- Arbitrators — Arbitrability — Arbitral rules & institutions — Arbitral agreements — Arbitral tribunal — Statehood, jurisdiction of states, organs of states
1.01 Hong Kong is the most preferred seat of arbitration outside of Europe and the third most preferred arbitral seat worldwide.1 This chapter discusses the contributing factors that make Hong Kong a global arbitration centre that ‘meets or even exceeds all standards’ in the Chartered Institute of Arbitrators’ ten principles of an effective, efficient, and ‘safe’ seat of international arbitration.2
1.02 Hong Kong is one of the premier venues for international arbitration in the world. Described as a ‘barren rock’ some 150 years ago, Hong Kong is today a world-class international commercial and business centre and the financial capital of Asia.
1.03 After more than 150 years of colonial rule under the British, Hong Kong reverted to Chinese sovereignty on 1 July 1997 under the ‘one country, two systems’ principle. As a Special Administrative Region (SAR), Hong Kong enjoys a high degree of autonomy (except in defence and foreign affairs) and retains a separate legal system from that of mainland China. Hong Kong’s legal system is based on the English common law and is guaranteed in Hong Kong’s constitutional instrument, the Basic Law.3 Hong Kong has a long tradition of upholding the rule of law and judicial independence, which are two key foundations for the city’s success as a global dispute resolution centre.
(p. 2) 1.04 Hong Kong has long been at the forefront of international arbitration developments. As the first Asian jurisdiction to adopt the latest version of the UNCITRAL Model Law on International Commercial Arbitration (UNCITRAL Model Law),4 Hong Kong has taken consistent and measured steps to build a sustainable world-class arbitral framework, which includes modern arbitration legislation and a reputable arbitral institution, the Hong Kong International Arbitration Centre (HKIAC). As a result, Hong Kong has been recognized as the world’s second most improved seat over the past five years.5
1.05 Today, there are forty-plus arbitral institutions around Asia that are ‘seeking to emulate Hong Kong’s success’.6 Hong Kong’s position as a leading international arbitration seat is underpinned by a number of important factors that together provide a favourable environment for the conduct of international arbitration proceedings. These include:
(1) its strategic location;
(2) its strong industry expertise;
(3) a developed legal framework;
(4) an independent judiciary;
(5) free choice of arbitral procedures, legal representation, and arbitrators; and
(6) the worldwide enforceability of Hong Kong awards.
1. Strategic location
1.07 Hong Kong is Asia’s capital for finance and trade. Strategically located in the heart of the fast-developing Asia-Pacific region, Hong Kong boasts an international community and first-class infrastructure, making navigation around the city simple and efficient. In particular, Hong Kong enjoys a convenient geographical location for the conduct of arbitrations involving Asian parties. It can be reached in under four hours on a flight from Beijing, Tokyo, or Seoul in North Asia, and Bangkok, Singapore, and Jakarta in South-East Asia. There are direct flights connecting Hong Kong to major business centres in North America and Europe. Further, Hong Kong has an open visa policy where nationals of more than 170 countries can visit Hong Kong without a visa.
1.08 Hong Kong is the premier gateway to Asia and, in particular, to mainland China, the world’s largest trading economy. Hong Kong’s unique geographical and geopolitical position makes it the first stop for international companies seeking access to Asia and for Asian companies reaching out to the world. As a result, international companies choose Hong Kong as their preferred place to establish a presence in the region.
1.09 Hong Kong is also an international financial centre with an integrated and sophisticated network of financial institutions and markets. The city features highly developed (p. 3) communications and first-class transportation infrastructure. This includes Hong Kong’s international airport and metro system, which are regarded as some of the best and busiest in the world, alongside its leading hotels and restaurants.
2. Strong industry expertise
1.10 Hong Kong has a large pool of experienced and multilingual professionals who can be called upon to assist in international arbitration proceedings. These include lawyers, accountants, translators/interpreters, and technical experts, such as architects, surveyors, and engineers.
1.11 Hong Kong is home to many of the world’s leading corporations, financial institutions, and professional service organizations. Of the largest 100 banks in the world, 70 have an operation in Hong Kong and 63 of the top 100 global law firms ranked by revenue have offices in Hong Kong.7 Many international companies choose to establish operations in Hong Kong for the following reasons:
(1) it is one of the most open and transparent economies in the world, with a low level of corruption;
(2) it has a stable government and an independent judiciary;8
(3) it has access to high-quality professional services, such as accountants, architects, and engineers;
(4) it has freedom of information;
(5) it is a regional marketplace for intellectual property (IP) services, such as copyright trading, licensing, franchising, design services, and technology transfer; and
(1) the world’s freest economy by the Heritage Foundation for over twenty consecutive years since 1995;9
(2) one of the top three financial centres in the world;10
(3) ranked second worldwide for foreign direct investment (FDI) flowing in and out of the city;11
(4) ranked fifth out of 189 economies for ease of doing business according to the World Bank’s Doing Business 2016 report; and12
(5) ranked second for attractiveness to FDI in the Milken Institute’s 2015 Global Opportunity Index.13
1.13 Hong Kong has a well-established and respected legal system. Under the Basic Law, Hong Kong’s English-based common law system is preserved and safeguarded. English and Chinese are both official languages in the courts and Hong Kong judges enjoy a strong reputation for independence, professionalism, and efficiency.
1.14 The Hong Kong Arbitration Ordinance (Cap 609) (Arbitration Ordinance) is the arbitration legislation in Hong Kong and governs all arbitrations seated in the territory. The Arbitration Ordinance came into force on 1 June 2011 and was subsequently amended in July and December 2013, and in July 2015.14 The Arbitration Ordinance is a modern piece of legislation that supports arbitration and restricts court involvement in the arbitral process. It also creates a unitary regime applicable to both domestic and international arbitrations. Hong Kong is the first Asian jurisdiction to adopt the UNCITRAL Model Law (2006), which provides an internationally recognized procedural framework for arbitral proceedings, accessible to users from both civil law and common law jurisdictions.
1.15 A detailed discussion of the Arbitration Ordinance is contained in Chapter 2.
The courts of the Hong Kong Special Administrative Region shall exercise judicial power independently, free from any interference. Members of the judiciary shall be immune from legal action in the performance of their judicial functions.
1.17 The independence of the courts ensures that arbitrations in Hong Kong are free from government interference or influence. Hong Kong has been ranked as Asia’s most judicially independent jurisdiction for the past eight years by the World Economic Forum’s Global Competitiveness Report. In the latest report, Hong Kong is ranked fourth worldwide for judicial independence, just behind New Zealand, Finland, and Norway.15
1.18 Hong Kong’s judicial independence is further affirmed by the White Paper published by China’s State Council Information Office entitled ‘The Practice of the “One Country, Two Systems” Policy in the Hong Kong Special Administrative Region’ on 10 June 2014. The White Paper confirms that the Chinese government will continue to adhere to the ‘one country, two systems’ principle and that it has no intention of undermining Hong Kong’s special status under the Basic Law:16
The central government strictly adheres to the Basic Law of Hong Kong, earnestly performs its constitutional duties and stands firm in supporting the administration of the chief executive and the government of the Hong Kong Special Administrative Region (HKSAR) in accordance with the law. The HKSAR exercises a high degree of autonomy in accordance with the (p. 5) law, and is vested with executive, legislative and independent judicial power, including that of final adjudication.
1.19 Judicial independence in Hong Kong is assured by the unique composition of the Court of Final Appeal (CFA). In June 1997, the CFA replaced the Privy Council in London as the highest appellate court in Hong Kong and it plays an important role in the development of the common law in Hong Kong. The CFA consists of the Chief Justice, three permanent judges, and thirteen non-permanent judges. The CFA may invite judges from other common law jurisdictions to sit on the court, and a number of distinguished judges from England and Wales, Australia, and New Zealand sit as non-permanent members of the court. Lord Millet, a non-permanent judge of the CFA, has commented as follows:17
I have sat on the Court of Final Appeal of Hong Kong for 14 years and have never experienced any political inference from China or anywhere else in all that time. All my colleagues have at all times conducted themselves exactly as English judges would in England. The local Permanent Judges are professionals to their fingertips. At no time in our discussions have I heard any of them express the slightest interest in what Beijing might think of our decisions. If I believed that the Court was susceptible to outside influence I would not be prepared to be a member of it, and nor would any of my overseas colleagues. I am proud to be a member of one of the strongest appellate courts in the common law world. The presence of such eminent jurists as Sir Anthony Mason, Lord Neuberger, Lord Hoffmann, Lord Walker and Lord Phillips is a guarantee of its total independence of Chinese influence, but the guarantee is unnecessary as I have found the local Permanent Judges as independently minded as are English and Australian judges.
1.20 Judges from foreign courts have also endorsed Hong Kong as a neutral forum for international arbitrations. In Shagang v Daewoo, Justice Hamblen of the English High Court observed that ‘whilst Hong Kong is no doubt geographically convenient, it is also a well known and respected arbitration forum with a reputation for neutrality, not least because of its supervising courts’.18
1.21 Hong Kong provides complete flexibility to parties in relation to the procedure of their arbitration. Parties are free to choose institutional arbitration proceedings in Hong Kong under the auspices of HKIAC, the International Chamber of Commerce (ICC) or any other arbitral institution. Alternatively, parties may opt for ad hoc proceedings where the arbitration is conducted without the involvement of an arbitral institution. Both types of arbitrations are permitted under Hong Kong law.
1.22 Parties to arbitration in Hong Kong are free to choose their legal representatives and advisors from anywhere in the world, without restriction. This is enshrined in section 63 of the Arbitration Ordinance that lifts restrictions on foreign counsel to represent and advise parties in arbitral proceedings in Hong Kong. The only exception is that Hong Kong-qualified solicitors and barristers must be retained to present any arbitration-related applications before the Hong Kong courts.19
(p. 6) 1.23 Equally, parties to arbitrations in Hong Kong enjoy full freedom to appoint arbitrators of their choice. The Arbitration Ordinance does not prescribe any requirement regarding the qualifications of an arbitrator, except that he or she must be independent and impartial. HKIAC also does not require a party to designate an arbitrator from its panel or list of arbitrators.
1.24 In 1997, China extended its membership of the New York Convention to Hong Kong. As a result, arbitral awards made in Hong Kong may be enforced in all other New York Convention member states. Under the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong SAR, which came into force in 2000, awards made in Hong Kong may be enforced in mainland China and vice versa on terms that largely mirror those contained in the New York Convention.20
1.25 HKIAC is the flagship institution in Hong Kong providing dispute resolution services worldwide. It was established in 1985 and is one of the longest-standing arbitral institutions in the Asia-Pacific region. Situated in the heart of Asia, HKIAC provides a one-stop-shop service for resolving arbitration, mediation, adjudication, and domain name disputes. The growing popularity of HKIAC’s services is reflected by the large number of cases HKIAC has handled since its establishment. In total, HKIAC has managed over 9,000 cases over the past thirty two years. In relation to administered arbitrations, HKIAC experienced a 70 per cent increase from 2012 to 2015 and 43 per cent growth since 2013.
1.26 HKIAC plays a leading role in developing innovative practices to address the evolving needs of users of arbitration. In the last few years, HKIAC has introduced a number of procedures and services that have received worldwide recognition. In August 2014, HKIAC became the first arbitral institution to include an express governing law provision in its model arbitration clause, in order to avoid uncertainty as to which law governs the arbitration clause and related jurisdictional disputes. It also introduced a tribunal secretary service in June 2014 allowing arbitral tribunals to appoint an HKIAC Secretariat member as tribunal secretary. In July 2015, HKIAC launched an evaluation system allowing users to evaluate the conduct of their arbitral proceedings and the performance of their arbitrators. HKIAC’s initiatives were recognized by Global Arbitration Review for best innovation by an individual or organization in 2014.
1.27 A detailed discussion of HKIAC and its services is contained in Chapter 3.
(p. 7) 1.29 Hong Kong owes much of its success as a leading arbitral seat to its legal community. At the time of publication, Hong Kong has 7,800 practising solicitors and 1,200 barristers. Over 1,400 foreign lawyers qualified in twenty-nine different overseas jurisdictions, including England and Wales, New York, and mainland China, are practising in Hong Kong. In addition, many of the world’s leading international law firms base their regional dispute resolution practices in Hong Kong. As a result, Hong Kong is home to a large number of leading arbitration practitioners and arbitrators.
1.30 Users of arbitration have direct access to a variety of world-class arbitral organizations in Hong Kong. In addition to HKIAC, Hong Kong receives strong institutional support from other arbitration organizations including the Chartered Institute of Arbitrators (CIArb) (East Asia Branch), the ICC’s Asia Secretariat, the China International Economic and Trade Arbitration Commission’s (CIETAC) Hong Kong Arbitration Centre, and the China Maritime Arbitration Commission’s (CMAC) Hong Kong Arbitration Centre. Hong Kong is at the forefront of bringing the next generation of ADR professionals into the fold. Founded by a group of young arbitration practitioners, HK45 is a young practitioners’ group that has developed into a well-regarded arbitration organization for young professionals to discuss and share ideas related to developments in arbitration.21
1.31 Hong Kong has long been a centre for training future alternative dispute resolution (ADR) professionals in the region. HKIAC has organized and hosted a large number of dispute resolution conferences and training that have attracted legal professionals from all over the world to Hong Kong. Arbitrators and practitioners based in Hong Kong often travel to neighbouring jurisdictions, such as mainland China, Myanmar, Indonesia, India, the Philippines, and Mongolia, to work with the local community to improve and develop their arbitration framework. There are three principal law schools in Hong Kong, each of which has dedicated programmes in arbitration and ADR.22 The Vis Moot (East), the sister of the renowned Willem C Vis Moot Competition, is held annually in Hong Kong and attracts students from twenty-eight countries from around the world.
1.32 In addition to commercial arbitration, Hong Kong is an attractive venue for investor-state arbitration.23 As the world’s freest economy and a ‘super-connector’ for global FDI, Hong Kong encourages both investments and arbitration.24
1.33 Hong Kong has seen increasing interest as a place for conducting investor-state arbitration proceedings in recent years. This is reflected by the host country agreement entered into between the Permanent Court of Arbitration (PCA) and China in January 2015 to provide a legal framework for PCA-administered proceedings in Hong Kong.25 The PCA’s host country agreement was preceded by a network of cooperation agreements that HKIAC (p. 8) concluded with various international bodies specializing in investment treaty disputes, including the PCA26 and the International Centre for Settlement of Investment Disputes (ICSID).27 In recent years, HKIAC has hosted an increasing number of hearings involving investor-state disputes.
1.34 Hong Kong has entered into eighteen bilateral investment treaties (BITs)28 and three free trade agreements,29 one of which was the subject of a high-profile dispute. In Philip Morris v Australia,30 Philip Morris’s Hong Kong subsidiary filed a multibillion-dollar claim against Australia for its alleged breaches of the Hong Kong–Australia BIT by passing legislation requiring the plain packaging of tobacco products. The case was administered by the PCA under the 2010 UNCITRAL Rules.31 The tribunal declined jurisdiction over Philip Morris’s claim on 17 December 2015.
1.36 Hong Kong is ideally placed to handle disputes arising out of all types of international transactions. However, it enjoys a particular advantage in relation to international disputes involving Chinese parties.
1.37 Hong Kong is widely regarded as the natural choice of seat for arbitrations between Chinese and non-Chinese parties. The Hong Kong government and judiciary, and a large number of Hong Kong legal professionals and industry experts, are able to practise and conduct business in both English and Chinese. All Hong Kong legislation and regulations are enacted in both languages. This bilingual capability, alongside the historical and cultural link to mainland China, sets Hong Kong apart as an ideal place for doing business and resolving disputes with Chinese parties.
1.38 HKIAC’s particular expertise in managing China-related disputes is reflected in the large number of Chinese cases referred to it each year. In 2015, HKIAC handled 108 arbitrations involving mainland Chinese parties (ie 40 per cent of the total arbitration cases handled by HKIAC that year).32
(p. 9) 1.39 Further, Hong Kong awards maintain a stellar track record in respect of enforcement globally, and, in particular, in mainland China. This has often been cited as a key strength of arbitrating in Hong Kong. Chinese courts have not refused to enforce any awards made in Hong Kong or issued by HKIAC between 2011 and 2014. Other jurisdictions have not been able to match this track record.33
1.40 Hong Kong has remained at the forefront of developments in Asia due, in part, to the enduring stability of its well-established and respected common law system for FDI, cross-border transactions, and dispute resolution, alongside an independent judiciary. These qualities are protected under the Basic Law.34 While some commentators have expressed concern that the principle of ‘one country, two systems’ may change after 2047,35 other commentators are of the view that the legal system of mainland China will not be practised in Hong Kong,36 since the Basic Law does not provide for the automatic expiration of the common law system in Hong Kong on or after 2047.37 Further, some academics have proposed that the Chinese government is likely to maintain the ‘one country, two systems’ principle after 2047, with Hong Kong remaining an SAR governed by the common law legal system.38
1.41 Indeed, the Chinese government has repeatedly confirmed that the ‘one country, two systems’ principle is ‘firm’ and ‘unswerving’ and ‘it would not sway or change’.39(p. 10)
1 See Queen Mary University of London and White & Case, ‘2015 International Arbitration Survey: Improvements and Innovations in International Arbitration’ <http://www.arbitration.qmul.ac.uk/docs/164761.pdf> (last accessed 14 December 2016) at 12.
2 See Hong Kong Economic and Trade Office, ‘HKIAC Tops Prestigious Global Arbitration Survey’ <http://www.hketosf.gov.hk/sf/ehk/ehongkong81/hkiac.htm> (last accessed 14 December 2016).
5 See Queen Mary University of London, White & Case (n 1) at 2.
6 According to Global Arbitration Review’s Guide to Regional Arbitration 2016, ‘[t]oday there are 40-plus international arbitration institutions around Asia seeking to emulate Hong Kong’s success’: Global Arbitration Review, ‘Institutions Worth a Closer Look: Asia Pacific’ Guide to Regional Arbitration 2016 (Global Arbitration Review 2016) vol 4, <http://globalarbitrationreview.com/regional-arbitration/guide-regional-arbitration/> (last accessed 20 February 2016).
8 As discussed at paragraphs 1.16–1.20.
9 Heritage Foundation, 2016 Index of Economic Freedom (Heritage Foundation 2016) <http://www.heritage.org/index/country/hongkong> (last accessed 14 December 2016). See also James Gwartney, Robert Lawson, and Joshua Hall, Economic Freedom of the World 2014 Annual Report (Fraser Institute 2014) at 8.
10 See eg GFCI & Long Finance, The Global Financial Centres Index (GFCI September 2015) <http://www.longfinance.net/images/GFCI18_23Sep2015.pdf> (last accessed 14 December 2016).
11 UNCTAD, World Investment Report 2015 (United Nations June 2015) <http://unctad.org/en/PublicationsLibrary/wir2015_en.pdf> (last accessed 14 December 2016).
12 World Bank, Doing Business Data 2016 (World Bank 2016) <http://www.doingbusiness.org/data/exploreeconomies/hong-kong-china/> (last accessed 14 December 2016).
13 2015 Global Opportunity Index: Attracting Foreign Investment (Milken Institute 2015) <http://www.globalopportunityindex.org/> (last accessed 14 December 2016).
14 The Arbitration Ordinance is available in both English and Chinese. The full text of the English version can be found at Appendix 9.
15 See World Economic Forum, The Global Competitiveness Report 2015–2016, on judicial independence. This puts Hong Kong ahead of many other major economies such as the UK (10th), Australia (13th), Singapore (23rd), the US (28th), India (64th), and China (67th).
16 The Practice of the ‘One Country, Two Systems’ Policy in the Hong Kong Special Administrative Region, Pt II, <http://www.china.org.cn/government/whitepaper/2014-06/10/content_32623425.htm> (last accessed 14 December 2016).
20 Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region, signed in Shenzhen on 21 June 1999 <http://www.doj.gov.hk/eng/mainland/pdf/mainlandmutual2e.pdf> (last accessed 14 December 2016).
21 See Chapter 3 for further information about HK45.
23 For a detailed discussion of investor-state arbitration in Hong Kong, see Moser and Cheng (n 19) ch 8.
25 See ‘Permanent Court of Arbitration provides arbitration services in HK’ < http://www.info.gov.hk/gia/general/201501/04/P201501040801.htm> (last accessed 14 December 2016).
28 See ‘List of Investment Promotion and Protection Agreements (as at 18.2.2016)’ Department of Justice, Government of Hong Kong <http://www.doj.gov.hk/eng/laws/table2ti.html> (last accessed 14 December 2016).
29 See ‘Free Trade Agreements (as at 24.11.2014)’ Department of Justice, the Government of Hong Kong, <http://www.doj.gov.hk/eng/laws/table11ti.html> (last accessed 14 December 2016).
31 See the PCA website <http://www.pcacases.com/web/view/5> (last accessed 14 December 2016).
36 See the views of Geoffrey Ma (Chief Justice of Hong Kong) and Michael Davis (constitutional law professor of the University of Hong Kong), ‘Preserve common law, says top judge Chief justice says legal system must continue as it is after 2047, and warns against a repeat of 1999 case in which top court was overruled’ in Stuart Lau, South China Morning Post (Hong Kong) 24 January 2013.
38 D Gittings, Introduction to the Hong Kong Basic Law (Hong Kong University Press 2013) at 303–14; Gittings (n 37) 49–50. Another scholar has noted that one may ‘reasonably hope’ the ‘one country, two systems’ arrangement will continue after 2047: Benny Tai, ‘Basic Law, Basic Politics: The Constitutional Game of Hong Kong’ (2007) 37 Hong Kong Law Journal 503, 577.
39 SCMP, ‘Protect the rule of law, NPC chairman Zhang Dejiang tells Hong Kong’, http://www.scmp.com/news/hong-kong/politics/article/1920913/protect-rule-law-npc-chairman-zhang-dejiang-tells-hong-kong?utm_source=edm&utm_medium=edm&utm_content=20160305&utm_campaign=scmp_today.