Hong Kong And Australia Agree Investor-State Dispute Resolution In New FTA.

Legal News & Analysis - Asia Pacific - Hong Kong - Australia - FDI

7 May, 2019


Hong Kong and Australia have signed a wide-ranging free trade agreement in a variety of areas including trade in goods and services, government procurement, construction, communications, and intellectual property.

The "Investment Agreement between the Government of the Hong Kong Special Administrative Region of the People's Republic of China and the Government of Australia" (the "Agreement"), signed in Sydney on 26 March 2019, is the fourth free trade agreement to be signed by the Hong Kong government since the present administration took office in July 2017. Hong Kong's Chief Executive Carrie Lam Cheng Yuet-ngor lauded the Agreement, believed to be worth US$13 billion, as "very substantive".

The Agreement is thought to be the first time that Australia has committed to liberalising the full range of its arbitration, conciliation and mediation services.

Settlement of disputes

In the event of an investment dispute, the Agreement states that the claimant and respondent "shall initially seek to resolve the investment dispute through consultations, which may include the use of non-binding, third party procedures, such as good offices, conciliation or mediation" (Article 23).

Familiar clauses

The Agreement contains several clauses familiar to readers of bilateral investment treaties including:


  • Articles 4 and 5 guarantee that each party shall accord to the other treatment no less favourable than that it accords its own investors (Article 4) and to investors of any non-party (Article 5), subject to significant exceptions on each side that include areas such as foreign purchases of land, education, communication services, nationalisation and privatisation and law enforcement. Taxation matters are also excluded for the most part;
  • Article 8 guarantees each party fair and equitable treatment and full protection and security, the latter usually concerned with the physical protection of the investment and of the investor. The wording is narrower than in the previous 1993 Hong Kong-Australia Bilateral Investment Treaty, reflecting the perception that the broader wording may offer redress where a claim for expropriation is not supported by the facts;
  • Article 10 deals with expropriation and compensation, under which neither party can expropriate a covered investment except for a public purpose, in a non-discriminatory manner, on payment of compensation and in accordance with due process of law. Non-discriminatory regulatory actions designed to protect public health, safety and the environment, do not constitute "expropriations", save in rare circumstances;
  • Article 23 obliges the parties to seek to resolve disputes through consultations, which may include the use of non-binding, third party procedures, such as conciliation or mediation;
  • Article 24 allows either party to submit an investment dispute to arbitration if it has not been resolved within six months of the receipt of a written request for consultations under Article 23. Claims are deemed submitted when the notice of arbitration is received by the respondent. Whilst the UNCITRAL arbitration rules are referenced as the default rules for arbitration, the parties may agree to refer disputes to any other arbitral institution or under any other arbitration rules;
  • Article 25 specifies that where disputes arise relating to financial services, all arbitrators appointed to the panel must have requisite experience in financial services law or practice;
  • Article 27 prescribes a limitation period of three years and six months from the date the claimant first acquired, or should have first acquired, knowledge of the relevant breach and the incurring of loss or damage;
  • Articles 28 onwards address the selection of arbitrators, conduct of the arbitration, transparency of proceedings, the appointment of experts, consolidation of claims and awards.


The road ahead

The signing of the Agreement is an important step forward for both Australia and Hong Kong. Hong Kong has seen its exports fall by as much as nearly 6% year on year as at December 2018 due to the global trade war between Washington and Beijing. Australia was Hong Kong's seventh largest trading partner in 2017, whilst Hong Kong was Australia's twelfth most significant export destination. 


The agreement means that Australia can be sure that Hong Kong will not apply tariffs on Australian goods in the future. For its part, Australia will now enjoy free trade agreements with seven out of its top eight main export destinations for goods and services. 



For further information, please contact:


James Kwan, Partner, Hogan Lovells

[email protected].com