Hong Kong

In 2015, the international arbitration community voted Hong Kong to be the most preferred arbitration seat in Asia.¹ This comes as little surprise, as Hong Kong continues to be a leader in adopting best practices in international arbitration, and the Hong Kong International Arbitration Centre (HKIAC) has not rested in its quest for continued innovation and excellence.

The single most newsworthy event of 2015 was the HKIAC’s opening of an office in Shanghai. In doing so, the HKIAC was the first offshore arbitral institution to set up an on-the-ground office in mainland China, and it reflected the HKIAC’s experience and reputation as the go-to venue for parties with disputes relating to the PRC. The International Chamber of Commerce (ICC)² and the Singapore International Arbitration Centre (SIAC)³ have since followed suit and in 2016 also set up representative offices in mainland China.

Otherwise, it was a year of steady progress in Hong Kong, with a number of pro-arbitration judgments by the courts, the beginning of opening the doors to third-party funding, and further initiatives by the HKIAC. The China International Economic and Trade Arbitration Commission’s (CIETAC) Hong Kong Arbitration Centre (HKAC) also began to accept and administer cases.

Queen Mary’s International Arbitration Survey recognises Hong Kong

The continued progress by Hong Kong as an internationally recognised seat for arbitration, and the HKIAC as a leading arbitral institution, was expressly recognised in 2015 by the sixth iteration of Queen Mary University of London’s International Arbitration Survey (October 2015).⁴ The survey judged the HKIAC to be the most preferred arbitral institution outside of Europe and the third best arbitral institution worldwide. It also found the HKIAC to be the world’s most improved institution over the past five years. Participants said their choice of institution was based on an assessment of the quality of its administration, neutrality and level of ‘internationalism’.

Such recognition is well-deserved, and clearly reflects the growing momentum, reputation and strength of international arbitration in Hong Kong.

Funding is (probably) coming

One of the most interesting – and arguably controversial – developments in international arbitration has been the growth of third-party funding.

Third-party funding is where a third party to the arbitration finances all or part of one of the parties’ arbitration costs. The funder will then, normally, receive an agreed percentage of the proceeds of the award or a success fee. If the claim is unsuccessful, the funder’s investment is lost. Third-party funding developed in Australia but is now a common feature of international arbitration in numerous jurisdictions including England and Wales, various European jurisdictions and the United States.

Third-party funding is, however, still relatively rare in Asia, and particularly so in common law countries such as Hong Kong (and Singapore), with their traditional and strict doctrines of champerty and maintenance that (subject to limited exceptions) prohibit the funding of litigation.

In respect of arbitration, the position in Hong Kong as to whether third-party funding of international arbitration is permitted is unfortunately unclear. In 1994, a decision of the Hong Kong High Court⁵ found that the law of champerty did not extend to international arbitration. However, more recently in 2006, the Court of Final Appeal, in Unruh v Seeberger,⁶ expressly left open the question of whether the doctrines of champerty and maintenance applied to international arbitration.

Given Hong Kong’s position as one of the major centres of international arbitration, and the increasing likelihood that a party to an arbitration taking place in Hong Kong would want to consider whether it should – and could – seek third-party funding in relation to its participation in such an arbitration, it became clear that Hong Kong needed to consider this in more detail, not only to preserve and promote Hong Kong’s competitiveness as an arbitration centre, but also to increase the availability and use of arbitration services more generally. Accordingly, in June 2013, the Chief Justice and Secretary for Justice of Hong Kong asked the Law Reform Commission to review the issue of third-party funding.

On 19 October 2015, the appointed subcommittee of the Hong Kong Law Reform Commission issued a consultation paper on third-party funding for arbitrations in Hong Kong. The subcommittee presented its preliminary views by way of four primary recommendations, and initiated a public consultation process to seek views and comments on whether reform is indeed needed and, if so, what kind of reform is appropriate. The subcommittee’s four ‘recommendations’ are as follows:

• The Arbitration Ordinance should be amended to allow third-party funding for arbitration in Hong Kong under Hong Kong law.
• Ethical and financial standards for third-party funders providing third-party funding to parties to arbitrations taking place in Hong Kong should be developed.
• The Commission invited submissions as to the nature, provenance and content of such ethical and financial standards, and how they should be enforced.
• The Commission invited further submissions as to whether, and on what basis, a third-party funder should be directly liable for adverse costs orders, or orders to provide security for costs.

The consultation period ended in January 2016, and the subcommittee’s more detailed recommendations are expected to follow later this year. The recommendations have been received positively by the Hong Kong community, including the HKIAC, which set up a specialist HKIAC Task Force on Third Party Funding to provide a formal response on its behalf. The HKIAC has also committed itself to taking the lead in considering whether related changes are required to locally applicable arbitral rules or other guidelines.

It is likely, therefore, that 2016 will see interesting discussions on the nature of legislative and other amendments required to deal with third-party funding for international arbitration. Of particular interest will be the discussions on the extent to which the existence of third-party funding (including the identity of the third-party funder) should be disclosed to the tribunal and the other party or parties to the arbitration.

The HKIAC continues to reinforce its leading position

A number of new initiatives from the HKIAC were seen in 2015, as it continued to live up to its reputation as one of the world’s most innovative arbitral institutions.⁷

New Shanghai office

As mentioned above, the major development in 2015 was the HKIAC’s opening of an office in mainland China on 19 November 2015, making the HKIAC the first offshore arbitral institution to open an office in mainland China.

Having gained approval from the mainland authorities, the HKIAC opened its office in the Shanghai Pilot Free Trade Zone, or FTZ. The FTZ was established to offer favourable foreign investment conditions and has been designated by the State Counsel as an area that would ‘support the introduction of internationally renowned commercial dispute resolution institutions’.⁸ The office is headed by the HKIAC’s deputy secretary-general, Liu Jing, and represents the institution’s second foreign office (HKIAC established a presence in Seoul in 2013).

The HKIAC is recognised for having long-standing and extensive expertise in administering China-related cases and working with Chinese parties. The opening of its Shanghai office is intended to help the HKIAC provide its services to mainland Chinese users. While case management services will initially continue to be conducted from Hong Kong, the Shanghai office could extend the HKIAC’s services to support hearings held in mainland China. As the ability of foreign arbitral institutions to administer mainland-seated arbitrations under PRC law remains unclear, the HKIAC has suggested that parties seek legal advice before requesting administrative services from the HKIAC for mainland-seated arbitrations.⁹

The HKIAC’s Shanghai office will also allow for closer cooperation between the HKIAC and its mainland counterparts to develop further the international arbitration scene and promote international best practices in mainland China. HKIAC chairperson, Teresa Cheng SC, intends that the new office will provide ‘a unique platform to connect Chinese companies and lawyers with world-class arbitration practice’.¹⁰ Hong Kong’s Secretary for Justice, Rimsky Yuen SC, has also confirmed the Hong Kong government’s strong support for arbitration and the ground-breaking initiative by the HKIAC, stating that the new Shanghai office creates a ‘triple win’ situation for the HKIAC, for Shanghai enterprises, and for Hong Kong and mainland China.¹¹

With the opening of its new office in mainland China, the HKIAC has paved the way for other arbitral institutions to follow. As noted, the ICC and SIAC quickly followed suit and have already opened representative offices in mainland China. This development also reflects once again that Hong Kong, in part because of its geographical and cultural proximity to China, remains the premier arbitration hub outside of Europe.

Training for tribunal secretaries

Another important initiative by the HKIAC was the introduction of its tribunal secretary training programme in November 2015.¹² This came on the back of its introduction in June 2014 of a tribunal secretarial service for HKIAC-administered and ad hoc arbitrations that allows arbitral tribunals to appoint a member of the HKIAC secretariat as its secretary.

Tribunal secretaries have long been used by arbitration tribunals to assist with administrative tasks and to enable the tribunal to focus their efforts on the merits of the dispute. As arbitrations have been more complex and unwieldy, so the use of tribunal secretaries has increased. However, there has always been a concern that the tribunal secretary can exceed their mandate and, in effect, act as a ‘fourth arbitrator’. These long-standing concerns have been made explicit most recently in the Yukos v Russia¹³ dispute, in which Russia sought to challenge the arbitral tribunal’s award based on, among other things, an allegation that the arbitrators did not fulfil their mandate personally because the tribunal secretary played a significant role in analysing the evidence and legal arguments, in the tribunal’s deliberations, and in the drafting of the award.¹⁴

To grapple with these concerns, the HKIAC has introduced what it termed as the ‘world’s first tribunal secretary accreditation programme’. This programme consists of a one-and-a-half day workshop with both a written and an oral exam, the intent being to give participants the skills needed to act as a tribunal secretary, while also ensuring that they act within their mandate. Workshops have now been run in Hong Kong, Beijing and London, and have proved very popular.

Notably, at the recent joint ArbitralWomen and CIArb’s International Women’s Conference held at UNESCO House in Paris in March 2016, keynote speaker Hilary Heilbron QC proposed a roster of pro bono arbitral tribunal secretaries as a way for aspiring practitioners – both women and men – to gain more experience and make more contacts to help them on their own individual paths to sitting as arbitrators. The HKIAC’s own initiative comes, therefore, at an opportune time.

Ratings system for arbitrations

Given the proliferation of arbitral institutions, it is critical for institutions to be able to track users’ thoughts on their services so they can continue to improve. The Queen Mary International Arbitration Survey also noted that users wanted greater transparency regarding arbitrator availability and performance: 75 per cent of respondents wanted to assess arbitrators at the end of a dispute and 76 per cent wanted to be able to report to the arbitral institution.

To that end, the HKIAC has launched a system to enable users to evaluate both the institution and the arbitrators.¹⁵

A party is now able to rate the HKIAC’s services and facilities on a scale of one to five. And they will also be able to rate a number of qualifications of the tribunal and individual arbitrators such as preparation, familiarity with the applicable laws and rules, the ability to facilitate a fair, neutral and effective process, and case management, communication and decision-making skills.

Practice Note on Consolidation of Arbitrations

On 1 January 2016, the HKIAC introduced a new Practice Note on Consolidation of Arbitrations, applicable to all requests for consolidation submitted under article 28 of the HKIAC Administered Arbitration Rules (the HKIAC Rules) on or after that date. The Practice Note provides helpful practical guidance on the matters to be set out in any request for consolidation and response to a request.

Users of the HKIAC Rules will already be aware that articles 27, 28 and 29 of the HKIAC Rules provide for joinder of additional parties to existing arbitrations, consolidation of arbitrations, and the commencement of a single arbitration under multiple contracts. These provisions, which were introduced in 2013, not only assist in simplifying the drafting of arbitration clauses (which refer disputes to the HKIAC), but are also in line with the reality of modern day commercial disputes, which more often than not involve complex transactions and multiple parties and contracts. At the same time as introducing the new Practice Note, the HKIAC has also released flowcharts to demonstrate the practical operation of the consolidation and joinder procedures.

The Practice Note on Consolidation of Arbitrations, as with the underlying provisions, has been well received by practitioners and end users of the HKIAC Rules.¹⁶

CIETAC Hong Kong

CIETAC established its HKAC in September 2012 and has, since then, offered logistical support to cases administered by other CIETAC entities.

However, it was only in 2015 that the HKAC started to accept and administer cases following the 2015 edition of CIETAC’s rules coming into force. The HKAC accepted five cases in 2015 and, going forward, it will be an interesting further option for users of international arbitration in Asia.¹⁷

Key cases in 2015–2016

Decisions handed down by the Hong Kong courts in the past year have continued to reflect the judiciary’s strong pro-arbitration stance and robust approach to the enforcement of arbitral awards in Hong Kong. In KB v S & Others,¹⁸ the court in particular laid down ‘10 commandments’¹⁹ for the enforcement of arbitral awards.²⁰ The Court of First Instance also granted the first reported antisuit injunction to restrain foreign court proceedings in favour of Hong Kong arbitration.²¹ In China International Fund Ltd v Dennis Lau & Ng Chun Man Architects & Engineers (HK) Ltd,²² the Court of Appeal dismissed a challenge against the constitutionality of section 81(4) of the Arbitration Ordinance relating to appeals against decisions on applications to set aside awards.

KB v S & Others [2015] HKCU 2271

In KB v S & Others, Justice Mimmie Chan²³ considered an application by S and others to set aside an Order of the Hong Kong court granting leave for KB to enforce two Hong Kong arbitral awards. The application of S and others was dismissed and struck out, on the basis that it had been made out of time without proper reason, S and others had not stated precise grounds for the application, and in any event Justice Chan found that the application was without merit. The court ordered indemnity costs against S and others.

In the judgment, Justice Chan summarised – in a list of ‘10 commandments’ – the Hong Kong courts’ pro-enforcement approach towards the enforcement of arbitral awards:

1. The primary aim of the court is to facilitate the arbitral process and to assist with enforcement of arbitral awards.
2. […] the court should interfere in the arbitration of the dispute only as expressly provided for in the [Arbitration] Ordinance.
3. Subject to the observance of the safeguards that are necessary in the public interest, the parties to a dispute should be free to agree on how their dispute should be resolved.
4. Enforcement of arbitral awards should be ‘almost a matter of administrative procedure’ and the courts should be ‘as mechanistic as possible’ (Re PetroChina International (Hong Kong) Corp Ltd [2011] 4 HKLRD 604).
5. The courts are prepared to enforce awards except where complaints of substance can be made good. The party opposing enforcement has to show a real risk of prejudice and that its rights are shown to have been violated in a material way (Grand Pacific Holdings Ltd v Pacific China Holdings Ltd [2012] 4 HKLRD 1 (CA)).
6. In dealing with applications to set aside an arbitral award, or to refuse enforcement of an award… the court is concerned with the structural integrity of the arbitration proceedings. In this regard, the conduct complained of ‘must be serious, even egregious’, before the court would find that there was an error sufficiently serious so as to have undermined due process (Grand Pacific Holdings Ltd v Pacific China Holdings Ltd [2012] 4 HKLRD 1 (CA)).
7. In considering whether or not to refuse the enforcement of the award, the court does not look into the merits or at the underlying transaction (Xiamen Xingjingdi Group Ltd v Eton Properties Limited [2009] 4 HKLRD 353 (CA)).
8. Failure to make prompt objection to the Tribunal or the supervisory court may constitute estoppel or want of bona fide (Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111).
9. Even if sufficient grounds are made out either to refuse enforcement or to set aside an arbitral award, the court has a residual discretion and may nevertheless enforce the award despite the proven existence of a valid ground (Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111, 136A-B).
10. The Court of Final Appeal clearly recognized in Hebei Import & Export Corp v Polytek Engineering Co Ltd that parties to the arbitration have a duty of good faith, or to act bona fide (p 120I and p 137B of the judgment).²⁴

These ‘10 commandments’ have been held to apply equally to applications to set aside an arbitral award.²⁵

Ever Judger Holding Co Ltd v Kroman Cellik Sanayii Anonim Sirketi [2015] 3 HKC 246

In this case, Justice Godfrey Lam granted an antisuit injunction to restrain Turkish court proceedings in favour of arbitration in Hong Kong.

A dispute arose under a charterparty between Ever Judger and Kroman that provided for any disputes to be referred to arbitration in Hong Kong. In January 2015, Kroman commenced court proceedings in Turkey, while Ever Judger commenced arbitration proceedings in Hong Kong. Ever Judger obtained an ex parte antisuit injunction from the Hong Kong court to restrain the Turkish court proceedings. On 2 March, Ever Judger filed its defence in the Turkish court proceedings together with its objection to jurisdiction. On the same day, Ever Judger applied inter partes to the Hong Kong court for the antisuit injunction to be continued.

The issue before the court was whether there were strong reasons not to grant the injunction, notwithstanding the arbitration clause. On this, Justice Lam held that it is clear that the Hong Kong courts should grant an antisuit injunction to restrain foreign proceedings brought in breach of an agreement for arbitration in Hong Kong, where there has been no delay and the foreign proceedings are not too far advanced, unless there are strong reasons to the contrary that would warrant not holding the parties to their contract.²⁶ In respect of the arguments raised by Kroman in opposing the injunction, Justice Lam held that the court would not refuse an injunction simply because there was a risk of parallel proceedings and inconsistent decisions. Also, the ‘inconvenience’ of this case having two sets of proceedings (one between Ever Judger and Kroman, and the other related proceedings in Turkey between Kroman and its insurer) was a result of the different contracts the parties had entered into, and was not a reason to refuse the injunction.²⁷

In respect of Kroman’s argument that the Turkish court should be left to decide whether to decline jurisdiction before the Hong Kong court determines whether the injunction should continue, Justice Lam held that the granting of the injunction does not equate to an assertion that the Hong Kong court or arbitral tribunal is a superior or better forum. It seeks only to uphold the parties’ arbitration agreement. Also, in this case, Ever Judger was obliged to file its defence under the Turkish court rules, and for that reason had to file its challenge against jurisdiction, as otherwise it would be taken to have submitted to the jurisdiction of the Turkish court.²⁸

As for any alleged delay, Justice Lam held that the breach of the arbitration clause occurred when Kroman commenced the Turkish court proceedings in early January 2015. Thereafter, Ever Judger acted quickly in requesting Kroman to withdraw the court proceedings, and applying to the Hong Kong court for an injunction.²⁹

On that basis, the court granted Ever Judger’s application to continue the antisuit injunction, and ordered costs against Kroman.

Bluegold Investment Holdings Ltd v Kwan Chun Fun Calvin [2016] HKEC 523

In the events leading up to this case, Bluegold, Kwan and another company entered into a series of agreements relating to the issuance of convertible notes by the other company to Bluegold, which were guaranteed by Kwan. The subscription agreement, notes and note conditions contained the same clause providing for Hong Kong arbitration, whereas the guarantee between Bluegold and Kwan provided that Kwan ‘irrevocably submits to the non-exclusive jurisdiction of the Hong Kong courts’.³⁰ Bluegold commenced court proceedings under the guarantee, and Kwan applied to stay the action in favour of arbitration under section 20 of the Arbitration Ordinance.

The main issue in dispute was whether the claim brought by Bluegold was ‘in a matter which is the subject of an arbitration agreement’ under section 20 of the Arbitration Agreement. If so, Justice Mimmie Chan held, it was mandatory for the court to order a stay of the proceedings. Justice Chan further held that, ‘unless the point is clear, the Court should not decide the matter, but should refer the parties to arbitration, for the Tribunal to determine its own jurisdiction.’³¹

Justice Chan found that the events that gave rise to the alleged breach of the guarantee obligation were matters arising from the subscription agreement and the notes, which contain an arbitration clause binding Bluegold, Kwan and the company.

Further, having regard to the series of agreements and the context of the transaction, Justice Chan found that it was not clear and obvious from the guarantee that Bluegold and Kwan had provided for a method of dispute resolution that was ‘clearly contrary to the intention expressed in the arbitration clause in the Subscription Agreement’.³² Justice Chan held that it is arguable that Kwan’s submission to the non-exclusive jurisdiction of the Hong Kong courts under the guarantee operated in parallel with the arbitration agreement in the other contracts. She referred to the English case of AXA Re v Ace Global Markets Ltd,³³ which held that a clause providing for disputes arising from an agreement to be referred to the jurisdiction of the English courts, ‘operates in parallel with the arbitration provisions of the agreement, by fixing the supervisory court of the arbitration’. In this case, however, it was not necessary for Justice Chan to consider whether Kwan’s submission to the court’s jurisdiction under the guarantee was a submission to the supervisory jurisdiction of the court only. Rather, she held that Bluegold’s court action could be said to be brought ‘in a matter which is the subject of an arbitration agreement’ and, pursuant to section 20 of the Arbitration Ordinance, must be stayed.

Kwan’s stay application was granted together with costs on an indemnity basis.

Top Gains Minerals Macao Commercial Offshore Ltd v TL Resources Pte Ltd [2015] HKCU 2793

In this case, TL Resources sought to set aside a Mareva injunction that Top Gains had obtained from the Hong Kong court in support of proposed arbitration proceedings in Singapore.

Top Gains’ initial application to the Singapore court for a Mareva injunction had been refused, on the basis that there was no fraudulent, unconscionable or dishonest conduct by TL Resources that showed a real risk of dissipation of assets. Top Gains subsequently applied to the Hong Kong court for an injunction, on the basis of there being new evidence of TL Resources’ improper conduct that demonstrated a real risk of dissipation of assets. The Hong Kong court agreed and granted a Mareva injunction against TL Resources (the Injunction). Top Gains applied again to the Singapore court for an injunction, but the application was again refused. TL Resources then applied to the Hong Kong court to set aside the Injunction granted in Hong Kong.

Justice Chan dismissed TL Resources’ application and ordered costs in favour of Top Gains.

In relation to TL Resources’ argument that, in applying for the Injunction, Top Gains had misled the Hong Kong court by failing to disclose the Singapore court’s reasons for dismissing its initial injunction application, Justice Chan held that any non-disclosure in this respect would not be material since ‘the Court in Hong Kong is bound to exercise its own independent discretion in deciding whether there is a real risk of dissipation of assets, as a matter of Hong Kong law’.³⁴ Further, in exercising its jurisdiction to provide assistance to a foreign court seized of the substantive proceedings, the Hong Kong courts ‘must respect the view and the approach of the foreign court, and should be cautious and slow to take a different view’, but ‘[t]hat is not to say that it cannot take a different view’.³⁵ On the facts, Justice Chan found that Top Gains had not failed to disclose material information or misled the Hong Kong court. Among other things, Top Gains had referred the Hong Kong court to the Singapore court’s decision and exhibited a hearing report as well as the Singapore judge’s notes of evidence.

Justice Chan also held that, in determining an application for a Mareva injunction in aid of foreign arbitration, the court would consider whether there was a good arguable case that the foreign proceedings (or arbitration) are capable of giving rise to a judgment (or award) that may be enforced in Hong Kong.³⁶ In this case, the sales agreement between the parties contained a ‘hybrid’ arbitration clause, providing for disputes to be ‘referred to Singapore International Arbitration Centre (SIAC) for arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce’ and Top Gains commenced ICC arbitration proceedings in Singapore. TL Resources argued that the ICC did not have jurisdiction in this case and so the injunction should not have been granted. Justice Chan declined, however, to rule on the jurisdictional issue, and held that, although Top Gains had seemingly departed from the arbitration clause by commencing ICC rather than SIAC arbitration, ‘this is a question of or challenge to the jurisdiction of the arbitral tribunal, which should be determined by the tribunal itself’.³⁷ Justice Chan further found that an ICC award issued in this case might nonetheless be recognised and enforceable in Hong Kong.

On the significant question of whether there was a real risk of dissipation of assets, Justice Chan found that TL Resources’ conduct in this case demonstrated sufficiently ‘low commercial morality’³⁸ to infer a real risk of dissipation and that its explanations for avoiding contractual obligations were ‘somewhat incredible’.³⁹ After failing to deliver goods to Top Gains under the sales agreement, TL Resources allegedly sought to pass on its losses to Top Gains by either terminating the sales agreement or procuring an increase in the contract price. TL Resources then sold the goods it had contracted to sell to Top Gains to a new buyer (although TL Resources argued that this was not done for profit and that it was unable to purchase goods from its supplier as a result of the rising market). Justice Chan also noted TL Resources’ belated reliance on the unmeritorious defence of force majeure.

Justice Chan found that there was sufficient evidence, from TL Resources’ dealings and conduct in the case, to conclude that there was a real risk that TL Resources would dishonour its obligations under any judgment and that Top Gains might have difficulty enforcing any judgment, in the absence of the Injunction. Accordingly, Justice Chan dismissed TL Resources’ application to set aside the injunction and ordered costs in favour of Top Gains.

China International Fund Ltd v Dennis Lau & Ng Chun Man Architects & Engineers (HK) Ltd [2015] HKCU 1854

In this landmark case, the Court of Appeal considered, and confirmed, the constitutionality of section 81(4) of the Arbitration Ordinance, which provides that leave from the Court of First Instance is required for any appeal from a decision of that court under section 81(1) relating to applications to set aside an award.

After China International’s application to set aside a Hong Kong award was dismissed by the Court of First Instance, and its application for leave to appeal was also dismissed by the same judge, China International sought leave to appeal from the Court of Appeal. Having regard to section 81(4) of the Arbitration Ordinance, Dennis Lau & Ng Chun Man argued that the Court of Appeal does not have jurisdiction to grant leave. China International argued that the provision is unconstitutional, in that it disproportionately restricts the power of final adjudication of the Court of Final Appeal under article 82 of Hong Kong’s Basic Law. In view of the constitutional challenge, the Secretary for Justice also decided to participate in this action.

The Court of Appeal followed the principles laid down by the Court of Final Appeal in A Solicitor v Law Society⁴⁰ for determining the proportionality of a provision that restricts the power of final adjudication, namely whether the restriction or limitation  pursues a legitimate aim, is rationally connected with that legitimate aim, and is no more than is necessary to accomplish that legitimate aim.⁴¹ It was not disputed that section 81(4) is connected to the legitimate aim of promoting speed, finality and reduction of costs in arbitration and respecting parties’ autonomy in choosing their own dispute resolution process – the only issue in dispute was whether the provision is more than necessary to accomplish that aim.

Having considered the parties’ submissions and the applicable law, the Court of Appeal found as follows:

• Notwithstanding the finality of section 81(4), the Court of Appeal has residual jurisdiction to intervene in ‘the extreme situation where the refusal of leave by the lower court cannot be properly regarded as a ‘judicial’ decision’.⁴²
• The application of section 81(4) is not absolute in that parties to an arbitration agreement are free to opt for Schedule 2 of the Arbitration Ordinance (the so-called domestic arbitration provisions), which generally provides for greater involvement from the Court of Appeal, to apply. Parties who wish to retain the option of seeking leave to appeal from the Court of Appeal can stipulate in their arbitration agreement that section 4 of Schedule 2 applies.⁴³
• The English Court of Appeal has held that the provision under the English Arbitration Act 1966 similar to section 81(4) of the Arbitration Ordinance satisfied the proportionality test.⁴⁴ Indeed, ‘the limit in the number of permissible court challenges is an integral part of the package for which parties, in the free exercise of their autonomy, opt when they contract out of the ordinary process of litigation and refer their disputes to arbitration’.⁴⁵ There is nothing remiss in allowing first instance judges to decide whether to grant leave to appeal against their own decisions, indeed it is ‘proportionate that the judge who knows about the case… should be entrusted with the decision whether there is a reasonable prospect of success’.⁴⁶
• In considering the ‘no more than is necessary’ element, it needs to be borne in mind that there is always ‘the possibility of a reasonable range of options’.⁴⁷ Having regard to the above factors, the Court of Appeal found that section 81(4) of the Arbitration Ordinance does not fall outside the range of reasonable options, and it is irrelevant that the Model Law does not mandate this particular restriction or that other jurisdictions might adopt different approaches.

Accordingly, the Court of Appeal dismissed the constitutional challenge and ordered indemnity costs against China International.

This decision was followed in Wing Bo Building Construction Co Ltd v Discreet Ltd,⁴⁸ where the Court of First Instance upheld the constitutionality of section 20(8) of the Arbitration Ordinance, which provides that decisions of that court to stay proceedings in favour of arbitration are not subject to appeal.

Dana Shipping and Trading SA v Sino Channel Asia Ltd [2016] HKCFI 440

In this case, Justice Chan considered whether an arbitral award should be enforced in Hong Kong, pending determination of an application to set aside the award before the court at the seat of arbitration.

In November 2015, Dana obtained leave to enforce an LCIA arbitration award (the Award) in Hong Kong (the Enforcement Order). Sino applied to set aside the Enforcement Order, while Dana applied for security from Sino for the Award amount under section 89(5) of the Arbitration Ordinance. Prior to the hearing of these applications, Sino applied to the English court to set aside the Award. The application was made six months late, and on the basis that Sino was not given proper notice of the arbitration proceedings or appointment of arbitrator, and was thus unable to present its case in the arbitration. Before the Hong Kong court, Sino argued that its own application to set aside the Enforcement Order and Dana’s application for security should both be adjourned, pending the conclusion of Sino’s set aside application in England.

Justice Chan considered the two applicable tests: firstly, ‘the strength of the argument that the award is invalid, as perceived on a brief consideration by the Court… If the award is manifestly invalid, there should be an adjournment and no order for security; if it is manifestly valid, there should either be an order for immediate enforcement, or else an order for substantial security’; and secondly, ‘the ease or difficulty of enforcement of the award, and whether it will be rendered more difficult… if enforcement is delayed’.⁴⁹

In relation to the first issue, Justice Chan found that Sino’s set aside application before the English court was not strong, and it certainly could not be said that the award was ‘manifestly invalid’.⁵⁰ Among other things, the notices of arbitration and appointment of arbitrator had been served on an entity that had regularly dealt on behalf of Sino with Dana, and to whom Sino had ‘lent’ its name. There had been no explanation for the delay in Sino’s set aside application, and no expert evidence had been adduced as to the likelihood of Sino being granted leave by the English court to make its application out of time.

In relation to the second issue, in light of the lack of financial information surrounding Sino, and Sino’s practice of lending its name to another entity to transact on its behalf, Justice Chan found that there was a real risk of dissipation of assets. Justice Chan also noted that Sino appeared to be engaging merely in delay tactics.⁵¹

Accordingly, Justice Chan ordered that Sino’s application to set aside the Enforcement Order be adjourned for a limited period of three months only, and on the condition that Sino pay 60 per cent of the award amount as security into court. Costs of the two applications before the Hong Kong court were again awarded to Dana on an indemnity basis.

Conclusion

The past year has seen continued innovation and world-leading initiatives by the HKIAC, the beginnings of potentially highly significant reforms to the rules on third-party funding aimed at supporting and promoting arbitration in the jurisdiction, and further case law reflecting the Hong Kong judiciary’s robust pro-arbitration approach. These developments reflect, and reinforce, the international arbitration community’s recognition of Hong Kong as the most popular arbitration seat in Asia.

Notes

1. Queen Mary University of London, ‘2015 International Arbitration Survey: Improvements and Innovations in International Arbitration’, October 2015: www.arbitration.qmul.ac.uk/docs/164761.pdf.
2. ICC news, ‘New Shanghai office lays groundwork for ICC Asia developments’, 24 February 2016: www.iccwbo.org/News/Articles/2016/New-Shanghai-office-lays-groundwork-for-ICC-Asia-developments/.
3. SIAC highlight, ‘Opening of SIAC Office in Shanghai’, 25 January 2016: www.siac.org.sg/69-siac-news/467-opening-of-siac-office-in-shanghai.
4. See Note 1.
5. Cannonway Consultants Limited v Kenworth Engineering Ltd [1995] 2 HKLR 475.
6. (2007) 10 HKCFAR 31, at paragraph 123.
7. Alison Ross, ‘GAR Awards 2015 – the winners’, 26 February 2015, Global Arbitration Review: https://globalarbitrationreview.com/news/article/33584/gar-awards-2015-winners/.
8. Alison Ross and Douglas Thomas, ‘HKIAC breaks into mainland China’, 19 November 2015, Global Arbitration Review: https://globalarbitrationreview.com/news/article/34355/hkiac-breaks-mainland-china/.
9. HKIAC news flash, ‘HKIAC Achieves Breakthrough by Launching Office in Mainland China’, 20 November 2015: www.hkiac.org/news/hkiac-achieves-breakthrough-launching-office-mainland-china.
10. See Note 8.
11. Press release from the government of Hong Kong SAR, ‘SJ officiates at opening of Hong Kong International Arbitration Centre Shanghai Office’, 19 November 2015: www.info.gov.hk/gia/general/201511/19/P201511190763.htm.
12. Lacey Young, ‘HKIAC offers training for tribunal secretaries’, 10 November 2015, Global Arbitration Review: https://globalarbitrationreview.com/news/article/34328/hkiac-offers-training-tribunal-secretaries/.
13. Three arbitral awards were issued against the Russian Federation in the substantively similar cases of Hulley Enterprises Limited (Cyprus) v The Russian Federation (PCA Case No. AA 226), Yukos Universal Limited (Isle of Man) v The Russian Federation (PCA Case No. AA 227), and Veteran Petroleum Limited (Cyprus) v The Russian Federation (PCA Case No. AA 228). On 28 January 2015, the Russian Federation applied to The Hague District Court to set aside all three awards – see for example: http://old.minfin.ru/en/news/index.php?id_4=24358.
14. Dmytro Galagan, ‘The Challenge of the Yukos Award: an Award Written by Someone Else – a Violation of the Tribunal’s Mandate?’, 27 February 2015, Kluwer Arbitration Blog: http://kluwerarbitrationblog.com/2015/02/27/the-challenge-of-the-yukos-award-an-award-written-by-someone-else-a-violation-of-the-tribunals-mandate/.
15. HKIAC news flash, ‘Rate Your Experience – HKIAC Launches Arbitration Evaluation System’, 23 July 2015: www.hkiac.org/news/rate-your-experience-hkiac-launches-arbitration-evaluation-system.
16. HKIAC news flash, ‘New Year, New Practice Note: HKIAC Issues Practice Note on Consolidation of Arbitrations’, 1 January 2016: www.hkiac.org/news/practice-note-consolidation-arbitrations
17. China International Economic and Trade Arbitration Commission, Statistics, http://cietac.org/index.php?m=Page&a=index&id=40&l=en (accessed 23 March 2016).
18. [2015] HKCU 2271.
19. Douglas Thomson, ‘The 10 commandments of enforcement according to a Hong Kong court’, 6 October 2015, Global Arbitration Review: https://globalarbitrationreview.com/news/article/34206/hong-kong-court-sets-10-principles-enforcement/.
20. China Solar Power (Holdings) Ltd v ULVAC Inc [2015] HKEC 2559.
21. Ever Judger Holding Co Ltd v Kroman Cellik Sanayii Anonim Sirketi [2015] 3 HKC 246.
22. [2015] HKCU 1854.
23. The judge currently in charge of the Hong Kong Construction and Arbitration List.
24. KB v S & Others [2015] HKCU 2271. See Note 18, per Justice Chan at paragraph 1.
25. China Solar Power (Holdings) Ltd v ULVAC Inc [2015] HKEC 2559. See Note 20.
26. See Note 21, per Justice Lam at paragraphs 45 and 58.
27. See Note 21, per Justice Lam at paragraphs 61–62 and 75.
28. See Note 21, per Justice Lam at paragraphs 79–80.
29. See Note 21, per Justice Lam at paragraph 81.
30. Bluegold Investment Holdings Ltd v Kwan Chun Fun Calvin [2016] HKEC 523, per Justice Chan at paragraph 10.
31. See Note 30, per Justice Chan at paragraph 22.
32. See Note 30, per Justice Chan at paragraph 20.
33. [2006] EWHC 216 (Com).
34. Top Gains Minerals Macao Commercial Offshore Ltd v TL Resources Pte Ltd [2015] HKCU 2793, per Justice Chan at paragraph 42.
35. See Note 34, per Justice Chan at paragraph 42.
36. Applying Her Majesty’s Revenue & Customs v Shahdadpuri [2012] 1 HKLRD 2-3.
37. See Note 34, per Justice Chan at paragraph 44.
38. See Note 34, per Justice Chan at paragraph 64.
39. See Note 34, per Justice Chan at paragraph 62.
40. (2003) 6 HKCFAR 570.
41. See Note 22, per Hon Lam VP at paragraph 9.
42. See Note 22, per Hon Lam VP at paragraphs 20–24.
43. See Note 22, per Hon Lam VP at paragraphs 28–31.
44. Kazakhstan v Istil Group Ltd (No. 2) [2008] All ER (Comm) 88.
45. See Note 22, per Hon Lam VP at paragraph 41, quoting Lord Justice Toulson in Kazakhstan v Istil Group Ltd (No. 2) [2008] All ER (Comm) 88 at paragraph 35.
46. See Note 22, per Hon Lam VP at paragraph 39, quoting Lord Justice Longmore in Kazakhstan v Istil Group Ltd (No. 2) [2008] All ER (Comm) 88 at paragraph 26.
47. See Note 22, per Hon Lam VP at paragraph 46.
48. HCA 146 of 2015.
49. Dana Shipping and Trading SA v Sino Channel Asia Ltd [2016] HKCFI 440, per Justice Chan at paragraph 7, quoting Lord Justice Staughton in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208 at 212.
50. See Note 49, per Justice Chan at paragraph 19.
51. See Note 49, per Justice Chan at paragraphs 25–28.