By May Shen｜Lily Jiang

 

Introduction

 

Hong Kong Arbitration Week 2013 was successfully held on October 21-24, 2013, in Central, Hong Kong. Our firm participated in this event as a silver sponsor of the seminar--“Arbitration in Mainland China: Law and Practice,” which was held by Hong Kong Arbitration Center of China International Economic and Trade Arbitration Commission (“CIETAC”)[Endnote 1]. As a new player in the dispute resolution area, the status and the value of CIETAC Hong Kong Arbitration Center (“CIETAC HK”) deserves our concern. Based on our legal research and the information we have collected, our analysis of the CIETAC HK is as follows:

 

I. The establishment of CIETAC HK

 

CIETAC HK was registered in the Hong Kong Special Administrative Region (“Hong Kong SAR”) Government  Companies Registry with the name of "China International Economic and Trade Arbitration Commission Arbitration Centre Hong Kong Limited" in July of 2012. A launch ceremony for CIETAC HK was held by the Mainland China organization and Hong Kong government agencies (i.e., the China Council for the Promotion of International Trade (“CCPIT”), the Department of Justice of Hong Kong government and the Hong Kong Trade Development Council) in September of 2012, and CIETAC HK officially started its operations inMarch of 2013.

 

CIETAC HK is the first subsidiary of the CIETAC affiliates to belocated outside of Mainland China. Procedurally, the Arbitration Rules 2012 of CIETAC (“CIETAC Arbitration Rules 2012”), List of CIETAC Arbitrators and Hong Kong Arbitration Ordinance (“HK Arbitration Ordinance”) shall apply to the arbitration cases handled by CIETAC HK as the default procedural laws for this new subsidiary,unless the parties agree otherwise.

 

Compared tothe Mainland China branches of CIETAC, CIETAC HK follows the merits of Hong Kong institution arbitration, but also preserves the traditional merits of CIETAC. With the goal of integrating into the Hong Kong arbitral professional circle as soon as possible and trying to provide one more optional arbitration service for clients, CIETAC HK adopts arbitration procedures in line with international standards. Since the beginning of operation in March 2013, CIETAC HK has been involved in holding HK Arbitration Week 2013 in Hong Kong, so as to promote communication and cooperation between Mainland China and Hong Kong arbitration professionals, and to try to expand its influence in Hong Kong.

 

II. The advantages of CIETAC HK

 

According to the official website of CIETAC, Hong Kong-related cases are the second-most common cases managed by CIETAC. Parties of foreign-related contracts sometimes prefer to choose Hong Kong as the place of their arbitration. Therefore, the establishment of CIETAC HK, with the support of the Hong Kong legal system, will be beneficial for CIETAC HK and CIETAC to manage cases in Hong Kong, so as to meet the diverse needs of their clients.

 

CIETAC HK has the following advantages:

 

A. Highly cost-effective services

 

CIETAC HK applies the CIETAC Arbitration Fee Schedule , which carries out a packaged fee schedule[Endnote 2], which helpsto avoid unclear budgetary situations. For an international arbitration institution, CIETAC HK’s arbitration fees are fairly low and controllable. Its arbitration fees are at the same level as those of other arbitration institutions in Mainland China.

 

For example, regarding a foreign-related case with the amount in dispute of USD1,000,000, which could be arbitrated in Hong Kong, charged respectively according to the CIETAC Arbitration Fee Schedule (in terms of RMB) and the Hong Kong International Arbitration Center (“HKIAC”) Schedule of Fees and Costs of Arbitration (in terms of HKD)[Endnote 3], the costs for arbitration managed by the aforementioned two institutions are respectively listed as follows[Endnote 4]:

 

Arbitration Institution	CIETAC HK	HKIAC
Amount in dispute	USD100,000 =RMB6,076,700	USD100,000=HKD7,753,900
Charge Item	1.Registration FeeRMB10,000	1.Registration FeeHKD8,000
	2.Amount of Fee 150,000+Amount of Claim above 5,000,000 plus 1.5%=RMB166,151	2. Administrative Fee: 40,000+0.460%×3,753,900= HKD57,667.94
	With no extra arbitrators’ fees	3. Arbitrators’ Fees: 253,600+3.780%×3,753,900= HKD395,497.42
	3.Other extra, reasonable and actual expenses	4. Reasonable expenses of arbitrators
Total	RMB176,151（USD28,988）+ Other expenses	HKD461,165（USD59,475）+ Reasonable expenses of arbitrators

 

B. Arbitral awards have stronger likelihood of being Recognized and Enforced by Mainland China and foreign countries

 

As CIETAC’s subsidiary outside Mainland China, CIETAC HK is naturally more closely related to mainland China. According to the Arrangement of the PRC Supreme People's Court on Mutual Enforcement of Arbitration Awards between the Mainland and the Hong Kong Special Administrative Region (the “Arrangement”) effective in February, 2000, Mainland China Courts agree to enforce the awards made within Hong Kong SAR pursuant to the HK Arbitration Ordinance. The Arrangement sets specific stipulations on the conditions, procedures and scope of time for mutually enforcing arbitration awards between Mainland China and Hong Kong SAR to make it more convenient and direct. The Arrangement has already been enforced effectively by both sides for more than 10-years’ legal practice.

 

Arbitral awards made by CIETAC HK are recognizable and enforceable in more than 140 jurisdictions through the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention” 1958). Even after the handover of Hong Kong to Mainland China in 1997, the New York Convention has continued to apply to Hong Kong. Today, more than 146 countries and regions worldwide are parties to the New York Convention.

 

C. The autonomy of parties will be fully respected

 

The provisions of CIETAC Arbitration Rules 2012 and HK Arbitration Ordinance have been merged into the rules of CIETAC HK. The parties’ autonomy will be fully respected so as to save clients’ time and cost. The following aspects illustrate the autonomy of parties:

 

(1)    Place of Arbitration. According to the CIETAC Arbitration Rules 2012, the parties may choose the place of arbitration at their convenience. When the parties have not agreed on the place of arbitration or their agreement is ambiguous regarding place of arbitration, the place of arbitration will be Hong Kong. The place of arbitration may also be another location which has regard to the circumstances of the case.

 

(2)    Arbitrators. The parties will be free to choose arbitrators, according to the HK Arbitration Ordinance. The parties may nominate arbitrators from the List of CIETAC Arbitrators, or they may nominate professionals from outside CIETAC’s List of Arbitrators. There are rich resources in Hong Kong regarding the world-renowned experts, especially in the fields of international trade, construction, finance.

 

(3)    Language of Arbitration.NeitherHK Arbitration Ordinance nor CIETAC Arbitration Rules 2012has mandatory provisions on the language of arbitration. Parties will be free to choose the language used in the arbitration. If there’s no agreement on the language, it will be Chinese, or any other language designated by CIETAC HK which has regard to the circumstances of the case.

 

D. Mediation may be merged into the arbitration proceedings

 

One of the distinctive features of CIETAC HK arbitration is the combination of arbitration with mediation. Hearings and mediation will be blended according to the parties’ petition. It not only encourages efficient resolution of the dispute, but also helps to maintain commercial friendship and cooperation between the parties.

 

With the consent of both parties, the arbitral tribunal may mediate the case in a manner it thinks appropriate. During the process of mediation, the arbitral tribunal shall terminate the mediation proceedings if either party so requests or if the arbitral tribunal believes that further mediation efforts will not work.

 

E. Good services will be provided

 

CIETAC HK also provides good service for the parties during its proceedings. One essential purpose of CIETAC HK is to guarantee the effectiveness of arbitration procedures under the procedural rules of Hong Kong. The Secretariat of CIETAC HK employs bilingual consultants who are experiencedin both Mainland China law and Hong Kong law, and they will be glad to answer client’s inquiries. They will advise on how to draft an arbitral agreement, the validity of an arbitral agreement, how to appoint an arbitrator, key aspects of procedural matters, questions on HK Arbitration Ordinance and enforcement matters, etc. Therefore, they would serve the parties by managing efficient arbitral proceedings and resolve any concern about the arbitration procedures in Hong Kong.

 

III. Legal Advice for Choosing CIETAC HK as arbitration institution in Hong Kong

 

Hong Kong is the gateway to Mainland China. It has a strong, arbitration-friendly legal system, and a large pool of arbitrators, lawyers and other professionals. Arbitral awards made in Hong Kong are readily enforceable in Mainland China and the other jurisdictions. As asubsidiary of CIETAC outside Mainland China, CIETAC HK uniquely combines the advantages of both arbitrations in Hong Kong and in Mainland China. Therefore, we recommend that the parties may consider choosing CIETAC HK as the institution for dispute resolution in agreements reached during pre-execution negotiations, or at any time before or after a dispute has arisen inany foreign-related contract.

 

A. The agreement or the parties shall appoint explicitly that CIETAC HK shall be the arbitration institution

 

At present, CIETAC HK accepts cases which the parties have agreed to be submitted to CIETAC HK according to the CIETAC Arbitration Rules 2012. It also provides assistance service for CIETAC’s hearings to the parties who have agreed to submit the case to CIETAC to be arbitrated in Hong Kong.

 

To choose CIETAC HK as the arbitration institution for a case, the following clause may be adopted by parties during negotiation of or at any time before or after a dispute has arisen from a commercial contract:

 

“Any dispute arising from or in connection with this contract shall be submitted to China International Economic and Trade Arbitration Commission (“CIETAC”) Hong Kong Arbitration Center for arbitration which shall be conducted in accordance with the CIETAC arbitration rules 2012 in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties. ”[Endnote 5] 

 

Additionally, if choosing CIETAC as the arbitration institution to hear the case in Hong Kong SAR, which means Hong Kong is the place of arbitration, the following clause may be adopted by parties during negotiation of or at any time before or after a dispute has arisen from a commercial contract:

 

“Any dispute arising from or in connection with this contract shall be submitted to China International Economic and Trade Arbitration Commission (“CIETAC”) to be arbitrated in Hong Kong which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration.”

 

B. Disputes are foreign-related or related to Hong Kong SAR, Macao SAR and the Taiwan region

 

According to the introduction of the scope of cases which can be taken by CIETAC HK on its official website, CIETAC HK may manage the cases which are listed in the CIETAC Arbitration Rules 2012. CIETAC Arbitration Rules 2012 says, CIETAC may handle three kinds of disputes, including “domestic” disputes[Endnote 6]. We think that, the main service provided by CIETAC HK is focused on foreign-related arbitration cases, while legal obstacles still exist if CIETAC HK wants to handle “domestic” disputes in Hong Kong. Therefore, in order to achieve efficient resolution and to save cost, we recommend that it is preferable to choose CIETAC HK to handle foreign-related commercial cases only. That is to say, if the parties, facts or subject matter of the dispute are foreign-related or related to Hong Kong SAR, Macao SAR or the Taiwan region, the parties may choose to arbitrate in CIETAC HK or pursue assistance service therefrom. Specific circumstances include: (1)one or both parties of the dispute are foreign enterprises or organizations, or enterprises or organizations from Hong Kong SAR, Macao SAR or the Taiwan region;(2)facts of the dispute happened in foreign countries or in Hong Kong SAR, Macao SAR or the Taiwan region; or (3)the subject matter disputed by the parties is located in foreign countries or Hong Kong SAR, Macao SAR or the Taiwan region.

 

Ms. May Shen is a Shanghai-based partner with Global Law Office who specializes in Antitrust &Competition, Intellectual Property, and litigation. (E-mail: shendongmei@glo.com.cn)

 

Endnote 1: CIETAC is the longest existing arbitration institution in Mainland China, which handles foreign commercial cases.

 

 

Endnote 2: Please refer to the website of CIETAC Hong Kong Arbitration Center for more information: http://www.cietac.org.cn/help/index.asp?hangye=6

 

Endnote 3: Please refer to the website of Hong Kong International Arbitration Centre for more information: http://www.hkiac.org/index.php/sc/fees/46-hong-kong-international-arbitration-centre-administered-arbitration-rules-2#41

 

Endnote 4: The above exchange rates were based on the rate of December 12, 2013; CIETAC Arbitration Fee Schedule was applied to the international or foreign-related disputes and disputes related to the Hong Kong Special Administrative Region, the Macao Special Administrative Region and the Taiwan region.

 

 

Endnote 5: The above content is the model arbitration clause of CIETAC HK. Please refer to the website of CIETAC Hong Kong Arbitration Center for more information: http://www.cietachk.org/portal/mainPage.do?pagePath=\zh_CN\modelClause

 

Endnote 6: Please refer to the website of CIETAC Hong Kong Arbitration Center for details: http://www.cietachk.org/portal/mainPage.do?pagePath=\en_US\arbitration