Having examined the challenges facing international construction projects and established Hong Kong’s foundational strengths as an arbitration center in Part 1, we now turn to the specific mechanisms and advantages that make Hong Kong an exceptional venue for resolving international construction disputes. This second part delves into Hong Kong’s commitment to maintaining high standards in arbitration proceedings, its robust approach to upholding arbitration agreements, and its unique position as a ‘super connector’ between different legal systems and business cultures. We also explore strategic initiatives for enhancing Hong Kong’s competitive edge in international arbitration.
High Standard Maintained to Ensure Due Process
Another speaker stressed that adopting a pro-arbitration and minimalist intervention policy ‘does not mean that Hong Kong Courts would defer all matters to the arbitral tribunal and enforce indiscriminately all arbitral awards rendered by the arbitral tribunal’. Rather, Hong Kong Courts apply a high standard and act as a gatekeeper to ensure that arbitrators fulfil their duties under section 46 of the Arbitration Ordinance (Cap. 609) (which adopts Article 18 of the UNCITRAL Model Law), including the duties to treat parties with equality, to be independent, and to act fairly and impartially as between the parties, giving them a reasonable opportunity to present their cases and to deal with the cases of their opponents.
Indeed, in appropriate circumstances, Hong Kong Courts have refused to enforce arbitral awards because the conduct of the relevant arbitration lacked due process and that it would be shocking to the conscience of the Court to give recognition of the award.
In Song Lihua v Lee Chee Hon (No. 2) [2023] 5 HKLRD 488, the applicant was granted leave to enforce an award against the respondent made by the tribunal in an arbitration by the Chengdu Arbitration Commission. The respondent applied to set aside the enforcement order on the ground that it would be contrary to public policy to enforce the award in Hong Kong. The essence of the complaint was that one of the arbitrators had not meaningfully participated in the second hearing of the arbitration – whilst that arbitrator attended the hearing remotely, he was seen moving from one location to another, indoors and outdoors, and had eventually left his premises and travelled in a car. He was off-line for periods of time and obviously could not hear what was being said by the parties’ lawyers or by the other members of the tribunal.1
After considering arbitrators’ duties under section 46 of the Arbitration Ordinance (Cap. 609) (discussed above), the Court stressed that arbitrators, in carrying out a quasi-judicial role, have duties to conduct arbitral proceedings and decide the case before them with appropriate care, skill and professional integrity.2 It further held that:
‘[I]t is not only important for there to be justice and fairness in the process of a trial or a hearing, but that it is just as, if not more, essential that an objective and reasonable third-party observer should see that there was fairness and impartiality in the process. Only then can there be confidence in and respect for the system whereby a party and his case is judged’.3
Having considered the facts and circumstances of the case, the Court held that there is no apparent justice and fairness ‘when a member of the decision-making tribunal was not hearing and focused on hearing the parties in the course of the trial’.4 It further held that the conduct of the hearing in question ‘lacked due process and falls short of the high standards expected by the Hong Kong Courts for a fair and impartial hearing, which gives recognition to the parties’ fundamental and basic rights’, and that ‘it would be ‘shocking to the conscience of the Court to give recognition of the [a] ward’.5
Thus, even though the Mainland supervisory court had not set aside the award and had permitted its enforcement on the Mainland, the Hong Kong Court set aside the enforcement order and refused enforcement of the award, holding that ‘Hong Kong as the enforcement court has to apply its own standards and law when deciding whether it would be contrary to the public policy of Hong Kong to enforce the [a]ward’, and enforcement of the award ‘would violate the most basic notions of justice in our forum’.6
In another recent case, A v B and Others [2024] HKCFI 751, the respondents applied to set aside the leave granted by the Court to enforce an arbitral award on the ground of the tribunal’s failure to give adequate reasons. The Court first reiterated the principles that ‘[a]wards are to be read generously, in a reasonable and commercial way expecting, as is usually the case, that there will be no substantial fault that can be found with it, and always bearing in mind the policy of minimal curial intervention… Any inference that a tribunal has failed to consider an important issue is to be made only if it is clear and virtually inescapable’.7
After consideration of the award in question, the Court found that the arbitrator failed to adequately explain in the award the reasons for her conclusions made on the key issues raised in the arbitration.8 The Court further found that ‘these failings of the arbitrator were sufficiently serious to affect the structural integrity of the arbitral process, and to have undermined due process’, emphasising that ‘it is fundamental to concepts of fairness, due process and justice’ that key and material issues raised for determination should be considered and dealt with fairly.9 Thus, it would be contrary to public policy to enforce and recognise the award when those important issues were not addressed or explained.10 The enforcement order was set aside and enforcement of the award was refused.
As a speaker said, these decisions signify to the world that Hong Kong Courts maintain a high standard in acting as a gatekeeper in relation to arbitral proceedings and that ‘parties can expect nothing less in arbitration in terms of having a fair hearing and due process than in court proceedings’. These decisions ‘instil public confidence’ in the arbitral process in Hong Kong and manifest Hong Kong Courts’ proarbitration stance.
Robust Approach to Upholding Arbitration Agreement
Hong Kong Courts’ pro-arbitration policy is further demonstrated by the decisions to uphold arbitration clauses even in winding up and bankruptcy proceedings, as a speaker pointed out by reference to several recent cases.
In Re Guy Lam Kwok Hung (2023) 26 HKCFAR 119, the Hong Kong Court of Final Appeal held that where the underlying dispute of a petition debt is the subject of an exclusive jurisdiction clause, the Court has a discretion to determine whether to exercise or decline its jurisdiction over the debt based on a multi-factorial approach. However, absent any countervailing factor, such as where the dispute borders on the frivolous or an abuse of process, the Hong Kong Courts should generally respect and uphold the exclusive jurisdiction clause and decline to exercise its jurisdiction.11 This approach has been held to be equally applicable to (i) a petition debt subject to an arbitration clause and (ii) a cross-claim within the ambit of an arbitration clause in Re Simplicity & Vogue Retailing (HK) Co Ltd [2024] 2 HKLRD 1064 and Re Shandong Chenming Paper Holdings Ltd [2024] 2 HKLRD 1040.
Subsequently, and in contrast, the Privy Council in Sian Partnership Corp v Halimeda International Ltd [2024] UKPC 16 declined to follow Guy Lam and held that as a matter of BVI law and English law, in exercising its discretion whether to make a winding up order where the debt in question is subject to an arbitration agreement, the correct test is whether the debt is disputed on genuine and substantial grounds. The existence of an arbitration agreement makes no difference.
The Privy Council’s decision in Sian Partnership Corp was not followed in Hong Kong. In the recent case of Re Mega Gold Holdings Ltd [2024] 4 HKLRD 583, the Hong Kong Court held that as a matter of stare decisis and given the analysis provided in the authorities, the Guy Lam approach should be followed in Hong Kong.12
Thus, the Hong Kong Courts have taken a more robust stance to uphold arbitration agreements. Parties in Hong Kong can have a higher expectation that their arbitration agreement will be upheld and enforced by Hong Kong Courts even when it comes to winding up or bankruptcy proceedings. This consistent approach gives parties further confidence to choose Hong Kong as a place to hold international arbitration.
Modern Arbitration Law and Rules
Hong Kong has always kept up with the modern trends of arbitration and international best practices. Examples shared by the speakers include emergency arbitration and early determination procedure. The former was introduced to cater for parties’ needs for urgent relief, and the latter was made available to promote efficiency in the arbitral process.
Moreover, HKIAC took the initiative to build upon its well-received and market-leading 2018 Administrated Arbitration Rules and recently released its 2024 Administered Arbitration Rules, which took effect on 1 June 2024. The aim of the 2024 rules is to improve the time- and cost-efficiency of HKIAC arbitration and to reflect advancing social norms and technological developments, while maintaining HKIAC’s ‘light touch’ administration.13
In addition, as a speaker pointed out, significant amendments were made to the Arbitration Ordinance (Cap. 609) to allow third party funding and to make outcome related fee structures available in Hong Kong arbitrations. These amendments significantly improve access to justice in arbitration and allow parties to manage their costs and risks more flexibly. All of these amendments and reforms enhance Hong Kong’s position as a premier international arbitration hub.
Reciprocal Arrangement With Mainland China
A speaker highlighted that pursuant to the Arrangement Concerning Mutual Assistance in Court-Ordered Interim Measures in Aid of Arbitral Proceedings by the Courts which came into force on 1 October 2019, any party to arbitral proceedings seated in Hong Kong may apply to a competent Mainland Court for interim measures in relation to the arbitral proceedings.
Notably, Hong Kong is the only jurisdiction that enjoys this advantage, and HKIAC data has indicated that this arrangement has been put to good use with many successes. This makes Hong Kong a natural forum for arbitrating matters with Mainland Chinese connections.
Hong Kong as a Premier International Arbitration Hub
In light of the above, Hong Kong stands as a premier international arbitration hub, distinguished by its common law roots and its independent judiciary that consistently demonstrates a proarbitration stance and maintains high standards in its decisions. The city’s well-developed arbitration legislation and rules align with international best practices, and the reciprocal arrangement with Mainland China bolsters Hong Kong’s strategic position to arbitrate disputes in the region. All these qualities, coupled with the deep pool of experienced arbitration practitioners, its world-class legal infrastructure, lack of bribery and safety, make Hong Kong an excellent venue for arbitrations to resolve international construction disputes.
As a ‘Super Connector’ Providing Legal Services and Solutions
In addition to serving as a seat of arbitration, Hong Kong has much to offer as a ‘super connector’ providing quality legal services and solutions to resolve international construction disputes.
As an international dispute resolution hub, Hong Kong is home to many legal practitioners and specialists in international construction arbitration. Many large international law firms have offices and regional headquarters here. The legal talents in Hong Kong possess extensive experience in managing highly complex and technical construction disputes. As a speaker further remarked, Hong Kong construction lawyers have ‘international exposure’ after having worked with so many overseas contractors, and ‘this is where [Hong Kong construction lawyers] make a difference’. Such international exposure and expertise are particularly crucial when dealing with supply chain disputes that often involve multiple jurisdictions and complex contractual networks.
Further, and importantly, what sets Hong Kong apart from the rest of the world is the seamless integration between its common law tradition and its Chinese culture, both of which are deeply rooted in the cosmopolitan city. Thus, Hong Kong legal practitioners can offer strategic common law legal advice that takes into account the nuances of Chinese business practices. Examples were given by a speaker about how Hong Kong practitioners understand the art of Chinese negotiations and the complex internal reporting procedures within the organisation of many Chinese state-owned enterprises. This is unique to Hong Kong and what makes Hong Kong an ideal ‘super connector’ in acting for or against Chinese parties in international construction disputes.
Enhancing the Hong Kong Advantage
Hong Kong is well-positioned to further strengthen its status as a premier international arbitration hub. The speakers proposed four ways to achieve this. First of all, drawing from international examples, there may be value in increasing funding for arbitration initiative, similar to the robust approach taken by Singapore government.
Secondly, success will require sustained collaboration among key stakeholders. Thus, the government, HKIAC, legal practitioners, and experts should jointly develop strategic initiatives to promote Hong Kong’s arbitration offerings. In particular, given Hong Kong’s distinctive advantages in arbitrating disputes arising out of projects involving Chinese parties (for example, Belt-and-Road projects), the Hong Kong arbitration community should work with major stakeholders and funders to develop standardised arbitration clauses that designate Hong Kong as the default choice of the seat of arbitration for those projects.
Thirdly, there must be more active outbound campaigns by HKIAC, and a strategic expansion of outbound initiatives should focus on ‘key target markets’, including Chinese state-owned enterprises, Japanese contractors, and Korean contractors, as they ‘do and continue to do outbound work’. Further, there must be a ‘positive campaign’ to change the misconceived general public perception that Hong Kong has lost its edge as a premier arbitration centre, and to re-assert Hong Kong’s unique values and strengths in the market. In this regard, it must be borne in mind that whilst Hong Kong’s experiences in the Mainland and its understanding of the Chinese culture are valuable, it would be prudent to maintain a balanced positioning that also highlights its broader international capabilities and connections.
Fourthly, the integration of artificial intelligence (‘AI’) and advanced technology will also be a key differentiator. By harnessing AI and other emerging technologies, Hong Kong can streamline various aspects of arbitration processes and significantly enhance user experience.
In this regard, very few arbitral institutions have integrated the use of AI or published guidelines regulating the use of AI. The first set of guidelines on the use of AI, ‘Guidelines on the Use of Artificial Intelligence in Arbitration’, was published by the Silicon Valley Arbitration & Mediation Center in April 2024. Hong Kong practitioners should familiarise themselves with these guidelines as they ‘serve as reminders and guidance for legal practitioners on how to avoid pitfalls in the use of AI’. For instance, for advocates, Guideline 4 provides that parties ‘shall review the output of any AI tool used to prepare submissions to verify that it is accurate from a factual and legal standpoint’. Insofar as arbitrators are concerned, Guideline 6 provides that an arbitrator ‘shall not delegate any part of their personal mandate to any AI tool’, and the use of AI tools ‘shall not replace an arbitrator’s independent analysis of the facts, the law and evidence’.
Taking the lead in embracing AI for arbitration will position Hong Kong at the forefront of dispute resolution innovation and create a significant competitive edge over other jurisdictions. Early adoption will also allow Hong Kong to shape industry standards and best practices for the use of AI in arbitration. This first-mover advantage, combined with the resulting efficiency gains, will create a compelling value proposition that differentiates Hong Kong from other seats, and may further establish Hong Kong as the default choice for technology-enabled arbitration.
Conclusion
Clearly, Hong Kong offers distinctive advantages, and remains a premier arbitration hub for international arbitration for construction and other matters. Hong Kong’s robust legal framework for arbitration and the Courts’ independence and pro-arbitration policy have stood the test of time, and further transcend evolving circumstances in the broader environment. The deep pool of highly experienced and talented arbitration practitioners and construction specialists in Hong Kong are capable of offering first-class legal services and solutions to address the current challenges in the global construction industry.
As Mr Neil Kaplan recently summed up Hong Kong’s unique advantages in an interview in September 2024, ‘the business-oriented, go-getter attitude and common law roots of the city run deep and are not going anywhere’.14
[Acknowledgments Section]
The authors would also like to thank the following distinguished guest speakers (in alphabetical order by last name) for their contributions to the roundtable discussion and this article: Mike Allen of Secretariat, David Bateson of 39 Essex Chambers, Geoffrey Chan of Johnson Stokes & Master, Glenn Haley of Bryan Cave Leighton Paisner LLP, Timothy Hill of Arbitra International, Stanley Lo of Deacons, James Taylor of Kroll, Michael Tonkin of HKA Global, Alfred Wu of Dentons Hong Kong LLP, and Zhihe Xu of Shanghai International Arbitration Center.
Footnotes
1 Song Lihua v Lee Chee Hon (No. 2) [2023] 5 HKLRD 488, [38].
2 ibid [16]-[19].
3 ibid [49].
4 ibid [52].
5 ibid [53].
6 ibid [53], [57].
7 A v B and Others [2024] HKCFI 751, [11].
8 ibid [12].
9 ibid [34].
10 ibid [34].
11 Re Guy Lam Kwok Hung (2023) 26 HKCFAR 119, [98], [100], [104], [105].
12 Mega Gold Holdings Ltd [2024] 4 HKLRD 583, [71].
13 HKIAC’s press release on 3 May 2024: https://hkiac.org/news/hkiac-releases-2024-administeredarbitration-rules-effective-1-june-2024.
14 Sonali Khemka, ‘Face to Face with Neil Kaplan, International Arbitrator’, Hong Kong Lawyer Journal (September 2024).
