On 2 April 2012, the new HKIAC Domestic Arbitration Rules came into effect (the “2012 Rules”). The 2012 Rules replaced the previous version of the HKIAC Domestic Arbitration Rules, which had been in place since 1993. The Hong Kong government adopted the HKIAC Domestic Arbitration Rules to apply to arbitrations in Hong Kong that are instituted in accordance with its standard form construction contracts and are, therefore, commonly used by parties in ad hoc arbitrations in Hong Kong. While the parties’ preferences regarding procedures will be respected as much as possible, the 2012 Rules seek to ensure that the arbitrator will have sufficient powers to direct the proceedings if the parties are unable to agree on procedure or are uncooperative.

The changes made to the rules largely mirror the changes in the new Arbitration Ordinance (Cap 609) (the “New Ordinance”). A number of provisions of the New Ordinance have been incorporated into the 2012 Rules, in whole or in part. The New Ordinance came into effect on 1 June 2011 to replace the previous Arbitration Ordinance (Cap 341) by providing a unified regime based on the UNCITRAL Model Law (the “Model Law”). The Model Law is therefore also incorporated, at least in part, into the 2012 Rules, rendering the 2012 Rules more userfriendly and attractive to international practitioners and parties who are already familiar with the Model Law. This note examines the more significant changes made to the rules and their implications.

Removal of Arbitrator

The 2012 Rules prescribe the circumstances under which an arbitrator can be removed, and also contain provisions for the appointment of a substitute arbitrator, who should be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.1

Power to Grant Peremptory Orders

Under the 2012 Rules, the arbitral tribunal now has the power to make a peremptory order when parties fail to comply with an order or directions from the tribunal.2 Furthermore, the 2012 Rules empower the arbitrator to penalize parties for failing to comply with such peremptory orders. These new powers will no doubt assist arbitral tribunals in enforcing their orders or directions, and thereby limit the need for recourse to the courts. The power to grant peremptory orders will also impel parties to pursue arbitral proceedings without undue delay, as a failure to comply with such orders might lead to adverse consequences.

Interim Measures and Preliminary Orders

An important change in the 2012 Rules is the adoption of the Model Law’s provisions regarding interim measures. Accordingly, arbitral tribunals have the power to grant interim measures (e.g., injunctive relief) at the request of a party.3  When applying for interim measures, a party may also consider whether it is necessary to also apply for a preliminary order on an ex parte basis. If granted, a preliminary order will direct the other party not to frustrate the purpose of the interim measure requested.4 The arbitral tribunal may grant a preliminary order if it considers that prior disclosure of the request for the interim measure to the other party risks frustrating the purpose of the measure.5

Are Arbitrations Adopting the 2012 Rules “domestic arbitrations”?

One of the major changes made to the New Ordinance is the elimination of the distinction between domestic and international arbitration regimes. Although the New Ordinance provides for a unified regime, it includes optional provisions (contained in Schedule 2) allowing parties to opt-in to some or all of the provisions in the domestic arbitration regime under the previous Arbitration Ordinance (Cap 341). The opt-in provisions were included as a result of lobbying by the construction industry in Hong Kong in an attempt to preserve features of the domestic regime, and will most likely be used by parties in the construction industry. These provisions include arbitration by a sole arbitrator in the absence of agreement, consolidation of arbitrations, the decisions of preliminary questions of law by the Court of First Instance (the “Court”), the challenging of an arbitral award on the grounds of serious irregularity6, and appeals on questions of law. The opt-in provisions will automatically apply to arbitration agreements entered into at any time until 2017 (i.e., six (6) years after the commencement of the New Ordinance) if the agreement provides that arbitration under the agreement is a “domestic arbitration.”7

One issue that practitioners and parties should be mindful of is that the adoption of the 2012 Rules in an arbitration agreement will not, by itself, have the effect of providing that arbitration under the agreement is a “domestic arbitration” for the automatic application of the opt-in provisions under the New Ordinance. If the parties desire to adopt all or any of the provisions of Sections 2 to 7 of Schedule 2 to the New Ordinance, this must be specified in the arbitration agreement.

Conclusion

As explained above, many of the changes to the rules give additional powers to the arbitral tribunal to direct the proceedings and reduce the Court’s power to intervene. This reflects one of the main themes of the New Ordinance, which is based on the Model Law. In light of the general acceptance of the Model Law by both civil law and common law jurisdictions, the recent changes to the arbitration regime will further promote Hong Kong as a major center for international arbitration.

It is important for practitioners and parties to understand the recent changes to Hong Kong’s arbitration regime, and to prepare and review arbitration agreements accordingly to ensure that the intended results are achieved.