Arbitration is an alternative dispute resolution. Since litigation is lengthy and costly, Hong Kong courts have been promoting the use of alternative dispute resolution, so that the parties can avoid the burden and stress arising from litigation.
Arbitration, as a method of resolving disputes as an alternative to litigation, is conducted in a private and confidential manner.
Prior to conducting arbitration, the parties usually sign an arbitration agreement in order to submit their disputes to arbitration.
The arbitrator examines the case brought before him and makes a decision in the award based on the evidence submitted by the parties. The award of the arbitrator is final and legally binding just like a court judgment.
An arbitration clause is a clause included in the parties’ contract which provides that any disputes which may arise shall be referred to arbitration. Since arbitration is based on the parties’ agreement to submit their disputes to arbitration, arbitration clauses provide the basis for the jurisdiction of an arbitration tribunal. Arbitration clauses are the most common form of arbitration agreement in the practice of arbitration. Please see Hong Kong Arbitration Society Model Arbitration Clause.
An arbitration agreement is an agreement where the parties unanimously agree to submit their disputes, which have arisen or which may arise, to arbitration. Such an agreement can be entered into before a dispute arises by way of an arbitration clause in a contract, or after a dispute arises by way of a separate agreement made according to the circumstances surrounding that particular dispute. Please see Hong Kong Arbitration Society Model Arbitration Agreement.
Once an arbitration agreement is validly concluded, it is legally binding on the parties. When a dispute arises, the parties can only apply to the arbitration institution specified in the arbitration agreement to have their dispute resolved through arbitration. The parties cannot seek to resolve their dispute through the court, since the court will usually refuse to hear the case and will stay the court proceedings, so as to enforce the arbitration agreement against the party who is unwilling to arbitrate.
An arbitration agreement must be made in writing. Therefore, an arbitration agreement reached orally is not protected legally.
If the parties have not included any arbitration clause in their contract, arbitration can still be conducted, provided that the parties sign an arbitration agreement (this will be in the form of a separate agreement), submitting their dispute to arbitration after a dispute arises. Please see Hong Kong Arbitration Society Model Arbitration Agreement.
The Hong Kong Arbitration Society provides a model arbitration clause to be adopted by the parties to a contract who wish to have any future disputes referred to arbitration in accordance with the Hong Kong Arbitration Society Rules as follows:-
Any dispute or difference arising out of or in connection with this contract shall be referred to and finally determined by arbitration administrated by the Hong Kong Arbitration Society and in accordance with the Hong Kong Arbitration Society Rules for the time being in force.
Mediation is a voluntary process where an impartial mediator facilitates the reaching of a settlement between the parties, resulting in a win-win situation.
Arbitration is a judgment-based process which results in one party ‘winning’ and the other ‘losing’. The parties agree on an arbitrator who hears and decides their dispute and makes an award. An award made by an arbitrator is enforceable.
Arbitration is conducted in private, where the parties choose an arbitrator who hears and decides their dispute and makes an award. On the other hand, litigation is conducted openly in court and is heard by a judge. Besides, arbitration is quicker and cheaper than litigation. An arbitral award is easier to enforce internationally than a court judgment.
With the main objective of promoting the resolution of disputes by arbitration in a more efficient and cost-effective manner than litigation and traditional arbitration, the Hong Kong Arbitration Society has developed the HKAS Rules which govern the conduct of efficient arbitration.
Under the HKAS Rules, the arbitration fees, which include the arbitrator’s fees, are fixed based on the amount in dispute. There is a fixed schedule for arbitration proceedings and the arbitrator generally renders an award within three months from the start of the arbitration proceedings. The hearing is limited to one day and there is a fixed schedule on the day of the hearing.
According to the Hong Kong Arbitration Society Rules, there is a fixed schedule for arbitration proceedings and the arbitrator generally renders an award within three months from the start of the arbitration proceedings. The hearing is limited to one day and there is a fixed schedule on the day of the hearing. On the other hand, litigation in court and traditional arbitration may take a few years. Efficient arbitration under the Hong Kong Arbitration Society Rules is clearly much quicker compared with litigation in court and traditional arbitration.
The costs of litigation in Court and traditional arbitration are expensive and unforeseeable. It may cost a few hundred thousand to a few million dollars to conduct the whole process.
The arbitration fees of efficient arbitration under the Hong Kong Arbitration Society Rules are more affordable and charged on a fixed fee basis.
Furthermore, the winning party of efficient arbitration under the Hong Kong Arbitration Society Rules will be fully refunded its arbitration fees and deposit. On the other hand, the losing party will have to pay only a fixed and predictable sum.
However, the winning party of litigation in Court and traditional arbitration has to go through a costly and lengthy procedure to seek legal costs from the losing party and the losing party has to face a legal costs' bill of an unexpected and unaffordable sum from the winning party.
In principle, the parties are free to agree on the language in which arbitration is conducted. The parties should consider their spoken languages and the languages of any contracts and evidence when doing so in order to agree the language to be used in arbitration.
Arbitration can resolve all kinds of civil disputes except some types of disputes regarding which the court has exclusive jurisdiction, for instance, employment disputes and employees’ compensation claims.
Unlike litigation, where most decisions by the Court become a matter of public record, disputes decided by arbitration remain private and confidential and are not disclosed to any third parties. Arbitration hearings are also confidential and the media and members of the public are not able to attend hearings conducted in the course of arbitration.
Arbitration is different from litigation in that arbitral awards are final and not subject to appeal. Although the losing party can apply for refusal of enforcement or the setting aside of the arbitral award, the grounds for the refusal of enforcement or the setting aside of the arbitral award are usually limited to procedural or other technical issues, for instance, lack of jurisdiction, improper constitution of the tribunal or arbitral procedure not in accordance with the arbitration agreement. However, the reasons and the basis for the arbitral awards are not factors to be considered.
According to the New York Convention, a Hong Kong arbitral award can be enforced in other contracting states of the Convention. Besides, according to the “Arrangement concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region” and “Arrangement concerning Reciprocal Recognition and Enforcement of Arbitral Awards between the Hong Kong Special Administrative Region and the Macao Special Administrative Region”, arbitral awards made in Hong Kong shall be enforced and recognised by Mainland courts and Macau courts respectively.