27 June 2017
Arbitration and Mediation Industry in Hong Kong
- Hong Kong is a prime venue for commercial dispute resolution through arbitration and mediation, given its mature and well-developed legal system and the existence of a large pool of experienced professionals. Arbitration awards made in Hong Kong are enforceable through the courts of most of the world's trading economies.
- In June 2017, Hong Kong amended the Arbitration Ordinance to allow third party funding of arbitration and mediation, reinforcing the city as a leading centre for international dispute resolution.
- The number of dispute resolution cases handled by the Hong Kong International Arbitration Centre (HKIAC), including both arbitration and mediation, reached 460 in 2016. The total disputed amount for the administered cases was about HK$19.4 billion.
- A 2015 survey of Queen Mary University of London ranked HKIAC the third best arbitral institution worldwide and the most preferred one outside of Europe.
- In January 2015, the Hague-based Permanent Court of Arbitration (PCA) and the Chinese government signed an agreement to allow dispute resolution proceedings administered by the PCA to be conducted in Hong Kong on an ad hoc basis.
- The Arbitration Ordinance provides a single, unified regime based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law with clauses tailored for Hong Kong. The Mediation Ordinance provides a regulatory framework for the conduct of mediation.
Range of Services
Arbitration is a legal process through which awards are issued to the disputing parties by arbitrator(s) rather than the court. For an arbitration to take place, the concerned parties in dispute must both agree that the dispute will be handled by arbitration and not by court. This agreement is usually signed as a clause in the commercial agreement before the occurrence of any disputes.
Another option to resolve disputes is by mediation. It is a process of settling disputes through discussion sessions between involved parties under the presence of a neutral third party, i.e. a mediator. Unlike arbitrators, mediators are not given any power to impose a settlement for the disputes. Instead, they act as a shuttle diplomat by encouraging the disputing parties to discuss, and helping them filter out their emotional elements. In the event of the parties reaching an agreement, a legally binding contract consisting of all the agreed terms will be signed. If an agreement cannot be reached within a certain period, the mediator will suggest a temporary or permanent end to the mediation to save cost.
In 2016, 460 cases were carried out under the auspices of the Hong Kong International Arbitration Centre (HKIAC), including 262 arbitration cases, 183 domain name disputes and 15 mediation disputes. The total amount in dispute for the administered cases was approximately HK$19.4 billion. Top industry sectors of HKIAC administered arbitrations were corporate and finance (29.3% of total), maritime (21.6%) and construction (19.2%).
Arbitrators are generally recognised senior experts from professions capable of understanding the technical issues involved in an arbitration case. Therefore, they can be lawyers, accountants, engineers, architects or quantity surveyors, with arbitration services suppliers scattered throughout professional services firms. In this context, prime arbitration hubs are often major commercial centres in their own right. As of June 2017, there were 421 persons on the Panel of Arbitrators and 157 persons on the List of Arbitrators.
Mediators are trained, neutral third parties with skills and knowledge to resolve disputes. They usually have expertise in such field as architecture, engineering, law, social work, teaching, etc. Their duties include organising and arranging a process to facilitate the parties in dispute to discuss their matters and try to end their arguments through mutual understanding. They should conduct the process in an impartial and confidential manner. The role of mediators is to assist both parties reaching a settlement, instead of adjudicating. As of June 2017, there were 831 mediators on the General Panel, 220 mediators on the Family Panel (including 52 family mediation supervisors).
The institutions related to arbitration and mediation services in Hong Kong include the following: HKIAC, the Hong Kong Institute of Arbitrators (HKIArb), the Chartered Institute of Arbitrators (CIArb), the International Chamber of Commerce (ICC), the Hong Kong Institute of Mediation (HKIMed), the Hong Kong Mediation Centre, the Hong Kong Mediation Council and the Conflicts Resolution Centre (CRC).
According to the latest arbitration statistics with geographical breakdown, of the 262 non domain name arbitration cases handled by HKIAC in 2016, there were 228 international cases and 34 domestic cases. Parties from China, the British Virgin Islands, Singapore, the US, Korea, Marshall Islands, Taiwan, Macau, Cayman Islands and the UK represented the most frequent users of HKIAC services.
With increasing opportunities on the mainland after China’s WTO accession and continued market opening, more foreign investors or companies have transacted with their mainland counterparts. Hong Kong is a suitable "third" place for settling disputes involving Sino-foreign projects, as many foreign companies prefer to settle disputes in a "third" place, while mainland enterprises are also increasingly using Hong Kong as an arbitration centre.
Industry Development and Market Outlook
- In recent years, arbitration and mediation have gained in popularity as alternatives to resolving disputes without resorting to traditional litigation. Hong Kong has been a popular seat for international commercial arbitrations in the region.
- In June 2017, Hong Kong amended the Arbitration Ordinance to legalise third party funding of arbitration and mediation, adopting the 2016 proposal by the Hong Kong Law Reform Commission. This will reinforce Hong Kong’s lead as a leading centre for international dispute resolution, and enable claimants to spread their risk by not bearing the whole cost of bringing or defending a claim, particularly those in the construction industry.
- According to the sixth International Arbitration Survey released by Queen Mary University of London in 2015, HKIAC was hailed as the most preferred arbitral institution outside of Europe and ranked the third best arbitral institution worldwide.
- In November 2015, HKIAC reached an important milestone by being the first international arbitration institution to set up a representative office in the Chinese mainland, located within the China (Shanghai) Pilot Free Trade Zone.
- There has been a significant growth of arbitration in Asia in recent years. For example, the China International Economic and Trade Arbitration Commission (CIETAC) handled 1,968 cases in 2015 compared to a mere of 37 cases in 1985.
- Aiming to provide a platform for resolving cross-boundary commercial disputes between the Chinese mainland and Hong Kong, the China Council for the Promotion of International Trade (CCPIT) and the Hong Kong Mediation Centre set up the CCPIT-HKMC Joint Mediation Centre in Hong Kong in December 2015.
- With increasing intellectual property (IP) transactions and thus growing demand for the use of dispute resolution, HKIAC launched a new panel of arbitrators for IP disputes in March 2016. The new panel, separated from HKIAC’s regular panel or list of arbitrators, is set to be the primary source for HKIAC’s appointment of arbitrators for IP cases.
- In January 2015, the Hague-based Permanent Court of Arbitration (PCA) and the Chinese government signed the Host Country Agreement and related Memorandum of Administrative Arrangements. Under the agreement, dispute resolution proceedings administered by the PCA can be conducted in Hong Kong on an ad hoc basis with the provision of facilities and support services required.
- The Mediation Ordinance came into operation in January 2013, which provides a regulatory framework for the conduct of mediation by seeking out certain standards expected of a mediator.
- In September 2012, CIETAC established an office in Hong Kong, which is known as the CIETAC Hong Kong Arbitration Centre, the first outside the Chinese mainland. The presence of CIETAC Hong Kong further bolsters the city’s attractiveness as a venue for international arbitration.
- In August 2012, the Hong Kong Mediation Accreditation Association Limited (HKMAAL) was established in the form of a limited company to be a non-statutory, industry-led accreditation body responsible for accreditation and dealing with disciplinary matters.
- In November 2011, the Financial Dispute Resolution Centre (FDRC) was established under the government’s “Financial Dispute Resolution Scheme” (FDRS) to provide a one-stop, independent and affordable avenue for consumers to solve monetary disputes between financial service providers and consumers. All licensees or regulatees of the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA), such as brokers or banks, are required to join the FDRS. In the event of the financial disputes not being able to be settled directly between financial institutions and their customers, the financial institutions are obligated to follow individual consumers’ wish and enter into mediation and arbitration as per the scheme. FDRC to provide a cost-efficient and time-saving alternative to litigation for financial instrument investors, the usage of mediation and arbitration services is expected to be popularised in solving financial disputes in Hong Kong.
- Under the Arbitration Ordinance which came into effect in June 2011, both domestic and international arbitrations follow the same set of rules, providing a unified regime based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law, along with a number of modifications and additions tailored for Hong Kong. This aligns Hong Kong’s arbitration regime more closely to international practice, reduce confusion over regime differences, and makes the arbitration laws in Hong Kong in line with international standards.
- In January 2010, China’s Supreme People’s Court announced that awards made in Hong Kong by the International Court of Arbitration of the ICC and other foreign arbitration institutions are enforceable on the Chinese mainland. This would enhance the legitimacy of arbitration awards made in Hong Kong and reinforce the status of Hong Kong as international disputes resolution centre.