Joe Liu, Deputy Secretary-General, Hong Kong International Arbitration Centre, reviews the benefits of international arbitration in cross-border commercial disputes and highlights the advantages of Hong Kong as a favoured seat of arbitration.
Benefits of international arbitration
International arbitration is the preferred method of resolving international commercial disputes. According to Queen Mary University of London and White & Case’s 2018 International Arbitration Survey, 97% of 922 respondents indicate that international arbitration is their preferred method of dispute resolution. There are several reasons why commercial entities generally prefer arbitration for cross-border commercial disputes. The key reasons are summarised below.
1. Worldwide enforceability of arbitral awards
The final decision made in an arbitration is known as an ‘arbitral award’. A treaty named ‘the New York Convention’ provides a global network for the enforcement of arbitral awards in 160 countries. Under the New York Convention, an arbitral award made in one of the contracting states is enforceable in all other contracting states, subject to limited exceptions. This is why arbitration is particularly suitable for cross-border disputes where the enforcement of an award against a party or its assets in a foreign country may be necessary.
2. Free choice of arbitrators and counsel
A party to an arbitration is generally free to select or nominate any arbitrator of its choice. If a dispute is submitted to a sole arbitrator, the parties will normally be given a period of time to select an arbitrator jointly. If a dispute is submitted to three arbitrators, each party will normally be given an opportunity to select an arbitrator and the third arbitrator will normally be selected by the parties, co-arbitrators or a neural authority. This allows arbitrators with suitable qualifications and relevant experience to be selected to determine a dispute. Parties’ participation in the selection process also helps to ensure their confidence in the individuals who will decide on their dispute.
There are generally no restrictions on a party’s choice of counsel to represent it in an arbitration. A party can be represented by solicitors and/or barristers qualified in the place of the arbitration or elsewhere, or choose to participate without any legal representation.
3. Flexible procedures
Parties can agree to apply any set of procedures or agree on a bespoke procedure tailor-made for their dispute. They can choose any governing law, place of arbitration, hearing venue, language and number of arbitrators (typically one or three).
Arbitral proceedings and awards are generally private and confidential. Parties are prohibited from publicising any information relating to their arbitration and award, subject to some exceptions. In Hong Kong, arbitration-related court proceedings and judgments are also confidential unless the parties agree or the court directs otherwise.
Arbitral awards are final and binding. No appeal on the merits of a dispute is allowed. This feature is attractive to parties that wish to prevent any appeals on a decision at multiple levels, which would thereby extend the process for resolving a dispute. However, some parties hold a less favourable view of the finality of an arbitral award and wish to preserve the ability to appeal in the event of any errors made by the arbitral tribunal.
Seat of arbitration
If parties agree to resolve their dispute by arbitration, the next question to consider is where to arbitrate, or in legal terms, where the seat of arbitration should be. The seat of arbitration is a legal concept which determines the procedural law that governs the arbitration, the courts that have the jurisdiction to supervise the arbitration and the place in which the arbitral award is deemed to be made.
Hong Kong is a popular seat of arbitration. According to the Queen Mary University of London and White & Case’s surveys, Hong Kong has been consistently voted among the top four seats of arbitration in the world since 2015.
Advantages of arbitration in Hong Kong
All features discussed above are available in Hong Kong arbitrations. The Arbitration Ordinance (Cap 609) (the Ordinance) is the legislation that governs all arbitrations seated in Hong Kong. The Ordinance is based on the 2006 version of the United Nations Commission on International Trade Law (UNCITRAL) Model Law – a set of legislative text published by a body of the United Nations reflecting international arbitration practice. The Ordinance provides a clear and comprehensive legal framework for arbitration in Hong Kong with no distinctions between international and domestic arbitrations. The Ordinance is a piece of fast-evolving legislation that is updated regularly to include amendments to improve the arbitral process in Hong Kong. Some of the recent amendments include the enforceability of relief issued by emergency arbitrators in or outside Hong Kong, the ability to submit disputes over intellectual property rights to arbitrations in Hong Kong and the use of third party funding in arbitrations and associated proceedings in Hong Kong.
Judicial independence and the pro-arbitration approach taken by the Hong Kong courts are another key feature of Hong Kong arbitration. The courts act independently and in accordance with the Ordinance to provide support for arbitration such as the issuance of interim measures and enforcement of awards. Between 2009 and 2017, the courts refused to enforce only seven awards out of 249 applications – an enforcement rate of 97.2%. The courts have also designated a specialist judge to deal with all arbitration-related matters to make sure that such matters are determined consistently by a judge with the relevant expertise.
Hong Kong also takes pride in the reputation and quality of the arbitral institutions that operate in the city. Hong Kong’s flagship arbitral institution is the Hong Kong International Arbitration Centre. Other arbitral institutions in Hong Kong include the Hong Kong office of the International Court of Arbitration of the International Chamber of Commerce, the Hong Kong Arbitration Center of the China International Economic and Trade Arbitration Commission and the International Arbitration Centre of the Chinese Arbitration Association, Taipei.
The latest development in Hong Kong arbitration is the conclusion of an arrangement between the Hong Kong SAR Government and the Supreme People’s Court of the People’s Republic of China on 2 April 2019 to allow the Hong Kong and Mainland Chinese courts to provide mutual assistance in interim measures in aid of arbitral proceedings. For the first time, the arrangement provides a legal framework for Mainland Chinese courts to issue interim relief in support of arbitrations seated in a jurisdiction outside Mainland China. The availability of such relief from the Mainland Chinese courts to eligible arbitrations in Hong Kong strengthens Hong Kong’s position as the premier venue for arbitrations with a Mainland Chinese connection.
Hong Kong is widely regarded as a preferred forum for international commercial disputes, particularly those involving Mainland Chinese parties. With the recent new arrangement to allow the Mainland Chinese courts to issue interim measures in aid of Hong Kong arbitrations, Hong Kong is set to play a leading role in providing dispute resolution services to projects under the Belt and Road Initiative and in the Greater Bay Area.
Hong Kong International Arbitration Centre (HKIAC)
Joe Liu oversees dispute resolution proceedings under HKIAC’s auspices and develops HKIAC’s rules and procedures. Prior to joining HKIAC, he worked as a Registered Foreign Lawyer at Allen & Overy in Hong Kong and at the Singapore International Arbitration Centre. Mr Liu is a recognised expert in the field of international dispute settlement and is a frequent speaker and writer on related issues. More information is available on the HKIAC website: www.hkiac.org.