Hong Kong’s independent judiciary and long-established respect for the rule of law make it a strong candidate as a regional dispute resolution centre for infrastructure investment. However, it’s proximity to China is still a deterrent for some parties.
For multilateral financial institutions like the Asian Infrastructure Investment Bank (AIIB), which is currently exploring where it would like to negotiate such disputes, Hong Kong is a leading candidate.
“There are various venues across the region that are well-established, rule of law-based jurisdictions, supportive of arbitration and other alternative dispute resolution, with a sophisticated professional services sector – in our view, Hong Kong is one of those jurisdictions,” an AIIB spokeswoman told AsianInvestor.
That is encouraging for the city's financial regulators, who want to establish Hong Kong as a leader in regional infrastructure investment.
Because no matter how meticulous you are in drafting an infrastructure investment agreement, the asset class can be so granular and complex that there’s still a strong potential for disputes, Eddie Yue, deputy chief executive of the Hong Kong Monetary Authority (HKMA), said at an industry event in October.
“The strength of Hong Kong is that we practice a common law system that's well understood globally and that's transparent and has a reputation of being fair and independent,” Yue said at the FT-AIIB Summit.
In the words of the AIIB spokeswoman, "Asia, generally, is an increasingly vital and advanced dispute resolution marketplace."
Trouble is, there are very few jurisdictions around Asia that have the same levels of competence, independence, and international repute at the judiciary level.
That is Hong Kong’s biggest comparative advantage, Charles Allen, Hong Kong-based partner and head of the commercial litigation and international arbitration practice at US law firm Orrick, Herrington & Sutcliffe, agreed.
Another is Hong Kong's proximity to China, especially projects taking place in southern China.
“For some Chinese parties, there is an attraction to coming to Hong Kong that is not available in other jurisdictions,” Allen told AsianInvestor.
It's not just the physical proximity but the linguistic and cultural proximity too, as well as the business links that Chinese companies and project operators might already have with Hong Kong.
“They might actually prefer Hong Kong to be the arbitration place because, one, its practices are such that most of their partners actually are comfortable with it, and, secondly, it's also a place where they already have a certain familiarity … with the professional services here, a place where they can use their language quite easily in terms of talking to the lawyers,” Yue told the event audience last month.
However, having Communist China next door can be a bit of a double-edged sword when you're a legally autonomous territory but still belong to that country.
With doubts nagging away over the extent to which China has an undue influence over Hong Kong and whether the city is truly a safe place in which to resolve disputes, some legal work has probably leaked to Singapore, Allen said.
But overall he remains unperturbed.
“The objective truth is that, in fact, it is as safe as it ever was, not just because we have a good legal infrastructure here, but also because the arbitrators are often the same people," he said. "Some of Hong Kong's top arbitrators sit as often in Singapore as they sit in Hong Kong. It's very often the same tribunal doing cases in both jurisdictions.”
The difference between the two Asian financial centres is more in the area of self-promotion.
Singapore has been actively promoting itself as an international dispute resolution centre, having established its International Commercial Court in January 2015, and Hong Kong needs to do a better job of selling itself, Allen said.
“The [Hong Kong] government probably needs to be a little bit more self-aware because Singapore does not have this perception problem – there isn’t the elephant in the room [of China] that we have here,” he said.
In the eyes of the AIIB, though, Hong Kong and Singapore should think of ways to work together to increase investor activity in the region, rather than compete over matters like dispute resolution.
“They need to think of it from a regional perspective: how do they complement each other, and how to think of this holistically if you're trying to attract investors to the region,” the AIIB spokeswoman said.
Increasingly in Asia there is a desire to work collaboratively, such as within the Asean region and on China’s Belt and Road Initiative. Hong Kong is well positioned to take a leading infrastructure investment role within those networks, the spokeswoman added.
“Hong Kong has traditionally always been that meeting place, even between the East and the West, so I think it's a natural evolution for Hong Kong as it finds the role that it wants to play in the context of infrastructure financing in Asia, to be that meeting ground for mainland Chinese and then other global investors,” she said.