HKIAC has been designated as appointing authority in the Hong Kong Government (the Government)’s newly announced Pilot Scheme for Arbitration on Land Premium (the Scheme). Following the Chief Executive’s January 2014 Policy Address, the Scheme is introduced to facilitate early agreement on land premium payable for lease modification/land exchange applications, with the objective of expediting land supply for housing and other uses. The Scheme will run for an initial period of two years starting from August 2014. The establishment of the Pilot Scheme comes after consultations with relevant stakeholder groups and will be reviewed and fine-tuned after the Government acquires the relevant experience. This is an initiative that has not been widely seen in other jurisdictions. The use of private dispute resolution mechanisms for public sector disputes or differences will be further explored in other areas or industries.
In the continuously evolving realm of international arbitration, HKIAC seeks to respond to an increased demand for arbitration through offerings that are efficient and provide greater flexibility to parties involved. The Scheme demonstrates the creative use of arbitration, innovatively serving as a mechanism for dispute resolution between a government body (i.e. the Lands Department) and developers. The designation of HKIAC as the appointing authority demonstrates the confidence and high regard that both users and policy makers have in its services. Under the Scheme, HKIAC will be requested to appoint arbitrators if the parties fail to appoint any arbitrators within a specified time limit.
The key features of the Scheme include the following:
- Scope of arbitration: the matters to be arbitrated are confined to the amount of premium. Any other disputes on lease interpretation have to be resolved through court proceedings.
- Commencement of arbitration: arbitration may be triggered upon proposal by either the developer or the Government, where there has been any failure to agree on the premium amount despite a substantial exchange of views between the parties (normally after at least two appeals by the developer).
- Case prioritisation: if the demand for arbitration exceeds the capacity of the Lands Department, the Department of Justice and proposed arbitrators, priority will be given to high yield cases, cases with a wider premium gap, or relatively straightforward disputes.
- Constitution of the arbitral tribunal: land premium disputes will be decided by a three-member tribunal, chaired by a retired judge or a barrister or solicitor with at least 10 years of post-qualification experience. The two other arbitrators should be professional surveyors with a minimum of 10 years of experience in land matters and valuation. The appointment of each arbitrator requires both parties’ agreement. In the event of any failure to appoint an arbitrator with a specified timeframe, HKIAC will make the appointment.
- Measures to ensure neutrality of the tribunal: arbitrators will be required to make a written declaration as to their independence and impartiality, and to confirm their ongoing duty of disclosure of any conflicts of interest during the arbitral process. The declaration will be kept confidential. Anti-collusion provisions will also be included in the parties’ arbitration agreement to prohibit unauthorised discussions outside the arbitral proceedings.
- Payment of security: to deter developers from “walking away” during the arbitral process or after an award has been issued, they will be required to pay the Government 15% of the premium last assessed by the Government, if it backs out during the arbitration or fails to execute the lease modification/land exchange at the premium as arbitrated. Restrictions on alienation of the subject lot and on transfer of shareholding until execution of the lease modification/land exchange documents will also be imposed.
- Date of valuation and arbitral timeline: the valuation date of the premium assessment is generally the date on which the arbitral tribunal is first constituted. To ensure that the assessed value does not become out of date, it is anticipated that, in a straightforward case with documents only proceedings, the tribunal should issue the award approximately 10 weeks after the tribunal is formed.
- Arbitral award: all arbitrators will carry the same weight in deciding a dispute. The tribunal will consider the evidence before it without being confined by any pre-determined upper or lower limits with regard to premium value.
- Confidentiality: the arbitral proceedings will be confidential, save that the amount of premium fixed by the award will be disclosed through usual registration of the lease modification/land exchange document in the Land Registry. The Government retains the right to disclose the cases submitted to arbitration and the arbitrators appointed, after the execution of the relevant lease modification/land exchange cases.
- Costs: each party shall bear its own legal costs. The costs of the arbitration shall in principle be borne by the parties in equal shares, unless the tribunal determines otherwise.
- Challenge of arbitral award: in addition to the grounds for setting aside an award listed in section 81(1) of the Arbitration Ordinance (Cap. 609), an award made under the Scheme can also be challenged on the ground of serious irregularity, as the arbitration agreement will opt into the relevant provisions of Schedule 2 of the Arbitration Ordinance.