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International Legal Services - Hong Kong

By Lowtax Editorial
08 August, 2013



With the enactment of new legislation in the areas of arbitration and mediation, it is the Hong Kong Government’s professed goal to position the territory as a legal services centre of excellence serving the Asia Pacific region and beyond. This feature explores these efforts so far.

Back in June 2011, shortly after Hong Kong’s new Arbitration Ordinance went into effect, Secretary for Justice, Wong Yan Lung, expressed the government's determination to underpin Hong Kong as a leading international arbitration centre in the Asia Pacific region.

At a joint reception organized by the Ministry of Justice and the Hong Kong International Arbitration Centre, Wong said that, with the commencement of the new Arbitration Ordinance on June 1, 2011, Hong Kong had entered a new era with a brand new regulatory framework to enable arbitration to realize its full potential as a dispute resolution mechanism, and to further strengthen the city's credentials as the regional hub for international arbitration.

"The enactment of the new Ordinance is a testament to the concerted efforts of the government, the Legislative Council and the arbitration community," he stressed. "According to a survey on international arbitration conducted by the School of International Arbitration at Queen Mary, University of London last year, 62% of the respondents opined that formal legal infrastructure or statutory framework was the most decisive factor in choosing a place of arbitration.”

He pointed out that the new arbitration law was in tune with the latest and best international practice, and would become familiar and easily accessible to both local and foreign arbitration users and practitioners. "With the clear policy in the new Ordinance that the court may intervene only in circumstances that are expressly provided for,” Wong said, “the new regulatory regime is in line with the objectives to achieve fair and speedy resolution of disputes and to avoid unnecessary costs."

He explained that "other major features of the new Arbitration Ordinance include the protection of confidentiality in arbitration proceedings as well as court hearings related to those proceedings. These provisions seek to strike more accurately the right balance between safeguarding confidentiality in arbitration and protecting the other substantive legal rights of the parties.”

However, he remained convinced that “the single most crucial factor for the success of arbitration in Hong Kong is still human talent. Without a close partnership with our first class legal and arbitration professionals, there is simply no way that Hong Kong can excel in this highly competitive area."

Wong had previously noted that the economic development of mainland China in recent years has generated substantial demand for more sophisticated and effective business dispute resolution mechanisms, and there is good potential for setting up a Greater China arbitration services platform with Hong Kong assuming an important role. It has been disclosed that, on this matter, the Department of Justice has been in discussion with the relevant Mainland authorities, including the Supreme People's Court and the Ministry of Justice in Beijing, on how cooperation with the Mainland can be further enhanced.


Background To New Arbitration Ordinance

Under the now repealed Arbitration Ordinance (Cap. 341), there were separate regimes for the conduct of domestic and international arbitrations in Hong Kong. The regime for domestic arbitration was largely based on the United Kingdom arbitration legislation, while the regime for international arbitration was based on the Model Law.

In 1998, the Hong Kong Institute of Arbitrators in co-operation with the HKIAC established a Committee on Hong Kong Arbitration Law to study reform of the arbitration law. The Committee issued a report in 2003 recommending that the then Arbitration Ordinance be redrafted and a unitary regime with the Model Law governing both domestic and international arbitration be created. The Department of Justice (DoJ) set up in September 2005 the Departmental Working Group to implement the Report of the Committee on Hong Kong Arbitration Law, chaired by the Solicitor General and comprising representatives of the legal profession, arbitration experts and relevant government officials, to formulate legislative proposals to implement the recommendations in the report of the Committee.

The DoJ published a Consultation Paper on Reform of the Law of Arbitration in Hong Kong and a draft Arbitration Bill on December 31, 2007 for a six-month consultation on the reform of the law of arbitration in Hong Kong. With the draft Bill adopting the structure of the UNCITRAL (United Nations Commission on International Trade Law) Model Law on Arbitration as its framework, the purposes of the reform were:

  • to make the law of arbitration more user-friendly to arbitration users both in and outside Hong Kong;
  • to enable the Hong Kong business community and arbitration practitioners to operate an arbitration regime which accords with widely accepted international arbitration practices and development as the Model Law is familiar to practitioners from both civil law and common law jurisdictions;
  • to attract more business parties to choose Hong Kong as the place to conduct arbitral proceedings, as Hong Kong will be seen as a Model Law jurisdiction; and
  • to promote Hong Kong as a regional centre for dispute resolution.

The consultation period ended on June 30, 2008, and the DoJ reported to the Legislative Council Panel on Administration of Justice and Legal Services on February 23, 2009 on the outcome.

The Arbitration Bill was then introduced into the Legislative Council in June 2009, and a Bills Committee was formed by the Council to study the Bill. The Bills Committee held 15 meetings with the Administration and received views from eight deputations at one of the meetings.

The new Arbitration Ordinance, Cap. 609 was eventually enacted by the Legislative Council on November 10, 2010 and the new law came into effect on June 1, 2011.


New Legislative Framework For Arbitration

The new Arbitration Ordinance arbitration law of Hong Kong unifies the legislative regimes for domestic and international arbitration on the basis of the Model Law with the intention that more international arbitration will be attracted to Hong Kong. Arbitral awards made in Hong Kong can be enforced in all States party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Under the new law, there is no restriction on foreign law firms engaging in and advising on arbitration in Hong Kong, and parties in arbitration may retain advisers without restriction as to their nationalities and professional qualifications.

Included in the Ordinance are a number of recent initiatives proposed by the Model Law. For example, the Hong Kong court is empowered to recognise and enforce interim measures ordered by an arbitration tribunal sitting outside Hong Kong. The requirement that an arbitration agreement be in writing is extended to include electronic communications.

Other major features of the Ordinance are the provisions on the protection of confidentiality in arbitration proceedings as well as court hearings related to those proceedings. To enhance confidentiality for international arbitration, the Ordinance provides that as a starting point, court proceedings relating to arbitration are not to be heard in open court. Such proceedings will be heard in open court only if any party so applying can satisfy the court that for good reasons the proceedings ought to be heard in open court.

The Ordinance also provides that unless otherwise agreed by the parties or under any exceptions as provided for in the Ordinance, no party may publish, disclose or communicate any information relating to arbitral proceedings and awards. The Ordinance adheres to the international practice that arbitral awards should only be made public with the consent of the parties concerned, having regard to the private and confidential nature of arbitration. This provision seeks to strike a proper balance between safeguarding the confidentiality of arbitration and the need for parties in the arbitral proceedings to protect or pursue their legal rights or for them to enforce or challenge an arbitral award.

Under the Ordinance, the court may intervene only in circumstances as expressly provided for in the Ordinance. In general, minor procedural proceedings in the court should not be subject to appeal. In line with the Model Law provisions, these include the appointment of arbitrators, the procedure to challenge an arbitrator, and the decision terminating the mandate of an arbitrator, among other provisions. Only proceedings which determine substantive rights or might do so may be subject to appeal.

In the legislative process, deputations from the construction industry pointed out that under the existing law, a domestic subcontract in the construction industry did not need to expressly refer to the domestic regime as it would automatically apply. Without an express opt-in under the new Ordinance, all subcontracts would have been governed by the international unitary regime. Thus, the status quo of local construction subcontractors would immediately change when the new Ordinance came into force. In response, the Administration introduced an automatic opt-in mechanism for the construction industry. All the opt-in provisions will automatically apply to an arbitration agreement entered into before, or at any time within a period of six years after, the commencement of the Ordinance and which has provided that arbitration under the agreement is a domestic arbitration. Schedule 2 of the Ordinance includes provisions for:

  • Arbitration by a sole arbitrator in the absence of agreement;
  • Appeal against an arbitral award on a question of law;
  • Consolidation of arbitrations by the court;
  • Determination of a preliminary question by the court; and
  • Challenging an arbitral award on the grounds of serious irregularity.

Under section 101 of the Ordinance, the opt-in provisions also apply to arbitration agreements (if any) under subcontracts, if the main construction contracts contain arbitration agreements to which the opt-in provisions automatically apply. However, this is not applicable to "non-local subcontractors" to avoid opt-in provisions being imposed on unwary non-local subcontractors, thereby undermining Hong Kong's reputation as an international arbitration centre.

The text of the Arbitration Ordinance Cap:609 can be read here.


The Hong Kong International Arbitration Centre

The Hong Kong International Arbitration Centre (HKIAC) was established in 1985 by a group of leading businesspeople and professionals in an effort to meet the growing need for arbitral services in Asia. Initially, the Hong Kong business community and the Hong Kong Government generously funded the HKIAC. Today, the Centre is financially self-sufficient, and free and independent from any type of influence or control.

The HKIAC is a non-profit company limited by guarantee. The Centre is governed by a council composed of leading businesspeople and professionals from all around the world who possess a wide variety of skills and experience. The HKIAC administers arbitrations and other dispute resolution activities, including mediation and adjudication. The HKIAC manages these activities through the Centre's Secretary General, the chief executive and registrar.

The HKIAC Secretariat is located in the Central Business District in Hong Kong, and is responsible for the day-to-day administration of all disputes referred to the HKIAC. The HKIAC Secretariat handles the administration of arbitration, mediations, adjudications, and domain name disputes. It also provides additional support services including room reservations and fund holding.

The HKIAC handled 456 dispute resolution matters in 2012. These include 293 arbitration matters, 116 domain name disputes and 47 mediation disputes.

Of the 293 arbitration cases handled by the HKIAC in 2012, 68% were international and 32% were domestic. Of the total, 68 cases were fully administered by the HKIAC in accordance with its rules. This is a 40% increase from 2011 to 2012. The total amount in dispute for administered cases was approximately USD1.8 billion.

International cases involved parties from the following jurisdictions: Angola, Australia, Belgium, Brazil, Brunei, Cambodia, Canada, Cayman Islands, China, Costa Rica, Cyprus, Denmark, Djibouti, Ecuador, Germany, India, Indonesia, Italy, Japan, Kyrgyzstan, Macau, Malta, Marshall Islands, Mauritius, Netherlands, Norway, Philippines, Russia, Samoa, South Africa, South Korea, Switzerland, Taiwan, Thailand, the British Virgin Islands, United Kingdom, United States, and Vietnam.

Of the total number of arbitration cases, 24% involved construction, 27% involved commercial activities, 8% involved corporate disputes, 3% insurance and 38% involved maritime disputes.

The HKIAC made a total 196 arbitrator appointments in 2012. The HKIAC Maritime Arbitration Group, a division of the HKIAC, consisting of HKIAC arbitrators who specialize in maritime, reported that its members had been appointed on 163 occasions in 2012.

In May 2013, the HKIAC opened its first overseas office in the newly-established Seoul International Dispute Resolution Centre in Korea.


China

In 2012, Hong Kong Secretary for Justice Rimsky Yuen has announced the establishment of the Hong Kong Arbitration Centre by the China International Economic and Trade Arbitration Commission (CIETAC), a development he said would further enhance Hong Kong's status as an international dispute resolution centre.

The Department of Justice, together with the China Council for the Promotion of International Trade (CCPIT), CIETAC and the Hong Kong Trade Development Council, held an inauguration ceremony for the CIETAC Hong Kong Arbitration Centre at the Central Government Offices on September 24, 2012.

Speaking at the ceremony, Yuen pointed out that, in 1999, China’s Supreme People's Court and the Department of Justice signed the Arrangement Concerning Mutual Enforcement of Arbitral Awards, which was modelled on the principles of the New York Convention and sets out the conditions for mutual enforcement of arbitral awards. It has been effectively implemented by courts in both Hong Kong and China, further strengthening the status of Hong Kong as a regional centre for international arbitration.

Expressing his gratitude for CIETAC's recognition of Hong Kong as a regional centre for international arbitration and its support in setting up in Hong Kong its first arbitration centre outside China, he added that "the establishment of the CIETAC Hong Kong Arbitration Centre, coupled with the existing arbitral institutions in Hong Kong, including the Hong Kong International Arbitration Centre and the Secretariat of the International Chamber of Commerce International Court of Arbitration (Asia Office), will place Hong Kong in an even stronger position to meet the demand for high-end arbitration services".

The Vice Chairman of the CCPIT, Dong Songgen, said CIETAC had made impressive achievements in arbitration services involving foreign entities since its establishment in 1956. He confirmed that "the establishment of the CIETAC Hong Kong Arbitration Centre is a requirement for CIETAC to achieve first class international status. While this is a necessary development in the close partnership between Hong Kong and the Mainland, it is also needed for Hong Kong to become recognized as an international dispute resolution centre."

He was confident that the CIETAC Hong Kong Arbitration Centre “will become an international organization by leveraging on Hong Kong's advantages and co-operating with Hong Kong's arbitration services to achieve a win-win situation.”

A conference on arbitration was held after the ceremony to promote greater use of arbitration in the business community and give participants a better understanding of the new centre and the development of arbitration services in both China and Hong Kong. More than 200 people from the legal and arbitration services and representatives of commercial organisations attended the conference, during which they discussed the stepping up of co-operation between the arbitration services of Hong Kong and China.

Substantial progress has also been made with regard to closer cooperation between the legal professions of the Mainland and Hong Kong in the past two or three years.

The China and Hong Kong Closer Economic Partnership Arrangement (CEPA) Supplement VIII, signed in December 2011, had put forth new measures to foster closer co-operation between the legal professions of the Mainland and Hong Kong, and to explore ways of improving the association of law firms of the two places.

Under CEPA Supplement IX, signed in June 2012, Hong Kong law firms that have set up representative offices in the Mainland are also allowed to operate in association with one to three Mainland law firms.


Arbitration Agreement With Macao

On January 7, 2013, Secretary for Yuen, and Macao’s Secretary for Administration and Justice, Florinda Chan, signed a bilateral arrangement to provide for the mutual recognition and enforcement of arbitral awards in both places.

Under the Arrangement, Hong Kong’s courts will recognize and enforce arbitral awards made in Macao pursuant to Macao’s laws of arbitration, and Macao’s courts will recognize and enforce arbitral awards made in Hong Kong pursuant to its Arbitration Ordinance.

Where a party fails to comply with an arbitral award, whether made in Hong Kong or in Macao, the other party may apply to the relevant court, in the place where the party against whom the application is filed is domiciled or the place in which the property of the said party is situated, for recognition and enforcement of the award.

The arrangement was made in accordance with the provisions in the Basic Law of both places. The content of the arrangement is also made in accordance with the spirit of the New York Convention, and is broadly similar to the existing arrangements on the same issue between Hong Kong and China and between Macao and China.

It is expected that the conclusion of the arrangement will add certainty to the enforceability of Macao arbitral awards in Hong Kong and vice versa, and provide a simple and effective mechanism in both jurisdictions on reciprocal enforcement of arbitral awards. It should also foster legal and judicial co-operation between Hong Kong and Macao in civil and commercial matters, and enhance Hong Kong's position as a regional arbitration centre for commercial disputes in Asia Pacific.

During his stay in Macao, Yuen also took the opportunity to visit other legal and judicial organizations in Macao, including the Secretariat for Administration and Justice and Legal Affairs Bureau, with the purpose of enhancing the mutual exchanges and relations of the two sides in legal and judicial matters.


Mediation Ordinance

Hong Kong’s new Mediation Ordinance, which was enacted in June last year, was published in the Government Gazette in October 2012 and came into operation on January 1, 2013.

The Ordinance provides a regulatory framework for the conduct of mediation without hampering the flexibility of the mediation process. The aim of the Ordinance is to promote, encourage and facilitate the resolution of disputes by mediation, and to protect the confidential nature of mediation communication.

"With mediation becoming increasingly used in many different jurisdictions around the world to resolve disputes other than through litigation in the courts, the Ordinance will enhance Hong Kong's status as a leading centre for dispute resolution in the Asia-Pacific region," a spokesman for the Justice Department said.

Mediation is a structured process in which an impartial mediator, without adjudicating a dispute, assists the parties to identify the issue in dispute, and explore ways in which a resolution can be reached. The Hong Kong Mediation Accreditation Association Limited was incorporated and established in August this year.

Mediation communication is confidential and must not be disclosed except under situations as specified in the Ordinance. The Ordinance provides legal certainty regarding the confidentiality and admissibility of mediation communications in evidence, and standardizes the terminology and Chinese renditions for ‘mediation’ and conciliation’.

As part of the government's determination to develop Hong Kong into a regional dispute resolution centre, in particular as an international arbitration hub in the Asia Pacific, the Secretary for Justice, Wong Yan Lung, announced that an industry-led single accreditation body for mediators would be set up in the city.

Addressing an audience of overseas and local mediation experts at the "Mediate First" conference in May 2012, Wong said the Mediation Task Force was working hard on the detailed constitution of this body - the Hong Kong Mediation Accreditation Association (HKMAA).

"The Association will perform the role of the premier accreditation body for mediators in Hong Kong, discharging accreditation and disciplinary functions,” Wong confirmed. “The current thinking is that the four major mediation service providers, namely the Law Society of Hong Kong, the Hong Kong Bar Association, the Hong Kong International Arbitration Centre and the Hong Kong Mediation Centre, will be (its) founding members.”

Previously, some 1,600 mediators in Hong Kong were accredited by a number of different bodies, each adopting its own training and accreditation criteria. The establishment of the Association adopting a standardized accreditation system has therefore helped enhance public confidence in mediation services.

Wong said that mediation as a dispute resolution method “had taken root in Hong Kong," adding that one particularly noteworthy venture is the setting up of the Financial Dispute Resolution Centre (FDRC) by the government with the support of the financial institutions. The FDRC was established in mid-2012, and aims to provide an independent and affordable avenue for resolving monetary disputes between individual clients and financial institutions.

It is said that Hong Kong’s mediation law is now in line with the latest and best international practice, is easily accessible to both local and foreign arbitration users and practitioners, and achieves the fair and speedy resolution of disputes to avoid unnecessary costs.

The text of the Mediation Ordinance (Cap:620) can be read here.

www.lowtax.net has more than 50 pages of information about Hong Kong covering offshore business, e-commerce, the tax and legal infrastructure and investment opportunities, which can be viewed by clicking on the following link.





 

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