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29 May, 2017
The automatic opt-in applicable to domestic arbitration provisions under the Arbitration Ordinance (Cap. 609) is set to expire on 1 June 2017.
A period of transition
The Arbitration Ordinance in its current guise came into effect on 1 June 2011. Amongst other things, it sought to eliminate the distinction between domestic and international arbitration regimes to create a unitary regime for arbitration in Hong Kong. However, as various industries, including in particular the construction industry, expressed a preference towards domestic arbitration, Part 11 and Schedule 2 to the Ordinance were inserted to allow parties to continue to utilise the domestic regime.
In particular, Section 100 of the Ordinance states that parties will automatically opt into the domestic regime if the arbitration agreement specifically referred to "domestic arbitration" and was entered into:
- before the commencement of the Ordinance; or
- any time within a period of 6 years after the commencement of the Ordinance.
Thus, Section 100 confirmed that domestic arbitration agreements entered into on or before 1 June 2011 would continue to have effect. It also created a six year transitional period which permitted parties from 1 June 2011 until 1 June 2017 to opt into the domestic regime by simply referring to "domestic arbitration" in their arbitration agreements.
Opting in after 1 June 2017
With the automatic opt in provisions set to expire on 1 June 2017, parties wishing to utilise the domestic regime will be required to expressly opt in pursuant to Section 99 of the Ordinance.
According to Section 99, parties must make express reference in their arbitration agreement to the provisions under Schedule 2 to the Ordinance. Schedule 2 is split into seven sections containing the key features of the domestic regime. Parties are free to adopt Schedule 2 in whole or in part.
An advantage of the requirement to expressly opt in is that parties will be able to pick and choose features of domestic arbitration that they wish to opt into. For example, parties may wish to opt into Section 1 of Schedule 2 to the Ordinance, which provides a presumption of a sole arbitrator unless otherwise agreed, and exclude the remaining sections of Schedule 2.
A number of standard forms, notably the 2006 edition of the HKIA standard form, refer to "domestic arbitration" in its dispute resolution clause. From 1 June 2017 onwards, such references would not be sufficient to demonstrate that the arbitration is to be conducted under the domestic regime. Parties should therefore seek to review arbitration agreements in contracts which are entered into after 1 June 2017 to ensure that express references to Schedule 2 are included.
Be prepared
The expiry of the transitional period may be easily overlooked, care should be taken to ensure that any forms of contract in regular use are reviewed and appropriate amendments are made in anticipation of the transition.
For further information, please contact:
Timothy Hill, Partner, Hogan Lovells
timothy.hill@hoganlovells.com
