HKIAC New Rules and Jia Yueting's Arbitration

By Weiwei Gu / Angela Sui / Suri Hu


Introduction


Xu Jiayin, a real estate tycoon, and Jia Yueting, the founder of LeTV, attracted the public’s attention when they teamed up to compete in the field of new energy vehicles in 2018. Not long ago, Jia Yueting applied for arbitration to the Hong Kong International Arbitration Center (“HKIAC”) in the name of Smart King, and with the request of terminating the agreements with Heng Da, thus depriving all of Heng Da’s rights in Smart King. The arbitration case has once again focused the public’s attention on Jia Yueting and Hengda. 


There is no doubt that the results of this arbitration will directly affect the overall layout of Jia Yueting in Faraday Future (“FF”). Therefore, the dynamic of HKIAC is attracting attention. It is reported that Smart King has applied for “Emergency Relief” pursuant to the “Emergency Arbitration Procedure”. Some media outlets consider that the “Emergency Relief” may affect the result of the arbitration. 


The author believes that it is not wise to judge the award of the arbitration, before seeing all the factual materials submitted to the arbitral tribunal. This case coincides with the modification of 2013 HKIAC Administered Arbitration Rules (“2013 Rules”). Therefore, this article will analyze the arbitration rules involved in the case from a procedural perspective and briefly introduce the modification of 2013 Rules.


“Emergency Relief” of the Case


The parties of the arbitration have not disclosed more information to the media until recently and it has now been confirmed that Smart King has applied for “Emergency Relief”.


1. What is “Emergency Relief”


“Emergency Relief” is also called “Urgent Interim” or “Conservatory Relief” which is stipulated in 2013 Rules, Art.23.3[1]. The Emergency Relief is quite similar to the preservation, and Jia Yueting’s proposal in this case is similar to “behavior preservation” which is aimed at preventing Heng Da from interfering with the operation and financing of Smart King.


2. How to Apply for “Emergency Relief”


According to 2013 Rules, Art.23.3, Emergency Relief shall be applied prior to the constitution of the arbitration tribunal pursuant to the Emergency Arbitrator Procedure.


Firstly, a party shall apply prior to the constitution of the arbitral tribunal. The reason is that the constitution procedure of international arbitration is more complicated than the domestic arbitration. To put it simply, the arbitrators in the international arbitration are appointed by the parties, and then the arbitrators appointed by the parties jointly select the presiding arbitrator. If the parties failed to select the presiding arbitrator, the arbitral institution shall appoint one. The parties may negotiate the background and language ability of the arbitrators, and can challenge the conflict of interest disclosure documents submitted by the presiding arbitrator during the constitution procedure. Therefore, the international arbitration procedure is more complicated and will take more time than the domestic arbitration procedure. Emergency Relief is designed to protect the legitimate rights and interests of parties during the procedure as mentioned above. 


Secondly, the parties shall apply to HKIAC. If HKIAC determines that it will accept the Application, HKIAC shall seek to appoint an emergency arbitrator within two days after receipt of both the Application and the Application Deposit. The Application Deposit consists of HKIAC’s emergency administrative fees and the emergency arbitrator’s fees (charged by the hour). Once the emergency arbitrator has been appointed, the case shall be transmitted to the emergency arbitrator, and any decision, order or award of the emergency arbitrator on the Application (the “Emergency Decision”) shall be made within fifteen days from the date on which HKIAC transmitted the case files to the emergency arbitrator. Any Emergency Decision shall have the same effect as an Emergency Relief as mentioned above. 


The Emergency Arbitrator Procedure has the advantages of bring effective and convenient, and has been used in many large commercial arbitration cases. The official date of HKIAC shows that the Emergency Arbitrator Procedure only takes 14 days on average. For example, the author found a company merger and acquisition case with a dispute amount of US$1.9 billion in the 2014 annual report, and the Emergency Arbitrator Procedure only took 5 hours for the appointment of emergency arbitrator. The high efficiency is apparent.


3. The Effect of the “Emergency Decision” 


The 2013 Rules stipulates that the parties are required to comply with any Emergency Decision without delay[2]. The new Arbitration Ordinance[3] stipulates that any emergency relief granted by an emergency arbitrator under the relevant arbitration rules is enforceable in the same manner as an order or direction of the Court that has the same effect, but only with the leave of the Court. However, it does not mean that the Emergency Decision granted by the emergency arbitrator has absolute authority.


The Emergency Decision may be modified, suspended or terminated by the emergency arbitrator or the arbitral tribunal. Besides, the Emergency Decision ceases to be binding when the arbitral tribunal render a final award, the arbitration is be withdrew or be terminated before the rendering of a final award, or the arbitral tribunal is not constituted within 90 days from the date of the Emergency Decision.


Therefore, the author believes that according to the 2013 Rules, neither the Emergency Decision nor the Emergency Relief may affect the award of the arbitration. It’s impossible to prejudge the final direction of the case based on the aforementioned procedure or decision. 


4. Amendment of the “Emergency Arbitrator Procedure”


2013 HKIAC Administered Arbitration Rules (“2018 Rules”), Art.1.4 stipulated that these Rules shall come into force on 1 November 2018 and, unless the parties have agreed otherwise, shall apply to all arbitrations falling within Article 1.1 in which the Notice of Arbitration is submitted on or after that date. It is true that Jia Yueting applied to arbitration on October 3, 2018, which is not applicable in terms of 2018 Rules. However, in the author’s view, the amendment of the “Emergency Arbitrator Procedure” in the 2018 Rules is worthy of further investigation.


Firstly, in regards to the time of applying, the 2013 Rules state that a party shall apply concurrently with, or following, the filing of a notice of arbitration, but prior to the constitution of the arbitral tribunal. However, the 2018 Rules are quite different, a party may apply before filing a notice of arbitration. At the same time, it is also requested that the Emergency Arbitrator Procedure shall be terminated if a Notice of Arbitration has not been submitted by the applicant to HKIAC within 7 days of HKIAC’s receipt of the Application, unless the emergency arbitrator extends this time limit. The provision may prevent the parties from abusing the Emergency Arbitrator Procedure.


Secondly, in regards to the payment option, the 2013 Rules stipulated that a party should pay by cheque or transfer to the account of HKIAC. The 2018 Rules have deleted this provision as online payment has become more and more popular, thus, this amendment is in keeping with the times. 


Thirdly, in regards to the information disclosure, the 2018 Rules stipulate that a party shall disclose the existence of any funding agreement and the identity of any third party funder. The disclosure of third party funders is undoubtedly a highlight of the 2018 Rules.


Fourthly, in regards to the deadline for the appointment of an emergency arbitrator. The 2018 Rules revises the time for appointing an emergency arbitrator from within 2 days to within 24 hours. This applies in normal circumstances as well as other scenarios where the arbitrator has died, been removed, resigned, or has been successfully challenged. This modification of the 2018 Rules will reduce the time for the “Emergency Arbitrator Procedure”, which undoubtedly will encourage the parties to take this action to protect their legitimate rights.   


Fifthly, in regards to the emergency arbitrator’s fees, the 2018 Rules limit the emergency arbitrator’s fees. The fees shall not exceed the amount set by HKIAC, as stated on HKIAC’s website on the date the Application is submitted unless the parties agree or HKIAC determines otherwise in exceptional circumstances.


Sixthly, in regards to the effect of the “Emergency Relief”, the 2013 Rules do not clarify the relationship between the “Emergency Relief” and the “Emergency Decision” made by an emergency arbitrator. However, the 2018 Rules stipulate that articles 23.2 to 23.8 (the Emergency Relief) shall apply, mutatis mutandis, to any Emergency Relief granted by the emergency arbitrator. Also, the 2018 Rules have removed one of the situations when an Emergency Decision ceases to be binding, that is: “upon the withdrawal of all claims before the rendering of a final award”. 

 

Seventhly, in regards to the burden of the Emergency Relief fees, the 2018 Rules stipulate that the costs of the Emergency Relief proceedings shall be apportioned, whilst in the 2013 Rules, the emergency arbitrator shall decide which of the parties shall bear the cost or in what proportion they shall be borne by the parties. The 2018 Rules also formulate that where the Emergency Arbitrator Procedure is terminated without an Emergency Decision, the emergency arbitrator may fix and apportion any costs of the Emergency Relief proceedings, subject to the power of the arbitral tribunal to fix and apportion finally such costs in accordance with Article 34 of the Rules.


Eighthly, in regard to security, the 2018 Rules remove the provision of “The Emergency Arbitrator shall be entitled to order the provision of appropriate security by the party seeking Emergency Relief”, at the same time, the 2018 Rules retains Article 23.6 which stipulates that the arbitral tribunal may require the party requesting an interim measure to provide appropriate security in connection with the measure. That is to say, the security will only be requested by the arbitral tribunal, and the emergency arbitrator will not have this power.  


Other Amendment in the 2018 Rules


Besides the “Emergency Arbitrator Procedure”, there are many amendments in the 2018 Rules. The author will list the main changes as follows: 


NO.

Category

Related Terms

Abstract

1           

Delivery

Article 3.1(e)

Article 3.3

Article 3.4

Uploading any written communication to any secured online repository  that the parties have agreed to use shall be deemed to be received by a  party.

2           

Suspend  the Arbitration or Emergency Arbitrator Procedure,

Article 13.8

Where the parties agree to pursue other means of settling their dispute  after the arbitration commences, HKIAC, the arbitral tribunal or emergency  arbitrator may, at the request of any party, suspend the arbitration or  Emergency Arbitrator Procedure, as applicable, on such terms as it considers  appropriate. The arbitration or Emergency Arbitrator Procedure shall resume  at the request of any party the arbitral tribunal or emergency arbitrator.

3           

Languages

Article 15.1

The parties can previously  agree on arbitration language, if not, any party shall communicate in English  or Chinese prior to any determination.

4           

Add  the Situation of Additional Parties

Article 27.1(b).

In the situation when all parties, including the additional party,  expressly agree.

5           

Single  Arbitration Under

Multiple  Contracts

Article 29.

Remove the precondition that all parties to the arbitration are bound by  each arbitration agreement giving rise to the arbitration.

6           

Concurrent Proceedings

Article 30.

The arbitral tribunal may conduct two or more arbitrations under the  Rules at the same time, or one immediately after another, or suspend any of those  arbitrations until after the determination of any other of them.

7           

Third Party Funding

Article 34.4;

Article 44;

Article 45.3(e).

Add provisions about the disclosure of any third party funding.

8           

Add  the Early Determination Procedure

Article 43

The arbitral tribunal shall have the power to decide one or more points  of law or fact which are manifestly without merit, or are manifestly outside  the arbitral tribunal’s jurisdiction, or have no effect to in favor of the  party who submits.


Conclusion 


The 2018 Rules are quite different from the 2013 Rules. The procedures are more convenient, especially in regards to the appointment of the emergency arbitrator. The new provision reduces the time of the appointment of an emergency arbitrator, and saves the cost of time for both parties.


The amendments of the 2013 Rules will make the procedure of HKIAC more standardized and efficient. The author believes that there will be more and more people choosing HKIAC as a dispute resolution institution going forward. 




[1] 2013 HKIAC Administered Arbitration Rules, Art.23.3 An interim measure, whether in the form of an order or award or in another form, is any temporary measure ordered by the arbitral tribunal at any time prior to the issuance of the award by which the dispute is finally decided, that a party, for example and without limitation: (a) maintain or restore the status quo pending determination of the dispute; (b) take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself; (c) provide a means of preserving assets out of which a subsequent award may be satisfied; or (d) preserve evidence that may be relevant and material to the resolution of the dispute.

[2] 2013 HKIAC Administered Arbitration Rules, Schedule.4.Art.16, Any Emergency Decision shall have the same effect as an interim measure granted pursuant to Article 23 of the Rules 74 and shall be binding on the parties when rendered. By agreeing to arbitration under these Rules, the parties undertake to comply with any Emergency Decision without delay.

[3] Arbitration Ordinance, Art. 22B(1), Any emergency relief granted, whether in or outside Hong Kong, by an emergency arbitrator under the relevant arbitration rules is enforceable in the same manner as an order or direction of the Court that has the same effect, but only with the leave of the Court. 





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