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.
Supplemental arrangement
The Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region, signed on 27 November 2020, further complements the existing system.
Under the supplemental arrangement, a party may apply for preservation measures before or after the court’s acceptance of an application to enforce an arbitral award in Hong Kong and the mainland. The combination of the supplemental arrangement and the interim measures arrangement permits preservation of assets from before commencement of the Hong Kong arbitration to the enforcement stage. Hong Kong is the only jurisdiction outside the mainland with such a distinctive advantage.
Previously, by reason of section 93 of the Hong Kong Arbitration Ordinance that implemented the Arrangement Concerning the Mutual Enforcement of Arbitral Awards between the Mainland and Hong Kong Special Administrative Region in 1999, a successful party could not simultaneously apply for award enforcement in both the mainland and Hong Kong.
The supplemental arrangement specifically addresses this anomaly and removes the restriction. A successful party to an arbitration can now make simultaneous applications to courts in both jurisdictions for the enforcement of an arbitral award, securing timely enforcement against parties with assets in the mainland and Hong Kong, in line with international practice.
In addition, article 2 of the supplemental arrangement lifts the restriction that enforcement of mainland arbitral awards in Hong Kong must be limited to those recognised arbitration institutions. Instead, all arbitral awards made in the mainland in accordance with the Arbitration Law of the PRC can be enforced in Hong Kong. This significantly reduces the complication that could arise should Hong Kong fail to gazette new institutions.
The supplemental arrangement may also help to lay the groundwork for the mainland to permit ad hoc arbitration premised on the seat of arbitration, in addition to administered arbitration. The PRC Ministry of Justice published the Draft Arbitration Law in July 2021, which is currently under consultation, allowing ad hoc arbitration in transactions with foreign elements.
Flexible fee arrangement
Outcome Related Fee Structures for Arbitration (ORFSA). This came into operation on 16 December 2022, providing that an ORFSA agreement is no longer prohibited by the common law doctrines of maintenance, champerty and barratry.
Under the legislative framework, three types of ORFSA are permitted as long as certain general and specific conditions are satisfied:
- Conditional fee agreements (CFAs), when a lawyer receives a success fee only in the event of a successful outcome for the client, with definition of “success” determined by the lawyer and client;
- Damages-based agreements (DBAs), when a lawyer receives payment only in the event the client obtained a financial benefit in the matter; and
- Hybrid DBAs, when a lawyer receives payment pursuant to a DBA, and fees for legal services rendered during the course of the matter.
The ORFSA regime helps Hong Kong keep pace with other major arbitral hubs in the Asia-Pacific region. Furthermore, the ORFSA allows infinite combinations of fee structures, while most jurisdictions like Singapore merely legalise CFAs. The comprehensive and flexible safeguards available under Hong Kong’s ORFSA regime – including caps on uplift fees and the possibility to recover uplift fees from an unsuccessful party – enhances Hong Kong’s appeal as the international arbitration centre of the region.
Third Party Funding (TPF). TPF is allowed for arbitration and related proceedings where the place of arbitration is Hong Kong under part 10A of the Hong Kong Arbitration Ordinance in 2017. The legislative amendments allow provision of funding for arbitration under a funding agreement to a funded party by a third-party funder, in return for the funder receiving financial benefit only if the arbitration is successful within the meaning of the funding agreement.
As such, TPF provides support to companies that lack financial resources to pursue claims, enhancing access to justice, as well as fostering a new type of “litigation finance”.
Conclusion
Under these unique arrangements with the mainland, and flexible fee structure arising from the ORFSA and TPF, Hong Kong’s status as the international deal making and dispute resolution hub will be further consolidated and maintained as a pioneer in international arbitration.
Along with development of the Greater Bay Area, there will be boundless opportunities for collaboration between mainland China, Hong Kong and foreign enterprises. 
Teresa Cheng is a senior counsel, arbitrator, mediator and co-chairman at the Asian Academy of International Law, and was the Hong Kong Secretary for Justice from 2018 to 2022. Edward Liu is a Hong Kong-based partner at Haiwen & Partners
