Hong Kong Court Clarifies Threshold for Setting Aside Awards

8 August, 2022

A Hong Kong Court recently adopted a resoundingly pro-arbitration stance in a decision which emphasised the high thresholds of irregularity that would need to be established before an arbitration award can be set aside.

In LY v HW, [2022] HKCFI 2267, the Court dismissed an application to set aside an award based on claims that the Tribunal had failed to deal with the key issues and failed to provide sufficient reasons for its decision in the award. This decision underlines the narrow manner in which grounds for refusal of enforcement are to be construed and fortifies the enforceability of arbitration awards in Hong Kong. Continue reading →

HKIAC USERS GAIN ADDITIONAL ROUTE TO MAINLAND INTERIM RELIEF AND ENFORCEMENT

6 July, 2022

The Supreme Peoples’ Court of the People’s Republic of China (SPC) has recently announced that the Hong Kong International Arbitration Centre (HKIAC) is to be included in the China International Commercial Court’s (CICC) “One-Stop” Platform for Diversified International Commercial Dispute Resolution (“One-Stop” Platform).

According to the Rules of the Supreme People’s Court on International Commercial Court Procedure (Trial Implementation), the inclusion of HKIAC into the “One-Stop” Platform means that parties to cases administered by HKIAC with an amount in dispute over RMB 300 million or otherwise likely to be of significant influence, may apply for interim relief and/or the enforcement of arbitral awards directly to the CICC. While parties to HKIAC proceedings could already apply to the competent Intermediate People’s Court for interim relief, this new route is a more effective alternative (where appropriate) to the current arrangements between the Mainland and Hong Kong.

The SPC had established the “One-Stop” Platform in 2018, in order to integrate litigation, mediation and arbitration, and to facilitate parties’ involvement in the process of online dispute resolution. In December 2018, the SPC announced the first group of arbitration and mediation institutions to be included on the “One-Stop” Platform, which covered most of the leading arbitration and mediation institutions in the Mainland. The SPC’s recent inclusion of the second group of arbitration institutions on the “One-Stop” Platform was done with a view to promoting the high-quality development of the Belt and Road initiative.

This new development makes the HKIAC the first arbitral institution outside the Mainland to be included in the “One-Stop” Platform, adding yet another string to the HKIAC’s bow. In a recent press release, the HKIAC Co-chairperson, Rimsky Yuen, GBM, SC, JP, has regarded this as a “ground-breaking development”, stating that it opens new doors to obtaining interim relief and award enforcement before judges of the highest calibre on the Mainland.

For more information, please free to get in touch with any of the contacts below, or your usual Herbert Smith Freehills contact.

Simon Chapman
Simon Chapman
Partner
+852 21014217
May Tai
May Tai
Partner
+44 20 7466 2112
Helen Tang
Helen Tang
Partner
+86 21 2322 2160
Kathryn Sanger
Kathryn Sanger
Partner
+852 21014029
Weina Ye
Weina Ye
International Partner
+86 21 2322 2132
Briana Young
Briana Young
Professional Support Consultant
+852 21014214
Peijing Gong
Peijing Gong
Associate
+86 21 23222157

Hong Kong one step closer to arbitration success fees

30 June, 2022

Amendments to the Arbitration Ordinance, gazetted today, are the latest stage in the process to allow lawyers to charge based on success in an arbitration. The amendments, long-awaited by clients, passed Hong Kong’s legislative review quickly and without substantive amendment, demonstrating the strong support in the territory for these long-awaited changes.

Hong Kong has enacted the sections of Part 10B Arbitration Ordinance that set out the framework for outcome-related fees in arbitration and establish an advisory body to draft appropriate regulations.

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HSF’S JUSTIN D’AGOSTINO CELEBRATES EQUAL REPRESENTATION IN ARBITRATION PLEDGE REACHING 5,000 SIGNATURES

9 June, 2022

Justin D’Agostino, our CEO and co-chair of the ERA Pledge Global Steering Committee, talks about his involvement with the Pledge and why he thinks it’s vital to increase, on an equal opportunity basis, the number of women appointed as arbitrators in order to achieve fair representation.

The video can be watched on the Arbitration Pledge LinkedIn page, here.

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Inconsistent dispute resolution clauses – exploring the limits of the Fiona Trust presumption

25 May, 2022

The presumption that “rational businessmen” intend all their disputes to be resolved in the same forum may not apply where the parties clearly intended otherwise. Construing such intentions requires a “broad and commercially minded approach” to inconsistent dispute resolution clauses.

In H v G [2022] HKCFI 1327, the Hong Kong Court of First Instance set aside an arbitral tribunal’s determination that it had jurisdiction over claims under a warranty where an associated contract contained the arbitration clause, but the warranty itself provided for litigation in Hong Kong.  This decision underlines that there are limits to the Fiona Trust presumption in cases where the parties’ overall contractual arrangements give rise to agreements containing different dispute resolution provisions.

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SINGAPORE HIGH COURT HOLDS THAT ARBITRATION CLAUSE MISNAMING AN ARBITRAL INSTITUTION IS VALID

7 April, 2022

The Singapore High Court has interpreted a potentially defective arbitration clause, which selected the “China International Arbitration Center” (a non-existent institution), as an agreement to CIETAC arbitration and therefore upheld an award issued by a CIETAC Tribunal. The Court held that, provided the parties objectively intended to refer to the same arbitral institution (rather than intended different arbitral institutions, or it being impossible to tell either way), the validity of the arbitration agreement would not be affected.

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Hong Kong gazettes success fee Bill

28 March, 2022

Hong Kong has officially published a Bill that would allow lawyers to agree outcome-based fees for arbitration work in the territory.

If, as expected, the Bill passes into law later this year, it will allow lawyers in and outside Hong Kong to agree fees based on their clients’ success in the arbitration. This is a sea-change for a jurisdiction that, until now, has prohibited such fees.

The Bill is the next stage in a process of reforming Hong Kong’s laws and professional conduct rules that began with a public consultation chaired by Herbert Smith Freehills’ Kathryn Sanger and Briana Young.

Under the proposed reforms, which enjoy widespread public backing, parties would benefit from a broad range of fee options, including:

  • Conditional fee agreements (CFAs)
  • Damages-based agreements (DBAs)
  • Hybrid DBAs

The Bill would add a new Part 10B to Hong Kong’s Arbitration Ordinance (Cap. 609), removing the prohibition on success fees for arbitration and related court or mediation proceedings. It would also amend the Legal Practitioners Ordinance (Cap. 159), as well as professional conduct rules, to allow Hong Kong barristers, solicitors, and registered foreign lawyers to accept such fees without breaching ethical obligations.

The new law would allow Hong Kong based lawyers to charge success fees for arbitrations seated in or outside the territory. Lawyers and clients based outside Hong Kong can take advantage of the new rules when working on a Hong Kong-seated case.

The proposed changes would not apply to Hong Kong civil or criminal proceedings, or to an arbitration involving a personal injury claim.

What are outcome related fees?

CFA

Under a CFA, the client agrees to pay the lawyer an additional fee, known as a success fee, only in the event of a successful outcome for the client. The success fee can be an agreed flat fee, or calculated as a percentage uplift on the lawyer’s usual (“benchmark” or “standard”) fee; i.e. the fee that the lawyer would have charged if there were no CFA in place. The client may also pay fees during the life of the matter, typically at a discounted rate. Alternatively, lawyers and clients may agree a “no win, no fee” CFA.

DBA

Under a damages based agreement, the lawyer charges no fees during the life of the arbitration, but receives payment only if the client obtains a “financial benefit” in the matter. The payment, known as the “DBA payment”, is calculated by reference to the financial benefit. Typically, it will be a percentage of money awarded to the client or paid to settle the claim. It can include any other form of financial benefit, such as a physical asset, debt or reduction in a sum claimed against the client.

Hybrid DBA

In a Hybrid DBA, the lawyer charges some (typically discounted) fees during the life of the matter, plus a DBA payment if the client obtains a financial benefit in the arbitration.

Regulation

The Bill paves the way for more detailed regulation of the outcome related fee regime, in the form of subsidiary legislation. It also empowers the Secretary for Justice to appoint an advisory body and an authorised body to oversee the regime, and allows the advisory body to issue a code of practice. This structure reflects the regime that regulates third party funding of arbitrations in Hong Kong (Part 10A Arbitration Ordinance). As with third party funding, a client will have to disclose in the arbitration that it has entered an outcome related fee agreement with its lawyers. The new provisions also contain exceptions to the general confidentiality regime under the Arbitration Ordinance, permitting such disclosure.

Finally – barring exceptional circumstances – an arbitrator cannot order a losing party to pay the costs of its successful opponent that exceed the amount it would have incurred had the successful party not entered an outcome related fee agreement with its lawyers. This adheres to the “indemnity principle” that applies in many common law jurisdictions, under which a court cannot order a losing party to pay more costs than the successful party actually paid to its lawyers. Respondents to the consultation also felt, overwhelmingly, that it was unfair to penalise an unsuccessful party for a fee arrangement over which it has no control at the outset.

Conclusion

The Bill proposes significant, welcome, changes to Hong Kong’s legal fee regime for arbitration. The recommended measures allow Hong Kong to maintain its competitive position as one of the world’s top seats, by responding to clients’ desire for alternatives to the traditional hourly fee, and allowing lawyers to share litigation risk with the parties who instruct them.

To learn more about the alternative fee arrangements we can offer, email Kathryn Sanger, Briana Young, John O’Donoghue or your usual Herbert Smith Freehills contact.

Kathryn Sanger
Kathryn Sanger
Partner
+852 21014029
Briana Young
Briana Young
Professional Support Consultant
+852 21014214

INSIDE ARBITRATION ISSUE #13 PERSPECTIVES ON CROSS-BORDER DISPUTES

24 February, 2022

Welcome to the thirteenth issue of Inside Arbitration. 

We are delighted to share with you the latest interactive issue of this publication from Herbert Smith Freehills’ Global Arbitration Practice.

2022 opened with continued uncertainty in the global fight against the Covid-19 pandemic. This has tested all of our resilience, which has never been a more important quality than over the past few years. As trusted advisors to our clients, we need to be able to anticipate the challenges and opportunities on the horizon. This issue has those themes front and centre, with a focus on adapting to and driving forward change, within different sectors, regions and the practice of arbitration.

Incorporating articles, interviews and videos from our practitioners around the network, this edition features articles and interview spotlights from across our global team in addition to recent arbitration news and developments.

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DELOS LAUNCHES OPEN ACCESS ARBITRATOR DATABASE TO IMPROVE DIVERSITY

23 February, 2022

Independent arbitration institution Delos has created a free, open access database of arbitrators, in a bid to increase the pool of arbitrators and foster diversity in appointments.

The database is open to all at no cost, and any arbitrator can post a profile – no previous appointments are required. Arbitrators can choose the information they enter, including gender, age, nationality, location, and cultural and ethnic background, alongside their experience as counsel, tribunal secretary and arbitrator, language skills, and regional, industry or other specialist expertise. To create a profile, register for free membership at www.delosdr.org, then click here to add your profile.

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Fruit of collusion: Hong Kong Court set aside an enforcement order for a Mainland award

19 January, 2022

On a rare occasion, the Court of First Instance has set aside an enforcement order for a Mainland award (made under the auspices of the Zhanjiang Arbitration Commission) on the basis that the underlying contract was a sham, the arbitration agreement was not valid, and thus it would be contrary to public policy to enforce the award.

廣東順德展煒商貿有限公司 v Sun Fung Timber Company Limited [2021] HKCFI 3823

Background

The Respondent (Company) was 50% owned by ST and 50% owned by a company, NI, of which DL was the majority shareholder.  ST and DL were both directors of the Company.

In late 2016, a dispute arose between the two shareholders and directors.  As a result, the Company started to wind down its operations, with talks between ST and DL about selling the assets of the Company.

On 14 April 2017, ST purportedly entered into a contract on behalf of the Company with the Applicant (GD) for the sale of marble (Contract).  The Contract contained many peculiar features.  The Company’s usual business involved only timber retailing, as opposed to marble stones.  The Contract, nonetheless, was for the sale of a substantial amount of marble to GD for the significant sum of RMB 220 million.  The consideration was some 62 times of the Company’s annual sales revenue, and GD was incorporated only 3 months before the date of the Contract.  Pursuant to the Contract, the delivery of the marble was to be made within 6 days, failing which the Company had to pay RMB 2.2 million per day as penalty.  The Company failed to deliver the marble.

On 15 May 2017, pursuant to the arbitration agreement in the Contract (Arbitration Agreement), GD commenced arbitral proceedings before the Zhanjiang Arbitration Commission against the Company for breach of the Contract (Arbitration).  ST conducted the entire Arbitration on behalf of the Company, and caused the Company to admit liability and confirm that the Company should pay damages in the sum of RMB 59 million.  Within 4 days, GD obtained an award against the Company in the agreed amount (Award).

GD sought to wind up the Company based on the Award.  NI and DL only became aware of the Award during the course of the winding-up proceedings, which were subsequently dismissed by the Hong Kong court on the basis of a bona fide dispute over the debt.

GD then applied ex parte for and obtained an order granting leave to enforce the Award in Hong Kong (Enforcement Order).  NI obtained leave to intervene in these proceedings and sought to set aside the Enforcement Order on the grounds that ST lacked authority to enter into the Contract, that the Contract (including the Arbitration Agreement therein) was void, that the Company had not been given proper notice of the Arbitration, and that the enforcement of the Award would be contrary to public policy.  In particular, NI argued that the Contract was in reality a sham orchestrated by ST and GD to enable ST to receive valuable assets of the Company without the need to share such assets with NI, should the Company be dissolved in the usual way.

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