The Use of Hong Kong Arbitration in Resolving Sino-Foreign Infrastructure Disputes

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Chinese infrastructure projects have traditionally been dominated by domestic entities due to the restrictions which had been in place from the Ministry of Commerce. Since policies began to be relaxed in 2014, however, an increasing number of foreign actors have begun to participate in major infrastructure projects. The One Belt, One Road initiative and the soon to be constituted Asian Infrastructure Investment Bank serve as testaments to China’s willingness in allowing foreign investors into its infrastructure sector. There is sure to be an imminent rise in the number of both domestic and foreign entities participating in Chinese infrastructure projects.

As with any commercial transaction, it is conceivable that disputes may arise at any given stage of a project. This is especially true for projects of an infrastructure nature, as they typically involve a network of agreements and various subcontracts. What dispute resolution procedure parties choose is therefore an important consideration. Parties would be wise to not overlook it.

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CHOICE OF DISPUTE RESOLUTION METHOD

For a dispute resolution procedure that results in a binding decision, arbitration and litigation are typically the preferred choices. As between these two options, there are a few oft-cited reasons in support of arbitration rather than litigation for infrastructure disputes. For starters, arbitration allows parties to appoint persons of their choice to hear their dispute. As parties are able to appoint decision makers with the relevant qualifications needed for the case, unnecessary time and costs otherwise spent on procuring expert evidence for a judge can be saved. Additionally, the confidential nature of arbitration ensures that any sensitive information regarding an infrastructure project is adequately protected.

The ease of enforcement of an arbitral award further makes for a strong case to adopt arbitration, particularly for parties to a China-related infrastructure dispute with a foreign entity. An arbitral award made in a New York Convention member state enjoys recognition and enforcement in the national courts of the Convention’s 156 member states. Such award is generally final and binding on the parties, whose recognition and enforcement would only be refused under very limited circumstances. Provided that the relief is to be sought in a Convention member state, an aggrieved party may obtain relief through an arbitral award in a more expeditious manner than a court judgment.

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CHOICE OF VENUE

Even if parties agree to refer their infrastructure disputes to arbitration, the choice of venue and the applicable rules must be considered carefully given their legal implications. In the context of Sino-foreign infrastructure disputes, it is suggested that Hong Kong remains a viable venue in catering to both parties’ needs.

Hong Kong operates under the One Country, Two Systems model, with the Hong Kong Basic Law providing for a high degree of autonomy and a separate legal system than that of China’s. As such, arbitrating in Hong Kong would provide Chinese parties the confidence of having their disputes heard in its special administrative region, while offering foreign parties the comfort of a neutral jurisdiction.

Hong Kong is also renowned for its alignment with the best practice of international arbitration, being the only Asian jurisdiction that has adopted the 2006 version of the UNCITRAL Model Law. With a pro-arbitration judiciary that has been ranked in the World Economic Forum’s Global Competitiveness Report 2015-2016 as the fourth most independent in the world, the Hong Kong courts have only refused to recognize or enforce arbitral awards on rare occasions. As a neutral venue with bilingual arbitrators, courts and legislations, it is unsurprising that many parties opt to arbitrate their China-related disputes in Hong Kong.

To ensure effective resolution of their Sino-foreign infrastructure dispute, parties are also advised to choose an arbitral institution with experience in handling complex arbitrations as well as China-related matters. In this regard, the Hong Kong International Arbitration Centre (HKIAC) and its latest administered arbitration rules (HKIAC rules) are capable of providing the necessary support for parties in such disputes.

HKIAC has vast experience and expertise in managing disputes involving Chinese parties and has seen an increase in corresponding caseload over the past few years. In 2014, for instance, 44% of HKIAC’s total arbitration caseload had at least one Chinese entity as party to the arbitration. The HKIAC rules also provide for a series of comprehensive provisions permitting joinder of additional parties, consolidation of several arbitrations and commencement of a single arbitration under multiple contracts, which addresses the multi-contract and multi-party nature of infrastructure projects. Finally, parties may rest assured that HKIAC awards have an impressive track record of enforcement across the globe. Between the periods of 2010 and 2014, the Chinese courts have not refused to enforce any HKIAC awards – a feat unmatched by any other institution in the world.

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CONCLUSION

Perhaps it is due to the foregoing reasons that there has been a general acceptance and recognition of HKIAC as a neutral and able venue to resolve Sino-foreign infrastructure disputes. As recently reported in The Diplomat, China’s Sinomach and the Philippines’s North Luzon Railways Corporation have decided to choose HKIAC as venue to settle their railway disputes by way of arbitration.

As China begins to open its doors to foreign investors in its infrastructure sector, it is imperative for both Chinese and foreign entities to consider the proper mode of dispute resolution as well as the choice of venue. Given its renowned status as a neutral dispute resolution venue, parties to such infrastructure disputes have much to gain to arbitrate in Hong Kong and its homegrown arbitral institution.

This article was first published in the October 2015 issue of China Business Law Journal (www.cblj.com) and is reproduced with the kind permission of the editors.

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This article may be cited as follows: Chiann Bao and James Ng, “The Use of Hong Kong Arbitration in Resolving Sino-Foreign Infrastructure Disputes”, International Arbitration Asia (17 October 2015) <http://www.internationalarbitrationasia.com/The-Use-of-Hong-Kong-Arbitration-in-Resolving-Sino-Foreign-Infrastructure-Disputes>.