In recent years, there have been concerns over challenges facing the rule of law in Hong Kong. Some critics have questioned Hong Kong's status as a global deal-making and dispute resolution hub. In this article, we have put forward a number of considerations to dispel such misconceptions and explain why Hong Kong remains an ideal place to resolve commercial disputes.
Hong Kong has a rich common law heritage and a unique English-Chinese bilingual legal system. It is an ideal hub to resolve international disputes for foreign parties conducting business in or with parties based in Hong Kong and Mainland China.
This article touches on two key points of a dispute (commencement and enforcement) in showing why Hong Kong remains an ideal place to resolve commercial disputes, in particular those with Chinese elements.
Commencing Proceedings in Hong Kong
Litigation
Hong Kong has maintained its common law system after the handover of its sovereignty to China and is the only Chinese city with a common law jurisdiction. This provides international parties with the familiarity of a trusted legal system underpinned by two key touchstones of the common law system - judicial independence and certainty.
A party wishing to commence litigation in Hong Kong has to first identify the appropriate court. This would be based on the nature and amount of the claim. For commercial disputes, it would often be the District Court or the Court of First Instance of the High Court in which a party would commence an action.
Apart from a nominal filing fee for registering the “originating process” (setting out details of the claims and the amount of compensation being sought) with the court, the benefit for a litigant in Hong Kong is that no upfront court fees are required. This is in contrast to other jurisdictions, where courts would require payment of significant court fees proportional to the claim amount.
Arbitration
As a leading seat of arbitration, Hong Kong is home to a number of the world’s top arbitral institutions, prominent arbitrators and arbitration practitioners, making it an ideal place to commence arbitration proceedings. The increasing popularity of choosing Hong Kong as the seat of arbitration is also supported by statistics. For example, 2022 has witnessed a close to 40 percent increase in administrated cases by the Hong Kong International Arbitration Centre ("HKIAC"). In the same year, HKIAC received 344 new arbitration cases with a total amount in all arbitration disputes of approximately US$5.5 billion. Among these cases, 83 percent are international in nature and the vast majority were seated in Hong Kong.
For parties who wish to commence an arbitration, there must be a valid arbitration agreement in place and also consent to arbitrate between parties. While an arbitration agreement is normally incorporated as an arbitration clause in the underlying contract, it is not the only means.
As an arbitration-friendly jurisdiction, Hong Kong law sets out a broad definition of what constitutes a valid arbitration agreement. The Arbitration Ordinance (Cap. 609) is extremely user-friendly, it is divided into fourteen parts, which largely follow the sequence of an arbitration. Entire Articles of the Model Law are inserted into the body of the relevant section, followed by details of any modification or addition to it. Litigants can easily identify whether and to what extent the relevant Article applies in Hong Kong.
Enforcement of Judgments and Arbitral Awards
Besides the ease of commencing litigation and arbitration, the ease of enforcing foreign judgments and arbitral awards in Hong Kong is also a key reason why it is still widely regarded as the ideal dispute resolution hub.
Enforcement of Court Judgments
Foreign judgments may be enforced in Hong Kong either through a statutory registration scheme or under common law.
Hong Kong has long-standing reciprocal agreements for the recognition and enforcement of court judgments with 15 countries (7 of which are within the Commonwealth) under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319). This means that a Hong Kong monetary judgment can be registered, then recognised and directly enforceable in these designated jurisdictions and vice versa.
A party may also enforce a foreign judgment outside of the 15 reciprocal jurisdictions in Hong Kong by common law. Should the foreign judgment itself forms the basis of a cause of action, the judgment is regarded as a debt between the parties. A party simply needs to show, subject to the relevant laws and procedural rules, that the Hong Kong judgment is a money judgment for a definite sum, is final and conclusive as to the underlying disputes between the parties, and not subject to further appeals in Hong Kong.
Such common law enforcement mechanism is also possible for judgments from civil law jurisdictions.
Enforcement of arbitral awards
With respect to arbitral awards, Hong Kong remains very arbitration friendly and the courts, only in the most exceptional cases, would refuse recognition of an arbitral award (whether it is made in or outside of Hong Kong).
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) is a key instrument in international arbitration. As of February 2021, 166 countries have agreed to recognize and enforce arbitration awards made in other signatory countries subject to limited conditions. The New York Convention applies to Hong Kong by virtue of the Arbitration Ordinance (Cap. 609). Therefore, so long as certain conditions are met, Hong Kong will enforce arbitral awards as if they were local Hong Kong court judgments.
The grounds for refusing enforcement of an arbitral award in Hong Kong (and other New York Convention countries) are very limited. These grounds mainly relate to procedural fairness, jurisdictional issues, and issues of public policy. Unlike the appeals system in national courts, substantive issues such as questions of facts and law determined in an award cannot be challenged or used as grounds for refusing enforcement.
Even in the unlikely event that an arbitral award made in Hong Kong needs to be enforced in a non-New York Convention jurisdiction, enforcement may still be possible.
Hong Kong's Mutual Arrangements with Mainland China
Given its status as a Special Administrative Region of the People's Republic of China and as a separate jurisdiction from Mainland China, Hong Kong is in the unique position of being the only jurisdiction outside of Mainland China to have a number of mutual arrangements with Mainland China for judicial assistance covering various aspects of civil and commercial disputes. These include reciprocal recognition and enforcement of court judgments and arbitral awards as well as mutual assistance for court-ordered interim measures in aid of arbitral proceedings in the respective jurisdictions. Some features and benefits of these mutual arrangements are only provided to Hong Kong by Mainland China and are currently not available to any other jurisdictions worldwide. This solidifies the distinctive position of Hong Kong as the ideal place to resolve Chinese-related commercial disputes.
The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) and the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Rules (Cap. 645A) are poised to take effect on 29 January 2024. Together, they give effect to the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region, which provides a more streamlined and comprehensive mechanism for registration and enforcement of Mainland judgments in civil and commercial matters in Hong Kong.
In addition, 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, a party to arbitral proceedings in Hong Kong can apply for interim measures such as preservation of assets and evidence from the Mainland courts any time before the arbitral award is made. This is the first arrangement that Mainland China has signed with another jurisdiction concerning mutual assistance in interim measures in aid of arbitration, which was previously not available in Mainland China.
Further, by virtue of the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR, Mainland courts can order post-award interim measures for the arbitral awards made in Hong Kong but also permits an award winner in Hong Kong to apply for parallel enforcement in Mainland China.
Conclusion
Hong Kong's unique status under the "One Country, Two Systems" regime, recognized common law legal system and exclusive judicial mutual arrangements with Mainland China makes it the ideal place for parties to resolve international disputes, particularly in light of the increase in cross-border trade and investment between the East and West.
For further information on how Withers can help ensure the inclusion of a proper dispute resolution mechanism in cross-border transactions and/or resolution of international commercial disputes, please do not hesitate to contact us.
