05-01-2017

Comparison Of Hong Kong And London Arbitration

Skuld

Whilst London arbitration is the most popular platform for resolution of charterparty disputes, where the parties involved are based in Hong Kong or Mainland China it is quite common for the parties to opt for arbitration in Hong Kong. The purpose of this article to discuss the major procedural differences between arbitrations in London and Hong Kong.

It may be helpful to explain at the outset that the procedural law of the seat of the arbitration will apply unless the parties agree otherwise. The substantive law or the law governing the dispute, may be the same as the procedural law or the parties may have agreed that a different law will apply to the dispute.

Where the seat of arbitration is London, the procedure will be governed by the Arbitration Act 1966 of England and Wales. Where the seat of arbitration is Hong Kong, the procedure will be governed by the Arbitration Ordinance, Cap 609.

Appointment of arbitrators

If the charterparty contains a detailed arbitration clause along the lines of the BIMCO/ LMAA Arbitration Clause, the parties are each to appoint one arbitrator. If the respondent fails to appoint its arbitrator within the 14 day time limit the party who commenced arbitration may appoint its chosen arbitrator as the sole arbitrator. However, in many cases those fixing the charterparty are operators and they may not recognise the significance of having a properly drafted arbitration clause. It is not uncommon for fixture notes to simply provide for “London arbitration, with English law to apply” or “Hong Kong arbitration, with English law to apply”, without stating the number of arbitrators or the mechanism of appointment. We will now look at what the legal position is under English law and Hong Kong law respectively if a party wishes to commence arbitration under an arbitration agreement which does not specify the number of arbitrators and/or how they are appointed.

Where the number of arbitrators is not specified

In a London arbitration, if there is no agreement as to the number of arbitrators, the tribunal will consist of a sole arbitrator pursuant to section 15(3) of the Arbitration Act 1996. There is no equivalent provision in the Arbitration Ordinance. In a Hong Kong arbitration, if the charterparty does not specify the number of arbitrators, the matter is referred to the Hong Kong International Arbitration Centre (“HKIAC”) pursuant to section 23(3) of the Arbitration Ordinance who will determine whether the matter should be referred to one or three arbitrators. The HKIAC will charge a fee for making a decision on the number of arbitrators, currently HKD8,000, which is a little more than USD1,000.

Where the parties fail to agree on whom to appoint as sole arbitrator

Assuming that the number of arbitrators is to be one (whether because of the parties’ agreement or the operation of law referred to in the preceding paragraph), what will happen if the parties are unable to agree who should be appointed as the sole arbitrator, or if one party simply fails to respond to the other’s proposed candidates? Again the position under English law and Hong Kong law is different.

Pursuant to section 15(3) of Arbitration Act where the charterparty does not specify the number of arbitrators, in a London arbitration the Tribunal will consist of a sole arbitrator. However, the claimant may face considerable difficulty if the opponent refuses or fails to agree on the candidate. This is because, an application will need to be made to the English court for the appointment of an arbitrator which will then need to be served on the opponent who may be resident outside the jurisdiction. The requirements for service of documents are far more stringent in court proceedings than in arbitration: service cannot be effected by email, fax or post as in arbitration proceedings; instead the claimant must obtain the leave (permission) of the court to serve the proceedings out of the jurisdiction. Service within the EU will be relatively straightforward, but if service is to be effected in a country which does not use English as its official language (so that translation of all relevant documents may become necessary) and/or which has a complicated service procedure (e.g. where court documents must be served through the local courts), the process may well take months and be costly.

By contrast in Hong Kong, whether the opponents are domiciled in Hong Kong or overseas, the claimant may simply apply to the HKIAC for the appointment of the sole arbitrator, albeit at a fee of HKD8,000. The HKIAC will either appoint the claimant’s chosen arbitrator or one of its own choice.

In light of the above, it is a good practice to have a proper arbitration clause so as to avoid the complexities and costs which may arise constituting the Tribunal.

Discrepancy between fixture recap and proforma charter

Gencon 94 is a popular form of voyage charter for bulk cargoes where the parties want to use a relatively simple form of charterparty. Paragraph 19 of Gencon 94 is the law and arbitration clause. It sets out the options of (a) London arbitration English law, (b) New York arbitration and US law, and (c) arbitration at the place specified in Box 25 in Part 1. It goes on to say at sub-paragraph (d) that if box 25, Part 1 is blank, clause 19 (a), which provides for London arbitration, will apply. If the parties do not make any choice of the forum, sub-clause (a) will kick in by default.

The position becomes more complicated however where the parties say in the recap, but not in Box 25, that arbitration is to take place in, say, Hong Kong. One construction is that in such a case the appointment procedure in clause 19(a) will apply by default except that the arbitration will be governed by Hong Kong law. Alternatively, the arbitration clause in the recap and clause 19(a), when read together, provide for Hong Kong to be the geographical location for the hearing subject to the English Arbitration Act. This was the argument raised by Daewoo in the case of Shagang South-Asia (Hong Kong) Trading Co Ltd -v- Daewoo Logistics [2015] 1 Lloyd’s Rep. 504. In this case Shagang applied to the English court to set aside the arbitration award on the ground that the sole arbitrator appointed by Daewoo had no jurisdiction. The court agreed with Shagang that where the recap provides for Hong Kong arbitration, the arbitration clause in the recap will override clause 19 of Gencon, so that Hong Kong law will apply as the procedure law of the arbitration. On the facts the arbitrator had not been properly appointed.

Therefore, if the parties wish to adopt Hong Kong law and arbitration, the proper way to do this is to either put “Hong Kong” in Box 25, Part 1 of Gencon 94, or (if Gencon 94 is incorporated by reference only) copy the entire clause 19(a) into the recap but change the forum from “London” to “Hong Kong” and the legislation from “Arbitration Act 1996” to “Arbitration Ordinance, Cap 609”. Alternatively, if the parties want the arbitration to be governed by English procedural law but the hearing to take place in Hong Kong, they should make this very clear in the arbitration clause.

Arbitration Rules

We will briefly discuss the procedural law applicable to the arbitration.

(a) England
The parties may provide for the arbitration procedure in the charterparty. It is common to see time charters specifying that arbitration is to be subject to the LMAA Terms and that if the disputed amount does not exceed a specified sum, the dispute is to be referred to LMAA Small Claims Procedure. Also, if the charterparty does not say which procedure is applicable, the arbitration will be subject to LMAA Terms if the arbitrators accept appointment under the LMAA Terms.

(b) Hong Kong
As for Hong Kong arbitration, there are a number of procedural rules to choose from; the HKIAC Administered Arbitration Rules; the HKIAC Procedures for the Administration of Arbitration under the UNCITRAL Arbitration Rules and the UNCITRAL Arbitration Rules for ad hoc arbitration. If no arbitration rules are agreed, the procedure sets out in the Arbitration Ordinance will apply by default. If the disputed amount is not large, the parties may consider referring the dispute to HKIAC Small Claims and Documents Only Procedure so as to ensure a simplified arbitration and hence save costs.

Appeal

A very important difference between London and Hong Kong arbitrations is in relation to the right to appeal.

Pursuant to section 67 and 68 of the Arbitration Act, a party may challenge the arbitration award on the ground of the tribunal’s lack of substantive jurisdiction or serious irregularity affecting the tribunal, the proceedings or the award. Further section 69 provides for an appeal against an award on a question of law.

In contrast, there are very limited circumstances in which a party to a Hong Kong arbitration may challenge or appeal the tribunal’s award.

Section 81 of the Arbitration Ordinance adopts Article 34 of UNCITRAL Model Law on “Application for setting aside as exclusive recourse against arbitral award”. In essence, the grounds for an application to set aside an award are primarily procedural irregularities, e.g. if the applicant was not given proper notice of the appointment of the arbitrator or the proceedings, or if the award deals with a dispute which falls outside the scope of the submission to arbitration etc.. Significantly, unlike London arbitration, a party has no right to appeal against the award on the ground that the tribunal has erred in law in a Hong Kong arbitration. Some may find this disagreeable, and any party who would like to preserve the right to appeal to the court should bear this in mind when he negotiates the arbitration clause. However, the finality of the award is also an attractive feature of Hong Kong arbitration, giving the parties certainty that the award is final and irrevocable.

Source: Skuld

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