Parties to commercial litigation in the Hong Kong Court of First Instance (CFI) have been facing prolonged waiting times for their trials. The situation was exacerbated as a consequence of the “General Adjournment Period” (GAP) from 29 January to 3 May 2020, during which the CFI was closed for ordinary court business due to COVID-19. The GAP and a continuing impact of COVID-19 may mean increased trial waiting times as courts try to clear their backlog.
Parties who are embroiled in commercial litigation may wish to resolve their dispute more promptly and move forward in these difficult times. This article discusses the option of removing the case from the CFI and resolving it by arbitration, and how this conversion can be done.
What it means for litigants
Trial dates in the CFI are usually fixed when the case is ready and set down for trial. At that point, parties may still have to wait between one and two years for their day in court, depending on the length of the trial. Trials originally scheduled to take place during the GAP were adjourned to a new date to be fixed. Although the GAP has come to an end, we expect an increased backlog of trials and even longer trial waiting times. Unlike certain other court hearings, the Judiciary currently does not consider trials suitable for being conducted via video-conferencing.
In some cases, arbitration may be a suitable alternative to continuing with the CFI litigation. One of the key advantages of arbitration is its flexibility. First, scheduling is generally at the parties’ and arbitrators’ convenience, and they can agree on how hearings are to be conducted. While most aspects of commercial arbitrations have already been conducted paperless for some time, hearings on the merits are now increasingly conducted virtually as a result of the COVID-19 pandemic. Second, unlike in court proceedings parties can choose from a large pool of arbitrators and appoint arbitrators who are available to complete the arbitration within the envisaged timeframe.
Converting a court case into an arbitration may be suitable where the proceedings are at an advanced stage (e.g., where the case is ready to be set down for trial), but it is also possible to convert cases that are at an earlier stage provided the parties can agree on all necessary modalities.
Points to consider for converting cases into arbitration
Since arbitration is based on party agreement, a court case cannot be converted into an arbitration without agreement from all parties involved. The following aspects will inform a party’s decision of whether it is worthwhile to pursue this option:
- The parties must have a common desire for a speedy trial and resolving their dispute without further delay. A defendant who considers delay as a welcome development (e.g., it can provide leverage for settlement negotiations), is unlikely to agree. Conversely, a defendant in pursuit of a counterclaim or who is at an increasing risk that an important witness is no longer available, may be open to explore this option.
- The dispute must be capable of being resolved by arbitration; this is the case for all commercial disputes that are capable of settlement by the parties.
- Arbitral awards are only binding between the parties and do not establish binding legal precedent for future proceedings. For example, arbitration may not be an option for a plaintiff litigating over certain clauses in its standard terms where the plaintiff seeks to obtain a favourable court judgment so that it does not have to re-litigate disputes over the same terms with other parties.
While Hong Kong court judgments are not directly enforceable in many major trading hubs (e.g., US, UK, Japan and Indonesia), Hong Kong awards are enforceable in more than 160 jurisdictions through the New York Convention as well as in Mainland China (through a separate arrangement) and Taiwan (based on reciprocity). Defendants with assets in jurisdictions where it may be difficult to enforce a court judgment need to consider any increased enforcement exposure of their foreign assets before agreeing to arbitration.
Factors on which the parties will have to agree
Parties will have to enter into a written arbitration agreement by which they remove a specific dispute from the CFI and refer it to arbitration. Parties will have to discuss and agree in the arbitration agreement, among other things, the following aspects:
- The termination of the court proceedings.
- The seat of arbitration (e.g., Hong Kong) and the language of the proceedings.
- The administering institution (unless the parties prefer non-administered proceedings) and arbitration rules, which provisions of the rules will apply and whether the rules need to be supplemented.
- How many arbitrators (one or three).
- How the pleadings and other steps taken in the court proceedings (e.g., witness statements, exert reports) will be dealt with in the arbitration.
- Whether the proceedings will be confidential.
- Whether or not the tribunal is entitled to conduct the merits hearing virtually if an in‑person hearing is not possible. To facilitate identifying available arbitrators, parties should also consider how many days they require for the merits hearing and when they can be ready.
- Whether to increase the extent of court supervision over the award. While as a default, there is no appeal against awards in Hong Kong, parties can specifically agree on a right to appeal against an award on a question of law and/or challenge it on a ground of serious irregularity.
- How costs are to be dealt with. This concerns existing costs orders as well as how the tribunal shall deal with costs in the arbitration (e.g., whether costs shall follow the event or the tribunal may apportion all or part of the costs). Parties should also consider how the tribunal shall deal with any existing settlement offers (e.g., Calderbank offers) as well as sanctioned offers or payments.
Parties can consult with counsel on how to achieve an agreement with the other party or parties on a conversion of their CFI proceedings into an arbitration.