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HONG KONG’S LEGAL SYSTEM

2015-08-20

In 1984, the governments of the United Kingdom and the People’s Republic of China signed a “Joint Declaration” regarding the handover of sovereignty over Hong Kong to China, which was intended to - and subsequently in fact did - take place on 1 July 1997. China declared therein that it had decided to establish a special administrative region in Hong Kong in accordance with the Chinese constitution. The Joint Declaration contained basic policies on Hong Kong declared by China, which were to be stipulated in a Basic Law of Hong Kong by the National People’s Congress and which were to remain unchanged for 50 years. In 1990, the National People’s Congress adopted the Basic Law with effect from 1 July 1997, thereby implementing and elaborating the policies contained in the Joint Declaration.

According to the Basic Law, under the principle of “one country, two systems”, the socialist system and policies are not practised in Hong Kong and its capitalist economic and trade systems remain unchanged. Hong Kong enjoys a high degree of autonomy and it is vested with executive, legislative and independent judicial power. With a few exceptions, Mainland Chinese laws do not apply in Hong Kong. The laws in force in Hong Kong before the handover, i.e., the common law, rules of equity, ordinances, subordinate legislation and customary law, are maintained, save for any that contravene the Basic Law and subject to any amendment by the Hong Kong legislature. The Hong Kong courts are free to refer to precedents in other common law jurisdictions. The judicial system is also maintained, with the exception that, following the handover, Hong Kong has its own Court of Final Appeal as a result of Hong Kong being vested with the power of final adjudication. The Basic Law allows the recruitment of judges from other common law jurisdictions and the Court of Final Appeal may as required invite judges from other common law jurisdictions to sit on the Court. In addition to the Chinese language, English is used in, inter alia, the Hong Kong courts.

Hong Kong’s arbitration law

As a former British colony Hong Kong has long experience in arbitration. After prior legislation, Hong Kong’s Arbitration Ordinance of 1963 (Cap. 341) was generally based on the English Arbitration Act 1950. Subsequently, with effect in 1990, Hong Kong was one of the first jurisdictions to adopt the UNCITRAL Model Law on International Commercial Arbitration. In a user-friendly way, the current Arbitration Ordinance (Cap. 609), effective from June 2011, follows the Model Law articles, with any supplements or modifications clearly stated. The 2006 Model Law revisions on interim measures (including ex parte preliminary orders) are substantially included in the Ordinance.

Among the Hong Kong additions to the Model Law provisions are: (i) parties’ confidentiality duties concerning the arbitration and the award, (ii) closed court proceedings in arbitration matters and restrictions on publishing information on such court proceedings, (iii) an arbitrator’s power to act as mediator with the parties’ consent and his/her power to continue as arbitrator subsequently to the mediation, (iv) enforceability of tribunal orders or directions (and not only awards), (v) HKIAC acting as default arbitrator appointing authority, (vi) the tribunal’s power to make peremptory orders (according to which non-compliance may result in a tribunal direction that the party is not entitled to rely on any allegation or material which was the subject matter of the peremptory order), and (vii) enforceability (since July 2013) of emergency arbitrator relief.

Institutional arbitration in Hong Kong

In addition to ad hoc arbitration conducted under the UNCITRAL Arbitration Rules or under the Arbitration Ordinance only, institutional arbitration is common in Hong Kong. The Hong Kong International Arbitration Centre (HKIAC) (since 1985), the Secretariat of the International Court of Arbitration of the International Chamber of Commerce (ICC) (since 2008) and the China International Economic and Trade Arbitration Commission (CIETAC) (since 2012) all have offices in Hong Kong administering arbitrations. When, in March 2008, the ICC announced its decision to open a branch of the Secretariat in Hong Kong to administer cases in the Asia Pacific Region, the growing importance of the region to ICC dispute resolution services was recognized.

The CIETAC Arbitration Rules of 2015 contain special provisions for arbitrations administered by CIETAC Hong Kong. Unless otherwise agreed, the seat of such arbitrations will be Hong Kong and the Arbitration Ordinance will apply. Importantly, to attract experienced international arbitrators, there are now special provisions on arbitrator fees for CIETAC Hong Kong arbitrations in line with international standards.

Although differences remain, in addition to a common core of fundamental standard rules to similar effect, the ICC Arbitration Rules of 2012, the HKIAC Administered Arbitration Rules of 2013 and the CIETAC Arbitration Rules of 2015 all include provisions on, for instance: (i) emergency arbitrator relief, (ii) initiating a single arbitration under multiple contracts, (iii) joinder of additional parties to an arbitration, (iv) consolidation of arbitrations, and (v) the institution’s jurisdiction when a jurisdictional issue arises before the constitution of the tribunal.

Different from in ICC arbitrations, in HKIAC and CIETAC Hong Kong arbitrations, the parties may choose between arbitrator fees based on the amount in dispute and fees based on hourly rates. In HKIAC arbitrations, when the parties do not agree, hourly rates apply whereas, in CIETAC Hong Kong arbitrations, fees based on the amount in dispute apply absent a contrary agreement. Hourly rates always apply to emergency arbitrator proceedings in both HKIAC and CIETAC proceedings.

Breaking new ground, in 2014 the HKIAC introduced a model arbitration clause which prompts parties to consider designating the law to govern the arbitration clause as distinguished from the law governing the substantive contract.

Given its track record, with a recently revised Arbitration Ordinance and recently revised institutional rules reflecting best modern practice and institutional innovations, Hong Kong remains an attractive seat for international ad hoc and institutional arbitration.

We spoke to Paulo Fohlin, partner and Head of International Arbitration at Magnusson to find out more about the company.

The full service international law firm, Magnusson mainly advises clients doing business across the Baltic Sea Region and China. With some 200 lawyers at 16 offices in 13 countries around the Baltic Sea and in Hong Kong speaking 16 languages, Magnusson is a truly multicultural firm. About 30 Magnusson lawyers across the offices have arbitration experience, representing a valuable asset to Magnusson’s International Arbitration offering. The multicultural team is well placed to act in international commercial arbitration as well as investment treaty arbitration in countries where Magnusson is based and at other places for international arbitration. Their experience covers ad hoc and institutional arbitration between parties from numerous countries conducted at various arbitral seats and under different procedural rules and applicable laws. Some Magnusson lawyers also sit as arbitrators, which adds to the team’s experience and boosts its capabilities when it comes to acting as counsel and advisor.

Please confirm your role and give a brief overview of your responsibilities.

Paulo Fohlin is a partner and Head of International Arbitration at Magnusson. Before joining Magnusson in March 2015 and co-founding Odebjer Fohlin in Hong Kong in 2011, he was a long-standing partner at Vinge. He has acted as court litigator and arbitration counsel for more than 25 years and increasingly also sits as an arbitrator. Admitted to the Swedish Bar (Advokat), a foreign lawyer of Hong Kong Law Society and a Chartered Arbitrator (C.Arb), his dispute resolution experience covers a variety of arbitration rules, arbitral seats and industry sectors, and commercial as well as investment treaty cases.

How do you think Magnusson stands out from competitors?

Magnusson has a strong track record in handling cross-border matters, ranging from day to day advice to complex transactions and disputes. For companies with operations in numerous countries, Magnusson serves as a one-stop-shop provider and manager of legal services. No matter how many countries are involved, Magnusson appoints a senior attorney as one single point of contact coordinating the advice to the client from across its offices. In addition to local language capabilities, Magnusson’s lawyers are familiar with cultural differences which may be of utmost importance when dealing with transactions and disputes.

What have been your biggest and most significant achievements over the past 12 months?

In November 2014, as the first law firm ever, Magnusson won for the third consecutive year the coveted European Law Firm of the Year Award at the British Legal Awards. In March 2015, Magnusson won the award for “Best managed international firm” at The Managing Partners’ Forum Awards for Management Excellence 2015 in association with Harvard Business Review, and the Financial Times. Magnusson is highly ranked by major directories, including Chambers Global 2015, and The Legal 500 EMEA 2015.

What does the future hold for Magnusson? Do you have any plans for the next 12 months?

Magnusson’s recent expansion to Hong Kong focuses on attracting Chinese investments to the Baltic Sea Region and offers strengthened assistance to companies from the region doing business in China. It also boosts Magnusson’s capabilities within international arbitration. Magnusson will continue to eye other markets connected with countries where Magnusson is already present, provided always that a clear business case has to be made out to justify any expansion.

 

Originally published in AI Guide to Arbitration 2015.

Related People: Paulo Fohlin

Related Service Areas: Dispute resolution, International arbitration

Related Countries: Hong Kong / China

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