The Hong Kong Special Administrative Region Government proposes to amend the Arbitration Ordinance to enhance the status of an international legal hub

The Department of Justice of the Hong Kong Special Administrative Region (HKSAR) released an announcement on February 17, the Government will introduce legislative amendments to the Arbitration Ordinance (Cap. 609) to fully implement the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (hereinafter referred to as the Supplemental Arrangement) signed between the Government of the Hong Kong Special Administrative Region (hereinafter referred to as the HKSAR) and the Supreme People's Court of the People's Republic of China on November 27, 2020.

The purpose of signing the Supplemental Arrangement is to amend the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR (hereinafter referred to as the Arrangement) which came into effect on February 1, 2000, and bring it more fully in line with the current practice of international arbitration. The Supplemental Arrangement amends the Arrangement in the following aspects:

(a) express inclusion of the term "recognition" when referring to enforcement of arbitral awards in the Arrangement for greater certainty;

(b) express provision to clarify that a party may apply for preservation measures before or after the court's acceptance of an application to enforce an arbitral award for greater certainty;

(c) aligning the definition of the scope of arbitral awards with the prevalent international approach of "seat of arbitration" under the New York Convention; and

(d) removal of the previous restriction of the Arrangement, allowing parties to make simultaneous applications to both the courts of the Mainland and the HKSAR for enforcement of an arbitral award.

It is not necessary to enact new legislation or amend existing legislation in Hong Kong to implement the above Amendments (a) and (b), while the implementation of Amendments (c) and (d) will require necessary amendments to the Arbitration Ordinance.

The relevant Arbitration (Amendment) Bill 2021 will be gazetted this Friday (February 19) and introduced into the Legislative Council on February 24, 2021. The Bill will also update the Schedule to the Arbitration (Parties to New York Convention) Order (Cap. 609 sub. leg. A) and make minor textual amendments to the Arbitration Ordinance.

HKIAC Releases Statistics for 2020

In 2020, HKIAC received 318 arbitration filings which is the highest number received in over a decade. Of the 318 filings, 203 were arbitrations administered by HKIAC which represents an increase close to 20% in administered arbitrations from 2019. The total amount in dispute was HK$68.8 billion (approximately US$8.8 billion) – a record high since HKIAC began to publish such information in 2011.

Arbitrations filed in 2020 continued to be predominantly international featuring parties from 45 jurisdictions. 72% of all arbitrations and 86% of administered arbitrations were international. The vast majority of the arbitrations were seated in Hong Kong. Disputes were subject to 12 different governing laws.

HKIAC saw greater diversity in its appointments of arbitrators in 2020. Of the 149 appointments made by HKIAC, 23% were of female arbitrators (20.5% in 2019) and 50% were of arbitrators not previously appointed by HKIAC over the last three years (40% in 2019).

Multiple applications were made for various procedural mechanisms in the 2018 HKIAC Administered Arbitration Rules (the “2018 Rules”) to streamline arbitral proceedings. In 2020, HKIAC received a record number of 14 emergency arbitrator applications, of which 11 were made in related arbitrations. For the first time, the newly introduced Early Determination Procedure was invoked in three cases, one of which proceeded and concluded by final award. Parties disclosed third-party funding arrangements in three cases under the new requirements of the 2018 Rules. HKIAC’s joinder, consolidation and single arbitration provisions were invoked multiple times to address disputes involving multiple parties and/or contracts. Such disputes represent 35% of the total arbitrations commenced in 2020.

2021 China-UK Arbitration Summit Forum was successfully held

At the 2021 China-UK Arbitration Summit Forum recently hosted by the British Bar Association, Wang Chengjie, deputy director and secretary-general of the China International Economic and Trade Arbitration Commission (hereinafter referred to as the CIETAC), attended and delivered a closing speech online.

On the forum, Wang Chengjie introduced the case acceptance of the CIETAC in the past three years, especially the acceptance of foreign-related cases and changes in case types, and summarized the development and changes of Chinese parties’ treatment and participation in international arbitration: stronger awareness of compliance, participating in international arbitration is more active, and the application of international arbitration rules is more skillful.

Wang Chengjie said that in order to adapt to the situation and better serve the Chinese and foreign parties, the CIETAC has adopted advanced international arbitration practices, absorbed the useful experience of Chinese arbitration, and adopted a mode of integration and development of civil law systems and common law systems to meet the different needs of Chinese and foreign parties. It has been well received by Chinese and foreign parties. Wang Chengjie said that the CIETAC is guided by the needs of the parties and will continue to adapt to the new situation and provide better arbitration services for Chinese and foreign parties.

Ansung Housing Co., Ltd. v. People’s Republic of China

(ICSID Case No. ARB/14/25)

Relevant Provisions:

ICSID Convention Arbitration Rules：

Rule 41：

(5) Unless the parties have agreed to another expedited procedure for making preliminary objections, a party may, no later than 30 days after the constitution of the Tribunal, and in any event before the first session of the Tribunal, file an objection that a claim is manifestly without legal merit. The party shall specify as precisely as possible the basis for the objection. The Tribunal, after giving the parties the opportunity to present their observations on the objection, shall, at its first session or promptly thereafter, notify the parties of its decision on the objection. The decision of the Tribunal shall be without prejudice to the right of a party to file an objection pursuant to paragraph (1) or to object, in the course of the proceeding, that a claim lacks legal merit.

(6) If the Tribunal decides that the dispute is not within the jurisdiction of the Centre or not within its own competence, or that all claims are manifestly without legal merit, it shall render an award to that effect.

BIT:

3(3) Each Contracting Party shall in its territory accord to investors of the other Contracting Party and to their investments and activities associated with such investments by the investors of the other Contracting Party treatment no less favourable than that accorded in like circumstances to the investors and investments and associated activities by the investors of any third State(hereinafter referred to as “most-favoured-nation treatment”) with respect to investments and business activities, including the admission of investment.

9(7) Notwithstanding the provisions of paragraph 3 of this Article, an investor may not make a claim pursuant to paragraph 3 of this Article if more than three years have elapsed from the date on which the investor first acquired, or should have first acquired, knowledge that the investor had incurred loss or damage.

Case Description:

On 12 December 2006, the South Korean company Ansung Housing entered into an investment agreement on a golf course and condominium development project in Sheyang-Xian with the Communist Party of the Sheyang Harbor Industrial Zone Administration Committee (the committee). The project construction was in two phases, each of which would occupy 1,500 mu (100 hectares) of land. Shortly after the commencement of the first phase of the project, Chinese policies on real estate development changed, the committee could no longer provide the 300 mu of land necessary for the first phase at the price agreed in the investment agreement and Ansung would have to apply for land use rights through a public sale at higher prices. After the completion of the first phase, the committee didn’t provide the additional land necessary for the second phase.

Consequently, in October 2011, Ansung had to sell its assets in the golf business to a Chinese purchaser at a low price. On 7 October 2014, Ansung filed a request for arbitration with the ICSID on the basis of the agreement between the governments of the Republic of Korea and the People’s Republic of China on the Promotion and Protection of Investments (China-Korea BIT or the treaty) that entered into force on 1 December 2007.

On September 15, 2016, before the First Session, China’s representatives filed the respondent’s objection pursuant to ICSID arbitration rule 41(5), contending that Ansung’s claims under the China-Korea BIT manifestly lacked legal merit and should be dismissed. They reasoned that Ansung instituted the ICSID arbitration more than three years after the date on which it first acquired knowledge that it had incurred loss or damage, rendering the claim time-barred under article 9(7) of the China-Korea BIT. The Most-Favoured-Nation Treatment (MFN clause) in the treaty couldn’t save Ansung’s untimely claims. 

Ansung’s representatives argued that they had met the prescribed three-year time limit on the claim because it served its notice of intent in two-and-a-half years from the date on which it knew the losses had been incurred. Moreover, regardless of the tribunal’s determination, the China-Korea BIT’s MFN clause also allowed Ansung to take advantage of more favorable treatment in any other BITs concluded by China with respect to the time requirement.

The core dispute in this case is: 1. Does the claim that beyond arbitration limitation period constitute “manifestly without legal merit”? 2. Does the MFN clause apply to the question of time limitation?

Court’s View:

Concerning the first disputed issue, the tribunal accepts the facts pleaded by Ansung’s representatives are not incredible, frivolous, vexatious or inaccurate or made in bad faith. At the same time, the tribunal accepts the preliminary objection advanced by China’s representatives by a decision regarding manifest without legal merit due to a lack of temporal jurisdiction.

With regard to the second disputed issue, the tribunal finds that the wording of the MFN clause shall not be extended to MFN treatment for a state’s consent to arbitrate with investors and, in particular, not to the temporal limitation period for investor-state arbitration in article 9(7) of the China-Korea BIT. So it is unnecessary to give further consideration to additional arguments or previous arbitral decisions on the interpretation of other MFN clauses or treaty practice.

The UK High Court Case: Arbitration Agreement in the Power of Attorney between the Firm and the Client has no retroactive effect

Case Description:

The first defendant in this case is the Russian branch of a law firm (hereinafter referred to as Defendant I), which provided legal advice to the plaintiff Premier Cruises Ltd (PCL) from December 2014 to May 2015. The content of the opinions is mainly about the shipbuilding contract dispute between the plaintiff and shipyard which is the third-party. The contract stipulates that English law shall be applied and the dispute shall be submitted to London, England for arbitration. Defendant I ’s legal opinion led PCL to issue a notice to terminate the shipbuilding contract on April 29, 2015. Defendant I then suggested that PCL begin preparations for arbitration proceedings against the shipyard to recover the money paid to the shipyard. On May 20, 2015, Defendant I obtained an advisory opinion on the dispute resolution clause in the shipbuilding contract and a fee proposal for London arbitration from its related party, the UK branch of a law firm as the defendant II in this case, The defendant I forwarded the proposal to PCL on the same day, and the fee proposal was accepted. 

On 26 May 2015, the Defendant I issued the Power of Attorney to PCL. It provides that disputes "arising out of agreement" or "in connection with" between it and PCL that cannot be settled through negotiation shall be settled by arbitration in accordance with the International Court of Arbitration of the Russian Federation of Industry and Commerce. The law governing the power of attorney and its arbitration agreement is Russian law. PCL signed the Power of Attorney on the same day.

PCL and the shipyard submit their dispute to arbitration, Defendant I as PCL's main contact person, but all of PCL's substantive legal work was undertaken by Defendant II, whose invoices were issued by Defendant II only. In June 2016, the arbitral tribunal ruled in favour of the shipyard. The arbitral tribunal held that the notice of rescission served by PCL was premature and invalid, and constituted a waiver of the shipbuilding contract, for which PCL should pay damages. And PCL paid the damages.

PCL filed a lawsuit against the two defendants in January 2020 in the Commercial Division of the High Court of Justice in England, claiming that they should be liable for damages because they provided negligent opinions for breach of contract or tort. Defendant I applied for suspension of the proceedings in accordance with Article 9 of the 1996 Arbitration Law, which was based on the arbitration agreement in the power of attorney. The defendant II admitted that he was not a party to the arbitration agreement and therefore could not apply for suspension of the litigation under the 1996 Arbitration Law.

In response to Defendant I ’s application for suspension, PCL stated that its claim against Defendant I originated from the opinions provided by Defendant I from December 2014 to April 2015. Related to this was the entrustment contract implicitly reached by both parties. The arbitration agreement in the power of attorney signed in May 2015 has nothing to do with this. Defendant II argued that the arbitration agreement had retrospective effect and covered all the work done by Defendant I before and after the date the letter was signed. Therefore, PCL’s claim falls within the scope of the arbitration agreement as referred to in Article 9 of the 1996 Arbitration Law.

The key issue of this case is: whether the arbitration agreement in the Power of Attorney has retroactive effect.

Court’s View:

Because the applicable law of the arbitration agreement is Russian law, based on the evidence submitted to the court by Russian legal experts, the applicable Russian law can be summarized as follows:

Firstly, in the absence of any provisions to the contrary, the arbitration agreement will not take effect retroactively.

Secondly, if the parties reach an agreement to the contrary, they should clearly express their intentions in the arbitration agreement itself or in the remaining part of the contract containing the arbitration agreement.

Thirdly, in the interpretation work, the starting point is the literal meaning of the specific clause. If it is not clear, the context of the contract can also be considered. Only if the result is still unclear, the court can consider a wider range of evidence, including subjective evidence about the parties’ actual intentions.

In this case, in accordance with the aforementioned Russian legal principles established by expert evidence, nothing in the arbitration clause or in the Power of Attorney of this Case, may reverse the presumption that the arbitration agreement is not intended to be applied retroactively. Therefore, the British court held that: there is no need to consider the evidence about the subjective intentions of the parties, but if it is considered, the situation will be the same. Therefore, the application to suspend the proceedings should be rejected.

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