Experts vow to improve Hong Kong’s status as an international arbitration centre
Hong Kong can play a better role in resolving commercial disputes in the Belt and Road Initiative regions and the Greater Bay Area to improve its status as an international arbitration centre, according to experts at the first workshop of Knowledge Transfer Forum held on 24 January 2019 by the Faculty of Business – Belt and Road Centre of The Hong Kong Polytechnic University and the Centre for Chinese and Comparative Law of City University of Hong Kong.
In the past five years, loads of commercial contracts were signed between Chinese corporations and companies along the Belt and Road regions on areas including investment, employment, consulting, authorization, mergers and acquisitions, and joint venture cooperation, since the Silk Road Economic Belt and the 21st-century Maritime Silk Road initiatives were unveiled by Chinese President Xi Jinping in September and October 2013 respectively during his visits to Kazakhstan and Indonesia.
"What method to adopt in dealing with disputes to manage risk is a question worth figuring out and Hong Kong can play a better role in international arbitration," said Lu Haitian, Associate Dean of PolyU Faculty of Business and Professor in law at the School of Accounting and Finance, in his welcome and opening speech at the workshop.
Hong Kong's status as an international arbitration centre has been facing challenges in recent years and it should seize the opportunities arising from the development of the Belt and Road Initiative and Greater Bay Area strategy to improve the status quo, according to industry and academia experts at the forum.
The 2018 International Arbitration Survey conducted by the School of International Arbitration at Queen Mary University of London shows that the five most preferred seats of arbitration are London, Paris, Singapore, Hong Kong and Geneva. Hong Kong with preference by 28 percent of respondents is surpassed by Singapore which gains 39 percent.
Liu Chunhua, Director-general of the department of law at the Liaison Office of the Central People's Government in the Hong Kong SAR, pointed out that building Hong Kong as an international law and dispute resolution centre was proposed in the 13th Five-Year Plan for the National Economic and Social Development of the People's Republic of China and a major work in the 2018 Policy Address by the Chief Executive of Hong Kong SAR.
He mentioned that Hong Kong should take good advantage of its superior legal service, extend the scope of development and centre on core direction, as well as perfect the export model of legal services.
He elaborated on legal business environment being an important factor to be taken into consideration by companies doing international business and trade, and said that Hong Kong has a solid legal system with world-leading legal index, prestigious legal service and a rich talent pool.
Latest data indicates that currently Hong Kong has 9,903 practising lawyers, 1,497 practising barristers and 1,584 registered foreign solicitors from 35 jurisdictions. As the world’s third largest international arbitration centre, Hong Kong has 612 experienced arbitrators and 2,100 qualified mediators. Over half of the Global 100 law firms have set up branches in Hong Kong.
In terms of how to better export Hong Kong’s professional legal services, Liu emphasized that Hong Kong should take preemptive opportunities, especially those brought by the development of the Belt and Road Initiative and the Greater Bay Area, make full use of technologies relating to big data and artificial intelligence to improve efficiency and save cost, and focus on core areas.
Chinese mainland is currently Hong Kong's largest export market and best destination for legal services, said Liu. According to statistics from the Ministry of Justice of the People's Republic of China, presently the market size of the mainland's legal service is over 100 billion yuan with an average year on year growth of 15 percent, among which, more than 60 percent involves foreign cases. Legal services for the mainland account for over 40 percent of Hong Kong's total output of the services.
According to Qiushi and related news, with a population of approximately 70 million, the Greater Bay Area's total value of gross domestic product has reached US$1,400 billion. The number of high-tech enterprises amounts to 18,900. Every year the number of international patent applications within the region accounts for 56 percent of national total. There are over 220 companies from Guangdong listed in Hong Kong with a total market value of HK$7,300 billion. About 110 unicorn companies, with an estimated value of over US$120 billion, are in the pipeline to go public.
"Following the deepening of our country's reform and opening up, and the implementation of the Belt and Road Initiative and Greater Bay Area strategy, Hong Kong is definitely embracing new opportunities," said Liu. He also added that the department of law at the Liaison Office endeavours to make unremitting efforts to improve cross-border communication and cooperation.
Hong Kong's current position as an international arbitration centre can be improved with more support from the government, and industrial and academic circles, according to experts at the forum.
Sylvia Siu Wing-yee, President of Hong Kong Institute of Arbitrators and founder and past president of Hong Kong Mediation Centre, said Hong Kong developed earlier in arbitration but the rapid expansion of Singapore's arbitration industry is driven by local government's strong support including providing arbitration venue. She suggested that Hong Kong government could provide proper resources to support Hong Kong to be the regional neutral seat of arbitration.
"Most of Hong Kong's arbitrators and mediators are professionals who are proficient in multiple languages and graduated from world-class universities including Harvard, Cambridge and Oxford," Siu said confidently, and she added that Hong Kong's laws including arbitration ordinance also support the implement of arbitration to resolve commercial disputes and Hong Kong’s Court of Final Appeal supports the enforcement of arbitral award and order of arbitral tribunal, as well as supervises arbitration including by setting aside a ruling with unsatisfactory procedure.
"Hong Kong should enhance promotion of its arbitration service," said Ronald Sum, Chairperson of Committee on Arbitration and ADR Sub-Committee of International Chamber of Commerce Hong Kong and partner at Locke Lord Hong Kong office, adding that their clients tend to prefer cheap, highly efficient and high-quality arbitration services, which is unachievable, and since legal systems within Belt and Road regions vary, clients are concerned about Hong Kong’s judicial independence.
Gu Weixia, Associate Professor of law and Co-director of Master of Common Law Programme of the Faculty of Law of The University of Hong Kong, reckoned that Hong Kong's private sector has done lots of good work in international commercial arbitration area, while Singapore is more active in investment arbitration field.
She said that in terms of arbitration law, Hong Kong and Singapore belong to the first tier, and Japan, Chinese mainland and Taiwan are in the second tier, while Australia and Korea lie in-between. Chinese mainland has become the most active territorial legal unit in arbitration in the world, and that "Hong Kong should develop an arbitration talent pool to improve business, as being close to the mainland gives Hong Kong geographical and portal advantages."
Based on her own research, Gu mentioned that when settling disputes relating to Belt and Road regions, lawsuit, arbitration and mediation can be adopted. The types of dispute resolution include adopting international public, private and economic law. She pointed out that positively related to economic environment and foreign investment environment, the degree of a country's arbitration development is related to whether it is a party to the New York Convention and how distinct its arbitration law is, adding that the degree of judicial support for arbitration is critical.
Chen Lei, Associate Dean of the Faculty of Law and Director of the Centre for Chinese and Comparative Law of City University of Hong Kong, mentioned that Singapore has well developed one stop dispute resolution service and top down management mechanism.
In practice, what are the factors that transnational enterprises including Chinese companies will take into consideration when choosing dispute resolution method and seat of arbitration? Experts at the forum reckoned that time, cost and authoritativeness are key points.
"Chinese enterprises are mostly concerned about time, expenses and result," said Heidi Chui, partner and head of litigation and dispute resolution department of Stevenson Wong and Co-Belt and Road Committee of the Law Society of Hong Kong. She also mentioned that companies should spend enough time drafting arbitration clauses in business contracts, as ambiguity of appointment of legal action, arbitral institution and rules, as well as seat, often happens.
Tong Ying, general counsel at China Merchants Financial Group, said foreign-related projects tend to adopt arbitration and usually foreign companies prefer London or Singapore as seat of arbitration, while Chinese companies are willing to choose China International Economic and Trade Arbitration Commission (CIETAC) or Hong Kong International Arbitration Centre (HKIAC), based on consideration of factors including time, cost and authoritativeness, as well as language, culture background and feasibility.
According to Wang Qiangyi, group general counsel (China) at Hutchison Property Group Limited, the group usually prefers international arbitration to deal with disputes with parallel partners and arbitration to resolve disputes with upstream suppliers involving large amounts of money. In terms of disputes with consumers, they tend to use litigation as prior method and local arbitration as secondary means. The situation depends, regarding dispute with government, and if the investment destination has inadequate rule of law, they will give priority to international arbitration.
"Strength of commercial position and negotiation strategy are important factors for establishing dispute settlement clauses," added Wang. He stressed that companies should pay special attention to arbitration clauses of ancillary contracts, as they differ in terms of with or without master and subordination connection. In addition, companies need to note pre-procedure appointment for institutional arbitration and be clear about which rule of law to adopt.
Joe Liu, Deputy secretary-general of HKIAC, added that when enacting arbitration clauses, companies should think over issues including jurisdictions and multi-contract and multi-party mechanism. All parties should be aware of how to effectively adopt rules and be consistent with the rules. They also need to pay attention to state immunity.
According to HKIAC, a total of 532 new cases were filed at HKIAC in 2017 with a year on year increase of 15.7 percent. Of those new cases, 297 were arbitrations, 15 were mediations and 220 were domain name disputes. The total amount in dispute in all arbitration cases was HK$ 39.3 billion (approximately US$5 billion) which represented a 100 percent increase from US$2.5 billion in 2016. The average duration of HKIAC service was 14 months and the average cost excluding counsel fees was US$60,000.
In terms of how to promote Hong Kong's rule of arbitration and its status as an international arbitration centre, Lance Jiang, registered foreign lawyer (New York) at Addleshaw Goddard (Hong Kong) LLP, suggested universities to accept more students from Belt and Road regions and companies from the industry to hire more talents from those countries.
Zhang Shaojun, Associate Professor of the School of Accounting and Finance and Deputy director of Faculty of Business-Belt and Road Centre at The Hong Kong Polytechnic University, and Chen Lei delivered their speeches to welcome experts at the forum.
Aiming to provide a platform for matching the expertise and research outputs of eminent business scholars with global companies, Knowledge Transfer Forum was officially launched on 13 December 2018 by The Hong Kong Polytechnic University. The to-be-monthly-held Forum will feature important business themes such as Belt and Road financing, smart city governance, FinTech, AccounTech, RegTech, port coordination in the Greater Bay Area, etc. and will invite renowned scholars from PolyU and other global top business schools, industry experts and business leaders to be speakers.