Hong Kong Horizons

 MARKET VIEW – ARBITRATION 

Armed with a new set of institutional rules, the HKIAC’s secretary general, Chiann Bao, discusses the importance of providing a flexible, cost-efficient approach to international arbitration with Quinn Emanuel’s John Rhie

‘Users have always appreciated the transparency and neutrality of our administration,’ says Chiann Bao, the Hong Kong International Arbitration Centre (HKIAC)’s secretary general, of the institution she has served for the past four-and-a-half years. Such assurances are timely, given the release in June by China’s State Council of a white paper demanding that judges in Hong Kong ‘love the country’. This is seen by some commentators as a threat to the judicial independence guaranteed by the ‘one country, two systems’ formula in place since the 1997 handover.

As a non-profit private company, the publication of the white paper does not affect the HKIAC, which claims to be ‘completely free and independent from any type of influence or control’. Yet an overly deferential judiciary necessarily affects the application of the rule of law – as would be required, say, to ensure the hassle-free enforcement of an arbitral award against the assets of a Chinese state party. However, such concerns are unlikely to materialise, given Hong Kong’s long-established judicial system, including world-renowned judges from the UK and Australia, and its stellar record of enforcement of arbitral awards, including awards against Chinese state-owned enterprises. Lord Neuberger, a non-permanent judge of the city’s highest court, has publicly responded to the concern by clarifying that patriotism and judicial independence are not inconsistent. He said judges demonstrate patriotism by ‘an irrevocable and undiluted commitment to the rule of law’.

The controversy sparked by the white paper comes as the HKIAC’s latest rules are only now starting to bed in. Released in November 2013, their emergency arbitrator provisions, for example, have yet to be invoked. Still, Bao takes the long view. ‘These procedures have been welcomed by the community, and we expect that parties will see the emergency arbitrator feature as an added advantage to choosing the HKIAC rules,’ says Bao.

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John Rhie, Quinn Emanuel Urquhart & Sullivan: Please tell us a little bit more about the 2013 HKIAC rules.

‘The HKIAC ensures the quality of arbitral awards by appointing competent and suitable arbitrators.’ Chiann Bao, HKIAC

Chiann Bao, HKIAC: The 2013 rules were born out of five years’ experience of the 2008 administered arbitration rules, several rounds of public consultations, review by the HKIAC rules revision committee and extensive interviews with practitioners, arbitrators, in-house counsel and other stakeholders. As a result, the 2013 rules seek not only to draw on users’ feedback to further strengthen the HKIAC’s service to parties, arbitrators and legal practitioners, but also to ensure that the rules continue to reflect the very best of modern practice in international commercial arbitration.

John Rhie: Would it be fair to say that many of the rules’ new features seek to address the growing complexity of international disputes in a cost-effective and efficient manner?

Chiann Bao: That was absolutely one of our objectives. For example, the rules seek to streamline the appointment process by implementing shorter time limits where appropriate and standard terms of appointment for arbitrators. They also provide greater flexibility both to the HKIAC and tribunals in dealing with complex disputes through the expansion of existing provisions on joinder, the introduction of new provisions for consolidation and, in appropriate circumstances, allowing a party to commence a single proceeding under multiple contracts. The 2013 rules also enhance the expedited procedure which was introduced in the 2008 rules. If the relevant conditions are met, a party may apply to HKIAC for an arbitration to be conducted under the expedited procedure. In the interest of efficiency, the default provisions of the expedited procedure provide for a sole arbitrator, evidence based on documents only – ie no oral hearing – and a six-month time limit for the tribunal to issue the award from the date on which the case file is transmitted.

Awards and arbitrators

John Rhie: What have you done in the last 12 months to manage challenges, both to arbitrators and their awards?

Chiann Bao: The HKIAC exercises caution when administering arbitrations, ensuring that all parties are granted a fair and reasonable opportunity to submit comments where appropriate. For instance, to mitigate the risks of bias and/or lack of independence by an arbitrator, the HKIAC invests significant time and effort in reviewing the background of potential appointees. Indeed, when tasked with confirming an arbitrator designated by a party or the other arbitrators, we require that arbitrator to submit a signed declaration form confirming his or her availability, impartiality and independence, and to disclose any circumstances likely to give rise to justifiable doubts as to that impartiality or independence. Where a party seeks to challenge an arbitrator, however, the HKIAC requires the applicant to pay a non-refundable registration fee of HK$50,000 (£39,000). This serves as a deterrent to the filing of frivolous, unmeritorious allegations.

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Long known for being arbitration-friendly, Hong Kong’s courts have taken a similarly robust stance against frivolous challenges. Beginning with A v R (2009), the judiciary has in a series of decisions ordered parties who unsuccessfully challenged an arbitral award to pay costs on an indemnity basis, taking in the process a considerably stricter approach to the New York Convention’s presumption of enforceability than the courts of most other jurisdictions.

That is not a bad thing. Indeed, as the court noted in A v R, refusing to penalise parties for obviously spurious set aside applications would turn ‘what should be an exceptional and high-risk strategy into something which was potentially “worth a go”’. That possibility is, of course, further reduced by appointing arbitrators capable of writing challenge-proof awards.

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John Rhie: What do you do to ensure quality of arbitral awards? How, if at all, could this be improved?

Chiann Bao: The HKIAC ensures the quality of arbitral awards by appointing competent and suitable arbitrators. The emphasis on getting the right person to do the job is key, as it gives parties confidence in both the process and decision-making. When called upon by arbitrators, the institution makes itself readily available to assist the tribunal, most frequently to assist with the accounting of the costs of the arbitration. From time to time, the HKIAC reviews its rosters of arbitrators to ensure that those on the rosters are appropriate and maintain high standards. Training is also provided to all arbitrators so that they receive updated information on the latest developments in international arbitration best practice. We are also in the process of establishing evaluation forms so that arbitrators can evaluate each other and parties can have the opportunity to comment on the arbitrators appointed. The HKIAC keeps a close tab on arbitrators’ track records. For example, we monitor any history of challenges or complaints filed against an arbitrator, instances of unreasonable delay and the amount of fees he or she charges. This information helps the appointments committee make appropriate decisions on arbitrators who deviate from best practice.

John Rhie: What other factors do you consider when appointing arbitrators?

Chiann Bao: We consider several factors, including a prospective appointee’s qualifications, language capability, familiarity with the governing law of the dispute, track record in HKIAC arbitrations and, if necessary, their nationality. The extent of the professional experience required will vary from case to case; the assessment will depend largely on the amount in dispute, the complexity of the case and the role for which the arbitrator is being considered – ie sole arbitrator, co-arbitrator or presiding arbitrator. An arbitrator’s nationality will be a relevant factor where the arbitration involves parties of different nationalities. As a general rule, the sole or presiding arbitrator cannot have the same nationality as any party to the proceedings.

Global meets local

Arguments over the governing law of the arbitration agreement, so often unspecified by corporate lawyers when drafting their midnight dispute resolution clauses, remain a maddeningly consistent feature of international arbitration practice, whether in London, Paris or Hong Kong. To compound matters, judicial approaches to the question are equally inconsistent: compare Sulamerica, in which the English Court of Appeal proposed a rebuttable presumption favouring the law of the contract, with the position taken by the Singapore High Court in the recent case of FirstLink Investments v Payment Pte, which ruled in favour of the law of the seat of the arbitration.

In an attempt to address such uncertainty, the HKIAC in August became the first major arbitral institution to include in its model clause specific wording designed to encourage parties to stipulate the choice of law governing the arbitration agreement. (A different approach has been adopted by the London Court of International Arbitration’s latest rules, which provide – in a clear rejection of Sulamerica – that an arbitration clause will be governed by the law of the seat unless otherwise specified.) Given the importance to parties and counsel alike of stipulating the choice of law governing the arbitration agreement at the earliest possible stage, it would not be surprising to see similar provisions adopted by rival institutions in the coming months and years.

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John Rhie: What can the HKIAC do to promote international arbitration? Do you have plans for expansion?

Chiann Bao: The HKIAC has in recent years been actively forging close relationships in many developing countries. For example, we have worked with international and regional NGOs to develop ties with local institutions and governmental bodies so as to build a foundation of international arbitration best practice through training and the exchange of information. In addition, the HKIAC has organised workshops and seminars for delegations from Bangladesh, Myanmar, the Maldives, Mainland China, Vietnam, North Korea, Cambodia, Thailand, Saudi Arabia and Mongolia. We have also reached further afield and have actively sought to gain presence in Latin America. With all of the Asian investment into Latin America, the intention of entering into this market was to introduce and give companies comfort that HKIAC is an established institution that parties can rely upon. This type of promotion is intended both to promote the work of HKIAC and to share our experiences and know-how on the disputes front to those who are currently signing contracts. In terms of expansion, we recently established an office in Korea. Korea is an important market for HKIAC and, when approached with an opportunity to set up an outpost there, we jumped on it.

John Rhie: Despite that globalisation of international arbitration, the field is sometimes perceived as being dominated by English and American law firms. Do you agree – and, if so, does it matter?

Chiann Bao: Our recent statistics show that many English and US law firms are involved in HKIAC arbitrations. For many reasons, they will continue to play a significant role in the arbitration marketplace. Whether it matters is for the end users to decide. From the perspective of an arbitral institution, however, conflicts will remain an issue if the pool of arbitrators is taken predominantly from these large international firms. Nevertheless, the HKIAC has not found this to be a major problem, given that many of the arbitrators we appoint operate outside of the big English and US law firms. We are also seeing a growth in boutique law firms from the US, the UK and beyond – as well as a growing number of prominent regional law firms from both common and civil law jurisdictions – play a meaningful role in international arbitration. For example, Quinn Emanuel’s entrance into Asia has seen a new player, largely free of conflicts, in the international arbitration space.

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Los Angeles-headquartered Quinn Emanuel launched in Hong Kong in September 2013, little more than 18 months after the firm’s charismatic leader, John Quinn, had dismissed the possibility of doing so, citing the city’s ‘beyond competitive’ legal market. Yet boutiques and Big Law firms alike continue to grow their practices in Hong Kong, with Baker & McKenzie, Proskauer Rose, Mayer Brown and Simmons & Simmons all hiring or promoting contentious specialists this year. The region’s powerhouses – King & Wood Mallesons, Bae, Kim & Lee and Kim & Chang, Rhie’s former firm – have similarly targeted the city for big-ticket disputes work, whose legal infrastructure is bolstered by the presence of some 28,000 accountants and 26,000 engineers.

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Chiann Bao: Many of the regional firms in Asia, whether they are based in Hong Kong, Australia or Singapore, come from a common law background. The possible advantage they have over the dominant UK and US firms is regional expertise, as well as more flexible cost structures. Firms which come from civil law jurisdictions are also becoming more prevalent in our representative pool. While PRC law firms certainly feature prominently, those from Korea, Japan and the Philippines also form our user base; in addition, we are seeing Swedish, German, Swiss and French firms play a greater role in international arbitration in Asia. This diversification reflects the kind of service that users, including those at the HKIAC, are seeking.