On 20 January 2025, the Hong Kong International Arbitration Centre (HKIAC) published a “Practice Note On Compatibility of Arbitration Clauses under the HKIAC Administered Arbitration Rules” (Practice Note). The Practice Note concerns Articles 28 and 29 of the 2018 and 2024 HKIAC Administered Arbitration Rules (HKIAC Rules), which respectively set out procedural mechanisms for (i) multiple related arbitrations to be consolidated and (ii) disputes arising out of multiple contracts to be heard in a single arbitration.
The Practice Note explains the HKIAC’s general practice in assessing the compatibility of arbitration agreements in multi-party, multi-contract scenarios under these provisions of the HKIAC Rules, and how it approaches the constitution of arbitral tribunals in circumstances where claims are heard in a consolidated or single arbitration. The Practice Note also provides guidance on the HKIAC’s approach in balancing party autonomy, the integrity of the arbitral proceedings and ensuring equal treatment of the parties when reaching its decisions under Articles 28 and 29.
Background: Articles 28 and 29 of the HKIAC Rules
A common feature of international commercial transactions is that the parties’ rights and obligations may be governed by multiple related contracts. A typical cross-border M&A transaction, for example, might involve a share purchase agreement, a shareholders’ agreement, security agreements and intellectual property documentation. Such agreements may involve multiple parties, not all of which are counterparties to the same agreement.
A dispute arising out of the transaction may therefore concern the rights and obligations under different agreements and/or between different counterparties. Where arbitration has been agreed as the mean of dispute resolution, Articles 28 and 29 of the HKIAC Rules provide mechanisms pursuant to which multiple related arbitrations can be consolidated and disputes arising out of multiple contracts can be heard in a single arbitration, even where the parties may not all be bound by the same arbitration agreement:
(a) Pursuant to Article 28, the HKIAC has powers to consolidate two or more arbitrations into a single arbitration where any one of the following conditions are met: (i) the parties agree to consolidate; (ii) all of the claims in the arbitrations are made under the same arbitration agreement; or (iii) where a common question of law or fact arises in all of the arbitrations, the rights to relief claimed arise out of the same transaction or a series of related transactions and the arbitration agreements are compatible.
(b) Pursuant to Article 29, claims arising out of multiple contracts may also be made in a single arbitration where all of the following conditions are met: (i) a common question of law or fact arises under each arbitration agreement; (ii) the rights to relief claimed arise out of the same transaction or a series of related transactions; and (iii) the arbitration agreements under which those claims are made are compatible.
The Practice Note
The Practice Note makes clear that the arbitration agreements need not be identical to be compatible, but any differences must be surmountable by the parties, the tribunal and/or the HKIAC. The Practice Note further emphasizes that, when making decisions under Articles 28 and 29, the HKIAC adopts a pragmatic approach and its overriding aim is to facilitate a fair and speedy resolution of the dispute without unnecessary expense.
The Practice Note provides various examples where the HKIAC determined arbitration agreements to be compatible or incompatible, from which three broad (non-exhaustive) factors can be distilled:
(a) Whether it is practically feasible and procedurally efficient for the claims to be heard in a consolidated or single arbitration.
(b) Whether the differences in the arbitration agreements undermine the consent of the parties, through their agreement to adopt the HKIAC Rules, to the possibility of determining claims under multiple contracts in a consolidated or single arbitration.
(c) Whether permitting consolidation or a single arbitration would leave the award open to challenge in the future.
To maximize the chances that the arbitration clauses will be compatible, the HKIAC recommends the adoption of HKIAC’s model arbitration clause.
In situations where Article 28 or 29 applies, the HKIAC Rules provide (i) that the parties shall be deemed to have waived their right to designate an arbitrator, and (ii) that the HKIAC shall appoint the arbitral tribunal with or without regard to any party’s designation.1 Notwithstanding this, the Practice Note confirms that, in practice, the HKIAC will appoint the arbitrator(s) that the parties designate unless there are justifiable exceptions (e.g., conflict of interests or availability, etc.).
Commentary
The Practice Note provides helpful guidance and clarification to the issue of when arbitration agreements would be considered compatible for the purpose of Articles 28 and 29. The issue of compatibility has broader implications beyond requests for claims to be heard in a consolidated or single arbitration, as illustrated in the recent case of SYL v GIL [2024] HKCFI 1324, where the High Court of Hong Kong set aside an interim arbitral award on the basis that the underlying agreements were not compatible.
Given the increasingly complex nature of international commercial transactions, parties are advised to consider the compatibility of arbitration agreements at the outset, especially if counterparties have expressed different preferences in respect of how arbitrations should be conducted. The number of arbitrators to be appointed, the procedure for appointing the arbitrator(s), the law governing the arbitration agreement and the language of the arbitration are all relevant considerations in the HKIAC’s assessment of compatibility.
Properly drafted arbitration agreements will ensure that disputes arising out of multi-party, multi-contract transactions are resolved efficiently and in accordance with the commercial realities of the transaction. Beyond the compatibility of arbitration clauses, parties are also advised to consider the broader issue of compatibility of dispute resolution clauses, since Articles 28 or 29 cannot be invoked unless arbitration has been agreed as the mean of dispute resolution.
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1 See Article 28.8 and 29.2 of the 2024 HKIAC Rules and Article 28.8 of the 2018 HKIAC Rules.
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