IMMEDIATE PRESS RELEASE
1 August 2014
As part of its continuing effort to keep HKIAC at the forefront of international arbitration practice, HKIAC’s model clauses have been updated to include specific wording to prompt parties to consider designating an appropriate law to govern their arbitration agreement. HKIAC is the first leading arbitral institution that has introduced such provision in its model arbitration clauses.
Recent Hong Kong, English, Indian and Singapore case law demonstrates the importance of expressly including a governing law clause in the arbitration agreement in international contracts. The preferred practice is for parties to include a specific choice of law for their arbitration agreements to avoid both the uncertainty and the cost of potential litigation regarding the question of which law should apply. An increasing number of law firms have advised their clients to adopt this practice when drafting their arbitration agreements.
James Spigelman AC QC, the former Chief Justice and Lieutenant Governor of New South Wales and a Non-Permanent Judge of the Hong Kong Court of Final Appeal, says an express choice of the law governing the arbitration agreement is highly desirable. He adds “There is no international consistency as to how to determine the law of the arbitration clause where none has been expressed. Because the arbitration clause is jurisdictional, this lack of consistency will complicate the enforcement of arbitral awards.” Echoing this point, Julian Lew QC says “one sure way to avoid uncertainty as to the law applicable to the arbitration agreement is for the parties to unambiguously choose the law they want to apply”. In this respect, he says “The addition to the HKIAC’s model clause to provide an express choice of law to govern the arbitration agreement is forward thinking and opportune”.
Generally three laws may potentially be applicable to an arbitration:
- the law of the substantive contract;
- the law of the seat of the arbitration; and
- the law of the arbitration agreement.
The law of the substantive contract is applied to determine the merits of the dispute. The seat of the arbitration usually determines the procedural law applicable to the conduct of the arbitral proceedings, and the law of the arbitration agreement potentially governs the formation, existence, scope, validity, legality, interpretation, termination, effects and enforceability of the arbitration agreement as well as identities of the parties to the arbitration agreement.
Ideally an arbitration clause should specify each of these laws. Unfortunately, while the law of the substantive contract and the seat of arbitration are commonly selected by parties in their arbitration clauses, parties often fail to specify the law governing the arbitration agreement itself. Where this is not specified, there will be uncertainty, particularly in circumstances where the law governing the substantive contract and the law of the seat are different. Audley Sheppard, the Co-Global Head of Clifford Chance’s international arbitration practice says, “Given the case law in some jurisdictions, the HKIAC’s reminder to specify the governing law of the arbitration agreement should help to avoid subsequent uncertainty and potential disputes and legal costs”.
HKIAC’s new model clauses are also welcomed by leading Chinese and Indian practitioners. Peter Yuen, Partner of Fangda Partners comments that there remain certain special characteristics concerning the validity of an arbitration agreement under Chinese law, so “users will benefit from stipulating (and being reminded to stipulate) clearly what law is to govern the arbitration agreement”. Promod Nair, Head of Arista Chambers and an advocate in India says HKIAC’s amendment to its model clauses is “an excellent and welcome initiative by HKIAC”. He has seen considerable uncertainty arising in recent cases as to what law should govern the arbitration agreement in the absence of an express choice by the parties. He says, simply by choosing HKIAC’s new model clause, parties can avoid such uncertainty and the risk of unintended court interference.
The English version of HKIAC’s amended model clauses can be found at http://www.hkiac.org/en/arbitration/model-clauses. The Chinese version of the clauses is available at http://www.hkiac.org/sc/arbitration/model-clauses.
1 See e.g. Klöckner Pentaplast Gmbh & Co Kg v Advance Technology (H.K.) Company Limited, 14/07/2011, HCA1526/2010.
2 See e.g. Sulamérica Cia Nacional De Seguros S.A. and others v Enesa Engenharia S.A  EWCA Civ 638; Arsanovia Ltd v Cruz City 1 Mauritius Holdings  2 All ER 1; Habas Sinai Ve Tibbi Gazlar Istihsal Andustrisi AS and VSC Steel Company Ltd  EWHC 4071 (Comm).
3 See e.g. NTPC v. Singer, AIR 1993 SC 998; Enercon India v. Enercon GMBH, Civ. App. 2086/7, 2014.
4 See e.g. FirstLink Investments Corp Ltd v. GT Payment Pte Ltd and others  SGHCR 12, 19 June 2014.
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