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 legislation.
With greater than 12,000 attorneys and a whole bunch of legislation corporations together with dozens of international practices, Hong Kong has lengthy loved a repute as a worldwide authorized hub.
The territory’s frequent legislation system, massive capital markets and lively monetary actions provide ample alternatives for high international corporations. London’s “magic circle” legislation 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 referred to as “one nation, two methods”, beneath its handover from British to Chinese language rule in 1997. Its internationally recognised frequent legislation system was a cornerstone of that mannequin and the town’s success.
However authorized practitioners, together with company attorneys, are involved the broadening scope of a sweeping nationwide safety legislation might jeopardise the independence of the town’s authorized system, a legacy of British administration, as Beijing tightens its grip.
“There may be common concern . . . that persons are not totally understanding the place the boundaries lie,” mentioned a senior company lawyer with a worldwide agency who has labored in Hong Kong for greater than 20 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 prison attorneys have been those largely caught within the crosshairs of the nationwide safety legislation since Chinese language authorities imposed the legislation 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 international attorneys from representing defendants in nationwide safety circumstances after media mogul Jimmy Lai employed a UK barrister to defend him in opposition to nationwide safety costs.
The crackdown on human rights has had a knock-on impact on company legislation corporations. Chinese language state-owned enterprises have over the previous months dropped Mayer Brown, in keeping with three individuals with data of the scenario. This got here after the Chicago-founded legislation agency declined to signify the College of Hong Kong in a dispute over the removing of the “Pillar of Disgrace” memorial to victims of the 1989 Tiananmen Sq. bloodbath.
“In 2019 we have been suggested to scale back our reliance on US legislation corporations as a lot as doable,” mentioned a supply accustomed to state-owned enterprises. “This recommendation grew to become obligatory this yr, so we have to reply to directives from our increased authorities.”
Dentons, one of many largest western legislation corporations in China, is hiving off its operation within the nation in response to Beijing’s intensifying regulation however has retained its Hong Kong operation.
General, there was extra “self-censorship”, mentioned two senior company attorneys in Hong Kong, notably because it pertains to case choice and professional bono work. “Everybody has skewed in direction of extra non-controversial topics,” one of many attorneys mentioned.
Lately, “Hong Kong has transitioned in a short time from being a global to a China-focused monetary centre”, mentioned a senior company lawyer at a global agency who has been primarily based in Hong Kong for greater than a decade.
On this context, extra multinational company shoppers would possibly ponder whether or not long-term contracts needs to be written beneath Hong Kong legislation, two attorneys mentioned. One in all them, a senior company lawyer from a UK agency, added: “For arbitration . . . why don’t we consider Singapore? Why don’t we select Singapore legislation as some kind of center floor?”
Some abroad shoppers have been contemplating switching arbitration clauses in contracts out of Hong Kong. Hong Kong dealt with 344 new arbitration filings final yr, in contrast with 357 in Singapore.
“We’re ready for the truth that now Hong Kong is a extra China-facing metropolis. Our shoppers are certain to be [Chinese] corporations a method or one other,” mentioned 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 mentioned. “Possibly the reply isn’t any.”
The territory’s slowing economic system — with gross home product increasing simply 1.5 per cent yr on yr within the second quarter in contrast with China’s 6.3 per cent — and weaker preliminary public providing exercise are additionally placing stress 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 keeping with knowledge from the Regulation Society of Hong Kong. The variety of Hong Kong companions at Mayer Brown fell from 70 early final yr 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 prepared to relocate to Hong Kong than up to now, two company attorneys mentioned.
Boston-founded Ropes & Grey this yr determined to wind down their enterprise restructuring observe in Hong Kong, citing altering consumer 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 mentioned: “The upkeep of the frequent legislation system, together with its judicial system, in Hong Kong is among the most vital options of the precept of ‘one nation, two methods’.”
Chan Chak-ming, president of the Regulation Society of Hong Kong mentioned the territory nonetheless boasted an “impartial judiciary with [a] honest and open frequent legislation system”. On the nationwide safety legislation, he added: “It’s incorrect, as a precept, to suggest that somebody, for instance a lawyer, may be above the legislation to the extent that equal software of the legislation to the lawyer could have a ‘chilling impact’.”
For some attorneys, the scenario is extra nuanced. “When you’re speaking about legislation, individuals don’t need threat,” mentioned the lawyer who had been in Hong Kong for greater than 20 years. “They need certainty.”