10 February 2021

Hong Kong arbitrations reach 10-year high but concerns mount over long-term impact of security law

Protesters Hong Kong

Protesters in Hong Kong before the clampdown by Beijing

Positive data overshadowed by claim businesses may move disputes elsewhere

Hong Kong’s International Arbitration Centre (HKIAC) has published a positive set of results for 2020 – but they have been overshadowed by claims that companies are now considering ‘writing Hong Kong out of legal contracts’ over rule of law concerns.

The HKIAC reports strong growth in the number of filings last year, with the 318 logged disputes representing a 10-year high while the total value of cases on its books hit a record $8.8bn. The centre also stressed the international nature of its work, with 72% of arbitrations and 86% of administered cases featuring international parties. 

However, these cases will have originated before the Special Administrative Region’s (SAR's) controversial national security law came into force in June 2020. And a report in The Financial Times on 31 January suggested Hong Kong’s cherished status as a premier Asia disputes hub is under serious long-term threat. It claimed there had been a “a surge in queries from clients” of leading law firms about “whether to write Hong Kong out of governing law and arbitration clauses”.

The Law Society of Hong Kong subsequently issued a statement defending the jurisdiction. “Hong Kong has been and remains one of the most popular seats for international arbitration,” it said adding that “the independence of the judiciary are constitutionally guaranteed” while also citing “the presence of world-class legal professionals, including high-calibre solicitors and a strong independent Bar”. 

While it acknowledged “Hong Kong, like many other jurisdictions, is faced with such challenges [to the rule of law] from time to time”, it said the SAR’s judicial and legal systems remained robust “notwithstanding … social unrest since the latter half of 2019”.

Law Society president Melissa Pang told the South China Morning Post the society had felt obliged to explain the situation “fairly and impartially”, while Teresa Cheng SC, Hong Kong’s Secretary of Justice, a former HKIAC chair, said the Financial Times article had presented “an incomplete picture”. 

Cheng also praised reciprocal recognition of interim arbitral measures by China. The revised arrangements saw 37 applications made to the mainland Chinese courts, preserving assets worth approximately $1.6bn in 2020. 

Meanwhile, the HKIAC reported 20% growth in administered arbitrations in 2020. That rise follows 2018 reforms to HKIAC’s rules allowing for emergency arbitrations, early determination, third-party funding and the joinder or consolidation of multi-party proceedings.

Thirty-five per cent of new arbitrations started in 2020 subsequently invoked multi-party provisions, allowing the hearing of disputes to be streamlined.

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