New Rules for Maritime Arbitration in China provide for systematic video hearings

The China Maritime Arbitration Commission (CMAC) Arbitration Rules (2021 Edition) have come into effect on 1 October. Speaking at a press conference of the CMAC on 9 October 2021, Li Hu, Deputy Director of CMAC, said that the new revised rules respond to the profound changes brought about by the new crown pneumonia epidemic to international arbitration and provide for the first time systematic provisions on electronic service of process, video hearings, video testimony, electronic signatures as well as cyber security and privacy and data protection.

For the first time, the newly revised rules systematically provide for the integration and innovation of electronic technology with conventional arbitration; for the first time, they set out the rules of evidence in a more systematic manner; for the first time, they distinguish between the roles of the case manager and the secretary of the arbitral tribunal; for the first time, they clarify the nature of expert advice and its relationship with the arbitral tribunal; for the first time, they provide for the public release of a declassified award with the consent of the parties; for the first time, they add service on the captain of the ship of the parties as one of the means of service of arbitration documents; for the first time, it was clarified that the arbitral tribunal could take necessary measures to avoid conflicts of interest arising from changes in the parties' representatives; and for the first time, a limitation of liability clause was introduced.

Under the guidance of the Rules, the CMAC will help Chinese enterprises to resolve foreign disputes locally and further enhance the international influence and competitiveness of CMAC.

HKIAC Receives 50th Application for Preservation of Arbitration under the Arrangement

As at September 2021, the Hong Kong International Arbitration Centre ("HKIAC") has received 50 applications for preservation in arbitration since the Arrangement on Reciprocal Assistance in Respect of Court Preservation in Arbitral Proceedings between the Mainland and the Hong Kong Special Administrative Region ("Arrangement") came into effect on 1 October 2019. As at September 2021, the HKIAC has accepted 50 claims for preservation in arbitration. Under the Arrangement, parties to arbitration proceedings in which Hong Kong is the seat of arbitration and which are administered by an institution may apply directly to a Mainland court with jurisdiction for interim measures.

Forty-seven of the 50 applications were for the preservation of property. To date, 23 different Mainland courts have issued rulings granting preservation, and the total value of assets preserved by these rulings amounts to RMB10.9 billion (approximately US$1.7 billion). According to available information, the median time taken for the Mainland courts to make a decision is 8 days.

Applicants for interim measures under the Arrangement shall come from the China, the British Virgin Islands, the Cayman Islands, Japan, Samoa, Seychelles, Singapore, and Switzerland. The Respondents are individuals or companies from the British Virgin Islands, the Cayman Islands, France, the China, the Netherlands, St. Kitts and Nevis and Singapore.

The HKIAC is a qualified arbitration institution under the Arrangement. A Letter of Acceptance will be issued within 24 hours upon receipt of an application, free of charge. HKIAC has learned important and unique lessons from the 50 arbitration preservation applications it has handled. The Arrangement is an important consideration in transactions involving mainland property, conduct or evidence," said Sarah Grimmer, the responsible person of HKIAC, "It brings significant commercial advantages to choosing Hong Kong as the seat of arbitration and to choosing HKIAC."

Draft revised sports law submitted to NPC Standing Committee for consideration New anti-doping chapter

The draft revision of the Sports Law was submitted to the 31st session of the Standing Committee of the 13th National People's Congress for consideration on 19 October 2021, and the firm fight against doping is one of the main elements of this revision of the Sports Law.

The main content of the anti-doping chapter is a distillation of the anti-doping regulations, summarising what has been elevated to legal provisions to regulate anti-doping work, including the principle of prohibiting doping; stipulating that no doping shall be provided or disguised to sports participants. The draft provides for the establishment of a national anti-doping administration mechanism and clarifies the responsibilities of sports administrative departments and relevant departments as well as international cooperation in anti-doping.

The draft also includes a new section on the protection of athletes' rights to enhance the protection of athletes' rights. In terms of supervision and management, a new section on sports arbitration has been added to change the long-standing failure to implement sports arbitration provisions and to establish a sports arbitration system suitable for China's national conditions.

The High Court of Hong Kong：Covenant to "may" submit to arbitration means mandatory obligation to arbitrate

Case Description:

Kinli Civil Engineering Limited (Company K) was a subcontractor to Geotech Engineering Limited (Company G) for the site formation, drainage and pile cap works for the Shek Kip Mei Estate Phase 6 public housing development. company K brought an action in the Hong Kong court for payment of HK$4,055 ,696.83 on the ground that Company G owed the said amount pursuant to the sub-contract. The dispute resolution clause in the contract between the parties provided that:

“If in the course of executing the Contract, any disputes or controversies arise between (G) and (K) on any question and the parties are unable to reach agreement, both parties may in accordance with the relevant arbitration laws of Hong Kong submit the dispute or controversy to the relevant arbitral institution for resolution, and the arbitral award resulting from arbitration in the HKSAR shall be final and binding on both parties, and unless otherwise agreed by both parties, the aforesaid arbitration shall not be conducted before either the completion of the main contract or the determination of the subcontract.”

Company G then applied for a stay of proceedings under section 20(1) of the Hong Kong Arbitration Ordinance on the basis that there was an arbitration agreement between the parties.

K defended on the basis that the clause used the word "may", meaning "may" or "can" ("may " meaning "may" or "can") rather than "shall", "should" or "must". ", "shall" or "must "). This meant that the parties had the right to choose arbitration and the clause did not deprive K of the right to litigate in court.

Court’s View:

Section 20(1) of the Hong Kong Arbitration Ordinance provides that a court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

The main legal issue in this case was whether the agreement to arbitrate "may" initiate arbitration meant that the parties merely had a right to arbitrate, but not an obligation to compel arbitration.

The Hong Kong Court of First Instance held that in China State Construction Engineering Corp Guangdong Branch v Madiford Ltd [1992] 1 HKC 320, Kaplan J. analysed the legal position on the use of "may" in an arbitration clause. " authorities and texts and held that this did not affect the existence of an arbitration agreement between the parties. The clause in question in that case provided that "if a settlement cannot be reached by negotiation, the matter may be referred to arbitration". Mr Justice Kaplan recalled the decisions of the English, Hong Kong and US courts and made the following observation: “It seems clear to me that the parties in the case before me had agreed on arbitration as opposed to litigation in the courts in any particular country.  The fact that the permissive word ‘may’ was used does not in the end detract from this agreement.  It seems to me that once one party or the other has opted for arbitration (as by taking out this application for stay) the other party is obliged to honour the agreement to arbitrate.  It follows, of course, that if both parties agreed not to arbitrate but to litigate, they would be perfectly free to do so but I do not think the word ‘may’ in the context of this clause entitles the plaintiffs to negate the defendants’ wish to arbitrate by the issue of court proceedings.  At the end of the day, it seems clear to me that this is one of those cases where the word ‘may’ in effect means ‘shall’.  I do not think that the defendants are prevented from insisting upon arbitration merely because the plaintiffs issued their proceedings before any steps could be taken by the defendants to commence the arbitration.”

Whereas in Guangdong Agriculture Co Ltd v Conagra International (Far East) Ltd HCA 3032/1992, the arbitration clause provided that if the dispute could not be resolved by negotiation, it "may" be referred to arbitration. Barnett J held that, taken as a whole, the parties had expressly agreed by the clause to arbitrate their dispute.

In the recent case of Hermes One Ltd v Everbread Holdings Ltd [2016] 1 WLR 4098, the agreement in question provided that the dispute "may" be referred to arbitration. The court noted that where an arbitration clause provides that a dispute "shall" or "must" be submitted to arbitration, the implication of such a clause is that no party will seek any relief in any court in respect of such a dispute. This wording clearly indicates that litigation is a breach of contract. The court also reviewed authorities from different jurisdictions and scholarly works on the meaning of the word "may", including David Joseph QC on Jurisdiction and Arbitration Agreements and their Enforcement 2nd ed (2010), and Born's International Commercial Arbitration, Volume I International Arbitration Agreements, 2nd ed (2014). and that: as a matter of general principle, the preferred and proper analysis is that the words “any party may submit the dispute to binding arbitration” are purely permissive, leaving it open to one party to commence litigation, but giving the other party the option of submitting the dispute to binding arbitration, such option being exercisable by requiring the party which has commenced the litigation to submit the dispute to arbitration, by making an unequivocal request to that effect and/or by applying for a corresponding stay of the litigation. It was pointed out that the hallmark of arbitration is consent, and parties to an agreement to arbitrate are under mutual obligations to one another to cooperate in the pursuit of the arbitration. The analysis found by the Board, whereby notice will trigger the mutual agreement to arbitrate a dispute, was considered to fit better into a consensual scheme.

The decision in Hermes One was followed by this Court in Polytech Overseas Ltd v Grand Dragon International Holdings Co Ltd [2017] 3 HKLRD 258.

In summary, if there is an arbitration clause, bearing in mind the presumption in favour of one-stop adjudication by the same forum, it will not be construed as giving a choice to the parties between arbitration and litigation, unless there is very clear language providing for such. The court held that, despite the use of the word "may" in the arbitration agreement, the obligation to arbitrate was mandatory. It also rejected K's defence that the use of "may" rather than "shall" in the arbitration clause meant that the parties could not have intended to compel arbitration. Although the clause allowed one party to commence litigation, the other party could still choose to submit the dispute to arbitration, so that a party who had commenced litigation would be required to submit the dispute to arbitration if an express request or application for a stay was made.

Nanjing Maritime Court:Mainland and Hong Kong arbitration preservation arrangements do not apply to ad hoc arbitrations 

Case Description:

On 24 October 2017, Zhucheng signed a voyage charter contract with Jufeng, under which Zhucheng carried palm oil for Jufeng. on 24 November 2017, after the ship arrived at the discharge port, Zhucheng handed over the goods to a third party at the request of Jufeng because the original bill of lading had not arrived, and Jufeng guaranteed to bear all consequences and responsibilities arising therefrom. However, within 60 days after the discharge of the goods, the company did not return the original bill of lading to the company according to the contract. In June 2021, Zhucheng commenced an ad hoc arbitration in Hong Kong under the arbitration clause in the lease agreement, claiming the liability of the company. In order to ensure the enforcement of the arbitral award, Zhu Cheng applied to the Court for the preservation of the US$6 million claim or equivalent value of property declared in bankruptcy cases (2020) Su 1283 Po 48 and (2020) Su 1283 Po 49.

Court’s View:

The Nanjing Maritime Court held that the focus of dispute in this case was whether there was a legal basis for the applicant to apply to the mainland people's court for property preservation in the interim arbitration proceedings in Hong Kong. The Civil Procedure Law of the People's Republic of China and its judicial interpretations are silent on whether parties in Hong Kong arbitration proceedings may apply to the people's courts in the Mainland for the preservation of their property. The Arrangement specifically provides for mutual assistance in preservation in arbitration between the Mainland and Hong Kong. Article 3 of the Arrangement provides that parties to arbitral proceedings in Hong Kong may, before an arbitral award is made, apply to the intermediate people's court of the Mainland where the respondent is domiciled, where the property is located or where the evidence is located for preservation with reference to the provisions of the Civil Procedure Law of the People's Republic of China, the Arbitration Law of the People's Republic of China and the relevant judicial interpretations. At the same time, the first article of this provision specifies that "preservation" in the Mainland includes preservation of property, preservation of evidence and preservation of conduct. Article 2 specifies that the so-called Hong Kong arbitration proceedings shall be conducted in the Hong Kong Special Administrative Region and shall be administered by a recognized institution or permanent office. It is thus clear that parties in Hong Kong arbitration proceedings may apply to the People's Court in the Mainland for property preservation, but the scope is limited to confirmed institutional arbitration and does not include ad hoc arbitration. As the arbitration initiated by Zhu Cheng in Hong Kong was an ad hoc arbitration, the Court did not support the request for the Court to take measures to preserve the property of Ping Feng in the arbitration proceedings, as it lacked the corresponding legal basis. Therefore, it is ruled that the application of Zhu Cheng Shipping Co.

Application for Reconsideration:

Zhu Cheng reconsidered that its application to the mainland people's court for the preservation of its property in the interim arbitration proceedings in Hong Kong had legal basis: 1. Article 21(2) of the Supreme Court's Interpretation of the Maritime Claim Law provides that: "Where a foreign court has accepted the relevant maritime case or the relevant dispute has been submitted to arbitration, but the property involved in the case is within the territory of the People's Republic of China, and the parties apply to the maritime court where the property Therefore, if the arbitration has been submitted abroad or outside the country, the maritime court in the place where the property is located shall accept the arbitration as long as the property is within the territory of the People's Republic of China, and shall not distinguish whether the arbitration is institutional arbitration or ad hoc arbitration. Therefore, the application for the preservation of the property of Zhu Cheng Shipping Co., Ltd. shall be accepted and handled by the Nanjing Maritime Court.2. Article 18 of the Interpretation of the Maritime Litigation Law of the Supreme Court provides that: "The property of the requested person as stipulated in Article 12 of the Law on Special Procedures for Maritime Litigation includes the ship, the ship's cargo, the ship's fuel and the ship's materials. The provisions of the Civil Procedure Law relating to the preservation of property shall apply to the preservation of maritime claims in respect of other property." This provision only requires that the special provisions of the special procedural law on maritime litigation apply to the preservation measures of four specific assets, and that other property be preserved on the basis that preservation measures can be taken in accordance with the general provisions of the civil procedure law on the preservation of property, without the need for special provisions of the civil procedure law on the preservation of offshore ad hoc arbitration.3. The Supreme People's Court's "Arrangement on Mutual The Arrangement on Assistance in Preservation is only a provision for institutional arbitration preservation matters, and the Maritime Litigation Special Procedures Law and its judicial interpretation have already provided a specific and clear legal basis for the application for property preservation in offshore ad hoc arbitration against the territory of China. In view of the above, it was requested that the original ruling be set aside and that preservation measures be taken in respect of the insolvency claims or other property of equivalent value enjoyed by the company.

Court’s View:

The Nanjing Maritime Court, after examination, held that the focus of dispute in this case was whether there was a legal basis for Zhu Cheng Shipping Company Limited to apply to the mainland court for the preservation of its property in the interim arbitration proceedings in Hong Kong. On the question of whether Article 21 of the Supreme Court's Interpretation of the Maritime Litigation Law was applicable in the present case. Article 12 of the Law of the People's Republic of China on Special Procedures in Maritime Litigation provides that "preservation of maritime claims refers to the compulsory measures taken by the maritime court against the requested person's property upon the application of the maritime claimant in order to safeguard the realization of his maritime claims", while Article 18 of the Interpretation of the Supreme Court on Maritime Litigation Law provides that "The property of the requested person as stipulated in Article 12 of the Maritime Litigation Special Procedures Law includes ships, ship's cargo, ship's fuel and ship's materials. The provisions of the Civil Procedure Law relating to the preservation of property shall apply to the preservation of maritime requests for other property". Combined with the above two provisions, it can be seen that the provisions of the maritime litigation special procedure law and its judicial interpretation on maritime request for preservation are limited to the preservation of four types of special property, such as ships, and are not applicable to general property. Ltd. applied for the preservation of property for bankruptcy claims, does not belong to the four categories of property, and therefore does not apply to the provisions of Article 21 of the Supreme Court's interpretation of maritime litigation law. Ltd. thus believes that the Hong Kong interim arbitration can be applied to the maritime court of the property location for preservation, lack of legal basis, this court does not support. With regard to the application of the law on the preservation of property by the parties to the mainland people's court in the Hong Kong arbitration proceedings. The Arrangement between the Courts of the Mainland and the Hong Kong Special Administrative Region on Mutual Assistance in the Preservation of Property in Arbitration Proceedings has been specifically provided for in the Supreme People's Court's Arrangement on Mutual Assistance in the Preservation of Property in Arbitration Proceedings. The Arrangement specifies that parties in institutional arbitration proceedings may apply to the People's Court of the Mainland for the preservation of their property, and since the present case was an ad hoc arbitration, the parties could not apply to the People's Court of the Mainland for the preservation of their property on this basis. In view of the above, it was ruled that the request for reconsideration by Chu Cheng Shipping Co.

This Newsletter is produced by ZLWD International Business Committee and for your reference only.

Editorial Board: Wei LIN  Philip DUAN  Ellen WANG  

Lingling GUO Yuming Li  Ning Ning  Yu Zhuan

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