordinance giving effect to Art 12 Model Law
Article 12. Grounds for challenge
When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties unless they have already been informed of them by him.
An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
② s. 26 Arbitration Ordinance giving effect to Art 13 Model Law
Article 13. Challenge procedure
1)The parties are free to agree on a procedure for challenging an arbitrator, subject to the provisions of paragraph (3) of this article.
(2)Failing such agreement, a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstance referred to in article 12(2), send a written statement of the reasons for the challenge to the arbitral tribunal. Unless the challenged arbitrator withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.
If a challenge under any procedure agreed upon by the parties or under the procedure of paragraph (2) of this article is not successful, the challenging party may request, within thirty days after having received notice of the decision rejecting the challenge, the court or other authority specified in article 6 to decide on the challenge, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal, including the challenged arbitrator, may continue the arbitral proceedings and make an award.
2. Practical Considerations
1 | 💡 Do the parties have unlimited choice to agree with the challenge procedure? Can they resolve challenges by flipping a coin? |
1 | 💡 What degree of knowledge is required before you have ‘become aware of circumstances’ justifying a challenge? |
1 | 💡 What does it mean for the “arbitral tribunal” to determine the challenge? What is the scope and role of the challenged arbitrator in such a challenge vis a vis his fellow tribunal members and how do parties manage this? |
3. Institutional Role
HKIAC Rules Art 11
11.9 Unless the arbitrator being challenged resigns or the non- challenging party agrees to the challenge within 15 days from receiving the notice of challenge, HKIAC shall decide on the challenge. Pending the determination of the challenge, the arbitral tribunal (including the challenged arbitrator) may continue the arbitration.
See: HKIAC Practice Note on Challenges of Arbitrators
- Notice of Challenge + Answer to Notice of Challenge
- Panel appointed by HKIAC Proceedings Committee
- Recommendation from Panel to Proceedings Committee
- Determination of Proceedings Committee
- Reasons usually given
- No provision as to costs of determination
- No automatic provisions as to timetable in the arbitration
- Protection
C. Avoiding Entitlements to Challenge
HKIAC Administered Rules 2024
13.8 After the arbitral tribunal is constituted, any proposed change or addition by a party to its legal representatives shall be communicated promptly to all other parties, the arbitral tribunal and HKIAC.
13.9 The arbitral tribunal may, after consulting with the parties, take any measure necessary to avoid a conflict of interest arising from a change in party representation, including by excluding the proposed new party representatives from participating in the arbitral proceedings.”
D. Timeline to Challenge Arbitrators
s. 26 AO and Art 13(2) & (3) Model Law
A challenged arbitrator may continue with the arbitral proceedings and make an award notwithstanding a pending challenge.
- Avoids delay (especially if challenged frivolous).
- “May” gives the challenged arbitrator discretion.
However:
- The Court may not enforce an award made by a challenged arbitrator when a request for the Court to decide on the challenge is pending
- The Court may set aside an award if it upholds the challenge
Timing: What about awards / orders given before the challenge was made?
E. The Respondent to the Challenge
1. Gong Benhai v HKIAC [2015] 2 HKLRD 537
Three-arbitrator Tribunal ordered only partial disclosure of certain documents – Plaintiff brought challenge against two arbitrators on the grounds they were not impartial and unfair, incompetent or unqualified.
HKIAC dismissed challenge (HKIAC Challenge Rules applied)
Plaintiff then applied to court naming the HKIAC as sole defendant to set aside HKIAC decision.
HKIAC applied for striking out claim which was granted by the court:
- The court should interfere in the arbitration of a dispute only as expressly provided for in the Arbitration Ordinance (Cap. 609) (the “Ordinance”) and the Model Law.
- Art. 12 of the Model Law specified the only grounds for a challenge to an arbitrator, namely there were justifiable doubts as to the arbitrator’s impartiality or independence, or he lacked any of the qualifications agreed to by the parties. Errors of fact or law were not a ground of challenge. There was no evidence of any justifiable doubt as stipulated in Art. 12 or any error in the Partial Disclosure Decision.
- Section 105 of the Ordinance, any person who appointed an arbitral tribunal or performed any administrative function connected to such proceedings was liable in law only if it was proved that his act or omission was dishonest. There was no basis to suggest that HKIAC was acting dishonestly in its determination of the Challenge.
The HKIAC was not the proper defendant to the Court Proceeding. The proper defendant should have been respondent in the arbitration.
The court also confirmed that pursuant to Art. 13(3) of the Model Law, an arbitration should continue pending a Court’s decision on a challenge to an arbitrator – there is no reason to stay proceedings.
2. Haliburton v Chubb
1 | 💡 What gives rise to justifiable doubts? |
Test for apparent bias:
…whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.
1 | 💡 What’s a fair minded observer to do? |
Takes a balanced approach to any information given
Understand the context specific to arbitration
- Not easy to appeal arbitration awards
- Arbitrators like multiple appointments
- Involvement in other arbitrations is confidential and not public
- Arbitrators come from many jurisdictions and professions
- Parties may expect some favour from their nominated arbitrator
Consider the personal and professional reputation of the arbitrator
1 | 💡 What’s a fair minded arbitrator to disclose? |
- An arbitrator is under a duty to disclose facts and circumstances which would or might reasonably give rise to the appearance of bias
- The legal duty is aligned with the IBA Guidelines on Conflict of Interest in Arbitration
- The extent of the duty depends upon the customs and practice of the type of arbitration
- The IBA Guidelines “assist the court in identifying what is an unacceptable conflict of interest and what matters may require disclosure”
- Failure to disclose might show “a lack of regard to the interests of the non-common party”
Non-disclosure cannot by itself make an arbitrator partial or lacking independence; only the facts or circumstances that he or she failed to disclose can do so. (IBA Rules, part II, para. 5).
F. Practicality of Arbitrator Challenges
Institution | Number of Challenges (2023) | Number of Arbitrations (2023) |
|---|---|---|
SCC | 6 | 175 |
LCIA | 5 | 377 |
SIAC | 5 | 663 |
HKIAC | 5 | 281 |
CIETAC | 35 | 5,237 |
Total | 56 | 6,733 |
This suggests about 0.8% of institutional arbitrations/year see an arbitrator challenge.
II. Objections to the Tribunal’s Jurisdiction
A. Challenges to Jurisdiction
Jurisdiction depends on the agreement of the parties
- The arbitration can be easily ended if there is no jurisdiction
- As means of defence or delaying tactics, one party may try to argue:
- The agreement to arbitrate is not applicable / void
- The tribunal was not constituted correctly
- The dispute falls outside the scope of the arbitration agreement and the tribunal’s jurisdiction
Parties should ensure that they invoke the correct arbitration agreement(s) when commencing an arbitration
See e.g.AAA, BBB, CCC v DDD [2024] HKCFI 513
B. Prima Facie Assessment of Jurisdiction
HKIAC AAR: Arts 19.3, 19.4 and 19.5
HKIAC AAR Art 19.5
The arbitration shall proceed only if and to the extent that HKIAC is satisfied, prima facie, that an arbitration agreement under the Rules may exist or the arbitration has been properly commenced under Article 29.
Any question as to the jurisdiction of the arbitral tribunal shall be decided by the arbitral tribunal once constituted, pursuant to Article 19.1.
See also: 2021 ICC Rules Art 6(3) or 2016 SIAC Rules Art 28.1
C. Raising a Jurisdictional Challenge
1. Role of the Tribunal
UNCITRAL Model Law Art 16
The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
2. Jurisdiction vs Admissibility
Example case: T v B [2021] HKCFI 3645
- On a conceptual level, the distinction between what would normally be considered a jurisdictional challenge and the prematurity issue is intuitive. A typical jurisdictional challenge concerns the existence, scope and validity of an arbitration agreement. The answer to such a challenge is a binary one; the tribunal either has jurisdiction or has no jurisdiction. The lack of jurisdiction is permanent, and parties cannot cure the defects by entering into an arbitration clause ex post facto or to rewrite the clause to bring the dispute within its ambit.
- In comparison, an allegation that the institution of arbitration is premature does not entail a permanent bar to arbitration. The bar is a temporary one. The bar could be removed once the parties have complied with the contractually agreed pre- arbitration requirements. An attempt to enforce pre-arbitration procedures is a positive affirmation of the existence of a valid arbitration agreement, instead of the denial of the agreement. This puts a prematurity objection at the opposite side of a conventional jurisdictional challenge.
3. Timing
Deadline for raising the Jurisdictional Point
- Full substantive defence (see e.g. Article 19.3 of the 2018 HKIAC Arbitration Rules, Article 28.3 of the 2016 SIAC Arbitration Rules, and Article 23.3 of the LCIA Arbitration Rules 2020)
- Terms of Reference: Article 23(4) of the 2021 ICC Rules
Exceptions:
- Due Process (new evidence emerges)
- Improper Notice (non-participating party)
4. Procedure
Directions on Handling Jurisdictional Challenges:
- Whether it will be treated as a preliminary issue or dealt with at the merits stage
- Process of determining the challenge (written submissions, interim partial award, etc.)
If preliminary, then:
- Written submissions to the Arbitral Tribunal
- Hearing / documents only following submissions
- Interim / Partial Award issued on jurisdiction if proceeding is bifurcated
5. Preliminary Decision - Appeals
If Arbitral Tribunal finds it has jurisdiction
- proceed with arbitration to merits stage
- appeal decision
If an appeal (AO s. 34(1)(3)):
- The matter may be referred to the court within 30 days after having received notice of the Arbitral Tribunal’s decision.
- The decision of the Court cannot be further appealed.
- Tribunals can proceed while court proceedings are pending.
6. No Preliminary Decision
The decision on jurisdiction would be in a Final Award.
Need to apply to the Courts for setting aside or refusing enforcement of the award
Not always possible to “challenge” a negative jurisdictional decision in your setting aside or challenge to enforcement application
D. Practicalities of Jurisdictional Challenges
Need to consider:
- Merits of jurisdictional challenge
- Likely approach of the arbitrators to the challenge
- Cost and delay of the procedure used – especially if separate challenge
- Willingness of client to challenge jurisdiction on appeal / setting aside / enforcement
- Will clients spend time arguing the same point in different forums?
- In Appellate Courts? Inconsistent outcomes?
- National laws approach jurisdictional issues:
e.g. Qatari law views all jurisdictional challenges (if successful) as permanently removing the Tribunal’s jurisdiction – i.e. claim can never be resubmitted to arbitration
III. Restrictions on Challenges
A. Waiver
May waive by failing to raise objections during the arbitration
s11 AO / Art 4 Model Law
A party who knows that any provision of this Law from which the parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time-limit is provided therefor, within such period of time, shall be deemed to have waived his right to object.
Non-compliance; actual knowledge; continued participation in the proceedings; and no objection was raised within a given time or with due diligence
Gao Hai Yan - Not allowed to keep the point up one’s sleeve for later use
B. Res judicata or issue estoppel
Not allowed to re-litigate or re-arbitrate the same cause of action or issue between the same parties which has already been finally and conclusively determined by a court or tribunal of competent jurisdiction
Yukos Capital S.A.R.L v OJSC Rosneft Oil Company , CA England, 2012➡️Different standards of public policy between The Netherlands and England
C. Additional Challenges
Question of Law
AO Schedule 2, s 5 & 6
Appeal can be made to Court in respect of a question of law
Matters because: “The construction or interpretation of contract is traditionally classified as a point of law. As Lord Diplock pointed out in Pioneer Shipping Ltd v. BTP Tioxide Ltd. (The Nema) [1982] AC 724 at page 736, this classification is too well entrenched to be disturbed.” [Cheung JA in Chun Wo & Ors v Housing Authority]
Leave is required under AO Sch 2 s.6. Leave is given where inter alia:
- The decision of the arbitral tribunal on the question is obviously wrong; or
- The question is one of general importance and the decision of the arbitral tribunal is at least open to serious doubt.
If leave is given, the Court will decide under AO Sch 2 s. 5 the point of law again. If wrongly decided by Tribunal, it will remit the award to the Tribunal.
Serious Irregularity
AO Schedule 2, s. 4
(2) Serious irregularity means an irregularity of one or more of the following kinds which the Court considers has caused or will cause substantial injustice to the applicant-
(a) failure by the arbitral tribunal to comply with section 46;
(b) the arbitral tribunal exceeding its powers (otherwise than by exceeding its jurisdiction);
(c) failure by the arbitral tribunal to conduct the arbitral proceedings in accordance with the procedure agreed by the parties;
(d) failure by the arbitral tribunal to deal with all the issues that were put to it;
(e) any arbitral or other institution or person vested by the parties with powers in relation to the arbitral proceedings or the award exceeding its powers;
(f) failure by the arbitral tribunal to give, under section 69, an interpretation of the award the effect of which is uncertain or ambiguous;
(g) the award being obtained by fraud, or the award or the way in which it was procured being contrary to public policy;
(h) failure to comply with the requirements as to the form of the award; or
(i) any irregularity in the conduct of arbitral proceedings, or in the award which is admitted by the arbitral tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the arbitral proceedings or the award.
Class 4 - Nuts and Bolts of Awards
I. Arbitrator’s Role
A. Introduction
1. What is an arbitrator’s main function?
Render decisions to resolve disputes between the parties
e.g. decisions on procedure, jurisdiction, interim applications and substance of the dispute
2. On what do arbitrators base their decisions?
- The relevant contracts
- Evidence presented by the parties during the course of the arbitration
- The law applicable to the merits and to the procedure
- The parties’ correspondence with the arbitral tribunal during the course of the arbitration
- Terms of Reference / Procedural Orders
- List(s) of Issues
B. Arbitrator’s Decisions
1. Statutory Requirements – Hong Kong
Section 46 AO
- Treat parties with equality
- To be independent, act impartially
- Give parties reasonable opportunity to present their cases and deal with opponent’s case
- Use appropriate procedures to provide a “fair means for resolving the dispute”
Section 64 AO (Article 28 of the Model Law)
- Decide the dispute “in accordance with such rules of law as are chosen by the parties”
- Failing any designation, law determined by the conflict of laws rules applicable
- No ex aequo et bono unless agreed by the parties
- In all cases,we shall decide in accordance with the terms of the contract, taking into account applicable usages of trade
2. Types of Decisions: Orders vs. Awards
Procedural orders should be distinguished from arbitral awards.
1 | 💡 How do they differ? |
- Procedural decisions do not require a majority vote
- Procedural orders deal with procedural and administrative considerations, interim applications for relief or directions
- Procedural orders are not subject to institutional review/approval under administered arbitration proceedings
- Procedural orders are not subject to the same formal and substantive requirements to which awards are subjected
For most part, procedural orders are not subject to be set aside, recognized or enforced.
Section 61 AO
order/decision, whether made in or outside Hong Kong, is enforceable in the same manner as an order or direction of the Court, but only with leave of the Court. If leave is granted, Court may enter judgment in terms of the order or direction.
II. Validity of Award / Formalities
A. What is an arbitral award?
Instrument recording a final and conclusive determination by arbitral tribunal as to the specific issues referred to it.
Binding on the parties and can be the subject of challenge or enforcement by the parties.
Res judicata between the parties.
It usually relates to substantive merits and issues of jurisdiction
Can include order/decisions such as interim measures or procedural directions.
B. Requirements
Section 65 AO (Article 29 Model Law)
- Unless otherwise agreed by the parties, decisions are by majority
Section 73 AO (Article 31 Model Law)
- Award in writing
- Signed by arbitrator or arbitrators
- State the reasons upon which it is based, unless parties have agreed that no reasons are to be given or the award is an award on agreed terms
- State the date and place of arbitration
- Signed copy to be delivered to the parties
Article V of the New York Convention
- Award must not deal with disputes outside the scope or terms of the arbitration agreement
- Award must conform to any procedural agreement of the parties or applicable laws
C. Contents
Contents of a standard award:
- The Parties, their legal representatives, and contact details
- The Tribunal, case management team, and contact details
- Arbitration clause, governing law, place and language of arbitration
- Factual background to the dispute
- Summary of the proceedings to date
- Requests for Relief
- Tribunal’s discussion/decisions
- Costs/interest
- Tribunal’s orders (dispositive section)
- Signature page
III. Types of Awards
Section 71 AO
Unless otherwise agreed by the parties, an arbitral tribunal may make more than one award at different times on different aspects of the matters to be determined.
A. Interim Award
This is a temporary award until the tribunal has given its final decision.
Decisions on issues that do not finally dispose of the claim(s).
This includes:
- making a provisional order for the payment of money or the disposition of property as between the parties;
- an order to make an interim payment on account of the costs of the arbitration;
- applications for interim measures
Article 23 HKIAC Rules (Interim Measures of Protection and Emergency Relief)
Section 35 of the Arbitration Ordinance gives effect to Article 17 of the UNCITRAL Model Law:
22B. Enforcement of emergency relief granted by emergency arbitrator
(1) Any emergency relief granted, whether in or outside Hong Kong, by an emergency arbitrator under the relevant arbitration rules is enforceable in the same manner as an order or direction of the Court that has the same effect, but only with the leave of the Court.
(2) The Court may not grant leave to enforce any emergency relief granted outside Hong Kong unless the party seeking to enforce it can demonstrate that it consists only of one or more temporary measures (including an injunction) by which the emergency arbitrator orders a party to do one or more of the following—
(a) maintain or restore the status quo pending the determination of the dispute concerned;
(b) take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself;
(c) provide a means of preserving assets out of which a subsequent award made by an arbitral tribunal may be satisfied;
(d) preserve evidence that may be relevant and material to resolving the dispute;
(e) give security in connection with anything to be done under paragraph (a), (b). (c)or (d):
(f) give security for the costs of arbitration.
(3) If leave is granted under subsection (1), the Court may enter judgment in terms of emergency relief.
(4) A decision of the Court to grant or refuse to grant leave under subsection(1) is not subject to appeal.
35.Article 17 of UNCITRAL Model Law (Power of arbitral tribunal to order interim measures)
(1) Article 17 of the UNCITRAL Model Law, the text of which is set out below, has effect–
“ Article 17. Power of arbitral tribumal to order interim measures
(1) Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, grant interim measures.
(2) An interim measure is any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of the dispute;
(b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself:
(c) Provide a means of preserving assets out of which a subsequent award may be satisfied: or
(d) Preserve evidence that may be relevant and material to the resolution of the dispute.”.
(2) An interim measure referred to in article 17 of the UNCITRAL Model Law, given effect to by subsection (1), is to be construed as including an injunction but not including an order under section 56.
(3) If an arbitral tribunal has granted an interim measure, the tribunal may, on the application of any party, make an award to the same effect as the interim measure.
B. Partial Award
Some elements of the parties’ claim have been determined but other issues remain and need to be resolved before the final award is made. Parties can continue arbitrating the remaining issues.
PRC:
- Decisions in preliminary/provisional proceedings (such as decisions by emergency arbitrators) are not enforceable because they are not considered as awards, which must be final and conclusive. However, to date this issue has not been tested before the SPC.
- Cf. Partial or interim awards that dispose of some (but not all) of the substantive issues in the arbitration are capable of recognition and enforcement.
C. Consent Award
Usually, the parties have reached a settlement and agreed terms which are then incorporated into an award which can be enforced. (similar to a Judgment by consent).
Decisions recording the parties’ agreement to end the arbitration without a decision from the arbitral tribunal.
Tribunal’s ruling that incorporates the settlement reached by the parties in arbitration
Recognised by many arbitration rules or arbitration laws
- S66(1) AO / Art 30 Model Law and s66(2) AO
- Art 37(2) HKIAC
- Art 45(5) CIETAC Rules, Art 49 PRC Arbitration Law
D. Draft Award
This is not binding on the parties until it has been confirmed by the tribunal.
ICC / SIAC procedure:
ICC Article 34
Before signing any award, the arbitral tribunal shall submit it in draft form to the Court. The Court may lay down modifications as to the form of the award and, without affecting the arbitral tribunal’s liberty of decision, may also draw its attention to points of substance. No award shall be rendered by the arbitral tribunal until it has been approved by the Court as to its form.
SIAC Article 32.3
The Registrar may, as soon as practicable, suggest modifications as to the form of the Award and, without affecting the Tribunal’s liberty to decide the dispute, draw the Tribunal’s attention to points of substance. No Award shall be made by the Tribunal until it has been approved by the Registrar as to its form.
E. “Default” Award
Decision where one party failed to participate in the proceedings.
To minimise challenges:
- opportunity should be given to each party to present its case and to reply to the arguments of the other
- set out applicable rules regarding non-participation (HKIAC Rules Article 26)
- keep documentary proof of communications with both parties (record of courier or registered mail delivery / attempted delivery)
- issue of jurisdiction should be examined and dealt with
- decision based on well-founded facts and law
F. Draft Award
This is not binding on the parties until it has been confirmed by the tribunal.
ICC / SIAC procedure
ICC Article 34
Before signing any award, the arbitral tribunal shall submit it in draft form to the Court. The Court may lay down modifications as to the form of the award and, without affecting the arbitral tribunal’s liberty of decision, may also draw its attention to points of substance. No award shall be rendered by the arbitral tribunal until it has been approved by the Court as to its form.
SIAC Article 32.3
The Registrar may, as soon as practicable, suggest modifications as to the form of the Award and, without affecting the Tribunal’s liberty to decide the dispute, draw the Tribunal’s attention to points of substance. No Award shall be made by the Tribunal until it has been approved by the Registrar as to its form.
G. Additional Award
Usually, once the final award is made, the tribunal has no further authority (functus officio).
Section 69 AO: within 30 days of the Award, parties can apply for:
- Correction of an award (computational, clerical, typographical or similar) (HKIAC Art. 38)
- Interpretation of a specific point or part of an award (HKIAC Art. 39)
- Additional award as to claims omitted from the award (HKIAC Art. 40)
IV. Timeframe for delivery of the Award
Unless otherwise agreed by the parties, the tribunal is not subject to a time limit for delivery of the award (in HK).
If the arbitration agreement imposes a time limit to render an award, Section 72 of the Arbitration Ordinance (Cap 609) provides that the court may extend that time limit, regardless of whether it has expired.
ICC Article 31
The time limit within which the arbitral tribunal must render its final award is six months. Such time limit shall start to run from the date of the last signature by the arbitral tribunal or by the parties of the Terms of Reference or, in the case of application of Article 23(3), the date of the notification to the arbitral tribunal by the Secretariat of the approval of the Terms of Reference by the Court. The Court may fix a different time limit based upon the procedural timetable established pursuant to Article 24(2).
HKIAC Articles 31.1 and 31.2
When it is satisfied that the parties have had a reasonable opportunity to present their case, whether in relation to the entire proceedings or a discrete phase of the proceedings, and no later than 45 days from the last directed substantive oral or written submissions in respect of the entire proceedings or the discrete phase of the proceedings (excluding submissions on costs under Article 34), the arbitral tribunal shall declare the proceedings or the relevant phase of the proceedings closed.
Once the proceedings are declared closed, the arbitral tribunal shall inform HKIAC and the parties of the anticipated date by which an award will be communicated to the parties. The date of rendering the award shall be no later than three months from the date when the arbitral tribunal declares the entire proceedings or the relevant phase of the proceedings closed, as applicable. This time limit may be extended by agreement of the parties or, in appropriate circumstances, by HKIAC.
V. Remedies
A. Interim measures
Tribunals generally have a wide discretion in determining the appropriate measures.
The various types of interim measures can be categorised as follows:
- Orders preserving the status quo
- Orders requiring specific performance
- Orders requiring security for underlying claims
- Orders requiring security for legal costs
- Orders for preservation or inspection of property
- Enforcement of confidentiality obligations
- Orders for interim payment
- Anti-suit orders - order issued by the arbitral tribunal that prevents an opposing party from commencing or continuing a proceeding in another jurisdiction or forum
B. Relief Granted in Award
International arbitrators are bound by the prayers for relief set forth by the parties.
What are the remedies an award can order?
- Monetary compensation;
- Damages
- Punitive: exceeding simple compensation and awarded to punish the Respondent;
- Compensatory/Actual: compensation to injured party for loss/injury;
- Liquidated: contractual
- Specific performance and restitution [recompense for injury or loss];
- Injunctions;
- Declaratory relief;
- Rectification (offering an improvement to replace a mistake);
- Adaptation of contracts and filling gaps;
- Interest;
- Costs.
C. Is all relief granted in an arbitration proceeding recognisable and enforceable?
Laws to consider
- Substantive law governing the dispute
- Power of the arbitrator to grant the remedy under the arbitration agreement, arbitration rules and/or applicable arbitration law
- The law of the place of enforcing courts
S70 AO
- Arbitral tribunal may award any remedy or relief that could have been ordered by Hong Kong court, and
- unless otherwise agreed by the parties, it has the same power as the court to order specific performance of any contract, other than a contract relating to land or any interest in land
Differences between different legal systems mean remedy or relief obtainable in one jurisdiction may be unenforceable in the other
D. Decision Making Process
Should the award contain reasoning?
Article 32(1) of the ICC Rules
It is nearly a universal principle that arbitral awards should state:
- The reasons for the tribunal’s decision
- The relief ordered by the tribunal [dispositive section]
Article 32(1) of the ICC Rules states that “The award shall state the reasons upon which it is based”
HKIAC Rules – “35.4 An award shall state the reasons upon which it is based unless the parties have agreed that no reasons are to be given.”
Repercussions –the challenge of award / award set aside (A v. B and Others [2024] HKCFI 751)
Unanimity or Majority or Neither?
HKIAC Rules: Art 33
33.1 When there is more than one arbitrator, any award or other decision of the arbitral tribunal shall be made by a majority of the arbitrators. If there is no majority, the award shall be made by the presiding arbitrator alone.
ICC Rules
Under Article 32(1) : Making of the Award
When the arbitral tribunal is composed of more than one arbitrator, an award is made by a majority decision. If there is no majority, the award shall be made by the president of the arbitral tribunal alone.
Most arbitration laws provide that the parties can agree otherwise.
What happens when the majority cannot be reached?
Dissenting opinions
- Most arbitration legislation is silent on the subject of dissenting opinions. But in some countries, such as the UAE, dissenting opinions must be attached to the final award for it to be valid.
Truncated tribunals
ICC Rules Article 15(4)
When an arbitrator is to be replaced, the Court has discretion to decide whether or not to follow the original nominating process. Once reconstituted, and after having invited the parties to comment, the arbitral tribunal shall determine if and to what extent prior proceedings shall be repeated before the reconstituted arbitral tribunal.
How, where should arbitrators deliberate?
Article 18(3) of the ICC Rules: “The arbitral tribunal may deliberate at any location it considers appropriate.”
Failure to participate in the deliberations can in some cases lead to removal of an arbitrator.
How long may the arbitral tribunal deliberate?
Article 31.1 of the ICC Rules – Time Limit for Rendering Final Awards (6 months from TOR)
Article 31.2 of the HKIAC Rules – Time Limit for Rendering Final Award (3 months from closing of proceedings)
E. Is all relief granted in an arbitration proceeding recognisable and enforceable?
Specific performance as awarded became impossible performance.
Xiamen Xinjingdi Group Co Ltd v Eton Properties Ltd and others, [2020] HKCFA 32 Award directing Eton Group to transfer certain shares in a company to Applicant
- Transfer became impossible at the time of the award following group restructuring
- Applicant enforced the award in HK seeking damages in lieu of specific performance
CFA:
- There is a distinction between the statutory procedure for enforcement under section 2GG of the old Arbitration Ordinance (which is substantially the same as section 84 of the current Arbitration Ordinance (Cap. 609)) and a common law action on an award.
- The statutory enforcement procedure is mechanistic in the sense that the enforcing court cannot go beyond the terms of the award.
- In contrast, in a common law action, the court has power to grant any relief it considers appropriate.
VI. Fianlity
A. Appeals Mechanism?
Section 73 of the Arbitration Ordinance (Cap 609)
- Effect of award
(1)Unless otherwise agreed by the parties, an award made by an arbitral tribunal pursuant to an arbitration agreement is final and binding both on—
(a)the parties; and
(b)any person claiming through or under any of the parties. (2)
Subsection (1) does not affect the right of a person to challenge the award-
(a)as provided for in section 26 or 81, section 4 or 5 of Schedule 2, or any other provision of this Ordinance; or (b)otherwise by any available arbitral process of appeal or review.
Article 35.2 of the HKIAC Rules and Article 35.6 of the ICC Rules
- HKIAC: Awards shall be made in writing and shall be final and binding on the parties and any person claiming through or under any of the parties.
- ICC: Every award shall be binding on the parties.
Section 81 of the AO, Article 34 of UNCITRAL Model Law(Application for setting aside as exclusive recourse against arbitral award)
(1) Recourse to a court against an arbitral award may be made only by an application for setting in accordance with paragraphs (2) and (3) of this article.
(3) An arbitral award may be set aside by the court…only if:
(a) the party making the application furnishes proof that:
(b) the court finds that:
Hong Kong → express opt-in to Schedule 2 by Parties (2011 Hong Kong AO):
- Section 4 of Sch 2 (Challenging arbitral award on ground of serious irregularity)
- Section 4 of Sch 2 (Appeal against arbitral award on question of law)
Singapore: not allowed
- 2019, Ministry of Law considered amendment to the International Arbitration Act to allow for appeals on errors of law on an ‘opt-in’ basis similar to Hong Kong.
- Not included in 2020 revised IAA.
Section 69 of the UK Arbitration Act 1996 provides parties to an arbitration seated in England & Wales with an opportunity to appeal against an award on a point of law.
- No need to opt-in
Arbitral Institutions - Internal appellate procedures
- CPR, JAMS, AAA → US based
- SCA, ECA → European based
B. Correction/Clarification of award?
Section 69 of the Arbitration Ordinance (Cap 609) (Article 11 of UNCITRAL Model Law):
Article 33. Correction and interpretation of award; additional award
(1) Within thirty days of receipt of the award, unless another period of time has been agreed upon by the parties:
(a) a party, with notice to the other party, may request the arbitral tribunal to correct in the award any errors in computation, any clerical or typographical errors or any errors of similar nature;
(b) if so agreed by the parties, a party, with notice to the other party, may request the arbitral tribunal to give an interpretation of a specific point or part of the award.
If the arbitral tribunal considers the request to be justified, it shall make the correction or give the interpretation within thirty days of receipt of the request. The interpretation shall form part of the award.
(2) The arbitral tribunal may correct any error of the type referred to in paragraph (1)(a) of this article on its own initiative within thirty days of the date of the award.
(3) Unless otherwise agreed by the parties, a party, with notice to the other party, may request, within thirty days of receipt of the award, the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award. If the arbitral tribunal considers the request to be justified, it shall make the additional award within sixty days.
HKIAC Rules Articles 38, 39, 40 and ICC Rules Article 36 (correction of award, interpretation of award, additional awards)
Section 69 of the Arbitration Ordinance (Cap 609) (Article 11 of UNCITRAL Model Law)
Article 33. Correction and interpretation of award; additional award
(1)Within thirty days of receipt of the award, unless another period of time has been agreed upon by the parties:
(a)a party, with notice to the other party, may request the arbitral tribunal to correct in the award any errors in computation, any clerical or typographical errors or any errors of similar nature;
(b)if so agreed by the parties, a party, with notice to the other party, may request the arbitral tribunal to give an interpretation of a specific point or part of the award.
If the arbitral tribunal considers the request to be justified, it shall make the correction or give the interpretation within thirty days of receipt of the request. The interpretation shall form part of the award.
(2)The arbitral tribunal may correct any error of the type referred to in paragraph (1)(a) of this article on its own initiative within thirty days of the date of the award.
(3)Unless otherwise agreed by the parties, a party, with notice to the other party, may request, within thirty days of receipt of the award, the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award. If the arbitral tribunal considers the request to be justified, it shall make the additional award within sixty days.
HKIAC Rules Articles 38, 39, 40 and ICC Rules Article 36
Class 5 - Preliminary Meeting
I. Purpose of the Preliminary Meeting
Arbitration Ordinance (Cap 609)
Section 47: Article 19 of UNCITRAL Model Law (Determination of rules of procedure)
(1) Subject to the provisions of this Law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.
(2) If or to the extent that there is no such agreement of the parties, the arbitral tribunal may, subject to the provisions of this Ordinance, conduct the arbitration in the manner that it considers appropriate.
A. Upholding Equality, Fairness & Efficiency in Arbitration
Underlying principles:
- Equal treatment of parties
- Fair and efficient process, avoid unnecessary delay and expense
Arbitration Ordinance, Section 46: Article 18 of UNCITRAL Model Law (Equal treatment of parties)
(2) The parties must be treated with equality
(3) When conducting arbitral proceedings… the arbitral tribunal is required-
(a) to be independent;
(b) to act fairly and impartially as between the parties, giving them a reasonable opportunity to present their cases and to deal with the cases of their opponents; and
(c) to use procedures that are appropriate to the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for resolving the dispute to which the arbitral proceedings relate.
See also:
- Article 13 of the 2018 HKIAC Rules
- Articles 22 and 24 of the 2021 ICC Rules and ICC Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration (January 2021)
- Article 17 of the UNCITRAL Arbitration Rules
B. Establishing a Clear Roadmap
Parties need a road-map to resolve the dispute.
The road-map should be:
- Understood by the Parties (and stakeholders)
- Focused on the ultimate objective of the Parties
- Strategic and effective
- Time and cost efficient
Capture agreed common procedural ground between Parties Tribunal needs to resolve disagreements.
Decisions need to be discussed and captured for all Parties.
C. Practicalities
- Needs to be done shortly after tribunal constituted
- Parties can engage directly to agree issues reduce costs draft a PO1
- Tribunals usually request short submissions to get input for common disputed issues
- In-person hearing often dispensed with to save costs Frequently conducted by telephone or video conference Agreed procedure and steps agreed usually set out in Procedural Order No. 1
D. Practical Problems
- Requires the parties and tribunal at outset to have a vision of what a fair and effective process looks like for them
- The tribunal may not know enough about the dispute to have a strong view on effective conduct of the proceedings.
- Preliminary documents in arbitration (e.g. NoA/RFA, Answer) may not capture all claims/arguments. Claims, counterclaims and challenges may be raised at later stages
- Requirement for summary of claims in the Terms of Reference in ICC cases and limited ability to introduce new claims (Art. 23 of the ICC Rules) Tribunal may not appreciate cultural preferences, individual preferences, personalities and style at an early stage
- The parties and tribunal may be focused on creating a ‘positive’first impression
II. Agenda for the Preliminary Meeting
A. Arbitration Agreement
- Existence of a valid arbitration agreement?
- Important points may have to be agreed (or argued) at the preliminary hearing:
- Place of the arbitration (seat of the arbitration place for the hearing)
- Language of arbitration
- Arbitration Rules to be applied
- Governing Law
B. Jurisdiction of the Tribunal
Legal Position:
- Tribunal competent to determine its own jurisdiction “kompetenz- kompetenz”(AO Art 34(1))
- Objection to be raised before the Statement of Defence (AO 34(2)
- Can either be a preliminary issue or addressed with the merits (AO Art 34(3)
Practicalities: Bifurcation?
- Submissions on bifurcation: written, oral, or both?
- Consequences of Tribunal decision on bifurcation
C. Interim Measures
- Statutory basis – AO Art. 35
Any temporary measure .. by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to:
- Maintain or restore the status quo
- Take action that would prevent, or refrain from taking any action that is likely to cause, harm or prejudice to the arbitral process itself
- Provide a means of preserving assets out of which a subsequent award may be satisfied
- Preserve evidence
Determine the timing and method for resolving interim measure application
D. Arbitrator’s Terms of Appointment
May vary due to applicable law, terms of the arbitration agreement Generally unnecessary for institutional matters- see e.g. Schedules 2 and 3 of HKIAC Rules
Contents:
- Basic details of the disputed Procedural rules (if not agreed)
- Remuneration deposits expenses cancellation (joint and several liability)
- Conflicts of interest -Immunity from suit
- Governing law and dispute resolution clause
E. Mode of Service
Essential to set out contact details of parties counsel and method of communication
- Non-participating parties
- Process for updating contact details Method of service for submissions -Secure file transfer sites
- USB/ hard copy
- Case management platforms
Method of labelling correspondence/exhibits/statements, etc.
F. Arbitral Rules
Usually set out in the arbitration agreement
When not agreed may be beneficial to agree to a set of rules
- Administered Institutional
- Ad Hoc (i.e. UNCITRAL)
Benefits of Administered
- Comprehensive rules for proceeding
- Administration of financial aspect and deposits, challenge procedure
- Scrutiny of decisions/orders/awards (varies by institution)
Benefits of Ad Hoc
- Full flexibility to agree on the procedure
- Cost savings (questionable)
G. Written Submissions
The tribunal has to decide the form and timeline of written submissions.
- Memorial-style: Full statement of case, including all evidence and arguments of fact and law, including all supporting documents, accompanied by all witness statements and expert reports to be relied upon
- Pleadings-style: brief statements of material essential factual basis for claim defence, subsequent exchange of documentary evidence, witness statements and expert reports.
Set out firm deadlines at preliminary hearing to avoid delay and uncertainty.
Practicalities
- Electronic or paper submissions? Both?
- Restrictions like font size, type, page count, formatting, paper size, paragraph numbering etc
- Adherence to pledges e.g. Green Pledge and Campaign for Greener Arbitrations
H. Document Discovery
One of the areas where arbitration has a unique consensus that fuses civil and common law approaches.
Gold standard: IBA Rules on the Taking of Evidence in International Arbitration (Art 3)
Anticipated process and reality:
- Discovery requests using Redfern Schedules
- Timetable for submission, response, reply, determination by Tribunal
- Review, reformulating requests, redaction, partial production, half-hearted compliance and adverse inferences
I. Witness Evidence
PO1 may set out mandatory content for statements
- Identity, role, relationship to party and dispute
- Description of education and qualifications
- Affirmation of truth of the statement
- Statements of fact and basis for knowledge belief
- Supporting documentary evidence
Timing of statements
- Memorial Style (together with pleadings)
- Pleadings Style (after pleadings discovery but before experts)
To stand as evidence in chief? To be available for cross-examination?
To be in the hearing room before giving evidence? Costs of witness?
J. Expert Evidence
Identify expert disciplines and issues- ensure evidence is given in like disciplines on like issues.
Party appointed vs Tribunal appointed experts?
Experts to provide
- statement of instructions
- statement of independence
Experts to have meetings and produce joint statements
See: Chartered Institute of Arbitrators Protocol for the Use of Party-Appointed Expert Witnesses in International Arbitration
K. The Hearing
Is an evidential hearing required? Physical or Virtual?
Timetable for hearing, ideally fixing hearing dates, venue and other logistical issues (transcription, translation, hearing bundles, room bookings etc)
Method of allocating time at the hearing (chess clock)
Pre-hearing and post-hearing submissions?
Should evidence on liability and quantum be dealt with separately?
Technical dispute (e.g. energy or infrastructure) often involve complex issues on liability (e.g. was construction defective due to R’s actions?) and qulantum (e.g. how to quantify losses suffered from the defect).
In theory, if Respondent succeeds in liability, then costs of evidence on quantum are wasted. Accordingly, costs could be saved by first deciding liability arises before dealing with quantum.
In practice, Parties Tribunal availability and time to reach an Award on liability can far outweigh cost and time saving of bifurcation.
Class 6 - Challenges to Awards and Public Policy Considerations
I. Public Policy – A Ground to Annul or Refuse Enforcement
A. Ground for Annulment
UNCITRAL Model Law
Article 34(2)(b)(ii) of the Model Law
“An arbitral award may be set aside by the court… only if:
(b) the court finds that:
…
(ii) the award is in conflict with the public policy of this State.”Hong Kong Arbitration Ordinance, Section 81
Incorporates Model Law, Article 34(2)(b)(ii)Modelled on Article V(2)(b) of the NY Convention, but doesn’t, however, define “public policy”
Other national arbitration regimes
PRC Arbitration Law, Section 58
人民法院认定该裁决违背社会公共利益的，应当裁定撤销。（If People’s Court determines that the award is against public policy, such award shall be set aside.）
Most national courts have annulled international awards on the basis of public policy only in limited, exceptional circumstances. In most jurisdictions, the public policy doctrine is not a basis for reviewing the substance of the arbitrators’ award in an annulment action, and has generally been invoked only in cases of clear violations of fundamental, mandatory legal rules, not in cases of judicial disagreement with a tribunal’s substantive decisions or procedural rulings.
e.g. French law standard – “such violation having to affect in a manifest manner an essential rule of law or a principle of fundamental importance.”
B. Refuse Enforcement
1. Article V, New York Convention
Article V
- Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.- Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.
2. General Principles
Paralleling the NY Convention, national arbitration legislation uniformly permits the non-recognition of awards because they violate public policy.
One of the most frequently invoked bases for refusing to recognise an award is the public policy exception.
Article 36(1) of the Model Law
Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only:
(b) if the court finds that:
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or
(ii) the recognition or enforcement of the award would be contrary to the public policy of this State.
Hong Kong AO Section 89
(3) Enforcement of a Convention award may also be refused if –
(b) it would be contrary to public policy to enforce the award.
3. NZ Standards & Divergent Approaches under NYC
New Zealand Arbitration Act: “For the avoidance of doubt” and “without limiting the generality” of Articles 34 and 36 (of the Model Law), an award is contrary to the public policy of New Zealand if:
(a) the making of the award was induced or affected by fraud or corruption; or
(b) a breach of the rules of natural justice occurred –
(i) during the arbitral proceedings; or
(ii) in connection with the making of the award.
There is little doubt that the “public policy” which may be invoked to resist recognition under Art. V(2) of the NY Convention and Art. 36(1)(b) of the ML is “national” public policy.
This is explicit from the texts which refer to the public policy “of that country/State” (i.e. the judicial enforcement forum).
This is consistent with the overwhelming weight of authority which applies the public policies of the judicial enforcement forum in recognition proceedings.
Public policy is essentially national (i.e. it is considered in the national legal system of the forum).
New York Convention, Article V and National Laws
“Recognition and enforcement of an award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:…”Differing approach of jurisdictions:
- Germany: “may” has been interpreted as “shall”
- England: discretion retained
“Pro-enforcement bias” of New York Convention:
c.f. 1927 Geneva Convention, Article 1 (e): “That the recognition or enforcement of the award is not contrary to the public policy or to the principles of the law of the country in which it is sought to be relied upon.”
II. How is Public Policy Defined?
A. Restrictive Approach
Despite the potentially expansive character of public policy, courts in most jurisdictions are very reluctant to invoke the public policy exception.
Courts have underscored the narrow, exceptional character of the public policy defence in recognition proceedings.
Courts would uphold a public policy ground to refuse recognition and enforcement of an award only when the most fundamental and core values of a legal system have been deviated from.
1. United States
Parsons & Whittemore Overseas Co. v. Societe General de l’Industrie du Papier (RAKTA), 508 F2d 969, 977 (2d Cir 1974).
Perhaps more probative, however, are the inferences to be drawn from the history of the Convention as a whole. The general pro-enforcement bias informing the Convention and explaining its supersession of the Geneva Convention points toward a narrow reading of the public policy defense. An expensive construction of this defense would vitiate the Convention’s basic effort to remove preexisting obstacles to enforcement.
We conclude, therefore, that the Convention’s public policy defense should be construed narrowly. Enforcement of foreign arbitral awards may be denied on this basis only where enforcement would violate the forum state’s most basic notions of morality and justice.
Cf. 1 RESTATEMENT (SECOND) OF THE CONFLICT OF LAWS S 117, comment c, at 340 (1971); Loucks v. Standard Oil Co., 224 N.Y. 99， 111 (1918).
2. England
Deutsche Schachtbau-und Tiefbohrgesellschaft m.b.H. v. Shell International Petroleum Co. Ltd., Court of Appeal, England and Wales, 24 March 1987, [1990] 1 A.C. 295
[e]ncompasses cases where “the enforcement of the award would be clearly injurious to the public good or, possibly, enforcement would be wholly offensive to the ordinary reasonable and fully informed member of the public on whose behalf the powers of the state are exercised”; [c]onsiderations of public policy can never be exhaustively defined, but they should be approached with extreme caution.
3. Switzerland
X S.p.A. v. Y S.r.l., Federal Tribunal, Switzerland, 8 March 2006, Arrêts du Tribunal Fédéral (2006) 132 III 389
An arbitral award contravenes public policy “if it disregards essential and widely recognized values which, according to the conceptions prevailing in Switzerland, should form the basis of any legal order”.
4. Australia
Traxys Europe S.A. v. Balaji Coke Industry Pvt Ltd., Federal Court, Australia, 23 March 2012, [2012] FCA 276
It is only those aspects of public policy that go to the fundamental, core questions of morality and justice in [the] jurisdiction [where enforcement is sought] which enliven this particular statutory exception to enforcement.
5. Hong Kong
Hebei Import & Export Corp. v. Polytek Engineering Co. Ltd., Court of Final Appeal, Hong Kong, 9 February 1999, [1999] 2 HKC 205
In my judgment, the position is as follows. Before a Convention jurisdiction can, in keeping with its being a party to the Convention, refuse enforcement of a Convention award on public policy grounds, the award must be so fundamentally offensive to that jurisdiction’s notions of justice that, despite its being a party to the Convention, it cannot reasonably be expected to overlook the objection.
B. Public Policy ≠ National Policy
Parsons & Whittemore Overseas Co. v. Societe General de l’Industrie du Papier (RAKTA), 508 F2d 969, 977 (2d Cir 1974).
On public policy, Overseas argues that “various actions by United States officials subsequent to the severance of American-Egyptian relations-most particularly, AID’s withdrawal of financial support for the Overseas-RAKTA contract-required Overseas, as a loyal American citizen, to abandon the project. Enforcement of an award predicated on the feasibility of Overseas’ returning to work in defiance of these expressions of national policy would therefore allegedly contravene United States public policy”.
In equating “national” policy with United States “public” policy, the appellant quite plainly misses the mark.To read the public policy defense as a parochial device protective of national political interests would seriously undermine the Convention’s utility. This provision was not meant to enshrine the vagaries of international politics under the rubric of “public policy.” Rather, a circumscribed public policy doctrine was contemplated by the Convention’s framers and every indication is that the United States, in acceding to the Convention, meant to subscribe to this supranational emphasis. Cf. Scherk v. Alberto-Culver Co., U.S., 42 U.S.L.W. 4911, 4915-16 n. 15 (June 17, 1974).5
To deny enforcement of this award largely because of the United States falling out with Egypt in recent years would mean converting a defense intended to be of narrow scope into a major loophole in the Convention’s mechanism for enforcement. We have little hesitation, therefore, in disallowing Overseas proposed public policy defense.
The Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran, as Successor in Interest to the Ministry of War of the Government of Iran v. Cubic Defense Systems, Inc, Court of Appeals, Ninth Circuit, United States of America, 15 December 2011, 665 F.3d 1091.
Finally, as noted, the United States as amicus curiae supports affirmance of the district court’s confirmation of the ICC’s award. An expression of national policy is not necessarily dispositive of the public policy issue under the Convention. See Parsons Whittemore, 508 F.2d at 974 (“To read the public policy defense as a parochial device protective of national political interests would seriously undermine the Convention’s utility.”). Nonetheless, given Cubic’s invocation of our country’s fraught relationship with Iran as expressed through various trade sanctions, the government’s confirma- tion that the ICC’s award comports with the national and for- eign policy of the United States is entitled to great weight.
Mandatory Rules of Law: procedural or substantive rules of law that cannot be derogated from by way of contract.
Eco Swiss China Time Ltd v. Benetton International NV, [1999] ECR 1–3055
However, according to Article 3(g) of the EC Treaty (now, after amendment, Article 3(1)(g)EC), Article 85 of the Treaty constitutes a fundamental provision which is essential for the accomplishment of the tasks entrusted to the Community and, in particular, for the functioning of the internal market. The importance of such a provision led the framers of the Treaty to provide expressly, in Article 85(2) of the Treaty, that any agreements or decisions prohibited pursuant to that article are to be automatically void.
Mandataires judiciaires Associés, in the person of Mrs. X as liquidators of Jean Lion et Cie S.A. v. International Company for Commercial Exchanges, Court of Cassation, France, 6 May 2009, XXXV Y.B. COM. ARB. 353 (2010)
- The principle according to which individual actions brought by creditors against the estate of the bankrupt are stayed during bankruptcy to be part of public policy.
Oberlandesgericht [OLG] Karlsruhe, Germany, 9 Sch 02/09, 4 January 2012.
- The arbitration of insolvency disputes is not contrary to public policy.
ED & F Man (Hong Kong) Co., Ltd. v. China National Sugar & Wines Group Corp., Supreme People’s Court, China, 1 July 2003, [2003] Min Si Ta Zi No. 3.
- Refused recognition to an award in relation to offshore futures transactions, on the basis that it conflicted with the Chinese mandatory rules forbidding futures contracts.
Hebei Import & Export Corp v Polytek Engineering Co Ltd, Court of Final Appeal, Hong Kong, 9 February 1999, [1999] 2 HKC 205
Mr Justice Bokhary PJ: “In regard to the refusal of enforcement of Convention awards on public policy grounds, there are references in the cases and texts to what has been called “international public policy”. Does this mean some standard common to all civilized nations? Or does it mean those elements of a State’s own public policy which are so fundamental to its notions of justice that its courts feel obliged to apply the same not only to purely internal matters but even to matters with a foreign element by which other States are affected? I think that it should be taken to mean the latter. If it were the former, it would become so difficult of ascertainment that a court may well feel obliged as the Supreme Court of India did in Renusagar Power Co. Ltd v. General Electric Co. Yearbook Comm. Arb’n XX (1995) 681 at p.700 to abandon the search for it.
“In the present context, I think that a distinction can and should be made between the effect of actual bias and that of apparent bias. [……] Actual bias would be more than our courts could overlook even where the award concerned is a Convention award. But short of actual bias, I do not think that the Hong Kong courts would be justified in refusing enforcement of a Convention award on public policy grounds as soon as appearances fall short of what we insist upon in regard to impartiality where domestic cases or arbitrations are concerned. Our stance must be that something more serious even than that is required for refusing such enforcement. In adopting such a stance, we would be proceeding in conformity with the stance generally adopted in regard to Convention award enforcement by the commercial jurisdictions whose decisions from around the globe have been cited to us by leading counsel for the buyer.”
C. ILA Report on Public Policy (2002)
Final Report on Public Policy as a Bar to Enforcement of International Arbitral Awards made recommendations in relation to public policy as a ground for refusal to enforce.
Key recommendations:
- The finality of awards rendered in the context of international commercial arbitration should be respected save in exceptional circumstances.
- Such exceptional circumstances may in particular be found to exist if recognition or enforcement of the international arbitral award would be against international public policy.
In order to identify which rules are forming the public policy of any State, the ILA Recommendations provided three categories:
- Fundamental principles
- Public Policy Rules
- International Obligations
1. Fundamental principles
Category 1: Fundamental principles pertaining to justice or morality, that the state wishes to protect even when it is not directly concerned.
The court verifying the arbitral award conformity with fundamental principles should do so by reference to those (substantive and procedural) principles considered fundamental in its own legal system.
- Substantive principles: e.g., prohibition of abuse of rights
- Procedural principles: e.g., a requirement that the arbitral tribunal be impartial
No waiver
2. Public Policy Rules
Category 2: Public Policy Rules designed to serve the essential political, social or economic interests of the State, these being known as “lois de police” or “public policy rules”.
An example of a public policy rule is competition law (i.e. anti-trust law).
An award contrary to a rule of public policy is to be refused to enforcement if:
“(i) the scope of said rule is intended to encompass the situation under consideration; and
(ii) recognition or enforcement of the award would manifestly disrupt the essential political, social or economic interests protected by the rule.”
3. International Obligations
Category 3: Obligations – the duty of the State to respect its obligations towards other States or international organisations.
An example of an international obligation is a United Nations resolution imposing sanctions.
Some rules, such as those prohibiting corruption, fall into more than one category.
III. What Constitutes Public Policy?
A. Illegality
⚖️ RBRG Trading (UK) Limited v Sinocore International Co Ltd [2018] EWCA Civ 838 (quoting from Dicey, Morris and Collins Conflict of Laws)
- Principles to be drawn from English authorities:
- If the underlying contract is in itself contrary to public policy (e.g. a contract to share the proceeds of crime), the award may be refused enforcement on the grounds of public policy
- It is important to distinguish between domestic public policy in English law and considerations of international public policy applied by the English courts so as to disapply foreign law or refuse to enforce an arbitral award, as the case may be.
- The mere fact that the performance of the contract may be illegal in the place of performance, without more, will not render an award on the basis of such a contract unenforceable in England, where the contract is legal by its applicable law and by the lex arbitri
- If it is apparent on the face of the award that the contract was made with the intention of violating the law of a foreign friendly State, then the enforcement of an award rendered on the basis of such a contract may be contrary to English public policy.
- The court has to perform a balancing exercise between the finality that prima facie should exist particularly for those that agree to have their disputes arbitrated, against the policy of ensuring that the enforcement power of the English court is not abused
⚖️ Deutsche Schachtbau und Tiefbohrgesellschaft mbH v Ras Al Khaimah National Oil Co. [1987] 2 Lloyd’s Re. 246, 254
Considerations of public policy can never be exhaustively defined, but they should be approached with extreme caution… It has to be shown that there is some element of illegality or that the enforcement of the award would be clearly injurious to the public good or, possibly, that enforcement would be wholly offensive to the ordinary reasonably and fully informed member of the public on whose behalf the powers of the state are exercised.
⚖️ RBRG Trading (UK) Limited v Sinocore International Co Ltd
Issuance of forged bills of lading pursuant to a Sale Contract; Court held that the Sale Contract and its performance were not illegal under Chinese or English law, and that this was at most a case of ”attempted fraud”, as payment was not made under the forged bills and no benefit was obtained. Award was enforced.
⚖️ Honeywell International Middle East Ltd v Meydan Group LLC (formerly Meydan LLC) [2014] EWHC 1344 (TCC)
High Court refused the application of a party alleging bribery to set aside an order granting permission to enforce a Dubai International Arbitration Centre (DIAC) arbitration award.
⚖️ Soleimany v Soleimany [1999] QB 785
Contract for the purchase and illegal export of carpets from Iran. The Court of Appeal held that the award, which purported to enforce an illegal contract, was not enforceable in England and Wales.
⚖️ ED & F Man (sugar) Ltd v Haryanto (Indonesian Supreme Court)
Court held that the the agreement for the purchase of sugar was not valid under Indonesian law, as only the Government was authorized to import and export sugar. The agreement was therefore in violation of Indonesian law, and the award was refused enforcement on public policy grounds.
⚖️ Betamax Ltd v State Trading Corporation (Mauritius) [2021] UKPC 14
Judicial Committee of the Privy Council (the “Privy Council“) found that the Supreme Court of Mauritius was wrong to set aside an international arbitration award on the basis that the award was contrary to the public policy of Mauritius, in circumstances where the tribunal had found the underlying contract was not illegal and had the jurisdiction to do so.
⚖️ A v R (2009) 3 HKLRD 389
Allegations that something in the award renders it invalid should be referred to the court of the seat, it is not for the enforcing court to ”supervise” the supervising court.
⚖️ G v N [2023] HKCFI 3366
G initiated arbitration against N for restitution of monies paid in consideration for a share transfer. N contested the arbitration on the basis that the share transfer had been tainted by illegality due to a breach of BVI law.
Arbitrator issued partial award upholding the illegality defense, applying the test in Tinsley v Milligan, which was, at the time, the leading case on illegality defenses (i.e. that the party must not rely on illegal conduct in order to be granted relief).
Several days after issuance of award, Hong Kong Court of Appeal issued decision in Monat Investment Ltd v All Person(s) In Occupation of Part of The Remaining Portion of Lot No 591 in Mui Wo DD 4 No 16 Ma Po Tsuen, Mui Wo, Lantau Island [2023] HKCA 479 (“Monat”), changing the position on illegality from that in Tinsley v Milligan to that in Patel v Mirza (i.e., that the court needs to look at a range of factors before applying the illegality defense).
G applied to set aside the Partial Award on public policy grounds. Court determined that it could review the award and in light of the change in position in Hong Kong law, remanded the award back to the Tribunal for reconsideration.
B. Fraud/Corruption
⚖️ National Iranian Oil Company v Crescent Petroleum Company International Ltd & Crescent Gas Corporation Ltd [2016] EWHC 1900 (Comm)
- Respondent alleged that the “award or the way it was procured” was contrary to public policy.
- Without enquiring into the tribunal’s reasoning, the Court found that the tribunal had made a very careful analysis of the facts and concluded that the Contract was not an illegal contract, that it was not procured by corruption and that any misconduct was of no material consequence to the Contract subsequently entered into.
- The Court placed particular importance on the lack of any “fresh evidence which might have been some justification for refusing to enforce the award” and concluded, in the circumstances, it was not prepared to interfere with the tribunal’s award.
⚖️ Karaha Bodas Co. LLC v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (2009) 12 HKCFAR 84
- Court of Final Appeal held that “an award which has been obtained by fraud plainly comes within this category”. Applicant alleged, inter alia, fraud and lack of good faith due to recently discovered documents. Court was not satisfied that applicant had “established a prima facie case of fraud, bad faith or lack of good faith which had a reasonable prospect of success.”
C. Bias
⚖️ Gao Haiyan and Another v Keeneye Holdings Ltd and Another
CFI [2011] HKEC 514
Keeneye applied to set aside the court’s order enforcing the Award complaining that the Tribunal was biased in granting the Award since the Secretary General of the Arbitration Commission and one of the arbitrators in the Tribunal (the arbitrator nominated by Gao) had a dinner in the Xian Shangri-La Hotel with one of Keeneye’s representative three months before the Award was issued.
The Court focused on assessing whether the award was made in circumstances which would cause a fair-minded observer to apprehend a real possibility of bias on the part of the Tribunal
The Court also considered two competing public policy considerations at play in this case, namely (1) where the parties have opted for arbitration, they should be held to their choice and the resultant award should normally be enforced by the court and (2) it would be wrong to uphold an award tainted by an appearance of bias.
CACV 79/2011
- Arbitrators can act as mediators during the course of the arbitration (“arb-med“)
- Keeneye had failed to raise any objection to the “arb-med” procedure during the arbitration itself, and had therefore waived its right to do so in the enforcement proceedings
- The “arb-med” procedure adopted in this case did not disclose apprehended bias giving rise to an issue of public policy
⚖️ Paloma Co. Ltd. v. Capxon Electronic Industrial Co. Ltd. [2018] HKCFI 1147
- Court rejected a public policy challenge to an award rendered by a tribunal in Japan. The Respondent applied to set aside leave to enforce the Award, alleging that the tribunal’s conduct was biased.
- Court found that there was no evidence of bias on the part of the tribunal, nor any error or matter which would warrant setting aside the award. Court focused on basic concepts of morality, justice and public policy.
In order to refuse a Convention award on public policy or actual bias grounds, it must be so fundamentally offensive to the jurisdiction’s notions of morality and justice that it could not reasonably be overlooked.
D. Due Process
⚖️ Z v Y (2018) HKCFI 2342
it was unclear whether the tribunal had thoroughly considered the issues of illegality raised by the Respondent”, and the Court had “serious reservations as to the reasons given by the tribunal as to why the Respondent’s claims were dismissed.
In the case of R v F [2012] 5 HKLRD 278 the Hong Kong court set out the necessary scope of such reasoning. The Court found that the reasons given “need not be elaborate or lengthy, provided they could be understood in its proper context”.
The reasons may be short, so long as the factual and legal basis is explained and the reasoning is expressed to enable the parties to understand how, and why, a finding is made on a material issue, and how a conclusion is reached by the tribunal”.
The Court therefore set aside the Order under section 95(3)(b) of the AO.
As a procedural matter, an award should show sufficient reasoning.
The claims made by the respondent as to the sham transactions of supply of materials being loans in disguise are credible, and supported by the evidence of Mr Y from HD. The allegations of such unlawful loans creating false increments in the financial records of HD and MD all raise serious consequences of illegality and possible offences under PRC law. They should be thoroughly considered by the tribunal, and the dismissal of such claims should be adequately explained. The reasons may be short, so long as the factual and legal basis are explained and the reasoning is expressed to enable the parties to understand how, and why, a finding is made on a material issue, and how a conclusion is reached by the tribunal (R v F[2012] 5 HKLRD 278, [2012] HKCU 1912, applied in S Co v B Co 2014] 6 HKC 421, HCCT 12/2013, 24 July 2014). In the context of the issues raised in the Arbitration, I regret that the tribunal failed to give any adequate reason as to why it had concluded that the respondent’s claim of illegality of the underlying Debt had not been established by the respondent. and should be dismissed.
The Court therefore set aside the Order under section 95(3)(b) of the AO.
The important issue of whether the underlying HD Contracts and MD Contracts were illegal and unenforceable under PRC law, so as to render the Guarantee void and unenforceable against the respondent, is not in my view addressed in the Award with adequate reasons, and it would offend our Court’s notions of fairness and justice to enforce the Award when it might be tainted by illegality, and when a significant issue brought before the tribunal for determination has not been seen to be properly considered and determined, contrary to the parties’ legitimate and reasonable expectations.
⚖️ U v A [2017] HKEC 468
- Application to set aside an Order for enforcement of an ICC award rendered in Hong Kong, on three grounds including that it would be contrary to public policy and unjust to enforce the Award. Respondents complained that the arbitrator had unjustifiably refused to admit a PRC Judgment as evidence in the arbitration, such that the Respondents were deprived of a full opportunity to present their case on a key issue.
- Held: Error in (PRC) law is not contrary to Hong Kong public policy, nor is it unjust (Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111).
- To justify refusing enforcement, the violation of public policy must be “contrary to the fundamental conceptions of morality and justice” of the forum – i.e. Hong Kong.
- The Court held that Hong Kong is not the correct forum to decide whether the award would violate PRC public policy, nor can it review the decision of the arbitrator that the agreement did not require approval under PRC law. To the extent that enforcement of the award is sought in the PRC, the Respondents are free to resist enforcement there.
- The Court rejected the application to set aside on each ground and ordered the Respondents to pay costs on the indemnity basis.
⚖️ JVL Agro Industries Ltd v Agritrade International Pte Ltd [2016] SGHC 126
- One of the Tribunal’s primary findings was based on an argument that (i) only raised briefly in the oral submissions, at the tribunal’s request; (ii) not fully pleaded by Agritrade; and (iii) never responded to by the losing party.
- The court initially set aside the proceedings for six months to give the tribunal an opportunity to reconsider its award and to receive further submissions if necessary. The tribunal declined to do so.
- The court decided that the award itself should be set aside as the Tribunal had “deprived JVL of its right to present evidence and address submissions” by exercising “unreasonable initiative” on the collateral contract question.
- The tribunal must confine itself to the issues selected by the parties for determination, recognising that parties’ ability to mutually determine the scope of the arbitration is considered one of the touchstones of arbitration.
⚖️ BZV v BZW and another [2021] SGHC 60
The Court addressed the issue of whether the requisite elements to set aside an award under section 24(b) of the IAA have been met, specifically:-
- Whether and which rule of natural justice was breached;
- The manner in which the rule of natural justice had been breached;
- Whether there was a connection between the breach and the making of the award; and
- Whether prejudice was caused to the plaintiff’s rights by the breach.
Court found that Tribunal had breached the fair hearing rule:
- The Tribunal adopted a chain of reasoning which had no nexus to the parties’ cases (in respect of particular claims)
- The Tribunal failed to apply its mind to an essential issue arising from the parties’ arguments
The Court of Appeal affirmed this decision in [2022] SGCA 1.
E. Novel Situations
While illegality and fraud are clear situations where public policy would be relevant, what about other situations?
Where enforcement of an award may be contrary to:
The jurisdictions’ consideration of what kinds of disputes may be arbitrable;
- Crypto disputes
- IP disputes
- Competition law?
Subject matter that is either illegal or immoral to enforce;
⚖️ Shanghai Fusheng Soya-Food Co Ltd v Pulmuone Holdings Co Ltd [2014] HKEC 825
The applicants argued that the arbitral award should be set aside because the arbitral tribunal had failed to take into account an earlier PRC court judgment, which was partially in favour of the applicants. The tribunal had taken the position that no further submissions or evidence (including the judgment) could be produced as it had already declared the arbitral proceedings closed.
“Contrary to the fundamental conceptions of morality and justice of the law of the forum”.
Specifically, for setting aside an arbitral award under Article 34 of the Model Law, the court will only consider the public policy objection in terms of the structural integrity of the arbitration proceedings and not the substantive merits of the dispute or the correctness of the award.
By choosing arbitration, parties should be aware that arbitral awards are binding and final. The public policy’s bias towards enforcement cannot be counterbalanced by the mere fact that there was an error by an arbitrator.
Also noted that under the Model Law, Courts have a residual discretion to enforce awards despite the proven existence of a valid public policy ground.
⚖️ (2018) Yue 03 Min Te No. 719 or (2018) 粤03民特719号 (Shenzhen Intermediate People’s Court)
Dispute arose from agreement for cryptocurrency wealth management. Award rendered for breach of contract for failure to deliver cryptocurrency as agreed by parties, Tribunal awarded damages for breach.
Court found that Bitcoin does not have the same legal status as fiat currency, and cannot and should not be circulated in the market. Chinese law essentially prohibits redemption, trading and circulation of Bitcoin in PRC.
Court held that Tribunal’s order for compensation equated to redemption, which contravenes the spirit of PRC policies and violates the public interest. It therefore set aside the arbitral award.
F. Arbitration (Amendment) Ordinance 2017
An amendment to the Arbitration Ordinance was passed on 14 June 2017 and confirms that disputes over IP rights are arbitrable and that it is not contrary to the public policy of Hong Kong to enforce arbitral awards involving IP rights.
This amendment came into operation on 1 January 2018.
IV. Other Practical Considerations
A. Ex Officio Review
- Difference between Art V(1) and Art V(2) of the New York Convention.
- English court: “the defence that enforcement would be contrary to public policy is stated without an express burden of proof […]. This is no doubt because it must always be open to the court to take a point of public policy of its own motion”
B. Burden of Proof
The party challenging the award
C. Standard of Proof
- Heightened standard of proof
- Gao Haiyan and Hebei Import case require actual bias
- “Clear and convincing” evidence for a cause of fraud
Class 7 - Interlocutory Proceedings: Part 1
I. Introduction
A. What are Interlocutory Proceedings?
Interlocutory Proceedings are applications at any stage, prior to trial, of existing (or contemplated) proceedings for an order or ruling of the arbitral panel (or the court) on a particular issue.
Interlocutory Proceedings can be made after the cause of action has been commenced but before its termination (but can also occur at a stage where the underlying substantive proceedings have not yet commenced).
While usually “interim” measures (sometimes, temporary or provisional in nature), certain types of interlocutory orders can effectively determine a case.
In summary, interlocutory proceedings are an important procedural tool in a litigant’s armoury. When used strategically, they can also create tactical advantages for a litigant.
1 | 💡 Examples of a litigation advantage / strategy? |
B. Different Types of Interlocutory Proceedings
- Interim measures: Applications for orders that aim to preserve the party’s rights pending final resolution (e.g. interim injunction).
- Jurisdictional challenges: Applications raising judicial issues (e.g. application to challenge the arbitrator’s jurisdiction on various grounds).
- Procedural matters: Applications for an order or direction to progress the case towards the hearing.
C. Examples of procedural matters to be dealt with by way of Interlocutory Proceedings
Examples of procedural matters to be dealt with by way of Interlocutory Proceedings include:
- Applications for extension of time to serve pleadings, witness statements or expert report;
- Applications to adduce additional witness or expert evidence;
- Applications to change experts;
- Applications for amendment of pleadings;
- Applications for discovery of specific documents;
- Requests for further and better particulars;
- Requests for interrogatories; and
- Applications for security for costs.
II. What are Interim Measures?
A. Interim measures
Interim measures are applications for remedies or relief targeted at safeguarding the “status quo” i.e. the rights of the parties pending final resolution of the dispute by final award.
Interim Measures are orders aimed at safeguarding a party’s right which is otherwise damaged or affected irreparably due to acts or omissions of the other party before or during the adjudication.
Sometimes called “provisional/conservatory measures”, “preliminary measures/injunctions” or “emergency/interim relief”.
B. Different Types of Interim Measures
Interim measures can be targeted at:
- the taking, preservation or disclosure of evidence;
- making orders relating to property which is the subject of the proceedings or as to which any question arises in the proceedings;
- the sale of any goods as the subject of the proceedings;
- the granting of an interim injunction; or
- the appointment of a receiver.
III. Injunctions
A. What is an injunction?
An order restraining a person from beginning or continuing an action threatening or invading the legal right of another, or compelling a person to carry out a certain act.
Note: When granted by the Tribunal, an injunction only binds the parties to the arbitration agreement but not third parties.
A court can hold a party that fails to follow an injunction in contempt of court. The Tribunal cannot do that.
Types of injunction: mandatory, prohibitory, freezing, quia timet etc.
B. Requirements
Preserving the status quo between the parties.
According to s. 36 Arbitration Ordinance – Art. 17A of UNCITRAL Model Law, the party applying for interim measures has to satisfy the Tribunal that:
Harm caused by counterparty:
- not adequately reparable by an award of damages;
- substantially outweighs the harm that is likely to result to the party against whom the measure is directed.
Reasonable possibility that applicant succeeds on merits of claim (however, the Tribunal retains full discretion).
C. Injunctions
Requirements for an interlocutory injunction are set out in the seminal case American Cyanamid Co v Ethicon Ltd (1975) AC 396 – three essential conditions must be satisfied:
- There is a serious issue to be tried;
- Damages would be an inadequate remedy;
- Balance of convenience lies in favour of grant of injunction.
In addition, the applicant usually has to provide an undertaking to pay damages if the injunction is found to have been improperly obtained.
1 | 💡 Contrast with final injunction – different tests – why? Consider sections 16-18 of the Arbitration Ordinance. |
Section 45(5) of the Arbitration Ordinance
In relation to arbitral proceedings which have been or are to be commenced outside Hong Kong, the Court may grant an interim measure under subsection (2) only if—
(a) the arbitral proceedings are capable of giving rise to an arbitral award (whether interim or final) that may be enforced in Hong Kong under this Ordinance or any other Ordinance; and
(b) the interim measure sought belongs to a type or description of interim measure that may be granted in Hong Kong in relation to arbitral proceedings by the Court.
See: Onwel Sales Limited v Sketchers SARL [2021] HKCFI 790 at §16
1. Mareva / Freezing Injunctions
Court has the power to grant so-called Mareva injunctions freezing a party’s assets when there is a risk of dissipation (Mareva Compania Naviera SA v International Bulkcarriers SA (1975) 2 Lloyd’s Rep 509).
Can be pre-arbitration and post-award
Applications for a Mareva injunction must be made in a timely manner
Applicant must demonstrate:
- Good arguable case on substantive claim;
- Assets within the jurisdiction;
- Balance of convenience is in favour of grant; and
- Real risk of dissipation of assets or removal of assets from the jurisdiction, which would render the plaintiff’s judgment of no effect.
Duty of full and frank disclosure (ex parte application)
Undertaking as to damages
Chabra jurisdiction – freezing injunction on assets over which Plaintiff has no cause of action – freezing assets held by nominees: Company A v Company D [2018] HKCFI 2240
2. Anti-Suit Injunctions
Parties may apply:
- to Court to restrain another party from bringing proceedings in other national courts in breach of an arbitration agreement;
- to Court to restrain another party from bringing or continuing arbitration proceedings (pursuant to an allegedly invalid arbitration agreement); or
- to the Tribunal (once constituted) for an injunction to restrain another party from bringing or continuing competing proceedings in courts in breach of an arbitration agreement.
Prevent other parties from commencing or continuing proceedings within the scope of the arbitration agreement in a foreign court.
⚖️ Relevant legal principles set out in Ever Judger Holding Co Ltd v Kroman Celik Sanayii Anonim Sirketi [2015] 2 HKLRD 866 §§36-45
The court should ordinarily grant an injunction to restrain the pursuit of foreign proceedings in breach of an agreement for Hong Kong arbitration, at any rate where the injunction has been sought without delay and the foreign proceedings are not too far advanced, unless the defendant can demonstrate strong reason to the contrary.
Whether a party can show strong reasons, sufficient to displace the other party’s prima facie entitlement to enforce the contractual bargain, will depend on all the facts and circumstances of the particular case.
See also Donohue v Armco Inc [2002] CLC 440 §24; Compania Sud Americana de Vapores SA v Hin Pro International Logistics Ltd (2016) 19 HKCFAR 586 §57; Dickson Valora Group (Holdings) Co Ltd v Fan Ji Qian [2019] 2 HKLRD 173 §18.
Class 8 - Interlocutory Proceedings: Part 2
I. Should relief be sought from the Tribunal or from a court?
A. International Arbitration Rules
Nearly all international arbitration rules grant the Tribunal the power to provide interim measures and relief, see:
- HKIAC Administered Arbitration Rules 2018
23.2 At the request of either party, the arbitral tribunal may order any interim measures it deems necessary or appropriate.
23.3 An interim measure, whether in the form of an order or award or in another form, is any temporary measure ordered by the arbitral tribunal at any time before it issues the award by which the dispute is finally decided (…)
- Article 28(1) of the ICC Rules
- Article 25.1 of the LCIA Rules
- Article 26(1) of the UNCITRAL Rules
- Appendix II, Article 1 of the DIAC Rules
B. Are national laws relevant?
National laws (laws at the seat of arbitration / lex arbitri) also provide for the arbitrator’s powers to grant interim relief:
Section 35 Arbitration Ordinance (Art. 17 of UNCITRAL Model Law) (Power of arbitral tribunal to order interim measures)
- Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, grant interim measures.
- An interim measure is any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided (…).
C. Relief from the Tribunal or a Court?
In some scenarios, interim relief granted by the Tribunal might be viewed as insufficient. Examples include:
- The relief does not have sufficient teeth
- The Tribunal’s order is not enforceable in a particular overseas jurisdiction
- The Tribunal cannot provide the relief sought
- The relevant arbitral rules do not allow for the making of ex parte applications
- The Tribunal’s order is not enforceable against third parties
- The Tribunal cannot provide the requested relief sufficiently quickly
D. Do arbitral rules permit applications to Court?
Most arbitral rules respect and recognize these concerns by allowing for applications for interim relief to be made to the national courts:
- Article 28(2) of the ICC Rules
- Articles 25.3 to 25.4 of the LCIA Rules
- Article 26(9) of the UNICITRAL Rules
- Appendix II, Article 1.13 of the DIAC Rules
E. Beware of limiting conditions in Tribunal rules
No Limiting Conditions
UNICITRAL
A request for interim measures addressed by any party to a judicial authority shall not be deemed incompatible with the agreement to arbitrate, or as a waiver of that agreement.
DIAC
A request for interim measures addressed by any party to a judicial authority or a request to a judicial authority to enforce an interim measure or a preliminary order issued by the Tribunal, shall not be deemed incompatible with the agreement to arbitrate or as a waiver of that agreement.
1 | 💡 Is the right to seek relief from the national courts unlimited?</p> |
Limiting Conditions
ICC
Before the file is transmitted to the arbitral tribunal, and in appropriate circumstances even thereafter, the parties may apply to any competent judicial authority for interim or conservatory measures (emphasis added)
1
💡 What constitutes appropriate circumstances?
LCIA
The power of the Arbitral Tribunal under Article 25.1 shall not prejudice any party’s right to apply to a state court or other legal authority from interim or conservatory measures to similar effect: (i) before the formation of the Arbitral Tribunal; and (ii) after the formation of the Arbitral Tribunal in exceptional cases and with the Arbitral Tribunal’s authorisation, until the final award (emphasis added)
1
💡 What constitutes an exceptional case? Does the requirement to seek authorization from the Tribunal preclude ex parte application?
II. If a court, which court?
A. Hong Kong
Interim measures are also available from the Hong Kong courts in support of arbitration.
The Arbitration Ordinance (Cap. 609) makes it clear that the jurisdiction of the courts to grant interim measures exists in addition to the jurisdiction of the Tribunal and requesting such measures from court does not invalidate the arbitration agreement.
Section 21 of the Arbitration Ordinance (Art. 9 UNCITRAL Model Law) (Arbitration agreement and interim measures by court):
It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure.
B. Overseas arbitrations
The availability of interim measures before the Hong Kong courts extends to arbitrations taking place outside of Hong Kong.
Section 45(2) of the Arbitration Ordinance:
On the application of any party, the Court may, in relation to any arbitral proceedings which have been or are to be commenced in or outside Hong Kong, grant an interim measure.
Article 17J of Model Law
A court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their place is in the territory of this State, as it has in relation to proceedings in courts. The court shall exercise such power in accordance with its own procedures in consideration of the specific features of international arbitration
Jurisdictions based on the model law: Australia, New Zealand, Germany, Greece, Norway, Singapore and Hong Kong.
Care required A jurisdiction may only enact parts of the model law. See section 45(1) of the Arbitration Ordinance.
C. Jurisdiction by jurisdiction approach required
Section 44 Arbitration Act 1996 (England & Wales)
s. 44(3) “If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets.” (emphasis added)
s. 44(4) “If the case is not one of urgency, the court shall act only on the application of a party to the arbitral proceedings (upon notice to the other parties and to the tribunal) made with the permission of the tribunal or the agreement in writing of the other parties.” (emphasis added)
Distinguishes between urgent and non-urgent cases. Not a feature of Hong Kong law or of UNCITRAL model.
Jurisdiction | Usually law of the seat | Arbitration agreement |
|---|---|---|
Governing laws | Arbitration laws; | Arbitration agreement; |
Binding Power | Parties + 3(rd) parties | Only parties to arbitration agreement |
Advantages | Ex parte“emergency” relief | Ex parte“emergency relief available under most institutional rules; |
III. Interim Measures of Protection
A. Interim Measures of Protection
Under the Arbitration Ordinance, the following interim measures of protection are available:
- the preservation, custody or sale of “relevant” property subject to the arbitration: ss.56(1)(d)(i), 56(6), 60(1)(a) and 60(2) AO;
- the inspection, photographing, preservation or detention of “relevant” property subject to the arbitration: ss.56(1)(d)(i), 56(6), 60(1)(a) and 60(2) AO;
- directing samples to be taken from, observations to be made of, or experiments to be conducted on “relevant” property: ss.56(1)(d)(ii), 56(6), 60(1)(b) and 60(2) AO; and
- interim injunctions or other interim measures of protection (ss.35 and 45 AO).
These powers are vested in the arbitral tribunal. However, for some of these measures there is concurrent power of the courts (ss. 45, 60(1), (3), (4)).
Where a party’s claim is for the enforcement of rights to property, the Tribunal can make an order under ss.56(1)(d) or 60(1)(a) AO.
To make an order under s.56(1)(d) the “relevant” property must be owned by or be in the possession of a party to the arbitral proceedings and not in the possession or custody of a third party.
If the property is in the custody of a third party, application should be made to the court under s.60(1).
When a court makes an order under s.60(1)(a), it is the Tribunal, party or expert that executes the order (at the court’s “direction”).
An order under ss.56(1)(d) or 60(1)(a) may be made together with an interlocutory injunction ordered under ss.35 or 45 AO.
B. Measures to Preserve Evidence
The Tribunal may make orders for the inspection, photographing, preservation or detention of “relevant” property (s.56(1)(d)(i) AO). It may also make orders directing samples to be taken from, observations to be made of, or experiments to be conducted on “relevant” property (s.56(1)(d)(ii) AO).
These powers of the Tribunal are aimed at preserving property as evidence or facilitating the process of obtaining evidence.
Orders made under s.56(1)(d) may be enforced in court (s.61 AO).
Where an order has to be enforceable against a third party, applications have to be made to court under s.60(1).
Example of the wide reaching powers of court: Anton Piller orders (O.29 / PD 11.2 with PD 11.1 (ex parte application)):
An Anton Piller order is a court order that provides the right to search premises and seize evidence (without warning to the counterparty) in order to prevent destruction of relevant evidence. Court’s powers are developed out of trademark, copyright or patent infringements cases but are now applied more widely.
IV. Security for Costs
A. What is Security for costs?
The power of the arbitral tribunal to order that the claimant (or counterclaiming respondent) shall provide adequate security for any costs which may be awarded against him in the event of a dismissal of his claim or counterclaim.
What is the position at common law?
B. Questions for the arbitrator to ask:
- Do I have the power? If yes, is this a discretionary power?
- How should I exercise my discretion?
- What is the quantum of costs that I should order?
- In what form should security be given?
- What are the consequences for non-compliance?
C. Do I have the power?
Source of power: s.56(1)(a) of AO
s.56(1) Unless otherwise agreed by the parties, when conducting arbitral proceedings, an arbitral tribunal may make an order—
(a) requiring a claimant to give security for the costs of the arbitration…”
A negative stipulation under s.56(2)
“(2) An arbitral tribunal must not make an order under subsection (1)(a) only on the ground that the claimant is—
(a) a natural person who is ordinarily resident outside Hong Kong;
(b) a body corporate—
(i) incorporated under the law of a place outside Hong Kong; or
(ii) the central management and control of which is exercised outside Hong Kong; or
(c) an association—
(i) formed under the law of a place outside Hong Kong; or
(ii) the central management and control of which is exercised outside Hong Kong.
D. How can I exercise such power?
A discretionary power
Sir Lindsay Parkinson & Co v Triplan Ltd (1973) 2 All ER 273
- Whether the claim is bona fide and not a sham;
- Whether the claimant has a reasonably good prospect of success;
- Whether there is an admission on the pleadings or elsewhere that the money is due;
- Whether there is a substantial payment into court or an open offer of a substantial sum;
- Whether the application was used oppressively;
- Whether the claimant’s want of means has been brought about by any conduct of the respondent such as delay in payment; and
- Whether the application is made at a late stage of the proceeding.
Applied in KJM Industries Ltd v JPM Resources Ltd [2005] 4 HKC 100 (CA)
E. Factors to consider
- Not to be used as an instrument of oppression.
- Not to stifle a genuine claim.
- Not to be used as a tactical device to intimidate a weaker party or delay the hearing on substantive issues.
- Be made as early as possible in the proceedings.
- Unreasonable delay is an important factor against the making of an order.
- Not to go into the merits in more details than is absolutely necessary.
- A balance of competing interest between the interest of preventing one party from getting an empty award and that of stifling a bona fide claim.
S.905 of the Companies Ordinance (Cap.622)
The Court may order security where (i) the plaintiff is a limited company or a company incorporated outside Hong Kong and (ii) by credible testimony there is reason to believe that the plaintiff will be unable to pay the defendant’s costs if the defendant succeeds in the defence.
F. How to determine the quantum of costs?
The arbitrator must act judicially in fixing the amount.
Figures must not be nominal, nor on a full indemnity basis – should be assessed on a party and party basis.
“Sufficient” security does not mean “complete” security.
G. In what form should security be given?
By bank guarantee?
Deposit?
A third method?
H. What are the consequences for non-compliance?
Stay
Dismissal
s.56(4) of AO
(4) An arbitral tribunal may make an award dismissing a claim or stay a claim if it has made an order under subsection (1)(a) but the order has not been complied with within the period specified under subsection (3)(a) or extended under subsection (3)(b).
Golden Sand Marble Ltd v Hsin Chong Construction Co Ltd (2005) 1 HKLRD 598.
V. HK/PRC Arrangement for Interim Relief in Support of Arbitration
Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong SAR.
Arrangement allows the courts of each jurisdiction to award interim measures in support of arbitrations seated in the other territory.
Entry into force: 1 October 2019.
Apart from Macau, which has a similar arrangement in place pursuant to the Arrangement Concerning Mutual Assistance in Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Macau SAR (effective 25 March 2022), no other jurisdiction has similar arrangements with the Mainland which means Hong Kong has an advantage as arbitration seat due to the extra protection afforded through the Arrangement.
Arrangement applies only to Hong Kong-seated arbitrations administered by certain “institutions or permanent offices”:
- the Hong Kong International Arbitration Centre (‘HKIAC’);
- China International Economic and Trade Arbitration Commission (‘CIETAC’) Hong Kong Arbitration Center (‘HKAC’);
- International Court of Arbitration of the International Chamber of Commerce – Asia Office;
- The Hong Kong Maritime Arbitration Group;
- South China International Arbitration Center (Hong Kong); and
- eBRAM International Online Dispute Resolution Centre.
Parties who wish to benefit from the Arrangement need to clearly and unambiguously identify Hong Kong as the seat of arbitration, and specify that such proceedings are to be administered by one of the recognised institutions.
Note: PRC courts are usually reluctant to order relief extending beyond preservation measures against assets or property.
On 8 October 2019, the Shanghai Maritime Court granted one of these applications, rendering the first of such orders under the Arrangement.
Class 9 - Costs
I. Introduction
A. Overview of costs
Difference to substantial claim in arbitration.
What falls under the broad term of costs?
What are some of the concerns in relation to costs?
Timing: As counsel, when would you first consider the issue of costs vs when are costs usually calculated and decided?
What happens normally in terms of costs?
- “Costs follow the event”
B. Types and Categories of costs
1 | 💡 What do the costs of arbitration include? |
The Arbitration Ordinance does not define arbitration costs (although many institutional arbitration rules do – see, for example, Article 34 of the HKIAC Rules)
Generally, costs are broad and include:
- Costs of the tribunal (including the charges for administration of the arbitration by any arbitral institution)
- Costs of the arbitration (including hiring the hearing rooms, interpreters, transcript preparation, among other things)
- Costs of the parties (including the costs of legal representation, expert witnesses, witness and other travel-related expenditure, among other things)
C. Common Costs Orders
- “Costs in the cause” : Usually at interlocutory stage, indicating the party that loses the overall action will have to cover costs of that stage.
- “[Party’s] costs in any event” : Usually at interlocutory stage, indicating that party awarded costs will recover such costs even if other party ends up winning the action.
- “Costs Reserved” : Usually at interlocutory stage, indicating that no cost order is made yet and costs will be decided together with the costs for the full action.
- “No Order As To Costs” : Each party pays their own legal fees.
- “Costs be to [Party]” : Final cost order entitling party awarded costs to recover same from other party.
II. Controlling Costs
A. HKIAC Costs and Duration of Arbitration Data
The data below reflects all cases administered by HKIAC under the HKIAC Administered Arbitration Rules in which a final award was issued between 1 November 2013 and 30 April 2023
Costs of arbitration include the arbitral tribunal’s fees and expenses and HKIAC’s registration fee and administrative fee only.
Duration of arbitration refers to the period between the date of commencement of the arbitration and the date of the final award, inclusive of any stay periods.
Expedited Arbitration and Emergency Arbitration are also included.
See https://www.hkiac.org/arbitration/costs-duration
Median | Mean | |
Duration of Arbitration | 15 months | 17.7 months |
Costs of Arbitration (US$) | 75,458 | 161,984 |
B. Controlling Costs
Drafting the right arbitration clause
Having the right dispute resolution strategy + selecting the right lawyers and counsel
Selecting the right arbitral tribunal
https://iccwbo.org/dispute-resolution-services/arbitration/costs-and-payments/cost-calculator/
Important points to note:
A number of arbitral institutions use different ways to calculate costs. For instance:
- based on the value of the claim or fixed costs irrespective of amount in dispute; and
- fixed arbitrator fees or fees based on hourly or daily rates.
Higher degree of party autonomy means parties can work together to cut down costs significantly
Case management by parties
Case management by arbitrators
- See ICC Report on controlling time and costs: https://iccwbo.org/content/uploads/sites/3/2018/03/icc-arbitration-commission-report-on-techniques-for-controlling-time-and-costs-in-arbitration-english-version.pdf
III. Costs in Arbitration
How are parties made to pay costs?
Why does the issue of costs need to be covered in an award?
A. Institutional arbitration
- Advance/Deposit on costs
- Why is advance/deposit on costs required?
Fee/Cost | Amount | Description |
|---|---|---|
HKIAC Registration Fee | HK$ 8,000 | One-off non-refundable fee paid by the claimant upon commencement of the arbitration. A case will be deemed not to have commenced if this fee is not paid. |
HKIAC’s Administrative Fee | Unless in exceptional circumstances, calculated based on the sum in dispute | Calculated based on the amount in dispute and in accordance with Schedule 1 of the HKIAC Rules. |
Advance/Deposit required by HKIAC | HK$100,000 (sole arbitrator) | HKIAC will ask each side to advance deposits to cover the fees and expenses of the Tribunal. |
B. Europe
- Losing party can be compelled to pay the legal costs of the winning party.
- E.g., English Arbitration Act, 1996 §61(2) Act provides that, absent contrary agreement, “the tribunal shall award costs on the general principle that costs should follow the event except where it appears to the tribunal that in the circumstances this is not appropriate in relation to the whole or part of the costs.”
- UK Arbitration Act 2025 allows tribunals to make a cost order even if they or a court have decided the tribunal has no jurisdiction.
C. United States
- Principally in the context of domestic arbitrations, a number of U.S. courts have held that arbitrators lack the power in an US-seated arbitration under the U.S. Federal Arbitration Act to award legal fees unless the parties have expressly conferred this authority on the tribunal – the so-called “American Rule” against fee-shifting.
- Recently however, a number of U.S. courts have concluded that arbitrators have implied authority to award attorneys’ fees.
- Moreover, as a practical matter, the “American Rule” should generally have little influence on the standards adopted by international arbitral tribunals seated in the United States.
D. International commercial arbitration
- Tribunal can assess the legal costs between the two parties as it finds appropriate.
- Most institutional arbitration rules expressly grant arbitral tribunals the power to award the costs of the arbitration (including legal costs).
- Even where applicable institutional rules are silent on costs, the parties’ arbitration agreement should be interpreted to impliedly grant such authority to the tribunal.
- 2021 ICC Rules Article 38(4) “The final award shall fix the costs of the arbitration and decide which of the parties shall bear them or in what proportion they shall be borne by the parties.” The “costs of the arbitration” are defined to include “reasonable legal and other costs” (Article 38(1))
- 2020 LCIA Rules provide for the arbitral tribunal to “decide the proportions in which the parties shall bear” the costs of the arbitration (as fixed by the LCIA Court) (Article 28.2), as well as to “have the power to decide by an order or award that all or part of the legal or other expenses incurred by a party (the “Legal Costs”) be paid by another party.” (Article 28.3) Absent contrary agreement, “costs should reflect the parties’ relative success and failure in the award or arbitration or under different issues, except where it appears to the Arbitral Tribunal that in the circumstances the application of such a general principle would be inappropriate under the Arbitration Agreement or otherwise.” (Article 28.4)
- 2018 HKIAC Rules provide that the arbitral tribunal may apportion all or part of the costs of the arbitration (Article 34.3). The arbitral tribunal shall determine the costs of the arbitration in one or more orders or awards (Article 34.1). “Costs of the arbitration” include legal costs (Article 34.1).
- 2025 SIAC Rules Tribunal has the power to order in the award that all or a part of a party’s legal or other costs shall be paid by another party. In exercising its power, the Tribunal shall take into account such circumstances as it considers relevant including the conduct of the parties during the proceedings. (Article 58.1).
IV. Costs estimation and allocation
A. Costs Allocation
Arbitration statutes - mostly silent on the method of cost allocation and the decision is left to tribunal while giving primacy to the parties’ agreement.
Section 74 of the Arbitration Ordinance
- DISCRETION!
Most international arbitration rules confer on the Tribunal a very wide discretion as to whether costs should be awarded, to whom and in what amount. For instance:
- ICC Rules 37.4 & 37.5
- HKIAC Rules 34.2 and 34.3
- ICSID Convention Article 61(2)
However, some arbitration rules, such as those of UNCITRAL, CIETAC, LCIA, and the PCA include a rebuttable presumption that the successful party may recover costs from the unsuccessful party.
Article 42 of 2013 UNCITRAL Rules
The costs of the arbitration shall in principle be borne by the unsuccessful party or parties. However, the arbitral tribunal may apportion each of such costs between the parties if it determines that apportionment is reasonable, taking into account the circumstances of the case.
section 74 AO
- Arbitral tribunal may award costs of arbitral proceedings
(1) An arbitral tribunal may include in an award directions with respect to the costs of arbitral proceedings (including the fees and expenses of the tribunal).
(2) The arbitral tribunal may, having regard to all relevant circumstances (including the fact, if appropriate, that a written offer of settlement of the dispute concerned has been made), direct in the award under subsection (1) to whom and by whom and in what manner the costs are to be paid.
(3) The arbitral tribunal may also, in its discretion, order costs (including the fees and expenses of the tribunal) to be paid by a party in respect of a request made by any of the parties for an order or direction (including an interim measure).
(4) The arbitral tribunal may direct that the costs ordered under subsection (3) are to be paid forthwith or at the time that the tribunal may otherwise specify.
(5) Subject to section 75, the arbitral tribunal must—
(a) assess the amount of costs to be awarded or ordered to be paid under this section (other than the fees and expenses of the tribunal); and
(b) award or order those costs (including the fees and expenses of the tribunal).
(6) Subject to subsection (7), the arbitral tribunal is not obliged to follow the scales and practices adopted by the court on taxation when assessing the amount of costs (other than the fees and expenses of the tribunal) under subsection (5).
(7) The arbitral tribunal—
(a) must only allow costs that are reasonable having regard to all the circumstances; and
(b) unless otherwise agreed by the parties, may allow costs incurred in the preparation of the arbitral proceedings prior to the commencement of the arbitration.
(8) A provision of an arbitration agreement to the effect that the parties, or any of the parties, must pay their own costs in respect of arbitral proceedings arising under the agreement is void.
(9) A provision referred to in subsection (8) is not void if it is part of an agreement to submit to arbitration a dispute that had arisen before the agreement was made.
HKIAC 2024 Administered Arbitration Rules
34.4 In determining (i) whether the costs of the arbitration referred to in Article 34.1 are reasonable and (ii) whether and how to apportion the costs of the arbitration in accordance with Article 34.3, the arbitral tribunal shall take into account the circumstances of the case. The arbitral tribunal may take into account any factors it considers relevant, including but not limited to:
(a) the relative success of the parties;
(b) the scale and complexity of the dispute;
(c) the conduct of the parties in relation to the proceedings;
(d) any third party funding arrangement;
(e) any outcome related fee structure agreement; and/or
(f) any adverse environmental impact arising out of the parties’ conduct in the arbitration.
Tribunal generally has very wide discretion to allocate costs:
Both in terms of the allocation itself, as well as the “reasonableness” of the costs incurred
Considerations/approach the Tribunal may have:
- Number of issues determined in favour of each party
- Amount claimed / amount awarded
- Portion of pleadings / evidence allocated to particular issues
- Interlocutory applications made during course of proceedings
- Behaviour of parties
- Comparison of parties’ respective costs
Very much a balancing exercise, usually seeking a “fair” allocation based on the totality of the circumstances
B. Costs allocation case example
1. The Renco Group Inc v The Republic of Peru (UNCT/13/1)
Tribunal decided to depart from the presumption that the unsuccessful party bears the costs of the arbitration, and instead ordered each party to bear its own costs and half of the arbitration costs.
1 | 💡 Why? |
Background
Renco claimed damages from Peru after Peru failed to fulfil its promise to clean up contamination in the soil at a smelting and refining complex, which it had sold to Renco in 1997.
Article 10.18(2) of the US-Trade Promotion Agreement (“TPA”) contained a condition that no claim may be submitted to arbitration unless the relevant Notice of Arbitration is accompanied by a written waiver by the claimant of any right to initiate or continue before any administrative tribunal or court under the law of any party, or other dispute settlement procedures, any proceeding with respect to any measure alleged to constitute a breach referred to in Article 10.16 of the TPA.
The Dispute
Renco filed an amended Notice of Arbitration in August 2011, which was accompanied by a written waiver. The final sentence of the waiver stated: “… the Claimant reserves the right to bring such claims in another forum for resolution on the merits.”
Peru challenged the tribunal’s jurisdiction and argued that Renco’s waiver did not conform to the requirements of Article 10.18(2) as it contained a reservation of rights. However, Peru did not raise this objection until March 2014, after Renco had filed its Memorial on Liability, including witness statements and expert reports.
The tribunal dismissed Renco’s claims, in a partial award on jurisdiction on 15 July 2016, on the basis that its waiver did not comply with the requirements of the TPA. The tribunal said that Article 10.18(2) did not permit any reservation of rights, which was exactly what Renco’s waiver was purporting to do.
The Tribunal reserved its decision on the question of costs
The Parties’ Positions
Peru pointed to Article 42(1) of the UNCITRAL Rules, which establishes a presumption that the costs of an arbitration is to be borne by the unsuccessful party, and argued that Renco should therefore bear its costs. Peru also pointed to the fact that Renco had opposed every attempt Peru made to expeditiously determine the merits of its objection to the waiver.
Renco argued that Peru’s delay in raising its objection to the waiver caused Renco to incur substantial and unnecessary expense of a full merits filing, and that Peru should therefore bear its costs in this regard.
The Award
The tribunal noted that Article 42(1) of the UNCITRAL Rules did establish a presumption that the costs of the arbitration shall in principle be borne by the unsuccessful party
Renco is to be regarded as the “unsuccessful party”.
Three circumstances which justified a departure from the presumption that the unsuccessful party must pay the costs
In particular, the tribunal stated that it was
“troubled by the manner in which Peru’s waiver objection had arisen in the context of the arbitration” and that it considered that “the proceedings could have been conducted more efficiently if Peru had raised a clear and specific objection to the reservation of rights in Renco’s written waiver at the very outset of the arbitration”.
However, the Tribunal did note that Peru’s waiver objection had not been “tainted by any ulterior motive to evade its duty to arbitrate Renco’s claims”. Therefore, the tribunal considered that Peru should not be required to pay Renco’s costs, and an order that each party pays its own costs (and half of the arbitration costs) was appropriate in the circumstances.
Conclusion: The way in which a party conducts an arbitration can be taken into account by an arbitral tribunal, and have significant consequences.
Parties should ensure that arguments that are potentially determinative of the dispute should be raised at the earliest opportunity. Delay in raising such arguments may result in adverse costs decisions.
See also duty to full and frank disclosure: Leidos Inc v The Hellenic Republic [2019] EWHC 2738 (Comm)
Case concerning enforcement of an arbitral award. Applicant failed to inform English court that defendant’s challenge of the award in Greece (the seat of the arbitration) might constitute a defence to enforcement in England. While application to enforce award ultimately successful, court held that this “serious” and “material” omission meant it would be unjust for the defendant to pay the claimant’s costs.
2. Buyer (Utopia) v. Seller (Germany) (Final Award), ICCCase No. ICC-FA-2021-068, 2021
“In general, both Parties proceeded reasonably and in good faith and had conducted the arbitration in a cost-effective manner. Quite a number of legal and factual issues had to be processed and there is no doubt that a substantial amount of time and effort had to be expended in preparation and presentation of the facts and implications. The Sole Arbitrator is of the opinion that also the costs of both Parties incurred in connection with Claimant’s Submission 3, which was granted to Claimant with the explicit consent of Respondent, are recoverable. The Sole Arbitrator does not share the opinion of Claimant that these costs have been incurred by inadmissible ‘new arguments’ and ‘new evidence’ in Respondent’s Submission 2 and should therefore be borne by Respondent.”
“The only costs on Respondent’s side, which seem not to be reasonable to the Sole Arbitrator, are the costs for the attendance of Ms. Greene to the hearing. While it is reasonable for the managing director of Respondent (Mr. Charles Grey) as representative of Respondent to attend the hearing despite the fact that he was not giving any testimony, it seems to be neither necessary nor reasonable for Respondent to have another employee attending the hearing.”
“On the basis of these considerations and regarding that Claimant was successful only with a very small amount of its claims (approximately 0.5 percent of the amount in dispute), the Sole Arbitrator decides that Claimant shall be liable to reimburse Respondent’s total legal and other costs incurred in this arbitration, as well as costs of arbitration […]”
3. Intel Capital (Cayman) Corp. v. Airway Communications Int’l Holding Co. (Final Award (Corrected)), HKIAC Case No. 13043, 17 November 2014
S.74(7) of the Ordinance provides that, in the absence of an agreement by the parties to the contrary, the award may include costs incurred in the preparation of the arbitral proceedings prior to commencement of the arbitration. There is no agreement precluding an award of those costs in this case.
In considering what reasonable sum to award for the Claimants costs, the Tribunal has taken account of a number of factors [specialist arbitration solicitors; years of accounting materials in evidence; large witness statements and voluminous documentation; expert evidence]
The Tribunal has carefully considered the material on the issue of costs submitted by the Claimants. It consists, without any statement of explanation, of billed and estimated costs and disbursements. The Tribunal is not in a position to judge to what extent the estimated figures are accurate although it notes that at least what is described as “estimated” Counsel’s fees are the subject of fee invoices from Mr Manzoni [well known barrister in HK] and Mr Lam. In the circumstances, it is reasonable to make a deduction to cater for the margin of error in any estimate, but otherwise see no basis for reducing the claim which appears to me to be reasonable in all the circumstances.
C. Proof of Costs
Generally no rules provide for what what is required to prove costs
Tribunal should be satisfied that such costs were incurred
- Whether costs are contested by parties
- Schedules of costs
- Invoices and other supporting documentation
- Allocation of costs per stage of arbitration
- Narratives / detailed statements of work
Contingency arrangements / unpaid legal fees
V. Security for Costs
A. Section 56(1)(a) and 56(3) of the Arbitration Ordinance.
- General powers exercisable by arbitral tribunal
(1) Unless otherwise agreed by the parties, when conducting arbitral proceedings, an arbitral tribunal may make an order-
(a) requiring a claimant to give security for the costs of the arbitration;
(3) An arbitral tribunal-
(a) must, when making an order under subsection (1)(a), specify the period within which the order has to be complied with; and
(b) may extend that period or an extended period.
Who brings an application for security for costs?
When/why/what?
Factors:
(1) Prospects of success of the claims, counterclaims and defences;
(2) Party’s ability to comply with an adverse costs award;
(3) Whether it is appropriate in all the circumstances of the case to order one party to provide security;
(4) Any other relevant circumstances.
Impecuniosity alone is not a ground; concerns of access to justice
Generally accepted that it is in “exceptional” circumstances
B. Third party funding’s implication on security for costs
Applicants have increasingly tried to rely on the use of third party funding by the opposing party to justify security for costs on the basis that (i) the claimant/opposing party is likely to be impecunious, and (ii) the third party funder who is not a party to the arbitration has no obligation to satisfy any costs award and will be able to walk away if unsuccessful.
There is currently no consensus as to whether this fact alone is sufficient to order security for costs.
RSM v Saint Lucia (2014)
Security for costs was ordered in the case. The ‘truly exceptional circumstances’ that justified granting security for costs in this case involved a claimant who had previously started several frivolous proceedings and repeatedly failed to pay the resulting costs awards.Moreover, the admitted third party funding further supports the Tribunal’s concern that Claimant will not comply with a costs award rendered against it, since, in the absence of security or guarantees being offered, it is doubtful whether the third party will assume responsibility for honouring such an award.
Hyflux Ltd v Lum Ooi Lin [2023] SGHC 113
Ps were companies in liquidation or under receivership who had obtained litigation funding. At issue was the form of the security to be given.
Court held plaintiff (i) is not restricted to any fixed form of security, but (ii) has the burden to demonstrate proposed form of security is “adequate”.
Undertaking was irrevocable and unconditional, and, based on public financial information, court satisfied the funder had sufficient assets
VI. Indemnity Costs
Normally, costs awarded on “party and party” / standard basis which covers reasonable legal costs incurred.
In exceptional circumstances, costs can be awarded on an indemnity basis.
Indemnity costs are more generous than party-and-party costs as they would cover all the successful party’s expenses – legal costs, expert fees, etc. and may not strictly be limited by factors such as the complexity of the case as there is no requirement for indemnity costs to be proportionate.
This has the effect of putting the onus on the losing party to show that the costs claimed are unreasonable.
This generally means that the receiving party is likely to obtain an order for a higher percentage of their costs on assessment than would be the case if costs were assessed on a standard basis.
⚖️ Dana Shipping and Trading SA v Sino Channel Asia Ltd [2016] HKEC 599
Background
Dana commenced arbitration in London for Sino’s failure to perform contractual obligations.
The tribunal issued an award in Dana’s favour and granted Dana leave to enforce the award in Hong Kong.
Sino applied to set aside that enforcement order on grounds that Sino had not had proper notice of the appointment of the arbitrator nor of the arbitration proceedings.
In its application for enforcement of the award in HK, Dana applied for payment of the award amount as security.
At the same time, Sino applied to the English Courts to set aside the award.
Sino then argued before the court in HK that both Dana’s application for security and its own application to set aside the HK court enforcement order should be adjourned, pending the outcome of the set aside proceedings in London.
HK court applied the test adopted by the English Courts in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208 :
HK court found that Sino’s case for setting aside was not strong as its argument that it did not have notice of the arbitration was not strong and it had delayed the setting aside application for six months.
HK court found Sino’s tactics to use agents to enter into contracts and delayed engagement in legal actions as potentially concerning as to ability to pay award.
HK Court ordered security for award to be paid and also ordered indemnity costs – normal cost order in unsuccessful setting aside applications.
Aftermath
Sino failed to make payment into court of the security ordered within the period of 21 days.. As a result, Sino’s application to set aside the Enforcement Order was dismissed.
On 13 May 2016, the English court set aside the award on the ground that it was made without jurisdiction and is of no effect (as Sino had not properly been served).
In purported reliance on the English Judgment, Sino applied again to set aside the Enforcement Order and to take steps to stop enforcement taken by Dana, including garnishee proceedings and a statutory demand.
English Court of Appeal later upheld award on the basis that in unusual circumstances of case service of Notice of Arbitration had been sucessful.
The Arbitration (Outcome Related Fee Structures for Arbitration) Rules (Cap. 609D) came into effect on 16 December 2022
The new rules were introduced following the Law Reform Commission of Hong Kong’s report published in December 2021. Recommended that the law in Hong Kong be amended to lift the prohibitions on the use of ORFS by lawyers in arbitration taking place in and outside Hong Kong
ORFS for arbitration are an exception to the common law rules of champerty and maintenance, which prohibit third parties from providing financial assistance to a litigant in return for a share of the proceeds
Refers to the three types of agreements which a lawyer may enter into with a client:
- Conditional fee agreements
- Damages-based agreements
- Hybrid damages-based agreements
Class 10 - Interest
I. Overview
A. What is interest?
Interest is a sum paid or payable as compensation for the temporary withholding of money
Interest is specified as a percentage of the amount borrowed (the principal). It is the “time-value of money”
Pre-award interest V post-award interest
Simple interest V compound interest
B. Arbitration Ordinance Cap 609
Section 79 - Arbitral tribunal may award interest
(1) Unless otherwise agreed by the parties, an arbitral tribunal may, in the arbitral proceedings before it, award simple or compound interest from the dates, at the rates, and with the rests that the tribunal considers appropriate, subject to section 80, for any period ending not later than the date of payment—
(a) on money awarded by the tribunal in the arbitral proceedings;
(b) on money claimed in, and outstanding at the commencement of, the arbitral proceedings but paid before the award is made; or
(c) on costs awarded or ordered by the tribunal in the arbitral proceedings.
(2) Subsection (1) does not affect any other power of an arbitral tribunal to award interest.
(3) A reference in subsection (1)(a) to money awarded by the tribunal includes an amount payable in consequence of a declaratory award by the tribunal.
Section 80- Interest on money or costs awarded or ordered in arbitral proceedings
(1) Interest is payable on money awarded by an arbitral tribunal from the date of the award at the judgment rate, except when the award otherwise provides.
(2) Interest is payable on costs awarded or ordered by an arbitral tribunal from—
(a) the date of the award or order on costs; or
(b) the date on which costs ordered are directed to be paid forthwith, at the judgment rate, except when the award or order on costs otherwise provides.
(3) In this section, “judgment rate” (判定利率) means the rate of interest determined by the Chief Justice under section 49(1)(b) (Interest on judgments) of the High Court Ordinance (Cap 4).
Under Section 80, except where the award provides otherwise, interest is payable at the judgment rate
The judgment rate is determined in accordance with Section 49(1)(b) of the High Court Ordinance (Cap 4).
High Court Ordinance Cap 4
Section 49 – Interest on judgments
Judgment debts shall carry simple interest-
(a) at such rate as the Court of First Instance may order; or
(b) in the absence of such order, at such rate as may be determined from time to time by the Chief Justice by order, on the aggregate amount thereof, or on such part thereof as for the time being remains unsatisfied from the date of the judgment until satisfaction.
(2) Interest under this section may be calculated at different rates in respect of different periods.
C. Interest on judgment debts
1 | 💡 What is the current judgment rate? |
The Chief Justice has ordered that the rate of interest on judgment debts from 1 April 2025 in the High Court and District Court shall remain at 8.276% per annum until further order.
The rate of interest on judgment debts can also be found at the Judiciary’s website through the following link:- https://www.judiciary.hk/en/court_services_facilities/interest_rate.html
II. National Housing Trust v YP Seaton & Associates Co Ltd ([2015] UKPC 43)
A. Summary
The Privy Council found that an arbitrator’s award of compound interest should be set aside and remitted to the arbitrator because the arbitrator had no power under the law of the seat (Jamaica) to award compound interest.
B. Background
The dispute arose out of a joint venture between the National Housing Trust (“Trust”) –– and YP Seaton & Associates Co Ltd (“YPSA”)
Re-construction and development of housing units and related facilities in Jamaica.
The dispute concerned the joint venture’s project accounts, and was settled in part by a compromise agreement (the “Compromise Agreement”).
In April 2004, the parties referred two outstanding items to arbitration before a sole arbitrator to determine:
(i) the interest portion owed to Trust in respect of an 18 January 1999 statement (which had a value of J$27,255,919.92), and
(ii) the contractor’s profit owed to YPSA, which the parties agreed should be 14.8% of the value of the works.
C. The Arbitration
1. The First Award
Arbitrator awarded no interest because he said none had been claimed or pleaded by YPSA.
Arbitrator ordered that Trust pay YPSA J$24,325,000 as contractor’s profit, 14.8% of the total value of the works (the “First Award”).
Within six months of the First Award, the Trust made the payment of J$24,325,000 to YPSA, as agreed in the Compromise Agreement.
YPSA later applied to the Supreme Court of Jamaica to have the matter remitted to the arbitrator so that he could re-consider the question of interest.
YPSA’s position was that the arbitrator had been wrong to say that YPSA had not claimed interest because YPSA’s points of claim claimed interest at 12% annually compounded monthly from completion until payment.
On 22 January 2007, the Court remitted the matter to the arbitrator for him “to consider and arbitrate on the issue of interest on the profit awarded.”
2. The Supplementary Award
The parties made further written and oral submissions to the arbitrator on the issue of interest, if any, owed to YPSA on the profit awarded.
By a supplementary award, the arbitrator awarded J$214,512,232.76 to YPSA as compound interest for the period 30 October 1997 to January 2007 on the profits awarded (the “Supplementary Award”).
In response, the Trust applied to the Supreme Court of Jamaica to have the Supplementary Award set aside and the matter remitted to the arbitrator “to reconsider and arbitrate on the issue of interest in accordance with the laws of Jamaica”.
The Court granted Trust’s applications. It found that the arbitrator had no power to award compound interest in this case.
Award was therefore set aside.
3. YPSA’s appeal to the Court of Appeal of Jamaica
YPSA then appealed to the Court of Appeal of Jamaica (the “Court of Appeal”), which allowed the appeal.
The Court of Appeal accepted YPSA’s alternative argument that the arbitrator awarded compound interest not on the basis of any right by contract but rather by relying on a general common law power to award damages.
The Court of Appeal concluded that the arbitrator’s jurisdiction to make an award of compound interest was
“in accordance with the general law applicable to the dispute submitted to him. He was required to utilise his experience and expertise and to exercise his discretion to do what was just and equitable in resolving the dispute between the parties.”
4. Trust’s appeal to the Privy Council
Trust then appealed to the Privy Council.
The Privy Council allowed the appeal, finding that the Supplementary Award should be set aside and remitted to the arbitrator as originally ordered by the lower court.
Privy Council found that the Court of Appeal was wrong to consider the arbitrator’s award of compound interest as being based on a substantive legal right to interest, by way of some contractual right under the loan agreement or a claim in damages for breach of contract or in equity.
The Privy Council further found that the Court of Appeal was wrong in thinking that it was open to the arbitrator in the circumstances of this case to make an award on any such basis.
The Privy Council found that arbitrators have no general discretion to award compound interest, and should therefore proceed by analogy to the law of the seat’s rules concerning the power to award interest.
Because section 3 of The Law Reform (Miscellaneous Provisions) Act 1955 of Jamaica limits an award of interest in these circumstances to simple interest, by awarding compound interest in the Supplemental Award the arbitrator exceeded his jurisdiction and the powers impliedly conferred on him by the parties through the Compromise Agreement and the terms of reference.
Lord Toulson gave a dissenting opinion.
On the issue of compound interest, Lord Toulson focused on the fact that the arbitrator awarded compounded interest because the arbitrator had regarded such interest “as the measure of what YPSA had lost through non-payment of the developers’ profit, because he said in his reasons (to which I have referred in para 77) that not to have awarded the sum which he did (i.e. compound interest) would not have restored YPSA to the same position as if the breach had not occurred.”
Lord Toulson thus agreed with the Court of Appeal that there was no sufficient basis for the court to disturb the award.
D. Takeaway from this case
This case confirms the position that whether a tribunal can award compound interest is first and foremost a matter of the parties’ agreement, and in the absence of such agreement, is then a function of the law of the seat of the arbitration.
For UK, see Section 49 of the English Arbitration Act 1996: in the absence of any agreement by the parties to the contrary, an arbitral tribunal has jurisdiction to award simple or compound interest as it considers is appropriate.
III. Interest vs. Penalty Clause
A. Law Ting Pong Secondary School v Cheng Wai Wah [2021] HKCA 873
”In applying the test, the court should first identify the legitimate interest of the innocent party that is being protected by the clause, and then assess whether the clause is out of all proportion to the legitimate interest by considering the circumstances in which the contract was made. Notions of whether the clause has a deterrent purpose or whether it is a genuine pre-estimate of loss would be subsumed by the broader enquiry into the legitimacy of the interest that supports the provision.”
“It is not applicable to contractual provisions which stipulate to pay a certain amount of money by way of a primary obligation. This means a clause can only be a penalty if, as a matter of substance, it operates upon a breach of contract.”
B. Interest / penalty clause
Chengdu Zhongtai Transportation Construction Development Co Ltd v Neo China Land Group (Holdings) Ltd [2013] HKCFI 551
The STA provided for a 15% interest rate in the case of late payment and a fixed sum equivalent to 20% of the outstanding balance if the payment was not made within 120 days after the due date. In the absence of any evidence showing that the liquidated damages and interest provided for in the STA are genuine pre-estimates of Zhongtai’s loss, I am of the view that those are penalties as they are sums fixed in terrorem. The predominant contractual function of the provision was to deter Neo-China Group from breaking the STA and not to compensate Zhongtai for the breach. Hence, if Neo-China is liable, Zhongtai should only be able to claim the sum of RMBY40,000,000, being the shortfall in the shares transfer price, against Neo-China together with normal commercial interest.