Dispute resolution (Hong Kong law)

Overview

As with all kinds of business, disputes with suppliers, customers, employees and competitors will inevitably arise within e-commerce businesses. There is a variety of different ways to resolve such disputes.

The first step

Commercial difficulties can very easily turn into disputes and, without the appropriate advice, it is easy for companies to find themselves in difficulties. When a dispute arises, it is important to immediately seek commercial and legal advice and to take particular care with all correspondence, whether 'commercial' or technical/project related. It is recommended that any correspondence between the parties which contains a genuine attempt to settle the dispute or a proposed compromise is marked "without prejudice".

It is particularly important that copies of all relevant correspondence and documents are kept, as these will be needed to build a picture of the dispute and, if necessary, to provide evidence in any proceedings. Electronic copies of documents should also be kept, and companies should comply with the Code of Practice issued by the British Standards Institute (BS7768) on the preparation of electronic images of documents that may be required as evidence. This Code can be downloaded from the BSI web site (although the BSI charges for doing so).

Particular attention should be paid to the contract, which is likely to contain clauses impacting on the way in which the dispute is resolved. It may, for example, contain a dispute escalation or resolution clause stipulating the process or procedure to be used. In addition, there is likely to be a jurisdiction or choice of law clause, which will determine which country's courts have jurisdiction over the dispute. For further information, see our Jurisdiction guide. Another important clause to bear in mind is the termination clause which will set out how parties to the contract should terminate it. This usually involves notice being given by one party to the other. It is important to follow the steps to be taken on termination and the notice period set out in the contract.

Litigation

Litigation is the traditional form of dispute resolution and involves using the courts. Court proceedings are, by their nature, formal and based on legal rights and wrongs and procedures are fairly inflexible. They can also be time consuming and expensive. As a result, all businesses should consider the other options available for resolving disputes.

Arbitration

Large scale arbitration is very like court proceedings, and is particularly useful in resolving multinational disputes. Procedures are more flexible and less formal than litigation and it is usually faster. The parties can agree, either in the contract or subsequently in writing, to refer disputes to arbitration for a binding decision. Arbitrations are held in private and can either follow procedures to be decided by the arbitrator in agreement with the parties, or they can be follow the rules of bodies such as the International Chamber of Commence.

One of the main advantages of arbitration is the ability to choose the arbitrator. This allows the appointment of someone with an industry background and specialist technical expertise. Contracts may provide that, if the parties cannot agree on an arbitrator, a particular body, such as the Institute of Arbitrators, will appoint one. Another advantage to arbitration is that it is a confidential and consensual process, in other words, the parties have to agree the processes and procedures. The main disadvantage is that arbitration can involve at least as much expense as litigation. Costs such as arbitrators' fees and the hire of arbitration facilities will have to be paid, in addition to legal costs. The arbitrator may not be experienced in acting in a judicial capacity and this can result in arbitrators acting indecisively or failing to produce a satisfactory decision.

Alternative Dispute Resolution

Alternative Dispute Resolution (ADR) is not a single technique, but mostly consists of "assisted" negotiations with a view to achieving a settlement. ADR is a consensual process and usually has a non-binding outcome, and as a result, may not resolve the dispute. It can be much faster and cheaper than litigation but if it fails, it may only add to the cost and delay in resolving the dispute. Mediation is a common form of ADR where a neutral, independent mediator is appointed by the parties to facilitate discussion in order to achieve a settlement of the dispute.

ADR is more suited to an effective commercial resolution of the dispute than either arbitration or litigation. Ongoing commercial relationships can be preserved and flexible solutions can be found to resolve the dispute. For example, the parties could come to some form of agreement about doing business in the future together. Provided it is successful, ADR removes many of the risks associated with litigation. The process does, however, rely on the good faith of each of the parties and a willingness to settle. Without the formality of court proceedings, there is also a danger that a weaker party can be 'railroaded' into a settlement that may not reflect the legal strengths of that party's position.

Simple commercial settlement

Bear in mind that it is possible at any time to settle a dispute, without involving courts, arbitration or ADR. The settlement may have little to do with the legal rights and wrongs of the positions, but may make good commercial sense to the parties. When any dispute arises, consideration should be given to whether a commercial settlement is possible. It is still very important to get legal advice, in order to draft an enforceable settlement agreement and make sure that all potential claims have been dealt with and issues such as legal costs taken care of.

Domain name disputes

As more companies have realised the importance of registering a domain name that can be easily identified by their customers, disputes over the rights to domain names have increased. Litigation in the courts for passing-off and/or trade mark infringement is one way in which companies have sought to resolve domain name disputes (see our guide on Branding and Intellectual Property). However, this can raise difficult questions of where to bring a case and of which laws to apply (see our guide on Jurisdiction). Usually, it is also expensive and slow.

As a result, a new system has been introduced. The Internet Corporation for Assigned Names and Numbers (ICANN) is an organisation based in Los Angeles which has US government authority to govern the top level domains such as .com, .net and .org. In 1999, ICANN adopted a Uniform Domain Name Dispute Resolution Policy that affects all registrars dealing with .com, .net and .org domain names. This imposes a mandatory dispute resolution procedure on all those who apply to register, renew or maintain registration of a relevant domain name. The policy has been incorporated into all registration agreements and applies where a company asserts that a domain name is identical or confusingly similar to an existing trade mark or service mark and that the person who has registered the name has no rights or legitimate interest in the name and has registered the name in bad faith. The policy does not prevent a dispute being referred to the courts for resolution at any time if either party chooses. At present, there are three approved dispute resolution service providers, including the World Intellectual Property Organisation (WIPO). Cases under the procedure are normally expected to be decided within 45 days.

A local variant of the ICANN procedure, the Hong Kong Domain Name Dispute Resolution Policy, is used in respect of disputes concerning .hk domain names. The procedure is administered by the Hong Kong International Arbitration Centre. On-line dispute resolution

It is predictable that the internet will become a popular medium for dispute resolution. In the US, Virtual Court Room initiatives have already been launched. Bodies such as the European Union and the International Chamber of Commerce are also looking at the potential of on-line services with a view to more efficient dispute resolution.

Any questions? Please contact peter.bullock@pinsentmasons.com / +852 2521 5621 or one of our other contacts