News
News //
Dispute Resolution Law Alert - June 2017
Submitted by // K Bowers, Partner / Solicitor Advocate
16 June 2017


Farewell to the Automatic Opt-in - What you should know about the Arbitration Ordinance from 1 June 2017 onwards!

Introduction

The Arbitration Ordinance (Cap. 609) ("Ordinance") which came into operation on 1 June 2011, replacing the previous ordinance (Cap. 341) ("Old Ordinance"), has recently undergone a change. Specifically, after a 6-year transitional period, the automatic opt-in applicable to domestic arbitration provisions expired on 1 June 2017. This has important implications for parties wishing to engage in arbitration from 1 June 2017 onwards.

Background

Under the Old Ordinance, arbitration could either be governed by the domestic or international regime. The Ordinance abolishes the distinction between domestic and international arbitration by creating a unitary regime for arbitration (based on UNCITRAL Model Law), bringing it more in line with modern international arbitration practices and standards. It also preserves certain provisions which were only applicable to domestic arbitration by providing an automatic opt-in system.

Automatic Opt-in before 1 June 2017

Previously, pursuant to section 100 of the Ordinance, parties would (unless agreed to the contrary) enjoy automatic opt-in into Schedule 2 of the domestic regime if their arbitration agreement specifically referred to "domestic arbitration" and was entered into (i) before the commencement of the Ordinance; or (ii) at any time within a period of 6 years after the commencement of the Ordinance.

The key opt-in provisions under Schedule 2 include:-
• appointment of a sole arbitrator in absence of an agreement (section 1);
• consolidation of arbitral proceedings by the Court (section 2);
• referral of preliminary questions of law to the Court (section 3);
• ability to challenge an arbitral award on the ground of serious irregularity (sections 4 and 7); and
• ability to appeal against an arbitral award on questions of law (sections 5, 6 and 7).

In a nutshell, up until 1 June 2017, parties to arbitration had the benefit of automatically enjoying the "convenience" of the opt-in system by simply stating that their arbitration is a "domestic arbitration" in their arbitration agreement.

However, this position has recently changed.

Current Position

From 1 June 2017 onwards, the automatic opt-in provision is no longer in force. It is no longer sufficient for parties who wish for the provisions of Schedule 2 to apply to simply state in their arbitration agreement that their arbitration is a "domestic arbitration". Rather, pursuant to section 99 of the Ordinance, parties wishing to opt into some or all of the provisions of Schedule 2 must now make express reference in their arbitration agreement to the exact provisions which they wish to apply to their agreement.

A benefit of this change is that parties now have the flexibility of adopting Schedule 2 in whole or in part by cherry-picking specific provision(s) which they wish to incorporate into their arbitration agreement.

So what did / does this mean in practice?

Below are some key examples of how the position has changed.

 

The Old Ordinance (Cap. 341)

The Ordinance (Cap. 609)

Domestic arbitration

International arbitration

Before 1 June 2017

After 1 June 2017

Automatic opt-in for "domestic arbitration" (unless otherwise agreed)

 

 

 

 

 

 

Unitary regime for arbitration (based upon UNCITRAL Model Law)

 

 

Lapse of automatic opt-in; parties may cherry-pick which provision(s) of Schedule 2 are to apply by making express reference to them in their arbitration agreements.

No. of arbitrator

Sole

Parties had the freedom to determine the number of arbitrators, failing which it would either be 1 or 3 (as decided by the Hong Kong International Arbitration Centre)

Sole

Consolidation of arbitrations

 

X

Determination of preliminary question of law by Court

 

X

Challenging arbitral award on the ground of serious irregularity

 

X

Appeal against arbitral award on question of law

X


Comments

Whilst arbitration agreements providing for "domestic arbitration" concluded before 1 June 2017 will not be affected, this change carries important implications for all parties entering into arbitration agreements on or after 1 June 2017.

This is particularly so for the construction industry, as "domestic arbitration" is frequently referred to in a number of standard forms for main contracts. In short, so long as the arbitration agreement in the main construction contract provides for "domestic arbitration" and was entered into before 1 June 2017, Schedule 2 should continue to apply to arbitration agreements contained in every construction sub-contract entered into after 1 June 2017.
[1]

Going forward, parties should bear this recent change in mind when drafting arbitration agreements and / or take steps to amend any existing contracts in standard forms, especially if they wish for any of the Schedule 2 provisions to apply.

_________________________________________________
[1] subject to certain conditions under section 101 of the Ordinance 

 

About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; banking; financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.