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Author: Karen Dicks
Service Area: Litigation & Dispute Resolution
Date: August 2013
Country: Hong Kong

 

Litigation & Dispute Resolution Newsletter 
Issue 3 of 2013: August

SFC commences proceedings against Tiger Asia in Market Misconduct Tribunal

Court of Final Appeal confirms that providers of internet discussion forums are subordinate rather than main or first publishers of defamatory postings by its users

PME Group convicted of making false or misleading announcements

The Trust Law (Amendment) Ordinance 2013

The HKIAC's new Administered Arbitration Rules

The IBA Guidelines on party representation in international arbitration

Hong Kong court adjourns application to set aside leave to enforce CIETAC arbitration award, pending application to set aside in Shenzhen court

Arbitration (Amendment) Bill passed

Myanmar the 149th party that accedes to New York Convention

SFC commences proceedings against Tiger Asia in Market Misconduct Tribunal
by Joseph Kwan (joseph.kwan@deacons.com.hk)

In our April 2012 and May 2013 newsletters, we reported on the case of Securities and Futures Commission v Tiger Asia Management LLC & Others.

To recap, on 30 April 2013, the Court of Final Appeal, made a landmark ruling, upholding the SFC's right to seek compensation, under section 213 of the Securities and Futures Ordinance ("SFO"), against Tiger Asia Management LLC ("Tiger Asia") and three of its officers (collectively referred to as "the Tiger Asia Parties"), without first having to prove them guilty of insider dealing or other malpractices. The SFC's proceedings against the Tiger Asia Parties, under section 213 of the SFO, are continuing.

The SFC has now commenced proceedings in the Market Misconduct Tribunal ("MMT") against the Tiger Asia Parties in relation to the dealings in question i.e. dealings in the securities of Bank of China ("BOC") and China Construction Bank Corporation ("CCB") during 2008 and 2009. The SFC alleges that the Tiger Asia Parties have engaged in market misconduct, contrary to sections 270 (insider dealing) and 274(False Trading) of Part XIII of the Securities and Futures Ordinance (Cap 571). The MMT has published on its website a statement setting out the grounds on which it has initiated the proceedings.

In respect of CCB shares, the SFC alleges that a placing agent in Hong Kong invited Tiger Asia to participate in a proposed placement of CCB shares in Hong Kong by the Bank of America Corporation, before the market opened, telling Tiger Asia about the size and discount range of the proposed placement. The SFC says that this was confidential and price sensitive and that the Tiger Asia Parties knew this. The SFC says that Tiger Asia then short sold a total of 93 million CCB shares before the news of the CCB placement was made public, with Tiger Asia covering its short sales out of the placement shares it had bought at a discount to the prevailing market price, making a substantial notional profit of around HK$32 million. The SFC also alleges manipulation of the CCB share price by Tiger Asia during the closing auction session.

In respect of the BOC shares, the SFC alleges that Tiger Asia was given advance notice and invited to participate in two placements of BOC shares by USB AG and Royal Bank of Scotland and that Tiger Asia was provided with details of both placements after being told and agreeing that the information was confidential and price sensitive. The SFC says that Tiger Asia also agreed not to deal in BOC shares after receiving the information. The SFC says that Tiger Asia short sold 104 million BOC shares before the placement by UBS AG, making a notional profit of around HK$9 million and short sold 256 million BOC shares before the placement by Royal Bank of Scotland, making a notional loss of around HK$10million.

In the event of the MMT finding that there has been market misconduct, it can make a range of orders, such as prohibiting a person from acquiring, disposing or otherwise dealing in securities, futures contracts or leveraged foreign exchange contracts in Hong Kong, without the Court's leave, for up to 5 years.

This is the first time that that the SFC has commenced proceedings in the MMT directly. The SFC was given direct access to the MMT by virtue of section 252A of the SFO, which was introduced in 2012. Prior to that, only the Financial Secretary could initiate proceedings in the MMT.

No criminal proceedings are being pursued by the SFC against the Tiger Asia Parties because Tiger Asia and two of the officers in question have already been prosecuted in relation to the same conduct in the United States in criminal proceedings. Tiger Asia had pleaded guilty to criminal offences under US law and the two officers in question had been charged with civil offences by the United States Securities and Exchange Commission. The SFC has received advice that both these proceedings would likely be classified as criminal proceedings under Hong Kong law, meaning that no criminal proceedings could be brought in Hong Kong in view of the legal principle of double jeopardy i.e. a person cannot be prosecuted twice for the same conduct.

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Court of Final Appeal confirms that providers of internet discussion forums are subordinate rather than main or first publishers of defamatory postings by its users
by Robert Clark (robert.clark@deacons.com.hk)

In our February 2012 Newsletter, we reported on the case of Oriental Press Group Limited & Anor v Fevaworks Solutions Limited, in which the Court of Appeal upheld the Court of First Instance's decision that providers of an internet discussion forum were not the first (or main) publishers of defamatory postings by its users, but were instead, subordinate publishers, to whom the common law defence of innocent dissemination was available. On 4 July 2013, the Court of Final Appeal upheld that decision, holding as follows:-

  1. Providers of internet discussion platforms, like the Respondents, are in law, to be regarded as publishers of defamatory statements made by its users.

  2. Contrary to the Court of Appeal's findings, providers of internet discussion forums are not in the same position as owners or occupiers of premises on which unauthorised third parties had affixed defamatory statements to notice boards or scrawled graffiti and who may be treated as the publisher of such defamatory statements, once they become aware of their presence and do nothing to remove it. Occupiers in the notice board and graffiti cases have not in any sense assisted or participated in the originator's publication of the libel and a person who defaces an occupier's wall with graffiti does not do so with the occupier's approval or encouragement. The principles laid down in the line of cases relating to these notice board and graffiti cases, which say that an occupier only becomes a publisher of the libel if he becomes aware of it and allows it to remain, do not therefore apply to internet discussion forum providers, who are in a wholly different position from occupiers of premises who are not in the business of publishing or facilitating publication at all, but who have had the defamatory act of a trespasser imposed on them.

  3. The Respondents plainly played an active role in encouraging and facilitating the multitude of internet postings by members of their forum. They had designed the forum, laid down conditions for becoming a member and making postings and provided users access to discussion threads developed on the forum. They also employed administrators to monitor discussions and delete postings which broke the rules. The Respondents were therefore plainly participants in the publication of the postings by forum users and in that sense were publishers from the outset. The question was whether they were first or main publishers or merely subordinate publishers. If the latter, the defence of innocent dissemination would be available to them.

  4. The Respondents were not the originators of the defamatory statements. Those statements were the result of their having facilitated the speech of others in a forum hosting a large volume of many-to-many communications. Plainly, if a defendant knew the content of a defamatory article and authorized or participated in its publication, the defendant would be liable as a main publisher, but in the present case, the Respondents were not aware of the offending words until some time after they had been published on the forum. The fact that the Respondents laid down rules prohibiting postings with objectionable content, including defamation, and employed administrators to delete such and terminate accounts of repeat offenders, was sufficient to show that the Respondents were not authorizing the publication of whatever forum users might choose to post.

  5. Internet material is "published", for the purpose of libel law, when and where it is accessed or downloaded in comprehensible form. The question was whether the Respondents were the first or main publishers or were merely subordinate publishers. The following were the criteria for identifying a person as a first or main publisher:-
    1. he knows or can easily acquire knowledge of the content of the article being published ("the Knowledge Criterion"); and

    2. he has a realistic ability to control publication of such content i.e. editorial control, involving the ability to prevent publication ("the Control Criterion").

  6. In respect of the Knowledge Criterion, a discussion forum provider should not be treated as having knowledge of the content of every message posted on the forum and be deemed to be the first or main publisher of it.

  7. When the Knowledge and Control Criterion were applied to the Respondents, it was clear that they were subordinate publishers and not first or main publishers of the defamatory postings. They were certainly publishers of the postings since they provided a platform for their dissemination, but they were not aware of their content and realistically, in a many-to-many context, did not have the ability or opportunity to prevent their dissemination, having learned of them only after they had already been published by the originators. The Respondents could therefore invoke the innocent dissemination defence as subordinate publishers.

  8. The innocent dissemination defence requires the defendant to prove that he did not know and would not, with the exercise of reasonable care in the relevant circumstances, have known that the article contained defamatory content. A subordinate publisher should be afforded continued protection of the defence if he proves that upon becoming aware of such content, he promptly took all reasonable steps to remove the offending content from circulation as soon as reasonably practicable.

  9. The Respondents were originally unaware of the defamatory content posted by the originators and, given the very large volume of traffic on the forum and speed with which it was generated, they had no realistic means of acquiring knowledge or of exercising editorial control over the content before it was posted. There was nothing to alert them of the likelihood that the originators would be posting or had posted the offending statements, until they were informed of such by the Appellants. The Court of First Instance and Court of Appeal had been entitled to conclude that the Respondents had made good the defence in respect of the period before the offending material came to their notice.

  10. The Respondents had taken down the offending material three and a half hours after they had been notified of it. The promptness with which the Respondents took down the offending postings justified the finding that they acted properly. The Respondents had made good the innocent dissemination defence in respect of the defamatory postings both before and after they came to know of their existence and the Appellants appeal therefore had to be dismissed.

The Court of Final Appeal recognized in its judgment the balancing act between freedom of expression on the one hand and the right to have one's reputation protected on the other hand. It referred to the value of free and open many-to-many communications on discussion platforms and the fact that the ability of internet intermediaries to host them in good faith must not be unduly impaired by the imposition of unrealistic or overly strict standards, which would make commercial operation impossible or introduce a chilling effect, discouraging free and open exchanges. At the same time, the Court of Final Appeal recognized that a platform provider must genuinely take all reasonable steps to protect the rights and reputations of persons from being unlawfully damaged by postings published on the forum.

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PME Group convicted of making false or misleading announcements
by Joseph Kwan (joseph.kwan@deacons.com.hk)

On 5 August 2013, the Securities and Futures Commission ("the SFC") successfully prosecuted PME Group Limited ("PME"), a Hong Kong-listed company, in relation to allegations that PME made false or misleading stock exchange announcements in 2008, contravening Section 384 of the Securities and Futures Ordinance ("the SFO") (Cap 571).

In 2007, the Court, for the first time, convicted To Shu Fai ("To") and Daido Group Limited ("Daido") for providing false and misleading information to the Stock Exchange Hong Kong ("SEHK") under the dual-filing regime introduced by the SFO in 2003. The Court of Final Appeal later dismissed To's appeal and confirmed that the SFC is empowered to prosecute listed companies and their directors who make false or misleading statements in announcements made to the SEHK. Since then, the SFC has successfully prosecuted a number of listed companies and directors (even company secretaries) for making false and misleading information in announcements.

Under section 384(1) of the SFO, subject to subsection (2), a person commits an offence if: (a) he, in purported compliance with a requirement to provide information imposed by or under any of the relevant provisions, provides to a specified recipient any information which is false or misleading in a material particular; and (b) he knows that, or is reckless as to whether, the information is false or misleading in a material particular. "Specified recipient" is defined in the SFO to include the SFC and SEHK. Under the Securities and Futures (Stock Market Listing) Rules, a company is regarded as having provided information to the SFC if it gives the information to the SEHK and it has authorised SEHK to send the information to the SFC.

A person who commits an offence under section 384(1) is liable on conviction on indictment to a fine of HK$1 million and to imprisonment for two years and, on summary conviction, to a fine of HK$100,000 and to imprisonment for one year.

The events in question happened in 2008 when PME made three announcements respectively in response to the inquiries made by the SEHK in light of the substantial movement in the share price of PME. In each announcement, PME said that it knew of no negotiations or agreements which were disclosable to the market nor were its directors aware of any price sensitive matter. The SFC, however, alleged that these announcements were false and misleading because PME was simultaneously taking steps to acquire control of a private entity holding approximately 50% of ZZNode Technologies Company Ltd (now renamed China Oriental Culture Group Ltd), another Hong Kong-listed company, with a market value of about $145 million. The SFC alleged that was a material acquisition for PME and ought to have been disclosed in the announcements.

Both PME and its director, Ivy Chan Shui Sheung ("Chan"), were prosecuted by the SFC for breaching section 384 of the SFO. PME pleaded guilty and was convicted. PME was ordered to pay a fine of HK$60,000 and the SFC's costs. Chan pleaded not guilty to the charges and therefore her case will go to trial.

It should be noted that, in addition to criminal prosecution, a new statutory regime on disclosure came into effect on 1 January 2013 under Part XIVA of the SFO. The regime creates a statutory obligation on listed corporations, as well as individual officers, to make price sensitive information ("PSI") disclosure as soon as reasonably practicable after any inside information has come to their knowledge, unless the information falls within the Safe Harbours. The SFC can institute proceedings before the Market Misconduct Tribunal which can impose a range of civil sanctions against the listed corporations and directors. Facts similar to the PME case might also be caught by the new Part XIVA of the SFO. Accordingly, even without any inquiry made by the SEHK, listed corporations and individual officers should make timely and accurate PSI disclosure where appropriate so as to avoid getting into trouble.

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The Trust Law (Amendment) Ordinance 2013
by Karen Dicks (karen.dicks@deacons.com.hk)

The Trust Law (Amendment) Ordinance 2013 ("the Ordinance"), which aims to modernize Hong Kong's trust laws, will come into effect on 1 December 2013.

The Ordinance states that its purpose is to amend the Trustee Ordinance and Perpetuities and Accumulations Ordinance to:-

  • extend trustees' powers in certain aspects;
  • impose a statutory duty of care on trustees;
  • provide for the validity of certain trusts;
  • abolish the rule against perpetuities; and
  • change the rule against excessive accumulations of income

The major changes include the following:-

  1. Extension of trustees' powers to do certain acts, where the trust deed does not provide for such, including to:-
    1. insure trust property against loss or damage due to any event;
    2. appoint agents to perform the trustee's delegable functions and nominees and custodians of trust assets, subject to the trustees keeping such appointments under review;
    3. receive reasonable remuneration, where acting as trustee in a professional capacity and even where the services are capable of being provided by a lay trustee;
    4. invest in quoted companies with a market capitalisation of not less than HK$5 billion and a track record of having paid cash dividends over the preceding 3 years (previously a market capitalisation of not less than HK$10 billion and 5 years track record was required).

  2. Introduction of a default provision on statutory duty of care on trustees i.e. subject to a contrary intention in the trust instrument, the statutory duty will replace the common law duty for trustees exercising certain prescribed functions. The Ordinance imposes a statutory duty of care on trustees, requiring them to exercise such care and skill as is reasonable in the circumstances, having regard to:-
    1. any special knowledge or experience that the trustee has or holds himself out as having; and
    2. if the trustee is acting in the course of a business or profession, any special knowledge or experience that is reasonably expected of a person acting in the course of that kind of profession.

  3. Imposition of statutory controls on trustee's exemption clauses so that if a clause seeks to exonerate remunerated professional trustees from liability for breach of trust arising from the trustee's own fraud, wilful misconduct or gross negligence, the term will be invalid. This will apply to trusts created on or after commencement of the Ordinance on 1 December 2013, but in respect of existing trusts, will only come into effect on 1 December 2014.

  4. Provision of a court-free process for the appointment and retirement of trustees on beneficiaries' directions, subject to a contrary intention in the trust instrument and certain conditions being met.

  5. Provisions against forced heirship rules, so that no foreign rule relating to inheritance or succession will affect the validity of transfer of moveable assets by a settler during his lifetime into a trust expressed to be governed by Hong Kong law.

  6. Abolition of the rule against perpetuities and excessive accumulations of income, so that settlors can set up trusts which can continue in existence for an unlimited period of time and there will be no limits on the periods of time over which income can be accumulated in respect of non-chartable trusts.

  7. Inclusion in the trust of provisions reserving powers relating to investment and asset management functions will not invalidate the trust.

The above provisions will bring welcome improvements to Hong Kong's trust law and will no doubt enhance Hong Kong's position as an international asset management and trust planning centre and make it a more attractive trust domicile for settlors.

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The HKIAC's new Administered Arbitration Rules
by Philipp Hanusch (philipp.hanusch@deacons.com.hk)

On 10 June 2013, the Hong Kong International Arbitration Centre ("HKIAC") announced the publication of the revised HKIAC Administered Arbitration Rules ("2013 HKIAC Rules").

The 2013 HKIAC Rules will come into force on 1 November 2013. The date has been postponed from the originally envisaged date of 1 June 2013, to allow users and practitioners to familiarise themselves with the new provisions, in particular the provisions relating to multi-party and multi-contract disputes.

The 2013 HKIAC Rules govern arbitrations where an arbitration agreement either provides for the rules to apply or for arbitration "administered by HKIAC" or words to similar effect. Unless the parties have agreed otherwise, the 2013 HKIAC Rules apply to arbitrations in which the Notice of Arbitration is submitted on or after 1 November 2013. However, the provisions on Emergency Relief, Consolidation and Single Arbitration under Multiple Contracts do not apply, if the arbitration agreement was concluded before that date, unless otherwise agreed by the parties.

According to the HKIAC, the 2013 HKIAC Rules continue to reflect the very best of modern practice in international commercial arbitration. The HKIAC says that the 2013 HKIAC Rules maintain the HKIAC's signature ''light touch'' approach, seeking to facilitate effective institutional involvement within a framework that recognizes the importance of party autonomy.

The key changes in the 2013 HKIAC Rules include:-

Fees of arbitral tribunal (Articles 9.2 and 10, Schedules 2 and 3)

The parties will have the option of having an arbitral tribunal's fees calculated in accordance with either the HKIAC's schedule of fees, based on agreed hourly rates in accordance with Schedule 2, subject to a cap of currently HK$6500, or the schedule of fees based on the sum in dispute (Schedule 3), with the former option being the default position, if the parties cannot agree.

Express prohibition of ex parte communications with arbitrators (Article 11.5)

The 2013 HKIAC Rules include an express prohibition against a party or its representatives having any ex parte communication relating to the arbitration with any arbitrator, or with any candidate to be designated as arbitrator by a party, except to advise the candidate of the general nature of the dispute, to discuss the candidate's qualifications, availability, impartiality or independence, or to discuss the suitability of candidates for the designation as a third arbitrator, where the parties or party-designated arbitrators are to designate that arbitrator. Moreover, a party or its representatives must not have any ex parte communication relating to the arbitration with any candidate for presiding arbitrator.

Interim measures of protection (Article 23) and Security for Costs (Article 24)

The provisions on interim measures are expanded to cover the meaning and purpose of an interim measure, and factors to be taken into account when deciding whether to grant such. Further, arbitral tribunals will have express power to order security for costs. The revised provisions are in line with the Arbitration Ordinance (Cap. 609).

Joinder of additional parties (Article 27)

The arbitral tribunal will have power to allow additional parties to be joined to an existing arbitration, provided that the additional party is bound by an arbitration agreement under the 2013 HKIAC Rules.

If a request for joinder of additional parties is submitted before the arbitral tribunal is confirmed, the HKIAC will have power to decide whether the additional party is bound by an arbitration agreement under the 2013 HKIAC Rules and join the party. Once confirmed, any question as to the arbitral tribunal's jurisdiction arising from the HKIAC's decision will be decided by the arbitral tribunal.

If an additional party is joined before the tribunal is confirmed, all parties will be deemed to have waived their right to designate an arbitrator and the HKIAC may revoke any existing appointment. The HKIAC will appoint all arbitrators, and the revocation of any existing appointment is without prejudice to the validity of any act done by the arbitrator before revocation, and to the arbitrator's entitlement to be paid his fees and expenses.

Moreover, the parties are deemed to have waived any objection, on the basis of any decision to join an additional party to the arbitration, to the validity and/or enforcement of any award made by the arbitral tribunal in the arbitration, in so far as such waiver can validly be made.

Consolidation of arbitrations (Article 28)

The HKIAC will be able to consolidate two or more HKIAC arbitrations into the arbitration that commenced first, in which case, the parties to all the arbitrations will be deemed to have waived their right to designate an arbitrator and the HKIAC may revoke any existing appointment and will appoint the tribunal.

The revocation of any arbitrator's appointment will be without prejudice to the validity of any act done by him or by the court in support of the arbitration before revocation, and to the arbitrator's entitlement to be paid his fees and expenses. It is also without prejudice to the date on which any claim or defence was raised for the purposes of applying any limitation bar.

The parties waive any objection to the validity and enforcement of any award made by the arbitral tribunal in the consolidated proceedings, based on the HKIAC's decision to consolidate.

Single arbitration under multiple contracts (Article 29)
Under the 2013 HKIAC Rules, claims arising out of or in relation to multiple contracts can be raised in a single arbitration, provided that all parties are bound by each arbitration agreement giving rise to the arbitration, a common question of law or fact arises under each arbitration agreement giving rise to the arbitration, the rights to relief claimed are in respect of, or arise out of, the same transaction or series of transactions, and the arbitration agreements under which those claims are made are compatible.

Emergency arbitrators (Article 23.1 and Schedule 4)
There will be a procedure for appointing an emergency arbitrator to deal with applications for urgent relief before constitution of an arbitral tribunal.

An emergency arbitrator will normally be appointed within two days following the HKIAC's acceptance of an application for the appointment of such arbitrator. A decision on the application will normally be made within 15 days from the date on which the emergency arbitrator received the file from the HKIAC.

There are also provisions on an emergency arbitrator's powers, the effect of his decision, his ability to act as arbitrator in subsequent proceedings and availability of judicial remedies in addition to any urgent relief sought.

Expedited procedure (Article 41)

Application of the expedited procedure will become elective (as opposed to automatic under the previous rules). Under the 2013 HKIAC Rules, parties may apply for the arbitration to be conducted on an expedited basis if the amount in dispute, representing the aggregate of any claim and counterclaim (or any set-off defence), does not exceed HK$25m (previously US$250,000) or if both parties agree or in situations of exceptional urgency.

If applicable, the expedited procedure will result in a presumption that a sole arbitrator will hear the proceedings and the award will be rendered within 6 months from the transmission of the file to the arbitrator.

Parties responsible for service of Notice of Arbitration, Answer to the Notice of Arbitration and certain applications

Service of the Claimant's Notice of Arbitration and the Respondent's Answer to the Notice of Arbitration is no longer effected by the HKIAC Secretariat.

Instead, the 2013 HKIAC Rules provide that the Notice of Arbitration (Article 4.3(i)) and the Answer to the Notice of Arbitration (Article 5.1(g)) shall include a confirmation that copies of it and any exhibits included with it have been or are being served simultaneously on all other parties by one or more means of service to be identified in such confirmation. Moreover, a Claimant has to notify and lodge documentary verification with the HKIAC of the date of receipt by the Respondent of the Notice of Arbitration and any exhibits included with it (Article 4.8).

Similar provisions of confirmation of service have been adopted regarding a Request for Joinder (Article 27.4(i)), an Answer to such Request for Joinder (Article 27.5(f)), a party's comments on a third party's Request for Joinder (Article 27.7(e)), a Request for Consolidation (Article 28.2) and an application for the appointment of an emergency arbitrator (Schedule 4, Rule 2(i)).

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The IBA Guidelines on party representation in international arbitration
by Philipp Hanusch (philipp.hanusch@deacons.com.hk)

On 25 May 2013, the International Bar Association Council adopted the IBA Guidelines on Party Representation in International Arbitration ("the Guidelines").

The Guidelines define "Party Representative" as "any person, including a Party's employee, who appears in an arbitration on behalf of a party and makes submissions, arguments or representations to the Arbitral Tribunal on behalf of such Party, other than in the capacity as a Witness or Expert, and whether or not legally qualified or admitted to a Domestic Bar" (simply referred to as "counsel" below).

The Guidelines can be considered as international best practice in relation to counsel conduct in arbitration. They are inspired by the principle that counsel should act with integrity and honesty and should not engage in activities designed to produce unnecessary delay or expense, including tactics aimed at obstructing the arbitration proceedings.

The Guidelines are divided into 7 parts, comprised of 27 guidelines, with comments providing explanations about them.

Apart from "Party Representative" the Guidelines provide definitions of various other terms, such as, "Party-Nominated Arbitrator", "Domestic Bar", "Ex Parte Communications", "Misconduct", "Witness" and "Expert".

Application of the Guidelines (Guidelines 1 to 3)

The Guidelines are of a contractual nature. Parties may adopt them, in whole or in part, in their arbitration agreement or at any time subsequently. Arbitral tribunals may also apply the Guidelines in their discretion, subject to any applicable mandatory rules, if they determine that they have the authority to rule on matters of party representation (Guideline 1).

The Guidelines make it clear they are not intended to displace otherwise applicable mandatory laws, professional or disciplinary rules, or agreed arbitration rules. The Guidelines are also not intended to derogate from the arbitration agreement or to undermine either counsel's
primary duty of loyalty to his party or his paramount obligation to present his party's case (Guideline 3).


Party Representation (Guidelines 4 to 6)

The Guidelines provide that once the Arbitral Tribunal has been constituted, a person should not accept representation of a party in the arbitration when a relationship exists between the person and an arbitrator that would create a conflict of interest, unless none of the parties object after proper disclosure (Guideline 5).

In case of breach of that guideline, the Arbitral Tribunal may take measures appropriate to safeguard the integrity of the proceedings, including the exclusion of new counsel from participating in all or part of the arbitral proceedings (Guideline 6).

The comments on these provisions explain that the Arbitral Tribunal may consider excluding new counsel if compelling circumstances so justify and after it has given the parties an opportunity to express their views.

Communications with Arbitrators (Guidelines 7 to 8)

This part provides important guidelines for ex parte communications between counsel and a prospective or appointed Party-Nominated Arbitrator or Presiding Arbitrator.

As a general rule and reflecting best international practises, counsel should not engage in any Ex Parte Communications with an arbitrator concerning the arbitration, unless otherwise agreed by the parties (Guideline 7). This rule is subject to four exceptions, which include for instance communication with a prospective Presiding Arbitrator to determine his expertise, experience, ability, availability, willingness and the existence of potential conflicts of interest, provided the Parties are in agreement that such communication is permissible. When communicating with a prospective Party-Nominated Arbitrator or Presiding Arbitrator, counsel should not seek any views from them on the substance of the dispute (Guideline 8).


The comments on the guidelines for ex parte communications set out five discussion topics which are considered appropriate in pre-appointment communications, such as a description of the general nature of the dispute or the terms of the arbitration agreement and any agreement as to the seat, language, applicable law and rules of the arbitration.

Submissions to the Arbitral Tribunal (Guidelines 9 to 11)

This part of the Guidelines concerns counsel's responsibility when making submissions of fact (Guidelines 9 and 10) and tendering witness or expert evidence to the Arbitral Tribunal (Guideline 11).

Counsel, who learns that he previously made a false submission of fact to the Arbitral Tribunal, must promptly correct such submission, unless prevented from doing so by confidentiality and privilege.

Further, counsel should not knowingly offer false evidence or testimony. The Guidelines provide a non-exhaustive list of possible remedial measures where a witness or expert intends to present or presents evidence that counsel knows or later discovers to be false. Remedial measures include urging the witness or expert to correct or withdraw the false evidence or even withdrawing as counsel, if the circumstances so warrant.

Information Exchange and Disclosure (Guidelines 12 to 17)

The Guidelines set out important guidance as to the proper standards of preserving, collecting and producing documents in international arbitration.

Such standardisation of duties relating to document production is, for instance, particularly important where the integrity and fairness of the arbitral proceedings may be undermined by a disparity in access to information or evidence, because one counsel may consider himself obligated to ensure that his party undertakes a reasonable search for, and produces, all relevant, non-privileged documents, while another counsel may view document production as the sole responsibility of the party whom he or she represents.

Guidelines 12 to 17 deal with duties relating to the proper preservation and production of documents, and seek to prevent requests for document production and objections to such requests for an improper purpose, such as to harass or cause unnecessary delay.

Witnesses and Experts (Guidelines 18 to 25)

Guidelines 18 to 25 concern interactions between counsel and witnesses and experts, and are intended to reflect best international arbitration practise with respect to the preparation of witness and expert testimony.

Counsel may assist in the preparation of witness statements and expert reports, but should seek to ensure that a witness statement reflects the witness's own account of relevant facts, events and circumstances (Guideline 21), and that any expert report reflects the expert's own views, analysis and conclusions (Guideline 22).

Further, counsel may meet or interact with witnesses and experts to discuss their prospective testimony. However, counsel's conduct must, at all times, be consistent with the principle that the evidence given should reflect the witness's own account of relevant facts, events or circumstances, or the expert's own analysis or opinion (Guideline 24).

The comments on Guideline 24 provide further guidance on what counsel may do: counsel may help a witness in preparing his or her own witness statement or expert report and assist a witness in preparing for his testimony in direct and cross-examination, including through practise questions and answers. Such preparation may include a review of the procedures through which testimony will be elicited and preparation of both direct testimony and cross-examination.

Guideline 25 provides that counsel may pay, offer to pay or acquiesce in the payment of reasonable compensation to a witness for his time and a reasonable fee for the professional services of an Expert (Guideline 25).

Remedies for Misconduct (Guidelines 26 to 27)

Finally, the Guidelines set out provisions allowing an Arbitral Tribunal to sanction counsel misconduct, i.e. a breach of the Guidelines or any other conduct that the Arbitral Tribunal determines to be contrary to counsel's duties.

Remedies include the drawing of appropriate inferences in assessing the evidence relied upon, or the legal arguments advanced by counsel and considering counsel's misconduct in apportioning the costs of the arbitration (Guideline 26).

The Guidelines provide various non-exhaustive and non-binding factors, which the Arbitral Tribunal should take into account when addressing issues of misconduct, so as to apply the most proportionate remedy or combination of remedies. These factors include the need to preserve the integrity and fairness of the arbitral proceedings and the enforceability of the award, the potential impact of a ruling on the rights of the parties and relevant considerations of privilege and confidentiality (Guideline 27).

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Hong Kong court adjourns application to set aside leave to enforce CIETAC arbitration award, pending application to set aside in Shenzhen court
by Cheung Kwok kit (kwokkit.cheung@deacons.com.hk)

In the recent Hong Kong, High Court case of Guo Shun Kai v Wing Shing Chemical Co Ltd, Wing Shing Chemical Co Limited ("Wing Shing") made an application, pursuant to Order 73 rule 10(6), of the Rules of High Court, to set aside or vary a prior court order giving Guo Shun Kai ("Guo Shun") leave to enforce an arbitral award as a judgment of the Hong Kong High Court.

The arbitration award had been made by the South China Sub-Commission of CIETAC and required Wing Shing to pay Guo Shun RMB29,195,470.58 compensation for economic loss plus RMB12,293,716.33 interest, RMB500,000 legal costs, RMB675,473 for the costs of the arbitration proceedings and RMB134,574 for the arbitrators' costs.

The ground relied upon by Wing Shing for setting aside or varying the order giving leave to enforce is that contained in section 95(2) of the Arbitration Ordinance (Cap 609), which provides that enforcement of a Mainland award may be refused if the person against whom it is invoked proves that the award has not yet become binding on the parties or has been set aside or suspended by a competent Mainland authority, under Mainland law.

Wing Shing argued that the award had not yet become binding on the parties or had been suspended under Mainland law on the basis that Wing Shing had commenced legal proceedings in Shenzhen to dismiss the award. The Shenzhen Intermediate People's Court ("the Shenzhen Court") had accepted jurisdiction over the case, had heard both parties and judgment was awaited.

Wing Shing's application to the Shenzhen Court had been made on the ground that the arbitration award exceeded the scope of the arbitration and that the arbitration procedures were contrary to law.

The Hong Kong court said that as Wing Shing's application had already been heard by the Shenzhen Court, it was appropriate to adjourn Wing Shing's current application in Hong Kong, pending the Shenzhen's Court's determination. It said that if Wing Shing failed in the Shenzhen Court, then there would perhaps be little more it could say to oppose enforcement of the award in Hong Kong. However, if on the other hand, the award was set aside, discharged or dismissed by the Shenzhen Court, then enforcement of the award should be refused under section 95 of the Arbitration Ordinance.

The Hong Kong Court said that by virtue of a proviso in the order giving leave to enforce the award, an adjournment of Wing Shing's current application would mean that Guo Shun would not be able to enforce the award until resolution of the application and that, in these circumstances, it was appropriate to order Wing Shing to give security (by way of payment into court) during the adjournment. This was particularly so, the Court said, because:-

  1. Wing Shing had not produced any documents showing the grounds or merits of its application to the Shenzhen Court to dismiss the award so as to try to show that the award was manifestly invalid;
  2. Wing Shing had changed its registered office to the address of a service company;
  3. Wing Shing had quite recently sold its industrial property;
  4. Wing Shing's financial performance was deteriorating; and
  5. according to recent public announcements, Wing Shing's unaudited net liabilities far exceeded its total assets.

The Court decided that HK$20 million was an appropriate amount of security to order, which would give Guo Shun some protection against any deterioration of his prospects of successfully enforcing the award in Hong Kong as a result of the adjournment.

The Court ordered that the security be provided in the form of a payment into court or by such other security as was acceptable to the Court and that if after an inordinate period of time, no judgment was forthcoming from the Shenzhen Court, the parties could apply to them (i.e. to the Hong Kong) again.

This judgment is consistent with our understanding that the Hong Kong Court is generally supportive of enforcement of arbitral awards. In this case, the court provided security to Guo Shun in case Wing Shing was only trying to delay enforcement of the award by making a meritless application to dismiss the award in the Shenzhen Court.

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Arbitration (Amendment) Bill passed
by Philipp Hanusch (philipp.hanusch@deacons.com.hk)

On 10 July 2013, the Arbitration (Amendment) Bill 2013 was passed by the Legislative Council. Its purpose is to make miscellaneous amendments to the Arbitration Ordinance (Cap. 609) and to implement the "Arrangement Concerning Reciprocal Recognition and Enforcement of Arbitral Awards Between the Hong Kong Special Administrative Region and the Macau Special Administrative Region" signed by the Hong Kong and Macau Governments on 7 January 2013.

Some provisions of the Arbitration (Amendment) Ordinance 2013 ("the Amendment Ordinance") came into effect on 19 July 2013 and others will come into effect on a date to be appointed by the Secretary for Justice, by notice to be published in the Gazette.

The following miscellaneous amendments, aimed at further supporting Hong Kong's arbitral regime, came into effect on 19 July 2013:

  • New Part 3A, providing for the enforcement of emergency relief granted by an emergency arbitrator, reflecting the trend among leading arbitral institutions for including emergency arbitration procedures in their rules. Under this new regime any emergency relief granted by an emergency arbitrator in or outside Hong Kong is enforceable, with leave of the court, in the same manner as an order or direction of the court.
  • Amendment of section 75 of the Arbitration Ordinance to provide that if the parties to arbitration have agreed that the costs of the arbitration are to be taxed by the court, the costs are to be taxed on a party and party basis.
  • Addition of five new parties to the New York Convention, namely Fiji, Liechtenstein, Myanmar, Sao Tome and Principe, and Tajikistan.
  • Consequential amendments to the Rules of High Court as regards the enforcement of arbitral awards under those Rules.

The provisions relating to the enforcement of Macao Awards (including the evidence to be produced for enforcement of Macau awards and the circumstances in which enforcement of Macau awards may be refused) are set out in a new Division 4 to Part 10 of the Arbitration Ordinance and will come into effect on a day to be appointed by the Secretary for Justice by notice to be published in the Gazette.

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Myanmar the 149th party that accedes to New York Convention
by Philipp Hanusch (philipp.hanusch@deacons.com.hk)

On 15 July 2013, Myanmar acceded to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, generally referred to as the "New York Convention".

The New York Convention seeks to provide common legislative standards for the recognition of arbitration agreements and court recognition and enforcement of foreign and non-domestic arbitral awards. The Convention's principal aim is that foreign and non-domestic arbitral awards will not be discriminated against and it obliges parties to the Convention to ensure such awards are recognized and generally capable of enforcement in their jurisdiction in the same way as domestic awards.

The New York Convention is considered as a cornerstone of international commercial arbitration. It remains however to be seen, how Myanmar will implement the provisions of the Convention (which is usually done through national legislation) and how its Courts will give effect to it.

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