Hong Kong Arbitration: Attorneys and Firms Are Simply Saying No

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:

  • Firms that have been deciding between Hong Kong or Singapore for his or her Asian headquarters would select someplace aside from Hong Kong.
  • Rising firms with places of work in Hong Kong and elsewhere in Asia would cut back their hiring in Hong Kong and enhance it elsewhere.
  • Firms would transfer personnel from Hong Kong to their different Asian places of work.
  • 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 go away.

My predictions weren’t nice, however they have been calling issues as I noticed them in mild of China’s rising authoritarianism on the mainland and its rising need 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 significantly 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 sensible to associate with this development.” That submit made the next two arguments for the loss of life of Hong Kong arbitration:

Hong Kong Arbitration Provisions Will Develop into More and more Uncommon

The legal professionals at my regulation agency consider Hong Kong arbitration provisions hardly ever make sense. Most of the legal professionals at different regulation corporations with whom I’ve spoken consider the identical. With extra legal professionals now not believing in Hong Kong arbitration provisions, they’ll grow to be rarer, and this can 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 ultimately grow to be much less frequent as properly.

Hong Kong Arbitration is an Pointless Danger

With all that’s occurring 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 consider Hong Kong for arbitration will likely be riskier sooner or later than it’s immediately?

And in case you are a lawyer and also you for some cause don’t see rising Hong Kong dangers, why would you’re taking the separate threat of selecting Hong Kong every now and then going through 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 needs relating to the dangers of Hong Kong arbitration, however the mere incontrovertible fact that much more legal professionals 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 world arbitration middle than Shanghai or Beijing. All three cities will arbitrate circumstances 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 every time Hong Kong arbitration is talked about for a contract, somebody often 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 legal professionals are actually selecting arbitration areas 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 legal professionals and company advisers in Hong Kong, Singapore and London informed 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 will not be 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: “Individuals . . . merely don’t wish 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.

Plenty of legal professionals famous how sentiment lags behind the statistics, “as arbitration circumstances 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 may be completely no cause to consider the decline in Hong Kong’s desireabily as an arbitration location will do something however proceed. Hong Kong has grow to be “simply one other Chinese language metropolis”, and as such, it is going to by no means once more be a world arbitration middle.