Innovation reinforces HK's status as a leading international arbitration hub

Updated: 2016-12-12 10:20

By Yang Ing Loong(HK Edition)

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According to the 2015 International Arbitration Survey prepared by Queen Mary University of London, Hong Kong has maintained its position as one of the world's leading arbitration hubs, ranking as the third most preferred seat of arbitration worldwide and the first in Asia. To remain at the forefront of arbitration, Hong Kong is constantly innovating and reinventing itself as an arbitral seat. This article looks at three of those innovations.

First, third-party funding in arbitration: The Law Reform Commission's report on third-party funding for arbitration, released on Oct 12 as a follow-up to its consultation paper in October 2015, has further demonstrated the pro-arbitration stance of the Hong Kong government and the arbitration community. The key recommendations in the report are to permit third-party funding for arbitrations seated in Hong Kong, and also for services provided in Hong Kong for arbitration taking place outside Hong Kong, the rationale being that a party with a good case in law should not be deprived of the financial support it needs to pursue the case by arbitration. The proposed reform quells the uncertainty previously posed by the Court of Final Appeal in Unruh v Seeberger. This has left open the question of whether the doctrines of maintenance and champerty apply for third-party funding for arbitrations. Certain amendments would be introduced to the Arbitration Ordinance to expressly allow for such arrangements in arbitration. With a view to regulating third-party funding activities, the commission has suggested clear standards for funders operating in Hong Kong to be developed and that a "light touch" approach should be adopted for the initial three-year period. The commission also proposed that a Code of Practice should be drawn up, serving as safeguard against risks that may arise from funding activities.

Innovation reinforces HK's status as a leading international arbitration hub


Second, intellectual property arbitration: Another area that will undergo development is the issue of intellectual property (IP) arbitration. The Hong Kong International Arbitration Centre (HKIAC) announced in March 2016 that in response to the rise in IP disputes in Hong Kong, it had launched a panel of 30 arbitrators offering extensive experience in IP disputes. The development of Hong Kong's intellectual property landscape is also complemented by the government's proposed amendments to the Arbitration Ordinance in December 2015, as part of an effort to clarify that disputes over IP rights can be resolved by arbitration in Hong Kong. In particular, the amendments seek to affirm that enforcing an arbitral award solely because the award is with respect to a dispute relating to IP rights would not be contrary to public policy. The proposal recommended that the arbitral awards should bind only the parties to the arbitral proceedings but not bind a licensee. This approach should be followed, given that an arbitral award is a resolution of private affairs and hence its effect should be limited inter partes. These proposed amendments can be contrasted with the position on the Chinese mainland, where the issue of patent validity is an administrative matter and as such cannot be submitted to arbitration. As the government is working toward introducing draft amendments into the Legislative Council for vetting, it is anticipated that legislation in this area will enhance Hong Kong's intellectual property dispute resolution framework and encourage the use of Hong Kong as a seat for the arbitration of IP disputes.

Third, investor-state dispute resolution: The growth in the use of the investor-state dispute settlement (ISDS) mechanism, as well as its surrounding controversies, has continued to be a topic of current interest following the outcome of the Philip Morris case in December 2015. In that matter, the Hong Kong-incorporated claimant lost its challenge to Australia's tobacco plain packaging laws for want of jurisdiction. The Asia-Pacific region has traditionally witnessed fewer such disputes, with the bulk of the activity going through institutions such as the International Centre for Settlement of Investment Disputes (ICSID) and the Permanent Court of Arbitration (PCA). However, in recent years Asia-Pacific countries have been increasingly active in concluding treaties. Such treaties may contain provisions enabling foreign investors to claim against governments for damages due to a violation of treaty rights, even though some states have become circumspect over the potential backlash that the ISDS system may cause due to the domestic laws and policies of the host country. In order to facilitate the conduct of investor-state arbitration in Hong Kong, the central government and the PCA entered into a host-country agreement and a related memorandum of administrative arrangements in January 2015. HKIAC introduced procedures for administering UNCITRAL (The United Nations Commission on International Trade Law) cases applicable to both international commercial and investment treaty arbitration, which became effective on Jan 1, 2015. More recently, the HKIAC announced in October 2016 that hearing facilities will be offered to states free-of-charge in relation to disputes with at least one party as a state listed on the OECD (Organisation for Economic Cooperation and Development) Development Assistance Committee list of official development assistance recipients. This initiative promotes the use of the HKIAC in administering investor-state disputes, as Hong Kong strives to further enhance its infrastructure and capability in handling such disputes.

In conclusion, Hong Kong enjoys the unique advantages of a sound legal system and a strategic location on the doorstep of the Chinese mainland. These features have ensured that Hong Kong remains a popular place for arbitration. However, the Hong Kong arbitration community must constantly be open to opportunities and receptive to changes, so as to ensure that it does not lag behind international trends. The aforesaid enhancements will undoubtedly reinforce Hong Kong's position as a leading international arbitration hub.

(HK Edition 12/12/2016 page1)