After facing one of the largest protests in the city’s history on June 9, and then repeated protest and clashes with police last Wednesday, the Hong Kong government suspended efforts to pass its extradition bill. The bill would have required the city’s judges to extradite criminal suspects to Mainland China with minimal safeguards and facilitated asset seizure within the territory. Debate has been suspended, but the government promised to introduce a revised version. Today saw another massive march. The episode demonstrates the paradox at the heart of Hong Kong’s status as a legal center. This status depends on Hong Kong’s separation from the PRC legal system, even as its importance to the PRC may make such separation less tolerable to Beijing.

 

Greater Bay Area

Hong Kong is a particularly desirable seat for China-related arbitration. The city has a common law court system strongly influenced by English approaches to contract law. Its laws favor enforcement of agreements to arbitrate and of arbitral awards, and allow the courts to intervene in support of arbitration. Hong Kong has an agreement on award enforcement with the Mainland that resembles the New York Convention and has recently concluded a new agreement that will allow judges on both sides of the border to assist the arbitral process. Its lawyers are typically fluent in English, Cantonese (which means they can read documents in Chinese characters), and, increasingly, Mandarin. Beijing’s influence on the city’s politics, problematic from the perspective of many Hong Kongers, probably increases the comfort-level of Chinese state-owned enterprises. In short, Hong Kong is a convenient location that can cater to Chinese parties, including SOEs, with enough English law influences not to put foreigners off.

Mainland Chinese arbitration providers, such as the China International Economic and Trade Arbitration Center (CIETAC) and Shenzhen Court of International Arbitration (SCIA), have sought to capitalize on Hong Kong’s status. CIETAC, originally China’s only international arbitration provider, remains a leading organization. The SCIA is more of an upstart, having once been a CIETAC office that declared its independence in 2012. The SCIA’s investment rules make Hong Kong the default seat and its arbitrator list includes Hong Kong practitioners, who are conveniently close to Shenzhen. Not to be outdone, CIETAC opened a Hong Kong office in Fall 2012. The smaller China Maritime Arbitration Commission did so in 2014.

Both the local and central governments have promoted the city as a center for arbitration as part of a Greater Bay Area in the Pearl River Delta. Such a status may drive a perceived need for legal integration—and measures like the extradition bill.

 

Neutrality in Question

The extradition bill, however, undercut an important part of Hong Kong’s desirability. Hong Kong maintains its own immigration system and criminal courts. Within the PRC, parties have been known to try to get the local police to file criminal charges in business disputes, and the local police have been known to oblige. A contract interpretation matter that should be arbitrated suddenly also becomes criminal fraud—the suspect’s passport seized until the charges are dropped. The standard advice to parties outside of the PRC is don’t go to Mainland China for the duration of the dispute and don’t send your employees there. By contrast, Hong Kong has been neutral ground. Parties and witnesses can travel to an arbitration in Hong Kong without fear. Bankers and accountants know there will be limits to any criminal liability.

It is perhaps for this reason that the Hong Kong chapter of the International Chamber of Commerce came out against the extradition bill, adding its voice to the American Chamber of Commerce, governments, a large array of NGOs, the Hong Kong Bar Association, and even private businesses.1)Thank you to Susan Finder for alerting me to this letter. The ICC has a Hong Kong office in part to court Mainland Chinese customers—so its intervention was unusual to say the least. The ICC’s letter to the Hong Kong Legislative Council covered the same ground as many others—pointing out that investors choose Hong Kong for their business and related dispute resolution, in part, because it meets “international standards in terms of protecting personal safety and ownership of property” and that “people” might “reconsider” this choice if “there is risk of their being removed to another jurisdiction which does not provide the protection they enjoy in Hong Kong”. [para 4] It also pointed out the PRC Central Government’s reliance on Hong Kong as part of the Belt and Road Initiative and its plans for a greater Pearl River Delta development area. It noted that “the government has worked to promote Hong Kong to be the seat of legal and dispute resolution services on the basis of Hong Kong’s rule of law widely known internationally”. [para 7]

If Hong Kong becomes a less desirable seat, more dispute resolution business may move to Singapore. Only a few hours by plane from Hong Kong, Singapore also boasts a common law legal system, favorable legislation, and lawyers who speak English and Mandarin. Parties may also choose Seoul, which is actively making a bid for regional business and could offer less political risk. Even if businesses constructively seat the arbitrations in Hong Kong but hold the arbitrations elsewhere, the city stands to lose out on the money that having people physically in the jurisdiction brings.

 

Trouble on the Belt and Road?

The PRC stands to lose as well. Through initiatives like the Greater Bay Area dispute resolution hub and China International Commercial Court (ably chronicled by Susan Finder), PRC policy-makers are seeking to influence the development of global civil procedure norms. When arbitration business moves out of Chinese territory and away from Chinese arbitration providers, the PRC loses an important avenue to do so.

The extradition bill now hangs over the city like a suspended sentence. Should hardliners feel they are losing too much control—they can revive it again. Next time, other measures may have eroded the citizenry’s ability to protest. A letter from the ICC is not going to be enough.


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References   [ + ]

1. Thank you to Susan Finder for alerting me to this letter.

2 comments

  1. The question of whether the proposed and now suspended extradition bill and the protests have any impact on Hong Kong as a seat of arbitration requires a careful and objective analysis.

    Protests themselves are not a source of concern. On the contrary, they are a reflection of the openness and freedom of speech of a society. In fact, protests occur regularly in HK on different scales (like other major seats of arbitration such as London and Paris), but most protests in HK are peaceful and orderly. According to BBC, “few cities in the world protest with the same explosive civility as Hong Kong”. HKers are used to express their views through protests or demonstrations and their right to do so is guaranteed by the HK Basic Law. This alone distinguishes HK from many other societies in Asia.

    The author’s article includes inaccurate statements about the proposed bill. The proposed bill does not “require” HK judges to extradite criminal suspects to mainland China as the article says. HK judges would independently review any request for surrender whose decisions could be challenged up to the HK Court of Final Appeal which includes eminent HK and foreign judges from the UK, Canada and Australia (such as Lord Hoffman, Lord Neuberger, Lord Millet, Robert French and the newly added former Canadian Chief Justice Beverley McLachlin and current President of the UK Supreme Court Lady Baroness Hale). The bill also proposed other safeguards including the “double criminality” requirement, a high threshold for triggering a request concerning the most serious crimes punishable by imprisonment of at least 7 years in HK, and no surrender for any political offence or purported charges based on race, religion, nationality or political opinions. I would not call these safeguards “minimal” as the author did.

    Another incorrect statement in the article is that the HK government “promised” to introduce a revised version. However the press article cited by the author on this point did not state that. In fact, Carrie Lam announced on 15 June that the HK government had suspended the bill without setting a deadline for the suspension and the government would “restart [its] communication with all sectors of society, do more explanation work and listen to different views of society”. The Chinese government has expressed its support and understanding of Lam’s decision. Several foreign consulates in HK also welcomed this development. This U-turn shows that the HK government does listen to its people.

    When questioning a jurisdiction’s position as a seat of arbitration, one should first consider what factors really affect an arbitration conducted at the seat. Those factors are laid down in the CIArb London Centenary Principles. Politics is not listed in the Principles because they are generally considered as a matter separate from international commercial arbitration which is a method intended to depoliticize the way how commercial disputes are resolved. The protests and the suspended proposed bill do not change the arbitration system in HK, the way how arbitration is conducted in HK or the HK courts’ support for arbitration.

    Nor do the current events in HK (which concern serious crimes) affect the latest arbitration developments in the city, for example, the HK-PRC arrangement on interim measures and HKIAC’s Russian license. Once the arrangement comes into force, any party to eligible HK arbitration will still be able to seek interim measures from the PRC courts; HKIAC is still the only foreign institution to administer arbitrations in Russia and certain Russian corporate disputes, HK awards are still readily enforceable in the PRC. These remain the unique features of HK arbitration. The incentives for choosing HK as a seat remain strong.

    The authors suggest that more disputes may be submitted to Singapore or Seoul if HK becomes a less attractive seat. I do not wish to comment on these two seats in this post. South Korea has an extradition treaty to transfer fugitives with China which came into force on 12 April 2012. There are similar treaties between China on the one hand and France, Italy, Spain and Portuguese on the other.

    In any event, HK is a jurisdiction with a sophisticated legal system that has a strong common law foundation and sufficient safeguards to withstand any political influences. Perception is often not the reality. HK has a long history of being an arbitration hub and its system is tried and tested.

  2. I concur with the comments of TL. No matter what your view on the protests are, I think we can agree that discussion about their impact on the desirability of Hong Kong as an arbitral seat should be based on fact and not crude conjecture.

    Worst still is the article’s tendency to conflate its own conjecture with the reasoning of institutions, such as the ICC, in opposing the bill. There is no suggestion anywhere in the ICC’s announcement to suggest that the institution was worried that the proposed extradition bill would mean that persons arbitrating in Hong Kong could have their passport seized, be taken hostage or otherwise. It should be noted that the assumption that this is the widespread practice in China is erroneous, in any event.

    The author makes no attempt to meaningfully engage with the actual substance of the extradition law (flawed though it may be) and its safeguards to examine what its impact would be on arbitration (if any) in Hong Kong.

    As a result, it seems at least to this reader to do more to reinforce shallow perception than anything else.

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