Arbitration in Hong Kong: Thriving and Improving

Hong Kong’s reputation as one of the world’s premier arbitration centres has come under scrutiny of late following certain developments in the city, and these were highlighted in a Financial Times article earlier this year that questioned its appeal. However, the reality on the ground is quite different, and lawyers, arbitration centre heads and other industry insiders say that not only does Hong Kong remain a fair and safe seat of arbitration, it is also continuing to evolve as it looks to become more attractive than ever before.

Alexis Mourre
President, ICC International Court of Arbitration

Thomas So
Chair, eBRAM International Online Dispute Resolution Centre Limited

Huen Wong
Executive Chairman, South China International Arbitration Center (Hong Kong)

Brad Wang
Deputy Secretary-General, China International Economic and Trade Arbitration Commission Hong Kong Arbitration Center & Managing Counsel, China Maritime Arbitration Commission Hong Kong Arbitration Center

The past few years have been quite tumultuous for Hong Kong. First there were the protests, followed by the coronavirus pandemic and the introduction of the National Security Law (NSL) – with the city at the same time being impacted by the China-U.S. trade war. From certain quarters, there were suggestions that Hong Kong was losing some of its appeal as an arbitration centre for commercial disputes, a claim offered most notably by the Financial Times in an article titled “Companies consider writing Hong Kong out of legal contracts.” The article alleged that lawyers were receiving queries from clients “about whether to write Hong Kong out of governing law and arbitration clauses when conducting business in the financial hub or entering into joint ventures with Chinese and other Asian counterparties.”

Those involved in the city’s arbitration sector, however, do not seem to agree, and neither do the statistics. According to the Hong Kong International Arbitration Centre (HKIAC), international parties in dispute still trust Hong Kong, with 72.3 percent of all arbitrations submitted to HKIAC in 2020 being international in nature - which means that at least one party was not from Hong Kong – and 31.8 per cent of all arbitrations involving no Hong Kong parties. In spite of political unrest, the HKIAC received 318 arbitration cases in 2020, higher than the number of arbitrations submitted in 2019 and the highest number in ten years. As the Secretary for Justice, Teresa Cheng, noted in her response to the “incomplete picture” painted by the Financial Times article, “From July to December 2020 — the six months following the introduction of the NSL — the HKIAC received 182 new cases, an increase of 39 per cent from the same period in 2019.”

For international investors, the introduction of the NSL brought about concerns that the law will unfairly influence cases involving Mainland Chinese companies. The fear is that since the NSL criminalises collusion with foreign entities, a broad interpretation of the law could be applied to, and be used to, serve the interests of Mainland Chinese investors. However, as Joe Liu, Deputy Secretary-General of HKIAC said in an article published last year by Conventus Law, “The new legislation targets four specific and serious crimes, and the risk of interference in Hong Kong’s arbitration process is very low.” In reality, Mainland China has no benefit if Hong Kong loses out as an arbitration centre because of any of its political moves. “Hong Kong is already the largest IPO market, and it’s only getting bigger as US antagonism towards Chinese companies motivates them to relist here. Mainland China has a vested interest in Hong Kong succeeding as an international arbitration centre,” Liu shared.

Other news reports have suggested Hong Kong is also experiencing capital flight, but recent facts and figures indicate otherwise. Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, explained in a recent webinar called “Why Hong Kong Is Irreplaceable” that the notion that “capital is fleeing the city is not true.” He said he had witnessed a substantial inflow of funds into the city, not an outflow and besides its own unmatched position in IPOs and capital markets, Hong Kong is “the only gateway of its kind to Mainland capital markets.” Hong Kong has a “forward-thinking regulatory environment” and a “fair and predictable marketplace,” Yue shared. The city is also boasts “top notch capability in law, accounting, compliance, risk management and tax,” he added.

HONG KONG'S ARBITRATION STRENGHT

Hong Kong is hailed as an international arbitration hub because of its strong pool of arbitrators, independent judiciary and its unique status as a bilingual common law jurisdiction. Some of its other distinct strengths include that it is “the first jurisdiction in Asia to adopt the user-friendly UNCITRAL Model Law as procedural law for arbitration,” says Thomas So, Chair of eBRAM International Online Dispute Resolution Centre Limited (eBRAM). This makes the arbitration laws in the city “pro-arbitration, up-to-date and user-friendly,” explains Brad Wang, Deputy Secretary General of the Hong Kong branch of the China International Economic and Trade Arbitration Commission (CIETAC) and Managing Counsel of the China Maritime Arbitration Commission (CMAC) Hong Kong Arbitration Center.

Alexis Mourre, President of the International Chamber of Commerce (ICC)’s International Court of Arbitration, says that with the Arrangement concerning Mutual Assistance in Court-ordered interim measures in aid of arbitral proceedings by the Courts of the Mainland and of the HKSAR which took effect in October 2019, Hong Kong became the first and only jurisdiction outside Mainland China where parties to an arbitration seated in Hong Kong and administered by qualified institutions, such as the ICC, may apply to the Mainland Courts for interim measures. “This makes Hong Kong a prime venue for arbitrations with a Mainland Chinese connection. The Arrangement has been well used since its introduction, with both Chinese and non-Chinese parties taking advantage of it,” says Mourre. Combined with its admirable infrastructure and the presence of world-renowned arbitration institutions such as ICC and CIETAC in addition to its locally established HKIAC, Hong Kong’s position as a leading international hub seems to be well-maintained.

For international companies, entering the Chinese market opens up the possibility of reaching billions of consumers whose purchasing power is only going upwards. Due to its geographic location at China’s southern tip, Hong Kong has an array of transport connections with the Mainland and enjoys a highly active and cooperative business relationship with the region. However, business is conducted very differently in the Mainland compared to the West and hence foreign companies often rely on Hong Kong as a gateway to China. Similarly, in arbitration, “Hong Kong serves as an international legal hub for deal making and dispute resolution services, including for Mainland China-related transactions,” notes Mourre. As gateway to China even in the legal space, “Hong Kong is particularly suited for international arbitration cases involving Chinese parties as it is regarded as an impartial venue having features of both the West and the East,” according to Wang. “The most recent Greater Bay Area Legal Professional Examination enables Hong Kong qualified lawyers to practise in the Mainland, thus allowing them to represent Hong Kong businesses before courts in the GBA. Also, the newly-amended Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) opens up more commercial sectors in the Mainland and gives more preferential treatments to qualified Hong Kong investors, protects their investments and adopts mediation, a flexible, speedy and cost-efficient mechanism, to resolve disputes arising thereunder.” he adds. These developments demonstrate Hong Kong’s unique value in arbitrating cases with any sort of a Chinese angle and as the world becomes increasingly aware of the revenue Chinese consumers can bring to a business, such an edge can only be beneficial globally.

“Hong Kong is particularly suited for international arbitration cases involving Chinese parties as it is regarded as an impartial venue having features of both the West and the East.” – Brad Wang, CIETAC & CMAC

Huen Wong, Executive Chairman of the South China International Arbitration Center (SCIA), feels that “The distinguished professionalism, experience in international trade and close relationship with the Mainland render Hong Kong particularly suited for international and cross-border commercial and investment disputes involving Mainland parties.” Besides just Mainland China, “for international investors, Hong Kong has been and will continue to serve as a neutral and efficient seat of arbitration for commercial disputes in for example the Greater Bay Area and the Belt and Road regions,” he notes.

So feels that in terms of practice areas and sectors, Hong Kong is particularly suited for “international trade, sale of goods, maritime, international investment, corporate, banking and finance, and construction” cases.

IMPACT OF RECENT POLITICAL EVENTS

Recent periods of political unrest brought Hong Kong sharply under international spotlight with concerns over its democratic system.

“Hong Kong has been and will continue to serve as a neutral and efficient seat of arbitration for commercial disputes in for example the Greater Bay Area and the Belt and Road regions.“
– Huen Wong, SCIA

There were fears that there would be an erosion of the city’s autonomy and that this would impact the legal system and undermine its fairness and neutrality. However, leaders of arbitration organisations are confident that recent political events will have no effect on how arbitration is conducted in the city. So believes that such fears do not match reality because “under the “one country, two systems” doctrine, Hong Kong embraces an independent common law legal system with arbitration friendly judiciary.” In fact, Hong Kong’s engagements with China only serve to make it “the only jurisdiction outside the Mainland where, as a seat of arbitration, parties to arbitral proceedings administered by its arbitral institutions are able to apply to Chinese mainland courts for interim measures,” shares Wang. “Hong Kong’s rule of law still remains robust and its judiciary still maintains strong independence. The status of Hong Kong being a leading arbitration hub remains unchanged,” he adds.

Mourre adds that arbitration in Hong Kong has so far not been impacted by recent political developments, which have not affected commercial disputes. “Local and international practitioners remain confident in the independence and reliability of the judiciary, which is highly supportive of arbitration and expected to remain so. The business community still trusts Hong Kong as an open and international hub, based on principles of independent justice and due process, and it believes in its unique strengths and irreplaceability,” he says.

“Local and international practitioners remain confident in the independence and reliability of the judiciary, which is highly supportive of arbitration and expected to remain so.” – Alexis Mourre, ICC

In fact, according to So, more foreign companies [have] started to resume economic activities with the Mainland and other areas through Hong Kong. “As such, demands on Hong Kong’s legal services, including arbitration and mediation services, have been increasing day by day,” he notes.

“Demands on Hong Kong’s legal services, including arbitration and mediation services, have been increasing day by day.” – Thomas So, eBRAM

Wang points out that even though Hong Kong receives a high amount of cases involving Mainland Chinese parties, “since the latter half of 2020, 87.5% of arbitrations submitted to CIETAC Hong Kong Arbitration Center are international and 27.5% of them involve no Chinese mainland parties. We have seen consecutive growth in terms of case number and amount in dispute after 2019,”.

MEETING THE NEEDS OF INTERNATIONAL ARBITRATION

As parties, both locally and internationally increasingly rely on Hong Kong’s arbitration services, the city has committed to a range of initiatives and improvements to better meet their needs. Besides the mutual agreement with Mainland China, other improvements to its arbitration landscape include amendments in the Arbitration Ordinance, providing additional clarification on intellectual property cases. “Relevant parties are now more confident to use arbitration as an instrument to settle [intellectual property] disputes,” says Wang.

So says that other methods to keep up with international arbitration needs include “a COVID-19 Online Dispute Resolution (ODR) Scheme providing an extremely cost-effective way for eligible parties to resolve disputes online via a secure ODR platform.”

Meanwhile, Wong believes that Hong Kong spares no efforts to continually explore ways to enhance its arbitration services and to upkeep the status as an international focus for arbitration. “Among other things, the Hong Kong SAR Government and her arbitration profession have diligently been (i) conducting regular law reviews and reforms in arbitration and related areas (ii) updating and improving the legal environment for arbitration in Hong Kong, (iii) carrying out harmonisation studies and exercises in arbitration practices to dovetail with the international standards, and (iv) devising and arranging capacity building programs and technological enhancements in arbitration practice for arbitration practitioners,” he notes

Further initiatives and improvements include the Chief Executive’s 2020 Policy Address, which has recognized the importance of law technology development, says So. In addition, “the Department of Justice is actively exploring the development of the Hong Kong Legal Cloud service. These visionary policies and measures will make Hong Kong more attractive to international arbitration,” he adds.

Wang notes that in the last couple of years, the Hong Kong Government invited arbitration-related organizations, such as CIETAC Hong Kong Arbitration Center, eBRAM, CIArb and HKIArb to operate in the Legal Hub at Central, the heart of Hong Kong business district, creating great convenience to their users” says.

Furthermore, the Arbitration Ordinance of the Laws of Hong Kong was amended in 2018 to allow third party funding for arbitration, says Wong. “The Law Reform Commission in December 2020 recommended to introduce Outcome Related Fee Structures for arbitration,” he notes. “Arbitrators can also soon expect the Arbitration (Amendment) Bill 2021 which aims to clarify and improve the existing arrangements under the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the HKSAR as set out in the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR,” he adds.

HONG KONG AS A LONG-TERM INTERNATIONAL ARBITRATION HUB

With its very successful track record and an ample amount of developments and initiatives in place, it is unsurprising then that Hong Kong’s position as major hotspot for arbitration remains firm. “Hong Kong embraces impeccable commercial environment and well-established legal system,” notes So. “In the Outline Development Plan for the Guangdong-Hong Kong- Macao GBA, Hong Kong is earmarked as the international legal service and dispute resolution service centre,” he adds. Even while the city battles political turmoil, trade wars and a pandemic, it continues to ensure that arbitration services are not diminished but only bettered.