September 26, 2023


Learn Business From Experience

Hong Kong Arbitration: Legal professionals and Firms Are Simply Saying No

5 min read

In August, 2019 — in Hong Kong for Worldwide Enterprise: Stick a Fork in It, I wrote how Hong Kong’s days as Asia’s main worldwide enterprise hub had been over and I made the next predictions:

  • Firms that had been deciding between Hong Kong or Singapore for his or her Asian headquarters would select someplace aside from Hong Kong.
  • Rising firms with workplaces in Hong Kong and elsewhere in Asia would scale back their hiring in Hong Kong and improve it elsewhere.
  • Firms would transfer personnel from Hong Kong to their different Asian workplaces.
  • Fewer contracts would specify Hong Kong because the venue for arbitration.
  • Firms would transfer their Hong Kong financial institution accounts elsewhere.
  • Vacationers would select stopovers aside from Hong Kong.
  • Many Hong Kong residents would ultimately depart.

My predictions weren’t nice, however they had been calling issues as I noticed them in mild of China’s growing authoritarianism on the mainland and its growing want to do the identical with Hong Kong. My put up drew appreciable warmth, however it was my prediction on the demise of Hong Kong as an arbitration selection that significantly rankled.

Then in 2022, I wrote The Loss of life of Hong Kong Arbitration, on how I used to be seeing “a fast acceleration of contracts now not calling for arbitration in Hong Kong and why I believe international firms could be smart to go together with this development.” That put up made the next two arguments for the loss of life of Hong Kong arbitration:

Hong Kong Arbitration Provisions Will Change into More and more Uncommon

The attorneys at my regulation agency imagine Hong Kong arbitration provisions not often make sense. Lots of the attorneys at different regulation corporations with whom I’ve spoken imagine the identical. With extra attorneys now not believing in Hong Kong arbitration provisions, they are going to change into rarer, and this may speed up as shunning Hong Kong for arbitration turns into extra normalized. With fewer contracts calling for Hong Kong arbitration, we must always count on Hong Kong arbitrations to ultimately change into much less widespread as effectively.

Hong Kong Arbitration is an Pointless Threat

With all that’s taking place between China (which incorporates Hong Kong) and Taiwan and the growing and prone to proceed decoupling as between China and the US, Canada, the EU, Australia, and Japan (and others), does anybody not imagine Hong Kong for arbitration will likely be riskier sooner or later than it’s in the present day?

And in case you are a lawyer and also you for some cause don’t see growing Hong Kong dangers, why would you’re taking the separate threat of selecting Hong Kong at times dealing with the potential wrath of your consumer 5 or ten years from now for not having chosen another arbitral physique in your contract, when there have been no good causes not to take action?

One can argue all one desires relating to the dangers of Hong Kong arbitration, however the mere proven fact that much more attorneys now view Hong Kong as a riskier arbitration venue than Singapore, New York, Geneva, Paris, and London, should be cause sufficient NOT to draft your contracts with a Hong Kong arbitration provision.

I’m now able to proclaim Hong Kong is not any extra of a global arbitration heart than Shanghai or Beijing. All three cities will arbitrate instances involving Chinese language firms, however none will likely be chosen to arbitrate contracts that don’t contain Chinese language firms. In different phrases, Hong Kong isn’t London, nor New York, nor Geneva. Most significantly, it isn’t Singapore, which has taken a lot arbitration work from Hong Kong that at any time when Hong Kong arbitration is talked about for a contract, somebody normally mentions how that is the primary time in months (and even years) the place Hong Kong has even been talked about.

A latest Nikkei Asia article, Multinationals turn away from Hong Kong for dispute resolution, nails how firms and their attorneys are actually selecting arbitration places aside from Hong Kong. Per Nikkei, “Firms drafting new contracts are more and more selecting locations aside from Hong Kong as the situation for arbitration, a dozen attorneys and company advisers in Hong Kong, Singapore and London instructed Nikkei Asia.”

It then quotes a lawyer who represents Japanese manufacturing firms on how his purchasers “exclude Hong Kong as a seat of arbitration in contract negotiations, citing attainable bias. After 2020, when the nationwide safety regulation was enacted, many Japanese firms assume that Hong Kong is probably not a impartial place to arbitrate, in order that they go to Singapore.” One other lawyer with monetary providers purchasers stated that “Western firms dismiss the Chinese language metropolis as an possibility in negotiations. The notion is that Hong Kong’s judiciary is now a part of China, so Hong Kong is commonly rejected by international firms when writing up arbitration contracts. One more lawyer put it extra bluntly: “People . . . merely don’t need to arbitrate . . . in Hong Kong.” I used to be interviewed by one of many reporters on this story, and this seems like me and I believe it was me, however it was some time in the past and I’m simply not sure this was me.

A lot of attorneys famous how sentiment lags behind the statistics, “as arbitration instances usually come up from contracts drafted a number of years in the past.” However the statistics are actually catching up as Singapore reported that new case filings hit a historic excessive for the primary quarter of 2023. Not surprisingly, the “HKIAC [Hong Kong International Arbitration Center] didn’t present quarterly figures.

There’s completely no cause to imagine the decline in Hong Kong’s desireabily as an arbitration location will do something however proceed. Hong Kong has change into “simply one other Chinese language metropolis”, and as such, it is going to by no means once more be a global arbitration heart.

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