November 28, 2023


Rich Inside You

Hong Kong Arbitration: Legal professionals and Corporations 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 have been over and I made the next predictions:

  • Corporations that have been deciding between Hong Kong or Singapore for his or her Asian headquarters would select someplace apart from Hong Kong.
  • Rising firms with places of work in Hong Kong and elsewhere in Asia would scale back their hiring in Hong Kong and enhance it elsewhere.
  • Corporations would transfer personnel from Hong Kong to their different Asian places of work.
  • Fewer contracts would specify Hong Kong because the venue for arbitration.
  • Corporations would transfer their Hong Kong financial institution accounts elsewhere.
  • Vacationers would select stopovers apart from Hong Kong.
  • Many Hong Kong residents would finally depart.

My predictions weren’t nice, however they have been calling issues as I noticed them in gentle of China’s rising authoritarianism on the mainland and its rising want to do the identical with Hong Kong. My submit drew appreciable warmth, but it surely was my prediction on the demise of Hong Kong as an arbitration alternative that notably rankled.

Then in 2022, I wrote The Demise 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 can be smart to associate with this development.” That submit made the next two arguments for the dying of Hong Kong arbitration:

Hong Kong Arbitration Provisions Will Turn into More and more Uncommon

The attorneys at my legislation agency imagine Hong Kong arbitration provisions not often make sense. Lots of the attorneys at different legislation companies with whom I’ve spoken imagine the identical. With extra attorneys now not believing in Hong Kong arbitration provisions, they may develop 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 anticipate Hong Kong arbitrations to finally develop into much less widespread as effectively.

Hong Kong Arbitration is an Pointless Danger

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

And in case you are a lawyer and also you for some motive don’t see rising Hong Kong dangers, why would you are taking the separate danger 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 on your contract, when there have been no good causes not to take action?

One can argue all one desires concerning 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 motive 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 world arbitration heart than Shanghai or Beijing. All three cities will arbitrate circumstances involving Chinese language firms, however none might be chosen to arbitrate contracts that don’t contain Chinese language firms. In different phrases, Hong Kong is just not 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 areas apart from Hong Kong. Per Nikkei, “Corporations drafting new contracts are more and more selecting locations apart from Hong Kong as the placement for arbitration, a dozen attorneys and company advisers in Hong Kong, Singapore and London advised 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 legislation was enacted, many Japanese firms suppose that Hong Kong is probably not a impartial place to arbitrate, so that they go to Singapore.” One other lawyer with monetary providers purchasers mentioned that “Western firms dismiss the Chinese language metropolis as an choice in negotiations. The notion is that Hong Kong’s judiciary is now a part of China, so Hong Kong is usually 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 appears like me and I believe it was me, but it surely was some time in the past and I’m simply not sure this was me.

Quite a lot of attorneys famous how sentiment lags behind the statistics, “as arbitration circumstances typically 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 motive to imagine the decline in Hong Kong’s desireabily as an arbitration location will do something however proceed. Hong Kong has develop into “simply one other Chinese language metropolis”, and as such, it’ll by no means once more be a world arbitration heart.

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