Protests Fuel Concern About Hong Kong’s Arbitration Future

This is an article by Caroline Simson that was published in Law360 on Dec 9 2019

Hong Kong has long been recognized as one of the world’s top centers for international arbitration, but months of pro-democracy protests in the city-state with no end in sight have prompted some practitioners to ask whether that reputation might be in jeopardy.

For years, Hong Kong has carefully cultivated its image as one of the world’s most arbitration-friendly jurisdictions. It’s maintained a pro-arbitration judiciary and has built top-class hearing facilities, while also passing favorable legislation relating to areas of importance for practitioners.

The city-state erupted in protests in June after the government unveiled legislation that would have allowed extradition of people from Hong Kong to mainland China. The bill was later withdrawn, but the protests have continued amid concern about Beijing’s perceived overreach in the region. Now, some in the arbitration community have begun wondering whether the unrest will prompt risk-averse arbitration lawyers to start advising clients to choose a different Asian venue, like Singapore.

Toby Landau QC, a barrister and arbitrator in independent practice at Essex Court Chambers, told Law360 that it’s still too early to say what will be the long-term effect on the city’s reputation, since years can elapse between when parties choose their seat of arbitration in a contract and when a dispute under that pact arises, and there’s still no data on whether fewer parties are choosing Hong Kong.

But, he added, “There is certainly a concern that perceived instability may deter parties from selecting Hong Kong, given the uncertainty as to the situation on the ground and in the Hong Kong courts by the time any dispute arises.”

Others, meanwhile, aren’t mincing their words.

“Not sure why nobody has just come out and said this yet, but Hong Kong as an international business and financial center is no more,” Harris Bricken founder Dan Harris said in a blog post titled “Hong Kong for International Business: Stick a Fork in It.”

In the post, published on his China Law Blog in August, he predicted that fewer contracts will be drafted with Hong Kong as the venue for arbitration.

In late November, Harris told Law360 he stood by his comments and in fact said he felt “even stronger” about the demise of Hong Kong as a center for international business and dispute resolution.

And the concern about Hong Kong’s future isn’t limited to lawyers. Lesperance & Associates founder David S. Lesperance, who specializes in citizenship and international tax law, told Law360 that the ultra high net worth individuals he counsels, such as CEOs, are becoming more and more serious about leaving Hong Kong to avoid being swept up in a crackdown on the protests by Beijing.

“I’m dealing with wealthy people who know they are a target. If you become too prominent, you disappear,” he said. “Even though they’re sympathetic to the protestors and their arguments, they don’t see this ending any way other than the Chinese coming in and clearing the streets. … Of course, you wish for the best, but you’ve got to prepare for the worst.”

When it comes to cities battling for the top spot as an arbitral venue, the fighting isn’t just about clout: Huge financial benefits are at stake, since lawyers and arbitrators will need local legal support services and places to eat and stay while they’re in town to conduct hearings.

In Asia, the competition among arbitral venues has largely been between Singapore and Hong Kong. The latter was recognized by international arbitration practitioners in a 2015 survey as Asia’s most preferred arbitral seat, and the third most popular in the world. In a subsequent survey three years later, it dropped behind Singapore but stayed in the top four worldwide.

It’s perhaps unsurprising, then, that proponents of Hong Kong as a center for dispute resolution have been downplaying the potential of any effect on the city’s reputation. Last month, Hong Kong’s Justice Secretary Teresa Cheng, a former chair of the Hong Kong International Arbitration Centre, told Asian Legal Business that while there might be a short-term effect, she wasn’t expecting it to last for long given the region’s “mature” common-law tradition and “strong” independent judiciary.

Contacted by Law360 this month, HKIAC Secretary-General Sarah Grimmer wouldn’t comment specifically on the protests or their present or potential effect on the center, saying only that the center “has had a busy hearing calendar this year having hosted 39 hearings at our premises in Hong Kong since June, with 6 more scheduled before the end of the year.”

She also said HKIAC’s caseload is at a “record high,” with case numbers 20% above a year ago, though it likely would be too early for case numbers to be radically affected given the typical time lag in between when a dispute resolution clause is agreed on and when a dispute arises.

Additionally, the center announced in late October that the eighth annual Hong Kong Arbitration Week that concluded Oct. 25 was its “largest to date,” with more than 680 people from 40 jurisdictions in attendance. Industry sources told Law360 that while some practitioners had expressed reservations about attending and some of them stayed home, those who did attend did so to support Hong Kong.

Still, while the concern among arbitration practitioners about Hong Kong’s reputation as an arbitral venue — at least in the short term — is undeniable, at least some say they’re optimistic about the future.

In a panel discussion on dispute resolution in Asia held during New York Arbitration Week in Manhattan last month, Patrick M. Norton, an international arbitrator affiliated with Arbitration Chambers, an association of independent arbitrators based in Hong Kong, said that while statistics aren’t available, it’s “easy to imagine” that more practitioners have become “wary” of incorporating Hong Kong into their dispute resolution contracts. Moreover, he suspected that Singapore was gaining a slight advantage over Hong Kong in recent months as a result of the protests.

Still, he said, Hong Kong has several things going for it. While Singapore and Hong Kong both have world-class facilities and pro-arbitration judiciaries, Hong Kong has a “number of significant advantages,” including its proximity to mainland China and Chinese-language facilities.

Those advantages are bound to come into play as the inevitable disputes arise from China’s massive Belt and Road initiative, which is aimed at developing new trade routes and promoting economic cooperation among nations in Asia, Europe and Africa.

Norton said the rise of such disputes “could well be the savior of arbitration in Hong Kong.”

“That’s something where you can say, watch this space,” he said. “There will be a lot more conference sessions dealing with Belt and Road arbitrations in the coming years.”

–Editing by Brian Baresch and Breda Lund.

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