Increasing concerns about the future of Hong Kong’s legal regime has driven a wave of queries from international firms about whether or not to write out Hong Kong from arbitration clauses when doing business in the financial hub.

There are increasing concerns about the future of Hong Kong as the jurisdiction of the choice for governing law or an arbitration center, according to a «Financial Times» report (behind paywall) citing multiple law firms, some of which wished to remain anonymous.

Whether entering into joint ventures with Chinese and other Asian counterparts or generally conducting business, international firms are expressing worries about the future of Hong Kong as a legal regime. 

Client involved were mostly from U.S. and Japan-headquartered firms and the concerns cited were not limited to industries like financial services but across all sectors including technology, pharmaceuticals and consumer goods.

Judicial Independence

Tightened control by Beijing through the enactment of the controversial national security law (NSL) has led to questions about the judicial independence of Hong Kong, a key driver for a potential jurisdictional shift.

According to the report, an announcement by the U.K. to pull out its judges from the city’s highest court – alongside marketing from rival arbitration centers in the region – has led to increased negative attention on the judiciary system. 

U.K. Foreign Secretary Dominic Raab made comments in November last year about a review on «whether it continues to be appropriate for British judges to sit as non-permanent judges» in a half-year report on Hong Kong. 

Short-Term Intact

Although some of the law firms cited disagree on the immediacy of the issue, they still note that contracts established for a «10-20 year horizon» are considering alternative jurisdictions like Singapore. 

In 2019, the Singapore International Arbitration Centre received 479 new case filings – a record-high – compared to The Hong Kong International Arbitration Centre held 503, the second consecutive year of decline.

NSL Impact

The aftermath of Hong Kong's NSL regime has been increasingly felt in the legal system. Australian judge James Spigelman resigned from Hong Kong’s Court of Final Appeal – the city’s highest judicial institution – in September last year and told «ABC» that it was for reasons «related to the content of the national security legislation» without further elaborating. 

Separately, newly named head of the Bar Association Paul Harris has also expressed concerns about NSL last month over issues such as suspended extradition agreements that enable fugitives, lacking jury trials for serious cases as per the Basic Law, and new rules that «empower the police to question people about their political opinions». 

«Some of the clauses have no problem,» Harris told reporters last month. «Some will depend on how the court interprets them, and some of them – in my view – cannot be consistent, and these are the ones that I will do my utmost to persuade the government to modify.»