6 January, 2016
The Hong Kong International Arbitration Centre (HKIAC) is pleased to introduce the Practice Note on Consolidation of Arbitrations (Practice Note), which will come into effect on 1 January 2016.
The Practice Note applies to arbitrations in which a Request for Consolidation (Request) is submitted under Article 28 of the 2013 HKIAC Administered Arbitration Rules (Rules) on or after 1 January 2016. It supplements the consolidation provisions of the Rules by setting out the particulars to be included in the Request and any response thereto.
HKIAC’s consolidation provision (Article 28) empowers HKIAC to combine arbitrations if they involve a common question of law or fact, claims arising out of the same transaction or series of transactions, and compatible arbitration agreements. HKIAC can order consolidation even if the parties to each arbitration are different, making consolidation possible for related disputes arising under a web or chain of contracts. The consolidation provision is among the three mechanisms which HKIAC has designed for multi-party and/or multi-contract disputes. The other two mechanisms are a provision to allow an additional party to be joined to an existing arbitration (Article 27) and a provision to permit a claimant to commence a single arbitration under multiple contracts (Article 29).
Nils Eliasson, an international arbitration partner at Shearman & Sterling, says these provisions were introduced to meet “a growing demand from corporate users of HKIAC arbitration in complex multi-party and/or multi-contract transactions, in particular different types of equity investments and financing arrangements”. He adds, “these mechanisms have made HKIAC an institution of choice for multi-party and/or multi-contract cases. The unique provisions on consolidation and joinder have largely replaced the need for drafting consolidation and joinder clauses in these types of cases”. According to Eliasson, his clients’ feedback on these provisions has been “very positive”.
Since the introduction of the Rules, HKIAC has dealt with numerous requests for consolidation or joinder. For example, in one case HKIAC consolidated two arbitrations concerning claims brought under a loan agreement, a guarantee and two memoranda of understanding, all of which provided for HKIAC arbitration, related to a single loan transaction, and gave rise to the same factual and legal issues. In another case, the arbitral tribunal decided to join three additional parties to a dispute involving a partnership that was dissolved in China, based on prima facie evidence that the additional parties, who were partners of the partnership, were also bound by the arbitration agreement.
A number of parties have also benefited from the Rules by submitting a single notice of arbitration for multi-contract disputes. Parties to HKIAC arbitration have been able to commence single proceedings covering more than 50 contracts, avoiding the need to commence a separate arbitration under each contract and to file repeated submissions and incur unnecessary costs in paralleled proceedings.
Having introduced the multi-party and multi-contract provisions since November 2013, HKIAC has developed significant expertise in managing complex disputes involving several parties and/or contracts. These provisions have brought efficiency to parties engaged in multi-party or multi-contract disputes, such as those arising from M&A transactions, banking documentation, supply chain contracts, insurance and reinsurance agreements, large construction projects and repeat orders in a sale of goods transaction. Parties who have utilised such tools have found them effective in reducing costs and avoiding the risk of conflicting rulings.
Cameron Ford, Corporate Counsel at Rio Tinto in Singapore, describes HKIAC’s consolidation provision as “a significant step in simplifying arbitral procedure and reducing costs”. He says “large corporations such as Rio Tinto frequently have multi-contract transactions where disputes under one contract will be relevant to, and sometimes determinative of, disputes under another. It is not always possible to obtain agreement of all counterparties when negotiating the contract to have joint dispute resolution across contracts, so the ability of the tribunal to order consolidation could prove particularly useful”.
Echoing Ford’s comment, Briana Young, Professional Support Lawyer at Herbert Smith Freehills, says “the HKIAC Rules provide the most comprehensive solutions of any institutional rules to the issues that arise in complex arbitrations”. In her view, “clients can – and increasingly do – opt for HKIAC Administered Arbitration without, in most cases, the need for additional lengthy drafting, but with the comfort of knowing that the Rules cater for the most common eventualities”. As a result, “the Rules have been extremely well received by our clients and in the wider arbitration community”, she says.
