by Grace Wong Wing Huen[1]

Introduction

This article aims to build upon and update a comparative study conducted in 2014, ‘International Commercial Arbitration in Asia: Hong Kong, Australia and India Compared’ by Jack Wright Nelson, by examining the recent developments of international arbitration in Hong Kong and Australia. Through considering historical contexts and key areas of difference in jurisdictions, Nelson posits Hong Kong as a “Tier 1 international arbitration hub” due to a supportive government and judiciary, characterised by internationalism prevailing in courts; arbitral confidentiality is legislated; and foreign awards are consistently enforced, while Australia falls relatively short of these aspects but has immense potential for growth. Nelson also raises a major concern in Hong Kong is its political status affecting its position as a leading arbitration centre, and in Australia its narrow approach to the enforceability of foreign arbitral awards.

I will argue that despite growing political concerns surrounding Hong Kong, the strengthened judicial cooperation between mainland China and Hong Kong has since solidified the city’s status as a leading international arbitration centre. In particular, 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’ (Arrangement) distinguishes Hong Kong as the first and only recognised jurisdiction with such a scheme, which attracts arbitration cases to Hong Kong. In Australia, international arbitration remains a growing and vibrant field, and an increasingly attractive destination for arbitration with internationalism prevailing and confidentiality now required in courts. An examination of recent case law demonstrates that Australian courts are adopting a pro-enforcement stance in recognising and enforcing foreign arbitral awards.

This article incorporates interviews with specialists in the field, Mr. Greg Laughton SC (Australia) and Mr. William Kong (Hong Kong).

Summary of the 2014 study[2]

1. Historical context in 2014

Nelson noted that Hong Kong had consistently supported international arbitration and has been a de facto arbitral seat in Asia, but concerns had arisen regarding the enforcement of arbitral awards after the PRC resumed sovereignty in 1997. In 1999, an agreement was signed to allow ready enforcement of awards between Hong Kong and China, but it was uncertain whether ad hoc or non-Chinese arbitral institutional awards could be enforced in the mainland.

In contrast, Nelson argued that Australia had historically favoured domestic arbitration, with international commercial arbitration receiving little government support. Nevertheless, institutions and individuals had been marketing Australia across Asia, emphasising its neutrality as an arbitral seat.

2. Nelson’s Key Areas of Difference – 2014

 Hong KongAustralia
Internationalism: Hong Kong is superior[3]Hong Kong exhibits high internationalism, recognising the international origins of Model Law and the New York Convention. It also frequently cites cases from various jurisdictions in its interpretation.Australia’s internationalism is described as narrow, with courts tending to rely on English or American decisions. A broader consideration of foreign jurisprudence for Asian, Model Law jurisdiction should be given, particularly Singaporean judgments due to their arbitration experience, common law, and proximity to Australia.
Confidentiality: Hong Kong is superiorHong Kong enforces confidentiality obligations, ensuring arbitrations in the country maintain a degree of confidentiality.Australia provides optional provisions. Nelson proposed that the confidentiality provisions should be provided on an ‘opt-out’ basis, considering the lack of confidentiality under common law.
Arbitrability: Australia is superiorArbitrability in Hong Kong is a multifaceted concept that involves consideration of public policy and practical factors; courts can consider all factors, making arbitrability uncertain.[4]The default in Australia is that all subject matters are arbitrable. The approach is a question of public policy, which provides more clarity and predictability compared to Hong Kong. Nelson contends that this approach is necessary for the enforceability of awards.
Enforceability: Hong Kong is superior[5]Hong Kong’s pro-enforcement stance aligns with the New York Convention, but unresolved political issues, such as Taiwan’s status and territorial disputes in the South China Sea, may conflict with China’s public policy.[6]

Chinese state-owned enterprises may also cause conflicts between Hong Kong’s pro-enforcement approach and PRC political realities.[7] The author notes Hong Kong must be proactive in developing its arbitral law to overcome negative perceptions and reluctance to designate Hong Kong International Arbitration Centre (‘HKIAC’) in disputes involving Chinese parties.

Australia emphasises public policy, which is criticised as being parochial and inappropriate in international commercial arbitration. The author argues that Australian courts should recognise that foreign arbitral tribunals often make orders differently.

Recent developments in Hong Kong

1. General overview

Despite concerns raised regarding the political status of Hong Kong, it ranked third globally as the most preferred arbitration location, following London and Singapore.[8] In 2022, the HKIAC’s arbitration caseload reached its highest level in over a decade, reflecting Hong Kong’s enduring international appeal and its unique strengths as a China-related seat.[9] This could be attributed to the ongoing opening up of China and the development of the Greater Bay Area.[10]

Additionally, Hong Kong’s recent developments, such as the Arrangement and ‘One-Stop Diversified International Commercial Dispute Resolution Mechanism’ (One-Stop) enabling HKIAC-administered arbitrations to apply for both mainland Chinese interim relief and enforcement respectively, demonstrates the strengthened cooperation between mainland China and Hong Kong in arbitration matters.[11] Hong Kong’s continuous support for arbitration is further solidified by the introduction of third-party funding and outcome-related fee structures.[12]

2. Major developments relating to political status of Hong Kong

Since 2019, under the Arrangement, parties to HKIAC-administered arbitrations can apply for interim measures, such as preservation of assets or evidence, directly from mainland Chinese courts.[13] As of March 2023, the HKIAC received 91 applications worth approximately USD$3.5 billion; 86 of them were for asset preservation orders, 2 were for evidence preservation orders, and 3 were for conduct preservation orders.[14] Since 2022, parties to HKIAC-administered arbitrations can directly apply to the China International Commercial Court for mainland Chinese interim relief and enforcement through One-Stop.

Hong Kong is the first and only recognised jurisdiction with these mechanisms for obtaining interim relief and enforcement in mainland China. This creates a unique advantage for Hong Kong, especially since mainland China is often a key market for parties involved in Hong Kong-seated arbitrations, thus promoting Hong Kong for parties with mainland-related, Belt and Road, and Greater Bay Area disputes.[15] The Arrangement also fosters judicial cooperation between Hong Kong and mainland China, and attracts parties to qualified Hong Kong arbitration institutions since the Arrangement only covers arbitrations operated by ‘qualified institutions’ and excludes ‘ad hoc arbitrations’ seated in Hong Kong. CIETAC Hong Kong Arbitration Centre has found advantages in dealing with court-ordered interim measures in the mainland in terms of language and applicable law.[16]

Interview with Mr. Kong[17]

Q. Could you share your experiences as an arbitrator in both Hong Kong and China? Have you encountered the application of the Arrangement in your experience?

A. Yes, in a recent divorce case, we served a writ of summons on the respondent, a Chinese national residing in China, under the Arrangement. The Arrangement is useful for preserving evidence and for injunctions such as access to documents. In an inquisitorial system, PRC courts have the power to investigate and access internal documents, while in an adversarial system, Hong Kong courts cannot unless a counsel provides such evidence.

Q. In your opinion, what are the benefits and drawbacks of the Arrangement?

A. The Arrangement has made dealing with cross-border disputes more convenient and less costly, as court leave was previously required to act on the mainland, outside of our jurisdiction. I do not think there are necessarily benefits or drawbacks because I view the Arrangement as mutual learning and simply comparative. However, a potential “drawback” could be that the cross-examination procedure is different and much quicker in PRC courts compared to Hong Kong. The caseload is significantly larger in Mainland, thus for efficiency, parties only exchange witness statements. If both parties agree and accept the lawfulness, authenticity, and relevance of the witness statements, then they automatically become evidence without any cross-examination.

Q. Have there been any drawbacks to developments in Hong Kong? If so, why do you think this is the case?

A. I do not believe the judicial cooperation between Hong Kong and China caused any drawbacks to developments in Hong Kong since both Hong Kong and China are signatories to the New York Convention. However, I acknowledge there are perceived threats to the neutrality of arbitrators in Hong Kong as a part of China, but there is a tribunal of three arbitrators, so I think neutrality can and is maintained. I do not think there is any way to mitigate this threat since we cannot control how parties choose their seat of arbitration.

Q. How do you think Hong Kong can continue to grow and reinstate itself as the default international arbitration hub in Asia, now taken over by Singapore?

A. I disagree that Hong Kong’s position has been taken over by Singapore. It is evident that Hong Kong remains top tier among New York and London, considering our increasing caseload in recent years. I would even argue that Hong Kong is superior to Singapore, given our handling of more international and cross-border disputes, and lawyers with more diverse backgrounds. Importantly, a distinct advantage of Hong Kong is ‘one country two system’, which allows mutual learning between Hong Kong and China. Even though Singapore may be perceived as first in the Asia-Pacific Region, the continued opening up of China as well as the development of the Belt and Road Initiative and the Greater Bay Area will ultimately benefit Hong Kong in the long run. Chinese businesses will likely choose Hong Kong as the seat of arbitration due to its proximity, language, and familiarity. The PRC government intends to use Hong Kong to deal with commercial disputes of the Belt and Road Initiative.

Recent Developments in Australia

I. General Overview

International arbitration in Australia is a growing field with practitioners and users embracing international best practice in both process and case management. In 2020, the Australian Centre for International Commercial Arbitration (ACICA) reported that between 2016 and 2019, there were 223 arbitrations connected to Australia and the amount in dispute exceeded AUD$35 billion. About 60% of Australian solicitors participating in the survey included, or recommended to their clients the inclusion of arbitration clauses in international contracts worth more than AUD$5 million.[18] The report also cites Australia’s advantages as a seat are confidentiality and international enforceability.[19]

International arbitration in Australia is now at the forefront of innovation. The ACICA 2021 Rules modernised and codified recent best practice in relation to technology and virtual and hybrid hearings. It also anticipates the needs of the arbitration community, for instance by adopting a liberal approach to consolidation and multi-contract arbitrations that broadly align with SIAC and HKIAC rules, as well as empowering the arbitral tribunal to award early dismissals or determinations for effective case management and costs.[20]

However, Australia’s popularity as an arbitration seat for disputes in the Asia-Pacific region remains limited, with only 5 of 28 respondents indicating that it was typical for an Australian seat to be requested.[21]

II. Australia today and criticism of the 2014 study

A. Internationalism

Australian practitioners and academics acknowledge that Australian courts have matured in the past decade, emphasising international jurisprudence in interpreting international instruments such as the New York Convention and the UNCITRAL Model Law. They also consider international principles when dealing with the construction of international arbitration agreements and the relationship between national courts and arbitral tribunals.[22]

Mr Greg Laughton SC disagrees with Nelson’s 2014 view that Australia has narrow internationalism and enforceability and contends that Nelson overlooked the extensive history of arbitration in Australia. Greg Laughton SC considers that Australia has always been pro-arbitration due to its international trading status and its commercial interests in achieving efficiency through arbitration. As such, Australia follows an internationalist approach.

Mr Laughton is of the view that the 2014 study also erred in relying on Resort Condominiums, as an outdated 1993 case repeatedly overturned, and failed to consider the extensive and rich history of arbitration in Australia. He considers Hong Kong’s position in the Asia-Pacific region was overstated by Nelson, where Singapore has long been the preeminent international arbitration centre, noting that today South Korea is also a rapidly growing centre.

B. Confidentiality[23]

In 2010, the Australian legislature recognised the importance of confidentiality and inserted Part III (including sections 23C to 23G, which deal with confidentiality) into the International Arbitration Act 1974 (Cth) (IAA). Section 23C of the IAA requires parties to keep confidential all information related to the arbitral proceedings or award, subject to exceptions, including where court orders the disclosure or where all parties to the proceedings gives consent to the disclosure. In 2015, the IAA was amended to apply on an ‘opt-out’ basis, unless the parties choose to exclude them, which is what the 2014 study proposed.

However, a recent case has shown that Australian courts may refuse to uphold the confidentiality of foreign-seated international arbitrations on the grounds that Part III of the IAA only applies to Australian-seated international arbitrations. Additional reform is needed such that foreign-seated arbitrations receive the same protection.

C. Enforceability

The 2014 study criticised Australia’s approach to enforcing foreign awards as parochial and inappropriate. Today, as demonstrated in case law, Australia remains “pro-arbitration” and this extends to “pro-enforcement”.

Greg Laughton SC disagrees with the premise put in the 2014 study and some practitioners’ view that pro-arbitration does not necessarily extend to pro-enforcement. He maintains Australia is entirely pro-enforcement, given it is a signatory to the New York convention. The only case he recalls where Australian courts refused enforceability was due to procedural issues [referring to Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company [2021] FCAFC 110, discussed below].

III. Recent Case Law

1. Neptune Wellness Solutions, Inc v Azpa Pharmaceuticals Pty Ltd [2021] FCA 676

The Federal Court efficiently applied the New York Convention regime, which is consistent with best practice in UNCITRAL Model Law jurisdictions such as Hong Kong, where the Courts have held that enforcement of arbitral awards should be “as mechanistic as possible”(Re PetroChina International (Hong Kong) Corp Ltd [2011] 4 HKLRD 604). The Court recognised enforcement, even though the respondent did not appear, counsel for the claimant appeared virtually, and the application was based primarily on affidavit evidence. This case demonstrates the Australian courts’ support for enforcement.

2. Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. (No 3) [2021] FCAFC 112

The court ruled that Spain had submitted to the jurisdiction of Australian courts by acceding to the ICSID Convention, and that ICSID awards must be recognised and enforced in Australia as if they were final judgments of the Australian courts.[24]

3. Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company [2021] FCAFC 110

This is one of the few cases where Australian courts refused to enforce foreign arbitral awards due to procedural issues. The enforcing party did not adhere to the agreed procedure, specifically they failed to notify the respondent that they had nominated an arbitrator. While the court recognised it had scope to exercise discretion as well as the pro-enforcement bias of the New York Convention, they held the procedural defect of notice was fundamental and could not be overlooked. This case demonstrates that Australian courts will strictly apply the requirements for the enforcement of an award under the International Arbitration Agreement.

4. Final Comments from Mr Greg Laughton SC

Q. Have there been any drawbacks to developments in Australia? If so, why do you think this is the case?

A. The only real drawback is s18 of the Australian Consumer Law, prohibiting misleading or deceptive conduct in trade or commerce, which is a catchall provision applicable to objectionable conduct, is a drawback for those outside Australia but involved in contracts in Australia to have Australian law applied. Attempts to restrict s18 to domestic contracts have not yet succeeded. Moreover, Australia is perceived to be isolated from the rest of the world, making it difficult for international arbitration to be heard here. However, Singapore, India, Hong Kong, and South Korea, which are only 8-9 hours away, create opportunities for disputes to be heard in Australia when the contract is the subject of Australian law.

Q: How do you think Australia can continue to grow and become a favoured seat of international arbitration for disputes related to Asia?

A: First, there must be a changing perception of Australia as a seat of international arbitration through continuous marketing. Second, Australia should have, and is working towards building, an international arbitration hub, much like Maxwell Chambers in Singapore, HKIAC in Hong Kong and IDRC in Seoul. Third, conversations should be held with in-house lawyers to modify the terms of dispute resolution clauses to make Australian Law the law of the contract and Australia as the seat.

Conclusion

Contrary to concerns raised in the 2014 study on the political status of Hong Kong deterring parties from choosing Hong Kong as an arbitral seat, the strengthened judicial cooperation between Hong Kong and China appears to have consolidated Hong Kong’s position as a leading international arbitration hub, which is expected to continue considering the ongoing opening up of China and the development of the Greater Bay Area. Australia remains pro-arbitration and pro-enforcement and is gaining popularity in the Asia-Pacific region through practices that not only adhere to international standards but are also modernised to suit the needs of parties. Greater government support for arbitration in Australia, the launch of a new international arbitration hub and effective marketing will help to attract more arbitrations to Australia.

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[1] Grace Wong Wing Huen, UNSW Law Sydney and Australian Disputes Centre Intern

[2] Jack Wright Nelson, ‘International Commercial Arbitration in Asia: Hong Kong, Australia and India Compared’ (2014) 10(2) Asian International Arbitration Journal 105.

[3] A view rejected by Mr Greg Laughton SC, see below at p6.

[4] Mr. Kong disagrees, he considers Hong Kong courts adopt a similar approach to the UK and Australia and do consider the public policy and the misconduct of the arbitrator.

[5] A view rejected by Mr Greg Laughton SC, see below at p7.

[6] Mr Kong notes the Cross Strait Arbitration Commission to deal with commercial conflicts; both PRC and Hong Kong recognise Taiwan Arbitration Awards.

[7] Mr Kong considers that Hong Kong courts will treat PRC awards no differently to other overseas awards.

[8] ‘HKIAC and Hong Kong ranked third worldwide for arbitration’, Hong Kong International Arbitration Centre (Media Release, 7 May 2021) <https://www.hkiac.org/news/hkiac-and-hong-kong-ranked-third-worldwide>.

[9] ‘2022 Statistics’, Hong Kong International Arbitration Centre (Web Page) <https://www.hkiac.org/about-us/statistics>.

[10] ‘Why Hong Kong’s Reputation as a Global Dispute Resolution Centre Is on the Rise’, South China Morning Post (28 May 2023) <https://www.scmp.com/business/china-business/article/3221893/hong-kongs-rise-global-dispute-resolution-centre-due-chinas-reforms-greater-bay-area-development>.

[11] ‘Key Developments in Arbitration in Hong Kong’, Lexology (26 May 2023) <https://www.lexology.com/library/detail.aspx?g=1310ad29-1d24-47dc-b465-e565d66b9fdf>.

[12] Ibid.

[13] ‘PRC-HK Arrangement on Interim Measures’, Hong Kong International Arbitration Centre (Web Page) <https://www.hkiac.org/arbitration/arrangement-interim-measures#:~:text=The%20Arrangement%20Concerning%20Mutual%20Assistance,made%20under%20the%20Arrangement%20on>.

[14] Sabina Nurbagandova, Natalia Rodriguez Alvarex and Antoine Cottin, ‘2023 PAW Recap – Day 4: Spotlight on Hong-Kong: Innovations in International Arbitration’, Kluwer Arbitration Blog (3 April 2023) <https://arbitrationblog.kluwerarbitration.com/2023/04/03/2023-paw-recap-day-4-spotlight-on-hong-kong-innovations-in-international-arbitration/>.

[15] Wenying Wang, ‘The Impact of the Mutual Arrangement Concerning Court-Ordered Interim Measures on Hong Kong Arbitration’ (2021) 15(1) Dispute Resolution International 139.

[16] Ibid.

[17] Mr Kong – https://hkie.org.hk/en/membership/lom/upload/page/194/self/5f30eafdae6eb.pdf) and Solicitor of the Guangdong-Hong Kong-Macao Greater Bay Area, PRC.

[18] ‘Australian Arbitration Report’, Australian Centre for International Commercial Arbitration (Web Page) <https://acica.org.au/australian-arbitration-report/>.

[19] ‘ACICA And FTI Consulting Launch Inaugural Report into The Practice of Arbitration in Australia’, Australian Centre for International Commercial Arbitration (Media Release, 9 March 2021) <https://acica.org.au/wp-content/uploads/2021/03/Media-Release-Australian-Arbitration-Report-2020-DESKTOP-114DOD6.pdf>.

[20] ‘ACICA Rules 2021’, Australian Centre for International Commercial Arbitration (Web Page) <https://acica.org.au/acica-rules-2021/#:~:text=The%202021%20edition%20of%20the,determination%20of%20disputes%2C%20alternative%20means>.

[21] Ibid (n 13).

[22] ‘Australian Arbitration – Behind the Current Boom’, Herbert Smith Freehills (Web Page, 28 July 2021) <https://www.herbertsmithfreehills.com/insight/australian-arbitration-behind-the-current-boom>.

[23] ‘Confidentiality in International Commercial Arbitration: Does Australia Meet International Expectations?’, Kluwer Arbitration Blog (25 August 2018) <https://arbitrationblog.kluwerarbitration.com/2018/08/25/confidentiality-in-international-commercial-arbitration-does-australia-meet-international-expectations/>.

[24] Read more here: https://disputescentre.com.au/kingdom-of-spain-v-infrastructure-services-luxemburg-s-a-r-l-2023-hca-11/