...For the resolution of construction disputes
Hong Kong has been in the news a lot over the past 18 months. From mid-2019 to early 2020, Hong Kong was rocked by protests against a proposed amendment to the law relating to extradition of suspected criminals, including to Mainland China. The proposed amendment was withdrawn, but the protests continued until the outbreak of the COVID-19 pandemic was fully realised in early 2020. In June 2020, the Central Government enacted legislation prohibiting acts of secession, subversion, terrorism, and collusion with foreign or external forces in Hong Kong.
Author: Ben Bury, Partner at HFW.
The Central Government and the Hong Kong Government argued the legislation was necessary, but it was criticised by some foreign governments concerned about Hong Kong’s autonomy and has led to Hong Kong losing some aspects of its special trading relationship with the United States.
Many people in the construction industry watching these events from overseas might have questioned whether Hong Kong is still an appropriate jurisdiction for the resolution of their disputes, particularly with State Owned Contractors from Mainland China. State Owned Contractors may themselves have questioned whether Hong Kong is a safe and secure place for the resolution of disputes.
In this regard, it is important to understand the recent events in their context. Whilst significant and newsworthy for a variety of reasons, these events have had surprisingly little, if any, impact on the way in which construction disputes are resolved in Hong Kong. That includes the resolution of disputes against State Owned Enterprises from Mainland China and, indeed, the Hong Kong Government itself. As Peter Burnett, the Managing Director of Standard Chartered Bank, and Chairman of the British Chamber of Commerce, recently remarked, “Hong Kong is one of the few jurisdictions across Asia-Pacific where you can sue the Government and win, if the merits of the case are in your favour” [Andrew Kemp, “Hong Kong Arbitration Remains Resilient Despite Detractors”, 20 October 2020, https://www.lexology.com/library/detail.aspx?g=c676482b-40dc-46e5-9e1e-74d7c617a079].
As any Hong Kong student of constitutional law will tell you, Hong Kong is an inalienable part of Mainland China, and in this regard the Central Government is responsible for foreign affairs relating to Hong Kong [Article 1, 13 and 14 of the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China (“Basic Law”)] and the defence of Hong Kong. However, Hong Kong has been granted a high degree of autonomy in all other respects [Articles 2 and 12 of the Basic Law].
Whilst Mainland China is a civil law jurisdiction, in Hong Kong the law is based on the English common law. The courts enjoy judicial independence and the right of final adjudication [Article 19 of the Basic Law], meaning that there is no recourse to the courts in the Mainland for you or your opponent if you have exhausted all lines of appeal before the Hong Kong courts. Judges from other common law jurisdictions sit on the Court of Final Appeal in Hong Kong, including the current President of the UK Supreme Court, Lord Reed, and three former Presidents [For further information and a list of all Permanent and Non-Permanent Judges of the Court of Final Appeal visit: https://www.hkcfa.hk/en/about/who/judges/introduction/index.html].
In any event, most construction disputes in Hong Kong are resolved by confidential arbitration, whether the disputes are between Hong Kong parties, Mainland Chinese parties, or foreign parties. Contrary to popular opinion, the number of arbitrations in Hong Kong increased in 2020 and a significant number of these arbitrations included foreign parties in dispute with Mainland Chinese entities [Statistics on arbitrations submitted to the Hong Kong International Arbitration Centre can be found here: https://www.hkiac.org/about-us/statistics]. In addition, during the past 18 months, there have been a number of steps taken by the Governments in Hong Kong and Mainland China towards mutual recognition of arbitrations and arbitral awards in the two jurisdictions. This includes legislation to allow parties to have recourse to the courts in Mainland China for interim measures, including preservation orders, in support of Hong Kong arbitrations [The Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and the Hong Kong Special Administrative Region, which came into force on 1 October 2019].
These measures have made it considerably harder for arbitral parties with assets in the Mainland to avoid complying with awards made against them in Hong Kong. It is important to note that Hong Kong is the only jurisdiction outside the Mainland that enjoys the benefit of these measures.
When selecting a seat of arbitration for dispute resolution clauses in construction contracts, it is important that parties make informed decisions based on all the relevant concerns.
If you haven’t ever previously asked yourself: ‘What is the national security legislation in this jurisdiction?’ or ‘Does this jurisdiction enjoy a special trading status with the US?’; you may want to consider whether it is necessary to do so now, when selecting a jurisdiction as the seat of arbitration for your construction disputes.
You might also ask yourself questions such as: 'Are the courts in this jurisdiction pro-arbitration?'; 'Is there an established legal structure?'; 'Can I instruct well renowned lawyers?'; 'Do arbitral awards rendered by tribunals in this jurisdiction have a good track record of enforcement in the country of origin of my opponent?' If you ask yourself these questions, we suspect Hong Kong would present itself as a real alternative to some other seats which have not received so much publicity in recent months.
Dated: 25/03/2021
This article was originally written and released as part of issue 21 of the Driver Trett Digest.
To view the publication, please visit: driver-group.com/digest-issue-21