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Promoting Hong Kong as a mediation and arbitration centre for settlement of transport and logistics disputes in the Greater Bay Area

02.09.2019

Hong Kong’s geographical position and well-established independent legal system brings key advantages for Hong Kong to establish a mediation and arbitration services platform in the Greater Bay Area. The Hong Kong International Arbitration Centre (“HKIAC”), which is one of the more preferred and used arbitral institutions globally, has handled arbitration dispute cases valuing over HK$52.2 billion in 2018 alone.

In 2018, international trade and maritime disputes were among the top three types of disputes registered with the HKIAC, while Hong Kong law and English law were the two most commonly selected governing laws. During the same period, Hong Kong and Mainland China were the top two geographical origin or nationality of parties in these arbitrations. These statistics confirm Hong Kong’s status as a leading centre for international legal and dispute resolution services in the Asia Pacific region.

In recent years, the uncertainty and instability of the global economy, and an increase in protectionism between the world’s largest export states, has led to the Guangdong-Hong Kong-Macao Greater Bay Area (“Greater Bay Area”) playing a bigger role than ever before in global arbitration. Within the Asia Pacific region, the Greater Bay Area features prominently in key propositions of economic development.

However, this increasing prominence is not without its own challenges. Whether it is the mismatch of supply and demand structures or overcapacity, the region is constantly trying to tackle various issues to further develop its constituent economies and effectively support the advancement of China’s Belt and Road Initiative.

Transportation and Logistics in the Greater Bay Area

For a detailed analysis of the Greater Bay Area, please see the article “The Greater Bay Area Initiative – Are You Ready For It?” in the August 2018 edition of the Logistics Newsletter.

The Greater Bay Area was established in July 2017 and consists of the Hong Kong Special Administrative Region (“HKSAR”), the Macao Special Administrative Region (“Macao SAR”), along with nine municipalities in the Guangdong Province. Hong Kong is widely considered the most “international” city in the Greater Bay Area and has long been viewed as a “superconnector” for international companies to access the Mainland market and vice versa.

The Greater Bay Area covers a total area of 56,000 square kilometres, with a combined population of approximately 70 million at the end of 2017. In 2017, the gross domestic product of the Greater Bay Area stood at around RMB 10 trillion. In terms of trade, Hong Kong and the Mainland are each other's major trading partners. The Mainland's share of Hong Kong's global trade has increased significantly from 9.3% in 1978 to 50.2% (HK$4,136.0 billion) in 2017.

It comes as no surprise, therefore, that there is great potential for growth in the transport and logistics industry in the area.

Greater Bay Area and Hong Kong’s status as a leading centre for international legal and dispute resolution services

Over the years, Hong Kong has actively been promoting mediation and arbitration services for the settlement of transport and logistics disputes. These measures include, but are not limited to:

  • the HKIAC, which maintains a panel and list of arbitrators including those with experience in the practice of transport and logistics; and
  • ­a number of offices or arbitration centres that have been set up by various international arbitration commissions, such as the China Maritime Arbitration Commission and the Mainland – Hong Kong Joint Mediation Center. The latter was set up by the China Council for the Promotion of International Trade, in collaboration with the Hong Kong Meditation Centre.

There are many advantages of Hong Kong as a mediation and arbitration centre for the settlement of transport and logistics disputes in the Greater Bay Area. These include but are not limited to, the highly cost effective arbitration services in Hong Kong as well as Hong Kong being arguably the most geographically convenient world city in Asia. Dispute resolution will benefit from the breadth and depth of expertise of Hong Kong based law firms who specialise in these disputes. Parties and practitioners alike can rely on the reputation of the Hong Kong’s legislative framework and arbitration friendly judiciary where judges have good knowledge of maritime and logistics issues.

Hong Kong’s reputation as an arbitration centre was given judicial endorsement in the English High Court case of Shagang South-Asia (HK) Trading Co Ltd v Daewoo Logistic Corporation where the Court recognised 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.”

Current initiatives by the PRC Central Government that contributes to making Hong Kong a mediation and arbitration centre in the Greater Bay Area

Through the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area (Outline Development Plan), published on 18 February 2019, the PRC Central Government announced a development plan to promote and deepen economic development of the region.

The Outline Development Plan has set out a number of measures to benefit the region and promote the development of high-end and high value-added logistics services hub. These measures include:

  • improving the development system of the city cluster and towns to improve the core cities, such as Hong Kong;
  • ­developing quality innovation and technology carriers and platforms;
  • ­building a modern comprehensive transport system;
  • ­developing a system of modern service industries; promoting the development of Hong Kong’s third-party and cold chain logistics, and raising the level of supply chain management;
  • ­increasing the degree of market integration, which includes implementing agreements under the respective Mainland and Hong Kong Closer Economic Partnership Arrangements (“CEPAs”) special liberalisation measures for Hong Kong and Macao with respect to sectors including maritime transport, logistics;
  • ­jointly expand international markets to leverage the advantages of Hong Kong and Macao in international professional services, including ship finance; and
  • ­enhancing the functions of the Shenzhen-Hong Kong Modern Service Industry Cooperation Zone in Qianhai of Shenzhen.

The effects of these measures are far reaching for Hong Kong and stand to boost growth and cooperation of transportation and logistics in and out of Hong Kong. It will also help to refine the mechanism for international commercial dispute resolution and further support Hong Kong’s well-established mediation and arbitration centre.

Future Development

In 2018, the Office of the People’s Government of Guangdong published an opinion on deepening systems innovation in Guangdong. It promoted the development of Guangdong-Hong Kong-Macao partnership and joint venture law firms and encouraged communication between arbitration institutions in the Greater Bay Area. We are likely to see further issuance of opinions of this nature in the future.

The Outline Development Plan and local government programs will further consolidate and enhance Hong Kong’s status as an influential international transport and logistics hub, as well as support Hong Kong’s development of high-end maritime services, such as high value-added freight, ship finance, and reinsurance services.

The current initiatives under the Outline Development Plan and liberalization measures under CEPA for market integration will also enable Hong Kong to leverage its advantages to further strengthen its mediation and arbitration and extend and optimize international service networks. This in turn will support and attract economic and trade activities in the Greater Bay Area. 

The latest Report of the Panel on Administration of Justice and Legal Services to the Legislative Council, issued on 17 July 2019, confirms the Chief Executive’s commitment to promote Hong Kong’s legal and dispute resolution services in the Greater Bay Area. For example, the Chief Executive’s administration has proposals to provide one-off funding support of HK$150 million for the development of an Electronic Business Related Arbitration and Mediation (“eBRAM”) Platform by the non-governmental eBRAM Centre.

The effects of this will no doubt promote Hong Kong as a dispute resolution centre in the region.

One way to cement Hong Kong as a mediation and arbitration centre would be to include Hong Kong as a new venue in standard form dispute resolution clauses. In the latest standard form time charter party issued by The Baltic and International Maritime Council (“BIMCO”), as a default option, Singapore has “SIAC arbitration” written into the standard form. Hong Kong could stand to benefit substantially with Hong Kong as an arbitral venue in standard form transport/logistics contracts. Local transport/logistics groups such as CILTHK, can promote Hong Kong’s reputation as a world class legal service sector by issuing and/or including their own law and jurisdiction clause into the standard forms and encourage their members to incorporate into their contracts.

Conclusion

Notwithstanding the current trading climate, we are likely to see Hong Kong strengthen its judicial and legal exchanges and cooperation with Guangdong and Macao, promoting the development of Hong Kong as a centre for mediation and arbitration of the Greater Bay Area. Hong Kong’s distinctive geographical advantages and well-established legal system will enable Hong Kong to develop joint planning, joint contribution and shared benefits in a region renowned for its highly developed transport and logistics hub.

This article was authored by Matthew Pang, Trainee Solicitor (England & Wales), Hong Kong.