Hong Kong Arbitration: Attorneys 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 firms with workplaces 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 workplaces.
• 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 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 need to do the identical with Hong Kong. My put up drew appreciable warmth, nevertheless it was my prediction on the demise of Hong Kong as an arbitration alternative that significantly rankled.

Then in 2022, I wrote The Loss of life of Hong Kong Arbitration, on how I used to be seeing “a speedy acceleration of contracts not calling for arbitration in Hong Kong and why I believe overseas firms can be clever 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 Grow to be 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 companies with whom I’ve spoken imagine the identical. With extra attorneys not believing in Hong Kong arbitration provisions, they may turn out 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 anticipate Hong Kong arbitrations to finally turn out to be much less frequent as nicely.

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 more likely to proceed decoupling as between China and america, Canada, the EU, Australia, and Japan (and others), does anybody not imagine Hong Kong for arbitration shall be riskier sooner or later than it’s at this time?

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 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 to 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 incontrovertible 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 world arbitration heart than Shanghai or Beijing. All three cities will arbitrate circumstances involving Chinese language firms, however none shall be chosen to arbitrate contracts that don’t contain Chinese language firms. In different phrases, Hong Kong shouldn’t be London, nor New York, nor Geneva. Most significantly, it’s not Singapore, which has taken a lot arbitration work from Hong Kong that every time 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 at the moment are selecting arbitration areas 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 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 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 firms suppose that Hong Kong might not be a impartial place to arbitrate, so that they go to Singapore.” One other lawyer with monetary providers shoppers 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 commonly rejected by overseas firms when writing up arbitration contracts. Yet one more lawyer put it extra bluntly: “Individuals . . . 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, nevertheless it was some time in the past and I’m simply not sure this was me.

Various attorneys 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 at the moment are 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 turn out to be “simply one other Chinese language metropolis”, and as such, it’ll by no means once more be a world arbitration heart.