HKIAC launches updated rules

The Hong Kong International Arbitration Centre (HKIAC) has released its new 2024 Administered Arbitration Rules (2024 HKIAC Rules), which will come into effect on 1 June 2024.

The new rules were announced on 3 May 2024 against the backdrop of the 2024 Congress of the International Council for Commercial Arbitration being held in Hong Kong from 5-8 May 2024.

They introduce a range of robust new powers and duties for tribunals and the HKIAC.  Many of these focus on maintaining the efficiency and integrity of the proceedings by combatting guerilla tactics and other obstacles to the swift and cost-effective resolution of disputes.  Diversity, environmental and information security considerations are also expressly addressed for the first time.

The publication of the new rules follows an extensive consultation process which provided users of HKIAC arbitration with the opportunity to comment on the proposed changes.  The revision process was guided by a committee of experienced practitioners which was chaired by Herbert Smith Freehills alumnus Briana Young and included two recent HKIAC Secretaries-General, Dr Mariel Dimsey and Sarah Grimmer.

Read on for the headline points, a detailed review of the changes, and commentary.  References in this post to Articles, Schedules and paragraphs are to the 2024 HKIAC Rules, unless otherwise indicated.

HEADLINE POINTS

• The tribunal has a new power to exclude a party's proposed new legal representatives, and take any other necessary measure, in order to avoid a conflict of interest (Article 13.9).
• The HKIAC has a new power to take any measure necessary to preserve the efficiency or integrity of the arbitration (Article 13.10).
• In exceptional circumstances, the HKIAC can revoke the appointment of an arbitrator who is unable to fulfil their duties, as part of the general power mentioned above (Article 13.10).
• If deposits for costs are not paid in full, the HKIAC has the power, before the constitution of the tribunal, to suspend or cease to administer the arbitration (Article 41.4).
• The HKIAC also has new powers in relation to the determination, review and adjustment of the tribunal's fees and expenses (paragraph 5 of Schedules 2 and 3).
• Diversity considerations must be taken into account by the HKIAC when appointing arbitrators, and the parties and co-arbitrators are encouraged to do the same when designating arbitrators (Article 9A).
• Environmental impact and information security must be taken into account by tribunals when adopting procedures for the conduct of the arbitration (Article 13.1), and the tribunal has new express powers in relation to the protection of information security (Article 45A).
• The tribunal's power to determine preliminary issues and bifurcate proceedings is expressly confirmed (Article 13.6).
• The power of emergency arbitrators to make preliminary or interim orders (also known as "interim-interim" orders) pending the issuance of their emergency decision is expressly confirmed (paragraph 10 of Schedule 4).
• There is now a fixed time limit for the tribunal to declare the proceedings closed, namely, 45 days from the last directed submissions (Article 31.1).

DETAILED REVIEW OF CHANGES

Preliminary issues, bifurcation and sequential stages

• The tribunal is now expressly empowered to determine preliminary issues, bifurcate the proceedings, conduct the arbitration in sequential stages and decide the stage at which any issue or issues shall be determined (Article 13.6).  The tribunal's discretion to adopt such procedures must be exercised in consultation with the parties.
• It was already widely accepted that HKIAC tribunals had such powers and they are widely adopted in practice.  The inclusion of express wording is a welcome clarification.
• The new language complements the existing early determination procedure, whereby tribunals have the power to dispose of points of law or fact where such points are manifestly without merit, beyond the tribunal's jurisdiction, or could not (even if upheld) result in an award in favour of the party asserting them (Article 43 of each of the 2018 HKIAC Administered Arbitration Rules (2018 HKIAC Rules) and the 2024 HKIAC Rules).

Efficiency and integrity of arbitral process

• Many of the amendments are directed at maintaining the integrity and efficiency of the arbitral process.  There are new or clarified powers for the tribunal and the HKIAC in this area, as well as new obligations or responsibilities for the tribunal, the HKIAC and the parties.
• General power of HKIAC.  The HKIAC has a new general power to "take any measure necessary to preserve the efficiency or integrity of the arbitration" (Article 13.10).  This power must be exercised after consultation with the parties and the tribunal.
• Appointment and revocation of appointment of arbitrators.  The rules on appointment and revocation of appointment of arbitrators now expressly include considerations of efficiency and integrity (discussed below in the separate section headed "Arbitrators - number and appointment").
• Changes of legal representation.  Where a party proposes to change or add to its legal representatives after the tribunal has been constituted, this must be communicated promptly to the other parties, the tribunal and the HKIAC (Article 13.8).  This represents a tightening of the previous rule, which only required notification once a change or addition had been made.  Where a proposed change in legal representation could result in a conflict of interest, the tribunal now has the power (after consulting the parties) to take any measure necessary to avoid a conflict of interest, including by excluding the proposed new party representatives from participating in the arbitration (Article 13.9).  Taken together, these changes provide tribunals with significant new tools to combat attempts by parties to derail the proceedings by engineering conflicts of interest through tactical changes in legal representation.
• Information security.  In adopting suitable procedures for the conduct of the arbitration, the tribunal is now expressly required to have regard to information security (Article 13.1).  The tribunal may give directions to protect the security of information shared, stored or processed during the arbitration (Article 45A.2), and may also make a decision, order or award in respect of any breach of the information security measures agreed by the parties or directed by the tribunal (Article 45A.3), in each case, after consulting with the parties.  These provisions reflect the increasingly widespread use of technology, including electronic bundles, cloud-based storage and services and virtual hearing platforms, in arbitral proceedings.
• Non-payment of deposits.  Where deposits for costs are not paid in full by the parties, the HKIAC has a new power, prior to the constitution of the tribunal, to suspend or cease to administer the arbitration (Article 41.4(a)).  After the constitution of the tribunal, the position remains unchanged from the 2018 HKIAC Rules: the tribunal may order the suspension or termination of the arbitration, or the continuation of the arbitration on such basis and in respect of such claim or counterclaim, as the tribunal considers fit (Article 41.4(b)).
• Expedited procedure.  It has been clarified that, where the expedited procedure applies, the tribunal shall decide the dispute on the basis of written submissions as well as documentary evidence (Article 42.2(e)).  The HKIAC may now extend the six-month deadline for the issuance of the award in an arbitration conducted under the expedited procedure in "appropriate" circumstances, a lower threshold than the "exceptional" circumstances required previously under the 2018 HKIAC Rules (Article 42.2(f)).  In addition, the expedited procedure may now be disapplied by the HKIAC at the request of the tribunal, and not only upon the request of a party (Article 42.3).
• Closure of proceedings.  The tribunal must declare the proceedings, or a discrete phase of the proceedings, closed: (i) when it is satisfied that the parties have had a reasonable opportunity to present their case (as previously required under the 2018 HKIAC Rules); and (ii) no later than 45 days from the last directed substantive oral or written submissions (excluding submissions on costs) (Article 31.1).  To the extent that specific proceedings are closed sooner than they otherwise would have been as a result of the new language, this should also result in speedier delivery of awards by tribunals, for which the default deadline continues to be 3 months from the closure of proceedings (Article 31.2).

Arbitrators – number and appointment

• Proposals on number of arbitrators.  Proposals by the parties as to the number of arbitrators made in the Notice of Arbitration and Answer to Notice of Arbitration are now expressly required to be reasoned (Article 4.3(g) and Article 5.1(e)).  This change essentially reflects existing practice.
• Confirmation of appointment.  When confirming the appointment of arbitrators, the HKIAC shall take into account any factors that may affect the efficiency or integrity of the arbitration (Article 9.3).
• Revocation of appointment.  In exceptional circumstances, the HKIAC may revoke the appointment of an arbitrator who is unable to fulfil their duties, as part of the general power to take measures necessary to preserve the efficiency or integrity of the arbitration (Article 13.10).  This new power is in addition to the existing provision for parties to challenge arbitrators in such circumstances (Article 11.6 of each of the 2018 HKIAC Rules and the 2024 HKIAC Rules).  Accordingly, it appears to provide the HKIAC with the ability, in exceptional cases, to take the initiative and revoke the appointment of an arbitrator even where there has been no challenge to that arbitrator by the parties.  The HKIAC must, however, consult with both the parties and the tribunal before exercising this power.
• Designation and appointment in multi-party and multi-contract scenarios.  There are new provisions in relation to the waiver of the right to designate an arbitrator, and the power of the HKIAC to revoke previous appointments and appoint the tribunal, in certain multi-party and multi-contract scenarios (as discussed below).

Arbitrators – fees and expenses

• Review and determination of tribunal fees and expenses.  In cases where the remuneration of the tribunal is based on hourly rates, the HKIAC is now empowered to review and adjust the fees and expenses of the tribunal where it considers it appropriate in the circumstances (paragraph 5.1 of Schedule 2).  Where the remuneration of the tribunal is based on the sum in dispute, the HKIAC now has the final say in determining the amount of fees and expenses to be paid, taking into account factors such as the work done by the tribunal and the complexity of the subject matter (paragraph 5 of Schedule 3).  These are significant new powers which will enable the HKIAC to ensure that tribunal fees appropriately reflect the specific circumstances of each case and to take appropriate action in those rare cases in which there are concerns or questions (whether raised by one or more parties, or otherwise) about the level or nature of tribunal fees.  While the new powers to reduce tribunal fees can be expected to be used sparingly in practice, their inclusion represents an important "safety valve" which should help to maintain the confidence of users in the integrity of arbitration as a dispute resolution mechanism.
• Model clause language on fees and expenses.  The model arbitration clause included with the 2024 HKIAC Rules includes new optional drafting with which the parties can stipulate whether the fees and expenses of the tribunal shall be determined on the basis of hourly rates or the sum in dispute.  The default position in the absence of such language is that the parties shall agree the method for determining the fees and expenses within 30 days of the receipt by the Respondent of the Notice of Arbitration, failing which the tribunal's fees and expenses shall be determined on the basis of hourly rates (Article 10.1).  The intention of the new model language therefore appears to be to reduce the scope for additional expense and distraction to parties which can arise where there is disagreement, after a dispute has arisen, as to which method to adopt.

Multi-party and multi-contract provisions

• Prima facie requirement for single arbitration under multiple contracts to proceed.  Where a party seeks to make claims under multiple contracts in a single arbitration, there is now express language to clarify that the arbitration will only be permitted to proceed if the HKIAC is satisfied, prima facie, that the single arbitration under multiple contracts has been properly commenced in accordance with the requirements of Article 29 (Article 29.1, referencing Article 19.5).
• Single arbitration under multiple contracts – designation and appointment of arbitrators.  Where the HKIAC determines that a single arbitration under multiple contracts has been properly commenced under Article 29, the parties will be deemed to have waived their rights to designate an arbitrator, and the HKIAC will appoint the tribunal with or without regard to any party's designation (Article 29.2).  This change ensures consistency with the provisions on consolidation of arbitrations, which already include such language (Article 28.8 of each of the 2018 HKIAC Rules and the 2024 HKIAC Rules).
• Joinder – designation and appointment of arbitrators.  Where an additional party is joined to the arbitration at any stage in the proceedings, the HKIAC may revoke any confirmation or appointment of an arbitrator and appoint the tribunal with or without regard to any party's designation (Article 27.13).  Previously, the HKIAC had this power only where joinder occurred before the tribunal was constituted.

Emergency arbitrator powers

• Interim-interim orders.  An emergency arbitrator now has the express power to make "any preliminary or interim order" they deem necessary before making their emergency decision (paragraph 10 of Schedule 4).  This helpful clarification confirms the ability of emergency arbitrators to grant urgent interim relief pending their "main" emergency decision.
• Emergency decision after transmission of case file to tribunal.  It has been clarified that an emergency arbitrator may proceed with the emergency arbitration proceedings and render their decision within the mandated time period (namely, 14 days from the date on which HKIAC transmitted the case file to the emergency arbitrator), even if the case file has been transmitted to the main arbitral tribunal in the meantime (paragraphs 12 and 13 of Schedule 4).  It remains the case that the emergency arbitrator has no other power once the tribunal is constituted (paragraph 14 of Schedule 4).

Diversity, inclusion and environment

• Diversity and inclusion.  The parties and co-arbitrators are encouraged to take considerations of diversity into account when designating arbitrators, and the HKIAC is obliged to take such considerations into account when appointing arbitrators (Article 9A).  In the press release for the launch of the 2024 HKIAC Rules, the HKIAC noted that this provision is consistent with its commitment to improving diversity in arbitral appointments, including as a signatory since 2016 to the ERA Pledge for Equal Representation in Arbitration.  The HKIAC joins a growing group of institutions which include diversity-related language in their rules or guidance on arbitrator appointments (as discussed previously here).  Other examples include: the ICC (paragraph 40 of the ICC Note to National Committees and Groups on the Proposal of Arbitrators); the Belgian Centre for Arbitration and Mediation (CEPANI) (Article 15 of the CEPANI Rules); and the Scottish Arbitration Centre (SAC) (Article 8.1 of the SAC Rules).  The Singapore International Arbitration Centre (SIAC) has also consulted on the proposed inclusion of such language in the upcoming 7^th edition of the SIAC Rules (Article 19.5 of the consultation draft).
• Environmental impact.  The tribunal is now expressly required to have regard to environmental impact when making directions for the conduct of the arbitration (Article 13.1), and to take account of any adverse environmental impact when deciding whether the costs of the arbitration are reasonable and whether and how to apportion costs (Article 34.4).  With environmental, social and governance (ESG) issues increasingly pervading the business environment, these provisions respond to expectations of users that arbitral institutions and tribunals should actively take account of such considerations.  For additional background on the ESG landscape in arbitration, see the keynote lecture delivered by Justin D'Agostino, CEO of Herbert Smith Freehills, at the Edinburgh International Arbitration Festival in September 2023.

Costs

• Factors relevant to apportionment of costs.  There is now a non-exhaustive list of factors which the tribunal may take into account when exercising its discretion to apportion costs (Article 34.4).  In addition to the existence of any third party funding arrangement (which was a stand-alone factor in the 2018 HKIAC Rules), the 2024 HKIAC Rules now add: the relative success of the parties; the scale and complexity of the dispute; the conduct of the parties; the existence of any outcome-related fee structure agreement (following the legalisation of such arrangements for arbitration in Hong Kong with effect from 16 December 2022, discussed here); and (as noted above) any adverse environmental impact.
• Emergency arbitration costs.  The reasonable costs of emergency arbitration proceedings are now expressly included in the definition of the "costs of the arbitration" to be determined and apportioned by the tribunal (Article 34.1(e)).  This is a clarification of the existing position, since the detailed provisions on emergency arbitration set out in Schedule 4 already made clear that the tribunal had this power (paragraph 15 of Schedule 4 to the 2018 HKIAC Rules and paragraph 16 of Schedule 4 to the 2024 HKIAC Rules).

Scope of application

• The 2024 HKIAC Rules apply in full to all relevant arbitrations commenced from 1 June 2024 (unless otherwise agreed by the parties).  Relevant arbitrations are those commenced pursuant to arbitration agreements providing for (i) the HKIAC Administered Arbitration Rules to apply or (ii) arbitration "administered by HKIAC" or words to similar effect.
• There is no longer any "saving language" disapplying certain limited provisions in the case of arbitration agreements concluded before certain dates.
• Although the 2018 HKIAC Rules generally applied to arbitrations commenced from 1 November 2018, they included certain potentially significant carve-outs (Articles 1.4 and 1.5 of the 2018 HKIAC Rules).  First, provisions on early determination and certain aspects of the emergency arbitration regime (relating to the ability to apply for the appointment of an emergency arbitrator prior to the filing of the notice of arbitration) were disapplied in the case of arbitration agreements concluded before 1 November 2018.  Second, provisions on emergency arbitration, consolidation, and single arbitration under multiple contracts were disapplied in the case of arbitration agreements concluded before 1 November 2013, the date on which the previous version of the rules had come into effect.
• The rationale for these carve-outs was to account for the fact that parties might have chosen HKIAC arbitration prior to the introduction of the provisions mentioned above.  Those provisions had a potentially significant impact on various rights and interests of parties, including in certain cases on the right of parties to designate arbitrators.  Accordingly, the default position was that they would not apply where the arbitration agreement had been concluded before they came into effect.
• The relevant provisions have now been in force for a significant period and are well-established and understood, having gained widespread acceptance and popularity amongst users of HKIAC arbitration.  Against that backdrop, and presumably taking account of its own data on the number of cases in which the carve-outs were relevant, the HKIAC appears to have taken the view that it was appropriate to remove them and simplify the position under the 2024 HKIAC Rules.

COMMENT

The HKIAC stated when it launched the public consultation that the 2018 HKIAC Rules have been working well since they came into effect more than five years ago.  Accordingly, the 2024 HKIAC Rules were not intended to be a comprehensive "overhaul", and the overall structure and approach of the 2018 HKIAC Rules remain in place.

At the same time, the 2024 HKIAC Rules represent a significant update which arguably goes beyond the mere fine-tuning of the existing provisions.  The changes fall into three main categories:

1. Provisions which create significant new powers and duties.  These include, for example: the power of the tribunal to "veto" proposed changes in legal representation in order to avoid a conflict of interest; the power of the HKIAC in exceptional circumstances to revoke the appointment of an arbitrator who is unable to fulfil their duties; the incorporation of diversity, environmental and information security considerations; and the power of the HKIAC to review and adjust the fees and expenses of the tribunal.  These are innovative provisions which genuinely “push the envelope” in order to address key concerns within the arbitration community around issues such as efficiency and cost-effectiveness, the increasing use of guerilla tactics, diversity, the environment and the use of technology.  They therefore represent an important contribution to the maintenance of confidence in, and the integrity of, arbitration as a system of dispute resolution which remains fit for purpose in a rapidly changing global environment.
2. Provisions which extend, supplement or update existing powers and duties.  Examples include: the new power of the HKIAC, prior to the constitution of the tribunal, to suspend or terminate the arbitration if deposits for costs are not paid (extended from a power of the tribunal only, once constituted); the provision of a specific deadline for the closure of proceedings by the tribunal (extended from the more general provision under the 2018 HKIAC Rules described above); and the provision of a non-exhaustive list of factors which the tribunal may take into account in relation to costs (amplifying the tribunal's existing discretion in relation to costs).  These provisions represent an important effort on the part of the HKIAC to refine and improve existing provisions, with a view to maintaining efficiency and integrity, and further improving processes, in HKIAC arbitrations.
3. Provisions which essentially codify or confirm existing powers, duties and practices.  These include, for example: the express confirmation of the tribunal's power to determine preliminary issues and bifurcate the proceedings; the clarification that emergency arbitrators may make "interim-interim" orders pending the issuance of their decision; the power of the tribunal to give directions in relation to information security; and the requirement for proposals by the parties as to the number of arbitrators to be reasoned.  These provisions arguably do not create additional powers or duties, and can be seen as useful clarifications “for the avoidance of doubt”.  They help to make the rules more user-friendly and accessible, and reduce the scope for disputes as to the existence or extent of tribunal powers in relation to particular points.

Taken together, the changes represent a significant and welcome package of enhancements.  It is particularly notable that many of the key changes involve new or clarified powers and duties for tribunals and the HKIAC.  The way in which these and other new provisions operate in practice, as well as the response of users to the new rules, will no doubt be closely observed by the HKIAC and the wider Hong Kong arbitration community.