Hong Kong

In summary

A number of pro-arbitration developments have occurred in Hong Kong since our last update. This includes Hong Kong and China supplementing the existing Arrangement Concerning Mutual Enforcement of Arbitral Awards between Mainland China and Hong Kong; Hong Kong courts handing down a number of arbitration-related decisions; and the Hong Kong Law Reform Commission publishing a consultation paper on outcome-related fee structure for arbitration, with a view to ultimately achieving legislative amendments that would allow outcome-related fee structures for arbitration proceedings seated in Hong Kong.

Discussion points

• The Interim Measures Arrangement in practice
• Amendments to the Arrangement Concerning Mutual Enforcement of Arbitral Awards between Mainland China and Hong Kong
• Decisions relating to the setting aside of arbitration awards handed down by the Hong Kong Court
• Hong Kong’s consideration of outcome-based fees for arbitration

Referenced in this article

• Cheung Shing Hong Ltd v China Ping An Insurance (Hong Kong) Co Ltd [2020] HKCFI 2269
• AB v CD [2021] HKCFI 327

Hong Kong’s arbitration institutions

In recent years, Hong Kong’s arbitral institutions have reported increased caseloads:

• The Hong Kong International Arbitration Centre (HKIAC) reported 483 new cases in 2020,^[1] slightly down from 503 in 2019.
• The China International Economic and Trade Arbitration Commission, which opened a Hong Kong arbitration centre in 2014, reported 739 foreign-related cases, an increase from 617 in 2019.^[2]
• The International Chamber of Commerce – Hong Kong has yet to report its 2020 figures, but it reported 869 new cases in 2019.

Parties choose to arbitrate in Hong Kong in view of its arbitration-friendly judiciary, workable legal infrastructure and considerable pool of arbitration professionals. Hong Kong looks set to continue to benefit from important policy initiatives originating in mainland China. These include the Belt and Road Initiative and the Guangdong-Hong Kong-Macao Greater Bay Area Development, each of which will likely generate considerable economic activity and resulting dispute resolution work.

Interim Measures Arrangement in practice

The Hong Kong-Mainland China Interim Measures Arrangement (the Arrangement)^[3] came into force on 1 October 2019.

Under China’s ‘one country, two systems’, Hong Kong functions as a separate legal jurisdiction from mainland China, with its own independent courts and legal system based on English common law. Before the Arrangement, mainland Chinese courts would, in general, order interim relief only in support of arbitrations seated in mainland China. Now with the Arrangement in place, parties who want the option of interim relief in China may also choose to arbitrate in Hong Kong. The Arrangement further consolidates the territory’s position as a preferred arbitral seat for disputes with Chinese parties.

Under the Arrangement, mainland China courts are empowered to grant interim measures in aid of Hong Kong-seated arbitrations administered by ‘qualified’ institutions, including the above-named institutions, as well as the South China International Arbitration Centre (SCIA) (Hong Kong). The Arrangement requires applicants to submit applications for interim measures to the relevant arbitral institution, which is responsible for forwarding the application to the appropriate Chinese court. Alternatively, an applicant may deliver its application directly to the relevant court.

The Arrangement was swiftly put into practice. On 13 February 2020, the HKIAC reported that since the Arrangement entered into force, it had processed 13 applications seeking to preserve evidence or assets worth a total of 5.5 billion yuan in mainland China. The HKIAC further noted that court orders had been issued in respect of 1.7 billion yuan in assets and that 40 per cent of cases were brought by applicants from mainland China. This suggests that the benefits of the Arrangement will be felt not only by international parties, but also by mainland China parties seeking relief in respect of assets or property located in mainland China.

In practice, since the Arrangement came into effect, Chinese courts have been efficient at processing interim measures applications. The average time taken by the courts to issue a decision is 14 days from receipt of the complete application, although applications made during the covid-19 pandemic may take longer. The interim measures applications made to the Chinese courts mainly concern preservation of assets or evidence. As at August 2020, there had been no cases of refusal by the Chinese courts of these applications, and the courts generally impose a relatively higher standard for conduct and evidence preservation applications than asset preservation applications.

Amendment to the Arrangement Concerning Mutual Enforcement of Arbitral Awards between Mainland China and Hong Kong

Hong Kong maintains a bilateral arrangement with mainland China on mutual enforcement of arbitral awards, under which Hong Kong awards are directly enforceable in China (on terms broadly similar to the New York Convention).^[4] This arrangement was supplemented on 27 November 2020 to further align with the spirit of the New York Convention. The supplemental arrangement sought to amend the Arrangement by:

• expressly including the term ‘recognition’ when referring to enforcement of arbitral awards in the Arrangement for greater certainty (using the word ‘recognition’ for the first time in acknowledgment that enforcement is a two-stage process, as under the New York Convention);
• adding an express provision to the existing Arrangement to confirm that courts considering the enforcement of an award may impose post-award interim measures;
• aligning the definition of the scope of arbitral awards with the prevalent international approach of ‘seat of arbitration’ under the New York Convention; and
• removing the current restriction of the Arrangement to allow parties to make simultaneous application to both the courts of the mainland and Hong Kong for enforcement of an arbitral award.

Hong Kong courts deliver arbitration-related decisions

Hong Kong courts handed down a number of arbitration-related decisions in 2020, and have continued in 2021.

In Cheung Shing Hong Ltd v China Ping An Insurance (Hong Kong) Co Ltd [2020] HKCFI 2269, Deputy High Court Judge José-Antonio Maurellet SC stayed court proceedings in favour of arbitration. In deciding whether a stay should be granted, the court considered the following questions:

• Was the clause in question an arbitration agreement?
• Was the arbitration agreement null and void, inoperative or incapable of being performed?
• Was there in reality a dispute or difference between the parties?
• Was the dispute or difference between the parties within the ambit of the arbitration agreement?

In granting the stay, the court explained that whether a dispute fell within the ambit of the arbitration agreement was ‘ultimately an exercise of contractual interpretation’. When interpreting the arbitration clause, the court took into account the precise wording of the agreement and the surrounding circumstances and background. The court further stated that where the clause and the type of agreement was identical, it would normally follow the construction and the analysis of earlier court decisions, both because it was compelling and for consistency reasons.

In AB v CD [2021] HKCFI 327, the Hong Kong Court of First Instance (HKCFI) set aside an arbitral award on the basis that the award debtor, AB Engineering, was not a party to the arbitration agreement and was not given proper notice of the arbitration proceedings. The award was made pursuant to an arbitration clause contained in an agreement between AB Bureau and CD. CD initially issued a notice of arbitration, which named AB Bureau as the respondent. It later revised the name of the stated respondent from ‘AB Bureau’ to ‘AB Bureau also known as AB Bureau Co, Ltd’, and subsequently further revised it to ‘AB Engineering’.

The HKCFI found that, as a matter of fact, AB Engineering and AB Bureau were two separate and distinct legal entities, and that AB Engineering was not a party to the agreement. The Court also found that AB Engineering was not given proper notice of the appointment of an arbitrator or of the arbitration proceedings. The notice of arbitration named AB Bureau as the only respondent. The amended notice of arbitration named the respondent as ‘AB Bureau also known as AB Bureau Co, Ltd’. These were the only two notices of the arbitration that were purportedly faxed or sent to the addresses of AB Bureau. There was no clear evidence of actual receipt of the notices by AB Engineering. As the two notices were not sent to the actual registered address of AB Engineering and were not addressed to AB Engineering, the Court concluded that AB Engineering was not given proper notice.

This case highlights the importance of identifying the parties to arbitration correctly and giving proper notice to other parties to the arbitration.

Hong Kong looks into outcome-related fee arrangements

Hong Kong law has traditionally prohibited outcome-related fee or conditional fee structures for work on contentious proceedings. In this way, Hong Kong differs from a number of other jurisdictions that allow conditional fee arrangements, such as Australia, China, England and Wales, and the United States.

On 25 October 2019, the Hong Kong Law Reform Commission announced that it had established a subcommittee to consider whether reform is needed to the relevant law and regulatory framework to allow outcome-related fee structures for arbitration and, if so, to make recommendations for reform. On 17 December 2020, the Hong Kong Law Reform Commission published a consultation paper proposing that the law in Hong Kong should be amended to permit lawyers to use outcome-related fee structures for arbitration taking place in and outside Hong Kong. The publication reflects increased interest in flexible fee structures across the region.

* The authors wish to acknowledge the contributions of Jessica Lee of Fangda Partners in the preparation of this chapter.

Peter Yuen

Fangda Partners

Peter Yuen is a partner at Fangda Partners. His practice spans a number of areas, including international and regional arbitration, China-related commercial arbitration and complex commercial litigation. Mr Yuen regularly acts for clients in complex commercial disputes before the Hong Kong courts, and is experienced in acting as coordinating counsel in cross-border multi-jurisdictional disputes, particularly in matters involving court proceedings in China. He has also established a busy practice in the area of regulatory and corporate compliance, and has conducted a considerable number of corporate internal investigations in Hong Kong and China.

Olga Boltenko

Fangda Partners

Olga Boltenko is a partner at Fangda Partners. She is an investment and trade lawyer with more than 10 years’ experience in public international law and investor-state dispute resolution. She has acted as legal counsel in investor-state disputes under the auspices of the Permanent Court of Arbitration, the International Centre for Settlement of Investment Disputes, the Arbitration Institute of the Stockholm Chamber of Commerce, the International Chamber of Commerce and the London Court of International Arbitration, and as tribunal secretary in dozens of commercial disputes in a wide array of industries, including oil and gas, infrastructure, construction, telecommunications and pharmaceuticals, across Asia and beyond. Ms Boltenko teaches a Master of Laws degree in arbitration and alternative dispute resolution at the University of Hong Kong. She is listed as an arbitrator with the Hong Kong International Arbitration Centre, the Singapore International Arbitration Centre, the Asian International Arbitration Centre and the China International Economic and Trade Arbitration Commission panels of arbitrators.

Zi Wei Wong

Fangda Partners

Zi Wei Wong is a senior associate with the dispute resolution group at Fangda Partners in Hong Kong. He has over six years of experience representing clients across Asia and internationally in commercial litigation and arbitration matters. He is particularly experienced in shareholders and joint venture disputes, and in Hong Kong-seated arbitration disputes. He also represents clients in regulatory matters, including post Securities and Futures Commission dawn raids, and he advises a range of clients in regulatory matters covering a wide range of issues, including document production, privilege and PRC state secrecy laws. Zi Wei holds a magna cum laude degree from the Singapore Management University School of Law and a postgraduate certificate in laws from the City University of Hong Kong School of Law.