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Hong Kong: A Safe Seat for India-Related Disputes?

  • Hong Kong
  • Other

25-11-2019

This article was first published in Asian Dispute Review, October 2019 edition

This article seeks to dispel a number of myths about whether Hong Kong is a safe seat in which to arbitrate India-related international disputes. Among the realities discussed are the independence of the Hong Kong legal system and judiciary, a modern arbitration law based on international standards, equal treatment of all parties, efficient procedures, arbitration-friendly courts and the ease of enforcement of arbitral awards.

Introduction and historical background

One only needs to look at the statistics published by the Hong Kong International Arbitration Centre (HKIAC) to realise that Indian parties do not prefer to resolve their disputes in Hong Kong.1 By contrast, over the past eight years, Indian parties have featured consistently in the list of the top three foreign users of the Singapore International Arbitration Centre (SIAC).2 In 20153, 20164 and 2017,5 for example, Indian parties were the top foreign users of the SIAC, with 91 out of 271 new cases in 2015, 153 out of 343 in 2016 and 176 out of 452 in 2017. The statistics also show that Indian parties are increasingly arbitrating outside India.

Historically, the primary reason why Indian parties avoided Hong Kong was that arbitral awards rendered in Hong Kong were previously not enforceable in India. Although India and Hong Kong, by virtue of the accession of the People’s Republic of China (China) to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention or the Convention)6 are signatories to the Convention, under Indian arbitration law7 a foreign arbitral award rendered in a Convention country may be enforced in India only if that country is notified in the Gazette of India as a country to which the Convention applies. Although the Convention was ratified by India in 1960 and by China in 1987, China (including Hong Kong and Macau) was only notified by the Indian Government as a Convention country decades later, on 24 March 2012.8

It might have been thought that the notification would have boosted the choice of Hong Kong as a seat for India-related disputes, but this does not appear to have transpired. There is, however, no good reason why Indian parties should avoid Hong Kong. With the removal of the problems of enforcement (which is seen as the most valuable characteristic of arbitration) out of the way, Hong Kong is well placed to be an attractive alternative seat for Indian parties. It should appeal not only to Indian parties who arbitrate with foreign parties, but also to two Indian parties who have agreed to seat their arbitration outside India.

Why does Hong Kong not appear attractive to Indian parties?

Myths and realities (1): Hong Kong’s constitutional position and relationship with China

What, then, is the difficulty with Hong Kong for Indian parties? For many users of arbitration in India, the thought of resolving disputes in Hong Kong gives rise to ‘concerns’ because of Hong Kong’s relationship with China. These concerns are generally based on a lack of understanding of Hong Kong’s relationship with China.

Some facts first: Hong Kong had been a part of the territory of China since ancient times; it was occupied by Britain after the Opium War in 1840. On 1 July 1997, after more than 150 years of colonial rule, sovereignty over Hong Kong was resumed by China. The Basic Law (the ‘mini-constitution’) of Hong Kong is based on the principle of ‘one country, two systems’, which means that although Hong Kong is an inalienable part and a ‘Special Administrative Region (SAR) of China (ie the ‘one country’ element), the socialist system and policies of China shall not be practised in Hong Kong and the previous capitalist system and way of life shall remain unchanged for 50 years (ie the ‘two systems’ element).9

The system and policies that will apply in Hong Kong after 50 years (ie from 1 July 2047) is a debatable political issue. However, the position at present is clear: Hong Kong’s system is separate from that of China. Accordingly, the laws previously in force in Hong Kong when it was a British colony (that is, the common law, rules of equity and legislation), continue to apply in the Hong Kong SAR (HKSAR). The HKSAR enjoys a high degree of autonomy from China in all areas except in matters of defence and foreign affairs. It enjoys executive, legislative and independent judicial power, including that of final adjudication. Judges and other members of the judiciary of Hong Kong are also recruited from other common law jurisdictions. The courts of Hong Kong regularly refer to precedents of other common law jurisdictions. The Basic Law explicitly states that the courts of Hong Kong shall exercise judicial power independently, free from any interference.10

Myths and realities (2): treatment of the parties and Hong Kong as a safe seat of arbitration

Another myth arising out of Hong Kong’s relationship with China is that a foreign party in dispute with a Chinese party may receive unequal treatment from a tribunal seated in Hong Kong (Mainland China and Hong Kong parties are the most frequent users of HKIAC arbitration) or the Hong Kong courts. This could not be further from the reality.

Hong Kong prides itself on the impartiality and independence of its legal system. There are no reported cases in the HKSAR (whether in the courts or before arbitral tribunals) in which preference has been shown toward a Chinese party or against a non-Chinese party. In fact, the World Economic Forum’s 2018 Global Competitiveness Report has ranked Hong Kong as the most judicially independent jurisdiction in Asia and the eighth most judicially independent jurisdiction in the world.11

Equal treatment of the parties and the impartiality and independence of an arbitral tribunal are fundamental principles of the arbitration process. These principles are expressly provided for in Hong Kong’s arbitration law, the Arbitration Ordinance (Cap 609) (Arbitration Ordinance), which came into force in June 2011.12 The Arbitration Ordinance is almost entirely based on the latest (2006) version of the UNCITRAL Model Law on International Commercial Arbitration (Model Law), which means that it is in line with international practice and the arbitration laws of other arbitration-friendly jurisdictions such as the United Kingdom, Singapore, Australia and Canada, as well as India.13

Further, the appointment of an arbitrator may be challenged if justifiable doubts exist as to his/her impartiality or independence; this may also constitute grounds for refusal of enforcement of an award. Prior to their appointment, arbitrators are generally required to confirm their impartiality and independence and disclose any circumstances likely to give rise to any justifiable doubts. Parties are also free to agree on a procedure for the appointment of arbitrators and even agree to exclude the appointment of an arbitrator by reason of his/her nationality. The general position in the rules of most arbitral institutions (including the HKIAC) is that where the parties to an arbitration are of different nationalities, a sole or presiding arbitrator shall not have the same nationality as any party unless specifically agreed otherwise by the parties.14 With these safeguards, Indian parties need not be concerned about an arbitral tribunal in Hong Kong giving favourable treatment to a Chinese party.

The courts of Hong Kong have a pro-arbitration approach and are supportive of arbitration. An arbitral award, whether made in or outside Hong Kong, is enforceable in the same manner as a judgment of the Hong Kong court and has the same effect, but only with the leave of the court.15 It is not easy to challenge an award and/or its enforcement before the courts of the HKSAR. The courts grant anti-suit injunctions to restrain the pursuit of foreign proceedings brought in breach of an agreement to arbitrate in Hong Kong.16

It is also the established practice of the Hong Kong courts to order indemnity costs to be paid in the event of an unsuccessful challenge to an arbitral award or its enforcement.17

Awards made in Hong Kong are readily enforceable in Mainland China, pursuant to a bilateral agreement between the HKSAR and China,18 and in 160 countries that are parties to the New York Convention, including India.19

In early April 2019, Hong Kong and China signed an agreement following which parties to Hong Kong-seated institutional arbitrations will be able to seek, for the first time, interim measures from Chinese courts (ie property, evidence and conduct preservation) that will be enforceable in China.20 Previously, such protection was available only for arbitrations seated in China. The agreement is expected to be a game changer because it will give parties (including those from India) greater confidence when opting for Hong Kong-seated arbitration of China-related disputes.

According to the most recently published Queen Mary/White & Case International Arbitration Survey (2018),21 Hong Kong has featured once again in the top five most preferred seats of arbitration globally, on the basis of its general reputation and recognition, users’ perceptions of its formal legal infrastructure, the neutrality and impartiality of its legal system, the national arbitration law (ie the Arbitration Ordinance) and its track record in enforcing agreements to arbitrate and arbitral awards. This is yet another affirmation of Hong Kong’s status as a safe seat.22 Further, following the conclusion of certain reforms to the Arbitration Ordinance in February 2019, third party funding of arbitration is fully permitted in Hong Kong.

Hong Kong has a large pool of competent professionals with expertise in international arbitration and other forms of international dispute resolution, many of whom come from a variety of different backgrounds, including law, accountancy, engineering and architecture, who have the capability to understand technical issues which may arise in an arbitration. It also has Chinese-speaking professionals with knowledge of China and of Chinese law. There are more than 9,000 practising solicitors, 1,500 practising barristers, 1,500 Registered Foreign Lawyers (ie lawyers qualified in jurisdictions outside Hong Kong) and 80 Registered Foreign Law Firms in Hong Kong.23 With this expertise, Hong Kong provides significant options for parties who seek representation in local proceedings. The Arbitration Ordinance specifically permits parties to seek representation from overseas lawyers (such as counsel from the UK and India) in Hong Kong-seated arbitrations.24

As for arbitration infrastructure and facilities, the HKIAC has a strong international reputation and world-class facilities. According to the Queen Mary/White & Case International Arbitration Survey 2018,25 the HKIAC has again been voted as one of the five most preferred and used arbitral institutions worldwide on account of its reputation, recognition and the quality of administration. In 2014, the HKIAC received the Global Arbitration Review innovation award for being at the forefront of innovative arbitration practice.26 This continues to be reflected in the latest edition of the HKIAC Administered Arbitration Rules that came into force on 1 November 2018 (2018 Rules). This edition has introduced (inter alia) time and cost-saving measures, together with measures aimed at making complex arbitration more efficient. The 2018 Rules have also embraced recent developments in international arbitration; these include, for example, a requirement on arbitral tribunals under art 13.1 to consider the effective use of technology in determining procedures for the conduct of an arbitration.27

Last but not the least, in terms of practicalities, there are daily direct flights between three major cities of India (New Delhi, Mumbai and Chennai) and Hong Kong. The flight duration from New Delhi to Hong Kong is a mere four hours and 45 minutes, whilst the average journey time from the other two cities to Hong Kong varies between five and six hours. Generally speaking, Indian passport holders need visas to enter most jurisdictions, but this is not the case for Hong Kong. The Hong Kong Government has put in place a simple and free online ‘pre-arrival registration’ system, which permits Indian passport holders to visit Hong Kong for a stay not exceeding 14 days without the need for a visa.28 The time difference between India and Hong Kong is two hours and 30 minutes, and the rail journey from Hong Kong’s Chek Lap Kok International Airport to the city’s commercial hub takes only 24 minutes.29 The HKIAC is conveniently located within the Central business district.

Conclusion

To conclude, Hong Kong is a safe seat both generally and for India-related disputes. It has an arbitration-friendly legal system based on common law principles, a robust pro-arbitration and pro-enforcement judiciary that functions without interference from China, an excellent arbitral institution in the form of the HKIAC, world-class legal talent and infrastructure, and is within easy reach from India.

The recent arbitration-related developments in Hong Kong highlight the continued efforts of the SAR Government to enhance the role and status of Hong Kong and make it more attractive for parties to the territory as their seat of arbitration.


1 HKIAC, Annual Reports and Statistics, available at http://www.hkiac.org/about-us/annual-report and http://www.hkiac.org/about-us/statistics.
2 SIAC, Annual Reports, available at http://www.siac.org.sg/2013-09-18-01-57-20/2013-09-22-00-27-02/annual-report.
3 SIAC, Annual Report 2015, available at http://www.siac.org.sg/images/
stories/articles/annual_report/SIAC_Annual_Reort_2015.pdf.
4 SIAC, Annual Report 2016, available at http://www.siac.org.sg/images/stories/articles/annual_report/SIAC_AR_2016_24pp_WEBversion_edited.pdf
5 SIAC, Annual Report 2017, available at http://www.siac.org.sg/images/
stories/articles/annual_report/SIAC_Annual_Report_2017.pdf
6 New York Convention, List of Contracting States, available at http://www.newyorkconvention.org/list+of+contracting+states.
7 Arbitration and Conciliation Act 1996 (as amended by the Arbitration and Conciliation (Amendment) Act 2015), s 44, available at https://indiankanoon.org/doc/1211237/.
8 Ministry of Law and Justice, Notification of 19 March 2012, Gazette of India, 24 March 2012, available at http://egazette.nic.in/WriteReadData/2012/E_502_2012_018.pdf. Editorial note: It should be noted in any event that, prior to 1 July 1997, the United Kingdom and not China was the State through which the New York Convention applied in Hong Kong.
9 Basic Law of the Hong Kong Special Administration Region of the People’s Republic of China (Basic Law), Preamble, arts 1 and 5, available at https://www.basiclaw.gov.hk/en/basiclawtext/images/basiclaw_full_text_en.pdf.
10 Basic Law, arts 2, 8, 16-19, 84, 85 and 92.
11 Competitiveness ranking for ‘Judicial independence’, available at http://reports.weforum.org/global-competitiveness-report-2018/competitiveness-rankings/#series=EOSQ144
12 Arbitration Ordinance (Cap 609), ss 24, 25 and 46, available at https://www.elegislation.gov.hk/hk/cap609.
13 Hong Kong was the first Asian jurisdiction to adopt the 2006 version of the Model Law (2006), available at http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_status.html.
14 HKIAC Administered Arbitration Rules 2018 (HKIAC Rules), art 11, available at http://www.hkiac.org/sites/default/files/ck_filebrowser/PDF/arbitration/2018_hkiac_rules.pdf
15 Arbitration Ordinance, ss 84 and 87.
16 Ever Judger Holding Co Ltd v Kroman Celik Sanayii Anonim Sirketi [2015] 2 HKLRD 866.
17 Chimbusco International Petroleum (Singapore) Limited v Fully Best Trading Ltd [2015] HKEC 2573.
18 Arbitration Ordinance, s 92; see also the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region, signed in Shenzhen on 21 June 1999, available at https://www.doj.gov.hk/eng/mainland/pdf/mainlandmutual2e.pdf.
19 Arbitration Ordinance, s 87. As to the list of such States, see Status, available at https://uncitral.un.org/en/texts/arbitration/conventions/foreign_arbitral_awards/status2.
20 Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (effective as of 1 October 2019), available at https://www.doj.gov.hk/pdf/2019/arbitration_interim_e.pdf. Editorial note: See Hong Kong-Mainland China Arrangement on interim relief 2019. See also Reciprocal enforcement of court-ordered interim measures between Mainland China and Hong Kong [2019] Asian DR 137-138.
21 Queen Mary University of London School of International Arbitration and White and Case LLP, 2018 International Arbitration Survey: The Evolution of International Arbitration, available at http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Survey---The-Evolution-of-International-Arbitration-(2).PDF
22 See also the DELOS Guide to Arbitration Places (GAP), ‘Delos list of safe seats’ (which includes Hong Kong), p 3, available at https://delosdr.org/wp-content/uploads/2018/06/Delos-GAP-1st-edn-Overview-Methodology.pdf?pdf=GAP1-Overview.
23 See figures on The Law Society of Hong Kong, available at http://www.hklawsoc.org.hk/pub_e/ and the Hong Kong Bar Association, available at https://www.hkba.org/content/about-barristers-hong-Kong.
24 Arbitration Ordinance, s 63.
25 Op cit, note 21 above.
26 HKIAC News, And the GAR Innovation Award goes to … HKIAC, 27 February 2015, available at http://www.hkiac.org/news/and-gar-innovation-award-goes-%E2%80%A6-hkiac.
27 HKIAC Rules & Practice Notes, 2018 Administered Arbitration Rules, available at http://www.hkiac.org/arbitration/rules-practice-notes/hkiac-administered-2018.
28 Hong Kong Immigration Department, ‘Pre-arrival Registration for Indian Nationals’, available at https://www.immd.gov.hk/eng/services/visas/pre-arrival_registration_for_indian_nationals.html.
29 Hong Kong International Airport, Airport Express, available at: https://www.hongkongairport.com/en/transport/to-from-airport/airport-express.page

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