Reorienting Hong Kong Commercial and Maritime Arbitration: A Super-Connector in the Belt and Road Initiative

With China emerging as a major maritime nation and following the announcement of the The Belt and Road Initiative, there has been much discussion on how Hong Kong can capitalise on its advantage as a regional maritime hub. Other than by playing the role of a “super-connector” to help Chinese companies “go out” through mergers and acquisitions and “bring in” Western multinational companies, Hong Kong can also capitalise on and leverage upon its institutional and historical advantages, to become a regional maritime arbitration centre. Hong Kong is ideally placed to become the designated arbitration venue under Belt and Road projects; a dedicated Belt and Road Dispute Resolution Clause, providing for arbitration in Hong Kong, would also enhance the reliability and robustness of Belt and Road-related Initiatives.

Plans for the Maritime Industry in Hong Kong

Encouragingly to the city of Hong Kong, in the 2016 Government Work Report, Mr. Li Keqiang ostensibly expressed the desire to capitalise on Hong Kong’s unique advantages to enhance China’s economic development and further opening up. In fact, the strategy is predicated on a mutually beneficial relationship; such that the saying “what the country [China] needs, [is] what Hong Kong is good at” is perfectly apt for the blossoming economic relationship between the “two systems” in “one country”. Hong Kong can leverage its formidable prowess in international finance, shipping and trade industries. These uniquely important factors make Hong Kong well poised to serve as a “super-connector”. This status has also been confirmed in the 13th five-year plan, which outlines intentions for Hong Kong to serve as such.

Of course, such grand plans would be remiss if the Hong Kong government, and the industries involved in this grand strategy, did not take a corresponding stance. Thus, this plan is more than merely notionally addressed in the 2016 Annual Policy Address of the Chief Executive of Hong Kong. Rather, the plan was the key item emphasised in the policy address, which also provided further details of Hong Kong’s intentions to participate in the Belt and Road Initiative. Specifically, Chief Executive indicated that the government intends to form a new shipping authority named Hong Kong Maritime and Port Board, which will undoubtedly further develop the maritime services cluster, especially in support of the Belt and Road Initiative.

“Super-Connector”

Essential components to Hong Kong’s reputation as a “gateway” to China for prospective investors, both locally and globally, is the inherent faith in the social capital of Hong Kong professionals, as well as the trust of Hong Kong’s legal system. This trust is founded on the basis that Hong Kong has a well-regarded and independent judiciary, with low levels of corruption, and dependable judges and legal professionals working within the system. The conception of a high degree of integrity and competence of the system and the parties involved, provide much needed confidence for any investor.

The trustworthiness and high functioning system does find some grounding in the legal system. Given the propensity for maritime parties to solve their disputes privately through arbitration, even though the traditional court system is still an available entity well capable of handling complex shipping disputes, it is worthwhile for Hong Kong to seek status as a leading jurisdiction for alternative dispute resolution in maritime and commercial matters.

Commercial and Maritime Arbitration in Hong Kong

Hong Kong has received international and national recognition for its arbitral sophistication. It was selected by the Paris-based International Chamber of Commerce (“ICC”) to be the location for its first Asian branch. The China International Economic and Trade Arbitration Commission (“CIETAC”) and the China Maritime Arbitration Commission (“CMAC”) also simultaneously decided to open their first arbitrations centres outside the Mainland in the City. Also noteworthy, is Hong Kong International Arbitration Centre’s (“HKIAC”) status as the most preferred arbitration institution outside of Europe and as the third best arbitration institution worldwide, as ranked by the International Arbitration Survey conducted and issued by Queen Mary University of London in 2015.

The HKIAC can make claim as one of the longest and most established institutions providing for maritime arbitration in Asia. The Hong Kong Maritime Arbitration Group (“HKMAG”), which was formed in 2000 as a division of the HKIAC, was appointed 163 times in 2014 (HKIAC Report, 2014). The gross volume of resolved disputes reflects the recognition of maritime arbitration lawyers in the HKIAC and HKMAG and faith in the structure and efficacy of the arbitration system in Hong Kong.

Academic support and international conferences further highlight and enhance Hong Kong’s position as the regional arbitration centre. It recently held its fifth annual Asian Logistics and Maritime Conference in 2015, attracting more than 1,600 industry professionals from 32 countries and regions and about 60 internationally renowned speakers presenting on arbitration strategies. The International Congress of Maritime Arbitrators also held its 19th convention in 2015 in Hong Kong, providing a forum for maritime arbitration practitioners worldwide. These conventions affirm Hong Kong’s status as a regional hub for both business and intellectual networking in this sector. The City University of Hong Kong established a Centre for Maritime and Transportation, offering a master’s degree programme in maritime and transportation law to specifically train local maritime lawyers. The Centre is the first of its kind in Asia, demonstrating its willingness to embrace its position as a regional hub for forward-thinking and leading innovations in the maritime industry.

The reputation of Hong Kong as an attractive arbitration centre has also been given judicial endorsement. In 2015, the case of Shagang South-Asia (HK) Trading Co Ltd v Daewoo Logistic Corporation was heard in the High Court of England & Wales. Briefly, the case considered the situation where the contract provided “arbitration to be held in HK. English law to be applied.” Due to allegedly conflicting clauses, London arbitration under English law was commenced, to which the arbitration was subsequently challenged in court. An argument over the convenience of London or Hong Kong as the venue was considered. In his judgment, Hamblen J unequivocally supported Hong Kong as a viable jurisdiction, in that “Hong Kong is no doubt geographically convenient, it is also a well-known and respected arbitration forum with a reputation for neutrality, not least because of its supervising courts.” This endorsement clearly demonstrated that Hong Kong is an already recognised and reputable arbitration forum, and is a capable contender as an appropriate venue for international shipping arbitration.

Proposal: A Unified Dispute Resolution Clause

While Hong Kong has immense technical proficiency as an arbitration hub, it should not be complacent and rest on its laurels. Apart from ensuring the neutrality and impartiality of its legal system, its stakeholders (including the Hong Kong Government, professionals working within it, as well as the companies that take advantage of it), all have a role in formulating a stronger and more coherent maritime arbitration strategy.

An ideal way for Hong Kong to participate more extensively in the Belt and Road Initiative is to be extremely proactive and aggressive in the promotion of itself as an arbitration centre. For example, Singaporean arbitration institutions have done just that, and are well placed to act as a regional maritime dispute resolution centre. The Baltic and International Maritime Council (“BIMCO”) is a non-governmental shipping association which actively promotes the application of internationally agreed regulatory instruments. The use of such instruments is widespread across the shipping industry. BIMCO has developed a standard dispute resolution clause that provides for arbitration combined with a mediation option, which contains three specific choices of jurisdiction: London, New York and Singapore. The insertion of Singapore as a jurisdiction is a recent initiative.

Hong Kong could serve well to follow such a practice, and similarly propose to have a dispute resolution clause with Hong Kong arbitration to apply in standard forms used across contracts in the Belt and Road Initiative. This will not be easy; it is likely that applicable contracts will merely be based off existing charter contracts or agreements; furthermore, the significant prestige of London as an arbitration capital will be immensely difficult to supplant. Still, promoting Hong Kong as an arbitral venue will nonetheless be beneficial for Chinese parties and parties working in cooperation with them. It is thus imperative that Hong Kong representatives seek to raise such a kind of dispute resolution clause across Belt and Road Initiative contracts and agreements.

Further, considering the relative strength in bargaining position of China to negotiate its contracts and agreements associated with the Asian Infrastructure Investment Bank (“AIIB”) and the Silk Road Fund, such agreements should also carry the same dispute resolution clause for arbitration in Hong Kong. This will give Chinese parties substantial convenience in dispute resolution, while foreign parties may seek solace in such a reputable forum.

Recommendations

The Belt and Road Initiative poses great opportunities for Hong Kong to develop as a regional and international hub for maritime arbitration. With its historical and institutional advantages, Hong Kong shares and enjoys more than the geographical and cultural connections needed as a “super-connector” for China to “go out” and international companies to “go in”.

Hong Kong has to promote its status as a willing and viable contender as an arbitration venue. It should push for its name in dispute resolution clauses. It should convince commercial parties that it is the most convenient forum. It should seek the backing from all Belt and Road entities for its name to be entered as a default dispute resolution clause. In the event that such a proposal is realised, it will greatly increase the chance of Hong Kong being the top choice of maritime arbitration venue in case of conflicts in Asia and among countries along the Belt and Road, fulfilling its role as a “super-connector” for China. 

Jurisdictions: 

Legal Director, Hill Dickinson

Vice-President, The Hong Kong and Mainland Legal Profession Association

Qualified in both China and England & Wales, Mr. Liu specialises in shipping and commercial litigation and arbitration. His practices covers all areas of maritime and commercial law, including charterparty and shipbuilding contract disputes, cargo claims, sale of goods disputes, marine insurance and investment disputes etc. He handles a wide variety of cases of different types and sizes under LMAA Terms, HKIAC rules and UNCITRAL rules. He has published numerous articles and case commentaries in respect of shipping and arbitration topics in reputable journals and newsletters in England, Mainland China and Hong Kong. He is a member of The Chartered Institute of Arbitrators, a member of Hong Kong Maritime Arbitrators Group and a supporting member of London Maritime Arbitrators’ Association.