5 Advantages of Choosing HK as the Venue & Seat of Arbitration

Hong Kong is a popular venue and seat for arbitration

Arbitration As a Means of Alternative Dispute Resolution

Arbitration is becoming increasingly popular as a means of alternative dispute resolution in Mainland China and in Hong Kong.  Arising from an underlying arbitration agreement between the parties, arbitration offers the advantage of privacy when compared with court litigation.  Generally, arbitration also allows the dispute in question to be resolved sooner mainly because the parties could have more control over the dates for an arbitration, as opposed to the dates for a trial which are subject to the court’s timetable.

Venue for Arbitration

When parties enter into an arbitration agreement, one of the key considerations would be the venue for arbitration.  The choice of the venue would often have a wider implication that extends beyond the physical place where the arbitration is to be held, because the seat of the arbitration in question would normally follow the venue.  The seat of arbitration impacts upon the jurisdiction which the arbitration is subject to and the underlying legal framework that administers the arbitration.

Hong Kong’s Well Developed Legal System Makes it an Attractive Venue for Arbitration

Hong Kong has long been regarded as a popular venue for arbitration for various reasons.  First of all, it is a common law jurisdiction which values the importance of the rule of law and judicial independence. The Arbitration Ordinance (Chapter 609 of the Laws of Hong Kong), the key piece of legislation governing arbitrations seated in Hong Kong, establishes a comprehensive and pro-arbitration regime which largely modelled after the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law.  As such, leveraging its well-developed legal system, Hong Kong has been an international hub for commercial activities and also commercial dispute resolution.  On the other hand, because of its geographical location and close connection with Mainland China as a Special Administrative Region, Hong Kong is often considered a convenient and attractive venue for resolving disputes involving Chinese parties or other China elements.

Seat of Arbitration

Following the venue is the seat of arbitration. When deciding on the seat of an arbitration, another important factor is the enforceability of the arbitral award that will eventually be made after the arbitration process.  Particularly when the dispute in question has cross-border implications, the parties would prefer the arbitral award to be widely recognised and enforceable in as many countries and jurisdictions as possible.  By virtue of the New York Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Award, an arbitral award made in Hong Kong is enforceable in more than 160 contracting states.  As between Hong Kong and Mainland China, the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (“Arrangement”) also facilitates the mutual enforcement of arbitral awards between the two jurisdictions.

Enforceability of Arbitral Awards Enhances Hong Kong’s Appeal as a Venue for the Seat of Arbitration

Recently, a significant step was taken to clarify and enhance the mutual recognition and enforceability of arbitral awards between the Mainland and Hong Kong.  On 27 November 2020, the Hong Kong Secretary for Justice and the Vice President of the Supreme People’s Court of China signed the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (“the Supplemental Arrangement”).  The Supplemental Arrangement introduces a number of amendments and clarifications to further refine the existing Arrangement and to improve the judicial cooperation between Mainland China and Hong Kong under this regime.

What is the Supplemental Arrangement?

The Supplemental Arrangement mainly contains four articles.  Articles 1 and 4 took effect immediately at the time the Supplemental Arrangement was signed; while Articles 2 and 3 subsequently became effective following the corresponding amendments made on the Arbitration Ordinance on 19 May 2021.  In gist, the significance of the four articles are:

1. Article 1 clarifies that the procedures for enforcing arbitral awards of the Mainland and Hong Kong under the Arrangement shall be interpreted as procedures for both recognition and enforcement of such awards. Previously, the Arrangement did not expressly mention the concept of recognition, so the interpretation of its provisions have now become clearer.
2. Articles 2 introduces an amendment to the Preamble and Article 1 of the original Arrangement, such that the Arrangement now covers all arbitral awards which are “rendered pursuant to the Arbitration Law of the People’s Republic of China as enforced by arbitrations seated in the Courts of the HKSAR”. This is a positive step forward from the original Arrangement which only covered arbitral awards made by a specified list of recognised arbitral authorities in the Mainland.
3. Pursuant to Article 3, parties can now file applications to enforce an arbitral award in Mainland China and in Hong Kong at the same time, although the total amount recovered from such proceedings must not exceed the amount determined in the arbitral award. This brings a very encouraging change to the existing regime where an applicant may only commence enforcement proceedings either in the Mainland or in Hong Kong.
4. Article 4 serves as another significant aid to parties seeking to enforce arbitral awards in the Mainland and in Hong Kong. Now, the relevant Mainland or Hong Kong courts may, before or after accepting an application for enforcement of an arbitral award, impose interim measures in aid of the enforcement proceedings to prevent recoverable assets from being dissipated.

Hong Kong as the Venue and Seat of Arbitration

In addition to the abovementioned advantages, Hong Kong, as “Asian’s World City”, also offers good hospitality, language flexibilities and a wealth of legal expertise to facilitate arbitrations seated and taking place in Hong Kong.  It is expected that its status as an international arbitration venue would be further strengthened in view of the recent developments.

Written by: Partner and Solicitor Advocate, Nathan Wong, and Associate, Jacky Tsai.

(The article was published in the December 2021 edition of China Business Law Journal)