Drive for arbitration hub status gains new impetus

NDRC arrangement improves prospects for HK’s Belt and Road role but jurisdiction issues require attention, Edward Liu writes

Late last year the National Development and Reform Commission and Hong Kong Special Administrative Region Government signed an arrangement to advance Hong Kong’s full participation in and contribution to the Belt and Road Initiative. This blueprint for active participation in the nation’s most significant development strategy in decades was essentially an outcome of the effective combination of the central government’s overall jurisdiction over Hong Kong and the SAR’s high degree of autonomy, which has been further enhanced by the inclusion of “one country, two systems” into the fundamental tactics of the socialism with Chinese characteristics for a new era as set out in General Secretary Xi Jinping’s report to the 19th National Congress of the Communist Party of China.

Under the arrangement, the central government will strongly support Hong Kong’s aspiration to develop into an international legal and dispute resolution service hub for the Asia-Pacific region, serving the needs arising from the B&R Initiative. This is consistent with the 13th Five-Year Plan (2016-20) which states: “We will support Hong Kong in becoming a center for international legal and dispute resolution services in the Asia-Pacific”. The arrangement undoubtedly lets Hong Kong give full play to its advantages and further contribute to national development.

Hong Kong’s advantages in providing dispute resolution services are recognized by both Chinese mainland and overseas markets. When Zhang Dejiang, National People’s Congress Standing Committee chairman, visited Hong Kong in May 2016 he noted the city’s competitive edge in services, particularly as one of the most favored arbitral seats worldwide. Such an evaluation is in no way overstated. A 2015 international arbitration survey by Queen Mary University of London ranked Hong Kong as the third most preferred arbitration venue, after London and Paris, both long-established international arbitration venues. Hong Kong was also rated as first choice for a seat of arbitration outside Europe and second-fastest growing arbitration venue in the previous five years. Renewed central government support could be a catalyst for Hong Kong to step up its game. But the city still needs to apply some supportive policies to attract more mainland and overseas enterprises to use its legal and dispute resolution services for settling increasing disputes arising from commercial transactions. As globalization continues and the B&R initiative progresses, cross-border transactions multiply. Disputes related to cross-border investments and international trade will increase in proportion. Imagine, in a transaction where one party is a mainland enterprise and the other is foreign — the foreign enterprise would always like to seek help in overseas arbitration centers such as London to settle any potential contract dispute. This is because foreign enterprises generally do not comprehend or trust the mainland legal system and arbitration institutions. Mainland enterprises are also reluctant to have disputes settled overseas, fearing high legal costs. Under such circumstance, as the only common-law jurisdiction in China and governed by the Basic Law and “one country, two systems” principle, Hong Kong is undoubtedly the ideal arbitration venue, acceptable to both parties.

As mainland enterprises’ bargaining power in international trade and investment grows they increasingly prefer to settle disputes at home. For Hong Kong to benefit from this trend, the SAR government should establish a crossdepartment task force which actively seeks to set up a cooperation mechanism with the State-owned Assets Supervision and Administration Commission of the State Council, Ministry of Finance and All-China Federation of Industry and Commerce and other relevant organizations. This task force will promote Hong Kong’s legal and dispute resolution services to all State-owned enterprises, private enterprises and State-invested financing institutions, and also encourage these enterprises to choose Hong Kong as the seat of arbitration for contracts related to infrastructure construction, investments and trade under the B&R Initiative.

As B&R progresses, it is envisaged there will be more foreign-invested enterprises and fully foreign-owned companies established in the mainland, particularly in free-trade zones. If those companies agree to arbitrate overseas (including in Hong Kong), according to the current mainland legislation, the relevant arbitration awards are very likely not to be recognized and enforced by mainland courts since awards do not cover foreign jurisdictions.

To provide judicial assistance and protection to players involved in the B&R Initiative, the Supreme People’s Court introduced the “Several Opinions of the Supreme People’s Court on Providing Judicial Services and Safeguards for the Construction of the ‘Belt and Road’ by People’s Courts” in 2015. In this document, the Supreme People’s Court explicitly mentioned support to both parties to solve their disputes in relation to the B&R Initiative through arbitration and mediation. Meanwhile, the Supreme People’s Court indicated giving recognition and enforcement to overseas arbitration awards related to the B&R Initiative. Furthermore, the supreme court also stipulated revoking and abolishing the judicial reviewing procedure for arbitration awards made in Hong Kong, Macao and Taiwan.

In the light of the above development, the SAR government should negotiate with the Supreme People’s Court and other mainland authorities soon and introduce relevant judicial interpretations to affirm that the enforcement of arbitration awards made in Hong Kong will not be affected by the absence of foreign affairs links under the aforementioned circumstances. If this result can be successfully realized, it will in all likelihood attract more commercial contracts to choose their arbitral seat in Hong Kong. This will undoubtedly enhance Hong Kong’s status as an international arbitration hub and help improve the general business environment on the mainland.