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

Corporations that had been deciding between Hong Kong or Singapore for his or her Asian headquarters would select someplace aside from Hong Kong.
Rising corporations 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 aside from Hong Kong.
Many Hong Kong residents would finally go away.

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 need to do the identical with Hong Kong. My publish drew appreciable warmth, nevertheless it was my prediction on the demise of Hong Kong as an arbitration alternative that notably 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 not calling for arbitration in Hong Kong and why I feel international corporations can be smart to go together with this pattern.” That publish made the next two arguments for the demise of Hong Kong arbitration:

Table of Contents

Hong Kong Arbitration Provisions Will Turn out to be More and more Uncommon

The legal professionals at my regulation agency consider Hong Kong arbitration provisions not often make sense. Lots of the legal professionals at different regulation corporations with whom I’ve spoken consider the identical. With extra legal professionals not believing in Hong Kong arbitration provisions, they may grow to be rarer, and it will speed up as shunning Hong Kong for arbitration turns into extra normalized. With fewer contracts calling for Hong Kong arbitration, we should always count on Hong Kong arbitrations to finally grow to be much less widespread as properly.

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 america, Canada, the EU, Australia, and Japan (and others), does anybody not consider Hong Kong for arbitration shall 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 are taking the separate threat of selecting Hong Kong at times dealing with the potential wrath of your shopper 5 or ten years from now for not having chosen another arbitral physique to 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 indisputable 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 isn’t any extra of a global arbitration heart than Shanghai or Beijing. All three cities will arbitrate instances involving Chinese language corporations, however none shall be chosen to arbitrate contracts that don’t contain Chinese language corporations. In different phrases, Hong Kong just 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 corporations and their legal professionals are actually selecting arbitration places aside from Hong Kong. Per Nikkei, “Corporations 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 corporations on how his shoppers “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 corporations suppose that Hong Kong is probably not a impartial place to arbitrate, so that they go to Singapore.” One other lawyer with monetary providers shoppers stated that “Western corporations 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 corporations when writing up arbitration contracts. Yet 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 feel it was me, nevertheless it was some time in the past and I’m simply not sure this was me.

A lot of legal professionals famous how sentiment lags behind the statistics, “as arbitration instances 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 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 global arbitration heart.