International Arbitration 2022 Comparisons

International arbitration is a popular method of resolving disputes in Hong Kong SAR. Both domestic and international parties frequently choose to use international arbitration in Hong Kong. For parties in the construction and shipping industries, international arbitration is almost the exclusive dispute resolution method, and arbitration is gaining popularity in other types of disputes, in particular shareholders' disputes. International arbitration is often chosen by domestic parties in transactions and investment with cross-border elements, such as when Mainland Chinese parties or international parties are involved. International arbitration-related Hong Kong court proceedings (eg, court ordered interim measures and enforcement of foreign arbitral awards) frequently arise. 

While COVID-19 has limited the appetite for conducting face-to-face hearings, remote hearings with the aid of technology have been embraced by many participants and institutions in Hong Kong.

Other procedures in the arbitration proceedings, such as exchange of pleadings/evidence, can be done by email. Due to the adoption of such technologies and procedures, arbitration proceedings can and have continued even during periods of lockdown, where other legal institutions, such as the courts, were shut.

Further, COVID-19 has been a driver in the development and use of technology in dispute resolution. eBRAM (electronic business-related arbitration and mediation) was established in 2018 as a non-profit to promote Hong Kong as a leading hub in online dispute resolution (ODR). Its usage has increased significantly during the pandemic and in 2022 it officially launched the Asia-Pacific Economic Cooperation (APEC) ODR Platform to promote access to justice.

According to the statistics of the Hong Kong International Arbitration Centre (HKIAC), whilst the number of arbitrations initiated in Hong Kong fell in 2021 (from 318 to 277), the number of arbitrations administered by it in 2021 increased in particular sectors when compared to the statistics in 2020, notably in banking and financial services (4.5%) and intellectual property (58%). On the other hand, arbitrations in respect of international trade/sale of goods, maritime and construction disputes have seen declines in both case numbers and proportion of the total number of cases administered by the HKIAC in 2021. It is unclear if these changes were due to COVID-19. 

The HKIAC is one of the most frequently used institutions for international arbitration in Hong Kong. Under the Hong Kong Arbitration Ordinance (the “AO”), HKIAC is the designated statutory body for appointment of arbitrators in the event that the parties fail to reach an agreement on the appointment or number of arbitrators.

There is no new arbitral institution established in 2021-22. Although the Hong Kong Maritime Arbitrators' Group has been conducting arbitrations in Hong Kong since 2000, in 2019 it became a recognised institution with administered arbitration rules and recognised under the arrangement between Hong Kong and Mainland China as having the power to order interim measures be taken in Mainland China. eBRAM launched its APEC ODR Platform in May 2022.

The Court of First Instance of the High Court (the “Court”) is the designated court under the AO to hear disputes related to arbitrations, both domestic and international.

The AO is the main legalisation that applies in Hong Kong and is based on the UNCITRAL Model Law as amended on 7 July 2006, but there are additional provisions applicable to Hong Kong relating to consolidation and confidentiality and other optional provisions adoptable by agreement relating to consolidation and appeal on a point of law or serious irregularity. Such additional provisions are not normally available under the Model Law.

The Limitation Ordinance (LO) is also applicable in relation to time limits to issue proceedings.

Following the signing of the Supplemental Arrangement concerning mutual enforcement of Arbitral Awards between Hong Kong and Mainland China (the “Supplemental Arrangement”) on 27 November 2020, the following aspects of the arrangements for cross-boundary enforcement have been amended:

• the procedures for recognition and enforcement of arbitral awards are equally applicable in Hong Kong and Mainland China; and
• the courts may grant interim measures either before or after applications for enforcement of an arbitral awards are made.

On 19 May 2021, the Arbitration (Amendment) Ordinance 2021 came into effect to further implement other aspects of the Supplemental Arrangement:

• all arbitral awards made in Mainland China will be enforceable in Hong Kong; and
• concurrent applications can be made to the courts of both Mainland China and Hong Kong to enforce an arbitral award.

On 30 June 2022, the Hong Kong SAR government enacted the Arbitration and Legal Practitioners Legislation (Outcome Related Fee Structures for Arbitration) (Amendment) Ordinance 2022, implementing the framework legislation for facilitating outcome-related fee structures. The operative provisions of the ordinance are intended to come into force in the third quarter of 2022. This new law will permit lawyers and their clients to enter into conditional fee agreements, damages-based agreements and hybrid damages-based agreements in relation to the conduct of arbitration in Hong Kong. This significantly alters the legal landscape, as previously such practices were criminal offences in Hong Kong (see Hong Kong SAR Trends & Developments chapter in this guide).

An arbitration award can be enforced as a court judgment with leave of the Court (Section 84, AO). The party seeking to enforce an arbitration award can make an application to the Court for recognition and enforcement of an award by way of originating summons with supporting affidavit/affirmation and a draft order.

In addition, the following documents must be submitted to the Court (Section 85, AO):

• the authenticated original award or a certified copy of it;
• the original arbitration agreement or a certified copy of it; and
• if the award is not in Chinese/English, a Chinese/English translation of the award certified by an official or sworn translator or by a diplomatic or consular agent.

An award shall state the reasons upon which it is based unless agreed by the parties or if the award is on agreed terms (see Section 67, AO).

The following matters cannot be resolved by arbitration:

• criminal matters;
• competition disputes;
• divorce proceedings; and
• actions in rem against vessels.

The above list is non-exhaustive.

Unlike in Mainland China, for example, the issue of patent validity remains an administrative matter that cannot be submitted to arbitration; in Hong Kong SAR, all types of intellectual property (IP) rights disputes, including those relating to the subsistence, scope, ownership, validity and infringement of IP rights, are arbitrable (see Sections 103C and 103D, AO).

In Mak v LA [2022] HKCFI 285, the court emphasised that whether or not the Labour Tribunal may have jurisdiction over an employment dispute subject to an arbitration agreement, the court would need sufficient reason to oust the jurisdiction of the arbitral tribunal.

If the parties agree that the governing law of the arbitration agreement (ie, the “seat”) is Hong Kong law, the Court will uphold the parties' bargain or intention to give effect to the arbitration agreement/clause wherever possible.

The Court generally takes a pro-enforcement approach to enforce valid arbitration agreements so long as they are in writing (Section 19, AO), are made by parties with capacity and with their consent, and are certain to be enforceable. Pursuant to Section 20 of the AO, the Court shall decline to exercise jurisdiction over disputes where such an arbitration agreement exists.

An arbitration clause is considered to be valid and enforceable even if the rest of the contract is void or voidable as an arbitration clause is a separate agreement under Hong Kong law which survives the termination of the main agreement. Further, in the event that there are any disputes as to the existence of a putative contract, such disputes are also subject to arbitration if there is a valid arbitration clause.

The parties are free to select arbitrators at will, subject to the arbitration agreement.

If the parties have not agreed on a procedure for appointing the arbitrators or if the parties fail to agree on the number of arbitrators (Sections 13 and 14, AO), then the HKIAC will decide on both issues.

There is no default procedure for the appointment of arbitrators in multi-party arbitrations.

Pursuant to Section 26 of the AO, a party may challenge the appointment of an arbitrator by applying to the Court within a period of 15 days after it becomes aware that the constitution of the arbitral tribunal gives rise to justifiable doubts as to the arbitrators' impartiality or independence, or if they do not possess qualifications agreed to by the parties.

There are some limitations on the Court's ability to intervene. The Court may remove an arbitrator only if they have failed to comply with the duties in Section 46 of the AO that an arbitrator must:

• treat the parties equally;
• be independent;
• act fairly and impartially towards the parties, giving them a reasonable opportunity to present their case and to deal with their opponent's case; and
• use procedures that are appropriate to the particular case and avoid unnecessary delay or expense.

See 4.3 Court Intervention.

See 4.3 Court Intervention.

See 3.2 Arbitrability.

The arbitral tribunal may rule on its own jurisdiction (Section 34, AO).

Under Section 34 of the AO, the decisions of arbitral tribunals on their own jurisdiction are not subject to appeal but the said decisions are subject to review by the Court.

The Court will determine the jurisdictional issue on a prima facie basis as it is generally reluctant to usurp the function of arbitral tribunals. The Court is obliged as a matter of law to stay its proceedings if there is prima facie evidence of an arbitration agreement.

The same logic and approach will be adopted by Court to situations where the arbitral tribunals make negative rulings on jurisdiction.

If arbitral tribunals decide on the jurisdictional issues at the outset of the proceedings as a preliminary question, the time limit is 30 days from the date the party receives the notice of the tribunal’s decision. 

If arbitral tribunals decide on the jurisdictional issues in the form of an award, the application to the Court to set aside the award must be made within three months from the date the party receives the award.

Hong Kong adheres to the de novo standard of judicial review for questions of admissibility and jurisdiction.

The Court will make an order of a stay of court proceedings.

If a third party has the right to enforce the contract and is bound by an arbitration agreement by virtue of the Contracts (Rights of Third Parties) Ordinance, then they will be treated as a party to the arbitration agreement. In X v ZPRC [2020] HKCFI 631, the Court held that there are situations where an arbitration clause is sufficiently widely drafted that it can also bind third parties. Where there are related disputes between the same parties, some subject to arbitration and others not, the court will stay the court proceedings pending the outcome of arbitration proceedings (Mak v LA [2022] HKCFI 285).

Under Section 35 of the AO, an arbitral tribunal can grant the following interim measures which are of binding effect:

• maintain or restore the status quo pending determination of the dispute;
• take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself;
• provide a means of preserving assets out of which a subsequent award may be satisfied; or
• preserve evidence that may be relevant and material to the resolution of the dispute.

The Court can grant interim reliefs in arbitral proceedings usually in emergencies such as where there is risk of destruction of documents or dissipation of assets before the tribunal has formed or when a tribunal's order is not complied with.

Under Section 45 of the AO, the Court can grant an interim measure in aid of foreign-seated arbitrations on the basis that the foreign-seated arbitrations are capable of giving rise to an arbitral award (whether interim or final) that may be enforced in Hong Kong. The Court may decline to grant interim measures if the interim measure sought is currently the subject of arbitral proceedings and the Court considers it more appropriate for the interim measure sought to be dealt with by the arbitral tribunal.

Appointments of emergency arbitrators may be made. For instance, they can be made under Schedule 4 of the HKIAC Rules. The awards of emergency arbitrators are binding and enforceable with the leave of the Court (Section 22B, AO).

Hong Kong law allows an arbitral tribunal to order security for costs.

The AO is based on the UNCITRAL Model Law with a number of specific provisions (such as provisions on consolidation and confidentiality) as well as optional provisions (such as provisions on consolidation and permit appeal on a point of law or serious irregularity) applicable to the Hong Kong context.

Under Section 49 of the AO, unless there is any agreement by the parties, arbitration must be commenced by notice in writing for the dispute to be referred to arbitration.

The LO applies in relation to time limits to issue proceedings. For example, there is a limitation period of six years from the date of breach for contractual claims and also a limitation period of six years from the date on which damage was suffered by the claimants for tortious claims.

Under Sections 56-59 of the AO, unless agreed by the parties, the arbitrators have the power to make orders in respect of:

• security for costs;
• discovery of documents or delivery of interrogatories;
• directing evidence to be given by affidavit;
• inspection, photographing, preservation, custody, detention or sale of property by a party to the arbitral proceedings or an expert; or

• taking samples, making observations, or conducting experiments.

The arbitrators can also grant interim measures, make directions as to costs and awards, as well as extend time for arbitral proceedings, etc.

Conversely, arbitrators have the duty to ensure that their acts done or omitted are not dishonest (Sections 104, AO). 

There are no particular requirements for legal representatives in Hong Kong.

Collection and submission of evidence is dictated by agreement between the parties to the arbitral proceedings. The parties can agree on procedures such as the rules of the designated arbitration institutions. The arbitral tribunal will also take a role in overseeing the whole process.

Except the rules governing privilege, arbitral tribunals are not bound by the strict rules of evidence. The parties can agree on the applicable rules between themselves.

See 7.3 Powers and Duties of Arbitrators.

Arbitral proceedings are confidential in Hong Kong. Unless agreed by the parties, any information in connection with the arbitral proceedings or an award shall not be published, disclosed or communicated except where the publication, disclosure or communication is relating to legal proceedings before a court in Hong Kong or outside Hong Kong to protect or pursue a legal right or interest of the party or to enforce or challenge an award.

Publication, disclosure or communication is also allowable to parties’ professional advisers or any governmental or regulatory bodies, courts or tribunals under the law.

When the Arbitration and Legal Practitioners Legislation (Outcome Related Fee Structures for Arbitration) (Amendment) Bill 2022 becomes law, there are certain additional exceptions on the disclosure of information in order to facilitate such agreements.

There are some requirements under Section 67 of the AO that the award shall:

• be in writing and signed by the arbitrator or arbitrators;
• state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given;
• state its date and the place of arbitration; and
• be delivered to each party after the award is made and signed by the arbitrator or arbitrators.

Unless agreed by the parties, an arbitral tribunal has the power to make an award at any time (Section 72, AO).

Unless agreed by parties, an arbitral tribunal can award any remedy or relief that could have been ordered by the Court if the dispute had been the subject of civil proceedings in the Court (Section 70, AO).

Only costs that are reasonable are recoverable (Section 74, AO). Generally, costs follow the event, unless agreed by the parties or limited by the applicable rules.

The arbitral tribunal can also award interest unless agreed by the parties or limited by the applicable rules. It has the discretion to decide on the rates, rests and dates of interest but no later than date of payment. Post-award interest may be awarded at judgment rate (Section 80, AO). The current judgment rate (as at 1 July 2022) in Hong Kong is 8% per annum.

Parties have the ability to appeal on the grounds of serious irregularity and/or a question of law if they have opted into Schedule 2 of the AO. Further, the parties will be able to challenge an arbitration award on the procedural grounds under Section 81 of the AO.

The appeal is done by filing and serving an originating summons, but in practice it is quite difficult to succeed as the courts in Hong Kong are quite reluctant to usurp the functions of arbitral tribunals by intervening in the awards made.

The parties can limit the scope of appeal or the challenge of an award on grounds of serious irregularity or on a question of law by excluding such right expressly in the arbitration agreement (Section 99, AO).

Hong Kong adheres to the de novo standard of judicial review of the merits of a case.

Hong Kong is treated as a contracting state to the 1958 New York Convention with two reservations as the PRC – the reciprocity reservation and commercial reservation.

An arbitration award is enforceable in the same manner as a judgment of the court with leave of the Court (Section 84, Ordinance). For procedures, see 3.1 Enforceability.

The courts in Hong Kong take a pro-enforcement approach. The Court has exercised discretion to enforce an arbitral award which has been set aside by a foreign court (Dana Shipping and Trading SA v Sino Channel Asia Ltd [2016] 4 HKLRD 345).

States enjoy absolute immunity in Hong Kong. The immunity can be relied on as a defence of state or sovereign immunity during enforcement even if the state has taken part in an arbitration where it can show that the state has waived its immunity expressly and unequivocally both in respect of immunity from suit and immunity of its property from execution (DR Congo v FG Hemisphere Associates LLC [2012] HKCFA 2). It is important to note that an agreement to arbitrate is not sufficient to constitute a waiver of immunity but the court of appeal in the said decision suggests that the position may be different if the state is a signatory to the New York Convention.

The courts in Hong Kong generally take a pro-enforcement approach. At the same time, they also take a conservative approach toward the public policy ground to deal with the awards obtained by fraud or oppressive manner. In Guangdong Shunde Zhinwei Trading Co Ltd v Sun Fung Timber Co Ltd HCCT 25/2019, the Court held that the enforcement of the PRC arbitral award would be contrary to public policy and refused to recognise it on the basis that the sale contracts on which the arbitral award was based were entered into in bad faith and that no proper notice of arbitral proceedings was given to the respondent.

There is no class action in Hong Kong.

Counsel are bound by the rules of professional conduct of their professional bodies (eg, the Law Society of Hong Kong or the Hong Kong Bar Council) of the jurisdiction in which they are qualified.

For arbitrators, see 7.3 Powers of Duties of Arbitrators.

The AO was amended in 2019 to allow third parties who have no interest recognised by law in arbitral proceedings (except the funding agreement) to fund.

The identity of third-party funders must be disclosed.

Schedule 2 of the AO (if applicable) states that the Court has power to order consolidation of arbitral proceedings. The HKIAC Rules also provide for the joining of third parties.

See 5.7 Third Parties.