Thought leadership from our experts

Hong Kong update on arbitration and alternative dispute resolution

Kim M Rooney, Barrister, Hong Kong

Hong Kong is one of the leading arbitration centres in Asia and a global financial centre. It has a long history of arbitration, and of developing innovative dispute resolution techniques that may be used in parallel with, or to support, arbitration.

In the last year, to make more effective the decisions of emergency arbitrators, the Hong Kong Arbitration Ordinance (Cap 609) (which is based on the UNCITRAL Model Law on Commercial Arbitration 2006) has been amended to enable such decisions to be given the status of court orders. In addition, a pilot scheme for arbitration of land premium disputes (often of high value in Hong Kong given its scarcity of land) has been announced. A draft consultation paper on the introduction of mandatory adjudication of payment disputes in the construction sector is also underway. The background to these developments is outlined below.

(1) Recognition of Decisions by Emergency Arbitrators As Court Orders

Various arbitration institutions, including the ICC, the Hong Kong International Arbitration Centre (the HKIAC), SIAC and the LCIA, among others, have introduced emergency procedures for the appointment of emergency arbitrators before an arbitral tribunal has been constituted.

To support this development, the Hong Kong Arbitration Ordinance was amended to include a provision which enables all emergency relief granted by an emergency arbitrator, whether granted inside or outside Hong Kong, to be enforceable as an order or direction of the HKSAR courts, with leave of the High Court, provided the criteria specified therein are satisfied.

Thus, a party that wishes to enforce emergency relief as an order in Hong Kong must demonstrate to the court that the relief is a "temporary measure" that aims to:

(1) Maintain or restore the status quo pending the determination of the dispute;

(2) Take action to prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process;

(3) Preserve assets to satisfy the subsequent arbitral award;

(4) Preserve evidence that may be relevant and material to the dispute;

(5) Give security for any measures to be done as stated above; or

(6) Give security for the costs of the arbitration.

This is a recent development that has been generally welcomed by arbitration users and their advisors.

(2) Arbitration For Resolving Land Premium Disputes

The Hong Kong Chief Executive (the CE) announced a Pilot Scheme for Arbitration on Land Premium (the Land Premium Pilot Scheme) in his 2014 Policy Address. The Land Premium Pilot Scheme aims to allow land owners and the Government to go to arbitration when they have failed to agree on a premium figure payable for lease modification / land exchange applications. It is stated to be commencing soon and to run for an initial period of 2 years.

Key features of the Pilot Scheme include:

  • COMMENCING AN ARBITRATION – Either the private party applicant or the Government may propose arbitration for the other party's agreement if both parties fail to agree on a land premium figure after substantial exchanges of views. There will normally need to have been at least 2 appeals by the applicant to the Government beforehand.
  • SCOPE OF ARBITRATION – The arbitration proceedings will be confined to the amount of the land premium.
  • MEASURES AGAINST THE APPLICANT "WALKING AWAY" –The applicant is required to pay the Government 15% of the Government's last assessed premium for the subject land if the applicant walks away during the arbitration proceedings or fails to comply with the arbitral award.
  • VALUATION DATE AND ARBITRATION TIMEFRAME – The valuation date for the land premium will be the date when the Tribunal is first constituted. The Tribunal is expected to hand down the award around 10 weeks after its constitution to avoid the land premium assessment from being out-of-date.
  • ARBITRATION AWARD – The Tribunal will, by consensus or majority vote, determine an appropriate arbitral award in its sole discretion.

(3) Statutory Adjudication For Construction Disputes

Following the "Construct for Excellence" report by the Hong Kong Construction Industry Review Committee, the Hong Kong Government has proposed new legislation to introduce a statutory regime for adjudication where contractors' payment claims have been disputed or ignored.

Under the proposed legislation, the disputes that could be adjudicated are:

(1) Value of work, services or materials;

(2) Other money claims under a contractual provision and in a payment claim;

(3) Set offs and deductions against amounts due under payment claims; and

(4) Time for performance or entitlement to extension of the time for performance of work.

It is proposed that the adjudicator will be appointed by agreement of both parties; if not agreed, by nomination of the nominating body agreed upon in the parties' contract; or if there is no such agreement, by nomination of the HKIAC.

The adjudicator's decision may be registered and enforced as a court judgement and can only be challenged on procedural grounds. However, it will only be provisionally binding and will not prevent either party from seeking final determination of the issues from the court or by arbitration. It has yet to be determined what the final form of the proposed legislation will be or when it will be passed.