Hong Kong Industry Profiles

Overview

• Hong Kong is a prime venue for commercial dispute resolution with its mature and well-developed legal system.
• Hong Kong has an enormous pool of experienced professionals available to support commercial dispute resolution through arbitrations and mediations.
• Arbitration awards made in Hong Kong are enforceable through the courts of most of the world's trading economies.
• The number of disputes resolution cases handled by the Hong Kong International Arbitration Centre (HKIAC), including arbitration and mediation, amounted to 502 in 2011. The total amount in dispute for administered cases was approximately US$3.8 billion.
• A new Arbitration Ordinance came into effect on 1 June 2011, which provides a single, unified regime based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law with a number of modifications and additions tailored for Hong Kong. This aligns Hong Kong’s arbitration regime more closely to international practice.
  In November 2011, the Mediation Bill was introduced to the Legislative Council for Second Reading, which is expected to pass into law within 2012. The Bill aims to provide a regulatory framework for the conduct of mediation by seeking out certain standards expected of a mediator.

Industry Data

Source: Hong Kong International Arbitration Centre

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 2011, 502 cases were carried out under the auspices of the Hong Kong International Arbitration Centre (HKIAC), including 275 arbitration cases, 127 domain name disputes and 100 mediation disputes. The total amount in dispute for administered cases was approximately US$3.8 billion.

Of 275 arbitration cases, 14% involved construction, 29% involved commercial, 15% corporate disputes, 4% insurance and 38% involved maritime disputes.

Services Suppliers

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. In other words, the suppliers of arbitration services are scattered throughout professional services firms in an economy. In this connection, prime centres for arbitration are often major commercial centres in their own right.

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.

The institutions related to arbitration and mediation services in Hong Kong include the following: the Hong Kong International Arbitration Centre (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 (HKMC), the Hong Kong Mediation Council (HKMC) and the Conflicts Resolution Centre (CRC).

Exports

According to latest arbitration statistics with geographic breakdown, of the 275 non-domain name arbitrations cases that HKIAC handled in 2011, there were 178 international cases and 97 domestic cases. Parties from British Virgin Islands, Cayman Islands, China, Japan, Singapore, South Korea, and the US represented the most frequent users of HKIAC.

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. Probably, more international commercial arbitrations have taken place in Hong Kong than in any other city in the region.
• There has been a significant growth of arbitration in Asia in recent years. In 1985, the China International Economic and Trade Arbitration Commission (CIETAC) handled 37 cases, whereas in 2010, the number of cases leaped to 1,352.
• In January 2008, HKIAC signed a cooperation agreement CIETAC to enhance sharing of information, case management techniques and arbitration knowledge between the two organisations.
• Under the Hong Kong Arbitration Bill passed in the Legislative Council in February 2009, both domestic and international arbitrations follow a single set of rules. This can reduce confusion and bring the laws of Hong Kong in line with international standards. The new Arbitration Ordinance came into effect on 1 June 2011, which provides a single, unified regime based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law with a number of modifications and additions tailored for Hong Kong. This aligns Hong Kong’s arbitration regime more closely to international practice
• In November 2011, the Mediation Bill was introduced to the Legislative Council for Second Reading, which is expected to pass into law within 2012. The Bill aims to provide a regulatory framework for the conduct of mediation by seeking out certain standards expected of a mediator.
• In February 2010, the Hong Kong government introduced a “Financial Dispute Resolution Scheme” (FDRS) through the establishment of a “Financial Dispute Resolution Centre” 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.
• After establishing the Financial Dispute Resolution Centre Ltd to ensure the independence and impartiality of the FDRS’s dispute resolution procedures, the Hong Kong government appointed a Board of Directors in March 2012 to oversee the operation. With 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.
• In January 2010, The 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 therefore reinforce the status of Hong Kong as international disputes resolution centre.
• In May 2009, the Royal Institution of Chartered Surveyors appointed HKIAC as the service provider for the Surveying Dispute Mediation and Arbitration Scheme, marking a milestone for Hong Kong to further develop as the resolution hub for international disputes of construction, land and property.
• In November 2008, the International Court of Arbitration of International Chamber of Commerce (ICC) opened its first office in Asia in recognition of Hong Kong’s position as a premier location of international arbitration services. This is expected to enhance Hong Kong’s provision of arbitration services while fostering closer ties with international arbitration organisations.