When Hong Kong justice minister Paul Lam final month hailed the Chinese language territory’s strong authorized system and pool of “diversified” authorized expertise, he touched on what’s each the most important draw for enterprise and the most important potential blot on their future there — the rule of regulation.
With greater than 12,000 attorneys and a whole lot of regulation corporations together with dozens of international practices, Hong Kong has lengthy loved a popularity as a worldwide authorized hub.
The territory’s frequent regulation system, giant capital markets and lively monetary actions provide ample alternatives for prime international corporations. London’s “magic circle” regulation corporations and most of the US’s prestigious “white shoe” corporations have an workplace presence within the metropolis.
Hong Kong was promised a restricted diploma of native autonomy for 50 years, an association generally known as “one nation, two methods”, beneath its handover from British to Chinese language rule in 1997. Its internationally recognised frequent regulation system was a cornerstone of that mannequin and town’s success.
However authorized practitioners, together with company attorneys, are involved the broadening scope of a sweeping nationwide safety regulation may jeopardise the independence of town’s authorized system, a legacy of British administration, as Beijing tightens its grip.
“There may be common concern . . . that individuals are not totally understanding the place the boundaries lie,” stated a senior company lawyer with a worldwide agency who has labored in Hong Kong for greater than twenty years. The seven company attorneys who spoke to the Monetary Instances for this text have requested anonymity due to the sensitivity of the topic.
Human rights and felony attorneys have been those principally caught within the crosshairs of the nationwide safety regulation since Chinese language authorities imposed the regulation in 2020 within the wake of citywide pro-democracy protests. Hong Kong’s chief John Lee final month issued bounties totalling $1mn for the arrest of eight self-exiled activists, together with two attorneys.
Hong Kong has additionally barred foreign lawyers from representing defendants in nationwide safety instances after media mogul Jimmy Lai employed a UK barrister to defend him in opposition to nationwide safety prices.
The crackdown on human rights has had a knock-on impact on company regulation corporations. Chinese language state-owned enterprises have over the previous months dropped Mayer Brown, in line with three folks with information of the scenario. This got here after the Chicago-founded regulation agency declined to characterize the College of Hong Kong in a dispute over the elimination of the “Pillar of Disgrace” memorial to victims of the 1989 Tiananmen Sq. bloodbath.
“In 2019 we had been suggested to scale back our reliance on US regulation corporations as a lot as potential,” stated a supply aware of state-owned enterprises. “This recommendation grew to become necessary this 12 months, so we have to reply to directives from our greater authorities.”
Dentons, one of many greatest western regulation corporations in China, is hiving off its operation in the country in response to Beijing’s intensifying regulation however has retained its Hong Kong operation.
General, there was extra “self-censorship”, stated two senior company attorneys in Hong Kong, significantly because it pertains to case choice and professional bono work. “Everybody has skewed in direction of extra non-controversial topics,” one of many attorneys stated.
In recent times, “Hong Kong has transitioned in a short time from being a world to a China-focused monetary centre”, stated a senior company lawyer at a world agency who has been primarily based in Hong Kong for greater than a decade.
On this context, extra multinational company purchasers may ponder whether or not long-term contracts ought to be written beneath Hong Kong regulation, two attorneys stated. Considered one of them, a senior company lawyer from a UK agency, added: “For arbitration . . . why don’t we consider Singapore? Why don’t we select Singapore regulation as some kind of center floor?”
Some abroad purchasers have been contemplating switching arbitration clauses in contracts out of Hong Kong. Hong Kong dealt with 344 new arbitration filings final 12 months, in contrast with 357 in Singapore.
“We’re ready for the truth that now Hong Kong is a extra China-facing metropolis. Our purchasers are certain to be [Chinese] corporations a method or one other,” stated the lawyer from the UK agency.
“However then whether or not Hong Kong as a metropolis is extra promising than Shanghai or Singapore, that’s a tough query,” he stated. “Possibly the reply isn’t any.”
The territory’s slowing economic system — with gross home product increasing simply 1.5 per cent 12 months on 12 months within the second quarter in contrast with China’s 6.3 per cent — and weaker preliminary public providing exercise are additionally placing strain on the company authorized sector.
The variety of registered international attorneys in Hong Kong dropped from 1,533 in September 2018 to 1,428 in August, in line with knowledge from the Legislation Society of Hong Kong. The variety of Hong Kong companions at Mayer Brown fell from 70 early final 12 months to 62 in July, whereas Davis Polk & Wardwell noticed its ranks within the metropolis dip from 75 attorneys in late 2022 to 67 final month.
Overseas company attorneys from international corporations, together with US-based attorneys, are additionally much less keen to relocate to Hong Kong than previously, two company attorneys stated.
Boston-founded Ropes & Grey this 12 months determined to wind down their enterprise restructuring apply in Hong Kong, citing altering shopper wants.
Mayer Brown, Davis Polk and Ropes & Grey didn’t reply to a request for remark.
For now, Hong Kong officers seem largely unconcerned in regards to the metropolis’s standing as a authorized hub.
A Hong Kong authorities spokesperson stated: “The upkeep of the frequent regulation system, together with its judicial system, in Hong Kong is likely one of the most vital options of the precept of ‘one nation, two methods’.”
Chan Chak-ming, president of the Legislation Society of Hong Kong stated the territory nonetheless boasted an “unbiased judiciary with [a] honest and open frequent regulation system”. On the nationwide safety regulation, he added: “It’s incorrect, as a precept, to indicate that somebody, for instance a lawyer, will be above the regulation to the extent that equal software of the regulation to the lawyer may have a ‘chilling impact’.”
For some attorneys, the scenario is extra nuanced. “If you end up speaking about regulation, folks don’t need danger,” stated the lawyer who had been in Hong Kong for greater than twenty years. “They need certainty.”
