Why Hong Kong is the ideal place to resolve commercial disputes

Sherlin Tung August 04, 2020 08:43

Hong Kong remains a leading commercial hub for cross-border transactions, particularly involving Mainland China. With an established and trustworthy English-Chinese bilingual legal system as well as its geographic and economic proximity to Mainland China, Hong Kong is also an ideal hub to resolve international disputes for foreign parties conducting business with Hong Kong and Chinese companies.

We touch briefly on two key points below of a dispute (commencement and enforcement) in showing why Hong Kong is the ideal place to resolve commercial disputes.

Commencing proceedings in Hong Kong

Litigation

In Hong Kong, the principle of "One Country, Two Systems" is enshrined in the Basic Law. As such, Hong Kong maintained its common law system after the handover to China. This provides international parties with the familiarity of a legal system and also reassurance of how Hong Kong's judiciary operates.

Commencing litigation in Hong Kong is simple. A party first needs to identify the appropriate court depending on the nature and amount of the dispute. For commercial disputes, generally the District Court or the Court of First Instance of the High Court is the relevant court.

Apart from a nominal filing fee for registering the "originating process" (setting out claim details and the amount of compensation requested) with the court, the benefit for a litigant in Hong Kong is that no upfront court fees are required. This is in contrast to some other jurisdictions, where courts require payment of courts fees based on a percentage of the total amount of the claim.

Arbitration

As a leading seat of arbitration, Hong Kong is home to a number of the world's top arbitral institutions, first-rate arbitrators, and foremost arbitration practitioners, making it an ideal place to commence arbitration.

For parties who wish to resolve disputes through arbitration, there must be consent to arbitrate. This requires a valid arbitration agreement, often found in the main contract. However, Hong Kong law has a broad definition for what constitutes a valid agreement to arbitrate.

The details of how to commence an arbitration will depend on the wording of the arbitration agreement. An arbitration agreement generally provides procedural guidelines, including the applicable arbitral rules. Such rules should set out how a party commences arbitration as well as the related costs.

Enforcement of court judgments and arbitral awards

Another important part of why Hong Kong is the ideal place for resolution of disputes is the means available to a party in collecting a positive judgment and/or award rendered in Hong Kong. Even if a losing party refuses to honour a judgment/award in Hong Kong, the winning party may still enforce overseas where assets of the losing party exists.

Enforcement of court judgments

Hong Kong has reciprocal agreements for the recognition and enforcement of court judgments with 15 countries. This means that a Hong Kong monetary judgment can be registered, then recognised and directly enforceable in those jurisdictions.

Outside of those 15 jurisdictions, a party may still enforce a Hong Kong judgment overseas with relative ease. As a common law jurisdiction, Hong Kong judgments are given preferential treatments by other common law jurisdictions. Subject to the relevant laws and procedural rules, a party simply needs to show in a new proceeding that the Hong Kong judgment is a money judgment for a definite sum, is final and conclusive as to the underlying disputes, and not subject to further appeals in Hong Kong.

Enforcement is also possible in non-common law jurisdictions.

Enforcement of arbitral awards

With respect to arbitration awards, Hong Kong courts have rarely refused to recognize or enforce an international arbitral award.

Under the New York Convention, as of July 2020, 164 countries have agreed to recognize and enforce arbitration awards made in other signatory countries subject to limited conditions. This includes Hong Kong, by virtue of China's accession. Hong Kong will enforce arbitral awards as if they were local Hong Kong court judgments subject to limited circumstances.

The grounds for refusing enforcement of an arbitral award in Hong Kong are very limited. They mainly relate to procedural fairness, jurisdictional, and issues of public policy. Unlike the appeals system in national courts, substantive issues such as questions of facts and law determined in an award cannot be challenged or used as grounds for refusing enforcement.

Reciprocity with Mainland China

Hong Kong also offers the benefit of reciprocity in Mainland China through specific arrangements. Specifically, 90% of civil and commercial judgments will be mutually recognized and enforced between Mainland China and Hong Kong as well as arbitral awards made in Mainland China and Hong Kong.

Conclusion

Hong Kong offers parties a transparent and user-friendly platform. Its recognized judicial system and reciprocity with Mainland China further strengthen its position worldwide as the ideal place for parties to resolve disputes particularly considering the increase in cross-border relations between the East and West.

Carmen Li, Senior Associate at Withers and Alex Ye, Associate at Withers are co-authors.

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Sherlin Tung

Partner at law firm Withers