Where a contract dispute-resolution and governing-law clause stands now

A contract signed in one jurisdiction, performed across several, and held against assets in another represents the standard operating reality for international groups with Greater China exposure. The dispute-resolution and governing-law clause sits at the centre of that reality. Get it right and the clause becomes an enforcement engine. Get it wrong and it becomes an obstacle – one that surfaces only after the relationship has broken down, when changing it is no longer an option.

A governing-law and dispute-resolution clause in a cross-border commercial contract determines both which legal system interprets the parties' obligations and which mechanism – arbitration, litigation, or a combination – resolves disagreements. In the Hong Kong context, these clauses engage the Arbitration Ordinance (Cap. 609), the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645), and, where the counterparty is Mainland Chinese, the bilateral arrangements between Hong Kong and the Mainland. Since Cap. 645 came into force on 29 January 2024, the enforcement calculus for litigation clauses in cross-border contracts has shifted materially.

This analysis examines what is commercially at stake, how the governing instruments interact across the Hong Kong–Mainland interface, the comparative read between arbitration and court proceedings, and where our desk sees the risk sitting now.

What is actually at stake: the commercial dimension

The clause is not a formality. It is the mechanism by which a creditor converts a contractual right into recoverable cash. Every other provision in the contract – the representations, the covenants, the conditions – is only as good as the enforcement route the dispute-resolution clause creates.

For a group operating between Hong Kong and the Mainland, the commercial stakes are unusually concrete. The Mainland is the world's second-largest economy, and a significant proportion of cross-border contracts involving Hong Kong counterparties have either a Mainland operating entity or Mainland-sited assets as the ultimate credit support. That single fact makes the enforcement analysis central, not peripheral, to how the clause should be drafted.

Consider the position of a European principal with a supply agreement governed by Hong Kong law, a dispute-resolution clause pointing to the Hong Kong courts, and a Mainland counterparty whose tangible assets are in Guangdong. Before 29 January 2024, enforcing a Hong Kong judgment in the Mainland required satisfying the exclusive-jurisdiction requirement of the 2008 regime – a condition that defeated a significant number of otherwise well-founded applications. The position after that date, under Cap. 645, is structurally different. But different does not mean simple, and the clause still has to be drafted to operate within the new regime.

What foreign counsel regularly miss is that the enforcement question is not a post-dispute problem. It is a drafting problem. The clause either positions the creditor correctly on day one, or it does not. By the time litigation or arbitration has started, the architecture is fixed.

How does the governing instrument actually work across the cross-border interface?

The cross-border enforcement of contractual rights between Hong Kong and the Mainland operates through two parallel tracks: the judgments track and the arbitral-awards track. Each has its own governing instrument, its own procedural requirements, and its own strategic logic.

On the judgments side, Cap. 645 – the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance – replaced the 2008 regime that required an exclusive-jurisdiction agreement. The new regime operates on a connection-based test. Effective Mainland judgments in civil and commercial matters, whether monetary or non-monetary, may now be registered with the Court of First Instance in Hong Kong. The mirror process applies in reverse: Hong Kong court judgments travel to the Mainland through a certified-copy procedure. The scope is broad but not unlimited. Cap. 645 excludes insolvency matters, certain intellectual property and patent disputes, certain arbitration-related proceedings, succession matters, and matrimonial proceedings. Any cross-border contract touching those categories needs a different analytical approach.

On the arbitral side, Hong Kong-seated arbitration is governed by the Arbitration Ordinance (Cap. 609), which is modelled on the UNCITRAL Model Law and incorporates the Model Law (the UNCITRAL Model Law on International Commercial Arbitration, the international standard for modern arbitration legislation) directly into domestic law. The New York Convention applies to Hong Kong, enabling enforcement of Hong Kong awards in over 170 contracting states. But for Mainland enforcement specifically, PRC–Hong Kong awards travel via the dedicated bilateral arrangements – the 1999 Arrangement and the 2020 Supplemental Arrangement – rather than through the New York Convention. Since the 2021 amendment to the Supplemental Arrangement, simultaneous enforcement applications in both Hong Kong and the Mainland are permitted. That change materially improved the position for award creditors with assets on both sides of the boundary.

The interim-measures dimension adds a further layer. Under the Arrangement that came into effect on 1 October 2019, parties to Hong Kong-seated arbitrations may apply to Mainland courts for interim measures before the award is issued. That facility – unique among offshore or common-law arbitration seats relative to the Mainland – is a significant structural advantage for any creditor whose counterparty holds assets in the PRC.

The sequence above describes the standard position. Your matter turns on the documents, the jurisdictions actually engaged, and the order of steps – which is where the route is won or lost.

To assess how the governing instruments apply to your specific contract and counterparty profile, write to us at info@lockhartyip.com.

The comparative read: arbitration versus court proceedings for cross-border contracts

The choice between arbitration and court proceedings is not a generic preference question. It turns on the enforcement geography, the confidentiality requirements, the flexibility needs of the parties, and the nature of the counterparty risk.

Arbitration under the HKIAC Administered Arbitration Rules – the 2024 Rules, which took effect on 1 June 2024 – offers several structural advantages for cross-border contracts with Mainland exposure. First, enforceability: a Hong Kong-seated HKIAC award travels to the Mainland via the bilateral arrangements, with simultaneous applications permitted. Second, interim measures: the 2019 interim-measures Arrangement gives a Hong Kong-seated arbitration access to Mainland courts for pre-award protection, a facility unavailable in most comparable seats. Third, confidentiality: arbitral proceedings are private by default; the parties' dispute does not become part of a public court record. Fourth, procedural flexibility: the HKIAC Rules permit the parties and the tribunal to agree procedures adapted to the transaction type, the volume of documents, and the number of hearing days.

Court proceedings in Hong Kong offer a different set of advantages. The Court of First Instance is a common-law court with a sophisticated commercial bench, a doctrine of binding precedent, and English as an official working language. Its judgments carry the authority of a well-regarded legal system. Under Cap. 645, a Hong Kong judgment now travels to the Mainland on a connection-based test rather than an exclusive-jurisdiction requirement – a material improvement over the pre-2024 position. The court also has a well-developed body of case law on cross-border commercial matters, interim relief, and the recognition of foreign judgments and awards.

The limitation of the litigation route for cross-border contracts is enforcement unpredictability. Even with Cap. 645 in place, the exclusions from its scope mean that certain categories of dispute – insolvency-adjacent claims, some IP matters – cannot travel the registration route. An award creditor relying on a court judgment for Mainland enforcement must ensure the judgment falls squarely within Cap. 645's scope. That analysis needs to be done before the contract is signed, not after the judgment is entered.

A micro-scenario illustrates the point. A Hong Kong-incorporated trading company entered a distribution agreement with a Mainland counterparty, governed by Hong Kong law with a Hong Kong court exclusive-jurisdiction clause – drafted in 2020, before the new regime. When the relationship broke down in late 2025, the creditor held a Hong Kong judgment for a substantial unpaid sum. The old exclusive-jurisdiction requirement under the 2008 regime had been satisfied by the clause. Registration in Hong Kong under Cap. 645 proceeded on the connection-based test, and the simultaneous process to present the judgment in the Mainland was initiated. The structural point: the clause, drafted under the old regime, still worked under the new one – but only because it had been carefully worded. A loosely drafted clause with ambiguous exclusivity would have created a threshold dispute before the enforcement analysis even started.

A second micro-scenario draws the arbitration parallel. An Asian technology group with a services agreement governed by English law, with an HKIAC seat and Hong Kong as the default, faced a counterparty in Shenzhen that had begun dissipating assets in anticipation of the dispute. The group applied for interim measures to Mainland courts under the 2019 Arrangement while the arbitral proceedings were pending in Hong Kong. The interim-measures application provided the temporary protection needed to preserve assets while the HKIAC process ran. The arbitral award, once issued, was enforced simultaneously in Hong Kong and the Mainland under the 2020 Supplemental Arrangement. The governing-law clause (English law) and the seat (Hong Kong) operated together to create a two-jurisdiction enforcement position from a single set of proceedings.

Governing-law choice: what the clause must do beyond the obvious

The governing-law clause does more than select a legal system for interpreting the contract. It determines which courts and tribunals are familiar with the substantive rights the clause creates, which limitation periods apply, which doctrines of implied terms and good faith operate, and how the remedies available on breach are assessed.

Hong Kong law is a mature common-law system with an extensive body of commercial case law developed over more than a century. It operates without the civil-law doctrines of bonne foi (good faith as a freestanding contractual obligation in French and many European civil-law systems) that can expand or limit obligations in ways common-law-trained counsel do not always anticipate. For a contract between a Hong Kong party and a European counterparty, the governing-law choice can therefore have significant substantive consequences for the obligations implied into the agreement, not merely for the enforcement route.

English law remains the governing law of choice for many international commercial contracts, particularly in finance, commodities, and shipping. Where English law governs and Hong Kong arbitration is the agreed seat, the combination works well: English-law-trained practitioners are readily available at the Hong Kong bar, the HKIAC bench includes arbitrators with deep English-law expertise, and the Arbitration Ordinance gives the tribunal broad authority on procedural and substantive matters. The award, once issued from a Hong Kong seat, travels via the New York Convention to over 170 states and via the bilateral arrangements to the Mainland.

The practical question our desk regularly encounters is whether parties have thought through the combination, rather than selecting governing law and seat independently and hoping they mesh. A contract governed by a civil-law system – German law, for example – with a Hong Kong seat creates a situation where the arbitrators must apply a legal system with which Hong Kong-based practitioners may not be primary specialists. That is manageable with careful appointment of the tribunal, but it adds a layer of cost and risk that a well-advised principal would have considered at the drafting stage.

For contracts with Mainland Chinese counterparties where the parties are not willing to agree to Hong Kong or English law, PRC law as the governing law with a CIETAC or Shanghai International Arbitration Centre seat is a common alternative. Our cross-border practice regularly advises on contracts where the seat is in Hong Kong but the governing law is PRC law, or where the reverse applies. The combination is workable, but the enforcement implications – which arrangement applies, how the award travels, whether simultaneous applications are available – need to be modelled before the final clause is agreed.

The day-two operating reality: what happens when the clause is tested

Most dispute-resolution clauses are drafted in the optimism of a new commercial relationship and tested in the acrimony of a broken one. The gap between those two states is where the clause's deficiencies surface.

The most common failure mode is the pathological clause: one that purports to require both arbitration and litigation, or that names an institution without specifying the relevant rules, or that sets out a procedure the institution will not or cannot follow. A pathological clause does not merely complicate the proceedings. It can render the agreement to arbitrate unenforceable, returning the parties to ad hoc litigation in a court that may not be sympathetic to either side.

A second failure mode is the multi-tier clause that lacks clear escalation mechanics. Many commercial contracts include a negotiation or mediation step before arbitration or litigation may be commenced. Where the clause says that the parties "shall attempt to resolve the dispute by negotiation" without specifying a time period, a procedure, or what constitutes a failure of that step, a respondent can use the pre-condition as a procedural weapon to delay the commencement of binding proceedings. We have advised creditors who lost three to four months to a jurisdiction dispute generated entirely by an ambiguous escalation clause.

A third failure mode, specific to the cross-border context, is the clause that is valid and enforceable in the seat but unenforceable in the jurisdiction where the assets are held. A Hong Kong-seated arbitration clause in a contract governed by Mainland law, with a Mainland state-owned entity as counterparty, raises questions about whether the entity's agreement to offshore arbitration was authorised under its own internal governance rules. That question, if it arises at the enforcement stage, can defeat an otherwise well-conducted arbitration.

If an earlier filing, structure or enforcement attempt produced an adverse or stalled result, a second read can identify the strategic error and the routes still open.

To discuss a stalled enforcement or a clause that has not performed as expected, contact us at info@lockhartyip.com.

What foreign counsel get wrong: the cross-border blind spots

Cross-border contracts are frequently negotiated by counsel who are expert in the governing law but less familiar with the enforcement geography. That asymmetry produces a predictable set of errors.

The first error is treating the New York Convention as a complete enforcement solution for contracts with Mainland Chinese parties. The Convention applies to Hong Kong, but PRC–Hong Kong enforcement runs via the bilateral arrangements, not the Convention. The distinction matters because the arrangements and the Convention have different procedural requirements, different grounds for refusal, and different timelines. Counsel who assume that a Convention-compliant clause is sufficient for Mainland enforcement may be surprised by the additional steps the arrangements require.

The second error is overlooking the interim-measures facility available to Hong Kong-seated arbitrations. The 2019 Arrangement – which allows parties to HK-seated arbitrations to seek Mainland court interim measures while proceedings are pending – is not widely known outside the Hong Kong and Mainland legal community. Counsel who do not know about it cannot draft the clause to take advantage of it, and creditors whose counterparties hold all their assets on the Mainland are left without pre-award protection.

The third error is drafting a governing-law clause that creates a governing-law–seat mismatch without modelling the consequences. An English-law-governed contract with a Singapore seat enforced against Mainland assets is not the same enforcement position as an English-law-governed contract with a Hong Kong seat. The former must travel via the New York Convention; the latter has access to the bilateral arrangements and the interim-measures Arrangement. For creditors with significant Mainland counterparty exposure, the difference is not academic.

The fourth error – less common but more damaging – is failing to check whether the counterparty's agreement to the clause is valid under its own governing law. For Mainland state-owned enterprises, the authority to agree to offshore arbitration and foreign governing law is a matter of their own constitutional documents and applicable PRC regulations. A clause that appears valid on its face can be challenged at the enforcement stage on the basis that the signatory lacked authority. That challenge does not arise from the clause itself. It arises from a failure of cross-border due diligence at the contracting stage.

Where the risk sits now: our read on the current position

The entry into force of Cap. 645 on 29 January 2024 was the most significant development in Hong Kong–Mainland commercial enforcement in a generation. The removal of the exclusive-jurisdiction requirement – the condition that had defeated many otherwise well-founded registration applications under the 2008 regime – means that court-clause contracts can now travel the registration route on a broader basis. That is a genuine improvement for creditors holding Hong Kong judgments against Mainland counterparties with Hong Kong-registered assets or business connections.

But Cap. 645 is not a universal solution. Its exclusions – insolvency, certain IP, certain arbitration-related proceedings, succession, matrimonial – are significant categories in cross-border commercial practice. A creditor whose claim is characterised as insolvency-adjacent by the Mainland court at the registration stage may find that the connection-based test is satisfied but the exclusion applies. The characterisation risk is real, and it is not resolved by Cap. 645. It is managed by the clause – specifically, by including clear language on the nature of the claims covered by the agreement and the categories of relief sought.

On the arbitration side, the 2024 HKIAC Rules reflect the institution's position as one of the leading international arbitration centres for contracts with Asia-Pacific exposure. The rules are technically sophisticated, the secretariat is experienced in managing complex multi-party and multi-contract disputes, and the pool of arbitrators with PRC-law and Hong Kong-law expertise is deep. For new contracts with Mainland exposure drafted after 1 June 2024, the 2024 Rules should be the reference version.

The geopolitical dimension cannot be ignored, though it should not be overstated. Hong Kong operates as a common-law system within the one country, two systems framework (the constitutional arrangement under which Hong Kong maintains a separate legal system from the Mainland until at least 2047). The courts remain independent, the arbitral institutions remain internationally recognised, and the enforcement instruments – Cap. 645 and the bilateral arrangements – continue to function. Our desk does not see structural reasons for international groups to avoid Hong Kong as a dispute-resolution forum. We do see reasons to draft the clause more carefully than many currently do, given the volume and variety of enforcement-route options now available.

The risk, in our assessment, sits not in the forum or the governing law themselves but in the gap between what the clause says and what the enforcement geography requires. That gap is a drafting problem, and it is fully addressable on day one.

Decision matrix: matching the clause to the counterparty and asset profile

Not every cross-border contract needs the same clause. The right combination of governing law, seat, institution, and escalation mechanics depends on the specific counterparty profile, the location of the assets that will ultimately satisfy any judgment or award, and the commercial relationship dynamics.

Where the counterparty is a Mainland Chinese operating entity with assets principally in the PRC, the strongest enforcement position combines a Hong Kong seat with HKIAC rules, Hong Kong or English governing law, and explicit reference to the interim-measures Arrangement. That combination gives access to Mainland interim measures before the award is issued, the bilateral arrangements for simultaneous enforcement after the award, and a well-regarded common-law seat that is familiar to international commercial parties.

Where the counterparty is a BVI or Cayman holding entity with Hong Kong-operating assets, the enforcement geography shifts. A Hong Kong court judgment against a BVI entity is enforced in Hong Kong against the Hong Kong assets directly; the offshore dimension adds a corporate-law question about whether the entity is validly party to the proceedings, not an enforcement-route question. The governing-law and dispute-resolution clause must be modelled against the asset map, not just the counterparty's registered address.

Where the counterparty is a European or North American group with no Mainland assets, the New York Convention is the relevant enforcement instrument for arbitral awards, and the bilateral arrangements are irrelevant. In that configuration, English law with a Hong Kong or London seat remains a well-tested combination. The choice between the two seats will turn on the practical preferences of both parties and the governing-law expertise available in each seat for the specific legal system chosen.

Where the contract involves a state entity – whether Mainland Chinese, Middle Eastern, or from another jurisdiction – the additional layer of sovereign-immunity analysis applies. The Foreign States Immunity Law of the PRC came into force on 1 January 2024, adopting a restrictive immunity doctrine that limits the circumstances in which a foreign state can claim immunity from civil jurisdiction. That development is directly relevant to contracts with PRC state entities, where the previous analytical framework was less clearly defined.

For contracts that span multiple jurisdictions in a single transaction – a group acquisition agreement with subsidiaries in Hong Kong, the BVI, Singapore, and the Mainland – the clause may need to be jurisdiction-specific. An umbrella governing-law provision with jurisdiction-specific dispute-resolution sub-clauses for different transaction documents is one approach. The key discipline is ensuring that the sub-clauses are consistent in their escalation mechanics and do not create competing parallel proceedings.

The self-assessment checklist: what to review before signing or before the dispute starts

A structured review of the clause before signature – or before commencing proceedings under an existing clause – should cover the following questions.

First, where are the counterparty's assets? The enforcement route must be modelled from the asset location backwards to the clause, not forwards from the clause to wherever the assets happen to be. A well-drafted clause for the wrong asset geography is not well-drafted at all.

Second, is the governing law consistent with the seat? English law and Hong Kong seat; Hong Kong law and Hong Kong seat; English law and Singapore seat – these are established combinations. Unusual combinations require an analysis of who will hear the case and whether they are familiar with the governing law.

Third, does the clause reference a specific institutional set of rules and a specific version or edition? The HKIAC 2024 Rules apply to cases registered on or after 1 June 2024. A clause that refers only to "HKIAC rules" without specifying a version will apply the rules current at the time of commencement, which is usually correct – but parties should understand which version that will be.

Fourth, does the escalation clause have a clear trigger? A mandatory negotiation period should specify the length of the period, what constitutes a valid notice to commence the period, and what event triggers the right to proceed to binding dispute resolution. Ambiguity on any of those points is exploitable by a respondent seeking to delay.

Fifth, for Mainland counterparties, does the clause take advantage of the interim-measures Arrangement? If the assets that will satisfy any award are in the Mainland, the ability to seek interim measures from a Mainland court before the award is issued is a significant structural advantage. The clause should be drafted to ensure it is available.

Sixth, is the counterparty's agreement to the clause valid under its own governing law? For state-owned enterprises and entities in regulated industries, the authority to agree to offshore arbitration and foreign governing law is not automatic. Due diligence on that question at the contracting stage is the only reliable way to prevent a validity challenge at the enforcement stage.

For a structured assessment of your contract clause position across the relevant jurisdictions, write to us at info@lockhartyip.com.

The objection handled: "our contracts are governed by the law we know best"

The most common objection our desk hears to a careful cross-border clause review is that the parties – particularly the stronger commercial party – simply prefer to use the law they know and the courts they are most familiar with. A US group insists on New York law and New York courts. A German group defaults to German law and German courts. The logic is understandable. The problem is that it ignores the enforcement geography entirely.

A New York judgment against a Mainland Chinese counterparty with assets in Guangdong has no automatic enforcement route to those assets. The United States and the PRC do not have a mutual-enforcement treaty for civil and commercial judgments. That judgment, however well-founded and correctly obtained, must either be relitigated in the Mainland courts – with uncertain outcome – or enforced against assets outside the Mainland, if any exist. The commercial consequence can be a substantial judgment that is practically unenforceable against the specific assets the creditor needs to reach.

This is not an argument for Hong Kong law in every case. It is an argument for modelling the enforcement geography before selecting the clause, rather than after. Where a group genuinely transacts on a New York-law basis and its Mainland counterparties hold assets in Hong Kong – as many do – New York law with Hong Kong arbitration or Hong Kong court proceedings may be a workable combination. The clause should serve the commercial relationship, not reflect the path of least resistance for the party with more negotiating leverage.

Our cross-border practice advises groups at the drafting stage precisely because the choice made in the clause determines everything that follows. We regularly act on cross-border contracts where the governing-law and dispute-resolution clause is the central commercial question, not a peripheral formality.

Related practices

• Disputes & Arbitration – cross-border enforcement, HKIAC proceedings, and interim-measures strategy
• Holding Structures – structuring the entity architecture that supports commercial contracts

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.