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International Arbitration Newsletter May 2019

Date and time :2019-05-24
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HKIAC Permitted to Act as A Permanent Arbitral Arbitration in Russia

On 25 April 2019, the Hong Kong International Arbitration Centre (“HKIAC”) became the first foreign arbitral institution that be granted permission to function as a permanent arbitral arbitration (“PAI”) Russia’s Arbitration Legislation.

As a PAI, HKIAC is authorized to administer : (i) international disputes seated in Russia; (ii) disputes between parties from any special administrative region as defined under Russian law or disputes arising from agreements to carry out activities in any such region; and (iii)certain types of corporate disputes in respect of a legal entity in Russia (Article 45(7) and (7.1) of the Federal Law and Article 225.1 of the Russian Arbitral Procedure Code) concerning ownership of stocks or shares, agreements between the participants of a legal entity concerning the management of that legal entity, and regarding the registration of rights to stocks and other securities, the exercise of their rights and discharge of other obligations etc.


HKIAC Released 2018 Case Statistics

According to 2018 Annual Casework Report released by the Hong Kong International Arbitration Centre (“HKIAC”) in April, a total of 521 cases were submitted to HKIAC in 2018, among which, 265 were arbitrations, 21 were mediations and 235 were domain name disputes. For the 265 arbitrations submitted to HKIAC in 2018, 146 were administered by HKIAC under the HKIAC Administered Arbitration Rules or the UNCITRAL Arbitration Rules. 71.7% of the 265 arbitrations cases submitted to HKIAC in 2018 were international in nature, i.e. at least one party was not from Hong Kong (80.7% of the administered arbitrations filed in 2018 were international cases). The total amount in dispute in all arbitration cases was HK$52.2 billion (approximately US$6.7 billion), which represented a 34% increase from US$5 billion in 2017. The total amount in dispute in all administered cases was HK$49.2 billion (approximately US$6.3 billion). The average amount in dispute in administered arbitrations was HK$337.2 million (approximately US$43.2 million). Parties from 40 jurisdictions participated in the arbitrations commenced at HKIAC in 2018, the top ten geographical origins or nationalities of these parties were: Hong Kong, Mainland China, British Virgin Islands, United States, Cayman Islands, Singapore, South Korea, Macau/Vietnam, Malaysia.


High Court of Judicature at Bombay:

The Arbitration Award Has Been Set Aside on Grounds of the Arbitrator Had Been Appointed by One Arbitrating Party in Multiple Cases

Relevant Provision:

Section 11 (8) of the Arbitration and Conciliation Act 1996 (“ACA”) of India provides, “The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to: (a) any qualifications required for the arbitrator by the agreement of the parties; and (b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

Section 12 (1) of the ACA India provides, “(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances, (a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and (b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Explanation 1:The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. …”

Item 1 of the Fifth Schedule to the ACA provides, “The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.”

Item 14 of the Fifth Schedule to the ACA provides, “The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom.”

Item 22 of the Fifth Schedule to the ACA provides, “The arbitrator has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties.”

In Raghani Tradelink Pvt. Ltd. & Ors. v HDB Financial Services Ltd. & Anr., the key issue was whether the arbitral award made by the sole arbitrator shall be set aside, provided that such sole arbitrator had been appointed by one arbitrating party in more than 200 arbitration proceedings.

Court’s View:

The court set aside the impugned award of the sole arbitrator for the following reasons:

a)Since the arbitrator has been appointed by one arbitrating party in more than 200 cases, it would permit him to derive a significant financial income from such cases, in addition, the arbitrator was unilaterally appointed by such party.

b)In this case, there were reasonable doubts on the legal validity and competence of the arbitrator to adjudicate the dispute, thus the arbitrator ought not to have entered a reference.

c)The arbitration award shall be held illegal rendering the appointment of the arbitrator itself as illegal and contrary with the provisions of Section 12 and Fifth Schedule to the ACA.


How to Apply for Property Preservation in Hong Kong

On April 2, 2019, the Supreme People’s Court of the People’s Republic of China and the Government of Hong Kong Special Administrative Region have entered into an Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (hereinafter referred to as “the Arrangement”). Pursuant to the Arrangement, any party to arbitral proceedings in Hong Kong may apply to the relevant Mainland Chinese courts for interim measures relating to the preservation of assets, evidence and conduct. Equally, any party to arbitral proceedings in Mainland China may apply to relevant Hong Kong courts for injunctions and other interim measures. However, since the legal systems and legal languages are significantly different in mainland China and Hong Kong, and unlike mainland China where the law relating to property preservation is centralized in Civil Procedure Law and relevant judicial interpretations, in Hong Kong the provisions regarding property preservation are scattered in various ordinances, therefore, in order to help the readers to better understand how to apply for property preservation in Hong Kong, this month’s issue of International Arbitration will provide a brief introduction of the relevant regulations and procedures regarding property preservation in Hong Kong.


Ability of the Courts and Arbitral Tribunals to Grant Interim Measures

As a common law jurisdiction, the decision with regards to property preservation lies with both the courts and the arbitral tribunals in Hong Kong. This is a clear difference with the legal system in mainland China as arbitral tribunals generally have no power to grant interim measures, this power is reserved for the People’s Courts. Section 35 of the Hong Kong Arbitration Ordinance (Cap. 609) directly empowers the arbitral tribunal to order interim measures. The conditions for granting interim measures are contained in Section 36, which provides, “The party requesting an interim measure shall satisfy the arbitral tribunal that: (a) harm not adequately reparable by an award of damages is likely to result if the measure is not ordered, and such harm substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted; and (b) there is a reasonable possibility that the requesting party will succeed on the merits of the claim. The determination on this possibility shall not affect the discretion of the arbitral tribunal in making any subsequent determination.” There are however a number of limitations on the arbitral tribunal’s power to order interim measures: such orders cannot be made ex parte, they will generally not be enforceable against third parties, and a tribunal generally has less coercive power as the court etc.

In accordance with section 21L of the High Court Ordinance (Cap. 4), If, whether before, or at, or after the hearing of any cause or matter, parties to an arbitration apply for interim measures from the court, which, if the court thinks fit, can grant an injunction to preserve the property in dispute and protect the interests of the applicant. This is also recognized by the Arbitration Ordinance in Section 55, which states that the arbitral tribunal, or a party with the approval of the arbitral tribunal, may request from the court to grant an order relating to the preservation of evidence. In practice, an application to the courts will typically be processed faster than an application to the arbitral tribunal. When the court is satisfied the matter is one of urgency, Mareva Injunctions and other appropriate measures can be obtained by the applicant on the same day of application, provided that the qualified judge or deputy judge has adequate time to review the application. In addition, there are certain procedural advantages when applying to the courts for interim relief when arbitral tribunal’s power is restricted, for example where third parties are involved or where it is necessary for the application to be made ex parte. Regardless of which route the arbitrating party decides on when considering an interim remedy application, the court or arbitral tribunal applies the same general principles governing the grant of the interim measure in question.


Types of Property Preservation Measures

The most common interim relief is an asset freezing order, also known as a Mareva Injunction. This type of injunction will effectively restrain any party from dealing with and removing assets, up to the value of the claim, out of the jurisdiction, so as to ensure any judgement given will not be rendered empty. A Mareva Injunction is usually obtained ex parte directly from the court with the approval of the arbitral tribunal. In order to secure the grant of the order, the applicant has to satisfy the judge that (a) his case has a good prospect of success (a good arguable case); (b) the Respondent has assets in Hong Kong; (c) the balance of convenience is in favour with granting this injunction, and (d) that there is a real risk the judgement might not be enforceable in the future if the application is refused. In accordance with Practice Direction 11.1, the applicant shall provide the court with the issue of a writ or originating summons, an affidavit in support of the ex parte application, along with the draft of the order sought. In general, the applicants who apply for an asset freezing order would also apply to the court for an asset disclosure order, which is an order ancillary to the asset freezing order, so as to identify the position or nature of the assets as well as whether the asset has been transferred to any third party etc., and ultimately to ensure the enforcement of the asset freezing order. Furthermore, pursuant to Section 21M of the High Court Ordinance, “Without prejudice to section 21L(1), the Court of First Instance may by order appoint a receiver or grant other interim relief in relation to proceedings which (a) have been or are to be commenced in a place outside Hong Kong; and (b) are capable of giving rise to a judgment which may be enforced in Hong Kong under any Ordinance or at common law.”, it can be seen that the Hong Kong courts can grant not only an asset freezing order targeting the assets inside the territory of Hong Kong, but also a global asset freezing order targeting the Respondent’s assets outside the territory of Hong Kong.

The second type of interim relief is an Anton Piller Order. This is a mandatory order from the court, compelling the Respondent to permit the claimant to enter premises under the defendant’s control, inspect all documents and materials in dispute, and to seize and remove into safe custody. Thus, an Anton Piller Order can greatly assist in determining the location or nature of assets and clarifying the legal ownership of relevant property. The procedural steps for obtaining an Anton Piller Order are the same as a Mareva injunction with the application made ex parte. In order to secure the grant of the order, the applicant has to satisfy the judge that (a) his case has a good prospect of success; (b) there is significant or actual danger to the applicant if the application was refused; (c) more than possible that evidence will be removed or destroyed; (d) the harm of this order to the Respondent (or its business) must not outweigh the harm that is likely to result if the order is not granted, or is in conflict with the ultimate object of the order. 

When dealing with these preservation measures, because of their ex parte nature, the timing of a party’s application to court is often crucial, due to the reason that the court needs to be satisfied that the application is one of urgency and necessary for it to be made ex parte, therefore, the more time that passes before an application is made, the more difficult it will become to satisfy the court to grant the order. If the court is satisfied by an applicant’s arguments, under normal conditions the order shall be handed down on the same day. For the order to be granted, the applicant is required to pay the fixed filing fee of the application in the sum of HK$1,045 and give some form of security for damages. For parties that have considerable assets or property in Hong Kong, the court will more easily allow an undertaking to suffice. Parties whose assets lie out of Hong Kong will more likely be required to pay the court security for damages. On the other hand, if the court is unsatisfied by a party’s arguments, or awards that such application fails to meet the standard of proof required for ex parte hearing, then the hearing will become inter partes and a return date will be arranged. This is a vastly more time-consuming process as both sides will be given the opportunity to argue their merits of the case. For these reasons, for party’s applying ex parte for Mareva injunctions or other freezing orders, it is of crucial importance to (i) satisfy the court there is a real risk of asset dissipation; and (ii) the matter needs to be dealt with ex parte urgently. 

At present, all parties to the cases, of which the judgements can be enforced under Arbitration Ordinance or the common law, can apply for asset freezing order or other interim measures in Hong Kong. Although both courts and arbitral tribunals in Hong Kong are empowered to grant interim measures, in consideration of the orders from the arbitral tribunal generally has less coercive power than the orders from the court, applying for interim measures from the courts is always the preferred solution, in case of the respondent’s disobedience of such order.