Hong Kong’s reputation as an international arbitration venue enhanced

Since this author last reported on Hong Kong’s emergence as an important regional arbitration venue, two significant developments have further bolstered the standing of the territory.

First, in a move which paves the way for Hong Kong to become a centre for India related dispute resolution, the Indian government has issued a notice which facilitates the recognition and enforcement in India of arbitral awards rendered in Hong Kong.

Second, China’s leading arbitration institution (CIETAC) has issued new arbitration rules in conjunction with plans to open a CIETAC office in Hong Kong later this year.

The Indian Notice

India and China are both signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Under this arrangement, arbitral awards rendered in Hong Kong or mainland China should, in principle, be enforceable in India on a similar basis as a domestic court judgment.

However, in practice, Indian courts have not recognised and enforced awards rendered in other New York Convention states unless the names of those states are also recorded in India’s official Gazette, signifying official government recognition that the state is one to which the New York Convention applies.

To date, less than half of the signatories to the New York Convention have been recognized in this way by the Indian government. Consequently awards rendered in these states are not routinely enforced by the Indian courts.

However, by notice of 19 March 2012, the Indian government confirmed that it will include China (including the special administrative region of Hong Kong) in the official Gazette. This (long overdue) development means that parties to India-related disputes may now nominate Hong Kong or mainland China as an arbitration venue in the knowledge that any award will be enforceable in India.

In this respect, Hong Kong is now on a par with Singapore, the region's other major international arbitration centre, which has already been "gazetted" by India.

New CIETAC Rules

The new arbitration rules of the China International Economic and Trade Arbitration Commission (“CIETAC”) came into effect on 1 May 2012. The new rules were issued in conjunction with plans to establish a new sub-commission in Hong Kong later this year and reflect CIETAC’s stated ambition to administer more foreign-seated arbitrations.

The default position under the earlier rules was that, unless the parties had agreed otherwise, arbitral proceedings conducted under the CIETAC rules were seated in mainland China. By contrast, under the new rules, CIETAC now has the flexibility to choose a foreign arbitral seat if the circumstances of the case suggest that this is appropriate (Article 7(2)).

This is good news for Hong Kong. As a special administrative region, legally distinct from mainland China, the territory has its own arbitration laws. Hong Kong is therefore a distinct seat of arbitration and arbitrations seated in Hong Kong are not subject to Chinese law. Where the parties have failed to agree a seat of arbitration, it is expected that CIETAC will see Hong Kong as a suitable neutral venue for China related international arbitrations.

The new rules also contain numerous amendments aimed to bring CIETAC’s rules further into line with international best practice. Some of these changes include:

• Removing the requirement that the default language of arbitration be Chinese (Article 71(1)).
• Providing the tribunal with greater flexibility in relation to interim measures (Article 21(2)).
• Introducing a mechanism for the consensual consolidation of parallel proceedings (Article 17).
• Introducing a new measure for arbitrator appointment in cases involving multiple parties (Article 27).
• Explicitly allowing for a stay of proceedings (Article 43).
• Increasing the threshold for CIETAC’s fast-track summary procedure from RMB500,000 to RMB2 million, reflecting the increased value of claims brought before CIETAC (Article 54(1)).

These improvements to the rules and the opening of a new Hong Kong CIETAC office may also encourage parties to agree to CIETAC arbitration in Hong Kong. Such an arbitration would be administered by CIETAC, with whom Chinese parties are familiar, in a neutral venue, with which Western parties are comfortable.

CIETAC’s aim is to develop itself as a genuine off-shore arbitration forum acceptable to both Chinese and non-Chinese parties. If it is successful, Hong Kong will be a natural venue for a new generation of CIETAC-administered China-related arbitration proceedings.