As cross-border disputes become more common in an increasingly connected world, Hong Kong is making a big push to become the dominant regional center for cross-border dispute resolution and international arbitration in Asia.
For a city that already holds status and prestige as one of the world’s top international financial centers, that goal would seemingly be easily achievable.
It is not.
Standing in the way is stiff competition from Hong Kong’s Asian neighbors, who also want a piece of the valuable arbitration pie. And Hong Kong itself, by virtue of it being China’s Special Administrative Region, also faces obstacles at home.
The building of a strong brand in arbitration—a private dispute resolution form favored by businesses—helps draw more investment and boosts the local economy. So it’s not surprising that Hong Kong, as well as its Asian neighbors, would want to be the clear and irrefutable leader.
“A reputable and sophisticated dispute resolution mechanism is instrumental to the development of Hong Kong as a major international financial and commercial center,” said Ronald Sum, an arbitration partner at Locke Lord.
China’s Belt & Road Expected to Increase Arbitration
Much of Hong Kong’s plan to stand out as an arbitration hub is tied to China’s massive Belt and Road Initiative, the strategic plan that roughly follows the ancient Silk Road trade routes that connected Asia and the West and involves infrastructure development and investment from China into Central Asia, South Asia, Southeast Asia, Africa, the Middle East and all way into Eastern Europe.
To a majority of developing countries covered by the Belt and Road routes, Hong Kong believes it offers the promise of a mature and independent legal system and a neutral venue to resolve disputes arising between parties from the region’s complex political and legal cultures. And Hong Kong’s established reputation as an international financial center has led the city’s leaders to conclude that of all the major cities in Asia, it is the obvious choice for settling such disputes.
But so far, Hong Kong’s ability to invent itself as an arbitration and dispute resolution center has been anything but obvious. The city’s proximity to mainland China aside, Hong Kong is not alone in its ambition to be the base for international arbitration center in Asia. It has a formidable competitor in rival financial center Singapore, where the government has been relentlessly promoting the Singapore International Arbitration Center (SIAC) around the world.
“Singapore has been doing everything in the country’s power in promoting international arbitration,” said Gary Gao, a Shanghai-based disputes partner at China’s Zhong Lun Law Firm.
And Singapore’s efforts have paid off. In May, a study released by Queen Mary University of London, which surveyed 922 respondents, named Singapore as Asia’s most preferred venue for international arbitration. Only three years ago, Hong Kong held the top spot in the same study.
In those three years, Hong Kong has seen a reversal of fortune when it comes to attracting international arbitration cases. In 2014, the Hong Kong International Arbitration Center handled 477 new cases, while SIAC had only 222—less than half the Hong Kong number. But between 2015 and 2017, new disputes handled by SIAC grew by 67 percent, from 271 to 452. The HKIAC, meanwhile, received only 532 new cases in 2017—only 12 more cases than in 2015.
And Singapore clearly wants its share of Belt and Road projects. In October, the SIAC agreed to collaborate on Belt and Road disputes with its Chinese counterpart, the China International Economic and Trade Arbitration Commission.
It’s Not Just Singapore
Meanwhile, Singapore is no longer the only competition facing Hong Kong. All over Asia, markets are gearing up to launch their own international arbitration centers.
In Japan, where the government is relaxing restrictions on foreign lawyers to attract more arbitration practitioners, a new arbitration facility—the Japan International Dispute Resolution Center—was established in Tokyo and Osaka earlier this year. In Korea, the Korean Commercial Arbitration Board merged with the Seoul International Dispute Resolution Center to consolidate efforts to become a cross-border arbitration hub. And Malaysia’s Kuala Lumpur Regional Center for Arbitration rebranded itself as the Asian International Arbitration Center, emphasizing a regional or even global ambition.
Competition is also coming from mainland China. In June, the Supreme People’s Court, the country’s top court, set up two specialized courts in Shenzhen and Xi’an to handle cross-border disputes, especially those related to Belt and Road projects. And both the Shenzhen Court of International Arbitration and the Shanghai Commercial Mediation Center recently launched cooperation with U.S. private arbitration provider JAMS.
But Hong Kong still has one advantage over its rivals. Teresa Cheng, who took over as Hong Kong’s secretary for justice in January, was a longtime arbitration practitioner, both as arbitrator and counsel, before joining the government, and is well-known in Asia’s tight-knit arbitration community.
“She is very much an insider in the arbitration circle,” said Zhong Lun’s Gao, who has previously collaborated with Cheng on cases. Gao and other arbitration lawyers say her knowledge and expertise on the nuts and bolts of international arbitration will be an asset to Hong Kong and its efforts in building itself up as the region’s top dispute resolution destination.
And she appears to be playing the experience card. Her justice department has been more proactive in getting Hong Kong’s name out as a dispute resolution hub for Asia-related cases. In July, she went on a promotional trip to the U.S., visiting both Washington, D.C., and New York, and in early November she led a similar delegation to Tokyo. She also chairs a 14-member Advisory Committee on Promotion of Arbitration, convened by the Department of Justice.
“[Cheng] has been actively participating in the committee’s meeting every month,” said Locke Lord’s Sum, who is also a committee member. Sum said Cheng’s experience practicing arbitration helped the committee focus on logistics, such as immigration and tax incentives that might attract more arbitration practitioners to Hong Kong.
Some of the group’s efforts have seen results. In August, the Hong Kong government rolled out a new immigration scheme that will grant top arbitration and mediation professionals specializing in financial and investor-state disputes residency in Hong Kong without local employment.
Cheng’s justice department has also set up a task force to work on establishing a dedicated Belt and Road dispute resolution center in Hong Kong. Part of that initiative will include an online one-stop arbitration and mediation platform for Belt and Road disputes, dubbed eBRAM.hk.
To facilitate more dispute resolution options, Cheng also wants Hong Kong to look beyond its strength in arbitration and invest more in mediation. The government is now working on rules that will allow online mediation; and last month, it organized an inaugural investor-state mediation training course for foreign and local participants.
The Beijing Factor
But just as Hong Kong wants to play up its close ties and proximity to China as it promotes itself as an arbitration hub, the connection has become a double-edged sword. As Beijing tightens its grip on the Special Administrative Region, the business and legal communities have raised questions about Hong Kong’s impartiality. This month, solicitors and barristers in Hong Kong expressed concern over the government’s decision to deny a foreign journalist a visa renewal, noting that Hong Kong’s rule of law reputation might be damaged.
Cheng dismisses the criticism. In a speech last month during an arbitration conference organized by the HKIAC, she insisted that the rule of law remains a cornerstone to Hong Kong’s success, and cited Hong Kong’s top ranking in judicial independence among Asian jurisdictions in the World Economic Forum’s 2018 Global Competitiveness Report.
“We all know that to businesses, providing certainty, predictability, as well as transparency is very important,” she said, emphasizing Hong Kong’s separate legal system from mainland China under the “one country, two systems” doctrine. “Party autonomy is respected, and nationality should not become a necessary hindrance to the appointment of arbitrators.”