HKIAC and ICC Take Steps to Tackle Costs and Delay in International Arbitration

Recent Developments

The Hong Kong International Arbitration Centre (“HKIAC”) and the ICC International Court of Arbitration (“ICC”), two of the world’s leading arbitral centres, have recently taken steps to address the problem of costs and delay in international arbitration. As outlined in the 2015 International Arbitration Survey on Improvements and Innovations in International Arbitration by Queen Mary University of London (“2015 Survey”), costs and delay were “ranked by respondents as amongst the worst characteristics of international arbitration.” This alert will discuss the highlights of the HKIAC and ICC developments.

Common Problems

Disputes arising from complex multi-party and multi-contract transactions (e.g. M&A, banking documentation, supply chain contracts, or large construction projects) have become increasingly common. Such disputes often result in parallel proceedings bearing the risk of contradictory outcomes and cost explosion. To mitigate these risks, many major arbitral institutions have in recent years introduced mechanisms that allow (i) additional parties to be joined to an existing arbitration, (ii) consolidation of two or more arbitrations, and (iii) commencement of a single arbitration under multiple contracts.

HKIAC Practice Note on Consolidation of Arbitrations

Where parallel arbitrations have been commenced, Article 28 allows HKIAC to consolidate these arbitrations (1) where the parties agree, or (2) the claims in the arbitrations are made under the same arbitration agreement, or (3) if the arbitrations involve a common question of fact or law, the claims arise out of the same transaction and the arbitration agreements in all arbitrations are compatible. Consolidation is possible even where parties to the multiple arbitrations are different, which enables disputes based on similar facts within contractual chains (e.g. guarantor-debtor-creditor) to be arbitrated together.

The HKIAC has published a Practice Note on Consolidation of Arbitrations (“PN”) which came into effect on 1 January 2016. The PN supplements the consolidation regime under Article 28, by setting out what information a request for consolidation must contain. Requests will have to be accompanied by copies of all relevant arbitration agreements and must include, among other things, a description of the nature of the claims in each arbitration, a statement of facts and legal arguments supporting the request, and comments on the appointment of the arbitral tribunal if the Request is granted.

Comment: The PN reflects the significant expertise HKIAC has developed in managing complex disputes and should further enhance HKIAC’s consolidation regime.

HKIAC: Arbitration Evaluation System

The 2015 Survey indicated that users would like to see more transparency regarding arbitrator availability and performance. In response, HKIAC has launched an Arbitration Evaluation System allowing users to evaluate the conduct of their arbitral proceedings (HKIAC administered arbitrations, including emergency arbitrations, and ad hoc arbitrations conducted at HKIAC) and performance of their arbitrators. Users can rate arbitrators on a scale of 1 to 5 based on various criteria, such as general preparation, case management, knowledge of the law and rules. Users can also rate their satisfaction with HKIAC’s services and facilities. According to HKIAC, feedback is treated with the strictest confidence, but HKIAC retains the right to publish statistics compiled on the basis of information collected.

Comment: The Arbitrator Evaluation System is a pioneering move that allows users to give direct and honest feedback, and enable HKIAC to enhance its ability to appoint available and competent arbitrators, and to maintain its high quality services.

ICC: Reduction of Arbitrators’ Fees for Unjustified Delays in Submitting Draft Awards

Respondents to the 2015 Survey further indicated that arbitrators should be required to commit to a schedule for delivery of final awards. The ICC has responded to this by introducing a policy on costs consequences resulting from unjustified delays by arbitrators in submitting draft awards to the ICC for scrutiny. The ICC clarified that 3 member tribunals are expected to submit draft awards to the ICC within 3 months from the last evidentiary hearing or the last filing of written submissions, whichever is later; a sole arbitrator will have only 2 months. Unless the ICC concludes delay is justified, the ICC may reduce arbitrators’ fees as follows:

• 5 to 10% for a delay of 4 to 5 months;
• 10 to 20% for a delay of 7 to 8 months; and
• More than 20% for a delay of more than 9 months.

Comment: The new policy, which applies to all cases registered after 1 January 2016, should “send a clear signal to tribunals that unjustified delays will not be tolerated”. We therefore expect that the ICC will implement its new policy rigorously.

ICC: Publication of Arbitrators’ Names and Nationalities

In a move towards more transparency, the ICC will publish on its website the names and nationalities of all arbitrators sitting in ICC cases that are registered after 1 January 2016. The listing will also identify the presiding arbitrator and whether the arbitrators are party appointed. Parties can, by mutual agreement, either opt-out of this limited publication or request the ICC to publish additional information about a particular case. The information on arbitrators will remain on the ICC’s website after conclusion of the arbitration, thus creating a useful database of arbitrator appointments.

Comment: Publication of arbitrator names will allow users to make an assessment of how busy and/or experienced certain arbitrators are which can prove helpful when selecting potential candidates. Arbitrators who have sat with a potential candidate can be asked to provide confidential and informal feedback, thus making the appointment process more informative. Further, it will not only show the “who’s who” of ICC arbitrations, but also the degree of diversity of appointed arbitrators.