The growth in cross-border investment has led to more complex relationships between commercial parties, particularly where foreign elements are involved. Commercial parties are increasingly choosing international arbitration as the means to resolve their disputes.
For parties considering arbitration in the Asia Pacific Region, Hong Kong is an attractive arbitral venue for a number of reasons.
Independent and robust legal system
Hong Kong's legal system is based on the rule of law, independence of the judiciary and preserves the common law. The World Economic Forum Global Competitiveness Report for 2013 and 2014 ranked Hong Kong number four in terms of judicial independence out of 148 jurisdictions, ahead of the UK, the US, Singapore and many members states of the European Union.
Hong Kong's legal professionals are fully experienced and capable of providing clients with diversified professional legal advice and related services. Arbitrators in Hong Kong are regarded as independent and highly experienced in dealing with cross border commercial disputes. As such, Hong Kong is seen as a more attractive arbitration hub for domestic and foreign parties to resolve their disputes.
Outstanding arbitration services in Hong Kong
Hong Kong has its own home-grown arbitration body: the Hong Kong International Arbitration Centre ("HKIAC"), which offers highly cost-effective arbitration to the parties all around the world. The HKIAC is independent and free from governmental interference.
Also, the International Court of Arbitration of the International Chamber of Commerce ("ICC"), an arbitration institution based in Paris, opened a branch in Hong Kong in November 2008 for the purpose of serving ICC arbitration in the Asia Pacific Region.
Furthermore, in September 2012, the China International Economic and Trade Arbitration Commission ("CIETAC") established its first office outside the Mainland in Hong Kong. Its presence will further enhance Hong Kong's competitiveness as a venue for international arbitration.
Hong Kong courts' pro-arbitration approach and enforceability of arbitral awards
Hong Kong's courts have adopted a pro-arbitration approach, and are inclined to enforce arbitral awards. The New Arbitration Ordinance (Cap 609) (the "new AO") has also strengthened the court's position. The latter part of this article illustrates the court's pro-arbitration approach.
Hong Kong is also a party to The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (known as the New York Convention) and the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (the "Mutual Enforcement Arrangement"). Accordingly, parties may apply to enforce the award given by a Hong Kong arbitral tribunal before the courts in China and signing states of the New York Convention.
According to recent statistics, there were 26 arbitral award enforcement applications filed in Hong Kong courts in 2013 (8 of which concerned awards obtained in PRC), none of which was refused to enforcement.
Comparison of New and Old Arbitration Ordinance
As stated, Hong Kong's arbitral law is well developed to facilitate arbitration in Hong Kong. This has been achieved due to the recent changes in the Arbitration Ordinance.
- Abolishing the bifurcated regime
The new AO abolished the bifurcated regime between "international" and "domestic" arbitrations. Under the old regime, parties of domestic awards were entitled to appeal against the domestic awards on the ground of questions of law before the court.
In contrast, appeal against international arbitral award was only allowed in limited circumstances. Nowadays, domestic arbitrations are subject to the same provisions which are applicable to international arbitration in Hong Kong.
- Opt-in system
Although the new AO reduces court intervention, it also contains opt-in provisions, providing an alternative to parties who prefer greater court intervention. Those opt-in provisions may apply to all of the Hong Kong seated arbitrations (whether involving Hong Kong parties or whether having an international element).
According to section 100 and 101 of new AO, in cases where a construction contract and its subcontract(s) contain an arbitration agreement, all opt-in provisions are deemed to apply to the subcontracting parties as well if certain conditions are satisfied.
- Expressly specifying the duty of confidentiality
Another key amendment of the new AO is the change of the rules on confidentiality of court proceedings commenced in aid of arbitration proceedings. Under the old regime, all proceedings should be heard in open court by default. According to section 17 of the new AO, a court must not make a direction permitting information to be published unless all parties agree that the information may be published; or the court is satisfied that the information, if published, would not reveal any matter that any party reasonably wishes to remain confidential.
Aside from the new AO to facilitate arbitration in Hong Kong, recent Hong Kong cases show that Hong Kong courts adopt a pro-arbitration approach.
- Pacific China Holdings Ltd v Grand Pacific Holdings Ltd (FAMV No. 18 of 2012)
The judgment given by the Court of Final Appeal ("CFA") in Pacific China illustrates the general pro-arbitration approach adopted by courts in Hong Kong, and remains the leading authority on the issue. In this case, an appeal was made to the Court of Appeal (the "CA") when the Court of First Instance (the "CFI") set aside an arbitral award on grounds of procedural irregularity.
The CA reversed the CFI's decision, stating that such a breach must be of "serious" nature. The CA also stated that Hong Kong courts have discretion to refuse setting aside arbitral awards even where a violation of procedural regularity was established, if it is satisfied that the result could not have been different. The CFA, upon the appeal application, dismissed the application and endorsed the CA's decision.
This case, with the CFA's endorsement, demonstrates that Hong Kong courts are slow to interfere with arbitral procedures and awards.
- Recent lower court decisions
Recent lower court decisions have followed the CFA's pro-arbitration approach. In Hong Kong Golden Source Ltd v New Elegant Investment Ltd  HKEC 1658 and X Chartering v Y (HCCT 20/2013, 3 March 2014), the respondent in both cases sought to set aside the arbitral award on the ground of enforcing the award would be contrary to public policy. The CFI dismissed the applications in both cases, and highlighted that unless the complaint is sufficiently serious, the court is inclined to enforce arbitral awards.
With Hong Kong courts' reluctance to interfere with arbitration proceedings, parties can be assured that their arbitration agreements will be upheld, and arbitral awards will be enforced except in limited circumstances.
To conclude, with its well-developed arbitral law, the courts' pro-arbitration approach, and close ties with China, Hong Kong has distinguished itself from other Asian arbitration centres successfully.
The increasing number of commercial parties choosing to arbitrate in Hong Kong is strong evidential support, and we expect to see Hong Kong to remain as one of the top arbitration destinations.
1 HKIAC Enforcement of Awards – 2013