Three Steps to Strengthen Hong Kong Maritime Arbitration

In the ten or so years remaining before all dispute resolution is carried out by artificial intelligence, it is worthwhile to look at ways in which Hong Kong maritime arbitration can be enhanced.

Shipping contracts that typically provide for arbitration include shipbuilding contracts, ship sale and purchase MOA’s, charterparties, contracts of affreightment, and ship management agreements. In the related field of trade, international sale of goods and commodities contracts may be added to the list. In the international context of shipping and trade, the ease of worldwide enforceability of arbitration awards is a major reason for the parties to choose arbitration over court litigation. The shipping industry knowledge and expertise of maritime arbitrators is another significant factor favouring arbitration.

Whilst multi-million dollar disputes of course arise in relation to ships and entire cargoes, the majority of shipping claims involve relatively modest amounts. Consequently, maritime arbitration concentrates on efficiency and cost-effectiveness, with the result that such arbitrations are faster than large-scale, heavily documented investment or commercial arbitrations.

The advantages of Hong Kong in terms of its English-based legal system, geographical location and status as an international financial centre need not be repeated here. Instead, this article identifies three steps which would strengthen Hong Kong as a centre for maritime arbitration.

1. Number of Arbitrators

Ideally, the shipping contract in question will contain a detailed arbitration clause along the lines of the Hong Kong maritime arbitration clause referred to in section (3) below. 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],

a. 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];

b. 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]”

A cynical debtor can easily exploit the arbitration process so as to cause delay. This does not give a good impression to users of arbitration in the international maritime industry who experience delays of several weeks in constituting a tribunal.

The position can be contrasted to a London arbitration where, if there is no agreement as to the number of arbitrators, the tribunal will automatically consist of a sole arbitrator pursuant to section 15(3) of the Arbitration Act 1996.

The Hong Kong Arbitration Ordinance should, it is submitted, be amended to provide for a sole arbitrator in circumstances where the parties have not agreed or specified the number of arbitrators.

If the parties cannot agree on the sole arbitrator then, as considered above, the appointment can be made by the HKIAC under section 24. This streamlined procedure would give Hong Kong an advantage over London, where an application for appointment of the arbitrator has to be made to the court, with the inevitable delay of several months in serving proceedings out of the jurisdiction.

2. “Documents Only”

The majority of maritime arbitrations are conducted on a “documents only” basis i.e. without an oral hearing, 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 in 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 involved.

The right to an oral hearing is another area where Hong Kong law differs from English law, arguably to the detriment of the Hong Kong arbitration process. Section 52 of our 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.”

This is in contrast to section 34 of the 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 evidence or submissions.

Unfortunately this means that, in Hong Kong arbitration, a debtor is able to create delay by insisting on there being an oral hearing. This invariably adds months to the proceedings, and reduces the attraction of Hong Kong arbitration for parties who need an efficient procedure to recover outstanding debts.

An amendment to the Ordinance is the solution. In the meantime, for parties involved in shipping disputes, it is open to them to agree, for example, to arbitrate in Hong Kong on the terms of the London Maritime Arbitrators Association (“LMAA”). In recent years there has been an increase in the number of LMAA arbitrations seated in Hong Kong, and in such cases the tribunal has the right under clause 14 of the LMAA terms 2017 to decide whether or not to have an oral hearing, or to proceed on documents alone.

3.Hong Kong Maritime Arbitration Clause

The 13th Five-Year plan for the National Economic and Social Development of the People’s Republic of China included support for Hong Kong in enhancing its status as an international financial, transportation and trade centre, as well as its establishment as a centre for international legal and dispute resolution services in the Asia-Pacific Region.

Given the number of state-controlled entities, the ability of a command economy to influence the location of arbitration should not be underestimated. Participants in the maritime industry who wish to support Hong Kong arbitration can do so by including in their contracts the Hong Kong maritime arbitration clause:

http://www.hksoa.org/hksoa_pdf/Maritime_Dispute_Resolution_in_Hong_Kong_...

Conclusion

The leading arbitration centres of the world all have supportive legal systems with courts that are said to be pro-arbitration and pro-enforcement of arbitration awards. Hong Kong has already sought to distinguish itself, and thereby to appeal to commercial entities, by dispensing with the right of appeal in respect of arbitration awards.

If the above three steps are taken, Hong Kong will grow and enhance its status as a place for maritime arbitration. 

 

Maritime Arbitration in Hong Kong

Section 56(7) of the Arbitration Ordinance provides:

“Unless otherwise agreed by the parties, an arbitral tribunal may, when conducting arbitration proceedings, decide whether and to what extent it should itself take the initiative in ascertaining the facts and the law relevant to those arbitration proceedings”.

Maritime arbitrators often have special expertise (such as in cargo handling or navigation) which should enable them to refocus the issues and save time and costs.

Hong Kong’s enduring robust legal regime and its reputation as a favourable jurisdiction have enabled it to become one of the region’s favoured centres for dispute resolution in the maritime sector..

In contrast to English law, parties do not have to apply to the court to appoint arbitrators on behalf of defaulting parties; they are able to take the much cheaper course of applying to the HKIAC to appoint an arbitrator.

Hong Kong has an excellent international enforcement network due to its accession to the New York Convention. Arbitral awards made in Hong Kong are enforceable in more than 150 signatory states to the Convention – they can also be enforced in the Mainland and Macao through reciprocal arrangements.

Beyond its well-established judicial system based on English common law, a deep talent pool of legal professionals from various nationalities, as well as worldwide recognition and enforcement of arbitral awards, what really distinguishes Hong Kong is its role within China. The Special Administrative Region has a huge opportunity by way of the Belt and Road Initiative and its potential to play a leading role in the next round of globalisation.

Jurisdictions: 

Mayer Brown JSM, Partner

Bill Amos is a litigation partner with Mayer Brown JSM, 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.