Investor–State Arbitration 2025 Comparisons

Investor–state dispute settlement (ISDS) continues to attract significant attention. While the Asia–Pacific historically saw fewer ISDS cases than other regions, recent years have witnessed increased treaty activity that enables foreign investors to bring claims against host states, even as some states have grown more circumspect about potential domestic backlash.

With its mature common law system and strategic location, Hong Kong remains a popular seat and hearing venue for arbitration and is actively enhancing its infrastructure to stay aligned with international trends.

As to policy and position, Hong Kong recognises the importance of ISDS and promotes its availability. Public statements by senior officials have acknowledged the continuing global trend of ISDS and Hong Kong’s readiness to support such cases institutionally. Hong Kong has not adopted a policy of avoiding ISDS obligations, nor has it announced an intention to terminate or withdraw from bilateral investment treaties (BITs) or similar agreements on account of ISDS concerns.

Upon the resumption of sovereignty over Hong Kong on 1 July 1997, China extended the territorial application of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) to Hong Kong, subject to the reservations made by China upon accession to the New York Convention, namely the reciprocity reservation and commercial reservation.

The same applies to the ICSID Convention. In 1997, China notified the United Nations and the World Bank that the ICSID Convention would apply to Hong Kong. In 2022, China designated Hong Kong as a constituent subdivision in accordance with Articles 25(1) and (3) of the ICSID Convention.

Although less relevant from an ISDS perspective, Hong Kong is also a party to the 1965 Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (“Hague Convention”). However, service of documents between Hong Kong and Mainland China or Macau does not proceed under the Hague Convention, and is instead governed by a bilateral arrangement.

China’s continuing investment into Belt and Road region countries is giving rise to an uptick in claims in disputes between Chinese parties and state parties in Africa, Latin America and elsewhere. That said, based on publicly available information, Hong Kong has not been a party to an investor–state arbitration, and there have only been a handful of cases by Hong Kong-incorporated investors against states, a recent example of which is a claim by Shift Energy against Japan brought under the Hong Kong-Japan Bilateral Investment Treaty (BIT). According to publicly available information and our observation, the level of ISDS activity in the APAC region is relatively modest compared to other regions in the world.

There is no sector-specific dataset isolating investor–state arbitrations with a uniquely Hong Kong nexus, likely reflecting the relatively limited number of cases involving Hong Kong to date.

Perhaps the best-known investor–state arbitration involving a Hong Kong claimant is Philip Morris Asia Limited v The Commonwealth of Australia (PCA Case No 2012-12), a matter in which a Singapore-seated arbitral tribunal declined jurisdiction to hear a matter under the 1993 Hong Kong–Australia BIT. 

In particular, on 29 April 2010, Australia announced a plain-packaging policy as part of a broader strategy to reduce smoking. In November 2011, the Tobacco Plain Packaging Act 2011 was passed, which standardises drab brown packs, bans logos and imagery on tobacco products, allows only standardised brand names, and requires large graphic health warnings.

The Act’s objectives are to improve public health by (among other things) discouraging people from taking up smoking and reducing exposure to tobacco smoke.

Philip Morris Asia initiated arbitration under the 1993 Hong Kong–Australia BIT, claiming that the Act had expropriated its intellectual property and that it was denied fair and equitable treatment, and seeking an order for suspending enforcement of the relevant laws and compensation in the sum of billions of dollars.

Australia argued that plain packaging was a legitimate public health regulation addressing a leading cause of death and disease, and that the commencement of the arbitral proceedings constituted an abuse of right, as Philip Morris Asia acquired its shares in the Australian business on 23 February 2011, after the plain packaging policy was announced.

The Tribunal held that the initiation of a treaty-based investor–state arbitration constituted an abuse of rights (or an abuse of process) when an investor changed its corporate structure to obtain treaty protection at a point in time when a specific dispute was foreseeable.

Applying that test, the Tribunal found that at least after the announcement on 29 April 2010, it was reasonably foreseeable that legislation equivalent to the plain packaging measures would be enacted and that a dispute would follow.

The Tribunal further found that the main and determinative, if not sole, purpose of Philip Morris Asia’s corporate restructuring was to bring a treaty claim via a Hong Kong entity.

Accordingly, the Tribunal held that the arbitration constituted an abuse of rights, declared the claims inadmissible, and declined jurisdiction.

Based on publicly available information at the time of writing, Hong Kong has not been a party to an investor–state arbitration. It therefore remains uncertain how Hong Kong would approach such matters.

According to data compiled by the Hong Kong Trade and Industry Department, Hong Kong is currently signatory to 24 Investment Promotion and Protection Agreements (IPPAs) with foreign states.

These IPPAs typically provide for:

• fair and equitable treatment of investments;
• full protection and security of investments;
• non-discriminatory treatment of investments;
• reasonable compensation for expropriation of investments; and
• settlement of investment disputes between a contracting party and an investor of another contracting party.

At the time of writing, the IPPA with Turkey has been signed and is pending entry into force. Separately, the IPPA negotiations with Maldives and Myanmar have concluded and the relevant IPPAs are pending signing. The Hong Kong government is also consulting and negotiating with Bangladesh, Egypt, Peru, Qatar, Russia and Saudi Arabia in relation to an IPPA.

The IPPAs referenced above are typically bilateral investment treaties (BITs) as opposed to multilateral investment treaties (MITs). 

According to data compiled by the Hong Kong Trade and Industry Department, Hong Kong has entered into nine free trade agreements, respectively with Mainland China, New Zealand, the member states of the European Free Trade Association (EFTA), Chile, Macao, the Association of Southeast Asian Nations (ASEAN), Georgia, Australia and Peru. These free trade agreements typically include provisions for ensuring fair and equitable treatment of investments, non-discrimination, and compensation for expropriation.

With respect to dispute settlement, certain agreements, such as the Free Trade Agreement (FTA) between Hong Kong and the member states of EFTA and the FTA between Hong Kong and Chile, provide for arbitration as a form of dispute resolution. Other FTAs, such as the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and mainland China, provide for mediation.

For FTAs, the Trade and Industry Department of Hong Kong publishes accompanying side documents (such as exchanges of letters), implementation overviews, briefs to the Hong Kong Legislative Council, press releases, commercial information circulars, and promotional leaflets.

For IPPAs, side agreements are made available where they exist. However, the Trade and Industry Department does not provide any other interpretative aids in relation to IPPAs.

Hong Kong has no specific laws on foreign investment. There are no general restrictions on foreign investments in Hong Kong, although restrictions are in place in relation to a number of industries, including broadcasting services and telecommunication licences.

Arbitration agreements are not uncommon in investor–state contracts and investment contracts between investors and state-owned entities. The mechanisms for commencement of arbitration, selection of the arbitral panel and the arbitration procedures may differ on a case-by-case basis as it will be a product of the parties’ negotiations.

It may be that investment treaties are more likely to contain pre-conditions to arbitration. For example, the dispute resolution provisions of the IPPA between Hong Kong and Canada provide for disputing parties to hold consultations and attempt to settle a claim amicably before an investor may submit a claim to arbitration. Such stepped or escalation arbitration clauses may be less common in investment contracts between an investor and a state-owned enterprise. That said, the mechanism for dispute resolution and arbitration again very much depends on the parties’ negotiated terms.

Hong Kong has not been a respondent in any known investor-state arbitration. Accordingly, there is no available case data on the types of treaty or contract claims against Hong Kong, and no pattern of frequently cited complaints can be identified.

The Arbitration Ordinance (Cap. 609) (AO) does not impose any statutory eligibility criteria for members of the arbitral tribunal, so parties are free to set their own requirements, such as professional qualifications, specific industry expertise, or even nationality.

Section 24 of the AO provides that unless parties agree otherwise, no person shall be precluded by reason of his or her nationality from acting as an arbitrator.

Parties are also entitled to displace Section 24 of the AO by incorporation of arbitral rules that include nationality-based constraints on appointments. For example, under Article 11.2 of the 2024 HKIAC Administered Arbitration Rules (the “HKIAC Rules”), where the parties to an arbitration under the HKIAC Rules are of different nationalities, a sole or presiding arbitrator shall not have the same nationality as any party unless agreed otherwise by all parties.

Notwithstanding the parties’ considerable freedom to select arbitrators of their choosing, this freedom is tempered by the arbitrators’ duties of impartiality and independence, and arbitrators can be challenged if there are justifiable doubts about their independence or impartiality. See 4.4 Challenge and Removal of Arbitrators.

If the parties’ agreed method for appointing the tribunal fails or if they have not agreed on a method at all, Section 24 of the AO sets out the following default mechanisms:

• For an arbitration with a three-member tribunal, each party shall appoint one arbitrator, and those two shall appoint the third arbitrator.
• For an arbitration with a sole arbitrator, if the parties cannot agree on the arbitrator, the Hong Kong International Arbitration Centre (HKIAC) will make the appointment upon a party’s request.
• For an arbitration with an even number of arbitrators, each party shall appoint the same number of arbitrators.
• For an arbitration with an uneven number of arbitrators greater than three, each party shall appoint the same number of arbitrators, and (unless otherwise agreed by the parties) the HKIAC shall appoint the remaining arbitrator(s).
• If a party fails to act as required under an appointment procedure agreed upon by the parties or the parties’ chosen method fails in certain situations, the HKIAC, upon any party’s request, will take the necessary measure (including making the necessary appointment). The aforesaid mechanism also applies in the case of multi-party arbitrations.

Under Hong Kong law, the court’s intervention in the arbitral process is limited. More specifically, under Sections 26 and 27 of the AO, the court is empowered to rule on challenges in the appointment process and decide on issues relating to termination of the mandate of an arbitrator who is de jure or de facto unable to perform his or her functions. Section 58 of the AO also allows the court to extend the time for commencement of arbitral proceedings where, at the relevant time, no arbitral tribunal exists that is capable of exercising that power.

Section 25 of the AO (incorporating Article 12 of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”)) narrowly circumscribes the grounds on which an arbitrator can be challenged. Such challenge is permissible only where there are circumstances creating justifiable doubts as to his or her independence or impartiality, or where he or she lacks the qualifications agreed to by the parties. Further, where the arbitrator concerned is appointed by the party making the challenge or the party has participated in his or her appointment, the challenge can only be based on grounds of which the party becomes aware after the appointment has been made.

Section 26 of the AO (incorporating Article 13 of the Model Law) governs the challenge procedure. The parties may agree on a procedure for challenging an arbitrator. If there is no such agreement, a party seeking to challenge must deliver to the arbitral tribunal a written statement of the reasons for the challenge within 15 days of becoming aware of the constitution of the arbitral tribunal or of any circumstances referred to in Article 12(2) of the Model Law (circumstances rendering a challenge permissible as set out in the paragraph above). The arbitral tribunal shall decide on the challenge unless the arbitrator withdraws from his or her office or the opposing party consents to the challenge. If the challenge is unsuccessful, the challenging party may, within 30 days of receiving notice of the decision, apply to the court for a determination.

The relevant provision is Section 25 of the AO (incorporating Article 12 of the Model Law) which states the disclosure obligations of an arbitrator.

When a person is approached in relation to a possible appointment as an arbitrator, that person “shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence”. Throughout the arbitral proceedings, an arbitrator “shall without delay disclose any such circumstances to the parties unless they have already been informed of them by him”.

An arbitral tribunal has power under Section 35 of the AO (incorporating Article 17 of the Model Law) to order interim measures on a party’s application.

Under Section 35 of the AO, an interim measure is any temporary measure in the form of an award or in another form by which an arbitral tribunal orders a party to (amongst other things) maintain or restore the status quo pending determination of the dispute, take action to prevent current or imminent harm to the arbitral process, preserve assets out of which a subsequent award may be satisfied or preserve relevant and material evidence.

Under Section 36 of the AO (which gives effect to Article 17A of the Model Law), an applicant for an interim relief must generally show that (i) harm inadequately remedied by damages is likely to result if the measure is not granted, and such harm substantially outweighs the harm that the measure would cause to the party against whom the measure is directed (if the measure is granted), and (ii) there is a reasonable prospect the applicant will succeed on the merits of the claim.

Interim measures ordered under Section 35 of the AO may be enforced in the same manner as an order or direction of the court, but only with leave of the court.

The court can grant interim measures in support of arbitration under Section 21 of the AO (incorporating Article 9 of the Model Law). The court typically grants interim relief on an urgent basis to prevent destruction of documents, restrain dissipation of assets, or preserve the status quo.

Section 45 of the AO also sets out the requirements in relation to court-ordered interim measures. Section 45(3) of the AO specifically provides that the court may grant interim measures regardless of whether or not the arbitral tribunal may exercise similar powers in relation to the same dispute.

The power of the court to grant interim measures under Section 45 of the AO is not confined to arbitrations in Hong Kong, although additional requirements must be satisfied for arbitrations commenced (or to be commenced) outside Hong Kong. Specifically, Section 45(5) of the AO sets out those requirements, namely that (i) the arbitration can give rise to an interim or final award which may be enforced in Hong Kong, and (ii) the type of interim measure sought is one that the court may grant in Hong Kong in relation to arbitration.

Further, the court may enforce interim relief granted during arbitral proceedings, including emergency measures. Under Sections 22B and 61 of the AO, any interim measure or emergency relief granted (whether in or outside Hong Kong) is enforceable in the same manner as a court order that has the same effect, albeit only with the leave of the court.

Under Section 56(1)(a) of the AO, the arbitral tribunal may order a claimant to give security for costs of the arbitration.

The parties may also opt into Schedule 2 to the AO, Section 7 of which provides that the court may order security for costs in case of an application to challenge or appeal against arbitral awards.

Third-party funding is allowed in Hong Kong following the introduction of the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017. The expectations and standards for third-party funders are also outlined in the Code of Practice for Third Party Funding of Arbitration, which was issued in 2018.

However, it is unclear how prevalent such funding is in Hong Kong’s investor–state claims. While third-party funding is becoming more common in international arbitration, specific data on its prevalence in investor–state disputes relating to Hong Kong is not readily available.

In Hydrotech Waterproofing Solutions Ltd v Shun Yuen Construction Co Ltd [2023] HKCFI 601, the court issued a non-party costs order against an unrelated company that financed litigation. In that case, Hydrotech, a sub-sub-contractor, was unpaid for construction work after its sub-contractor went into liquidation. It sought payment from the main contractor, Shun Yuen, but lost the trial. During cross-examination, Hydrotech’s witness, Mr Mo, admitted that he and his company, Hop Shing, had funded the claim with a view to recovering HKD3 million in fees owed by Hydrotech. The court agreed that Hop Shing should be joined as a party liable for costs on an indemnity basis, as it and Hydrotech would “stand or fall together” in the litigation.

At the time of writing, there are no Hong Kong cases in relation to third-party funding under the AO.

Under Section 98U of the AO, a party receiving third-party funding must give to the arbitration body and each other party to the arbitration written notice of the fact that a funding agreement has been made and the name of the third-party funder. However, there is no requirement to provide additional details about the funding agreements.

The existence of third-party funding may be one of the considerations of the tribunal when considering applications for security for costs, although there is no hard-and-fast rule in this regard.

Under Hong Kong law, there are no legally mandated procedures for pre-arbitration procedural requirements. The parties have the freedom to agree upon pre-arbitration procedural steps (such as negotiation or mediation) to be attempted before proceeding to arbitration.

In C v D (2023) 26 HKCFAR 216, the Hong Kong Court of Final Appeal held that, in the absence of clear language to the contrary, issues relating to compliance with pre-arbitration conditions in an arbitration agreement go to the admissibility of a claim, and are not subject to judicial intervention.

In Hong Kong, the AO establishes a statutory obligation of confidentiality. Section 18(1) of the AO provides that, unless otherwise agreed by the parties, no party may publish, disclose or communicate any information relating to (i) the arbitral proceedings under the arbitration agreement or (ii) an award made in those arbitral proceedings. Sections 16 and 17 of the AO also provide for confidentiality in respect of arbitration-related court proceedings.

However, Section 18(2) of the AO sets out certain exceptions to the confidentiality obligation enshrined in Section 18(1), including (i) during legal proceedings before a court to protect the disclosing party’s legal rights or interests, or for the enforcement of the award; (ii) where there is a legal obligation to disclose the information to a government body, regulatory authority, court, or tribunal; and (iii) when the information is shared with a professional or any other adviser of either party.

Separately, the 2024 HKIAC Rules also set out the confidentiality obligations in an HKIAC arbitration. Article 45 of the 2024 HKIAC Rules provides that all arbitration proceedings, including submissions, evidence, and awards, are confidential. However, the rules of confidentiality can be overridden if disclosure is required under the applicable laws.

Under Section 70 of the AO, an arbitral tribunal can award any remedy or relief that could have been ordered by the court as if the dispute had been “the subject of civil proceedings in the Court”, which includes an order for specific performance of any contract (other than a contract relating to land or any interest in land). A tribunal can also grant interim measures (including injunctions) (Section 35 of the AO).

Under Hong Kong law, the principle of compensatory damages is normally adopted when assessing damages for a breach of contract, which aims to put the innocent party in the position it would have been in had the breach not occurred. In assessing the quantum of damages, the court and tribunal can take into account various relevant factors.

Where issues relating to quantum in a particular case are beyond the expertise of a court or tribunal, parties may engage a valuation expert, who will use appropriate valuation methodologies for assessment of a proper amount of damages to be awarded to the innocent party.

In Hong Kong arbitration, parties are generally entitled to recover interest, legal and expert fees, and arbitral institution costs.

Hong Kong tribunals typically adopt a “costs follow the event” approach, although there is no prescribed rule in this regard. Under Section 74(2) of the AO, tribunals may decide to whom and by whom and in what manner the costs of the arbitration proceedings are to be paid. However, the tribunal must only allow costs that are “reasonable in all the circumstances” (Section 74(7)(a) of the AO).

Under Section 79(1) of the AO, unless otherwise agreed by the parties, an arbitral tribunal may award simple or compound interest on monetary awards, at rates and for periods it considers appropriate. Interest is payable on monetary awards from the date of the award at the judgment rate unless the tribunal specifies otherwise (Section 80 of the AO).

Under Hong Kong law, an investor is generally not entitled to recovery of damages which it could have avoided by taking reasonable mitigatory steps. This is sometimes referred to as a duty to mitigate its losses. Therefore, the investor’s duty to mitigate is not a legal obligation that will give rise to legal responsibility; rather, the failure by the investor to mitigate damages may preclude recovery to that extent.

Under Section 84 of the AO, arbitral awards are enforceable in Hong Kong in the same manner as a judgment of the court, but only with the leave of the court.

To obtain leave to enforce an arbitral award, the award creditor must make an ex parte application to the court, accompanied by a supporting affirmation and the following documents:

• a duly authenticated original award or a duly certified copy of it;
• the original arbitration agreement or a duly certified copy of it; and
• (if the award or agreement is not in either or both traditional Chinese and English) a translation certified by an official or sworn translator or by a diplomatic or consular agent.

If the court is satisfied that all relevant requirements are met, it will grant leave to enforce the award, resulting in an enforcement order. This order must then be served on the award debtor, who then normally has 14 days to apply to set aside the enforcement order. Under Order 73 rule 10(6) of the Rules of the High Court (Cap. 4A), the enforcement order shall not be enforced until the expiration of the said period or until after the setting-aside application is finally disposed of.

Under the AO, the grounds for setting aside an arbitral award are limited in scope and largely mirror those found in the New York Convention.

Further, the AO provides that if an application for setting aside or suspending an award has been made to a competent authority, the court may adjourn the proceedings for the enforcement of the award and order the respondent to give security. However, the court has discretion to still proceed to allow enforcement of the award concerned notwithstanding that the setting-aside application to the supervisory court is still pending.

Under Hong Kong law, even if an award is set aside by the supervisory court of the arbitration, it does not follow that enforcement must be refused by a court of enforcement (G v X [2024] 1 HKLRD 685).

Hong Kong courts are bound to apply the immunity policies of the Central People’s Government of China. China adopts the doctrine of restrictive immunity (extending to enforcement immunity) under China’s Foreign State Immunity Law (FSIL), which came into force on 1 January 2024. In particular, Articles 13 to 15 of the FSIL stipulate that property situated in China and used for commercial activities regarding a Chinese judgment or arbitral award may be subject to judicial enforcement actions. It remains to be seen how the Hong Kong courts will consider the issue of sovereign immunity following the introduction of the FSIL.

The court adopts a pro-enforcement approach to the enforcement of arbitral awards, and will interfere only in limited circumstances. The court has discretion to enforce an award even if the grounds for refusal of enforcement set out in the AO are made out.

Under the AO, the grounds for setting aside an arbitral award are limited and largely mirror those found in the New York Convention. One of the grounds is that it would be contrary to public policy to enforce the award, which is construed narrowly under Hong Kong law so that an award would be set aside only where to do otherwise would violate Hong Kong’s fundamental notions of morality and justice.

In respect of sovereign immunity, the Court of Final Appeal’s decision in Democratic Republic of the Congo v FG Hemisphere Associates LLC (2011) 14 HKCFAR 95 and (2011) 13 HKCFAR 395 confirmed that Hong Kong courts must follow the sovereign immunity policies of the Central People’s Government of China. Following the introduction of the FSIL, the Hong Kong courts are expected to apply the relevant principles when addressing questions of state immunity and enforcement against state assets.

In Hong Kong, there are a number of public registries that may assist in locating state assets, including the land registry, company registry, trade marks registry, and vehicle registration databases. However, they offer different levels of information as to ownership and may be subject to limitations.

The Hong Kong courts typically uphold the principle of separate legal personality but may pierce the corporate veil in exceptional circumstances, including where a company is used to perpetrate fraud or evade legal obligations. The question of whether the corporate veil can be pierced is highly fact-specific and depends on the unique circumstances of each case.