A -»^j|itBSf|ttMirtsli>liftli?iri:'''.-.

But

Robert Morgan provides an in-depth look at thedevelopmentsin Hong Kong arbitration during the past decade and offers

insight into its future

IntroductionThe 1990s was, and on the eve of theMillennium continues to be, amomentous decade for arbitration inHong Kong. This period witnessed thesuccess of Hong Kong as both aninternational and regional arbitrationcentre and phenomenal growth inarbitration activity. The territory'sarbitration law was transformed, forinternational cases, from a narrow,English-based system to one basedupon an internationally acceptedmodel, the UNCITRAL Model Law onInternational Commercial Arbitration(the Model Law). Under the influenceof that model, the law subsequentlyunderwent further reform so as tointroduce the former's underlyingconcepts and certain of its provisionsinto Hong Kong's domestic arbitrationlaw. The territory came into its own asa forum for the enforcement of

international arbitral awards under theNew York Convention on theRecognition and Enforcement ofForeign Arbitral Awards 1958 (theNew York Convention), particularlyafter 1987 with regard to MainlandChinese awards. Existing arbitralinstitutions thrived and new onessprang up. Greater emphasis than everbefore was given to education andtraining, not only in arbitration, butalso other forms of private disputeresolution, such as mediation and itsvariants.

A number of initiatives wereintroduced during this period topromote greater use of arbitration asan alternative to litigation in a numberof fields, most notably constructionand financial services. These initiativesincluded procedures co-ordinatingarbitration and other procedures, suchas mediation and adjudication. Such

multi-tiered, or 'staged' disputeresolution procedures, rapidly gainedacceptance as the norm. Their mosthigh profile use was in connection withthe Hong Kong Government forms ofconstruction contracts, those in use forthe Airport Core Programme CivilEngineering Works and the MassTransit Railway forms for the LantauAirport Railway. At the other end ofthe scale, a Dispute Resolution Schemefor consumer disputes, which offersany chosen pe rmuta t ion ofindependent expert appraisal,mediation and arbitration procedures,has been prepared jointly by the HongKong International Arbitration Centre,the Chartered Institute of Arbitrators(East Asia Branch), the Hong KongInstitute of Arbitrators and the HongKong Mediation Council and will bepublicly launched shortly. Such multi-tiered approaches, which combineassisted negotiation with ultimatecompulsion in reserve, dovetail neatlyinto Chinese dispute resolutionculture.

Hong Kong's success as anarbitration centre also manifesteditself in ways which were more subtle,but which at the same time showcasedits position in the regional arbitrationrealm and demonstrated the faithof the international arbitrationcommunity in the territory'scontinuing success. A number of majorarbitration conferences were held inHong Kong throughout the decadeand in 1997 the International Chamberof Commerce (ICC) established afoothold in East Asia, setting up officein Hong Kong under the name ICCAsia. Finally, the territory - andindeed, East Asia as a whole - at longlast received its own home-grownjournal on arbitration and alternativedispute resolution, Asian DisputeReview, the inaugural edition of whichwas published in June 1999.

Of course, for every positive thereis, regrettably, a negative. Arbitrationreceived some of the latter form of

HONG KONG LAWYER OCT1999

I/I ¥

attention during the period underdiscussion. Much of this centredaround the issues of the quality ofarbitrators and their awards, theover-formalisation of the arbitralprocess and the costs of the process,particularly legal costs. It is at least toHong Kong arbitration's credit thatmost criticisms tended to stem fromone industry - construction - ratherthan from across the broad spectrumof users. On the other hand, giventhe size and importance of theconstruction industry as a user ofdispute resolution services and as aprovider of work, these criticisms needto be seriously addressed. Addressingthem will, without doubt, be thegreatest challenge to arbitration in theopening years of the twenty-firstcentury. Another serious criticism wasthe length of time taken to negotiatenew arrangements for the mutualenforcement of arbitral awardsbetween Hong Kong and MainlandChina, necessitated by the Mainland'sresumption of sovereignty over HongKong on 1 July 1997. Significantlythough this was a criticism moreof the long drawn-out inter-governmental negotiation process thanof arbitration itself.

This article is an historical reviewof arbitration in Hong Kong since 1990.In addition to discussing these andother issues, it will examine prospectsfor further law reform and theprognosis for Hong Kong arbitrationin the early twenty-first century.

Hong Kong's Arbitration Lawand Law Reform, 1963-1990The Arbitration Ordinance (Cap 341)(the Ordinance) was passed in 1963and has been much amended eversince, in ways both modest and radical.As originally enacted, it was almostidentical to the English Arbitration Act1950. By and large and with fewexceptions, subsequent amendmentsto the Ordinance tended to mirroramendments to the 1950 Act and the

passage of the Arbitration Act 1979.The first tentative steps away from theEnglish model came, however, withthe enactment of the Arbitration(Amendment) Ord.ina.nce 1982, whichintroduced provisions dealing with(inter alia) consolidation of arbitrationsand dismissal of claims for want ofprosecution. Indeed, the latterprovision stole an eight-year march onEngland & Wales, no dismissalprovision appearing in the 1950 Actuntil 1990 - by which time HongKong's arbitration law was itself onthe verge of moving on to more radicalamendment.

To compound

the problems, the lawwas fragmented between

statute and common law,making it difficult

to access, particularlyfor foreign users

In 1987 the LRCHK published itsReport on the Adoption of the UNCITRALModel Law of Arbitration. It regardedthe recent establishment of the HongKong International Arbitration Centre(HKIAC) in 1985 and the adoption ofthe Model Law by the United Nationsas catalysts for promoting HongKong's position as a leading arbitrationcentre. Among the rationales given forthis view were that the principal legalrules would become more recognisableand accessible to the internationalcommunity and that the civil lawflavour of the Model Law's draftingwould make it appeal to users ofarbitration who came from civillaw-type backgrounds, such as

Mainland China. At the same time,however, because the Model Law wasa compromise draft to which expertsfrom both common law and civillaw jurisdictions had contributed(including the United Kingdom),common lawyers would not bealienated by it.

The Ordinance as originallyenacted, whilst it had generallyserved Hong Kong well for domesticarbitrations, was, in the LRCHK'sview, suited neither to the territory'snascent role as an internationalarbitration centre nor to the needs ofthe international business community.To begin with, the original provisionswere not set out in a logical order andthus they failed to deal with thearbitration process in a systematic orchronological manner, from arbitrationagreement through to judic ia lenforcement or review. Secondly,whilst those provisions were intendedto promote party autonomy and toconfer fundamental protections on theparties, they were not comprehensive,certainly by comparison with theModel Law. Thirdly, they did not (ordid not explicitly) vest fundamentalpowers in arbitral tribunals to takecontrol of and progress references,including the power to rule on theirown jurisdiction. Fourthly, a numberof interlocutory powers, in particularthose concerned with interimmeasures of protection, were vestedin the former High Court; these couldquite appropriately have beenexercised by the arbitral tribunal,subject to the court retaining a residualjurisdiction with regard to the exerciseonly of certain of those powers. Lastly,there was a perception (to a greater orlesser degree) that international usersof arbitration favoured finality overdetailed judicial supervision and weretherefore content to see feweropportunities for judicial control, bothduring and after the reference toarbitration, than were provided for bythe Ordinance. To compound the

HONG KONG LAWYER OCTI999

problems, the law was fragmentedbetween statute and common law,making it d i f f i cu l t to access,particularly for foreign users,

To adopt the Model Law would/the LRCHK believed, go a long waytowards alleviating these concerns.The Model Law goes much furtherthan the original Ordinance inpromoting party autonomy, definingthe powers of the arbitral tribunal anddelimiting the powers of the courts tointervene in live arbitrations and toreview awards. It emphasises theprimacy of the arbitral tribunal'sauthority, vests essential powers in itand concomitantly restricts the role ofthe courts. The general principles ofthe Model Law governing interventionin arbitrations, which are influencedby and in line with those of the NewYork Convention, are that (i) the courthas no jurisdiction to deal withallegations of procedural injusticeduring a live arbitration; (ii) the arbitraltribunal should remain free to continuethe proceedings and make an award,even pending the outcome of achallenge on the grounds of lack ofjurisdiction, qualifications, impartialityor independence; and (iii) allegationsof procedural injustice should be raisedwhen resisting enforcement of theaward.

It was beyond the LRCHK's termsof reference to examine the Ordinanceinsofar as it affected purely domesticarbitrations. The adoption of the ModelLaw was therefore recommended onlyfor international a rb i t ra t ionsconducted in Hong Kong, in order toachieve 'internationalisation in an areaof law which must of necessity havean international context'. This did notmean, however, that the domesticarbitration law was irrelevant, for whatthe LRCHK proposed would lead to abifurcated system of arbitration law inHong Kong, with one stream fordomestic arbitrations and the other forinternational. The LRCHK saw noinsuperable problems with this

approach, although it wouldnecessitate clear criteria to determinewhat was or was not a domestic orinternational arbitration agreement.Furthermore, party autonomy wouldbe maximised by giving parties toarbitrations the opportunity to opt intoor out of one system or the other.

The Governmentaccepted the LRCHK's

recommendation toadopt the Model Law

as Hong Kong'sinternational arbitration

law, together witha number of

'add on' provisions

The Model Law, in common withnational arbitration laws around theworld, does not provide a code ofarbitration procedure. That is a matterfor detailed arbitration rules agreedbetween the parties or directed by thearbitral tribunal. Likewise, it does notpurport to lay down a complete codeof arbitration law. This is not a criticismof the Model Law, but reflectsrecognition by UNCITRAL that theModel Law is a compromise textcontaining only core provisions whichstate commonly accepted principles ofinternational arbitration law withregard to a number of issues. Theseinclude such matters as form andcontent of arbitration agreements(art 7), number of arbitrators (art 10),default appointments of arbitrators(art 11), challenges to arbitrators andrevocation of their mandates (arts 12-14), Kompetenz-Kompetenz (art 16),equality of treatment (art 18), powers

of arbitral tribunals as to proceduregenerally (art 19), interim measures ofprotection (art 17) and hearings(art 24), form of statements of case(art 23), party defaults (art 25), formand content of awards (art 31), courtassistance generally (art 6) and inrelation to such matters as the takingof evidence (art 27) and challenges toawards (art 34). There would,inevitably, be areas in whichindividual jurisdictions would differradically in their approach and forwhich national legislation wouldremain appropriate. To give threeexamples: (i) whilst it is entirelynormal for Western jurisdictions andalso those of South and East Asia tomake provision for the award ofinterest, Arab and other jurisdictionsgoverned by Moslem shar 'a law wouldregard this as usurious; (ii) injurisdictions such as Hong Kong andSingapore, the 'English rule' as torecovery of party costs is the norm,viz that the winning party is entitledto recover lawyers' fees as part of itscosts, by contrast with the 'Americanrule', whereby attorneys' fees are notrecoverable from the unsuccessfulparty; and (iii) many jurisdictions donot entertain appeals against awardson points of law, whereas such appealslay against both domestic andinternational awards made in HongKong prior to 6 April 1990 and thisremains the case today for domesticawards. National jurisdictionsadopting the Model Law are thereforeentirely free to continue legislatingtheir own provisions on mattersoutwith its terms. Furthermore,because the Model Law is not aninternational convention but truly a'model' law, national jurisdictions arefree to adapt it in such manner as theysee fit, whether on its face (as in NewZealand) or by enacting 'add on'provisions (as in Hong Kong andSingapore).

The Government accepted theLRCHK's recommendation to adopt >•

HONG KONG LAWYER OCT1999 67

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the Model Law as Hong Kong'sinternational arbitration law, togetherwith a number of 'add on' provisions.In order, to establish Hong Konginternationally as a Model Lawjurisdiction, therefore, there would beno amendments to its face. Therelevant legislation was embodied inthe Arbitration (Amendment) (No 2)Ordinance 1989 (64 of 1989), whichtook effect on 6 April 1990. Furthersuch provisions were added by theArbitration (Amendment) Ordinance1991 (56 of 1991).

The 1989 amendments broughtabout the first large-scale restructuringof the original Ordinance of 1963. PartII of the Ordinance, which wasretained substantially intact, washenceforth limited in application todomestic arbitrations. A new Part IIAgave effect in Hong Kong to the ModelLaw, which was incorporated into theOrdinance as the present FifthSchedule. New Parts I and IA set outprovisions of common applicationto domestic and internationalarbitrations.

The 'add on' provisions of theOrdinance were, and remain, spreadbetween Parts I, IA, II and IIA of theOrdinance. Their objectives werefourfold: (i) to confer complete freedomof choice on parties in deciding whetherto arbitrate under the domestic or theinternational regimes; (ii) to aid theconstruction and interpretation of theModel Law; (iii) to make provision withregard to a limited number of matterswhich were not dealt with by the ModelLaw; and (iv) to allocate arbitralassistance and supervision functionsunder art 6 of the Model Law. Some ofthese provisions were brand new, othersre-enacted provisions of the 1963Ordinance. The most significant'add on' provisions of the Ordinanceincorporated by the 1989-1991amendments dealt with the followingmatters:(1) Interpretation of the Model Law. in

interpreting and applying the

Model Law, regard shall be had toits international origins (s 2(3)). Theobject of this provision is topromote uniformity of approach tothe Model Law as between statesand territories that have enacted itand also as between the Model Lawand the New York Convention,on which the Model Law isphilosophically based and for themonitoring of which UNCITRALis also responsible. An example ofwhat this means in practice is thatcase law on art V of the Convention,which sets out limited grounds forrefusal to enforce overseas awards,will be persuasive in construingand interpreting art 34 of the ModelLaw, which sets out limitedgrounds for set t ing asideinternational awards made inHong Kong and to which art V ofthe New York Convention issubstantially similar. This isimportant to practitioners dealingwith Model Law cases in HongKong because there is as yet nolocal case law on art 34 of the ModelLaw. Section 2(3) also enactedthe present Sixth Schedule ofthe Ordinance, which lists certaintravaux preparatories to whichreference shall be made byarbitrators and the courts inconstruing and interpreting theModel Law.

The Model Lawhas served Hong Kong

well in practice,both internationally

and domestically

(2) Enforcement of awards: s 2H,a verbatim re-enactment of anearlier provision, provided for the

summary enforcement of awards.This provision was itself repealedand replaced in 1997 by s 2GG ofthe Ordinance which, thoughof wider appl ica t ion thanits predecessor, has beendemonstrated by post-1 July 1997case law on the enforcement ofMainland Chinese awards not tobe on all fours with it. This isdiscussed below.

(3) Opting into/out of either regime: byvirtue of s 2L, a party to a domesticarbitration agreement may opt outof the domestic regime (Part II) andinto the international (Part IIA).Section 2M has the reverse effectalthough, by contrast with s 2L, anagreement under s 2M may bemade at any time. An opting outagreement under either provisionmust be in writing. Case law hasheld that such an agreement mustbe unequivocal, that is to say, itmust reflect exactly the terms ofthe relevant provision of theOrdinance. Thus, it is not enoughthat parties to an internationalarbitration agreement should,without more, agree to adoptdomestic arbitration rules, or viceversa (see SOL International Ltd vGuangzhou Dong-jun Real EstateInterest Co Ltd [1998] 3 HKC 493).A model form of agreement thatmeets these requirements isa v a i l a b l e f r o m H K I A C .Furthermore, it is incumbent uponthe parties to be clear in their ownminds as to which of the regimesgoverns the arbitration and ifnecessary to make an opting in/out agreement at the earliestpossible stage after a dispute hasarisen. Thus, a party to what in allthe c i r c u m s t a n c e s is aninternational arbitration cannot, inan attempt to increase its rights ofchallenge, reserve until after anaward has been made the questionof which regime governed thearbitration (Ananda Non-ferrous

68 HONG KONG LAWYER OCT1999

Metals Ltd v China Resources Metaland Minerals Co Ltd [1993] 2 HKLR331).

(4) Disputes that may be referred toarbitration under the Model Law: byvirtue of s 34C(2), any type ofdispute, not only one of aninternational commercial nature,may be referred to arbitrationunder the Model Law, Thisprovision not only dispenses withsterile arguments as to what is oris not 'commercial' but alsopromotes complete freedom toarbitrate disputes.

Some further provisions which weretechnically 'add ons' established theModel Law's first tentative footholdon domestic arbitration. Firstly, byvirtue of three additions to s 2(1) ofthe Ordinance (interpretation),a common definition of 'arbitrationagreement' was applied to bothdomes t i c and i n t e r n a t i o n a larb i t ra t ions , by reference toart 7(1) of the Model Law, togetherwith a definition of 'internationalarbitration agreement', which isreferable to criteria set out inart 1(3) of the Model Law, and adefinition of 'domestic arbitrationagreement' as one which is notinternational. As a result of the broadcriteria expressed in art 1(3) of theModel Law, many arbitrations thatwould, prior to 6 April 1990, have beenclassified as domestic are nowinternational. This has arisen primarilyas a result of art l(3)(b)(ii) of the ModelLaw, whereby an arbitration isinternational if the place where asubstantial part of the parties'commercial relationship is to beperformed or the place with which thesubject-matter of the dispute is mostclosely connected is outside HongKong (see principally Fung SangTrading Ltd v Kai Sun Sea Products andFood Co Ltd [1992] 1 HKLR 40).

The Model Law has served HongKong Well in pract ice , bothinternationally and domestically. In

international terms, it has contributedtowards substantially raising theterritory's profile as an internationalarbitration centre. Hong Kong case law-has been at the cutting edge of theModel Law's development andinterpretation and is widely cited inother jurisdictions, both Model Lawjurisdictions, such as Singapore andthe Canadian provinces, andjurisdictions that have adoptedarbitration laws based upon the ModelLaw, such as England & Wales. In localterms, the Model Law has, for the mostpart, fitted well into Hong Kong'sarbitration superstructure, despitesome ini t ia l misgiv ings bypractitioners about the practicality ofworking within a bifurcated system.

So far asarbitration agreements

were concerned,the real problem with

art 7(2) of the Model Lawwas what constituted

an 'agreementin writing'

The courts made clear at an earlystage how the Model Law should fitinto the existing arbitration system soas to minimise the risk of anydislocation brought about bybifurcated laws. Thus, where partieswere in dispute about which of theregimes governed an arbitration, andin the absence of an opting in/outagreement under s 2L or s 2M of theOrdinance making the matter clear, itwas open to them to bring alternativeapplications to the court under PartsII or IIA of the Ordinance with regardto such matters as referring toarbitration disputes in respect of whichlitigation had been commenced andthe appointment of arbitrators by the

court (Heung Cheuk Kei v PacificEnterprises (Holdings) Co Ltd (1995) 10Mealey's Int Arb Rep 7, 11).Furthermore, the courts staredemphatically that, with regard toquestions as to jurisdiction of thearbitral tribunal that might arise inconnection with such applications (egas to whether the dispute falls withinthe ambit of the arbitration agreement),the tribunal should determine thismatter first and the role of the courtwould be very much one of last resort,viz to review the tribunal's jurisdictionrather than to determine it at the outset(Star (Universal) Co Ltd v PrivateCompany 'Triple V Inc [1995] 2 HKLR62). This approach was very much inline with art 5 of the Model Law, acore provision of which states that, inmatters governed by the Model Law,no court shall intervene except wherethe Model Law so provides.

Law Reform, 1992-1997As has already been indicated, theadoption of the Model Law was notall plain sailing. Whilst few problemsarose with it in practice, those that didarise were significant. The problemswere threefold: (i) the form ofarbitration agreements required byart 7(2) of the Model Law; (ii) thenumber of arbitrators to be appointedin Model Law cases (art 10); and (iii)default appointments of arbitrators bythe court (art 11).

So far as arbitration agreementswere concerned, the real problem withart 7(2) of the Model Law was whatconstituted an 'agreement in writing'.Most of the requirements as to form inthat provision were uncontroversial.What did cause trouble, however, wasthe requirement that an agreementshould be signed by both parties.Whilst in most commercial cases thiswas clearly done, there were types ofcontractual documents containing anarbitration agreement that were notsigned, such as bills of lading,shipbrokers' notes and salvage >•

HONG KONG LAWYER 0CT1999

agreements (eg the Lloyd's OpenForm). The Model Law also did notrecognise arbitration agreementsmade by course of conduct orarbitration agreements which, whilstundoubtedly in writing, did not carrya signature, such as cases where oneparty failed to sign and return a copyof the other's terms and conditions ofcontract, including arbitrationprovisions.

With regard to the number ofarbitrators, the parties were, by virtueof art 10 of the Model Law, free toagree this matter. Failing suchagreement, however, it was amandatory requirement of the ModelLaw that three arbitrators beappointed. Plainly, this would beinappropriate for those internationalcases involving relatively small ormedium-sized claims, as is often thecase in shipping. For such cases, atribunal of three arbitrators would beorganisationally and procedurallyover-elaborate and, therefore,expensive. In such cases, weakerparties would be discouraged frompursuing or defending their rights inarbitration.

The third matter , d e f a u l tappointments of arbitrators, was not aweakness on the part of the ModelLaw as such but a result of theallocation to the courts of theappointing function under art 11 ofthe Model Law. In drafting art 6,UNCITRAL left it free to each adoptingjurisdiction to decide which nationalauthority should be responsible forappointing arbitrators, fail ingagreement by the parties. It was, andis, not a requirement of art 6 that thatauthority should be a court. In HongKong, however, the forum for defaultappointments with which parties weretraditionally familiar was the HighCourt. Section 34C(3) of the Ordinanceallocated this function accordingly.The downside to this was that seekingappointments from the court tooktime, that judges were not necessarily

familiar with whom to appoint asarbitrator and that applications to thecourt and the court's order had to beserved out of the jurisdiction, with allthe accompanying difficulties thatc o m p l y i n g wi th loca l legalrequirements would involve.

Provided thatthe parties have made

an agreement as tothe conduct of

the arbitration thatwould not breach publicpolicy, their agreement

is paramount

In January 1992, nearly two yearsafter the Model Law became law inHong Kong, the Attorney Generalasked HKIAC to establish a Committeeon Arbitration Law (the HKIACCommittee) to consider whether theArbitration Ordinance should beamended, by reference in particular toemerging draft arbitration legislationin England & Wales. The Committeewas a joint body comprisingrepresentatives of all interestedprofessional and trade bodies inHong Kong. In its report to theGovernment in 1996, which followeda consultation exercise among HongKong's arbitration practitioners, theCommittee expressed the view thatthere should be a two-stage reform ofthe law. The first stage would(i) implement initial steps to harmonisethe domestic and internationalarbitration laws by reference to theModel Law; (ii) remedy thedeficiencies outlined above; (iii) makefurther common provisions; and(iv) fill a number of gaps in the ModelLaw. The second stage wouldcomprise root and branch reform/ witha new Arbitration Ordinance adopting

the Model Law for all arbitrations, bothdomestic and international, but with anumber of 'add-on' or exclusionaryprovisions for domestic arbitration.

Despite the greater emphasisexpressly laid by the Model Law onmaximising arbitral authority andminimising the role of the courts, theLRCHK had concluded in its 1987report that there were no greatphilosophical differences between theoriginal 1963-1982 provisions of theOrdinance and the Model Law.T h i s t h e m e p e r m e a t e d t h erecommendations of the HKIACCommittee, which were ultimatelye n a c t e d as the A r b i t r a t i o n(Amendment) Ordinance 1996 (75 of1996) (the 1996 Ordinance), which tookeffect on 27 June 1997. For this reason,two provisions of the Model Law wereapp l i ed d i r e c t l y to domesticarbitrations. Firstly, art 8 was appliedby an amended s 6(1) of the Ordinance,with the result that henceforth a courtto which application 'was made to staylega l proceedings to domesticarb i t ra t ion ceased to have anoverriding discretion as to whether toorder a stay. Secondly, art 16 wasapplied by a new s 13B, so thatdomestic arbitrators were vested withexpress authority to make bindingrulings determining their ownjurisdiction, subject to the Court ofFirst Instance having the final say onthe matter. A number of the furtherprovisions of common applicationadded to the principal Ordinance bythe 1996 Ordinance reflected the sameconfluence of philosophy, albeit withsome refinements:(1) Party autonomy: s 2AA(2) declares

that, subject to such safeguards asare necessary in the public interest,the parties are free to agree howtheir dispute should be resolved.The phrase 'the parties are free toagree' permeates the Model Lawand UNCITRAL takes the view thatthe duty of equality laid down byart 18 of the Model Law embraces

70 HONG KONG LAWYER OCT1999

fair treatment of each party by itsopponent as well as by the arbitraltribunal.

(2) Arbitral supremacy: s 2GA(l)(b) ofthe Ordinance imposes anoverriding duty on tribunals to useprocedures that are appropriate tothe particular case in order to avoidunnecessary delay and expense.Provided that the parties havemade an agreement as to theconduct of the arbitration thatwould not breach public policy,their agreement is paramount.Section 2GA(l)(b) underpins theadoption of case managementprinciples and techniques byarbitral tribunals, particularlywhen read in tandem with thestatutory object of the Ordinancedeclared by s 2AA(1), viz tofacilitate the fair and speedyresolution of disputes byarbitration without unnecessaryexpense. Furthermore, in tandemwith other new statutory powersregarding security for costs, interimmeasures of protection, evidentiaryorders, extensions of time forcommencing arbitrations anddismissal for want of prosecution,in relation to which the jurisdictionof the Court of First Instanceis either restricted or excluded,this provision emphasises thesupremacy of the tribunal'sauthority and follows the ModelLaw's philosophy of greatlylimiting pre-award challenges totribunals.

(3) Natural justice: s 2GA(l)(a) imposesan overriding duty on arbitraltribunals to act fa i r ly andimpartially and to give each partya reasonable opportunity to presentits case and deal with that of itsopponent. Whilst this provisiontranslates the common law rules ofnatural justice into statutory form,it is essentially little more than theduty imposed on tribunals byart 18 of the Model Law to treat theparties with equality.

(4) Judicial intervention: s 2AA(2)(b)declares that the court shouldinterfere in an arbitration only asexpressly provided by theOrdinance. Though expressed witha different emphasis in wording,the aim of this provision isessentially the same as art 5 of theModel Law. Thus, in relation to alive reference, the court's powersof intervention, whether during orafter the arbitration, are limited tothe exercise of those powersconferred by the Ordinance,whether under Part IA, II, IIA orthe Model Law, as the case maybe.

The powers ofthe courts in respect ofthe same subject matter

were concomitantlyseverely limited orexcluded altogether

by ss 2GC, 2GDand 2GE

The 1996 Ordinance also addressedthe three principal criticisms of thepost-1990 system discussed above.Thus, s 2AC introduces a newdefinition of 'agreement in writing'which brings within the ambit of theOrdinance arbitration agreementswhich (i) though in writing, are notsigned; or (ii) have been perpetuatedby conduct, or (iii) have been madeorally; or (iv) though oral at the outset,have been evidenced in writing. By-virtue of a new s 34C(5), a tribunal ofthree arbitrators is no longer, failingparty agreement, to be automatically

appointed in Model Law cases; rather,a statutory duty is imposed on HKIACto determine the number of arbitrators.An amended s 34C(3), a provisioninspired by Singapore's InternationalArbitration Act 1994, imposes anexclusive statutory duty on HKIAC tomake default appointments ofarbitrators in both domestic andModel Law cases (under, respectively,s 12 of the Ordinance and art 1.1 of theModel Law). HKIAC's functionsunder both provisions are performedin accordance with statutoryrequirements and criteria laid downby the Arbitration (Appointment ofArbitrators and Umpires) Rules 1997(Cap 341 sub leg B).

Finally, the 1996 Ordinance addeda number of other provisions which,whilst filling gaps in the Model Law,were also applied to domesticarbitrations. Thus, powers previouslyvested either normally or exclusivelyin the courts were vested in arbitraltribunals. These include security forcosts, interim measures of protectionand certain evidentiary orders (s 2GB),extending time for commencingarbitrations (s 2GD) and dismissal forwant of prosecution (s 2GE). Thepowers of the courts in respect of thesame s u b j e c t m a t t e r wereconcomitantly severely limited orexcluded altogether by ss 2GC, 2GDand 2GE. Case law on ss 2GB and 2GChas since made clear that, in caseswhere tribunals and the courts haveparallel jurisdiction to order interimmeasures of protection or to makeevidentiary orders, a court should notexercise these powers unless the orderrequested involves a third party or thetribunal is unable for any reason togrant all the interim relief soughtwithin a single order (see LeviathanShipping Co Ltd v Sky Sailing OverseasCo Ltd [1998] 4 HKC 347). Pre-1997powers regarding awards of costs andinterest were also re-enacted withamendments (ss 2GH, 2GI and 2GJ),the principal one being that henceforthtribunals would have jurisdiction to >•

HONG KONG LAWYER 0CT1999 71

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award compound interest. The 1996Ordinance also introducedclarificatory provisions, principallywith regard to the remedies that maybe granted by arbitral tribunals (s 2GF)and extended the court's powers ofsummary enforcement to arbitralorders and directions as well as toawards (s 2GG). The case managementfunction of the arbitral tribunal wasunderwritten by a new power under s2GL enabling it to limit in advance theamount of costs that a party couldrecover in pursuing its case.

The China Syndrome1997-2000Prior to 1 July 1997, Mainland Chineseawards were summarily enforceablein Hong Kong as Convention awardsby virtue of ss 2H and 42 of theOrdinance, the People's Republic ofChina having acceded to the New YorkConvention in April 1987. Under s 44,there were a limited number ofexclusive defences to the enforcementof Convention awards. Furthermore,the courts applied a 'pro-enforcementbias', refusing to set aside leave toenforce such awards unless it couldbe shown that a party's rights had beensubstantially prejudiced. As a result,leave to enforce was rarely set aside,so that the overwhelming majority ofChinese awards were enforced. Thefact that between one-half and two-thirds of all awards brought to HongKong for enforcement during theperiod 1987-1997 were Mainlandawards speaks for itself.

Wi th the r e s u m p t i o n o fsovereignty, Hong Kong became partof the PRC, albeit as a separate lawdistrict. Clearly, the New YorkConvention no longer applied to cross-border awards, as they were no longer'foreign'. By the same token, becauseof Hong Kong's status as a SpecialAdministrative Region under the 'onecountry, two systems' policy, suchawards could not be considered to bedomestic either. Mainland awards

therefore acquired a sui generis status.As early as 1992, and many times since,dire warnings were uttered of animpending legal vacuum if alternativeenforcement arrangements were notput in place in time for the transition.The initial warning Was given inOctober 1992 by the Working Party onLegal and Procedural Arrangementsbetween Hong Kong and China inCivil and Commercial Matters (the

Clearly, urgent actionto restore the status quo

ante was neededin order to minimise

damage, to Hong Kong'sposition as an arbitration

centre and place ofenforcement

Edwards Committee),, a body whichadvised the Sino-British Joint LiaisonGroup on a number of cross-borderlegal issues, and was echoed by anumber of learned commentators,including Neil Kaplan, who was alsoa member of the Edwards WorkingParty. Regrettably, replacementarrangements were indeed not in placeon SAR Establishment Day. As eventstranspired, however, the difficultiesthat arose were not entirely a functionof the transition but very largely aconsequence of the enactment of the1996 Ordinance. Before 27 June 1997,the now repealed s 2H of theOrdinance permitted the summaryenforcement of domestic awards andModel Law awards made in HongKong. It applied to the enforcement ofConvention awards because s 42 ofthe Ordinance said so. Overseasawards which were not Conventionawards, such as those made in Taiwan,

were also enforceable under s 2H,albeit at the discretion of the court,thus obviating the need to enforce byway of a common law action on theaward.

With effect from 27 June 1997,however, s 2H was repealed andreplaced by s 2GG of the Ordinance,which provides in almost identicalterms for the enforcement of awardsand, by virtue of s 42, applies toConvention awards. It had been.assumed in many quarters that s 2GGwould avail the enforcement ofChinese awards even though theywere no longer Convention awards.This impression was dispelled by thedecision of Findlay J in Ng Fung HongLtd v ABC [1998] 1 HKC 213, in whichthe learned judge held that s 2GG hadto be read subject to s 2AD of theOrdinance, which declared the scopeof Part IA of the Ordinance. InFindlay J's view, Part I A, of whichs 2GG was also a provision, when readtogether with art 1 of the Model Law,applied to domestic and internationalarbitrations conducted, and thereforeto the enforcement only of awardsmade in Hong Kong. As Mainlandawards were no longer Conventionawards and s 2GG was narrower in.application than its predecessor, theywould have to be enforced by actionon the award - which takes longer, ismore costly and subject to a greaternumber of defences. The old certaintieswere, therefore, lost. The judgmentcarried identical implications for theenforcement of Taiwanese awards.

Findlay J's judgment, which wasrendered in February 1998, confirmedthe existence of the long-anticipatedlegal vacuum in the enforcement ofcross-border awards. Clearly, urgentaction to restore the status quo antewas needed in order to minimisedamage to Hong Kong's position asan arbitration centre and place ofenforcement. Indeed, there is muchanecdotal evidence of Hong Kong-PRCarbitrations going to Singapore in

72 HONG KONG OCT19W

f

order to get around the problem.Regrettably, swift action was notforthcoming. New arrangements basedon the New York Convention werenot announced by the Secretary forJustice until November 1998. Despiteexpressing hope that the necessaryjuridical assistance agreement underart 95 of the Basic Law would besigned by the end of the 1998, theArrangement Concerning MutualEnforcement of Arbitral AwardsBetween the Mainland and the HongKong Special Administrative Regionwas not in fact signed until 21 June1999.

Even so, the signing of theagreement is not the end of the story.It requires implementation on bothsides of the border. In Hong Kong, anArbitration (Amendment) Bill wasgazetted on June 1999. The LegislativeCouncil will not, however, commenceformal consideration of the Bill untilOctober 1999. This means that, subjectto the pace at which promulgatorymeasures are introduced on theMainland, new arrangements areunlikely to be in place much beforethe end of 1999 or even early 2000.

Whilst seeking to introduce NewYork Convention-type enforcementarrangements for PRC awards (andfinally updating O 73 r 10 of the Rulesof the High Court in the process), theHong Kong Bill requires some fine-tuning to achieve this aim. HKIACand other interested bodies arec o - o r d i n a t i n g a p p r o p r i a t erepresentations to the Department ofJustice.

The Bill is also silent on the subjectof Taiwan. Whilst the 'renegadeprovince' across the Straits is always atouchy subject, there is no reason whyenforcement arrangements carrying nosuggestion whatsoever of sovereigntyfor Taiwan should not be included inthe Bill. The simple expedient of asingle clause applying s 2GG to theenforcement of any awards madeoverseas or outside of Hong Kong,

other than Convention and Mainlandawards, would suff ice . Such aprovision, would, without mentioningthe names of any territories, embracenot only Taiwan but also Macau andthe few remaining states, such asPakistan, that have not acceded to theNew York Convention.

Hong Kong's profileas an internationalarbitration centre

would benefit fromits continuing to be

seen as a Model Lawjurisidiction ...

Law Reform, 1998 and BeyondWith regard to root and branch lawreform in the longer term, the HKIACCommittee, chaired by Neil Kaplan,whilst putting forward a number ofspecific ideas, was content to statebroad principles for the guidance of afuture committee. It recommendedthat:

'The Arbitration Ordinance ...should be completely redrawn inorder to apply the Model Lawequally to both domestic andinternational arbitrations, andarbitration agreements, togetherwith such additional provisionsas are deemed, in the light ofexperience in Hong Kong andother Model Law jurisdictions,both necessary and desirable.'

The task of giving deta i ledconsideration to the shape and contentof a new Arbitration Ordinance fell toa successor body created by the HongKong Institute of Arbitration (HKIArb)with the encouragement of theSecretary for Justice. The Committeeon Hong Kong Arbitration Law (the

HKIArb Committee), like itspredecessor, is a joint committee. Its:Chairman is Mr Robin S Peard, asolicitor and eminent maritimearbitrator. •• • • ) ' : ;

The HKIArb Committee has not yetreported to the Government, but thefollowing is a summary of itsconclusions to date. Hong Kong'sprofile as an international arbitrationcentre would benefit from, itscontinuing to be seen as a Model Lawjurisidiction if and when a newArbitration Ordinance is enacted. TheCommittee has therefore endorsed theconcept of a unitary system ofarbitration law governed by the ModelLaw, together with any necessary ordesirable amendments. Its guidingprinciple for reform is that anyprovisions additional to the ModelLaw should only be recommendedwhere there is good reason for doingso, such as where a domestic provision:of the present Ordinance has been.:widely accepted or where a proposedprovision was not contemplated at thetime the Model Law was adopted in'Hong Kong. The amendments Witttherefore be relatively few in number,;in order that there should not be too:

great a divergence from UNCITRAL's-drafting. Their principal functions will;therefore be (i) to provide a corpus of:essential provisions without seeking,to codify Hong Kong's arbitration law;:(ii) to make further necessary provisionwith regard to matters not dealt with;by the Model Law (for example with;regard to the seat of the arbitration,;the appointment and functions of:umpires, a general duty on the partiesto progress a reference and to comply:with the tribunal's orders anddirections, sanctions for party default;and assessment of the parties' costs-and arbitrators' fees); (iii) to clarify;certain provisions of the Model Law,;such as the power of the court underart 34(4) to remit an internationalaward made in Hong Kong; and (iv);to remove a number of internal;

HONG KONG LAWYER 0CT1999

Cover Story

inconsistencies and conflicts betweenPart IA of the present Ordinance andthe Model Law. There are also likelyto be a small number of specialprovisions for domestic arbitrations,in particular rights to opt intodetermination of a preliminary pointof law by the court and appeals on apoint of law. The state of play of theHKIArb Committee's deliberations isdiscussed in greater detail by RobinPeard in his article, The ArbitrationOrdinance: What Further Changes areNeeded? [1999] Asian DR 33.

It is hoped that the HKIArbCommittee will be in a position toreport to the Government by the endof 1999 or early 2000 and thatGovernment's reactions to therecommendations will be positive.

And what of the Future?Even assuming that the Hong KongGovernment is prepared to takeforward the next stage of law reform,there must be in place an arbitralinfrastructure which ensures that it isimplemented effectively, efficiently,fairly and in the public interest. Thecriteria for determining whether suchan inf ras t ruc ture meets theserequirements are convenientlyencapsulated by Lord Woolf MR'sbasic principles for an accessible civiljustice system. For he himself has saidthat his reforms, and the EnglishArbitration Act 1996 on which thelatest Hong Kong amendments arebased, are two sides of the same coin,subject of course to such modificationsas are necessary to reflect the voluntarynature of arbitration (Patel v Patel[1999] BLR 227 at 229). Theseprinciples, which are addressed towhat Lord Woolf MR identified as thetriple excesses of cost, delay andcomplexity, are as follows:

(1) The results should be just: substantivejustice depends upon adequatelytrained professionals, both lawyersand non-lawyers, to present theirclients' cases effectively, and on theexis tence of t r a i n e d and

experienced arbitrators, bothlegal and lay. Whilst the primaryprofessional bodies are responsiblefor training their members insubstantive law and advocacyskills, it is for the arbitralinstitutions to provide adequateand up to date training inarbitration law and practice to allthose involved in the process.

Arbitrators havea responsibility to

avoid 'over-judicialising'arbitration procedure...

by tailoring it tothe needs of

the particular case,or encouraging

the partiesto do so

(2) The system should be fair in fact andin appearance: whilst the duty toobserve natural justice is nowenshrined in statute, that is onlypart of the picture. Arbitrators mustbe capable in the first place ofexercising judicial capacity, anability which is arguably moreinherent than learned. They mustnot apply case managementtechniques in such a way as toprejudice compliance with the rulesof natural justice (Damond LockGrabowski & Partners v LaingInvestments (Bracknell) Ltd (1992) 60BLR 112). They must also becompetent and conversant withwhat they can and cannot do witha live reference, as failure to do soof itself generates unfairness. Mostparties are arguably satisfied withthe way in which their cases arehandled, even if ultimately they areunsuccessful, if they can feel they

have had their 'day in court'.Regrettably, however, there arearbitrators who, regardless ofwhether they are legal or lay or ofhow much training they may havereceived, are not competent tohandle real world references. Thefailures of such a minority give thearbitral process a bad name. Thosewho doubt the veracity of thisassertion are referred to thedecision of Findlay J in CharteryardIndustrial Ltd v Incorporated Ownersof Bo Fung Gardens [1998] 4 HKC171 for an object and abject lessonin how an arbitration should notbe conducted.

(3) Procedures should be proportionate tothe issues involved and the processshould be reasonably speedy: thisprinciple is enshrined in the objectdeclared in s 2AA(1) of theOrdinance and in the overridingduty on arbitrators to adoptappropriate procedures so as toavoid unnecessary delay andexpense. This principle is notlimited in application to caseswhere an arbitrator decidesprocedure; it applies equally wherean arbitrator directs the way inwhich parties should implementtheir chosen procedure. Oneexample of this is the use of thepower under s 2GL of theOrdinance to limit a party'srecoverable costs and thusachieve proportionality to theissues involved and the amountsat stake.

(4) The process should be understandableand responsive to users: foreignusers and their lawyers andunrepresented domestic usersand lay professionals should, sofar as possible, have access toa comprehensible and cohesivecorpus of arbitration law. A unifiedbody of arbitration law would gosome way towards meeting thisobjective. Once again, however,this is only part of the picture.

74 HONG KONG LAWYER OCTI999

Arbitrators have a responsibility toavoid ' ove r - jud ic ia l i s ing 'arbitration procedure (a criticismf r e q u e n t l y voiced by theconstruction industry in particular)by tailoring it to the needs of theparticular case, or encouragingthe parties to do so. They mustensure that the parties understandwhat the process involves and theimplicat ions of decisionstaken, particularly if they areunrepresented. Subject to contraryagreement by the parties, s 2GB(6)of the Ordinance allows arbitraltribunals to adopt inquisitorialprocedures, thus liberating themfrom strict adherence to theadversarial system, provided thatnatural justice is not compromised.Arbitral institutions must 'sell'their procedures and services tousers at large, keep under reviewtheir model arbitration clauses,arbitration rules and associatedprocedural guidance and developnew procedures and services, bothgenerally and for particular sectors,including 'multi-tiered' proceduressuch as mediation/arbitration oradjudication/arbitration. In sodoing, they will also 'sell'Hong Kong as an arbitrationcentre.

(5) The process should provide as muchcertainty as the circumstances of thecase allow: users should know inadvance what they can expect ofthe process and how it differs fromother dispute resolution processes,in terms both of processualdifferences and likely outcomes.Arbitral institutions have a role toplay in providing such informationand helping users to makeinformed choices. It should not beforgotten that business is thebiggest user of arbitration and thatbusiness people value certaintyabove all.

(6) The process should be effective in termsof resourcing and organisation:

arbitral institutions must, inaddition to producing modelclauses and arbitration rules,maintain and review panels ofarbitrators from whom they mayconf iden t ly make de fau l tappointments should the partiesfail to agree. They must alsoprovide adequate administrationand s u p p o r t services forarbitrat ions, pa r t i cu la r lyi n t e r n a t i o n a l commerc i a larbitrations. Keeping panels ofarbitrators under review is ofcritical importance as institutionalappointments are regularlycondemned as a ' lottery',particularly by the constructionindustry. For their part, arbitratorsmust be prepared to accept only somany appointments as they canrealistically handle.

Hong Kongarbitration enters

the new Millenniumin a state of flux,having developed

exponentially duringthe relatively short period

commencingin 1985

Compliance with all of the abovecriteria will also impact upon the costsof the process, particularly legal costs.Lawyer's fees are a critically sensitivetopic in Hong Kong at the momentand the level of fees has come underattack from a number of directions,including by a member of the Benchwho sees high fees as threatening toprice Hong Kong out of the market asa centre for arbitration or litigation(Glencore International AG v Tianjin

Huarong Mineral Products Co Ltd [1998]3 HKC 68 at 73, per Cheung J). This is,of course, not an issue that is uniqueto or generated by arbitration per se.The continued health and use of thearbitral process will, however, begravely threatened if it is notaddressed.

ConclusionHong Kong arbitration enters thenew Millennium in a state of flux,having developed exponentiallyduring the relatively short periodcommencing in 1985. The territory'sexperience of the UNCITRAL ModelLaw has been a beneficial one, interms both of the development ofHong Kong arbitration generally andof Hong Kong's international image.There is now in place an effectiveand more modern (if at presentlysomewhat messily organised)Arbi t ra t ion Ordinance whichexpressly aims to promote arbitralefficiency, speed and economy. Anunfortunate hiatus in the summaryenforcement of cross-border awardswill hopefully soon come to an end,perhaps allowing the territory tostart winning back business lost toSingapore in the interim. These arepositive indicators. If Hong Kong atleast enters 2000 with an arbitrationcommunity that is better informedof what needs to be done to minimisethe triple excesses of cost, delay andcomplexity, there is good cause foroptimism in arbitration's future inthe territory. In these circumstances,a new Arbi t ra t ion Ordinance,if enacted, will be the icing on thecake.

Robert MorganAssociate Professor

Faculty of LawUniversity of Hong Kong

HONG KONG LAWYER OCT1999 75

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