Teresa Cheng, GBS SC JP, Chair of the Hong Kong International Arbitration Centre (“HKIAC”) discusses trending issues and developments in international arbitration and tells us why 2015 has been such an exciting year for Hong Kong and HKIAC in the disputes resolution realm.
What do cyberattacks, sanctions and the Hague Convention on Choice of Court Agreements have in common? They all raise issues that Teresa Cheng, GBS SC JP, Chair of the HKIAC, has likely considered before eating breakfast.
As HKIAC’s Chair, Ms. Cheng deals with a host of issues making waves in international arbitration circles, but her primary responsibility is to work with the HKIAC Executive Committee under the supervision of the HKIAC Council to develop Hong Kong’s position as an eminent arbitration and dispute resolution centre. She is specifically tasked with:
- working with the Council to set the vision and tone of the institution;
- furthering the policy objectives of the institution through collaboration with other bodies, representing the institution at necessary functions and connecting the institution with relevant opportunities; and
- working with the leadership of the Secretariat to ensure the proper running of the institution.
Of the issues and pressures Ms. Cheng faces on a daily basis, she says the main challenge has been ensuring she fulfils her duties while connecting them with the future development of arbitration and dispute resolution internationally, amidst the growing competition in other areas.
Major Trends and Challenges Facing ADR in Asia
With Asian economies growing, so have transactions and naturally disputes. Ms.Cheng predicts international arbitration will continue to be the main mode of dispute resolution in cross-border, multi-party and complex transactions, but notes a growing trend of parties resorting to mediation either before or during the arbitration process.
In light of these trends, Hong Kong and the HKIAC have maintained up-to-date arbitration laws and rules, which have made the City an attractive regional and international arbitration hub, as has its independent judiciary as a supervisory and enforcing jurisdiction. Ms. Cheng observed that Hong Kong’s ‘soft power’ – its people – has also played a vital role in maintaining its status as an international disputes resolution centre through establishing a solid foundation and developing available legal and arbitration services.
While challenges lie ahead with the growing number of arbitration and ADR centres in the region, Ms. Cheng believes Hong Kong can stand out amongst competitors by being even more “forward thinking”, and concentrating its energy and resources in constructively developing its legal and arbitration services internationally. Hong Kong must also be “outward looking” and “appreciate its strengths, as well as its limitations,” she said. In that way, “it can move in line with international developments, such as the belt and road initiative, the role played by the Asian Infrastructure Investment Bank in international infrastructure projects and cross-border investments, as well as the opportunities that arise from the impact of sanctions by EU and the US on certain states.”
Staying Ahead of the Competition
Jurisdictions and institutions must constantly evolve and adapt to the needs of users to stay ahead of the curve. Innovation is thus vital in growing and maintaining an edge on rival hubs and institutions.
With the aim of providing the best arbitration experience to its users, HKIAC has undertaken various initiatives that have led to its recognition as a leading arbitral institution. In 2013, HKIAC revised its administered arbitration rules to provide users with the best practice of international arbitration, ranging from detailed provisions on complex arbitrations to the use of an emergency arbitrator. The revised rules also introduced a unique dual fee regime to remunerate arbitrators (either on an hourly rate basis or based on the sum in dispute), which Ms. Cheng noted was recognised by the Global Arbitration Review in 2014 as one of the most innovative features of the year.
But the innovation did not stop there. In recognising the need for certainty in arbitration agreements, Ms.Cheng pointed out that HKIAC had published a new set of model clauses in 2014 prompting parties to consider the choice of governing law for their arbitration agreement. In the same year, HKIAC announced the roll out of its Tribunal Secretary Service, whereby members of the HKIAC Secretariat are available to act as secretaries to an arbitral tribunal, further enhancing arbitration’s efficiency. Together with a brand new set of guidelines governing various aspects on the use of a tribunal secretary, HKIAC was given the 2015 Global Arbitration Review Award for ‘Innovation by an Individual or Organisation in 2014’. “These innovations not only distinguish HKIAC from the other arbitral institutions in the region, but more importantly provide parties with an efficient means of settling their disputes,” Ms. Cheng explained.
As other arbitral institutions in the region are on their way to becoming prominent players in the market, Ms.Cheng indicated that HKIAC will continue to observe the trends in international arbitration going forward, as well as the demands of its users. “HKIAC’s newly unveiled tribunal secretary accreditation programme, as well as the opening of its Shanghai Office, are some of the exciting steps HKIAC is taking in order to maintain its position as a leading arbitral institution,” she said.
Strategically Important Markets
To meet the growing need for arbitral services in Asia, HKIAC has been outward looking in promoting their services to parties in a variety of markets. While China is important to the success of the HKIAC and many other organisations based in Hong Kong, Ms. Cheng indicated that South Korea, India, Southeast Asia and Russia are also strategically important markets to HKIAC’s future development.
“Given Hong Kong’s geographic proximity to Korea, our increased number of arbitration cases involving Korean parties and HKIAC’s strong and collaborative relationship with the Korean arbitration community, HKIAC is very committed to South Korea,” Ms. Cheng said.
She also indicated that HKIAC plans to continue to strengthen its profile in South Korea and provide on-the-ground support to Korean law firms and companies in relation to HKIAC’s dispute resolution services.
India is another jurisdiction that HKIAC finds strategically important, as it is one of the largest disputes markets in the region. Ms. Cheng noted that the Indian Government’s gazettal of Hong Kong in March 2012 was an important development for HKIAC, as awards rendered in Hong Kong are now recognised and enforced in Indian courts.
“Given that Sino-Indian trade is projected to exceed US$100 billion, Hong Kong is seen as a natural and neutral alternative to arbitration on the Mainland,” Ms. Cheng said.
Southeast Asia is another important region for HKIAC. Further developments are expected as ASEAN countries progress towards regional economic integration. Intra-regional investments and foreign direct investments from major investor economies, including China, are expected to further increase. Commercial disputes are thus expected to rise. Moreover, the ASEAN Comprehensive Investment Agreement provides an investor with recourse against a member State through arbitration under any arbitration institution.
“Sitting right next to Southeast Asia, HKIAC is strategically positioned as a neutral, efficient and cost-effective dispute resolution centre, with valuable experience in disputes involving ASEAN parties,” Ms.Cheng said.
“Triggered by the leading role played by Asia in the recovery from the global economic crisis and the current political and economic climate arising from events in Ukraine, Russian commercial activity mirrors the general shift in the global economic balance from West to East,” Ms. Cheng explained.
As recently as 2003, cross-border trade between Russia and China amounted to just US$12 billion. Over the last decade that figure has increased more than seven-fold, reaching US$90 billion last year. Both sides recognise the synergies between the world’s largest energy exporter and the world’s most populous nation and biggest manufacturer, with both Russia and China expecting trade between the two neighbours to reach US$200 billion by 2020.
Further, the ongoing events in Ukraine and resulting sanctions imposed on certain individuals and major state-owned Russian companies have also worked to alter the structure of Russia’s operations with its traditional commercial partners, which include the USA, the UK, Canada, Australia and Japan. As well as looking East to seek the lucrative opportunities now presented there, major Russian businesses are also moving eastwards in search of a safer and more stable business environment.
”Hong Kong and HKIAC are therefore the natural nexus of these new strategies and transactions,” Ms. Cheng said.
The needs of disputing parties are ever-changing, requiring legal and arbitration service providers to think creatively and extensively about how to improve the arbitral process to ensure the needs of parties are met.
Current issues that are trending include the impact of sanctions on cross-border transactions, the development and innovations in funding agreements, cybersecurity in international arbitration and the rise of instruments like the Hague Convention of 30 June 2005 on Choice of Court Agreements (the “Hague Convention”), which came into effect 1October 2015.
Impact of Sanctions on Parties’ Choice of Seat
In conjunction with the increased volume of China-Russia trade, recent sanctions against Russia – particularly those imposed by the EU and the US – have boosted interest among Russian businesses in Asian arbitration markets and created new opportunities for Asian arbitral institutions to administer cases involving Russian parties.
“HKIAC’s ability to administer cases involving sanctioned parties is not affected by the sanction regimes introduced in other jurisdictions,” Ms. Cheng explained.
In addition to dramatically increasing their presence in the Russian market since sanctions were imposed, HKIAC has also implemented a number of measures to enhance the appeal of HKIAC and Hong Kong as attractive venues for Russian-related disputes. Some of the ways in which HKIAC has made themselves more Russian user-friendly includes:
- hiring new Russian-speaking staff members (eg, HKIAC recently hired a new Secretariat member who is able to administer cases in Russian);
- providing Russian speaking tribunal secretaries, transcribers and translators to provide services in appropriate cases;
- offering Russian translations of the HKIAC Rules; and
- expanding HKIAC’s pool of Russian-qualified arbitrators.
Developments and Innovations in Funding Arrangements
On 19 October 2015, the Hong Kong Law Reform Commission published a Consultation Paper recommending third party funding be permitted for arbitrations in Hong Kong.
In other jurisdictions, where third party funding is allowed, it helps to provide access to justice. It is also increasingly used as an alternative financing option for parties to mitigate the costs and risks of pursuing disputes. As such, third party funding can be a useful tool for parties to help alleviate various financial pressures and other risks they face when deciding whether to pursue a claim.
Ms. Cheng indicated that HKIAC has established a task force to address the questions raised in the LRC’s consultation paper and to consider what role HKIAC can play to support this initiative.
New Challenges Posed by Information Technology and Security Risks
With the ubiquity of technology and computer systems performing important functions in our day-to-day affairs, establishing cyber-resilience and creating plans on how to prepare for and respond to cyber-threats is an integral part of many national and corporate agendas, including HKIAC’s.
Ms. Cheng indicated that HKIAC is actively considering measures to deal with the increasing cyber-threats in international arbitration. “We provide secure wireless networks to parties to HKIAC hearings. Each party will be given a separate Wi-Fi network and login details to secure wireless privacy and to avoid unintended sharing of confidential information. We are also working to enhance our data privacy and protection policy.”
The Rise of Instruments like the Hague Convention
The Hague Convention aims to ensure the effectiveness of choice of court agreements made between parties to transnational commercial contracts and also to radically streamline international litigation that involves exclusive choice of court clauses by eliminating the need for lengthy argument on jurisdictional issues.
As explained by David Waldron, “in terms of enforcement, the Hague [Convention] aims to do for litigation what the New York Convention has achieved for arbitration. Because the choice between arbitration and litigation often hinges on the ability of parties to enforce a judgment internationally, the Hague Convention goes a long way to resolving enforcement uncertainties by significantly limiting the basis on which courts in contracting states may refuse to enforce a judgment made in another contracting state pursuant to an exclusive choice of court clause.”1
Ms. Cheng views the introduction of the Hague Convention as a welcome development that will make court litigation a more attractive means to resolve international disputes, but notes international arbitration still has its own advantages.
In the latest Queen Mary University of London survey (ie, a prestigious global arbitration survey), Ms. Cheng pointed out that 90 percent of respondents chose international arbitration as their preferred dispute resolution mechanism. “Given the level of competition in today’s dispute resolution market, HKIAC will continue to improve and perfect its offerings to maintain its competitive edge and better address the evolving needs of users.”
Looking Ahead to the Next 30 Years
This year marks the 30th anniversary of HKIAC. As an organisation committed to fostering the development of international arbitration regionally and globally, this anniversary year has been an opportune time for HKIAC to talk about its vision for the future.
Over the next 30 years, Ms.Cheng expects two major trends developing in the field of arbitration to continue. The first relates to the key role played by Hong Kong, as Asia’s premier dispute resolution centre. “With Asia’s ongoing role in leading the global economic recovery and the associated shift in investment activity from West to East, Hong Kong is experiencing a golden age of arbitration, increasingly playing host to the resolution of some of the most complex and high-value disputes today, a trend which will only continue to strengthen over time,” she said.
The second trend relates to the growing complexity of disputes. Ms. Cheng observed that international commercial relationships increasingly involve multiple parties and multiple contracts and so, therefore, do the disputes which arise from them (such cases accounted for a third of new arbitrations filed with HKIAC in 2013). “It is imperative that institutions are able to deal as flexibly as possible with such disputes through, for example, provisions on joinder, consolidation and the ability for claims arising under multiple contracts to be determined in a single proceeding,” she explained. “HKIAC’s state-of-the-art administered arbitration rules introduced late in 2013 lead the field in this respect and provide an excellent option for parties who wish to put themselves in the best possible position for effective dispute resolution.”
As to HKIAC’s role in the next 30 years, Ms.Cheng believes “Forward Thinking” will be HKIAC’s guiding principle. “It describes the vision HKIAC holds as we carry out our day-to-day work but equally informs the community that the next 30 years will not remain static. We will continue to build bridges with the communities and strengthen the dialogue among users, innovate, create, and push the envelope with arbitral practice, as well as set a model for the growth of other arbitration jurisdictions in the region. We also plan on continuing to cooperate with other institutions to help them improve their own services,” she said.
Developing the Next Generation of Arbitrators and Advocates
Many arbitral institutions have young practitioner groups, including HKIAC’s own HK45 for practitioners under the age of 45. “The mission of HK45,” Ms. Cheng explained, “is to promote interest in and knowledge of issues relating to arbitration. We would like to see the group play an active role in continuing to supplement HKIAC’s initiatives to promote Hong Kong as a centre for dispute resolution.”
Ms. Cheng observed that the group is “very active” and “has recently become one of the beneficiaries of this year’s Hong Kong Arbitration Charity Ball.” She indicated that HK45 will use the funds received to support two key initiatives: the HK45 Hong Kong Arbitration Roadshow and in expanding the quantity and quality of HK45’s community and education events without charging participants. “We would like to see HK45 spearhead these two initiatives and continue to organise arbitration seminars and social events for young practitioners to develop the next generation of arbitrators and counsel.”
Message for Solicitors
Ms. Cheng believes Hong Kong solicitors have huge potential. “With the linguistic ability, an understanding of Asian cultures and Hong Kong solicitors’ international exposure, they can play a pivotal role in developing legal and arbitration services in Hong Kong,” she said.
She also observed the importance of both transactional and disputes lawyers in promoting Hong Kong as a regional disputes hub. “Transaction lawyers can encourage parties to put in a Hong Kong dispute resolution clause, and adopt Hong Kong law as the governing law for the contract. Dispute resolution lawyers will be able to provide a service that is second to none in the region.”
2015 has been an exciting year for HKIAC and Hong Kong, filled with many new developments and awards. Of the achievements and advances HKIAC has made, Ms. Cheng seemed most proud of HKIAC being recognised as the third preferred arbitral institution in the world and first outside of Europe as well as HKIAC being found to be the world’s most improved institution over the past five years.
“It is comforting to learn that the efforts that have been put into developing Hong Kong as an international arbitration centre are recognised by so many. I hope that we will continue to reinforce Hong Kong’s role as the international platform for legal and dispute resolution services in the Asian and also the world economy.”
1. David Waldron, Hague Convention Choice of Court Agreements to Take Effect in October, LawFlash (13 Jul 2015), http://www.morganlewis.com/pubs/hague-convention-choice-of-court-agreements-to-take-effect-in-october?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original.
GBS SC JP
Chair of The HKIAC
Teresa Cheng GBS SC JP FICE FCIArb is a Senior Counsel, Chartered Engineer, Chartered Arbitrator and Accredited Mediator, with a distinguished record of public service in Hong Kong. She is the Chairperson of HKIAC, Past Vice President of the International Council of Commercial Arbitration, and Past Vice President of the ICC International Court of Arbitration. In 2008, she was the first Asian woman elected through a global election as President of the Chartered Institute of Arbitrators. She serves as a Recorder in the Court of First Instance of the High Court of Hong Kong, and is currently a member of the International Centre for Settlement of Investment Disputes (“ICSID”) panel of Arbitrators, designated by the Chairman of the ICSID Administrative Council of the World Bank, and an external IFC alternate member of the World Bank’s Sanctions Board. Ms. Cheng is a Fellow of King’s College in London, and the Course Director of the International Arbitration and Dispute Settlement Course at the Law School of Tsinghua University in Beijing.