The Death of Hong Kong Arbitration

1. Stick a Fork in Hong Kong Arbitration

Way back in 2019, I wrote a blog post entitled Hong Kong for International Business: Stick a Fork in It. In the first paragraph of that post, I emphatically declared that Hong Kong would cease to be an international business center:

Not sure why nobody has just come out and said this yet, but Hong Kong as an international business and financial center is no more. I take no comfort in saying this because I have many friends in Hong Kong and I’ve always loved going there, but Hong Kong’s special position is over. Kaput. Fini. Terminado. 完. законченный. Done. Over. No more.

In my second paragraph, I foretold what has happened to Hong Kong since then:

I foresee the following:

    1. Companies that were deciding between Hong Kong or Singapore for their Asian headquarters will choose somewhere other than Hong Kong.
    2. Growing companies with offices in Hong Kong and with offices somewhere else in Asia will increase their hiring outside Hong Kong and decrease or eliminate their hiring in Hong Kong.
    3. Companies with offices in Hong Kong and with offices somewhere else in Asia will move personnel from their Hong Kong office to their other offices.
    4. Fewer contracts will be drafted with Hong Kong as the venue for arbitration.
    5. Companies will move their Hong Kong bank accounts elsewhere.
    6. Travelers will choose somewhere other than Hong Kong as their Asia stopover. It is no coincidence Cathay Pacific stock hit its 52-week low today.
    7. Many Hong Kongers will eventually go elsewhere.

All these things have happened. This post focuses on why I am foreseeing 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.

2. Hong Kong Arbitration Provisions Will Become Increasingly Rare

The lawyers at my law firm believe that 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 far less common as well.

3. Hong Kong Arbitration is an Unnecessary Risk

There are two camps of lawyers when it comes to Hong Kong arbitration today. There are those who think it is every bit as good and as fair as it was ten years ago and there are those who do not think this. Without choosing a camp, my view is that for all but the most controversial/politically important arbitrations, Hong Kong arbitrations today are probably every bit as good and as fair as they were ten years ago.

But I say probably, because I think it is hard to say.

Let’s start by looking at two extremes. On one side might be a massive dispute involving a Chinese company’s allegedly improper use of cutting edge semiconductor technology or a dispute implicating a force majeure provision related to a Mainland China COVID lockdown. I would be extremely worried about arbitrating either of these cases in Hong Kong.

On the other extreme would be a basic breach of a contract regarding bad quality toys supplied by a Chinese manufacturer. I would not be worried about arbitrating this sort of case in Hong Kong.

But even for the toy case, Hong Kong would be a lousy location if you wanted the arbitration to be conducted in person. I say this simply because Hong Kong — like Mainland China — has, as pretty much everyone knows, some of the most draconian COVID entry, quarantine, and testing laws in the world.

So even today, Hong Kong has special risks that are not present in places like Singapore, New York, Geneva, Paris, or London.

But what about five or ten years from now? 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, 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.

What are your thoughts?