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International Arbitration News, Trends and Cases

Arbitrator bias: should we judge a book by its cover?

This blog post was first published on the Practical Law arbitration blog.

Tribunals have a fundamental duty to act fairly and impartially under section 33(1)(a) of the English Arbitration Act (“AA 1996“). Where a party feels an arbitrator is failing in their duty, pursuant to section 24(1)(a) of the AA 1996:

A party to arbitral proceedings may… apply to the court to remove an arbitrator on any of the following grounds – that circumstances exist that give rise to justifiable doubts as to his impartiality…

English law stipulates a clear, consistent and rigorous approach to determining whether there are justifiable doubts as to an arbitrator’s impartiality, namely the common law test of apparent bias (Locabail v Bayfield). This test examines whether the fair-minded and informed observer, looking at all the facts, would consider there to be bias (Porter v Magill).

Despite this, parties may still come away from arbitral proceedings with concerns that an arbitrator is not impartial, even if such concerns are not sufficient for the court to remove the arbitrator. This problem has led to a renewed debate regarding whether we should consider alterations to the system of unilateral appointments as a solution.

Jan Paulsson and Sundaresh Menon SC, among others, have questioned the status quo. They do not suggest the abolition of party nomination but that improvements are needed, such as creating a disciplinary body for arbitrators or improving the rules on pre-appointment interviews.

Two recent English court cases have illustrated that actions creating an impression of bias may not be sufficient to meet the English law test for apparent bias.

What the English courts say

In H v L and others, H and R had been co-defendants in American proceedings. H settled the claim and sought to claim on its insurance policy with L. L argued the settlement was unreasonable and it (reasonably) had not consented to it. As the co-arbitrators could not agree on a third arbitrator, the selection was referred to the High Court under the arbitration agreement. Following a contested hearing, Flaux J selected M.

M disclosed his role in previous arbitrations involving L. H raised no objection to M’s impartiality at that stage. However, following M’s appointment, H learnt of several facts which led to it making an application to court to have M removed as an arbitrator. H argued M’s conduct gave rise to the appearance of bias due to:

  • M’s acceptance of appointments in arbitrations relating to claims brought against R arising from the same underlying American proceedings.
  • M’s failure to disclose those appointments to H.
  • M’s response to the challenge to his impartiality.

M acknowledged that “it would have been prudent for [him] to have informed [H]…”as it was important both parties “should share confidence that the dispute would be fairly determined on the evidence and the law without bias”.

Popplewell J dismissed H’s claims, finding that the fair-minded and informed observer would not have found any grounds to remove M. However, M’s acknowledgment suggests his actions gave H reasonable concerns as to his impartiality even if they were not sufficient to meet the English law test for apparent bias.

In Symbion Power LLC v Venco Imtiaz Construction Co, the court considered a challenge under section 68 of the AA 1996. However, serious concerns were also raised by the judge (apparently on her own initiative) regarding the conduct of Symbion’s party-nominated arbitrator.

Symbion’s arbitrator had sent an email to Symbion’s counsel headed “HIGHLY CONFIDENTIAL: NOT TO BE USED IN THE ARBITRATION”. It was not copied to the other party or arbitrators. The email expressed negative views about the tribunal chairman.

Jefford J stated that such unilateral contact had been wholly inappropriate because:

the ability of each party to appoint an arbitrator is intended to… give the parties confidence in the balance and fairness of the tribunal. The party-appointed arbitrators patently do not represent the party that appointed them and they are under a duty, as individual arbitrators and as a tribunal, to act fairly and impartially.

Although such a unilateral communication “may give rise to concerns that the arbitrator is not acting fairly or impartially”, it did not lead (perhaps surprisingly) to there being justifiable doubts as to the arbitrator’s impartiality, as, consistent with the English law test, this would turn on the facts of the case as a whole.

Fear of the unknown

Although the English law test was correctly applied, one can see how the parties in the above cases could nonetheless have come away with reasonable concerns as to the arbitrators’ impartiality. Such concerns may create doubt for parties as to the fairness of arbitration proceedings. It does not necessarily matter whether a party has evidence to support its doubt; the impression that some of the tribunal may be influenced against them is enough to give rise to such doubts.

These doubts often arise in part from the misconception that a party-nominated arbitrator is there to represent the relevant party. While this is clearly incorrect, it highlights the question of whether arbitration needs to take steps to address the risk that issues of apparent bias may give rise to doubts about the integrity of the arbitral process.

What can be done?

Some of Paulsson and Menon’s proposals merit serious consideration. Universal adoption of the London Court of International Arbitration (“LCIA“) default appointment rule, limiting the length of pre-nomination interviews and ensuring transcripts of such interviews are made available to the other side may increase parties’ confidence in the impartiality and fairness of arbitrators.

A disciplinary body for arbitrators would inspire greater confidence in arbitration. The proposed disciplinary system would start with an institutional investigation followed by a Charter Institute of Arbitrators (“CIArb“) investigation. CIArb could then punish any guilty arbitrator, publishing, and notifying other institutions of its findings.

However, rigorous scrutiny is required. Any proposals must strengthen arbitration and so care must be taken that they are properly implemented and cannot be used by parties as a tactical tool to delay proceedings or influence arbitrators’ decision-making.

Legal advice privilege in England and the “closest connection” test

This blog post was first published on the Practical Law arbitration blog.

English-seated arbitral tribunals have a great degree of flexibility in determining the applicable rules of privilege. Pursuant to sections 34(1) and 34(2)(d) of the Arbitration Act 1996 (“AA 1996“):

It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter”, including “whether any and if so which documents or classes of documents should be disclosed between and produced by the parties and at what stage.”

However, this flexibility is tempered by the tribunal’s obligation under section 33(1)(a) AA 1996 to act fairly and impartially as between the parties. Further, where the International Bar Association (IBA) Rules on the Taking of Evidence in International Arbitration apply, Article 9.3(e) requires the tribunal to take into account:

… the need to maintain fairness and equality as between the Parties, particularly if they are subject to different legal or ethical rules”, and Article 9.3(c) requires the Tribunal to have regard to “the expectations of the Parties and their advisors at the time the legal impediment or privilege is said to have arisen”.

The need to treat both parties fairly and equally therefore has to be balanced against the fact that, where (as is often the case) the parties come from different jurisdictions, they may have taken advice from their respective legal advisers (whether internal or external) on the basis that it would be protected by the rules of privilege that apply in their jurisdiction(s).

The “closest connection” test in international arbitration

One approach is simply to impose the privilege rules of either the law of the seat or the governing law of the contract and therefore require both parties to take the same approach to privilege issues that may arise during the document production process. However, tribunals are often reluctant to do so in case the outcome does not accord with the legitimate expectations of the parties at the time when the legal advice in question was given (for example, whether or not advice given by an in-house lawyer would be privileged). This may be a particular concern where the parties have chosen a seat of arbitration or a substantive governing law on the basis of its neutrality, and it has no connection to the nationality of either party or their legal advisers at the time when the advice was given.

Some tribunals therefore adopt a “closest connection test” as an alternative. This seeks to balance a number of different factors in order to determine the law applicable to privilege issues. These may include the:

  • Governing law of the contract.
  • Law of the seat of arbitration.
  • Place where the advice was given.
  • Place where it was received.
  • Jurisdiction where the lawyer giving the advice was admitted.
  • Country where the documents are held.

The approach of the English courts: the RBS Rights Issue Litigation

However, this approach now stands in sharp contrast to the decision of the English High Court in December 2016 on the availability of legal advice privilege. In the RBS Rights Issue Litigation, the High Court confirmed that the English courts will apply English law, as the lex fori, when determining questions of privilege.

The judgment in the RBS Rights Issue Litigation was concerned with the availability of legal advice privilege over records of interviews conducted by US lawyers in a fact-gathering investigation (in circumstances where litigation privilege was therefore unavailable). One of the issues that arose for determination was whether the availability of legal advice privilege fell to be determined under English law, or whether (as RBS contended) the English court should have applied US privilege rules, which would have afforded the interview records a much broader degree of protection against disclosure.

While acknowledging the long-established position (dating back to Lawrence v Campbell) that the English courts will apply English rules of privilege, as the lex fori, RBS proposed an entirely new choice of law rule:

Save where to do so would be contrary to English public policy, the English court should apply the law of the jurisdiction with which the engagement or instructions, pursuant to which the documents came into existence or the communications arose, are most closely connected.

This proposed rule was rejected by the High Court on the basis that it was established practice to apply English law as the lex fori, and there was no reason (including the regularity with which multi-jurisdictional litigation is now heard by the English courts) to depart from it. In doing so, the court recognised that this was in part driven by practical considerations: if a different test were to be applied, the English courts could be required to apply different rules of privilege depending on the particular case. There were also relevant considerations of public policy: the English system of litigation prefers “the fullest available record” of documentary evidence to be available to assist the decision-maker.

RBS’s proposed “closest connection test” focussed on the circumstances in which the advice was given, rather than taking into account the laws applicable to the dispute. It is worth noting that, on the basis of the “closest connection test” as it is understood in international commercial arbitration, an English-seated tribunal may well have concluded that notes of interviews carried out by US lawyers, (at least in part) in the USA, and which were understood to be privileged at the time when they were created, were protected by legal advice privilege.


It is understood that RBS will not appeal the first instance decision. This aspect of the judgment therefore potentially puts the approach of the English courts to the law governing applicable rules of privilege at odds with the approach often taken in English-seated international arbitrations. Of course, there is nothing inherently wrong in that from a legal perspective; there is no reason why parties who have agreed to arbitrate in England should be subject to the rules applicable to English court practice. Furthermore, given the relatively broad scope of privilege under English law, the instances when one party looks to assert a broader scope of privilege than that provided for under English law may be relatively rare in practice. Nonetheless, in an era where (as acknowledged in the RBS Rights Issue Litigation judgment) English law increasingly views legal advice privilege as a substantive right, and large multi-jurisdictional disputes are regularly brought to England for resolution in both litigation and arbitration (often simply because it is a neutral forum), any significant disparity in the level of protection that parties might be able to assert over their documents may be regarded by some as a surprising outcome.


Arbitration: a new forum for business and human rights disputes?

This blog post was first published on the Practical Law Arbitration Blog.

On 27-29 November 2017, the United Nations Forum on Business and Human Rights will convene in Geneva. Its central theme: Access to Effective Remedy. In line with this shifting focus by the international community on the third pillar of the UN Guiding Principles on Business and Human Rights (UNGPs), a working group of international law specialists published a proposal to use arbitration to resolve disputes that arise out of human rights abuses involving businesses (BHR disputes).

The proposal for the “International Arbitration of Business and Human Rights Disputes” was published on 13 February 2017 and formally presented on 23 March 2017 at an event hosted by the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) (attended and commented on by Hogan Lovells partner Julianne Hughes-Jennett). On 17 August 2017, the Working Group followed up with the publication of a “Questions & Answers” paper addressing key issues raised by consulted stakeholders.

According to the proposal, arbitration could be adapted for use in BHR disputes either:

  • By victims of human rights violations who wish to bring claims against businesses.
  • To resolve disputes involving human rights-related claims between commercial parties (for example, where a supplier fails to comply with certain contractually-imposed human rights obligations).

The proposal is not intended to replace any existing means of redress. Rather, the intention is to offer a potentially more effective alternative.

According to the working group, international arbitration “holds great promise” as a method of resolving BHR disputes, which often occur in regions where national courts are “dysfunctional, corrupt, politically influenced or simply unqualified”. Indeed, arbitration offers many advantages:

  • A neutral forum, whereas domestic or international courts may face political pressure.
  • Impartial judges with expertise in human rights, and who are selected by the parties.
  • Procedural flexibility.
  • Greater efficiency (compared with many domestic court systems).
  • Universal recognition (the New York Convention provides for the recognition and enforcement of arbitral awards; it is subject only to limited grounds for refusal and applies in 157 countries).

Commentators from the human rights and arbitration communities have reacted to this innovative proposal with a number of questions, including:

  • How would businesses and victims of human rights violations submit to arbitration in practice for disputes not arising out of an existing contract containing an agreement to arbitrate? There would need to be a voluntary submission to the arbitral process after the harm or event in question has occurred. This may be difficult to achieve in practice. One option suggested by the working group is that commercial contracts could specifically identify as “third party beneficiaries” classes of victims that could initiate or participate in future arbitrations.
  • What norms or laws would be applied by the arbitral tribunal? According to the working group, the applicable norms or laws could be incorporated by reference in the contract or agreement to arbitrate. However, what would those applicable norms or laws be? Do they recognise corporate liability for human rights violations? Indeed, the question of whether corporations can be liable for violations of human rights under international or domestic law remains an open one in many jurisdictions (see, for example, Kiobel v Shell and Jesner v Arab Bank in the US). As for the possibility of incorporating the UNGPs or other voluntary principles, what are the implications of making obligations contractual and enforcing obligations that were only ever intended to be soft law?
  • Is a private forum like arbitration appropriate for resolving human rights disputes? The importance of ensuring transparency in human rights cases is potentially inconsistent with the confidentiality that is usually associated with arbitration. Some also argue that, as a matter of public policy, human rights should remain the prerogative of national courts. Those in favour of the proposal highlight the greater neutrality and impartiality offered by arbitration, which may be welcome in politically or emotionally charged disputes. It may also be possible to modify the arbitration process to make it more transparent and public for BHR disputes (in the same way that such transparency is increasingly a feature of investment treaty arbitration). Of course, the affected parties would need to consent to arbitrate the dispute in the first place.
  • How would victims of human rights violations afford the cost of arbitration? The working group’s response to this “inequality of arms” concern is that funding and support could be found for arbitration proceedings in the same way as it is currently found for domestic litigation. Alternatively, dedicated funds for the arbitration of BHR disputes could be established; similar perhaps to the Permanent Court of Arbitration’s Financial Assistance Fund, which helps developing countries meet their costs in investor-state arbitrations.
  • What recourse would a defendant business have to dismiss unfounded claims? It is true that, compared with the mechanisms available in domestic courts, arbitration offers limited options for summary dismissal of spurious claims. However, addressing this perceived shortcoming could be considered in the context of adapting the arbitration process for BHR disputes.

The working group acknowledges that existing procedural arbitration rules are inadequate for dealing with BHR disputes, and that tailored arbitration rules should be developed. These should take into account the need for greater transparency, how to accommodate multiple victims and protect vulnerable victims, and whether awards should be subject to appeal. The working group is in the process of convening a drafting committee for this purpose.

Although this initiative still has some way to go before it could work in practice, the implementation of the UNGPs by corporations is leading to an increased incidence of “BHR clauses” in commercial contracts (imposing human rights compliance obligations on business counterparties, for example, suppliers). As a result, arbitral tribunals may, in any event, find themselves determining business-to-business BHR disputes before too long.

Hong Kong Court Refuses to Grant Crown Immunity to PRC State-Owned Enterprise

In TNB Fuel Services SDN BHD v. China National Coal Group Corporation HKCFI 1016 (“TNB Case“), the Court of First Instance (“CFI“) ruled that a PRC state-owned enterprise (“SOE“) was not entitled to Crown immunity. It upheld an arbitration award to be enforced against the SOE’s assets in Hong Kong.

The TNB Case clarifies the position that any assertion of Crown immunity must come from the Crown; in this case by the Central People’s Government (“CPG“). SOEs will unlikely be granted Crown immunity, entitlement to which will be assessed by the degree of control asserted on an SOE by the CPG.

The TNB Case suggests that an SOE with mainly commercial activities will unlikely be able to invoke Crown immunity.

Crown immunity

Crown immunity refers to a doctrine that the Crown enjoys immunity from being sued in its own courts. Such immunity was previously enjoyed by the British Crown and was transferred to the CPG when Hong Kong returned to China in 1997.

In the TNB Case, China National Coal Group Corporation (“Respondent“) was an SOE. It tried to invoke Crown immunity to resist the enforcement of an arbitration award against its assets in Hong Kong. It claimed to be an entity under full control of the State-Owned Assets Supervision and Administration Commission (“SASAC”), which acted on behalf of the CPG.

The CFI rejected the Respondent’s argument based on two grounds:

  1. The Respondent failed to show that it had authority to assert Crown immunity on behalf of the CPG, and that no such claim had been validly made on behalf of the CPG; and
  2. The CFI found as a matter of fact that under PRC law, the Respondent was neither a part of the CPG, nor SASAC.  In this regard, the Respondent failed to satisfy the “control test”.

Assertion of Crown immunity

Any assertion of Crown immunity must come from the Crown, in this case, the CPG as the highest executive body as defined in Articles 85 and 86 of the Chinese Constitution.

In The Hua Tian Long (No.2) [2010] 3 HKLRD 611 (“HTL Case”), Justice Stone (as he then was) advocated the adoption of a certification procedure; it was unsatisfactory for the court to referee a dispute on Crown immunity based on adversarial expert evidence.

In this case, there was no assertion made by the Respondent that it was authorised by SASAC or the CPG, or any other authority than the Respondent itself, to make the claim of Crown immunity.

The CFI highlighted that even in the HTL Case, the evidence from the manager of the defendants was that he was authorized and instructed by the Ministry of Communications, Guangzhou Salvage Bureau of the CPG, and not just by the defendants, to support the defendants’ entitlement to Crown immunity.

In rejecting the Respondent’s assertion of Crown immunity, the CFI placed great weight on a letter issued by the Hong Kong and Macao Affairs Office of the State Council (“HK Office“), which is an administrative office under the State Council, which, under the PRC Constitution, is the highest organ of state power and administration.

The letter stated that the Respondent is an independent legal entity carrying out activities of production and operation on its own, with no special status or interests superior to any other enterprises.  As a SOE, the Respondent was not considered as a part of the CPG, nor was it deemed as performing functions on behalf of the CPG, when the Respondent carried out commercial activities.

Control test

In the TNB Case, the CFI applied the “control test” to determine the degree of control asserted by the CPG on the Respondent. The CFI listed relevant factors which have been considered by the courts in applying the control test:

  1. independent discretion enjoyed by the entity;
  2. control exercised by the Crown as investor;
  3. the separate legal personality of the entity;
  4. the power of the Crown to appoint and remove senior officers of the entity; and
  5. the financial autonomy of the entity.

The CFI ruled that the Respondent had full autonomy and extensive independence in making decisions regarding its business, financial and management matters. For example, the board had powers and authority under the Articles (approved by SASAC) to determine its own investment plans, approve its annual financial budget, exercise management rights and appoint or dismiss its management team. It functioned just like other business enterprises and did not require approval from the SASAC or CPG in carrying out its daily activities or operations. The CFI stated it was significant that the Respondent had the right under the Assets Law to possess, use, profit from and dispose of its property.  Although the Respondent was wholly owned by SASAC, SASAC only acted like a normal controlling shareholder of any company. Therefore, the Respondent was an independent legal entity separated from the CPG.

Distinguished from The Hua Tian Long (No.2)

The HTL Casewas the first case that addressed the issue on “Crown immunity”. In that case, the CFI granted Crown immunity to a public institution after applying the “control test”.

Nevertheless, the TBN Case can be distinguished from the HTL Case. In the latter case, the public institution had no shareholder and no paid up capital. It had no right to use or dispose its assets. Therefore, the CFI decided that the public institution formed part of the Ministry of Communications. This decision is consistent with the TBN Case.

Key points

  1. Crown immunity remains available to PRC public institutions  in respect of suits, enforcement, and the execution of assets before the Hong Kong courts.
  2. The entity relying on the Crown immunity claim has to satisfy the “control test”, which will be determined by the Hong Kong courts on a case-by-case basis.
  3. An SOE will unlikely enjoy Crown immunity as it is not a part of the CPG in the execution of any government function.
  4. SOEs with mainly commercial business will unlikely be able to invoke Crown immunity if they enjoy a high degree of independence and autonomy in the overall decision making process.
  5. If a Chinese entity intends to assert Crown immunity, it should seek endorsement from the CPG beforehand.
  6. For companies that want to do business with a PRC entity, they should consider the following measures:

a. Identify whether the entity is an SOE or a public institution. If it is the former, it is unlikely that an SOE will enjoy Crown immunity.  If it is the latter, Crown immunity will more likely be available;

b. Identify the main activities conducted by the entity. Is it mainly commercial or governmental?

c. Regardless what the answer is, waivers of the right to claim Crown immunity should be sought from the entity. However, it has not  been tested whether such pre-contractual waivers are enforceable against entities  that enjoy Crown immunity in Hong Kong.


  1. The TNB Case suggests that Crown immunity will unlikely be  available to PRC state-owned entities. Hence, they can be sued in the Hong Kong courts, and enforcement and execution can be made against their assets. This decision should provide comfort to international investors doing business with Chinese SOEs.
  2. The position may, however, be different with regards to SOEs in foreign states, central banks, and sovereign wealth funds, which may be able to claim state immunity in the Hong Kong courts if they are deemed to be part of the ‘state’ or a state organ.  How a Hong Kong court would decide whether a foreign SOE, central bank and sovereign wealth fund is a state entity is, however, untested.
  3. This is another arbitration friendly decision by the Hong Kong courts confirming the enforcement of an arbitral award by way of charging order.  Awards have consistently been enforced against Chinese SOEs by the Hong Kong courts.  For example, Hogan Lovells acted for Shandong Hongri Acron Chemical, a subsidiary of a Russian entity, in the enforcement of a CIETAC award against Petrochina International (HK) Corporation, a subsidiary of a large Chinese SOE: Shandong Hongri Acron Chemical. Joint Stock Co v. PetroChina International (HK) Corp [2011] HKCA 168.
  4. The consistent enforcement of arbitral awards against Chinese SOEs by the Hong Kong courts aligns with a recent survey on Judicial Independence released by the World Economic Forum for 2016-2017.  Hong Kong is ranked 8th overall but 1st in Asia, ahead of other arbitration friendly jurisdictions such as London (the U.K. is ranked 9th) and Singapore (ranked 23rd).

PRC Court refuses to enforce SIAC arbitral award made by one arbitrator under expedited arbitration procedures when arbitration agreement provided for three arbitrators

In Noble Resources International Pte. Ltd v. Shanghai Good Credit International Trade Co., Ltd. (2016) Hu 01 Xie Wai Ren No. 1, the Shanghai No.1 Intermediate People’s Court in a judgment dated 11 August 2017 refused recognition and enforcement of a Singapore International Arbitration Centre (“SIAC“) arbitral award under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (“New York Convention“) on the basis that the composition of the arbitral tribunal and/or the arbitral procedure was not in accordance with the agreement of the parties.

The case arose out of the recently replaced SIAC 2013 arbitration rules (“SIAC Rules“).  Article 5 of the SIAC Rules provided for the expedited procedure:

5.1           Prior to the full constitution of the Tribunal, a party may apply to the Registrar in writing for the arbitral proceedings to be conducted in accordance with the Expedited Procedure under this Rule where any of the following criteria is satisfied:

a. the amount in dispute does not exceed the equivalent amount of S$5,000,000, representing the aggregate of the claim, counterclaim and any set-off defence;

b. the parties so agree; or

c. in cases of exceptional urgency

5.2           When a party has applied to the Registrar under Rule 5.1, and when the President determines, after considering the views of the parties, that the arbitral proceedings shall be conducted in accordance with the Expedited Procedure, the following procedure shall apply:

a. The Registrar may shorten any time limits under these Rules;

b. The case shall be referred to a sole arbitrator, unless the President determines otherwise;

c. Unless the parties agree that the dispute shall be decided on the basis of documentary evidence only, the Tribunal shall hold a hearing for the examination of all witnesses and expert witnesses as well as for any argument;

d. The award shall be made within six months from the date when the Tribunal is constituted unless, in exceptional circumstances, the Registrar extends the time; and

e. The Tribunal shall state the reasons upon which the award is based in summary form, unless the parties have agreed that no reasons are to be given.

Under Article 5.1 of the SIAC Rules, a party may apply to the Registrar of SIAC for the arbitral proceedings to be conducted in accordance with the expedited procedure. If the expedited procedure applies, the arbitration is to be referred to a sole arbitrator, unless the President of SIAC determines otherwise.  The Iron Ore Sale & Purchase Agreement dated 29 October 2014 (“Contract“) between Noble Resources International Pte Ltd of Singapore (“Claimant“) and Shanghai Good Credit International Trade Co., Ltd. of China (“Respondent“) incorporated a Standard Iron Ore Trading Agreement (“Standard Agreement“).  Article 16 of the Standard Agreement contained the arbitration agreement and Article 16.1.1 provides for three arbitrators.

The dispute was in respect of the sale and purchase of iron ore.  The Respondent failed to issue a letter of credit to the Claimant to pay for the goods as required under the Contract, and it was ultimately terminated.  On 14 January 2015, the Claimant served a Notice of Arbitration and applied to SIAC for the proceedings to be conducted under the expedited procedure on the basis of the amount in dispute being under S$5 million.  SIAC accepted the application for the arbitration to be conducted pursuant to the expedited procedure on 17 February 2015.  On 20 April 2015, SIAC appointed a sole arbitrator for the case.  On 16 July 2015, a hearing was conducted before the sole arbitrator.  The Respondent objected to the expedited procedure and the appointment of a sole arbitrator but did not otherwise participate in the arbitration and the Final Award was made in their absence.  The Final Award was issued on 26 August 2015. The sole arbitrator awarded the sum of US$1,603,100 to the Claimant representing damages for breach of contract.

When it came to recognition and enforcement of the arbitral award in Mainland China, the Respondent challenged enforcement under the New York Convention and Article 283 of the Civil Procedure Law of the PRC, based on a number of grounds.

One ground was the composition of the tribunal was not in accordance with the agreement of the parties as stipulated in the arbitration clause, as under the Contract it was expressly stated that the tribunal would comprise of three arbitrators, but in this case only a sole arbitrator was appointed.  The Respondent had not accepted the composition of the tribunal and it had strongly opposed the appointment of a sole arbitrator, objecting on multiple occasions.  Accordingly, the composition of the arbitral tribunal and/or the arbitral procedure was not in accordance with the agreement of the parties.

The Court’s reason for refusal of recognition and enforcement was Article V(1)(d) of the New York Convention – the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties.

First, the arbitration agreement in the Contract provided for three arbitrators.  Accordingly, the arbitral proceedings and composition of the tribunal should have complied with the arbitration agreement.

Second, the adoption of the expedited procedure in this case was in line with Article 5.1 of the SIAC Rules as the disputed amount did not exceed S$5 million.  Accordingly, the Court was of the view that the adoption of the expedited procedure by SIAC was not contrary to the agreement of the parties.

Third, regarding the composition of the tribunal, the Court commented that the 2013 SIAC Rules neither excluded the adoption of an alternative composition of the tribunal in proceedings conducted under the expedited procedure, nor does it specify that the President of SIAC can have the right to invoke Article 5.2(b) regarding the appointment of a sole arbitrator when the parties have agreed on the composition of the tribunal.  Article 5.2(b) of the SIAC Rules stating “the case shall be referred to a sole arbitrator, unless the President determines otherwise” should not be interpreted that the President of SIAC having absolute discretion on the composition of the tribunal; on the contrary, when exercising its discretion, the President must give full consideration to the parties’ agreement with respect to the composition of the tribunal in order to preserve party autonomy.

Since the parties had already expressly agreed in the arbitration agreement that the tribunal shall comprise of three arbitrators and did not exclude this composition of the tribunal in the expedited procedure, the adoption of the expedited procedure should have been referred to a three member tribunal.  The Court considered that use of the expedited procedure should not prevent the parties from exercising their fundamental rights to an arbitration comprised of three arbitrators as stipulated in the arbitration agreement.  In this case, the Court considered appointment of a sole arbitrator in accordance with Article 5.2 of the SIAC Rules was a breach of the arbitration agreement when the arbitration agreement had provided for three arbitrators and the Respondent had expressed its strong opposition against the appointment of a sole arbitrator.  Accordingly, this fell within Article V(1)(d) of the New York Convention and the award should not be recognized and enforced.


Users of arbitration want efficiency and economy in the arbitral process.  The availability of expedited procedures providing for arbitrations conducted under shortened time limits and an award to be rendered within six months from the date when the institution transmits the file to the tribunal is commonplace under the leading institutional arbitral rules and reflects international best practice.  The SIAC and HKIAC have had 207 and 20 arbitrations conducted under their expedited procedures respectively, and client feedback has been very positive.

In the 2015 International Arbitration Survey “Improvements and Innovations in International Arbitration” conducted by Queen Mary University of London, 92% of respondents favoured the inclusion of simplified procedures in institutional rules for claims under a certain value.  33% of respondents would have this as a mandatory feature and 59% as an optional feature.

However, the effectiveness of expedited procedures depends ultimately on the enforcement of an award rendered from such procedures.

The PRC courts have a good track record of enforcement and their concern in this case is not with the expedited procedures themselves.  Although the PRC courts are becoming more arbitration friendly and have upheld arbitration agreements providing for ICC arbitration in Shanghai and Beijing, and the validity of a “hybrid” arbitration clause providing for arbitration at CIETAC under the UNCITRAL Arbitration Rules proceedings, the Shanghai Intermediate People’s Court in this case upheld the parties’ agreement in their arbitration clause to have a three member tribunal.  Where the decision is significant is that it treated the stipulation of three arbitrators as paramount, and did not read the expedited procedural provisions of the former version of the SIAC Rules as allowing SIAC to appoint a sole arbitrator when the arbitration agreement required three.

PRC courts have also upheld the parties’ agreement on the arbitration procedure in other enforcement cases.  For example, in Alstom Technology Ltd. v. Insigma Technology Co. Ltd., the Hangzhou Intermediate People’s Court refused to enforce a SIAC award on the ground that the constitution of the tribunal, with reference to the SIAC rules, was not in accordance with the parties’ agreement that SIAC administer the ICC Rules in the arbitration clause.  The refusal of enforcement was upheld by the Supreme People’s Court.

It is significant that this case is based on the 2013 version of the SIAC Rules.  In 2016, SIAC published an updated version of its rules to put this issue beyond doubt.  In respect of the expedited procedure, Article 5.3 now states that “[b]y agreeing to arbitration under these Rules, the parties agree that, where arbitral proceedings are conducted in accordance with the Expedited Procedure under this Rule 5, the rules and procedures set forth in Rule 5.2 shall apply even in cases where the arbitration agreement contains contrary terms.” The PRC Court would have come to a different conclusion under the revised 2016 SIAC Rules.

The inclusion of the above provision in the 2016 SIAC Rules was partly due to the decision of AQZ v. ARA [2015] SGHC 49 in which the Singapore High Court considered a setting aside application to an award made under the expedited procedure of the SIAC Rules.  In that case, the parties had entered into an agreement in 2009 regarding the sale and purchase of Indonesian non-coking coal.  Arbitration was commenced by the buyer in 2013, and SIAC proceeded with the appointment of a sole arbitrator under the expedited procedure, with the seller reserving its rights of challenge.  In the Singapore setting aside proceedings, the seller argued that the rules in force at the time of the parties’ contract were the 2007 SIAC Rules (which had no expedited procedure), and therefore the conduct of the arbitration under the expedited procedure of the 2010 SIAC Rules was not in accordance with the parties’ agreement. The seller also argued that the parties had expressly agreed to arbitration before three arbitrators, and that therefore the conduct of the expedited arbitration before a sole arbitrator was not in accordance with the parties’ agreement.  However, the Singapore High Court rejected the challenges to both the applicability of the expedited procedure and the appointment of a sole arbitrator, and placed emphasis on SIAC’s role in arbitrator appointments under the SIAC Rules.

Institutions have taken different approaches to the composition of the tribunal when applying their expedited procedures.  For example, the ICC amended its rules in March 2017 to provide for an expedited procedure.  Adopting a similar approach to SIAC, Article 30(1) states that “[b]y agreeing to arbitration under the Rules, the parties agree that this Article 30 and the Expedited Procedure Rules set forth in Appendix VI (collectively the “Expedited Procedure Provisions”) shall take precedence over any contrary terms of the arbitration agreement.

In drafting the arbitration clause, for parties who want three arbitrators to decide their disputes under the expedited procedures of the ICC and SIAC arbitration rules, they are advised to stipulate this in their arbitration clause.

The Hong Kong International Arbitration Centre (“HKIAC“) has taken a different approach.  Article 41.2 of the HKIAC’s Administered Arbitration Rules (“HKIAC Rules“) provides that “[w]hen HKIAC, after considering the views of the parties, grants an application made pursuant to Article 41.1 [the Expedited Procedure], the arbitral proceedings shall be conducted in accordance with an Expedited Procedure based upon the foregoing provisions of these Rules, subject to the following changes:

a. the case shall be referred to a sole arbitrator, unless the arbitration agreement provides for three arbitrators;

b. if the arbitration agreement provides for three arbitrators, HKIAC shall invite the parties to agree to refer the case to a sole arbitrator. If the parties do not agree, the case shall be referred to three arbitrators;

In this regard, the HKIAC rules preserve party autonomy, and the quantum of a dispute does not necessarily correlate with its complexity.

This case is potentially significant for claimants with arbitration agreements stipulating three arbitrators who are considering using the expedited procedures under two older versions (2010 and 2013) of the SIAC rules. If they intend to enforce the award in the PRC, they can still enjoy the benefits of expedited arbitration but should ask for three arbitrators to be appointed.  The 2016 SIAC rules address this situation.  It is interesting in this case that the Claimant had indicated that it was prepared to agree to a tribunal consisting of three arbitrators subject to the Respondent indicating that it would pay the costs of a three member tribunal.  Since this did not happen, and there was no agreement on a three member tribunal, SIAC appointed a sole arbitrator.

In the PRC, if the Intermediate People’s Court refuses recognition and enforcement of a foreign arbitral award (including a Hong Kong award), it must submit the case to the Provincial Higher People’s Court for review before issuing its ruling.  If the Higher People’s Court agrees with the ruling, it must report to the Supreme People’s Court.  A ruling refusing recognition and enforcement of a foreign arbitral award can only be issued after the Supreme People’s Court makes a formal reply.

We understand that the Shanghai Intermediate People’s Court referred the matter to the Supreme People’s Court before issuing the judgment. Therefore, the judgment already reflects the Supreme People’s Court’s position.

Will life sciences provide a growth injection for international arbitration?

This blog post was first published on the Practical Law Arbitration blog.

The use of international arbitration has expanded over the years to encompass a wide array of sectors. For example, while the majority of financial services disputes still end up in court, many of them are submitted to arbitration. Of the London Court of International Arbitration’s (LCIA’s) caseload in 2016, 20% comprised of such disputes. This was more than either construction or shipping.

This raises the question of which other industry sectors might provide a larger number of arbitrations in the future. One possibility is life sciences.

This industry sector is already the joint fifth biggest contributor to the LCIA’s caseload. It comprises 15% of arbitrations and mediations sent to the World Intellectual Property Organization (WIPO), and various institutions (including the International Chamber of Commerce (ICC) and American Arbitration Association (AAA)) have seen steady growth in the number of life sciences disputes referred to them. There are also reasons to suggest that the number of life sciences arbitrations may increase.

The life sciences industry has a global reach

The life sciences sector is a truly global industry. Life sciences giants frequently expand out of their home markets in search of better growth opportunities in emerging markets. Many of those emerging markets already have their own life sciences companies with significant annual revenues. For example, Mexico, India, Indonesia and South Africa all have pharmaceutical companies with turnover close to US $1 billion.

In addition, the complex supply and distribution chains employed by many life sciences companies often span multiple jurisdictions, as do the joint venture and licensing arrangements that many of these companies utilise.

Arbitration is well-suited for the resolution of disputes arising out of these types of complex, multi-jurisdiction arrangements, particularly given:

  • The neutrality resulting from neither party submitting to the “home” courts of the other party.
  • That any resulting arbitral award will be enforceable in any of the 157 countries that are signatories to the New York Convention.

The life sciences industry is growing

The life sciences industry has grown considerably in recent years (and is expected to continue growing). A consideration of some of the factors behind that growth suggests that more growth will likely result in the need to resolve a greater number of disputes.

Considerable growth for many companies has also been achieved through the significant consolidation that has occurred in the market in recent years. For example, in 2015, 236 mergers and acquisitions between pharmaceutical companies were closed worldwide, for a total value of over US $403 billion combined. Not only is this a good indicator of the potential future growth of the sector, it may also lead to further disputes. Again, the complex cross-border nature of many of these mergers and acquisitions is an indication that arbitration is likely to be used as a dispute resolution mechanism.

Further growth potential for the industry lies in the proliferation of newer, innovative companies specialising in biotech and medical devices. As these companies seek to compete or seek synergies with more established players, disputes may arise. Many of these disputes will be well suited to arbitration if the commercial arrangements are multi-jurisdictional or confidential.

Arbitration has other benefits for life sciences companies

There are significant additional benefits to arbitration for life sciences companies which, as they become more widely known, may result in those companies choosing arbitration for the resolution of certain disputes.

One such benefit is the confidentiality of arbitration. In particular, this provides a further level of protection for companies concerned about intellectual property or trade secrets being released in the public domain. For companies whose value can rest on the strength and exclusivity of their intellectual property, this is not an advantage to be overlooked. It has been recognised in certain instances already; for example, in Portugal, specific legislation (Decree Law 62/2011) has been enacted, mandating arbitration for intellectual property disputes in the pharmaceutical sector.

A further advantage is the ability for the parties to appoint arbitrators with the specialised skills required to resolve life sciences disputes. There is an increased trend of arbitration clauses in life sciences agreements requiring arbitrators to have certain qualifications or experience. A number of arbitral institutions (such as the International Centre for Dispute Resolution (ICDR)/AAA) now have panels of arbitrators with specific life sciences experience.

Scope for related disputes

In recent years there have been several investment treaty arbitrations relating to life sciences companies. This is in addition to litigation within the EU which considers the impact of EU competition law on arbitral awards involving life sciences companies. This is not surprising given that the sector is heavily regulated.

In conclusion, life sciences disputes already form a significant number of arbitration disputes and the number of arbitrations in the sector looks set to grow. In particular, while litigation will doubtless remain a mainstay for the resolution of life sciences disputes, the combination of the growth and increasing globalisation of the industry, with the benefits that arbitration offers for the resolution of complex multi-jurisdictional disputes, suggests that there are likely to be more life sciences arbitrations too.


CPR Appoints New Cyber Panel Ahead of Anticipated Increase in Data Security Disputes

The International Institute for Conflict Prevention and Resolution, a New York-based organisation offering Alternative Dispute Resolution (ADR) services, has recently announced the launch of a new specialised panel of neutrals, commissioned to deal with cybersecurity disputes. The Cyber Panel is composed of experts in cyber-related areas such as data breaches and subsequent insurance claims. In a press release, Noah Hanft, President of CPR, described the new panel as guiding the “critical effort” by businesses to “prevent and/or resolve cyber-related disputes in a manner that best protects operations, customers and reputation” due to attacks now occurring with increased frequency and sophistication.

CPR’s decision to establish a specialist cyber panel addresses a perceived need for arbitrators and mediators with relevant expertise, given that data protection and security breaches are regarded as an increasingly common cause of technology, media, and telecommunications (TMT) disputes, and therefore a significant growth area for commercial dispute resolution. According to the 2016 International Dispute Resolution survey on TMT disputes conducted by the School of International Arbitration at Queen Mary University of London, respondents predicted a 191% increase in disputes related to data/system security breaches, the largest growth area identified by the survey.  Despite the fact that only 9% of respondents had encountered such disputes over the last five years, 79% of respondents thought that they were either likely or very likely to arise over the next five years. The survey also suggested that data breaches are most often caused by employee action, followed by malicious third party attacks, with both being more common than breaches caused by system failures.

Given the significant reputational and financial damage that can result from a data security breach, it is crucial to resolve subsequent disputes through the use of a reliable procedure which is tailored to the wider commercial context. This is why TMT companies are increasingly often turning to international arbitration which, as the survey shows, was respondents’ preferred mechanism for resolving disputes in the sector. Compared to the 43% of respondents who expressed a preference for arbitration, only 15% chose court litigation as their most favoured option. However, at present, litigation remains the most used mechanism in practice, used in relation to 44% of TMT disputes over the last five years. In that regard, the authors of the survey add that many of these disputes arise from contracts which were concluded long before arbitration grew in popularity and consequently, they do not include an arbitration clause. If this is true, we are likely to witness a significant increase in the number of TMT arbitrations. Indeed, 82% of respondents believed that there was likely to be a general increase in TMT arbitrations.

In general, the survey suggests that TMT companies may require more confidence in international arbitration in order to make this theoretical preference a reality. One way in which this could be addressed is by increasing the number of arbitrators with specialist knowledge of the sector and the specific issues in dispute. This approach appears to correspond with the views of the respondents to the Queen Mary University of London survey, which identified the technical expertise of the decision maker as an important aspect when deciding on a dispute resolution mechanism, as well as decision makers. In light of this conclusion, it was a logical step for CPR, which already has a series of specialist panels in other areas, to appoint a specialised Cyber Panel which may appeal to parties faced with disputes relating from data security breaches. More generally, there seems to be a wide consensus that cybersecurity-related arbitration is going to be an area of future growth.

ICC opens in the Abu Dhabi Global Market

The International Chamber of Commerce (“ICC“) has announced that it will open a new arbitration centre in the Abu Dhabi Global Market (“ADGM“), Abu Dhabi’s financial freezone located in the Al Maryah Island, which began operating in 2014. The centre will be known as the ADGM Arbitration Centre and is expected to open for business in January 2018.

The ICC is a reputable and leading international arbitral institution with its headquarters in Paris. The ADGM Arbitration Centre will be the ICC’s third representative office worldwide – joining Shanghai and Sao Paolo – in addition to the ICC’s case management offices in Hong Kong and New York. Notably, this will be the ICC’s first office in the Middle East and is a reflection of the increasing recourse to international arbitration in the region.

The opening of the ADGM Arbitration Centre will likely compete with the DIFC-LCIA, the offshore arbitration centre established in Abu Dhabi’s neighbouring Emirate of Dubai as well as “onshore” institutions such as the ADCCAC and the DIAC. However, it remains to be seen whether the ADGM Arbitration Centre will become a popular choice for arbitration. The question of enforcement of arbitral awards will likely play an important role in that regard, though the choice of the seat is the more relevant factor for enforcement. It will also be interesting to see if Abu Dhabi state-owned entities opt to choose the ADGM Arbitration Centre for their dispute resolution clauses in contracts which otherwise have no nexus to the ADGM.

We outline below some of the key characteristics of the ADGM:

Arbitration Regulations

  • The ADGM’s Arbitration Regulations 2015 are modelled on the UNCITRAL Model Law (“Model Law“), which is internationally recognised and widely used by many States as the basis of their own arbitration law.
  • ​There are some departures from the Model Law to account for regional considerations, which will likely make it an even more attractive forum for resolving disputes in the region. These include:
  1. Confidentiality and privacy: There is limited scope for the disclosure of the existence of arbitration proceedings and the award. There is a requirement that court proceedings related to arbitration be held in closed court; and
  2. Challenging enforcement of awards: Parties can agree in advance to dispense of or limit their right to bring an action to set aside an arbitral award, making the award final and not subject to any appeal, thereby reducing the involvement of the courts. However, if a party seeks to enforce the award in the ADGM Courts, the other party could still challenge the validity of the award based upon the grounds specified in the ADGM’s Arbitration Regulations 2015.

English common law

  • The ADGM directly adopts English common law (including the principles of equity), as well as a defined list of certain statutes in force in England by reference. It is important to note that not all English statutes apply as ADGM law – only those which have been expressly adopted.
  • The English Arbitration Act 1996 has not been adopted and does not apply. Instead, the ADGM Arbitration Regulations 2015 referred to above are applicable.
  • The ADGM has its own Court Procedure Rules (“CPR“) and Regulations. The CPR deals with applications to the court, including applications for the enforcement of an arbitral award.

This announcement, combined with the anticipated enactment of a new federal arbitration law in the UAE later this year, is a welcome development to the UAE’s arbitration scene and is in line with the region’s efforts to become more arbitration friendly.

Hong Kong court appoints receivers to preserve assets in aid of arbitral proceedings in China

The Hong Kong High Court has appointed receivers over shares in a Hong Kong company as an interim measure to preserve the status quo and the value of the shares, pending the outcome of CIETAC arbitration proceedings in mainland China.

The decision provides useful guidance on how parties can seek interim relief in aid of foreign arbitral proceedings, particularly in Mainland China or other jurisdictions that do not have comprehensive provisions for granting interim relief to preserve of assets pending the outcome of arbitral proceedings.

In particular, the judge noted that the appointment of receivers in this case was not the draconian measure that it was argued to be, as the shares being placed in receivership were shares in an asset holding company (as opposed to an active business where receiver and managers would be required) and accordingly, there would be minimal adverse effect on any business operations.

Given the many businesses operating in China that are under or related to a holding company in Hong Kong, this is a welcome decision for parties engaged in, or considering arbitration proceedings in the mainland.


The case relates to a protracted series of disputes over shares held in China Shanshui Investment Company Limited (“CSI“), which owns a large number of shares in a Hong Kong listed company.

The current case before the Hong Kong court was for interim measures in aid of CIETAC arbitration proceedings in Beijing over ownership of a particular portion of the CSI shares (the “Shares“).  The dispute concerned the validity and enforceability of a Pledge Agreement governed by PRC law whereby the Defendants had purported to pledge the Shares to the applicant as security.  The applicant alleged that in breach of the Pledge Agreement, the Defendants had not only exercised their voting rights in respect of the Shares without the knowledge of the applicant, but had sold and transferred the Shares to a third party under  share purchase agreements (“SPAs“). The applicant sought, inter alia, an order to appoint receivers in respect of Shares.

Power of Hong Kong courts to grant interim relief in aid of arbitral proceedings outside Hong Kong

The Defendants’ argument that the PRC court or the arbitral tribunal was the proper forum for the grant of any relief was rejected by the Hong Kong court.  While it was appreciated that a Mainland court, as the supervisory court of the CIETAC arbitration, would be in the best position to decide questions as to the validity and enforceability of the Pledge Agreement governed by PRC law, it did not follow that a Hong Kong court should not exercise its powers under s.45 to grant a form of interim measure which is appropriate and necessary, to facilitate the arbitral tribunal or the Mainland court which has the primary jurisdiction over the CIETAC arbitration.

The court held that under s.45 of the Arbitration Ordinance, the Hong Kong courts have both power and jurisdiction to grant interim measures to facilitate the process of a court or arbitral tribunal commenced outside of Hong Kong.  In fact, s.45 envisaged that there be a (non-Hong Kong) court with primary jurisdiction over the arbitral proceedings, in this case the PRC court, as the supervisory court over the arbitration.  The Hong Kong court may, however, decline to grant the measure if it considers it “more appropriate” for the interim measure sought to be dealt with by the arbitral tribunal.

The status quo

The court discussed what constituted the status quo.  The Defendants had started to exercise their voting rights in the Shares in January 2017.  The CIETAC arbitration was commenced in February 2017, by which the applicant complained of breaches of the Pledge Agreement.  The Defendants entered into the SPAs to transfer the Shares to a third party in March 2017.  Here, the status quo was prior to the SPAs and prior to the Defendants’ execution of the transfers of the Shares in favour of a third party.  The Court considered the position existing immediately before the commencement of arbitration as the status quo.

The receivership order

It was agreed that under PRC law, there is no concept of a receiver taking over the shares other than in a bankruptcy, and there is doubt as to whether any order for asset preservation that may be made by the Mainland courts can extend to assets which are in Hong Kong.  Nevertheless, the Ordinance is clear that the court may exercise its powers to grant interim measures irrespective of whether or not similar powers may be exercised by an arbitral tribunal.

The court then considered the question of whether a receivership order is a type of measure which the court has power to grant in relation to arbitral proceedings in Hong Kong and whether on the facts of this case, such a receivership order should be made, bearing in mind the established principles for the grant of a receivership.

The court found that the power to appoint receivers was founded under s.21L High Court Ordinance and is a discretionary power to be exercised flexibly on a similar basis to that of an interlocutory injunction, to which the principles in American Cyanamid apply.  On the facts, the court found that there was a serious question to be tried and that there was a risk that the assets would be dissipated.

In terms of the balance of convenience, the principle that the court should adopt is the course which is likely to cause the lower risk of injustice, if it should turn out that the interim order (whether to grant or refuse the relief) is wrong.  Given that there were competing claims as to the ownership of the Shares, and each side claimed irreversible and irreparable harm should they not be permitted to exercise rights in the Shares, the appointment of a receiver to “hold the ring” in the interim of the making of an award in the arbitration, should cause the lower risk of injustice to either side.


Section 45 of the Arbitration Ordinance makes it clear that Hong Kong courts have the power to grant interim relief in aid of foreign arbitral proceedings.

This is another arbitration friendly decision by the Hong Kong courts which granted interim measures in order to facilitate the process of the CIETAC arbitral tribunal or the Mainland court which has primary jurisdiction over the arbitration.

For parties who have commenced arbitral proceedings in jurisdictions without a comprehensive legal regime for granting interim relief, the provision can be a helpful tool for parties to seek the appointment of receivers, injunctive relief or to restore the status quo of parties pending the decision of the foreign arbitral proceedings. This would be of particular relevance for parties who wish to preserve assets held in Hong Kong, but with pending arbitration in the Mainland China or foreign jurisdictions.

Updates to Hong Kong Arbitration Ordinance: third party funding and arbitration over IP rights

On Wednesday, 14 June 2017, two sets of amendments to Hong Kong’s arbitration law were passed to clarify that:

  • third party funding of arbitration, mediation and related proceedings is permitted under Hong Kong law, and
  • disputes over intellectual property rights (“IPRs“) can be resolved through confidential arbitration and that it is not contrary to the public policy of Hong Kong to enforce arbitral awards involving IPRs.

The relevant bills were the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 (“Third Party Funding Bill“) and the Arbitration (Amendment) Bill 2016 (“IPR Arbitration Bill“).

Third party funding

The Third Party Funding Bill amends the Arbitration Ordinance and the Mediation Ordinance to make clear that third party funding of arbitration, mediation and related proceedings is permitted under Hong Kong law.

It is now clear that the centuries-old doctrines of maintenance and champerty, which still prohibit third party funding for litigation, do not apply to funding of arbitration and mediation.

The Third Party Funding Bill also provides measures and safeguards aimed at preserving integrity if third party funding is used, including providing for a code of practice for funders (which is still to be developed after completion of a consultation process, which is already underway).

The amendments are expected come into effect later this year, to allow time for the code of practice to be drawn up.

The Third Party Funding Bill closely follows the recommendations made by the Law Reform Commission in the Report on Third Party Funding for Arbitration dated 12 October 2016, save for an amendment that allows third party funding by lawyers and law firms so long as they do not act for any party in the relevant proceedings. (See our earlier note setting out the key points of the Bill here.)

The availability of third party funding is a welcome development for arbitrations seated in Hong Kong, bringing it in line with international developments.  It will allow greater access to justice and provide another option for companies to manage financial risk.

Arbitration of disputes involving IPRs

The IPR Arbitration Bill amends the Arbitration Ordinance to clarify that disputes involving IPRs can be resolved through arbitration under Hong Kong law and that it is not contrary to the public policy of Hong Kong to enforce arbitral awards involving IPRs.

The changes are expected to come into effect on 1 January 2018, following a period of around six months to allow practitioners and others concerned to prepare for commencement of the relevant amendments after yesterday’s passage of the Bill.

The current arbitration law is silent as to the subject matters of disputes that are capable of resolution by arbitration and a clear statement concerning the arbitrability of disputes involving IPRs has been lacking.

Under the IPR Arbitration Bill, arbitration proceedings over IPRs will remain confidential and any awards will only have inter partes effect.  Legal rights of third parties not a party to the arbitration proceedings will not be affected and there will be no requirement for disclosure to or recordal of arbitral awards involving IPRs with the respective Registries of the Hong Kong Intellectual Property Department. In fact, none of the IP related legislation has been amended to make such awards a recordable instrument or event affecting rights in or under a registered IPR / an application for registration.

While expressly providing for arbitration of disputes involving IPRs is a positive step for Hong Kong as an international centre for arbitration, arbitration of disputes involving IPRs is a complex area.  Parties considering arbitration of disputes involving IPRs should seek legal advice about the implications of agreeing to arbitrate, particularly in a cross-border context.