The Hong Kong International Arbitration Centre Proposes Updates to HKIAC’s Administered Arbitration Rules

The Hong Kong International Arbitration Centre Proposes Updates to HKIAC's Administered Arbitration Rules

February 27, 2024, Covington Alert

On 23 January 2024, the Hong Kong International Arbitration Centre ("HKIAC") launched a public consultation on proposed changes ("Proposed Amendments") to the 2018 HKIAC Administered Arbitration Rules ("2018 Rules").^[1]

HKIAC's Proposed Amendments follow recent developments in the region with the revised China International Economic and Trade Arbitration Commission's ("CIETAC") arbitration rules coming into force on 1 January 2024 and the Singapore International Arbitration Centre's ("SIAC") announcement to update its arbitration rules, as detailed in a prior Covington alert.

In a press release accompanying the Proposed Amendments, HKIAC highlighted that a comprehensive update was unnecessary because the 2018 Rules are "well-received by users" and "widely recognised as one of the market-leading sets of arbitral rules".^[2] The 2018 Rules had already introduced significant amendments to the earlier version of the rules, such as provisions on an early determination, third-party funding, emergency arbitration, the use of technology, multi-party and multi-contract arbitrations, and time limits for the delivery of awards.^[3]

Nevertheless, drawing upon HKIAC's experience in administering the 2018 Rules, the Proposed Amendments contain important updates, notably to: (i) clarify the tribunal's power to determine preliminary issues and deploy case management techniques; (ii) enhance the mechanisms by which a single arbitration can proceed under multiple contracts; (iii) encourage diversity in arbitral appointments; (iv) empower HKIAC to preserve the integrity of the arbitral process including when appointing and revoking arbitrators; and (v) embed environmental impact considerations within the arbitral proceedings. The Proposed Amendments should bring the 2018 Rules in line with other major institutional arbitration rules.^[4]

• Tribunal's Case Management Power to Enhance Efficiency (Draft Articles 14.6, 14.10 and 32.1): the Proposed Amendments clarify the tribunal's case management powers as currently described in Article 13 of the 2018 Rules. Draft Article 14.6 grants the tribunal the discretion to adopt procedures and techniques to facilitate an efficient resolution of the dispute including the ability to: (i) determine preliminary issues that could "dispose of all or part of the case";^[5] (ii) bifurcate the proceedings; (iii) conduct the arbitration in sequential stages; and (iv) decide the stages of the arbitration at which any issue(s) shall be determined. Draft Article 32.1 reduces the timeframe for the tribunal to close the proceeding to no later than 45 days from the last substantive submissions. Draft Article 14.10 holds the tribunal accountable to conduct the proceedings efficiently by granting HKIAC the power to revoke the appointment of an arbitrator who fails to fulfil their functions "within the prescribed time limits".
• Single Arbitration under Multiple Contracts (Draft Article 30.2):the 2018 Rules allow parties to initiate a single arbitration for claims arising out of or in connection with more than one contract.^[6] The Proposed Amendments clarify how the tribunal is appointed in such circumstances. Draft Article 30.2 states that, in such circumstances, parties are "deemed to have waived their rights to designate an arbitrator", granting HKIAC the power to appoint the tribunal "with or without regard to any party's designation".
• Diversity in Arbitrator Appointments (Draft Article 10): Draft Article 10 encourages parties, co-arbitrators, and HKIAC to "take diversity into account" when appointing arbitrators. This proposal aligns with HKIAC's 2021 practice note on the appointment of arbitrators, which promotes diversity in arbitrator appointments.^[7]
• Safeguarding the Integrity of the Arbitral Process (Draft Articles 9.3, 14.9 and 14.10): the Proposed Amendments grant HKIAC power to safeguard the integrity of the arbitral process by taking "any measure necessary" (Draft Article 14.10), including when appointing an arbitrator by considering "any factors" that may affect the integrity of the arbitration (Draft Article 9.3) or by revoking their appointment if they "failed to fulfil [their] functions in accordance with the Rules or within the prescribed time limits" (Draft Article 14.10). The Proposed Amendments also empower the tribunal to "take any measure necessary" in case of a conflict of interest arising from a change in party representation, including by excluding the new representative from the arbitration (Draft Article 14.9).
• Environmental Impact (Draft Articles 14,1 and 35.3.(e)): the Proposed Amendments require the tribunal to consider the environmental impact of the arbitration. Draft Article 14.1 requires the tribunal to adopt suitable procedures for the conduct of the arbitration considering its "environmental impact", while Draft Article 35.3.(e) empowers the tribunal, when considering whether and how to apportion the costs of the arbitration, to consider "any adverse environmental impact".
• Costs of the Arbitration (Draft Articles 35.1.(e) and 35.3):The Proposed Amendments extend the definition of the "cost of the arbitration" and provide further guidance to arbitrators on factors to consider when apportioning those costs. The Proposed Amendments maintain HKIAC's exclusive approach to the "costs of the arbitration" and specifically add to the existing the cost associated with the emergency arbitrator proceedings (Draft Article 35.1.(e)). The Proposed Amendments also provide further guidance as to the specific circumstances that the tribunal is required to consider (e.g., the scale and complexity of the dispute, the parties' conduct, third-party funding arrangements, outcome-related fee structure agreements, and any adverse environmental impacts) (Draft Article 35.3).
• Written Communications (Draft Article 3.1.(f)):pursuant to Draft Article 3.1.(f), "any form of electronic communications" agreed between the parties now qualifies as a "written communication", subject to approval by HKIAC and the arbitral tribunal.
• Information Security (Draft Articles 14.1 and 47):The Proposed Amendments require the tribunal to adopt suitable procedures for the conduct of the arbitration, including the appropriate security system to protect the information shared, stored or processed in the arbitration (Draft Article 14.1). The Proposed Amendments empower the tribunal to: (i) give directions to the parties to protect the security of such information (Draft Article 47.2); and (ii) make a decision, order or award in case of any breach of the information security by either party (Draft Article 47.3).
• Emergency Arbitration (Draft Schedule 4): the Proposed Amendments clarify the power that an Emergency Arbitrator has, up to the point a tribunal is appointed. Draft Schedule 4 specifies that the Emergency Arbitration can make any order (Schedule 4, paragraph 10) or proceed with the proceedings even when the case file has been transmitted to the tribunal (Schedule 4, paragraph 13), provided that it is within the 14 day period granted to render their decision.

HKIAC is inviting public comments on the Proposed Amendments until 23 February 2024. Should you have any questions in respect of the Proposed Amendments or are interested in commenting on them, please do not hesitate to contact the members of Covington's International Arbitration Practice Group.