Efficient Resolution of Cross-Border Disputes: Arbitration Procedures and Cost Control Strategies of the Hong Kong International Arbitration Centre (HKIAC)
Estimated reading time: 15 minutes
CONTENTS
I. Why Choose International Arbitration Over Litigation?
II. HKIAC Arbitration Procedures
III. HKIAC Arbitration Costs
V. Relationship Between the Five Procedures
VI. Conclusion
Preface
Driven by globalization, cross-border commercial activities have become increasingly frequent, leading to a growing demand for dispute resolution. Arbitration, with its flexibility, confidentiality, and professionalism, has emerged as the preferred mechanism for resolving international commercial disputes, gaining favor among more and more enterprises. The Hong Kong International Arbitration Centre (HKIAC)，as one of Asia's leading arbitration institutions, has earned a high global reputation for its efficient, impartial, and professional services.
This article will delve into the arbitration process, analyzing key stages from the initiation of a case, the appointment of arbitrators, to the enforcement of awards. It will also focus on strategies for effectively controlling costs during arbitration, including time management, budget planning, and strategic choices, aiming to provide basic knowledge and an overview of international arbitration for overseas enterprises.
In the complex context of cross-border dispute resolution, mastering arbitration procedures and cost control strategies is crucial for enterprises. This not only affects the rapid and effective resolution of disputes but also directly impacts an enterprise's financial health and market competitiveness. It is hoped that the analysis and recommendations in this article will help enterprises respond to cross-border disputes more calmly and efficiently.
I. Why Choose International Arbitration Over Litigation?
In today's global business environment, disputes faced by enterprises often cross national borders, involving different legal systems and cultural backgrounds. In such contexts, choosing international arbitration over litigation has become the preferred option for more enterprises.
Firstly, international arbitration is more flexible and efficient. Compared with litigation procedures, arbitration proceedings are generally faster, saving parties valuable time and resources. The confidentiality of arbitration is another key advantage: arbitration processes and awards are typically not made public, which helps protect trade secrets and business reputations—particularly critical for disputes involving sensitive commercial information.
Secondly, arbitration offers stronger international enforceability. Despite China's growing economic strength, making parties more inclined to litigate through Chinese courts during investment negotiations, judgments from Chinese courts often face challenges in international recognition and enforcement. Even if a favorable judgment is obtained from a Chinese court, it may be difficult to enforce in most countries, leading to the predicament of being unable to seize the opposing party's assets. In contrast, arbitration awards, benefiting from the widespread application of the New York Convention, can be conveniently recognized and enforced internationally. The Convention provides a unified legal framework for the international recognition and enforcement of arbitration awards, ensuring mutual recognition and enforcement among over 150 contracting states. This greatly facilitates cross-border enforcement, reducing legal obstacles and uncertainties. Therefore, in cross-border investment and financing cases, stipulating arbitration as the dispute resolution clause is more prudent, helping to ensure the smooth enforcement of arbitration awards.
Finally, in international commercial dispute resolution, choosing a fair and efficient arbitration institution is crucial. Take Southeast Asian countries as an example: inadequate legal systems, political instability, and rampant corruption may undermine the fairness and efficiency of dispute resolution. In contrast, the Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC) have earned high international repute due to the sophistication and neutrality of their arbitration rules. Thus, after multi-party negotiations, parties often prefer to agree on dispute resolution in Hong Kong or Singapore. Globally, HKIAC and SIAC are widely regarded as the preferred platforms for resolving international commercial disputes due to their excellent services and professional standards.
In summary, international arbitration demonstrates obvious advantages in resolving cross-border disputes with its flexibility, efficiency, professionalism, and international recognition. While litigation may be an option in some cases, international arbitration provides enterprises with a more efficient, cost-effective, and confidential solution. Therefore, for enterprises seeking a rapid, professional, and international dispute resolution mechanism, international arbitration is undoubtedly a wise choice.
II. HKIAC Arbitration Procedures
The Hong Kong International Arbitration Centre (HKIAC), a renowned international arbitration institution headquartered in Hong Kong, provides efficient and professional dispute resolution services. Its arbitration procedures are as follows:
(1) Initiation of Arbitration
The claimant initiating arbitration sends a Notice of Arbitration to HKIAC. The arbitration proceedings commence on the date HKIAC receives the notice. The notice must include basic information about the dispute, such as the nature and amount of the claim, the arbitration agreement, the names and contact details of the parties, and a registration fee of HKD 8,000 must be paid to HKIAC.
(2) Appointment of Arbitrators
The number of arbitrators is usually agreed upon by the parties in the arbitration clause or after the dispute arises. If no agreement is reached, HKIAC will decide whether to appoint one or three arbitrators. For three arbitrators, each party appoints one, and the two appointed arbitrators nominate the presiding arbitrator; for a sole arbitrator, the parties jointly nominate. If nomination fails, HKIAC will make the appointment.
(3) Hearing
Proceedings may be conducted either in writing or through oral hearings. HKIAC arbitration does not require a hearing; the parties may agree or the arbitral tribunal may decide to proceed based solely on written submissions. If a hearing is held, the arbitral tribunal must ensure each party has the opportunity to present its case. HKIAC hearing procedures primarily include three stages: opening statements, cross-examination of witnesses, and closing submissions, similar to common law trial procedures.
(4) Award
HKIAC rules do not specify a specific time limit for rendering an award. For applications under the summary procedure, HKIAC has the authority to shorten the arbitration timeline, with an award typically rendered within 6 months in principle. The timeline may be extended if the opposing party files a counterclaim.
(5) Challenges to the Award
If there are objections to the arbitration award—such as lack of jurisdiction by the arbitral tribunal, improper composition of the tribunal, or procedural non-compliance with party agreements—the award may be set aside. A request to set aside the award must be filed within 3 months of receiving the award. Specific grounds for setting aside an award are detailed in Section 81 of the Hong Kong Arbitration Ordinance.
(6) Enforcement of the Award
The New York Convention has applied to Hong Kong since 1977 through the United Kingdom's accession. After Hong Kong's reunification, the Chinese government confirmed that the New York Convention continues to apply to Hong Kong. Therefore, awards rendered by HKIAC can be enforced in New York Conventionmember states.
III. HKIAC Arbitration Costs
Arbitration costs include expenses incurred by the parties in the arbitration (e.g., fees for lawyers and other professionals), arbitrators' remuneration, fees paid to the arbitration institution, and other expenses arising during the proceedings.
(1) Arbitration Institution Fees
1. Registration Fee: HKD 8,000, non-refundable;
2. Administration Fee: Maximum fees are set based on the amount in dispute. Specific fee scales refer to the table below.
3. Other expenses, such as arbitration room rental fees, travel expenses, and communication costs.
The administrative fees of HKIAC are calculated according to the following standards:
(2) Arbitrators' Remuneration
Parties may choose between two fee calculation methods: on an hourly basis or based on the amount in dispute. If no choice is made, the hourly rate shall apply.
The maximum hourly rate for arbitrators under the hourly fee arrangement is HKD 6,500; for fees based on the amount in dispute, a progressive rate on a sliding scale shall apply, with specific fee scales referred to in the table below.
(3) Legal Fees
Determined based on the legal service quotations of different law firms.
IV. How to Reduce Costs in Arbitration Proceedings
(1) Opting for Documentary Proceedings Instead of Oral Hearings
Is a hearing mandatory in arbitration? The answer is no. Pursuant to Article 22.4 of the 2024 HKIAC Administered Arbitration Rules (hereinafter referred to as the "HKIAC Rules"), the parties may agree or the arbitral tribunal may decide to adopt documentary proceedings, where the tribunal renders an award based solely on the written submissions and statements provided by the parties.
Choosing documentary proceedings over oral hearings can save costs in certain circumstances, mainly for the following reasons:
1. Saving time costs. Documentary proceedings are generally more concise and efficient than oral hearings. In documentary proceedings, parties can present their arguments through written documents and evidence without attending an actual hearing. In contrast, oral hearings require scheduling time, preparing venues, convening parties and lawyers, etc., which incur higher time and labor costs.
2. Reducing legal fees. Oral hearings require lawyers to attend, which increases their time and labor costs, as well as travel and accommodation expenses. In documentary proceedings, lawyers primarily focus on preparing written documents and statements, allowing for more efficient use of time and thus reducing legal fees.
3. Avoiding hearing-related expenses. Oral hearings involve costs such as court rental fees, salaries of judges and court staff, and equipment rental fees, which increase the overall cost of the case. Most of these expenses can be avoided in documentary proceedings.
It should be noted that not all cases are suitable for documentary proceedings. Some cases may require oral hearings to better examine facts, hear witness testimonies, or conduct debates. Therefore, when deciding whether to adopt documentary proceedings, the arbitral tribunal must consider the specific circumstances of the case, the parties' opinions, and the principle of fair trial.
(2) Choosing a Sole Arbitrator Instead of Three Arbitrators
Opting for a sole arbitrator instead of three can reduce arbitration costs. The total hourly fees for three arbitrators would be significantly high. To save costs, in practice, parties may negotiate with the opposing party to apply to HKIAC for a sole arbitrator. Additionally, even if the arbitration clause stipulates three arbitrators, parties may 协商 or, pursuant to Article 42.2 of the HKIAC Rules on summary procedures, choose a sole arbitrator. Its advantages include:
1. Reducing arbitrators' remuneration. Appointing a sole arbitrator rather than three significantly reduces arbitrators' remuneration. Each additional arbitrator incurs extra arbitration fees, as well as potential travel and accommodation expenses.
2. Simplifying procedures. During arbitration, multiple arbitrators may have differing opinions on factual, evidential, or legal issues, leading to prolonged debates and extended hearing cycles. A sole arbitrator can simplify procedures and reduce time and labor costs arising from divergent views.
3. Lowering coordination costs and improving efficiency. With multiple arbitrators, coordinating their schedules, arranging hearing dates, and handling other procedural matters involve more communication and coordination, potentially increasing administrative costs. A sole arbitrator avoids such additional coordination costs.
Although choosing a sole arbitrator may reduce costs, consideration must still be given to the complexity of the case, the nature of the dispute, and the parties' preferences. Some cases may require multiple arbitrators to ensure fairness and thoroughness, especially those involving complex legal, technical, or commercial issues. Therefore, when determining the specific setup of arbitration proceedings, factors such as cost, efficiency, and fairness must be comprehensively weighed.
(3) Choosing the Summary Procedure
Pursuant to Article 42.1 of the HKIAC Rules and the Short Form Arbitration Rules, the summary procedure applies to cases where the amount in dispute does not exceed HKD 25 million, or where both parties agree to its application, or in case of emergency. Under the above circumstances, a party may apply to HKIAC for the summary procedure before the arbitral tribunal is constituted. Cases under the summary procedure shall, in principle, be heard by a sole arbitrator unless otherwise agreed in the arbitration agreement. HKIAC has the authority to shorten the arbitration timeline based on the specific circumstances of the case, and an award shall, in principle, be rendered within 6 months.
Opting for the summary procedure in HKIAC arbitration can effectively save costs, including:
1. Reducing arbitration fees. The summary procedure involves fewer procedural steps and a shorter processing time, resulting in lower arbitration fees. Compared to the standard procedure, the summary procedure is more cost-effective, particularly suitable for small-value or simple disputes.
2. Cutting legal fees and time costs. The summary procedure is more streamlined and efficient, reducing the time and effort lawyers need to invest. Pursuant to Article 16 of the Short Form Arbitration Rules, the arbitrator shall use best efforts to render an award within one month after the hearing; for documentary proceedings, the arbitrator shall render an award within one month after receiving the last submission or holding an informal hearing. Unless otherwise agreed, the arbitrator shall provide a concise and reasoned written award. This reduces procedural steps and document preparation, thereby lowering legal fees.
3. Reducing other expenses. The summary procedure, through streamlined processes, effectively lowers costs such as document submission, witness summoning, and hearing arrangements. Pursuant to Article 3 of the Short Form Arbitration Rules, unless the arbitrator deems a preliminary meeting necessary, all procedural matters, in the absence of agreement between the parties, shall be resolved through instructions set by the arbitrator in communications. This reduces the need for hearings and thus lowers related expenses.
(4) Choosing the Small Claims Procedure
The HKIAC Small Claims Procedure is primarily designed to handle low-value shipping disputes, such as small claims for unpaid charter fees without complex issues, where no oral evidence from witnesses is required. It also applies to non-maritime disputes, such as small claims arising from quality or quantity issues in commodity transactions. Pursuant to HKIAC's Small Claims and 'Documents Only' Procedures, the Small Claims Procedure applies to arbitration cases where the amount of the claim or counterclaim does not exceed USD 50,000. It does not apply to cases involving complex issues or requiring witness examination but may apply to larger claims involving a single issue.
The Small Claims Procedure may be pre-agreed in contract clauses or adopted by the parties' consent after a dispute arises. The advantages of choosing the HKIAC Small Claims Procedure include:
1. Reducing arbitration fees. HKIAC has set specific limits for the Small Claims Procedure, significantly reducing fees paid by parties to arbitrators and recoverable costs by the successful party. Specifically, the claimant shall pay a fixed "small claims fee" of HKD 15,000 to the arbitrator (Clause 3(b)), and recoverable costs assessed by the arbitrator on a "commercial basis" shall not exceed HKD 30,000 (Clause 8).
2. Enhancing efficiency. The Small Claims Procedure adopts a specially simplified process, significantly improving efficiency. It uses a sole arbitrator (Clause 2(a)) and requires the respondent to submit a defense and counterclaim within 28 days (Clause 5(a)). This streamlined process means shorter case handling times, enabling parties to resolve disputes and obtain final awards more quickly, thus avoiding prolonged uncertainty and delays.
It is particularly important to note that by adopting the Small Claims Procedure, parties are deemed to have waived all rights to appeal to the court (Clause 4).
(5) Choosing Arbitration Consolidation
Arbitration consolidation refers to merging two or more separate arbitration proceedings into a single proceeding for hearing.
Pursuant to Article 28 of the HKIAC Rules, arbitration consolidation is subject to the following conditions:
a. The two or more arbitration proceedings involve the same parties;
b. The different proceedings involve identical legal and factual issues;
c. All parties must consent to consolidation, which may be explicitly agreed in the original arbitration agreement or reached after a dispute arises;
d. Consolidation must comply with the laws of the seat of arbitration and the HKIAC Rules.
The cost-saving benefits of choosing arbitration consolidation include:
1. Reducing procedural fees. Pursuant to the HKIAC Rules, certain fees such as arbitration fees and tribunal fees are paid only once, avoiding duplicate payments in multiple proceedings and effectively lowering the overall cost of arbitration.
2. Cutting administrative costs. For arbitration institutions, managing multiple proceedings may require more human resources and time. Consolidation reduces administrative complexity and lowers the institution's management costs, thereby indirectly reducing arbitration fees.
3. Simplifying evidence and procedures. Parties and the arbitral tribunal only need to prepare and submit evidence once, and examine relevant facts and legal issues once, saving significant time and effort and reducing related costs.
It should be noted that arbitration consolidation has stricter application conditions compared to other procedures. Therefore, parties should fully assess its applicability when considering consolidation.
V. Relationship Between the Five Procedures
Documentary proceedings, summary procedure, sole arbitrator, small claims procedure, and arbitration consolidation are common mechanisms in international arbitration to enhance efficiency and reduce costs.
There is no absolute exclusionary relationship between these mechanisms; instead, they are applied flexibly based on the specific circumstances of the case and the parties' agreement. For example, the summary procedure is designed to handle cases with clear facts, distinct disputed issues, and simple legal questions. In such cases, if parties believe no oral hearing is needed, they may choose documentary proceedings to save time and reduce costs. This combination of summary procedure and documentary proceedings is particularly suitable for small-value disputes. The use of a sole arbitrator further enhances the efficiency of the summary procedure and small claims procedure. Since a sole arbitrator can make decisions more quickly without consulting others, this significantly accelerates the hearing process and reduces costs. The consolidation mechanism can play a role in multiple cases involving the same parties or overlapping legal and factual issues; if the consolidated case still meets the applicable conditions, documentary proceedings or summary procedure may be adopted to improve the efficiency of the entire consolidated process.
When choosing which procedure or mechanism to apply, parties should consider the nature of the dispute, expected hearing duration, budget constraints, and desired procedural fairness and transparency. The selection of arbitration procedures involves multi-faceted considerations, requiring close cooperation and communication between parties, arbitrators, and the arbitration institution. By wisely selecting and combining different procedural features, parties can ensure that the arbitration process is both fair and efficient, meeting their needs for dispute resolution.
VI. Conclusion
Through the above analysis, this article aims to provide a guide for overseas enterprises on achieving cost-effectiveness and efficient dispute resolution in international arbitration. However, it should be noted that whether to choose litigation or arbitration requires careful consideration based on specific circumstances. Each dispute resolution mechanism has its unique advantages and limitations. When making a decision, parties should comprehensively consider the nature of the dispute, their expectations, cost-effectiveness, and potential consequences of arbitration or litigation proceedings.
As Chinese enterprises continue to expand their international horizons under the Belt and Road Initiative, we hope to see more enterprises utilize arbitration as a powerful dispute resolution mechanism to safeguard their interests in the global market. Meanwhile, we encourage enterprises to consider not only immediate interests but also long-term strategic goals and corporate reputation when facing disputes.
Table 1: HKIAC 2024 Administered Arbitration Fee Schedule
Table 2: HKIAC Administrative Fee Calculation Standards (2024 Rules)
Table 3: Calculation Standards for Arbitrators’ Remuneration (Based on the Amount in Dispute)
(Interns Yang Yunyao, Jin Weijia, and Zhu Qianqian also contributed to this article)
RitaLiu
Liu Xueqi, Practicing Lawyer, Beijing Deheng (Xiamen) Law Firm
Her main practice areas include cross-border investment, trade and shipping, mining, and international arbitration, covering New BRICS member states, African countries, and other regions. She is a Council Member of the China Law Society Sports Law Research Association, a Student of the Singapore International Arbitration Centre (SIAC), Secretary-General of the Foreign-related Legal Professional Committee of Deheng Xiamen, and holds the Qualification of Board Secretary issued by the Ministry of Human Resources and Social Security of China.
Editor | Lu Yiting
Reviewer | Liu Xueqi