C. Advantages and disadvantages of arbitration

C. Advantages and disadvantages of arbitration 

Advantages 

(i) Confidentiality and privacy 

Unlike court proceedings, which are typically public, arbitration is a private process. Section 18 of the Arbitration Ordinance (Cap. 609) imposes a statutory duty of confidentiality, prohibiting parties from disclosing information relating to the proceedings or the award unless agreed otherwise or required by specific exceptions (such as protecting a legal right). Furthermore, arbitration-related court hearings in Hong Kong are, by default, heard otherwise than in open court. 

(ii) Neutrality 

Arbitration allows parties to avoid the potential “home-court advantage” of a counterparty’s national legal system by choosing a neutral seat and an independent tribunal. 

(iii) Enforceability 

Arbitral awards are often more easily enforced internationally than court judgments. Under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which applies to Hong Kong, over 170 contracting states are obliged to recognize and enforce foreign arbitral awards. In Hong Kong, an award is enforceable in the same manner as a judgment of the court with the leave of the Court of First Instance of the High Court. 

(iv) Finality 

One of the most significant differences from litigation is the absence of a general right of appeal on the merits. The court’s role is restricted and supportive, generally only intervening to provide assistance (such as granting interim measures) or to set aside an award on very narrow grounds, such as lack of a valid agreement or serious procedural injustice. 

Disadvantages 

(i) Costs 

A significant weakness of arbitration is that it can be as expensive as litigation, and sometimes more so. Unlike litigation, where the judge and court facilities are a public expense, parties in arbitration must pay the arbitrator’s fees and the costs of hiring a hearing venue and related support services, such as interpreters. Additionally, arbitration may involve high legal costs if the parties adopt complex, court-style pleadings and lengthy oral hearings. 

(ii) Inability to bind third parties 

Because arbitration is founded on a consensual agreement, the tribunal’s authority is generally limited to the parties to that agreement. This means that a tribunal usually cannot make orders that bind third parties, such as joining them to the proceedings or ordering them to produce evidence, without their consent. In complex commercial projects involving multiple contractors and sub-contractors, this can lead to fragmented disputes and the risk of inconsistent decisions. 

(iii) Limited recourse and the risk of error  

The finality of arbitration is a double-edged sword. While it prevents delay, it also means that parties accept the risk of a wrong decision that cannot be readily corrected. Under the standard Hong Kong regime, the court will not review the merits of an award or correct errors of fact or law. Recourse is generally limited to narrow procedural grounds, such as lack of jurisdiction or a violation of public policy. 

(iv) Scheduling and availability 

Highly qualified and experienced arbitrators are often in high demand and may be booked for long periods in advance. This can lead to difficulties in fixing hearing dates acceptable to all parties and tribunal members, potentially causing substantial delays. Such delays can be exacerbated in three-person tribunals where the schedules of three busy professionals must be coordinated. 

(v) Absence of specific remedies and safeguards 

Unlike court proceedings, arbitration may not automatically offer certain procedural safeguards. For example, legal aid is generally unavailable for arbitration, which may be a barrier for parties involved in minor disputes. Furthermore, specific procedures like summary judgment for indisputable claims may not be available unless specifically agreed upon or provided for in the chosen institutional rules. There is also a perceived risk that tribunal secretaries could overstep their administrative role and become “fourth arbitrators”, potentially exerting inappropriate influence on the substantive merits of the case.