Why Hong Kong Remains An Ideal Place To Resolve Your Commercial Disputes

By Sherlin Tung, Partner & Gary Leung, Special Counsel, Withers

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.

HongKong 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 maintains its status as the frontrunner for where 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 its handover from the United Kingdom 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

For parties who wish to commence an arbitration, there must be consent to submit a dispute to arbitration. This can be found in a valid arbitration agreement in the underlying contract or other means such as an agreement between the parties after the execution of a contract Parties must not only have an agreement to arbitrate but they must also agree to various other factors in relation to arbitration such as the legal seat of arbitration

Hong Kong remains amongst the top seats of arbitration for parties worldwide. This is because Hong Kong is home to a number of the world's top arbitral institutions, prominent arbitrators and arbitration practitioners, and is the gateway to Mainland China. The increasing popularity of Hong Kong as the seat of arbitration is seen in recent statistics 2022 alone saw 515 matters submitted the Hong Kong International Arbitration Centre ("HKIAC") of which 344 were new arbitration filings with a combined amount in dispute of approximately US$5.5 billion. Of the arbitrations filed in 2022, 83% of all arbitrations and 93% of administered arbitrations were international with the vast majority of such arbitrations seated in Hong Kong.

It is well-established that Hong Kong is an arbitration-friendly jurisdiction The Hong Kong Arbitration Ordinance (Cap 609) is extremely user-friendly and sets out a broad definition of what constitutes an arbitration agreement Cap 609 encompasses the Model Law and the provisions are set out largely in the sequence of an arbitration, making it easy for parties (domestic or foreign) to identify whether and to what extent the relevant articles under Cap. 609 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 an 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 enforcement of arbitral awards, Hong Kong's pro-arbitration stance is further strengthened with the judiciary's continued demonstration of its pro-arbitration and non-interventionist approaches Only in the most exceptional cases would the courts of Hong Kong refuse recognition of an arbitral awards (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.

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 ("Arrangement"), a party to arbitral proceedings seated in Hong Kong and administered by one (1) of the seven (7) qualified arbitral and dispute resolution institutions and permanent offices under Article 2(1) of the Arrangement can apply for interim measures such as preservation of assets and evidence form the Mainland courts any time before the arbitral award is rendered. 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 This mechanism has been a proven tool to assist parties in ensuring assets in Mainland China are not dissipated or transferred before the end of the arbitration

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.

About Withers

Withers is one of the world’s first international law firms dedicated to the business, personal and philanthropic interests of successful people, their businesses, families and advisers. With over 220 partners and more than 1,500 employees in 17 offices across Europe, the US, Asia Pacific and the Caribbean, Withers has unparalleled expertise in helping businesses and individuals across all major financial centres around the world

Sherlin Tung Partner at Withers

Gary Leung Special counsel at Withers