Updated: Oct 20, 2020
By Andrew Kemp
Close scrutiny of Hong Kong’s arbitration scene reveals that many of the fears swirling around the city’s future as a dispute resolution centre are unfounded
As a globally renowned dispute resolution centre, Hong Kong has inevitably attracted some unfavourable press over the last year and a half. The China-US trade war, anti-government protests and, most recently, the introduction of the national security law (NSL) have dominated headlines, leading some to question the city’s ability to remain a safe and neutral arbitration seat.
Hong Kong, home to many of the world’s leading arbitral bodies, is frequently reported to be losing out to Singapore because of recent political events, with international companies understood to be seeking a more stable venue for their arbitration cases.
Foreign investors are seemingly concerned that the NSL will unduly influence arbitrators in cases involving mainland Chinese companies, driving them to give outsized consideration to Chinese interests. The argument appears to be that the NSL criminalises collusion with foreign forces and, if the law were broadly interpreted, then it could be applied to cases involving strategic mainland Chinese investors. Such concerns, however, do not always match reality.
While Hong Kong’s reputation has undoubtedly taken a knock, with international companies less than enthused by the city’s prolonged period of turbulence, suggestions that it could lose its standing as a trusted arbitration centre fail to stand up to a reasoned analysis of market conditions.
The city is not just home to a deep pool of highly skilled legal talent but it also boasts an independent judiciary and an internationally respected legal system built on years of long-established precedents. Moreover, the city serves as a gateway to investment in mainland China, with Beijing having committed to making Hong Kong the epicentre of dispute resolutions relating to both the multi-billion-dollar Belt and Road Initiative (BRI) as well as the Greater Bay Area (GBA) development.
Greater investor unease has been reported as both the result of last year’s anti-government protests as well as this year’s introduction of the NSL. The law was introduced at the end of June in response to prolonged pro-democracy demonstrations in the city, which frequently become violent and destructive.
Reuters, for example, reported in December 2019 that protests had paralysed parts of the city and had forced firms to relocate their arbitration hearings to Singapore. In July, Bloomberg said international investors were looking to relocate their arbitration cases owing to concerns stemming from the NSL.
Conventus Law surveyed 59 key stakeholders within Hong Kong’s business and legal communities in an anonymous survey, found that respondents were evenly split over whether events over the last year and a half had changed investor sentiment on Hong Kong.
The new [NSL] legislation targets four specific and serious crimes, and the risk of interference in Hong Kong’s arbitration process is very low,” he said. “The reality is that the HKIAC has handled over 10,500 cases and we’ve not seen any government intervention.
Joe Liu, Deputy Secretary-General, HKIAC
Joe Liu, the deputy secretary-general of HKIAC, said events might have given rise to the international perception that the city was less stable politically. However, he argued that international companies with “sophisticated” legal teams should be able to differentiate between the legal, financial and political realities on the ground. He also pointed out that during six months of protests in 2019, HKIAC held approximately 70 hearings in Central Hong Kong that proceeded without interruption.
He said: “Hong Kong is already the largest IPO market, and it’s only getting bigger as US antagonism towards Chinese companies motivates them to relist here. Mainland China has a vested interest in Hong Kong succeeding as an international arbitration centre.”
Conventus Law’s survey found that 62% of those surveyed believed the city’s appeal as an arbitration centre for commercial disputes was untarnished, while almost two-thirds of participants said Hong Kong would remain their arbitration centre of choice for future contracts.
Questioning the narrative
Liu questioned the reliability of reports that Hong Kong was losing out to Singapore, noting that he could find no evidence of a significant capital or case flight from the city. He added the Monetary Authority of Singapore confirmed in July that it had no seen any significant flow of money or business activity from Hong Kong to Singapore.
“The new [NSL] legislation targets four specific and serious crimes, and the risk of interference in Hong Kong’s arbitration process is very low,” he said. “The reality is that the HKIAC has handled over 10,500 cases and we’ve not seen any government intervention.”
Alice To, a Hong Kong-based independent arbitrator, echoed this sentiment. She said the city’s arbitration community had become accustomed to having its integrity and neutrality repeatedly questioned in the years following the 1997 handover, despite there being no evidence to support the allegations.
She said: “The city’s closer ties to China have regularly unnerved investors and observers, even if this doesn’t always make sense. The NSL’s criminal focus means that it will have very little impact on commercial arbitration cases, with individuals broadly unaffected.”
Although some investors both at home and abroad had been rattled by the chain of events over the last 18 months, which has seen the US and China trade sanctions over the NSL’s implementation, there are those who remain upbeat about the future.
To said there was a growing sense among her network of business, finance and legal contacts that the NSL would lead to greater stability and improve arbitration prospects. She said: “Hong Kong is still neutral, is still seen as the place to be and will remain the place to be for at least the next five years.”
Andrew Rigden Green, Stephenson Harwood’s head of international arbitration Greater China, also believes Hong Kong will continue to remain one of the leading international arbitration centres.
Hong Kong is still neutral, is still seen as the place to be and will remain the place to be for at least the next five years.
Alice To, Hong Kong based Independent Arbitrator.
He said: “The HKIAC has a robust set of rules and secretariat, and it continually strives to make sure that its rules are at the forefront of international arbitration practice. The List and Panel of HKIAC arbitrators is global and diverse.”
State of play