International Arbitration Observation | Hong Kong Arbitration System Reform and Shenzhen Commercial Arbitration Reference 【 Going Global Think Tank 】

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The fourth issue of "Shenzhen Rule of Law Review" in 2021, supported by academic resources from the Going Global Think Tank (CGGT), has been published. The theme of this issue focuses on the construction of Shenzhen's rule of law demonstration cities and rule of law government demonstration projects.

In May 2021, the Central Committee for the Comprehensive Rule of Law issued the "Opinions on Supporting Shenzhen to Build a Model City for the Rule of Law in Socialism with Chinese Characteristics", which deployed and blueprint the rule of law construction in Shenzhen from the central level. Building a demonstration city with Chinese characteristics for the rule of law is an important exploration of building a socialist country under the rule of law, and also an important path to promote the modernization of urban governance system and governance capacity.

The "Shenzhen Rule of Law Review" is sponsored by the Office of the Comprehensive Rule of Law Committee of the Communist Party of China Shenzhen Municipal Committee and the Shenzhen Judicial Bureau. It is positioned as a high-end leadership decision-making reading material, focusing on the construction of the rule of law in Shenzhen. It publishes high-level and practical policy research to assist city leaders and leading cadres of the city's party and government organs in making decisions on the rule of law construction, and provides suggestions to support Shenzhen's construction of a leading demonstration city of socialist rule of law with Chinese characteristics.

Since its inception in 2020, the Going Global Think Tank (CGGT) has provided academic resource support for this high-end decision-making reading material.

The article "Hong Kong Arbitration System Reform and Shenzhen Commercial Arbitration Reference" written by Wang Chunge, former general counsel of China Merchants Group Co., Ltd., was published in the perspective column of the fourth issue of Shenzhen Legal Review in 2021. Today, the article was published by the Going Global Think Tank (CGGT) for readers who are interested in cross-border arbitration.

main points

CGGT，CHINA GOING GLOBAL THINKTANK

1. After the return of Hong Kong, especially since the "the Belt and Road" initiative was put forward, the SAR government has promoted a series of reforms to build Hong Kong into a "going global" investment dispute arbitration center for Chinese enterprises. The Hong Kong Arbitration Ordinance and the Arbitration Rules of the Hong Kong International Arbitration Center have been revised many times to make it closer to international practice.

2. Due to the strong judicial support for arbitration in Hong Kong, especially the bold reforms made by the United Nations Model Law on International Commercial Arbitration, which were fully incorporated into the Arbitration Regulations, Hong Kong's commercial arbitration norms have not only been aligned with international practice, but also greatly improved its position in the international arbitration community.

3. Shenzhen, as an advanced demonstration zone of socialism with Chinese characteristics, should learn from the advanced experience of Hong Kong and international arbitration institutions in the process of carrying out comprehensive reform pilots, and try to reform the arbitration system in the mainland first, so as to address the narrow scope of arbitration, unclear nature and governance structure of arbitration institutions, imperfect judicial support and supervision system, and inconsistent standards for judicial review of domestic and foreign-related arbitration awards There are issues such as insufficient connection with international arbitration in the design of some institutional rules.

Main text

CGGT，CHINA GOING GLOBAL THINKTANK

Wen/Wang Chunge

Former General Counsel of China Merchants Group Co., Ltd., Doctor of Laws

Since the "the Belt and Road" initiative was put forward, Hong Kong has carried out a series of reforms to the arbitration system in order to become the "the Belt and Road" investment dispute settlement center. As a nationally recognized demonstration zone for socialism with Chinese characteristics, Shenzhen actively draws on the advanced experience of the Hong Kong arbitration system to promote cooperation in dispute resolution mechanisms in the Guangdong Hong Kong Macao Greater Bay Area and enhance the position of Shenzhen arbitration institutions in international commercial arbitration, which will be of great benefit.

Hong Kong's reform to build the "the Belt and Road" International Arbitration Center

After the return of Hong Kong, especially since the "the Belt and Road" initiative was put forward, the SAR government has promoted a series of reforms to build Hong Kong into a "going global" investment dispute arbitration center for Chinese enterprises. The Hong Kong Arbitration Ordinance (hereinafter referred to as the "Arbitration Ordinance") and the Arbitration Rules of the Hong Kong International Arbitration Center have been revised many times to make it more close to international practice.

The main reforms of the Arbitration Regulations

The Arbitration Regulations were promulgated and implemented in 1963. The last two revisions made in 2011 and 2017 can be considered a significant turning point for "transformation".

In the 2011 revision, the dual track system of "local arbitration" and "international arbitration" moved towards a single system. Adopting a single arbitration system is not only in line with the current world trend of reducing judicial intervention in arbitration procedures, but also helps to avoid the difficulty of parties choosing international or local arbitration when applying for arbitration, and can attract more international arbitration cases to Hong Kong for arbitration. At the same time, considering the practical needs of some parties, the new Appendix 2 of the Arbitration Regulations retains some of the main systems originally implemented for "local arbitration" by adopting a "selection system" approach, and the parties can still choose to apply them.

In the 2017 revision, third-party funding and intellectual property disputes were allowed to be included in arbitration. The Legislative Council of the Hong Kong Special Administrative Region passed the 2016 Arbitration and Mediation Law (Third Party Assistance) (Amendment) Bill in June 2017, allowing third parties who are not directly related to the dispute to sponsor a party. In 2018, the Department of Justice of the Special Administrative Region Government issued the "Code of Practice for Third Party Funded Arbitration". The above reforms mark Hong Kong's recognition of third-party funded arbitration.

As intellectual property disputes involve public power, the arbitration laws of various countries have different provisions on whether intellectual property disputes can be arbitrated. The SAR government believes that in the grand vision of building Hong Kong into an intellectual property trading center in the Asia Pacific region and the Guangdong Hong Kong Macao Greater Bay Area, the Arbitration Ordinance allows disputes related to intellectual property to be resolved and enforced through arbitration, which does not violate Hong Kong public policy. The SAR government believes that this amendment will help attract parties to disputes to resolve intellectual property disputes through arbitration in Hong Kong.

Revision of the Arbitration Rules of the Hong Kong International Arbitration Centre

The Hong Kong International Arbitration Center initiated the revision of the 2013 Arbitration Rules in August 2017, and the new rules came into effect on November 1, 2018. This revision aims to cooperate with the revision of the Arbitration Regulations and has many innovative provisions. The main modifications are as follows:

Firstly, encourage the use of information technology to manage arbitration procedures. Uploading files to the internet system of the arbitration center is recognized as an effective way of delivering documents.

Secondly, further expand the scope of adding additional parties, merging arbitration procedures, and applying a single arbitration procedure to multiple contracts. Even if the parties in each contract are not exactly the same, the parties are allowed to request that they be merged into one arbitration procedure for trial. In addition, when multiple arbitration procedures have common legal or factual issues, the parties can request that the same arbitration tribunal simultaneously and in parallel advance these arbitration procedures, with the aim of improving the efficiency of arbitration and reducing costs.

Thirdly, as the Arbitration Regulations allow third-party funding for arbitration, the new Arbitration Rules have added corresponding clauses to address issues related to regulation, disclosure, confidentiality, and fees related to third-party funding.

Fourthly, allowing the arbitral tribunal to reject arbitration requests that clearly lack legal or factual basis based on its own judgment in the early stages, without waiting for the completion of all arbitration procedures, can avoid the parties from claiming unfounded claims or defenses through the entire arbitration process.

Fifth, further update the emergency arbitrator procedure, clarify the time limit for emergency relief applications and the conditions for making emergency decisions, and set a maximum fee limit for emergency arbitrators, which is beneficial for the parties to save time and arbitration costs.

Progress brought about by the reform of the arbitration system in Hong Kong

The universality of the nationality of the arbitrator can give the parties more choice space

The Hong Kong International Arbitration Center's "Guidelines for the Appointment of Arbitrators" (hereinafter referred to as the "Guidelines"), which come into effect simultaneously with the latest 2018 version of the Arbitration Rules, stipulate that the Hong Kong International Arbitration Center may, based on the specific circumstances of the case, determine the nationality of the parties and arbitrators, the fees and place of practice of the arbitrators, the amount of dispute in the case, the complexity of the legal issues involved, the applicable applicable law, as well as the place of arbitration, the language of arbitration Recommend suitable arbitrators to the parties based on factors such as the type of dispute.

Paragraph 3.3 of the Guidelines stipulates that if at least one party comes from mainland China, and the other party has no objection, the arbitration center may appoint a Hong Kong SAR passport holder as the sole or chief arbitrator in the case. This regulation breaks through the internationally accepted "nationality restriction" of not being able to designate individuals of their own nationality as sole or chief arbitrators, and provides convenience for mainland parties to appoint Hong Kong local arbitrators.

The conditions for arbitration institutions to accept cases are more relaxed

The acceptance of arbitration cases must be based on the existence of a "written arbitration agreement". According to the definition of "written arbitration agreement" in the Arbitration Regulations, it is formed in writing (whether signed or not by the parties), in the form of an exchange of written communication, in the form of written evidence or reference, or although not made in writing, recorded by one party or a third party to the agreement, When one party claims the existence of a written agreement to the other party through arbitration or exchange of written statements in legal proceedings, and the other party does not deny or directly participate in the arbitration proceedings in the defense, it can be considered as the existence of a "written arbitration agreement". When judging whether an arbitration agreement meets the requirements of written form, arbitration institutions usually also refer to other relevant factors, such as the position of the parties during contract negotiation, the motivation for signing the contract, and whether the parties have the willingness to arbitrate, in order to support the existence of a "written arbitration agreement" to the maximum extent possible, rather than limited to the surface form of the agreement.

Temporary arbitration coexists with institutional arbitration, providing more options for the parties involved

Institutional arbitration refers to the arbitration conducted by the parties in accordance with the arbitration agreement by submitting a dispute to a designated permanent arbitration institution. Institutional arbitration is conducted by a permanent arbitration institution selected by the parties in accordance with their established arbitration rules, and now most arbitration is conducted by institutional arbitration.

Temporary arbitration refers to the arbitration agreement between the two parties. After a dispute arises, an arbitration tribunal is formed by arbitrators agreed upon by both parties to hear the dispute between the parties. Temporary arbitration shall be agreed upon by the parties themselves, and the arbitration process shall be arranged independently by the arbitrators and the parties. The arbitration tribunal shall be dissolved upon the conclusion of the trial and the making of an award.

The advantage of temporary arbitration lies in giving the parties greater autonomy in the selection of arbitrators, arbitration procedures, and selection of applicable laws, as well as its convenience and convenience.

Hong Kong courts highly support arbitration and implement the principle of "least intervention" in judicial review of cases

The Hong Kong court divided defective arbitration agreements lacking substantive elements into two categories: "serious defects" and "minor defects". Only when there are "serious defects", such as a dispute that cannot be arbitrated by the parties, or when the arbitration intention is an untrue declaration of will made under fraud, can the arbitration agreement be deemed invalid. For "minor flaws" such as unclear expression of arbitration intention, it does not automatically determine that the agreement is invalid. In cases where it is determined that the arbitration agreement has "serious flaws", the court usually prefers to return the award to the arbitration tribunal for retrial, rather than revoke or submit it to the court for trial.

According to Article 23 of the Arbitration Regulations, the court shall not revoke the arbitral award due to errors in the evidence relied on in the arbitral award or errors in the arbitral tribunal's determination of facts. This provision fundamentally ensures that Hong Kong courts fulfill the principle of "minimal judicial intervention" in arbitration.

In response to the issue of public policy retention in judicial review by courts, Hong Kong courts have defined "Hong Kong public policy" as "the most fundamental moral and justice concept in Hong Kong". Foreign arbitral awards can only be refused recognition and enforcement when they violate the core values of social justice in Hong Kong, such as the legitimate process of Hong Kong justice, to prevent courts from interpreting "public policy" broadly and using it as a tool to protect Hong Kong's interests, Serious damage to the credibility of arbitration in international commercial dispute resolution.

In summary, due to the strong judicial support for arbitration in Hong Kong, especially the bold reforms made by the Arbitration Ordinance to fully incorporate the United Nations Model Law on International Commercial Arbitration, Hong Kong's commercial arbitration norms have not only been aligned with international practice, but also greatly improved its position in the international arbitration community.

Drawing on the experience of Hong Kong, Shenzhen should take the lead in demonstrating the reform of the arbitration system

In recent years, in order to cooperate with the "the Belt and Road" initiative and the construction of the Guangdong Hong Kong Macao Greater Bay Area, the nine mainland cities in the Greater Bay Area have also moved towards a closer cooperation stage with Hong Kong legal service institutions. In 2012, the China Nansha International Arbitration Center was established in cooperation with arbitration institutions from Guangdong, Hong Kong, and Macao; In 2015, the Mainland Hong Kong Joint Mediation Center was established in Hong Kong; In September 2018, the Guangdong Hong Kong Macao Greater Bay Area Arbitration Alliance Center, jointly initiated by 9 arbitration institutions in Guangdong and 2 arbitration institutions in Hong Kong and Macau, was established; On July 2, 2019, the Shenzhen International Arbitration Court signed the Closer Cooperation Agreement with the Hong Kong International Arbitration Center, making it possible to select mainland arbitrators for the "the Belt and Road" investment dispute cases arbitrated in the Hong Kong International Arbitration Center.

The author believes that the above cooperation is only the cooperation at the level of arbitration institutions of both sides. Shenzhen, as a pioneer demonstration area of socialism with Chinese characteristics, should learn from the advanced experience of Hong Kong and international arbitration institutions at a deeper level in the process of carrying out the pilot comprehensive reform, take the lead in the reform of the mainland arbitration system, and address the narrow scope of arbitration, unclear nature and governance structure of arbitration institutions There are issues such as incomplete judicial support and supervision systems, inconsistent standards for judicial review of domestic and foreign arbitration awards, and insufficient connection with international arbitration in the design of some institutional rules.

From the current situation, Shenzhen can take the lead in reforming the arbitration system in the following areas:

One is to include disputes between non equal subjects such as intellectual property arbitration and labor arbitration in the scope of arbitration. In view of the narrow scope of arbitration as stipulated in the Arbitration Law, many new disputes accompanied by the new economy and new business types are not included in the scope of arbitration. Shenzhen can learn from the mature experience of Hong Kong arbitration institutions to include such disputes involving public power between unequal subjects in the scope of accepting cases.

The second is to increase the temporary arbitration system. As an international practice, the temporary arbitration system is widely present in the international community and recognized by various laws and international conventions. China is a member of the New York Convention, and foreign temporary arbitration awards can be recognized and enforced in China. Therefore, the temporary arbitration system should be added to the foreign-related commercial dispute cases accepted by China, and Shenzhen can take the lead in this regard.

The third is to increase the system of emergency arbitrators. In order to quickly advance the arbitration process and improve the efficiency of dispute resolution, Shenzhen can add an emergency arbitrator system, clarify the power of the arbitration tribunal to decide on temporary measures, and allow parties to choose arbitrators from Hong Kong arbitration institutions as emergency arbitrators.

Fourth, we should learn from the review system of Hong Kong courts for arbitration cases, improve the re arbitration system in the revocation review, send cases without major procedural defects back to arbitration institutions for re arbitration, and do not revoke issues that can be remedied by re arbitration, and try to respect the parties' declaration of will to choose arbitration.

The fifth is to grant the parties the right to apply to the higher court for reconsideration regarding the revocation of the award, and to provide them with as many opportunities to appeal as possible.

The sixth is to introduce a third-party funding system to enable parties who are unable to apply for arbitration to receive social funding. At present, there is a precedent for the third-party funding system in Shenzhen, but only a few law firms conduct it in the form of funding and risk agency, and it has not yet formed a scale. It is recommended that Shenzhen formulate relevant rules to regulate and encourage it.

The revision of many clauses in the "Arbitration Law of the People's Republic of China (Revised) (Draft for Soliciting Opinions)" published in 2021 has already addressed the above-mentioned issues, providing space for Shenzhen to take the lead in trying it out.

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Shenzhen Rule of Law Review "is a continuous legal publication sponsored by the Office of the Comprehensive Rule of Law Committee of the Communist Party of China Shenzhen Municipal Committee and the Shenzhen Judicial Bureau. It is positioned as a high-end leadership decision-making reading material, focusing on the construction of the rule of law in Shenzhen, publishing high-level and practical policy research, assisting city leaders and leading cadres of the city's party and government organs in making decisions on the rule of law construction, and facilitating the exchange of opinions on the demonstration construction of a rule of law city, Promote the demonstration construction activities of Shenzhen's rule of law city.