Litigation vs Arbitration in Hong Kong

Hong Kong has long been recognised as one of the world’s foremost hubs for resolving disputes, offering a sophisticated legal framework, a highly respected judiciary, and a deep pool of legal and arbitration professionals. However, for parties navigating commercial disputes, a critical question often arises: should they opt for litigation or arbitration? The decision can have far-reaching implications for cost, confidentiality, enforceability, and the overall strategy of resolving the dispute.

To explore this issue in depth, we spoke with Jonathan Gray, a highly experienced dispute resolution lawyer with over two decades of practice in Hong Kong. In this interview, Jonathan addresses the nuances of litigation and arbitration, the unique advantages of each, and the practical considerations businesses should bear in mind when choosing between the two.

Q1. How would you describe the current state of dispute resolution in Hong Kong?

Hong Kong remains one of the leading jurisdictions for resolving disputes globally, both through litigation and arbitration. The city’s arbitration framework is modern, flexible, and governed by the Arbitration Ordinance (Cap. 609), which is closely aligned with the UNCITRAL Model Law. This ensures that arbitration proceedings in Hong Kong are efficient and consistent with international standards.

At the same time, Hong Kong’s judiciary is widely regarded as one of the most independent and effective in the world. Its common law system, supported by a vast body of legal precedent, provides a high degree of certainty and predictability for those who choose to litigate their disputes.

In recent years, arbitration has grown in prominence, particularly for cross-border disputes involving Mainland China. The Arrangement on Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings has proved to be a game-changer, as it allows parties to Hong Kong-seated arbitrations to apply for asset preservation orders and other interim relief from Mainland Chinese courts. This is an advantage not available to arbitrations seated in other jurisdictions. Despite this, litigation still retains a central role, especially for disputes with a purely domestic focus or where parties seek the benefits of a public and binding court judgment.

Q2. What advantages does arbitration offer over litigation in Hong Kong?

Arbitration offers several distinct advantages that make it highly attractive, particularly for international disputes. One of the most significant benefits is the enforceability of arbitral awards. Hong Kong is a signatory to the New York Convention, which facilitates the recognition and enforcement of arbitral awards in over 170 countries. This makes arbitration a preferred choice for disputes involving parties or assets located in multiple jurisdictions or jurisdictions where the enforcement of court judgments may be less straightforward.

Another key advantage is confidentiality. Unlike litigation, which is conducted in open court and results in public judgments, arbitration proceedings are private and are usually (subject to some exceptions) confidential. This means that sensitive commercial information, trade secrets, or reputational concerns usually remain protected from public scrutiny.

Arbitration also allows for a degree of flexibility that litigation cannot provide. Parties can tailor the process to suit their needs, from selecting arbitrators with specialised expertise to setting procedural timelines and choosing the governing law. Moreover, arbitration can provide a neutral forum, which can be particularly important in disputes involving parties from different jurisdictions, as it avoids perceptions of bias that can arise in a party’s home court.

Q3. Are there circumstances where litigation would be the better option?

Absolutely. Litigation retains several advantages that make it the preferred option in certain scenarios. One of its key strengths lies in the development of legal precedent. Court judgments in Hong Kong contribute to the body of common law, providing clarity and guidance for future cases. This is particularly valuable for businesses seeking certainty in their legal dealings or who are looking for a legal precedent that can be followed in similar cases.

Another critical factor is the availability of a comprehensive appeal mechanism. Unlike arbitration, where awards are generally final and only subject to limited grounds of challenge, litigation provides multiple levels of appeal. This allows parties to seek redress if they believe a decision is flawed.

While arbitration generally still tends to be faster and more efficient than litigation, in some cases, e.g. where the claiming party might wish to obtain default judgment against a defendant party who is not participating in the proceedings or summary judgment where the defendant party has a very weak or no real defence, litigation can be more cost-effective and faster than arbitration.  The Hong Kong courts are also equipped with robust case management powers that promote efficiency.

A further advantage of litigation is that the judiciary has stronger coercive powers than arbitral tribunals, such as the ability to compel third-party evidence, join additional parties to proceedings, and enforce interim measures. These powers can be crucial in complex cases where extensive fact-finding is required.

Q4. What types of disputes are best suited for arbitration?

Arbitration is particularly well-suited for disputes that involve international parties, especially where enforcement across borders is a key consideration. For instance, in cases involving jurisdictions that are signatories to the New York Convention, arbitration provides a clear pathway for enforcing awards overseas.

Disputes requiring specialised knowledge also lend themselves to arbitration. For example, cases in sectors such as construction, energy, or intellectual property often benefit from arbitrators with technical expertise, which ensures informed and accurate decision-making.

Additionally, arbitration is ideal for disputes where confidentiality is of paramount importance. Businesses aiming to protect sensitive information — whether it concerns proprietary technology, financial arrangements, or reputational matters — often prefer arbitration to litigation.

Q5. Hong Kong and Singapore are often compared as arbitration hubs. How does Hong Kong stand out?

Both Hong Kong and Singapore are recognised as leading arbitration centres, and each has its strengths. However, Hong Kong’s integration with Mainland China gives it a distinct edge in certain respects. The Arrangement on Mutual Assistance in Interim Measures allows parties to Hong Kong-seated arbitrations to secure asset preservation and other forms of interim relief from Mainland Chinese courts. This is a unique advantage that Singapore does not offer.

Moreover, Hong Kong’s judiciary has an exceptional track record of supporting arbitration. The courts are well-versed in enforcing arbitration agreements and awards, and they adopt a pro-arbitration stance that is aligned with international best practices.

From a practical perspective, Hong Kong’s geographic location and long-standing ties with Mainland China and North Asia make it a natural choice for disputes involving parties in the region. The city also boasts a deep pool of arbitration practitioners and institutions, ensuring a high standard of service.

Q6. What challenges do parties face when choosing arbitration over litigation?

One of the most common challenges is the perception that arbitration is always faster and cheaper. While arbitration can indeed be efficient, it is not inherently less expensive. Tribunal fees, administrative costs, and the need for specialised legal representation can result in significant expenses. Parties must carefully assess whether arbitration will deliver the cost and time savings they expect.

Another challenge is the limited scope for appealing arbitral awards. Once an award is issued, it is generally final, with only narrow grounds for challenge, such as procedural irregularities or issues of public policy. This lack of recourse can be a disadvantage for parties dissatisfied with the outcome.

Additionally, arbitration lacks the coercive powers of the judiciary. For instance, arbitral tribunals cannot compel third parties to produce evidence or join proceedings. This is a drawback in cases where such evidence is critical to resolving the dispute.

Q7. How does mediation fit into Hong Kong’s dispute resolution landscape?

Mediation has become an integral part of dispute resolution in Hong Kong. The courts actively encourage parties to attempt mediation before proceeding with litigation, and failure to do so can result in adverse cost orders. This reflects the judiciary’s commitment to promoting amicable settlements.

In arbitration, mediation can also play a complementary role. Mediation is particularly valuable for preserving business relationships, as it focuses on achieving mutually beneficial outcomes rather than adversarial judgments.

Q8. What final advice would you give to businesses deciding between litigation and arbitration?

The choice between litigation and arbitration should be guided by the specific needs of the case. Businesses should consider factors such as the location of the parties and assets, the importance of confidentiality, the complexity of the dispute, and the need for enforceable outcomes across borders.

It is also essential to ensure that dispute resolution clauses in contracts are carefully drafted. Poorly worded clauses can lead to unnecessary complications, delays, and costs. Seeking professional advice at the contract drafting stage can save significant headaches and expense later on.

Ultimately, both litigation and arbitration have their strengths. The key is to select the forum that best aligns with the priorities of the business and the nature of the dispute.

The choice between litigation and arbitration in Hong Kong is not a matter of one being inherently superior to the other but rather a question of what best suits the context of the dispute. With its robust legal framework, world-class professionals, and integration with Mainland China, Hong Kong remains a premier destination for resolving disputes, whether through the courts or arbitration.

For businesses, understanding the nuances of these two options is critical to achieving favourable outcomes and managing risks effectively.