HONG KONG • International companies are increasingly avoiding Hong Kong as a jurisdiction for settling disputes through arbitration, one of the clearest signs yet that China's tightening grip on the financial hub has eroded trust in its legal system.
Businesses are instead choosing rival hubs like Singapore, Paris and London, according to interviews with arbitration lawyers, a shift that has accelerated since the Chinese government bypassed Hong Kong's legislature to impose a sweeping national security law.
Lawyers say the new legislation has raised doubts about the independence of Hong Kong arbitrators, who are now subject to a vaguely worded statute carrying potential life sentences for crimes including subversion of state power and collusion with foreign forces.
Of particular concern is the potential impact on contract disputes with Chinese companies, according to Mr Khelvin Xu, a partner at Rajah & Tann Singapore who specialises in international arbitration and commercial litigation.
Mr Robert Rdoda, partner at Dentons Hong Kong, said: "Parties to contracts are questioning whether Hong Kong remains a neutral and effective seat of arbitration."
Hong Kong's Common Law system and highly regarded stable of legal professionals have long underpinned its appeal as a financial hub.
But some fear the city is becoming a less safe place to do business as China plays a more assertive role in Hong Kong affairs.
The security law is one reason why Mr Wu Gang, who runs a Canada-based fintech company, has been opting for alternative jurisdictions, including Singapore, when drafting arbitration clauses in contracts with counterparties in Asia. He also cited Hong Kong's near shutdown at times last year because of anti-government protests.
"The social unrest and changes in law have prompted us to think twice," Mr Wu said.
Before this year, Hong Kong was one of the world's top arbitration centres. It handled at least 308 disputes involving US$4.7 billion (S$6.5 billion) last year, figures from the Hong Kong International Arbitration Centre show.
Companies use arbitration as an alternative to litigation in courts, agreeing to designate an independent third party to resolve their disagreements in private.
Hong Kong's appeal as an arbitration hub may have diminished this year, but it still offers advantages over rivals, said Mr Rhoda.
For one, it is the only place outside mainland China where parties to arbitration can obtain interim relief from Chinese courts, preventing companies from liquidating assets. That has not stopped some firms from seeking alternatives.
Singapore, which has been moving ahead of Hong Kong as an arbitration hub in recent years, is well positioned to win business from those who view Hong Kong as increasingly part of mainland China, said Rajah & Tann's Mr Xu.
Mr Thomas Kendra, a Paris-based partner at Hogan Lovells, said: "Will companies reconsider choosing Hong Kong as their place of arbitration? Definitely.
"I would say that the first place that could benefit would be Singapore."
BLOOMBERG
