Arbitration in Hong Kong

This article offers an in-depth examination of Hong Kong's arbitration law, including the latest amendments to the Arbitration Ordinance. It delves into the structure and functions of key arbitration institutions, particularly the Hong Kong International Arbitration Centre. Additionally, it outlines typical arbitration procedures, from the initiation of a claim to the issuance of an award.

Arbitration as an effective mechanism for resolving commercial conflicts

Arbitration, a form of alternative dispute resolution, enables parties to voluntarily submit their commercial disputes to designated arbitrators. This process is private, confidential, and typically final, making it a preferred method in international commercial relations as it allows companies to seek swift and lawful resolutions to disputes.

The foundation of arbitration lies in the agreement between parties, which can be incorporated into the main contract through an arbitration clause or established in a separate agreement once a dispute arises. It is crucial that the arbitration agreement clearly defines the scope of the dispute and grants the arbitrators the necessary authority to resolve it.

Parties have the discretion to select their arbitrators, either appointing them directly or utilizing the services of professional arbitration institutions. Commonly, three arbitrators are appointed to ensure a balanced and impartial perspective.

Arbitration differs from traditional litigation in that the proceedings and documentation remain confidential, which is vital for businesses aiming to safeguard their proprietary information. Alternative dispute resolution procedures often expedite the resolution process, focusing on the prompt and specific resolution of disputes.

An arbitral award is binding on all parties and takes effect immediately upon issuance. The opportunities for appealing an arbitral award are limited and are available only in exceptional circumstances, facilitating the swift resolution of conflicts and the restoration of business relations.

Hong Kong as a preeminent international arbitration center

Hong Kong holds a distinguished position on the global stage as a nexus for international arbitration, leveraging its distinctive legal infrastructure and strategic geographic location. It is acknowledged as the foremost arbitration center in the Asian region and ranks among the top globally, thanks to the high level of independence in its legal proceedings, securing the 4th position in the global rankings.

A unique attribute of Hong Kong is its legal system, rooted in common law principles, inherited from Great Britain. This stands in contrast to the civil law system practiced in mainland China, providing a robust foundation for equitable and transparent arbitration.

The Hong Kong Arbitration Ordinance, modeled after the UNCITRAL Model Law on International Commercial Arbitration, offers a contemporary and comprehensive legal framework for arbitration proceedings. This Ordinance ensures minimal governmental intervention and maximal party autonomy, bolstering international business confidence in Hong Kong's arbitration process.

Hong Kong has cultivated a robust professional community of lawyers specializing in arbitration. Many of these professionals possess international education and experience across various jurisdictions, enabling them to deliver high-caliber services. Educational institutions in the region frequently host seminars and courses on arbitration, ensuring a high level of expertise and continuous professional development among specialists.

Fundamentals of legislative regulation of arbitration processes in Hong Kong

The legislative regulation of arbitration procedures within the jurisdiction of Hong Kong is governed by the Arbitration Ordinance, Cap 609, which came into effect in 2011. This regulation, developed based on the UNCITRAL Model Law on International Commercial Arbitration, provides a cohesive legal framework to oversee both domestic and international arbitration processes in the region.

Provisions of the Arbitration Ordinance

The Ordinance encompasses key provisions regarding the structure and conduct of arbitration:

• Formation of an arbitration agreement: for an arbitration agreement to be valid, it must be in writing. It can be embedded within the main contract or exist as a separate document. The agreement must clearly delineate the dispute to be submitted to arbitration and be binding on both parties.
• Powers of the arbitration tribunal: the tribunal is empowered to determine its jurisdiction, including the existence and validity of the arbitration agreement.

Procedural aspects

The Arbitration Ordinance also regulates the procedural dimensions of arbitration:

• Procedural issues: the Ordinance outlines the conduct of the arbitration process, including the collection and presentation of evidence, the conduct of hearings, and other critical procedural aspects.
• Issuance of an arbitration award: procedural rules and conditions are established under which the arbitration tribunal can deliver a final verdict on the dispute.
• Enforcement and annulment of arbitration awards: the Ordinance specifies the mechanisms for enforcing or, if necessary, overturning an arbitral award.

This Ordinance significantly streamlines and unifies arbitration processes within Hong Kong, making them more accessible and comprehensible to participants in both domestic and international business disputes.

Arbitration institutions in Hong Kong

HKIAC offers a comprehensive range of services:

• Management of arbitration processes: HKIAC oversees all aspects of arbitration procedures to ensure efficiency and adherence to established standards.
• Mediation and alternative dispute resolution methods: the Centre also provides mediation services, assisting parties in reaching mutually acceptable solutions without resorting to protracted arbitration.
• Appointment of arbitrators: the Centre plays a pivotal role when disputing parties cannot independently agree on an arbitrator or when a neutral third party is necessary to ensure the objectivity and impartiality of the arbitration process.
• Development of procedural rules: HKIAC formulates and continuously updates its arbitration rules to align with modern practices and the needs of the international business community.

Currently, the Centre operates as a fully autonomous entity, sustaining its activities through internal funding sources. The primary source of income for HKIAC is arbitration fees and other charges related to the arbitration and resolution of disputes.

This self-financing model underscores the Centre's solidity and stability, as it does not rely on external capital sources, which in turn helps maintain its authority and independence in the eyes of the international community. Additionally, it ensures that decisions made by HKIAC arbitrators are free from external influence and completely objective.

Funding from its own resources also enables the Centre to invest in operational development, enhance its technological infrastructure, and improve staff competencies. Such investments aim to ensure that arbitration procedures are conducted efficiently and in line with international standards.

In addition to HKIAC, other arbitration institutions in Hong Kong include:

• CIETAC branch offers arbitration services that comply with Chinese law and international standards.
• HKMAG focuses on resolving disputes in maritime business and global trade.

These institutions, along with HKIAC, create a comprehensive arbitration services system that fully addresses the needs of the global legal and business communities in Hong Kong.

Sequence of steps in arbitration processes in Hong Kong

Peculiarities of enforcement and annulment of arbitration awards

In Hong Kong, arbitral awards are recognized as final and are enforced without the necessity of additional legal proceedings, highlighting the efficiency and promptness of the arbitration process. However, there are specific, narrowly defined circumstances under which an arbitration award may be set aside.

To annul an arbitral tribunal's decision, one of the parties must provide compelling evidence of one of the following conditions:

• the arbitration agreement is deemed unenforceable or invalid,
• lack of notice of proceedings or selection of arbitrator,
• exceeding delegated powers by the arbitral tribunal,
• non-compliance with legal requirements regarding the tribunal's composition or procedural conduct.

Protective regulations are crucial in ensuring a predictable and stable arbitration environment in Hong Kong. They safeguard the rights of all participants and foster confidence in the arbitration system, thereby confirming its effectiveness and impartiality as a means of resolving commercial disputes.

Conducting arbitration sessions

Arbitration proceedings in Hong Kong are characterized by distinctive features shaped by national legislation and established practices. These elements contribute to the high efficiency of the process and ensure the delivery of equitable decisions.