Hong Kong Arbitration: Lawyers and Companies Are Just Saying No

In August, 2019 — in Hong Kong for International Business: Stick a Fork in It, I wrote how Hong Kong’s days as Asia’s leading international business hub were over and I made the following predictions:

  • Companies that were deciding between Hong Kong or Singapore for their Asian headquarters would choose somewhere other than Hong Kong.
  • Growing companies with offices in Hong Kong and elsewhere in Asia would reduce their hiring in Hong Kong and increase it elsewhere.
  • Companies would move personnel from Hong Kong to their other Asian offices.
  • Fewer contracts would specify Hong Kong as the venue for arbitration.
  • Companies would move their Hong Kong bank accounts elsewhere.
  • Travelers would choose stopovers other than Hong Kong.
  • Many Hong Kong residents would eventually leave.

My predictions were not pleasant, but they were calling things as I saw them in light of China’s increasing authoritarianism on the mainland and its increasing desire to do the same with Hong Kong. My post drew considerable heat, but it was my prediction on the demise of Hong Kong as an arbitration choice that particularly rankled.

Then in 2022, I wrote The Death of Hong Kong Arbitration, on how I was seeing “a rapid acceleration of contracts no longer calling for arbitration in Hong Kong and why I think foreign companies would be wise to go along with this trend.” That post made the following two arguments for the death of Hong Kong arbitration:

Hong Kong Arbitration Provisions Will Become Increasingly Rare

The lawyers at my law firm believe Hong Kong arbitration provisions rarely make sense. Many of the lawyers at other law firms with whom I have spoken believe the same. With more lawyers no longer believing in Hong Kong arbitration provisions, they will become rarer, and this will accelerate as shunning Hong Kong for arbitration becomes more normalized. With fewer contracts calling for Hong Kong arbitration, we should expect Hong Kong arbitrations to eventually become less common as well.

Hong Kong Arbitration is an Unnecessary Risk

With all that is happening between China (which includes Hong Kong) and Taiwan and the increasing and likely to continue decoupling as between China and the United States, Canada, the EU, Australia, and Japan (and others), does anyone not believe Hong Kong for arbitration will be riskier in the future than it is today?

And if you are a lawyer and you for some reason do not see increasing Hong Kong risks, why would you take the separate risk of choosing Hong Kong now and then facing the potential wrath of your client five or ten years from now for not having chosen some other arbitral body for your contract, when there were no good reasons not to do so?

One can argue all one wants regarding the risks of Hong Kong arbitration, but the mere fact that a lot more lawyers now view Hong Kong as a riskier arbitration venue than Singapore, New York, Geneva, Paris, and London, ought to be reason enough NOT to draft your contracts with a Hong Kong arbitration provision.

I am now ready to proclaim Hong Kong is no more of an international arbitration center than Shanghai or Beijing. All three cities will arbitrate cases involving Chinese companies, but none will be chosen to arbitrate contracts that do not involve Chinese companies. In other words, Hong Kong is not London, nor New York, nor Geneva. Most importantly, it is not Singapore, which has taken so much arbitration work from Hong Kong that whenever Hong Kong arbitration is mentioned for a contract, someone usually mentions how this is the first time in months (or even years) where Hong Kong has even been mentioned.

A recent Nikkei Asia article, Multinationals turn away from Hong Kong for dispute resolution, nails how companies and their lawyers are now choosing arbitration locations other than Hong Kong. Per Nikkei, “Companies drafting new contracts are increasingly choosing places other than Hong Kong as the location for arbitration, a dozen lawyers and corporate advisers in Hong Kong, Singapore and London told Nikkei Asia.”

It then quotes a lawyer who represents Japanese manufacturing companies on how his clients “exclude Hong Kong as a seat of arbitration in contract negotiations, citing possible bias. After 2020, when the national security law was enacted, many Japanese companies think that Hong Kong may not be a neutral place to arbitrate, so they go to Singapore.” Another lawyer with financial services clients said that “Western companies dismiss the Chinese city as an option in negotiations. The perception is that Hong Kong’s judiciary is now part of China, so Hong Kong is often rejected by foreign companies when writing up arbitration contracts. Yet another lawyer put it more bluntly: “Americans . . . simply don’t want to arbitrate . . . in Hong Kong.” I was interviewed by one of the reporters on this story, and this sounds like me and I think it was me, but it was a while ago and I’m just not certain this was me.

A number of lawyers noted how sentiment lags behind the statistics, “as arbitration cases often arise from contracts drafted several years ago.” But the statistics are now catching up as Singapore reported that new case filings hit a historical high for the first quarter of 2023. Not surprisingly, the “HKIAC [Hong Kong International Arbitration Center] did not provide quarterly figures.

There is absolutely no reason to believe the decline in Hong Kong’s desireabily as an arbitration location will do anything but continue. Hong Kong has become “just another Chinese city”, and as such, it will never again be an international arbitration center.