Understanding the Payment Process for HKIAC-Hong Kong Arbitrations | Law.asia
A The main feature of offshore arbitration is that the administrative costs of the arbitral institution are separate from its remuneration. The fees for arbitration by the Hong Kong International Arbitration Center (HKIAC) are generally three-fold, consisting of registration fees, administrative fees, and court fees and expenses.
Administrative fees are calculated based on the amount in dispute and are capped at 400,000 HKD (51,000 USD). If the amount in dispute is not quantified, these costs are determined by the HKIAC, taking into account the circumstances of the case.
It is important to understand this payment process, the consequences of failure to pay, and the refund process in the event of withdrawal from arbitration.
Pursuant to Rule 41.1 of the 2018 HKIAC Administered Arbitration Rules, the HKIAC shall – as soon as possible after receiving the Respondent’s Notice of Arbitration – seek from the Claimant and the Respondent for each filing an equal amount, representing the total amount of the administrative costs, and an advance on the fees and expenses of the arbitral tribunal.
In the event of multiple parties, the claimant or group of claimants and the respondent or group of respondents each bear half of the initial deposit.
This practice ensures that the HKIAC holds sufficient funds at the initial stage of the arbitration to cover its administrative costs and the costs and expenses of the tribunal, if any, even if the parties reach a speedy settlement.
It is necessary to charge the full amount of administrative costs as part of the initial filings because the majority of HKIAC’s work is done at the initial stage, ie from the start of the arbitration to the constitution of the tribunal.
During the arbitration, the HKIAC may require the parties to make additional filings. Administrative costs may be increased in the event of, for example, the joinder of arbitrations, the joinder of additional parties, and amendments to claims and counterclaims.
Payment must be made in Hong Kong dollars and can be made by check payable to Hong Kong International Arbitration Center, or by bank transfer. Account details are available on the HKIAC webpage: https://www.hkiac.org/arbitration/fees.
If payment is made by wire transfer, the remitting party must identify their name and file number, and notify HKIAC with proof of remittance once payment has been made. All bank charges are the responsibility of the remitter.
In accordance with Article 5.4 of the aforementioned regulations, provided that all the deposits requested by the HKIAC have been paid, the latter shall forward the file to the arbitral tribunal. If one of the parties delays or deliberately refrains from paying the installments, the arbitration procedure may be delayed.
To address this issue, Section 41.4 of the Rules empowers HKIAC to require either party to pay the outstanding amount on behalf of the non-paying party. If the unpaid amount remains unpaid, the arbitral tribunal may order the suspension or termination of the arbitration, or continue the arbitration on such basis and with respect to such claim or counterclaim as it deems appropriate.
In accordance with article 41.5 of the rules, the arbitral tribunal may, at the request of the paying party, issue an award for reimbursement of the payment.
Pursuant to Article 41.6 of the Rules, any unspent balance shall be returned to the parties based on the shares paid by them, or as otherwise instructed by the arbitral tribunal.
The HKIAC has issued two Practice Notes on Arbitration Fees, which provide different levels of administrative fee remission depending on the stage of the arbitration at which settlement is reached. The following discount percentages generally apply in the event of withdrawal or termination of arbitration:
- From the receipt of the Notice of Arbitration by the HKIAC to the deadline for filing the response to the Notice of Arbitration: up to 50%;
- From the deadline for filing the response to the transmission of the file to the arbitral tribunal: 50 to 80%; and
- From the transmission of the file to the rendering of the final award: 80-100%.
These percentages again reflect the fact that much of the HKIAC’s work is done early in the arbitration. Different percentages may apply depending on the circumstances of the case, including the length of the arbitration, the volume of correspondence, and the number of procedural or appointment-related decisions made by the HKIAC.
In practice, with an increasing number of regulations, the percentages mentioned above are commonly applied. In 2020, four arbitrations administered by the HKIAC were concluded with a settlement of the parties and 52 were concluded with a final award. In 2021, 51 arbitrations were concluded with a settlement between parties and 65 were concluded with a final award.
Three examples of HKIAC’s determination of its administrative costs are listed below:
REGISTRATION, FEES AND EXPENSES
As for the other two cost items, the HKIAC registration fee is a one-time payment of HKD 8,000, which is generally non-refundable.
As for the fees and expenses of the arbitral tribunal, the rules provide for a two-way calculation regime, leaving the parties the choice between being determined on the basis of the amount in dispute or on the basis of the hourly rates of the arbitrators.
These fees and expenses are also paid through installments, and the reimbursement mechanism mentioned above also applies to these installments. In addition, the rules also contain provisions on cost guarantee and third-party financing.
In summary, these rules are designed to provide transparency and flexibility in the fee structure of HKIAC arbitrations, and reflect HKIAC’s commitment to reducing arbitration costs and providing predictability to participants.