Arbitration is a method for resolving disputes between parties in private as an alternative to litigation in the courts. It may be agreed by the parties before or after the dispute arises. The arbitration agreement is usually incorporated as part of the contract from which the dispute arose. However, even when there is no arbitration clause in the contract in dispute, an arbitration agreement can also be made after a dispute has arisen if the parties prefer not to go to Court. If there is no arbitration agreement, mutual agreement is necessary, as one cannot force another party to “arbitrate” a dispute if there is no arbitration clause.
Litigation or Arbitration
Parties to a contract usually refer their disputes to arbitration because there is an arbitration clause in the contract.
If parties have agreed to go to arbitration, with very limited exceptions, they cannot repudiate the agreement by going to Court unless both parties agree. Under the Hong Kong Arbitration Ordinance (Cap. 609), if one party to an arbitration agreement commences legal proceedings in any Court against the other party, the latter may insist on arbitration and apply to that Court to stay the proceedings commenced. The Hong Kong Court will only refuse to stay the proceedings if the arbitration agreement is ineffective, e.g. it is not in writing, null and void, inoperative or incapable of being performed.
Commencement of Arbitration
The procedures to be followed to commence arbitration are frequently embodied in the arbitration agreement. Usually a written notice to the other party specifying the general nature of the dispute is sufficient. If the rules of arbitration have been chosen in the arbitration agreement, they must be followed. Unlike litigation, no special procedure is necessary for overseas service of the notice of arbitration on a foreign party. Simplicity and informality are two distinct advantages of using arbitration as a means to resolve disputes. It can cost considerable money and time to effect service of a Writ overseas. For arbitration proceedings, it is sufficient to fax the notice unless the arbitration agreement provides otherwise.
The party who wishes to refer the dispute to arbitration should give a written notice to the other party that the dispute shall be referred to arbitration. The notice of the dispute will become the terms of reference of the arbitration. Care must be taken to make sure that the dispute is described in a sufficiently wide manner in the notice to enable the arbitrator to deal with all issues in dispute between the parties.
Appointment of Arbitrator
The party (Claimant) should also propose his/her own choice of arbitrator to the other party (Respondent) for his/her agreement either in the notice of arbitration or by a separate notice to concur on the appointment of arbitrator.
The Respondent may counter-propose his/her own arbitrator. If the parties fail to reach an agreement on who to appoint or the Respondent fails to respond to the notice to concur in the appointment of arbitrator, the Claimant may request the appointing authority (the Chairman of Hong Kong Mediation and Arbitration Centre for the time being) to appoint an arbitrator for the parties. In our experience, the appointment may take one to two months.
Unless the required qualifications and/or experience of the arbitrator are specified in the arbitration agreement, it is possible to appoint anyone (i.e. not necessarily a lawyer) as arbitrator, though a person who has training and experience as an arbitrator or experience in the issues in dispute is usually preferred. If an appointment is made by Hong Kong Mediation and Arbitration Centre (HKMAAC), an arbitrator who has the appropriate experience and qualifications will be appointed.
The number of arbitrators (normally one or three) is decided by such matters as the arbitration agreement, whether it is a domestic or international arbitration, and the procedural rules adopted.
The arbitrator’s award is final and binding, subject to a limited right of appeal to the Court under section 23 of the Arbitration Ordinance for arbitration (domestic). Successful appeal of an arbitrator’s award is rare.
Enforcement of Arbitration Awards
If the losing party has no assets in Hong Kong but does in another jurisdiction, an arbitration award may be more valuable than a judgment of the Court if the foreign state where the assets of the losing party are situated has no reciprocal judgment enforcement arrangement with Hong Kong but is a signatory to the New York Convention. Notably such states include the United Kingdom, the United States of America and Japan, the three major trading partners of Hong Kong. If one happens to be doing business with entities in these three countries, arbitration as a means to resolve disputes that may arise can be chosen rather than going to Court in Hong Kong.
Model Hong Kong and International Arbitration Clauses
Before compelling the other side to go to arbitration, one needs to have an arbitration clause in the contract. Below are some model clauses for parties to adopt in their contracts. Much time and money will be wasted if one does not have a proper arbitration clause. Therefore, it is very important to get the arbitration clause right at the beginning.
A) Arbitration clause for Domestic Arbitration
“Any dispute, difference or claim arising out of or in connection with this contract, shall be referred to and determined by arbitration in Hong Kong using the law of the Hong Kong Special Administrative Region as the governing law and in accordance with the Domestic Arbitration Rules of the Hong Kong Mediation and Arbitration Centre.”
B) Arbitration clause for International Arbitration
“Any dispute, difference or claim arising out of or in connection with this contract, shall be referred to and determined by arbitration in Hong Kong using the law of the Hong Kong Special Administrative Region as the governing law. Any Arbitration Rules of Hong Kong Mediation and Arbitration Centre at the time being shall apply to the arbitration proceedings. The place of arbitration shall be in Hong Kong. There shall be [one/three] arbitrator(s). The language of the arbitration shall be [English/Chinese] [delete whichever is inappropriate].”