David Smyth and David Luk of Smyth & Co (in association with Reynolds Porter Chamberlain LLP), review Hong Kong’s new Financial Dispute Resolution Scheme and highlight some pertinent issues that may arise for prospective claimants, financial institutions and their in-house lawyers.
 Hong Kong’s new Financial Dispute Resolution Centre (FDRC) has a new Financial Dispute Resolution Scheme (FDRS), to encourage mediation or arbitration of individuals’ claims against certain financial institutions. However, the FDRS is not without concerns for both retail investors and financial institutions regulated by the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC). In particular, in-house lawyers at financial institutions will want to compare the FDRS to more informal and quicker settlement options with which they are already familiar. As is often the case, “the devil is in the detail”. FDRC – some key points FDRS mediation – a summary |
 FDRS arbitration – a summary • If a dispute is not resolved by mediation, the claimant can make a written request to proceed to arbitration. • The arbitration is conducted under the FDRS Arbitration Rules (Annex IV). • A single arbitrator is chosen from the FDRC approved list and is bound by the FDRS Arbitration Rules and the Ethics Code. • The arbitration will usually be “documents-only”. • An “in-person” arbitration hearing will only be allowed if the arbitrator decides that is necessary and the parties are willing to pay the extra FDRC fees. • The arbitration fees are significantly cheaper than commercial arbitrations. • An arbitrator may permit legal representation at an “in-person” arbitration. In that event, recoverable legal costs cannot exceed HK$25,000. • An arbitration award cannot exceed HK$500,000 (inclusive of interest). • An award is final and binding and can only be appealed in very limited circumstances. FDRS – nothing to fear? • Confidentiality While the FDRS mediation and materials are confidential, a mediator can send a Mediated Settlement Agreement (if concluded) to the HKMA or the SFC and the FDRC. An arbitrator can send a FDRS Arbitration Award (if concluded) to the HKMA or the SFC via the FDRC. In cases where the financial institution expects a wave of similar or related claims, this raises concerns for the institution. Financial institutions are likely to turn to their in-house lawyers for advice. • Pool of suitable mediators/arbitrators It is important that the FDRC cast its net wide for suitable talent but not at the expense of diluting quality. The choice of mediator or arbitrator is often crucial; particularly, if there is only one. • “Better the devil you know?” While it is still early days, looking ahead, one can envisage certain types of claim in which a financial institution decides it is better to settle rather than proceed to a FDRS mediation. Again, financial institutions are likely to turn to their in-house lawyers for advice. • Legal representation The prohibition on lawyers (external advisers or in-house) attending mediations is designed to encourage an “equality of arms” and to prevent the mediation process being “over-lawyered”. However, as a result, much time and internal resources within a financial institution may be taken up with the preparation for a mediation or arbitration. • The wrong focus? Concerns have been expressed that there is a danger of too much focus being directed towards the mediation process at the expense of the parties’ interests. david.smyth@smythco.com.hk david.luk@smythco.com.hk www.smythco.com.hk To read the ASIAN-MENA COUNSEL article Click Here (Note, if you are using an iPhone or iPad you can also download this article directly to your iBooks after it opens in Google Docs). |
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