HK arbitration to put investors' hearts at ease

Hong Kong's justice chief has given investors in the Bay Area a shot in the arm, saying the SAR's sound legal network can help them settle complex business disputes and amplify the nation's role in the world economy. Teresa Cheng Yeuk-wah talks to He Shusi in Hong Kong.

The Guangdong-Hong Kong-Macao Greater Bay Area is on track to lure more Hong Kong and foreign investors to the region as they will be guaranteed access to Hong Kong laws and legal services under "one country, two systems", says Hong Kong's justice chief.

As the Chinese mainland economy continues to pick up the pieces in the wake of the COVID-19 shock, the Hong Kong government will seek every way possible to ensure that more business activities and disputes in the Bay Area can be governed by Hong Kong's distinctive common law system, Secretary for Justice Teresa Cheng Yeuk-wah says in an exclusive interview.

Cheng is held up as an authority on the issue, having been a veteran senior counsel in private practice and frequently served as arbitrator or counsel in complicated international commercial or investment discords before being appointed to head Hong Kong's Department of Justice in 2018. She has been playing an active role in promoting the Hong Kong legal sector's integration into and cooperation with the mainland, especially within the Bay Area.

While China strives for a stronger presence in regional and global economies and boosts multilateralism and collaboration, Hong Kong has a unique and important part to play for the motherland as it's the only common law jurisdiction in the country, she says.

On the commercial side, investors generally prefer common law to be applied in contracts, says Cheng, who was also chairperson of the Hong Kong International Arbitration Centre and vice-president of the International Council of Commercial Arbitration.

Hence, her department is exploring the possibility of launching an initiative allowing Hong Kong-owned enterprises in the Bay Area to adopt Hong Kong laws for civil and commercial contracts, and have arbitration seated in Hong Kong when disputes arise.

A similar arrangement was put in place at the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone in August, enabling Hong Kong, Macao, Taiwan and foreign-funded enterprises registered in the Qianhai cooperation zone to choose applicable laws in civil and commercial contracts.

It provides for the 11,000 Hong Kong-funded enterprises in Qianhai to go for applicable laws, including Hong Kong laws, for civil and commercial undertakings.

Noting that the arrangement is still in its infancy, Cheng says it has been generally well received by businesspeople who told her it's a "very good" move, as they prefer Hong Kong laws under a common law system with which they're more familiar.

She hopes the practice can be expanded to all Hong Kong companies operating in the Bay Area and allow them to choose Hong Kong's arbitration services in settling disputes.

In her view, Shenzhen will be the city to start with before the application is extended to other cities in the Bay Area, leveraging Hong Kong's close ties with Shenzhen and the special economic zone's distinguishing role in the country's deepening reform and opening-up.

"We hope that in allowing this to take place, it'll encourage more Hong Kong companies to invest in the Bay Area. And Hong Kong has the very unique benefit of actually being a platform for some of the foreign companies operating on the mainland."

To push the initiative, some regulation changes and legislative amendments will have to be done on the mainland, stresses Cheng. The DoJ has been in discussions with mainland authorities and it's hoped that some progress can be made as soon as possible.

Thanking the central government for its strong support, Cheng says the relevant mainland authorities have been "very supportive" of the plan. Bearing in mind the country has for a long time been saying it wants to deepen the opening-up policy, Cheng says. This will also further promote Hong Kong's integration with the other cities in the Bay Area cluster, she adds.

To keep arbitration services in the Bay Area in line with international practices, Cheng signed a supplemental arrangement concerning mutual enforcement of arbitral awards between the mainland and the HKSAR with Yang Wanming, vice-president of the Supreme People's Court, last month.

The amendments are the first to be made since the agreement was implemented in 1999. It has provided a simple and effective mechanism in both places on reciprocal enforcement of arbitral awards, and fostered legal and judicial cooperation in civil and commercial matters.

With four items amended, the supplemental arrangement will streamline and strengthen its implementation, says Cheng. The importance of arbitration cannot be understated, because the number of cross-boundary commercial disputes arbitrated is on the rise. So awards to be enforced in this way will offer businesses a lot more protection and predictability in the Bay Area, she says.

Cheng notes that a designated pilot examination will kick off in Shenzhen in January for Hong Kong and Macao legal practitioners to secure the required mainland qualifications and practice law in the nine Bay Area cities in Guangdong province.

The examination will pave the way for young solicitors and barristers with five years of post-qualification experience to provide legal services in the region.

All these measures highlight Hong Kong's common law system that international investors prefer. They will be conducive to the development of the SAR's legal and dispute resolution services in the Bay Area and lift the city's status as a global hub for legal, deal-making and dispute resolution services, says Cheng.

Disputes go tech

COVID-19 has brought significant disruptions to the international supply chain. The huge loss of business due to social distancing and other anti-pandemic measures would lead to serious cash flow issues if payment is withheld from micro and small and medium-sized enterprises due to disputes, endangering their survival, Cheng warned in a recent blog.

The DoJ launched a COVID-19 Online Dispute Resolution Scheme in late June for Hong Kong businesses, in particular MSMEs, to settle low-value disputes arising from the pandemic, with the claim amount capped below HK$500,000 (US$64,500).

According to a recent study by the Asia-Pacific Economic Cooperation Business Advisory Council, 94 percent of MSMEs singled out dispute resolution as one of the greatest challenges they face when trading across borders. Hence, the DoJ has also suggested the development of an online data storage platform for MSMEs called "Hong Kong Legal Cloud".

The platform would be an online facility equipped with advanced information and security technology to provide secure and affordable data storage services for day-to-day case management, file management and remote access to files for legal dispute resolution services, Cheng says.

She says the facility will undoubtedly promote Hong Kong businesses in the Bay Area, helping MSMEs to resolve cross-border disputes in a timely and cost-efficient manner by overcoming geographical barriers.

The DoJ is working closely with the business sector to secure a service provider and hopes to have the platform rolling at an appropriate time, she says.