Recent developments: Hong Kong and China arbitration

Briefing

This update summarises a number of recent arbitration developments, including: the effect under Hong Kong law of agreeing to ICC arbitration ‘in China’; Hong Kong’s first anti-suit injunction under the current Arbitration Ordinance; the importance of ensuring that a respondent is made aware of an arbitration hearing; and the latest HKIAC and SIAC caseloads, and recent activity from CIETAC Hong Kong and SICC.

ICC arbitration ‘in China’ – can the seat be Hong Kong?

It is not uncommon for parties to agree in their contracts to arbitration ‘in China’, without specifying whether this refers to mainland China only, or includes Hong Kong. This distinction can be significant: Notwithstanding recent decisions by the PRC courts,1 arbitrations seated in mainland China administered by a foreign arbitral institution such as the ICC are generally not recommended, whereas ICC arbitrations seated in Hong Kong are.

In a recent case,2 the Hong Kong Court of First Instance dealt with the correct interpretation of an arbitration clause referring to ‘arbitration as per the International Chamber of Commerce and held in China’. The Court held that the reference to China includes Hong Kong, and that the ICC Court did not err when it decided that the arbitration should be held in Hong Kong, which is geographically and legally a part of China.

While the Court considered the specific facts of the case, helpfully, it also made the general point that parties to a contract are unlikely to have intended to agree to do something legally ineffective, such as (in the Court’s view) agreeing to ICC arbitration in mainland China.

This case will prove helpful to parties who have agreed to arbitration ‘in China’ administered by a foreign institution. It also underscores the importance of drafting arbitration clauses precisely, and of specifying the precise seat of arbitration.

Hong Kong court grants first anti-suit injunction under the current Arbitration Ordinance, restraining foreign court proceedings in breach of arbitration agreement

Despite an agreement to arbitrate, an uncooperative party may sometimes try to commence court proceedings – typically, in a party’s home jurisdiction.  In such a situation, one option open to the party seeking to uphold the arbitration agreement is to apply to the court in the seat of arbitration, to issue an anti-suit injunction.

The Hong Kong Court of First Instance recently issued its first anti-suit injunction under the current Arbitration Ordinance, restraining the defendant from continuing with Turkish court proceedings, which it had commenced in breach of an agreement to arbitrate in Hong Kong.3

The existence of such a power is not surprising, but the court also adopted a strong pro-arbitration stance, emphasising the principle that parties should generally be held to their contract, and that a party must show ‘strong reasons’ before the court will refuse an anti-suit injunction sought against the party on the basis of an arbitration agreement.

Significantly, the court also accepted in principle that a party is entitled to seek damages for breach of an agreement to arbitrate, if it has suffered loss (for example by incurring costs in having to litigate in a different jurisdiction), thus potentially opening up other similar claims.

Importance of making a respondent aware of ongoing arbitration proceedings

In international arbitrations, it is unnecessary to follow the strict service procedures which apply in international litigation. Nonetheless, a recent Hong Kong decision4 underscores the importance of ensuring that steps are taken to make a party aware of ongoing arbitral proceedings, even if that party is not participating in the proceedings.

On the facts, a dispute arose between the parties, which was referred to arbitration in China before the Guangzhou Arbitration Commission (GZAC). The respondent received the initial Notice of Arbitration which was posted by the GZAC to a Hong Kong address of which she was the registered owner. However, as it was not her place of residence, she did not receive the subsequent Notice of Hearing posted by the GZAC to the same address; instead, the Notice of Hearing was returned to the GZAC.

Under the GZAC Arbitration Rules, the Notice of Hearing was deemed served on the respondent, because the first Notice of Arbitration was received by her at the same address. The case proceeded and two awards were issued against the respondent in her absence.

When the two awards come to be enforced in Hong Kong, the respondent relied on section 95(2) of the Arbitration Ordinance, which provides that enforcement of a Mainland award may be refused if the person against whom it is invoked can prove that he or she was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings, or was otherwise unable to present his or her case. The court held that the law of Hong Kong is applicable to determine whether proper notice had been given under section 95(2). Accordingly, as the applicants were unable to show that the Notice of Hearing was delivered to the respondent, the court refused to enforce the award, on the basis that the respondent was not given proper notice of the arbitration proceedings, or was otherwise unable to present her case.

Latest caseloads from HKIAC and SIAC… amid increasing activity from CIETAC Hong Kong and SICC

Both the HKIAC and the SIAC have recently made available their statistics for 2014, with their case numbers dipping slightly, from 260 cases to 252, and 259 cases to 222 respectively.

In the case of the HKIAC, 107 of its cases were fully administered, and 80 per cent of them were international cases. China-related cases continued to feature strongly, whilst other leading users hailed from Hong Kong, Singapore, Switzerland, Korea, USA, Cayman Islands and Taiwan.

In the case of the SIAC, 81 per cent of the cases were international in nature (involving at least one non-Singaporean party). For the second year running, apart from Singapore parties, the leading user of SIAC were Chinese parties (41 cases), followed by the USA (38 cases), India (37 cases), Hong Kong (27 cases), Malaysia and the United Kingdom (21 cases each).

Lastly, in an indication of the increasingly diverse options available to parties, it is understood that CIETAC Hong Kong is also taking on an increasingly active role, and it has to date concluded one case this year. Click here to see our discussion on the 2015 CIETAC rules. The new Singapore International Commercial Court (SICC) has recently also heard its first case, a US$800m dispute involving Australian, Indonesian and Singaporean business interests. The SICC was established in January 2015 to deal with high value, complex, cross-border commercial disputes and is a division of the Singapore High Court.

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