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Presentation Material for Efficiency Unit Contract Management issues subject to Arbitration Christopher To Hong Kong International Arbitration Centre www.hkiac.org.

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Presentation on theme: "Presentation Material for Efficiency Unit Contract Management issues subject to Arbitration Christopher To Hong Kong International Arbitration Centre www.hkiac.org."— Presentation transcript:

1 Presentation Material for Efficiency Unit Contract Management issues subject to Arbitration Christopher To Hong Kong International Arbitration Centre 30 June to 2.45 pm

2 Introduction Should commercial disputes be a hindrance to your companys success. How should you prepare for the worst. What advice and guidance is available. How can you proactively manage your disputes that could substantially save you in unnecessary costs and time. Understanding the various dispute resolution mechanisms that are available in market place can assist you in managing your potential disputes in an effective and efficient manner while at the same time minimizing your exposure to potential risks. Business Disputes

3 Introduction Definition of a Dispute The New Shorter Oxford English Dictionary 1993 defines it as A logical argument or An oral or written discussion of a subject in which arguments for and against are put forward and examined or An instance of disputing or arguing against something or someone, argument, a controversy or A heated contention, a disagreement in which opposing views are strongly held or The act of disputing or arguing against something or someone; controversy, debate or A fight, a struggle Business Disputes

4 Introduction Examples of International Business Disputes Contracts on sale of goods (including commodities) Distributorship, agency and intermediary contracts Construction, engineering and infrastructure contracts Intellectual property contracts Registration of domain names Joint Venture agreements Maritime contracts ( such as bills of lading, charter parties) Dealings with a pre shipment inspection agency Dealings with customs authorities Documentary Credit arrangements Employment Contracts Where a State or a State owned entity is involved Business Disputes

5 What is Conflict Resolution? Dont get confused with indecision, disagreement, stress or other common experiences that may cause, or be caused by conflict. By definition, conflict only occurs between parties who need each other and who cannot simply leave the relationship with no negative consequences.

6 What is Conflict Resolution? Six parts of Conflict structure:- 1. Interdependency – How much do the parties need each other to act cooperatively? If interdependency is high, then the costs of not resolving it are also likely to be high. 2. Number of interested parties – How many distinct parties have an interest in how the conflict is resolved? As the number and size of parties increase, there are more people to please and the difficulty of resolving the conflict increases. 3. Constituent representation – Do the parties represent the interests of other people who are not personally and directly involved in the process of resolving the conflict? Reaching an agreement that is acceptable to everyone who is affected by how the issue is resolved, especially those who are not personally involved, is more difficult. 4. Negotiator authority – If the negotiator authority is high, then resolution is easier, otherwise the process will take longer and will be more difficult. 5. Critical urgency – Is it absolutely necessary that a solution be found in the very near future? The greater the critical urgency, the less likely a consensual solution. 6. Communication channels – Same-time-same-place dialogue nearly always produces far better solutions than lesser communication channels.

7 What if there is a Conflict? Being in Conflict is no fun. Its stressful, unpleasant, distracting, intrusive and annoying. Whats more…

8 What if there is a Conflict? Costs: Money down the Drain Wasted Time Bad Decisions Lost Employees Unnecessary Restructuring Sabotage, Theft and Damage Lowered Job Motivation Lost Work Time Health Costs

9 How to resolve any Conflict? Five Conflict Strategies:- Integrating Compromising Competing Smoothing Avoiding

10 Introduction Violence Avoidance Negotiation Mediation Adjudication Arbitration Litigation Ways to Resolve Disputes

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12 A. General Issues Flexible, Inexpensive, Confidential, Fair and Final Features distinguishing a reference to arbitration from other dispute resolution techniques: – the presence of a dispute or difference between parties which has been formulated in some way or another; – the dispute of difference has been remitted by the parties to a person to resolve in such a manner that he is called upon to exercise a judicial function; – where appropriate, the parties must have been provide with the opportunity to present evidence and / or submissions in support of their respective claims in dispute; – the parties have agreed to accept the decision. Arbitrators are appointed by or on behalf of the parties in disputes and has to decide a dispute that has already arisen. Inquisitorial powers are not normally given to an arbitrator. Arbitration is conducted in accordance with the terms of the parties arbitration agreement, usually found in the provisions of a commercial contract between the parties. 1. What is Arbitration?

13 A. General Issues Consensual – arbitration agreement Party autonomy – e.g Choice of tribunal, manner of case presentation, procedure and powers of the tribunal Jurisdiction of the tribunal is fixed primarily by the terms of the arbitration agreement and the submission to arbitration Final and legally binding process Limited scope for intervention by the courts Essential Features of Arbitration 1. What is Arbitration- Essential Features of Arbitration

14 A. General Issues Disputes governed by arbitration agreements trigger the arbitration process. Arbitration agreements come in two forms: 1. where parties to a contract include a clause in which they agree to resolve any dispute which may arise under the contract by arbitration. This is known as an arbitration clause. Many Hong Kong trades and industries have applicable standard forms of contract with standard arbitration clauses, although parties can tailor clauses to suit their circumstances. 2. where parties are already in dispute but their contract does not contain an arbitration clause, they may enter into a separate agreement to refer the matter to arbitration. This is known as a submission agreement. Occasionally disputes are referred to arbitration by a court order or the operation of a statute. 2. How is the Arbitration started?

15 A. General Issues Disputes hereunder shall be referred to arbitration, to be carried out by arbitrators named by the International Chamber of Commerce in Geneva in accordance with the arbitration procedure set forth in the Civil Code of Venezuela and in the Civil Code of France, with due regard to the law of the place of arbitration. 2. How is the Arbitration started?

16 A. General Issues MAGIC FORMULA Any dispute, controversy, or claim arising out of or in connection with this contract, including any question regarding its existence, validity, or termination shall be finally resolved by arbitration under the Rules of [rules/institution]. The tribunal shall consist of [a sole/three] arbitrator[s]. The place of arbitration shall be [city]. 2. How is the Arbitration started – The Agreement

17 A. General Issues OTHER USEFUL POINTS Language Expertise and special requirements of arbitrators Discovery Multi party proceedings Costs Confidentiality Med-arb, ADR Sovereign immunity waiver 2. How is the Arbitration started – The Agreement

18 A. General Issues INSANE CLAUSES (1) Should either party come to feel that the Arbitrator is insane or for reasons it comes to know after commencement of the arbitration, it may consult with the other party, and should both parties agree that the Arbitrator is likely to be insane, they shall serve a notice of doubt on the Arbitrator. Causes giving rise to a notice of doubt must be extreme and not be limited to continuous making of senseless remarks, absentmindedness and queer conduct such as dancing alone in the public without cause, and the parties may serve a notice of doubt only once during the arbitration. 2. How is the Arbitration started – The Agreement

19 A. General Issues INSANE CLAUSES (2) On such notice of doubt being served the Arbitrator may not refuse medical examination by a psychiatrist specialist at one of the hospitals listed in Appendix 1 appended to and made a part hereof. (3) If in the opinion of the psychiatrist specialist the examination would require more than four weeks or if the psychiatrist specialist is unable to conclude that the Arbitrator is positively insane, then the Arbitrator shall be deemed to be not insane. The medical examination shall be at the parties cost and shall be conducted under the condition that the result will be made known only to the Arbitrator and the parties. 2. How is the Arbitration started – The Agreement

20 A. General Issues INSANE CLAUSES (4) If the Arbitrator is found insane, he shall resign in which event he shall not be entitled to the fee for the services he will have rendered, but each party shall pay to the Arbitrator a get well fee of Yen 100,000 and one-half of the disbursements covering the amount the Arbitrator will have expended in connection with the arbitration. If the Arbitrator is found not insane as the result of the examination, the parties shall jointly provide him with a letter of apology and each party shall pay a so-sorry fee of Yen 1,000,000 to the Arbitrator which he may treat as damages for tax purposes. The arbitrator, however, may not count the time spent for the medical examination as time spent for arbitration. 2. How is the Arbitration started – The Agreement

21 A. General Issues INSANE CLAUSES (5)While the provisions of these clauses are not intended to permit the parties to take the arbitrator to the hospital by dint of force, it does not bar the parties from initiating judicial proceedings for removal of the arbitrator. Such proceedings may be resorted to only where the arbitrator refuses to subject himself to medical examination or where the parties are not satisfied with the findings of the psychiatrist that the arbitrator is not insane. If the parties initiate judicial proceedings and fail to remove the arbitrator, each party shall pay a nuisance-fee of Yen 2,000,000 to the arbitrator. During such proceedings, the arbitrator may proceed, but the arbitrator may not render an award. If rendered, such award may not be enforced. 2. How is the Arbitration started – The Agreement

22 A. General Issues Arbitration procedure varies, depending on the agreement between the parties and the applicable statutes and rules. An arbitration commences with one party serving a notice of arbitration on the other. (The notice briefly describes the dispute and the questions to be put to the arbitrator.) The arbitrator or arbitrators are selected according to an agreed procedure. The terms of reference (lay down the framework for the rules and procedures under which the arbitration is to be conducted) are prepared and agreed. It is advisable to take guidance from those provided by local bodies such as the HKIAC Domestic Rules or applicable specialist bodies. The arbitrators fees are agreed. A detailed timetable and set of ground rules for the arbitration (Directions) are agreed, or imposed by the arbitrator. If the parties are adopting any arbitration rules, they should refer to those rules and make the Directions consistent with them. A venue is booked and the hearing takes place. The arbitrator prepares and delivers his award (usually includes recitals, findings of liability, the relief granted, any interest component, findings as to costs and reasons. The arbitrator (or arbitrators) must execute the award, by signing and dating it. 3. Arbitration Procedure

23 A. General Issues The arbitrator makes his determination based solely on any statements of case and an agreed bundle of documents provided to him by the parties. It dispenses with directions, discovery, experts and the hearing. Written statements of claim are usually exchanged, as this is usually the only way for a party to put forward its case, since no oral evidence will be received. Art. 24 of Model Law on International Commercial Arbitration (Model Law) provides that, subject to any contrary agreement by the parties, the arbitral tribunal shall decide whether the proceedings shall be conducted on the basis of documents and other materials. In an arbitration governed by the HKIAC Domestic Arbitration Rules, Art. 25 allows documents-only arbitrations where the parties agree. The HKIAC documents-only procedure requires the claimant to deliver submissions and documents within 28 days, defence and counterclaim submissions within 28 days afterwards, reply and defence to counterclaim within 28 days afterwards, followed by the respondents final submissions within 21 days. 4. Document-Only Arbitration

24 A. General Issues Introduced by the HKIAC primarily for low value shipping disputes, small quality or quantity claims arising from commodities trading. The procedure is only available where the parties agree to it, either by a contractual term or by agreement after the dispute has arisen. There is only limited power to extend time for service of pleadings and late pleadings are inadmissible. There is no discovery, although the arbitrator may order the production of a relevant document. There is usually no hearing and no right of appeal to court. The fees payable by a claimant to an arbitrator are limited to a fixed HK$15,000. If there is a counterclaim which exceeds the amount of the claim, the respondent must pay the additional fee of HK$7,500. HKIAC charges HK$1,500 to appoint an arbitrator. The arbitration has power to direct which party must bear the ultimate responsibility for the small claims fee, tribunals expenses and the legal costs of the successful party. The arbitrator may assess the recoverable costs on a commercial basis, but not exceeding HK30, Small Claims Arbitration

25 A. General Issues Arbitration in Hong Kong is governed by the Arbitration Ordinance (Cap. 341) of the Laws of Hong Kong SAR. The Arbitration Ordinance provides two regimes for arbitration: – Domestic arbitration agreement regime – International arbitration agreement regime The domestic regime is based on the English Arbitration Acts 1950, 1975 and 1979 with additional clauses influenced by Singapores International Arbitration Act and the English Arbitration Act The international regime incorporates the Model Law. Parties can opt in to either regime. Arbitration Ordinance is designed to support arbitration as a fair, speedy and cost- effective means to resolve disputes. It gives the parties maximum scope for autonomy during arbitration. The role of the courts is confined to occasions where it is obvious that either the arbitral process needs assistance or that there has been, or is likely to be, an obvious denial of justice. 6. Statute Governing Arbitrations in Hong Kong

26 A. General Issues In addition to the Arbitration Ordinance, the parties may agree to adopt a particular set of rules in the event of an arbitration. The HKIAC commends the use of the HKIAC Domestic Arbitration Rules which took effect from 1 April 1993 for domestic arbitrations. The HKIAC commends the use of the UNCITRAL (United Nations Commission on International Trade Law) Arbitration Rules promulgated by UNCITRAL in 1976 for international arbitrations. 7. Rules Applicable to Arbitrations in Hong Kong

27 A. General Issues The Hong Kong International Arbitration Centre (HKIAC) The Hong Kong Institute of Arbitrators; and The East-Asia Branch of the Chartered Institute of Arbitrators 8. Arbitration Institutions in Hong Kong

28 A. General Issues Freedom to choose the arbitrator Informality Secrecy Economy Speed Finality 9. Strengths of Arbitration

29 A. General Issues The tendency to treat the arbitration as a court hearing Costs of the arbitrator and court facilities Unavailability of legal aid Incompetent arbitrators Arbitrator unavailability Lack of legal expertise Lack of control over proceedings 10. Weaknesses of Arbitration

30 B. Role of the Court in Arbitration The Arbitration Ordinance expressly restricts the courts role by providing that it should interfere in the arbitration of a dispute only as expressly provided by this Ordinance. By virtue of the provisions in the UNCITRAL Model Law, the courts role in international arbitrations is very limited. Broadly speaking, the court has a role in the following activities: 1. enforcing an arbitration agreement; 2. supporting the conduct of arbitration proceedings; 3. appeals; and 4. enforcing an award 1. General

31 B. Role of the Court in Arbitration The court has to stay any action commenced in defiance of an arbitration agreement, unless it is satisfied that the agreement is null and void, inoperative or incapable of being performed. An agreement is a valid arbitration agreement notwithstanding the fact that it confers upon the claimant the option of commencing action by litigation or arbitration or it gives only one of the parties the right to refer any dispute to arbitration. The courts approach is to lean in favour of making the parties who have agreed to settle their disputes by arbitration stick to that method of dispute resolution rather than resorting to litigation when it suits them to do so. 2. Enforcing an Arbitration Agreement

32 B. Role of the Court in Arbitration The court has powers to enable it to support arbitral proceedings. – Granting an extension of contractual time to commence arbitration proceedings (or some other dispute resolution procedure that must be exhausted before the commencement of arbitration proceedings); – Dismissing a partys claim and prohibiting it from commencing further arbitration proceedings in respect of the claim if the court is satisfied that the party or its adviser has unreasonably delayed bringing the claim; – Granting interim relief (such as making an order directing an amount in dispute to be secured or granting an interim injunction or any other interim measure); – Determining a preliminary point of law in a domestic arbitration; – Consolidating domestic arbitrations; and – Removing arbitrators for failure to use all reasonable dispatch or for misconduct in a domestic arbitration. The court has residual jurisdiction to dismiss a partys claim if the party or its adviser has unreasonably delayed bringing the claim and, at relevant time, there is no arbitral tribunal in existence. In a domestic arbitration, the court has the power to determine any question of law arising in the course of a reference, where the application is made with the consent of all the parties or with the consent of the arbitrator concerned. The courts role is one of support. It is not to be abused by parties for the purpose of frustrating or delaying the arbitral process. Thus, the court will discourage applications by awarding costs on an indemnity basis. 3. Support for the Conduct of Arbitration Proceedings

33 B. Role of the Court in Arbitration Under the UNCITRAL Model Law, recourse to a court against an arbitral award may only be made on procedural ground which are set out in Art. 34. In domestic arbitration, there is a limited right of appeal against the award to the court on any question of law. This limited right of appeal may also be excluded by agreement. On determining such an appeal, the court may order: – Confirm, vary or set aside the award; or – Remit the award together with the courts opinion on the question of law to the reconsideration of the arbitrator. 4. Appeals

34 B. Role of the Court in Arbitration The court has the power to enforce an award, order or direction made by an arbitral tribunal in the same way as a judgment, order or direction of the court of the same effect, regardless of whether the same is made in or outside Hong Kong. Award governed by the New York Convention may be enforced in the same manner as an arbitrators award enforceable by virtue of s.2GG of the Arbitration Ordinance. The court generally takes a narrow approach in construing the meaning of public policy under the New York Convention. It looks at the fundamental conceptions of morality and justice of Hong Kong when it comes to a matter of public policy. 5. Enforcing an Award

35 C. Arbitration Proceedings Arbitration merges the adversarial system and inquisitorial system. Abstracts the best of both systems The principle that arbitral tribunals cannot enter into the arena remains applicable under both the adversarial and inquisitorial systems. s. 26B(6) and (9) of the Arbitration Ordinance allows the arbitral tribunal in Hong Kong to inquire into the facts and law to the extent it see fit. 1. Procedural Meetings

36 C. Arbitration Proceedings The general practice in Hong Kong is for the procedural matters and the substantive matters to be dealt with separately. In dealing with procedural matters, preliminary meetings or procedural meetings can be convened to deal with various interlocutory applications in addition to the use of submissions in writing. Rulings of the arbitrator in procedural matters are not subject to challenge or review by the courts. It limits court intervention while retaining the courts supervisory jurisdiction. However, there are advantages to avoid clear separation of the procedural and substantive matters when the issues are narrow or the amount in dispute is relatively small. 2. Separation of Procedural and Substantive Matters

37 C. Arbitration Proceedings Arbitration in Hong Kong are generally ad hoc arbitrations or non- institutional arbitrations. Non-institutional arbitrations can tailor make procedures for each arbitration based on the fundamental procedural guidelines laid down by the lex arbitri. Commonly used Arbitration rules: – HKIAC Domestic Arbitration Rules; – UNCITRAL Model Rules; and – HKIAC Short Form Arbitration Rules. The above give the arbitral tribunal power to vary the procedures. Administered arbitrations in Hong Kong include ICC arbitrations and arbitration administered by HKIAC. The adoption of arbitration rules is not essential. The procedural law of arbitration in Hong Kong is governed by the Arbitration Ordinance and the common law, where the tribunal is given the powers and duties to manage the arbitration proceedings. Rigidity of procedures is one of the disadvantages of institutional arbitration. 3. Arbitration Rules

38 C. Arbitration Proceedings There are certain fundamental guidelines that have to be adopted for all procedural and interlocutory matters: – The rules of natural justice must be observed at all times; – Notice must be given for any meetings or hearings; and – Rulings and decisions of the arbitral tribunal must be sent to both parties. Failure to observe the above principles may result in the arbitrator being removed, the award being set aside or not enforced. 4. Fundamental Guidelines

39 C. Arbitration Proceedings The main purpose of a preliminary meeting is for the arbitral tribunal to lay down procedures and set a time frame for complying with the same. This is the first meeting between the arbitrator and the parties and the representatives. In international arbitrations involving parties from different jurisdictions, preliminary meetings should be avoided. Where the issues are straightforward and simple, the arbitral tribunal can actually lay down procedures right up to the main hearing at the first preliminary meeting. For longer arbitrations, more than one preliminary meeting would be necessary. 5. Preliminary Meetings (a) Necessity, Purpose and Timing of Preliminary Meetings

40 C. Arbitration Proceedings A typical agenda of the first preliminary meeting could include the following: 1. Confirmation of a written arbitration agreement; 2. confirmation of the appointment of an arbitrator and terms of appointment; 3. Check whether or not there is any challenge on jurisdiction; 4. Decide whether any arbitration rules should be adopted; 5. Confirmation of time-table for exchange of pleadings / statement of case; 6. Decide whether documents to be relied on should be appended to the pleadings / statement of case; 7. How discovery of documents is to be dealt with; 8. Mode of service of documents / pleadings / statement of case; 9. Whether oral evidence will be required; 10. If there is no oral evidence, whether documents-only arbitration should be adopted; and 11. If there is oral evidence, whether directions leading to the main hearing can be dealt with. If the parties are able to dealt with further directions leading to the main hearing, the typical matters to be dealt with would include: – Exchange of factual witnesses statements; – Number of expert witnesses (if any) and areas of expertise / issues to be dealt with; – Exchange of experts reports and meetings of experts; – Venue, duration and dates of oral hearing; – Preparation of hearing bundles; – Exchange of opening submissions; – Agreed lists of facts / issues; and – Other supporting facilities such as interpretation, transcripts, video conference. 5. Preliminary Meetings (b) Agenda of Preliminary Meetings

41 C. Arbitration Proceedings The appointment should have been formalised when the preliminary meeting is called. The terms of appointment may have been passed to the parties. Any matters that may be seen to give rise to actual or potential conflict of interest should have been raised at the time when the nomination process took place and before the acceptance of appointment. The duty to disclose is a continuous one. The arbitral tribunal should be satisfied that it has been properly constituted under the arbitration agreement. 5. Preliminary Meetings (b) Agenda of Preliminary Meetings (i) Appointment of arbitral tribunal

42 C. Arbitration Proceedings The arbitral tribunal should always ensure that at least prima facie it has jurisdiction to deal with the dispute referred to it. A copy of the arbitration agreement should be given to the arbitrator before or at least immediately after the appointment. The notice of arbitration should be placed before the arbitrator at an early stage. The notice of arbitration provides a framework on which to check which dispute can be raised in the subsequent pleadings or statement of case. As the arbitration progress, the parties may continue to give the arbitral tribunal jurisdiction to deal with issues which were not previously before it. 5. Preliminary Meetings (b) Agenda of Preliminary Meetings (ii) Written arbitration agreement and jurisdiction

43 C. Arbitration Proceedings In simple international sale of goods disputes, parties have frequently set out their contentions with substantiating evidence in correspondence before the action. The duration of preparation will depend on the type of pleadings to be adopted as well as whether documents relied upon are to be appended to such pleadings or whether discovery is to take place after the exchange of pleadings. Even if a set of rules has been adopted and a timetable for exchange of pleadings been laid down, the tribunal always has a discretion to re- evaluate the time frame if appropriate. 5. Preliminary Meetings (b) Agenda of Preliminary Meetings (iii) Timetable for exchange of pleadings

44 C. Arbitration Proceedings Discovery is the process by which documents are disclosed. The mode of discovery in Arbitration is more limited that that of court- style discovery. The common practice is that documents to be relied upon by a party are appended to the pleadings / statement of case. Arbitral tribunals are vested with the power to order specific discovery of documents. Limited discovery starts with disclosure of documents substantiating the claim or defence and is supplemented by specific discovery of documents which have not been voluntarily disclosed. However, there are instances where court-style discovery may be more suitable, for instance, in insurance arbitrations. After discovery, it may be necessary to deal with potential issues on the authenticity of the documents disclosed. 5. Preliminary Meetings (b) Agenda of Preliminary Meetings (iv) Mode of discovery

45 C. Arbitration Proceedings At the early preliminary meetings, it is not possible to determine whether an oral hearing is necessary. Even when a documents-only arbitration is to be adopted, the parties and arbitrator still tend to reserve their right to call for a short oral hearing to deal with matters which need clarification or elaboration. If it is definite that an oral hearing is required, another procedural meeting may be convened. In international arbitrations involving experienced and often busy counsel and arbitrators, hearing dates tend to be fixed well in advance. Parties should be prepared to advise the tribunal as to the likely number of witnesses to be called. 5. Preliminary Meetings (c) Preliminary Issues (i) Documents-only or oral hearings

46 C. Arbitration Proceedings In certain cases, there may be the need for site visits or surveys / records to be conducted in the presence of the arbitrator. In conducting these visits, it is important that the purpose be clearly identified and the evidence sought to be viewed be listed. If the site visit or inspection is to familiarise the arbitrator with the layout of the site generally so that the evidence can be more easily understood, the statements made by the parties should be confined to that. Photographs are useful source of real evidence. Collection of samples should be conducted in the presence of both parties. 5. Preliminary Meetings (c) Preliminary Issues (ii) Collection of real evidence

47 C. Arbitration Proceedings An exclusion agreement would only be considered for domestic arbitrations under s.23B which allow parties to agree to exclude the courts right to grant leave to appeal. 5. Preliminary Meetings (c) Preliminary Issues (iii) Exclusion agreement (for domestic arbitrations)

48 C. Arbitration Proceedings Any communication with the arbitrator must be copied to the other side to ensure impartiality and independence of the arbitrator. Where communication electronically is permitted, these should be digitally signed and encrypted to ensure reliability, confidentiality and accuracy. 5. Preliminary Meetings (c) Preliminary Issues (iv) Communication with arbitrator

49 C. Arbitration Proceedings The decisions and directions made by the arbitral tribunal in these procedural meetings must be recorded in writing. They must be clear so that parties know what to follow and more importantly, the court can enforce it if necessary. The directions should set out the acts to be carried out and the time frame by which they should be completed. It is not necessary to give any reasons for the directions or orders but where appropriate, the arbitral tribunal should indicate briefly why it has come to the views it did. The arbitrators fee note should be itemised so that costs incurred by him in relation to each application can be identified. If costs need to be reserved they must be dealt with before the final award. 6. Order for Directions

50 C. Arbitration Proceedings A difficult issue is when and how the issues in contention should be identified. Parties need time to fully appreciate the relevant facts, law and other features of their own case and that of their opponent. It is common for arbitration agreements to specify the procedural rules to be adopted for the arbitration. In the absence of any agreement, the tribunal is empowered to conduct the reference in such manner as it considers appropriate. 7. Identification of Issues (a) General

51 C. Arbitration Proceedings Issues in court proceedings are usually identified by means of pleadings. For court proceedings, parties are required to plead material facts upon which they rely and the causes of action arising thereon. Pleadings in court proceedings commence with the plaintiffs statement of claim. In response, the defendant has to file a defence wherein the defendant either admits, denies or does not admit to any of the claims in the statement of claim. The defendant may also raise a counterclaim against the plaintiff. The plaintiff will then have the right to serve a reply to the defence and a defence to counterclaim. 7. Identification of Issues (b) Court-style Pleadings

52 C. Arbitration Proceedings Some institutional arbitration rules expressly allow or require the parties to plead points of law as well as evidence. The UNICTRAL Arbitration Rules provide that the Claimant may annex to his statement of claim all documents he deems relevant or may add a reference to the document or other evidence he will submit. The Domestic Arbitration Rules of the HKIAC provide that the statement of claim shall [set] out a full description in narrative form of the nature and circumstances of the dispute and [specify] all factual matters, and if necessary for the proper understanding of the claim, a summary and contentions of law relied upon and the relief claimed. 7. Identification of Issues (c) Modified Pleadings

53 C. Arbitration Proceedings In most arbitrations, all issues are dealt with at the same time. However, in some cases it becomes apparent that certain issues should be dealt with as preliminary issues because they involve points of law or discrete facts and a decision thereupon will or may dispose of the entire arbitration or a significant part of it. For cases involving a large number of issues, it may be advisable for the tribunal to divide the case into stages. If a formal list of issues needs to be drawn up, it is often preferable to do so after discovery and exchange of witness statements and expert reports. 7. Identification of Issues (d) List of Issues

54 C. Arbitration Proceedings Scott Schedules are named after an Official Referee in England of that name. They are commonly used in construction disputes where there are many issues or potential issues of fact. A Scott Schedule allows the tribunal and the parties to focus their attention on the issues in dispute and the parties respective positions. It is a valuable tool to the tribunal to ensure that all the issues are covered and the parties contentions on each issue are conveniently summarised in one document. 7. Identification of Issues (e) Scott Schedule

55 C. Arbitration Proceedings An arbitral tribunal is not bound by strict rules of evidence and can admit any evidence that it considers relevant to the proceeding. The tribunal may determine the admissibility, relevance, cogency and weight of evidence at its discretion. The tribunal does not have the power to compel a party to produce in arbitration proceedings any document or other material evidence that he could not be required to produce in civil proceedings before a court. 8. Evidence (a) Rules of Evidence

56 C. Arbitration Proceedings The general rule is that a tribunal must have regard to all relevant and admissible evidence tendered by the parties. However, under certain circumstances, a tribunal may have discretion to exclude or limit evidence tendered by a party even though it is relevant and admissible. In most cases, it would be advisable for the tribunal to discuss any proposed exclusion of evidence with the parties. In the absence of consent or in case of doubt, the tribunal should give the benefit of the doubt to the party seeking to adduce the evidence in question. 8. Evidence (b) Excluding Admissible Evidence?

57 C. Arbitration Proceedings Unless otherwise agreed, the tribunal has discretion to determine how much weight should be attached to each piece of admissible and relevant evidence tendered by the parties. In exercising such discretion, it is advisable for the tribunal to have regard to the rules of evidence though the Arbitration Ordinance allows the tribunal power the determine the weight to be given to the evidence adduced. 8. Evidence (c) Weight

58 C. Arbitration Proceedings Sometimes, a party may be unable to call a witness to give direct oral evidence. In such situation, the party concerned may rely on hearsay evidence. Generally speaking, a tribunal is justified in attaching less weight to hearsay evidence. However, where the hearsay statement is contained in a contemporaneous document which the tribunal has no reason to believe is forged or inaccurate, the tribunal may be justified in attaching more weight to that document. 8. Evidence (d) Hearsay Evidence

59 C. Arbitration Proceedings In general, the tribunal may consider attaching less weight to the following categories of evidence: – Subsequent evidence which is inconsistent with contemporaneous evidence; – Evidence of a witness who has not been cross-examined; – Evidence of a witness who is not independent or may have an interest in the outcome of the arbitration; – Uncorroborated circumstantial evidence; – Inconsistent or contradictory evidence; and – Evidence which is self-serving. 8. Evidence (e) Other Evidence to which an Arbitral Tribunal may attach less weight

60 C. Arbitration Proceedings The general rule is that a party must prove the facts upon which it relies in establishing its claim or defence. Although there is no express provision in the legislation which governs the standard of proof required, it is widely accepted that an arbitral tribunal should adopt the normal standard of proof in civil cases. 8. Evidence (f) Burden of Proof

61 C. Arbitration Proceedings 1.Authenticity – Some arbitrators take the view that to avoid unnecessary delay and expense, any dispute as to the authenticity of any documentary evidence should be resolved before the commencement of the hearing. – It is submitted that there are often good reasons to hear the dispute on authenticity at the same time as other relevant issues are being heard so that the tribunal will have a better opportunity to study the witnesses concerned and to understand the relevant circumstances so that it may assess the context of the arguments on authenticity put forward by the parties. 2.Agreed bundles – Most arbitrators in Hong Kong require the parties to submit agreed bundles at an appropriate time. – It may be possible for the parties to extend the scope of their agreement to admissibility and perhaps relevance. 8. Evidence (g) Documentary Evidence

62 C. Arbitration Proceedings A party may obtain new evidence after proceedings have begun. If either party is expecting such evidence, it should inform the tribunal at the earliest opportunity. The arbitral tribunal has discretion whether or not to admit any new evidence tendered. The tribunal should also consider whether the party seeking to adduce the evidence is at fault for not adducing it earlier. If the evidence sought to be adduced is relevant and material, an arbitral tribunal should be slow to reject it. If the evidence is material but the tribunal fails to admit it, the award may be remitted or even set aside on the basis of misconduct. If the new evidence turns out to be unnecessary, the party adducing the evidence can always be penalised on costs. 8. Evidence (h) New Evidence

63 C. Arbitration Proceedings In Land Securities Plc v. Westminster City Council, Hoffmann J. took the view that an arbitration award is merely an opinion by the arbitrator based on the evidence put before him at the time and does not constitute direct evidence of the matters stated in the award. There is no direct authority on whether evidence adduced in an arbitration is admissible in a separate arbitration. 8. Evidence (i) Earlier Arbitration Awards

64 C. Arbitration Proceedings An arbitral tribunal may decide whether and to what extent it should take the initiative in ascertaining the facts and the law relevant to the proceedings. However, such power is subject to any agreement by the parties to the contrary. Under inquisitorial procedure, the tribunal may undertake an independent inquiry into the facts by gathering evidence itself, examining witnesses, appointing expert witnesses, relying on its own expertise etc. Under normal adversarial procedure, the parties are responsible for gathering and presenting the relevant evidence and arguments in support of their respective positions and the tribunal is supposed to act as umpire. 8. Evidence (j) Inquisitorial or Adversarial Approach

65 C. Arbitration Proceedings A party would be unable to present its case if it was not present at the hearing or otherwise where arguments or evidence was being tendered by the other party. The general rule is that a tribunal should not receive evidence from one party in the absence of the other party or parties. The above rule is subject to any contrary agreement of the parties. In any event, if the respondent were to be absent at the hearing, this did not mean that the arbitrator was obliged to accept the claim without question. Nor did it mean that he was under an obligation to protect the party who was not present. His function was to hold the scales of justice as evenly as he could and to act fairly and judicially in the conduct of the hearing. 8. Evidence (k) Receiving Evidence in the Absence of a Party

66 C. Arbitration Proceedings An arbitral tribunal has the discretion to direct evidence to be given by affidavit. An arbitrator has the discretion whether or not to examine a witness on oath or affirmation subject to any agreement by the parties to the contrary. The manner of administering oaths and taking affirmations should be in accordance with the Oaths and Declarations Ordinance. (Cap. 11) 9. Oral Evidence (a) Examination of Witness (i) Evidence given by affidavit and examining witnesses on oath

67 C. Arbitration Proceedings An arbitral tribunal does not have the power to compel a witness to attend a hearing if he refuses to do so, although adverse inferences could be drawn against a party if it could have procured the attendance of such a witness. In order to compel a witness to attend before the tribunal to give evidence, a party may make application to the High Court for an appropriate order. 9. Oral Evidence (a) Examination of Witness (ii) Attendance of witness

68 C. Arbitration Proceedings A witness as to fact should only give evidence on factual matters. Opinion evidence from such witness should not be admitted as evidence. An arbitral tribunal may issue directions requiring each party to give advance notice to the arbitral tribunal and to the other party of any witness it intends to present and to supply certain particulars about the witness including the language in which the witnesses will testify. A tribunal may direct the presence of a witness during a hearing to be limited to the time when the witness is testifying. 9. Oral Evidence (a) Examination of Witness (iii) Evidence of factual witnesses

69 C. Arbitration Proceedings An expert who is qualified to give evidence may give opinion evidence on a relevant issue in the dispute. In evaluating expert evidence, a tribunal should consider the following: – the tribunal should assess the level of objectivity and independence of the expert to the extent this is possible. – whether the experts opinion is based on facts or other matters verified by him personally or by his assistant or others. – whilst it is natural for an arbitrator to be impressed by the eminence or experience of an expert in his field, the tribunal should satisfy itself that the expert has carried out adequate preparatory work or research and his conclusions are based on logical reasoning and that there are no inconsistencies. 9. Oral Evidence (a) Examination of Witness (iv) Expert evidence

70 C. Arbitration Proceedings Normally the tribunal will give specific directions on expert evidence. The directions should limit the number of experts and specify clearly the area of expertise required. It is usual to require experts to exchange written reports at such time before the hearing as would enable the parties to adequately study the reports and prepare to question the experts. The direction may also require the parties experts to meet after the expert reports have been exchanged and to set out points of agreement and disagreement. It is often advisable that meetings between the experts be held on a without prejudice basis. 9. Oral Evidence (a) Examination of Witness (v) Procedure in adducing expert evidence

71 C. Arbitration Proceedings Arbitrators are often chosen because of their technical expertise. An arbitration is different from an expert determination. The position under common law appears to be as follows: – Whether or not an arbitral tribunal is entitled to rely on its own expertise in coming to a decision and the extent to which it can do so depends on what parties had expressly or impliedly agreed. Party may agreed that the arbitrator should make a decision based solely on his expertise and investigation. – In circumstances where an arbitrator is expected to rely on his own knowledge, a distinction should be made between general knowledge and special knowledge. – If the arbitrator has formed an opinion of his own which is not in accordance with the expert evidence adduced, he should inform the parties and allow them to comment on his view. 9. Oral Evidence (a) Examination of Witness (vi) Arbitrator relying on his own knowledge

72 C. Arbitration Proceedings For domestic arbitrations, there is no express provision in the Arbitration Ordinance allowing a tribunal to appoint its own expert. For international arbitration, the Model Law expressly provides that a tribunal may appoint experts to report on a specific issue of the dispute. Normally a tribunal would consider its own expert in the following circumstances: – where the parties have agreed to this for cost or other reasons. – where the nature of the dispute is such that the tribunal considers it advisable to appoint an expert to assist the tribunal to understand and analyse the expert evidence submitted by the parties. A tribunal is entitled to seek input from its appointed expert as long as it bears in mind that it has the responsibility to make decisions on the arbitration and such responsibility should not be delegated to the expert. 9. Oral Evidence (a) Examination of Witness (vii) Tribunal-appointed expert

73 C. Arbitration Proceedings It is advisable in most cases for terms of reference of the tribunals appointed expert to be drawn up. The purpose of this is to define the scope of the experts advice for the parties benefit as well as that of the tribunal and the expert. 9. Oral Evidence (a) Examination of Witness (viii) Terms of reference

74 C. Arbitration Proceedings The tribunal has the power to carry out an inspection of the physical evidence under the Arbitration Ordinance provided the property belongs to or is possessed by a party to the proceedings and the property is subject to the proceedings or any question relating to the property arising in the proceedings. A tribunal does not have the power to inspect property belonging to a third party. It is usually advisable for the tribunal to carry out the inspection in the presence of all the parties to the arbitration. 9. Oral Evidence (b) Real Evidence (i) Inspection

75 C. Arbitration Proceedings Both the court and the tribunal may: – direct the preservation, custody or detention of the relevant property; – direct samples to be taken from or experiments to be conducted on the property; and – grant interim injunctions or direct other interim measures to be taken. When the court and the tribunal have parallel jurisdiction to grant the appropriate relief, parties should apply to the arbitral tribunal for such relief unless the order sought involves a third party or the tribunal is otherwise unable to grant the relief sought. 9. Oral Evidence (b) Real Evidence (ii) Preservation of evidence

76 C. Arbitration Proceedings Sometimes called the guillotine system. In a chess competition, the maximum time each competitor could use is limited to half the time that has been allotted for the whole of the competition. The same can be applied to oral hearings. There should be a time keeper from each side. Under the current Arbitration Ordinance, if a party requests for the adoption of a chess-clock system approach and it is objected to by the other side, the arbitral tribunal must decide whether or not it is the appropriate procedure to follow. 10. Hearing (a) Estimation of Duration of Hearing Chess-clock approach

77 C. Arbitration Proceedings The most common adopted venue is the Hong Kong International Arbitration Centre. The oral hearing can be held at a place outside Hong Kong. Video conferencing is an option. The venue should be neutral, convenient and with all the necessary supporting facilities. 10. Hearing (b) Venue for Hearing

78 C. Arbitration Proceedings Such directions would normally be considered after the close of pleadings. Even if at the first preliminary meeting they have been dealt with, it is not uncommon for these directions to be reviewed to ensure that they remain realistic and workable. 10. Hearing (c) Directions for Main Hearing

79 C. Arbitration Proceedings The use of witness statements to stand as evidence-in-chief is the norm in arbitrations and in court. Statements of factual witnesses should generally be exchanged simultaneously. 10. Hearing (d) Factual Witness Statements

80 C. Arbitration Proceedings Leave has to be obtained from the tribunal before expert opinion evidence can be tendered. The order granting leave should specify the number of experts to be called and preferably the discipline of the experts and their names if possible. In inquisitorial jurisdictions, party-appointed experts are not preferred. If assistance from experts is required, the tribunal would appoint its own experts. Expert witnesses must confine themselves to rendering opinion. Fact finding remains the role and duty of the arbitral tribunal and cannot be delegated. 10. Hearing (e) Expert Witnesses

81 C. Arbitration Proceedings This usually takes the form of a chronology. The list would include dates of contracts, specific events that happened, letter exchanged, date of delivery of goods, date of commencement of work etc. 10. Hearing (e) Expert Witnesses (i) List of agreed facts

82 C. Arbitration Proceedings The list is useful for the arbitrator when he gets to writing the award and also to understand the evidence. The list of issues should be agreed. Where the matters cannot be agreed, it is up to the arbitrator to decide what the issues are by reference to the pleadings. 10. Hearing (e) Expert Witnesses (ii) List of issues

83 C. Arbitration Proceedings The approach to append documents to the statements of case in arbitrations and then to build on it by specific discovery applications or further voluntary production of documents, is to start with a core bundle and then expand that into a hearing bundle. If documents are to be scanned and transmitted electronically, security measures to ensure that the contents cannot be deliberately or inadvertently tempered with must be in place. Digital signatures and encryption are necessary security measures. 10. Hearing (e) Expert Witnesses (iii) Hearing bundle

84 C. Arbitration Proceedings Invariably, written submissions are adopted. As for closing submissions, this is again commonly dealt with by a written closing. It is not advisable to agree to extend the time for the exchange of the written closing. Where there is a claim and a counterclaim, the closing submissions should still be exchanged with the claimant having the last word. Where this is contested, then the closing submissions could be exchanged simultaneously followed by a simultaneous exchange of reply. 10. Hearing (e) Expert Witnesses (iv) Form and exchange of submissions

85 C. Arbitration Proceedings It is for the party whose witness requires interpretation to arrange for the interpreter. 10. Hearing (f) Interpretation

86 C. Arbitration Proceedings Translation of documents should have been dealt with at the time of the preparation of the hearing bundle. It is best if the translation is agreed on. 10. Hearing (g) Translation

87 C. Arbitration Proceedings The arbitrator has a duty to keep full notes whether or not the use of a transcript is necessary. 10. Hearing (h) Transcript

88 C. Arbitration Proceedings Some arbitrators adopt the practice of having a pre-hearing review to ensure that there are no last minutes applications that may jeopardise the conduct of the hearing. 11. Pre-Hearing Review

89 C. Arbitration Proceedings The order the proceedings generally follow is that of court but given the flexibility of arbitration, different orders dealing with factual and expert witnesses have been developed. The usual order: – claimants opening – claimants evidence – respondents opening – respondents evidence – respondents closing – claimants closing 12. Order of Proceedings

90 C. Arbitration Proceedings The tribunals fees and expenses will include any expenses properly incurred by the tribunal in the arbitration such as the expenses involved in engaging an expert or legal assessor. They should include any fees and expenses payable to the relevant arbitral institution. 13. Costs (a) What Costs are Recoverable?

91 C. Arbitration Proceedings The tribunal may issue orders as to costs at any time during the arbitration but unless such orders are incorporated in the award, they will not be enforceable and may be reviewed. It is possible for the tribunal to issue an enforceable award on costs at an interlocutory stage. If the tribunal does not deal with costs in its final award, any party to the proceedings may apply to the tribunal for an award in relation to costs. 13. Costs (a) When Costs should be awarded

92 C. Arbitration Proceedings The tribunal has a wide discretion to award costs. The general rule, applicable to civil proceedings before the court, is costs follow the event. A tribunal should consider the following matters before issuing an award on costs: – Whether there are any relevant agreements between the parties concerning costs. – Whether the respondent has made any payment into the court. – Whether to apply the rules governing the award of costs applicable to civil proceedings before the court. – Whether the tribunal had reserved any issues of costs in the arbitration or otherwise issued any interlocutory order as to costs which should be dealt with before issuance of the final award; – Whether the tribunal had directed or should direct that recoverable costs of the proceedings should be limited to a specified amount. 13. Costs (c) Discretion as to Costs

93 C. Arbitration Proceedings The tribunal is empowered to tax and settle the amount of costs to be paid. The successful party should not be awarded more costs than that which it incurred. If the tribunal does not intend to limit the amount recoverable by the successful party, it should not adopt, as a starting point, the practice of the legal fees incurred by the successful party being taxed off. 13. Costs (d) Taxation of Costs

94 C. Arbitration Proceedings Any hearing that is to be convened must be fixed by the arbitrator. The notice of hearing must be sent to both parties by registered post or some other form of recorded delivery to ensure that there can be no dispute that the notice has been sent. 14. Default Powers of Arbitrator (a) Notice of Hearing

95 C. Arbitration Proceedings Whether or not to proceed ex parte is at the discretion of the arbitrator. If the arbitrator decides to proceed ex parte, the award he renders will be a default award. In arbitrations, the arbitrator must continue to discharge his jurisdiction and be satisfied that the claim is made out. 14. Default Powers of Arbitrator (b) Notice to Proceed Ex Parte

96 D. Challenge or Arbitral Award There are two types of remedies or challenges, one being merely reactive and the other pro-active. A party to arbitration seeks a reactive remedy when he does not himself take any active steps to challenge the award, but he reacts to any attempt by his opponent to enforce. Much more common is the pro-active remedy. It might be considered as an appeal. 1. Introduction (a) Types of Challenge

97 D. Challenge or Arbitral Award An application to remit or set aside an award must be made by originating motion within 21 days after the award has been made and published to the parties. If the grounds of application are that the arbitrator or umpire has misconducted himself or the proceedings, the notice of motion and affidavit must be served on him. Evidence from the arbitrator or umpire is not admissible to explain, contradict or aid in the proper construction of his award. 2. Setting aside and Remission (a) Procedure

98 D. Challenge or Arbitral Award The main grounds on which awards have been remitted or have been set aside include where: – There is some defect or error patent on the face of the award; – The arbitrator or umpire has admittedly made a mistake and wishes to make a correction; – Material evidence has been discovered after the award was made, and that evidence could not, with reasonable diligence, have been discovered before the award was made; – The arbitrator or umpire has misconducted himself or the proceedings; – There has been corruption on the part of the arbitrator; – Without misconduct, some mishap or understanding has caused an aspect of the dispute which has been the subject of the reference not to be considered and adjudicated upon as fully as the parties were entitled to expect, such that it would be unfair to allow the award to take effect without further consideration by the arbitrator or umpire; and – The arbitrator has exceeded his jurisdiction or has failed to deal with all the questions submitted to him. 2. Setting aside and Remission (b) Grounds for Setting Aside or Remission

99 D. Challenge or Arbitral Award If an award is remitted to the arbitrator, the effect is to revive the jurisdiction of the arbitrator with regard to the matters remitted. Where an award is remitted, the arbitrator or umpire must make his second award within three months after the date of the order. If an award is set aside, the effect is as though it has never been made. If an award is liable to be set aside or remitted, the award ma be either void or voidable. An appeal lies to the Court of Appeal from every order made by the Court of First Instance on an application in the matter of an arbitration. At present, such appeals may be made without leave. 2. Setting aside and Remission (c) Effect of Remission or Setting Aside

100 D. Challenge or Arbitral Award The court has no jurisdiction to set aside or remit an award on the ground of error of fact or law on the face of the award. s. 23(3) provides that such appeals may be brought only :- – with the consent of all parties to the reference or – with the leave of the court. If parties wish the arbitrator to make a reasoned award, they must give notice to the arbitrator before the award is made that they require a reasoned award. The summons for leave to appeal and the notice of originating motion, must be served within 21 days after the award and reasons have been made and published to the parties. 3. Appeals (a) Procedure

101 D. Challenge or Arbitral Award Under s. 23(4), the court has jurisdiction to entertain an appeal only if, having regard to all the circumstances, the determination of the question of law could substantially affect the rights of one or more parties to the arbitration agreement. No appeal lies to the Court of Appeal against the decision of the Court of First Instance on an appeal relating to a question of law decided by the arbitrator, unless the Court or the Court of Appeal grants leave. 3. Appeals (b) Principles Applicable to Leave Applications

102 D. Challenge or Arbitral Award If a court takes the view that the case is one of those exceptional cases in which it should intervene, the nature of the judicial review on questions of law is straight-forward. The court simply measures the decision by applying the correct law against the facts of the case, and if the court reaches a conclusion different from that of the arbitrator, the courts conclusion will prevail. 3. Appeals (c) The Appeal

103 D. Challenge or Arbitral Award The parties to an arbitration reference may enter into an agreement in writing to exclude the right of appeal in relation to an award. If they do so, the Court of First Instance must not grant leave to appeal with respect to a question of law arising out of that award, and must not grant leave to make an application for an order that the arbitrator state reasons in relation to that award. 3. Appeals (d) Exclusion Agreements

104 D. Challenge or Arbitral Award There is no right of appeal against or review of the merits of award made in Hong Kong under the Model Law. Recourse may only be held by the procedure for setting aside of awards pursuant to Art. 34 of the Model Law. 3. Appeals (e) Model Law Awards Made in Hong Kong

105 E. General Issues 1. Arbitration Ordinance (Chapter 341) 2. HKIAC Domestic Arbitration Rules 3. UNCITRAL Arbitration Rules 4. High Court Rules Order HKIAC arbitration (Appointment of Arbitrators and Umpires) Rules 4. Documents Required

106 F. Conclusion 1. Consult legal counsel for assistance 2. Choose the method you would like to resolve your potential disputes – SWOT analysis. 3. Compose the agreement to cater for such dispute resolution methods. 4. Comply with the procedural rules and law of that country or state. 5. Cater for contingency issues. Practical tips/effective tactics Business Executives – Prepare, Plan and Execute 5Cs

107 Make the Right Decision Built up your tool kit to cater for unexpected situations Be wise and try not to accomplish tasks which you feel you are unable to fulfill Mistakes can only be tolerated once Develop ones knowledge in dispute resolution and continue to do so Choose the dispute resolution process wisely

108 Questions Thank you for Listening

109 The End


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