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Speech by the Secretary for Justice


Following is a speech entitled "Effective Arbitration Techniques in a Global Context" delivered by the Secretary for Justice, Ms Elsie Leung, at the Alternative Dispute Resolution in Asia Conference today (September 12):

Distinguished delegates, ladies and gentlemen, I am honoured to give some opening remarks at this important Conference.


Arbitration has established itself as the leading process for resolving international business disputes. It is increasingly chosen as a mechanism in particular types of domestic contracts, such as construction and finance contracts. Several reasons have been advanced for the popularity of arbitration.

In relation to international disputes, arbitration is often seen as being more neutral than litigation. There is no truly international court for the resolution of transnational commercial disputes. Litigation is usually instituted in the courts of the state where either the defendant or the plaintiff resides. This raises the possibility of actual or perceived bias on the part of the court. Arbitration offers the possibility of a neutral panel of adjudicators, and it is no accident that the place often chosen for the arbitration is in a third country.

Another advantage of arbitration is the extent to which arbitral awards can be enforced in other countries. As you know, the New York Convention, which is in force in over 130 countries, provides that each contracting state shall recognise and enforce awards made in those countries. This compares very favourably with court judgments, where enforcement overseas depends generally upon bilateral agreements, and which have less coverage than the New York Convention.

Compared with court judgments, arbitral awards also offer greater finality - since the opportunities for appeals are more limited. And, unlike most court proceedings, arbitral proceedings are not held in public. Businessmen are said to prefer to handle their disputes behind closed doors, so that their contractual arrangements and disputes are not publicised.

Other advantages that are said to be enjoyed by arbitration are the expertise of the arbitrators; the flexibility of the procedures; the speed of the proceedings and their cost-effectiveness. I will return to those aspects a little later.

Other forms of ADR

Other forms of ADR, including mediation and expert determination, have been increasing in popularity in recent years.

I am pleased to say that the Hong Kong Government has helped in the development of mediation in the construction industry. In particular, compulsory mediation was part of a four-stage dispute resolution system in all contracts under the Airport Core Programme. Almost 80% of the major disputes arising under these contracts were settled either by negotiation or mediation at the mediation stage of the process.

Later today, we will be hearing about the use of mediation in family disputes. As you may know, a pilot scheme on family mediation was launched in May 2000, and achieved an 80% success rate in reaching agreements out of court.


The success of arbitration and other forms of ADR should not, however, lead to complacency. Arbitral and other ADR bodies face increasing competition, both domestically and internationally.

In a global context, dispute resolution is a form of service that is subject to competition and market forces, just like other services. The only way to survive is by ensuring that the services offered are as good as, or better than, those of competitors.

Efficient arbitration

Today's conference therefore provides an opportunity for us to explore ways in which arbitration services can be made more competitive. By exploring these services from the perspective of corporate counsel, we can decide whether arbitration is, or is not, as attractive as is often claimed. Let us hear what the consumers of arbitration services have to say.

Research elsewhere throws some light on what consumers think. An American study asked parties to international arbitrations to rank various factors for their importance. Overwhelming relative importance was given to the fairness and justice of the process. Cost, speed, receipt of a monetary award, and arbitrator-expertise achieved a four-way tie for second place. Finality ranked third. And, surprisingly, the privacy of the proceedings was relatively low in the ranking. These findings may suggest ways in which consumers' priorities can be better met.


So far as the justice of the process is concerned, it is important to consider both substantive and procedural justice. Substantive justice means reaching the "right" result. Procedural justice means getting the result in the "right" way. As always, the perceptions of the process are vital. In order for consumers of arbitration services to perceive that the process is fair, it would therefore be helpful to inform them of the essential qualities of the process, as well as the results. The avoidance of legal jargon, and the adoption of more user-friendly procedures, may also help to make the process more transparent and acceptable.

Other studies have identified several features that consistently emerge as influencing perceptions about the fairness of procedures for dispute resolution. They include the neutrality of the decision-maker; the extent to which the decision-maker treats the parties in an evenhanded way, and considers their views and needs; and the extent to which the decision-maker was polite and respectful to the parties. These studies suggest that the procedures adopted by arbitrators play an important part in shaping both the appearance and reality of procedural and substantive justice.


So far as cost is concerned, arbitration can be as expensive, if not more expensive, than litigation. Unlike the parties to court proceedings, the parties to arbitration must bear the cost of the decision-maker, expenses for hiring the hearing rooms, and possibly other expenses. If, in addition, they have legal representation, then arbitration will definitely not be a cheap option.

But legal representation may not be needed, particularly at the early stages of the process. Simple processes, including negotiation and small claims procedures, may help to keep costs down.


According to an Australian study, construction disputes can be resolved by arbitration in approximately three to six months, as compared to the 18 months to three years that resolution by litigation takes. It is clear that informal arbitral procedures can reduce the time involved. Arbitral procedures can be tailored to suit the size, complexity, and nature of the dispute, and the wishes of the parties. The ability to cut corners is an advantage that is not normally available in litigation.

But this flexibility is not always made use of. Some arbitrations are as formal and rule-bound as litigation. If arbitrators are to compete successfully with the courts they would do well to take advantage of the flexibility at their disposal.

Arbitrator expertise

The expertise of the chosen arbitrators is an important attraction of arbitration. This may both reduce the hearing time and increase the perception of procedural and substantive justice.

Where a party to the dispute appoints one of the arbitrators, he can expect at least one arbitrator to understand his perspective, and to ensure that the chairman and other arbitrator are also fully-informed. This may encourage a sense of fairness in that, even if the tribunal decides against that party, it has been made aware of all relevant information.

HKSARG's experience

My comments so far have been based on studies carried out elsewhere. Let me now turn to the local experience, and that of the Hong Kong SAR Government in particular.

The Hong Kong Government has adopted arbitration as its principal method of dispute resolution for public works contracts since the 1960s. From the early 1980s, as the public works programme expanded, the Government has been involved in arbitration proceedings on numerous construction contracts. These cover a wide variety of claims, often with very large amounts of money in dispute. Our experience is that arbitration has proved itself an effective method for resolving construction disputes where the parties have been unable to resolve them by other means.

What makes a good arbitrator? From the Government's perspective, a good arbitrator in construction cases should be judicious and even-handed in the conduct of the proceedings; should ensure that both parties have an equal opportunity to present their respective cases to the best of their ability; be attentive and responsive to the parties' requests as the case progresses; be receptive to constructive proposals for flexibility in the procedure to be adopted; and willing to issue orders and awards at the proper time. This may sound like a tall order. But we have rarely been disappointed on these requirements due to the high quality of the arbitrators appointed in our cases.

As the Government's construction disputes often arise from large and complex civil engineering projects, the factual and expert evidence involved is often highly technical. It is therefore of great assistance to the parties in such disputes to be able to select an arbitrator with specialist knowledge of construction work. This will assist the arbitrator in understanding the issues and securing the respect of the parties.

From a procedural standpoint, one of the benefits of arbitration is that the parties are able to tailor the proceedings to the circumstances of the case. For example, they can split issues and process the evidence in separate tranches, or can appoint expert technical assessors to assist the arbitrator on complex technical issues. In this regard, arbitration procedure offers much more flexibility than court proceedings, and makes the conduct of the proceedings more manageable and cost effective.

Although we have adopted "documents only" references in some smaller cases involving discrete issues, in general our cases involve substantial disputes with legal representation on both sides. Accordingly, our experience of arbitration proceedings is that it tends to be a costly exercise and there is no time-saving compared with Court proceedings. The main benefits in our experience have been the specialist knowledge of the arbitrators and procedural flexibility.

In view of the substantial time and cost incurred in arbitration proceedings, it is desirable that arbitration awards should be accepted by the parties. This is facilitated by the provisions of the Arbitration Ordinance which provide only limited scope for review of arbitration awards. In practice, our experience has been that relatively few cases have been referred to appeal by either party. This reflects the high quality of the awards.

Since the early 1990s, the Government has supplemented its use of arbitration for dispute resolution with other ADR methods, notably mediation. As I mentioned earlier, mediation was part of a four-stage dispute resolution system in all contracts under the Airport Core Programme. It is also used in all major public works contracts. It has proved very effective in reducing the number of claims that proceed to arbitration. The procedures and skills required for mediation are very different from arbitration, but both have an important part to play in facilitating the resolution of construction disputes. The Government's adoption of a multi-stage approach to the resolution of its construction disputes enables these very different methods to complement each other in the dispute resolution process.

Overall, the Government's experience of arbitration and ADR methods for the resolution of construction disputes has been very positive. We have participated actively in such proceedings over many years, and remain committed to do so in the future.


So much for this Corporate Counsel's perspective of ADR. Today's conference provides an excellent opportunity for consumers, other Corporate Counsel, arbitrators and others engaged in dispute resolution to share their experiences. I am sure that this will be to their mutual advantage. It will help to make Hong Kong's arbitration services even more attractive, and will assist in developing Hong Kong as a regional centre for dispute resolution - one of my department's key policies.

Thank you.

End/Thursday, September 12, 2002


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