Inventive incentive

Stronger integration with the mainland while retaining common law attributes, along with creative structures, have anchored Hong Kong’s position as a unique venue for settling international commercial disputes, write Teresa Cheng and Edward Liu

Global economic activity has grown exponentially in Asia, much of it China-related, whether domicile of the parties, geographic location of main transactions, or for raising capital. With its common law system, globally renowned independent judiciary and solid rule of law, Hong Kong has become one of the most popular deal making and dispute resolution platforms for commercial parties in international transactions.

There have been concerns about the continuation of Hong Kong’s “one country, two systems” policy, but these were unequivocally and authoritatively laid to rest by President Xi Jinping in his Hong Kong speech in mid-2022. He clearly stated that the “one country, two systems” formula was successful under China’s comprehensive jurisdiction and “must be maintained over the long term”.

Importantly, he unequivocally confirmed that Hong Kong’s unique position as the only jurisdiction in China practising common law will continue. Continuation of this national policy provides a strong incentive for investors and commercial parties to use Hong Kong as the venue for dispute resolution, as well using Hong Kong law as the applicable law.

The 14th Five-Year Plan further expresses support from the central government for Hong Kong to develop as the Asia-Pacific international legal and dispute resolution centre. Riding on this policy support and its own innate strengths, Hong Kong has reached important arrangements with mainland China to capture unique advantages under “one country, two systems”, which further facilitate the use of Hong Kong as a deal making and dispute resolution platform for international transactions.

In this article, the authors focus on three significant aspects including interim measures, mutual enforcement of awards in the mainland and Hong Kong, and the flexible fee arrangement for arbitrations in Hong Kong.

Interim measures arrangement

Previously, Chinese courts could only make orders for interim measures in support of arbitrations seated in the mainland. Under the Arrangement Concerning Mutual Assistance in Court-Ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (the interim measures arrangement), Hong Kong is the first external jurisdiction where parties to Hong Kong arbitration can apply for interim measures in the mainland. This enhances Hong Kong’s appeal as an arbitral seat, especially for those with evidence or assets across jurisdictions.

Since the interim measures arrangement came into force on 1 October 2019, the Hong Kong International Arbitration Centre (HKIAC) has issued letters of acceptance in respect of 86 applications, 81 of which were made for the preservation of assets.

Mainland courts have ordered a total of RMB14.2 billion (USD2 billion) worth of assets to be preserved. Among all applications made to 32 different mainland courts, 80.9% are foreign applicants and 19.1% are mainland Chinese applicants.

The first successful application for interim measures in the mainland – handled by one of the authors – was obtained in October 2019, from the Shanghai Maritime Court, in aid of an arbitration administered by the HKIAC. The court granted its order within a day, illustrating the efficacy of the HKIAC in dealing with the application, as well as the mainland courts’ willingness to safeguard the legitimate rights and interests of the parties, and protect the integrity of the arbitral process.

Current implementation of the interim measures arrangement embodies the heightened use of this arrangement for protecting commercial parties’ interests in China-related disputes, the integrity of the process, and proper administration of justice.