Maritime Arbitration: Three developments that strengthen Hong Kong maritime arbitration

Despite the negative headlines surrounding the city over the past year, behind the scenes Hong Kong has made significant progress in enhancing its role as a centre for maritime arbitration. Two years ago I wrote an article for Hong Kong Lawyer magazine which identified actions which could be taken to benefit maritime arbitration here ("3 steps to strengthen Hong Kong maritime arbitration"). It is encouraging to note that those goals have largely been realised, and this article aims to reflect on and to publicise Hong Kong's recent achievements.

1. HONG KONG MARITIME ARBITRATION CLAUSE AND HKMAG TERMS

Maritime arbitration is generally conducted on an ad hoc basis, as distinct from institutional or administered arbitration. Ad hoc arbitration can nonetheless benefit from an established set of procedural rules, and in that respect the Hong Kong Maritime Arbitration Group (HKMAG) Terms provide a framework which is specially designed for shipping disputes. The Terms will be applicable where the arbitration clause so provides, which can be as succinct as e.g.: “Arbitration in Hong Kong in accordance with the HKMAG Terms and HKMAG Small Claims Procedure. Hong Kong law to apply.” The HKMAG Terms will also be applicable whenever the sole arbitrator or both the original arbitrators have been appointed on the basis that the Terms apply to their appointment.

BIMCO, the leading shipping industry NGO, which specialises in promoting global standard forms, has announced that its revised Dispute Resolution Clause will include Hong Kong as one of four named arbitration venues (the other three being London, New York and Singapore). This international recognition of Hong Kong's increased role in shipping dispute resolution is a considerable step forward.

In addition, there are now Procedures for the Administration of Arbitration under the HKMAG Terms, which enable parties to take advantage of the recent “Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the HKSAR”. Shipping companies contracting with mainland Chinese parties thus have a further reason to choose Hong Kong as an arbitral seat as they can now obtain interim orders and injunctions from the Chinese courts in aid of their Hong Kong maritime arbitrations.

2. ORAL HEARING OR 'DOCUMENTS ONLY'?

Section 52 of Hong Kong's Arbitration Ordinance provides that:

"Unless the parties have agreed that no hearing shall be held, the arbitral tribunal shall hold such hearings at an appropriate stage of the proceedings, if so requested by a party."

As a consequence, under the statutory framework, a party to a Hong Kong arbitration has the right to an oral hearing. This is in contrast to section 34 of the UK's Arbitration Act 1996 which, subject to the agreement of the parties, gives the Tribunal the right to decide all procedural and evidential matters, including whether and to what extent there should be oral or written submissions.

For Hong Kong arbitrations regulated solely by the Ordinance, section 52, unfortunately, means that a debtor is able to create delay by insisting on there being an oral hearing. This adds months to the proceedings, and consequently reduces the attraction of Hong Kong arbitration to parties who need an efficient procedure to recover outstanding debts.

For parties involved in shipping disputes, however, it is open to them to agree to arbitrate in Hong Kong on the HKMAG Terms, as noted above. In such cases, the tribunal has the right under Article 13 of the Terms to decide whether or not to have an oral hearing, or to proceed on documents alone:

"13. (a) It shall be for the tribunal to decide all procedural and evidential matters, but the tribunal will where appropriate have regard to any agreement reached by the parties on such matters. The normal procedure to be adopted is set out in the Second Schedule, subject to the tribunal having power at any time to vary that procedure."

The Second Schedule to the HKMAG Terms follows the well-established procedure applied to London arbitrations governed by the LMAA Terms, and so seeks to ensure so far as possible that time is not wasted on procedural disputes.

The HKMAG Terms thus enable maritime arbitrations to be conducted, where appropriate, on a "documents only" basis, and this naturally saves time and costs. "Documents only" arbitrations are generally suitable in matters where the credibility of factual or expert witnesses is not at issue, which is often the case in commercial shipping disputes, where the written emails or messages between the parties are comprehensive, and where points of law and contractual interpretation are often decisive.

NUMBER AND APPOINTMENT OF ARBITRATORS

Ideally, the shipping contract in question will contain an arbitration clause such as the HKMAG clause previously described. It is however common for charterparties and other shipping contracts to provide simply "Hong Kong arbitration, with English law to apply", without stating the number of arbitrators. In such a case, the matter will be referred to the Hong Kong International Arbitration Centre ("HKIAC") pursuant to section 23(3) of the Arbitration Ordinance (Cap. 609) which provides that:

"… If the parties fail to agree on the number of arbitrators, the number of arbitrators is to be either 1 or 3 as decided by the HKIAC in the particular case."

An application for a decision on the number of arbitrators takes time and so slows down the arbitration process. Once the HKIAC has decided whether there should be one or three arbitrators, it may be necessary for a second application to be made to the HKIAC pursuant to section 24 of the Arbitration Ordinance (which quotes Article 11 of the UNCITRAL Model Law) :

            "(3)  Failing such agreement [of the parties],

  1. in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two arbitrators thus appointed shall appoint a third arbitrator; if a party fails to appoint the arbitrator within 30 days of receipt of a request to do so from the other party, or if the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment, the appointment shall be made, upon request of a party, by [the HKIAC];
  2. in an arbitration with a sole arbitrator, if the parties are unable to agree on the arbitrator, he shall be appointed, upon request of a party, by [the HKIAC]"

 As a result, in a dispute under a clause which simply provided for "Hong Kong arbitration" the need for two applications meant that two separate fees were payable. The delay and additional expense were sources of complaint amongst arbitration users within the industry, and so in 2019 the HKIAC amended its Rules so as to charge a one-off fee of HK$8,000 for performing all its functions under the Ordinance in an ad hoc arbitration in which the total amount in dispute is less than HK$2.5 million.

Reasons to be Cheerful (1 to 3)

So, with the HKMAG, Hong Kong now has a stand-alone body dedicated to promoting maritime arbitration in Asia, with its own Terms which contain the procedures necessary for time- and cost-efficient dispute resolution. The HKIAC has reduced its ad hoc arbitral appointment fees, for the benefit of the shipping industry. The Mainland Courts can now grant interim measures in aid of HKMAG-administered arbitration, which in itself is an example of Government support for the promotion of Hong Kong as a maritime arbitration centre. And the industry's leading NGO in Copenhagen is including Hong Kong in the BIMCO Dispute Resolution Clause –– reasons to be cheerful?

Partner, Mayer Brown

Bill Amos is a litigation partner with Mayer Brown, a firm he first joined in 1998. He has represented clients in a wide variety of high-profile cases covering an extensive range of commercial disputes, including international trade, banking, shipping, aviation, aerospace and insurance. Bill has also been appointed as arbitrator in numerous ad hoc and administered arbitrations, and is a Fellow and Council Member of the Hong Kong Institute of Arbitrators.