Hong Kong can do better at spreading the word about independent judiciary

Bernard Chan says misunderstandings about legal system hurt business

PUBLISHED : Friday, 27 December, 2013, 3:31am
UPDATED : Friday, 27 December, 2013, 2:22pm

Hong Kong is, according to some industry insiders, losing business and opportunities in a sector that contributes significantly to our success as an exporter of high-value services. The sector is the law, and the problem concerns overseas perceptions about the constitutional status of Hong Kong and the integrity of our legal system.

One example I heard of involved negotiations between Hong Kong and American corporate lawyers concerning a business transaction. The US lawyers did not want the deal subject to Hong Kong law or using Hong Kong as the arbitration venue. They felt Hong Kong would not be a "neutral" location and instead wanted to use Singapore as the jurisdiction.

Someone involved in the deal tells me the Americans feared that Hong Kong could be subject to mainland influence. He was not happy with this, either professionally or as a Hong Kong citizen, and he decided to convince the Americans they were mistaken.

He succeeded. And indeed he had a good case. He told his American counterparts that Hong Kong's use of English law dates back more than 150 years. He pointed out that big British and American law firms have presences here because of our independent legal system.

He told them our system is actually more independent as it allows international law firms licences to practise local law - unlike many other Asian jurisdictions, including Singapore. It even allows many overseas judges to sit in courts, including the Court of Final Appeal. Our arbitration system is similarly neutral and open.

The Americans were persuaded. But such misunderstandings may be growing among potential overseas clients - and are quite possibly being spread by overseas rivals. Many believe the sector is suffering "leakage" of work to competing jurisdictions as a result.

If so, this will cost us economically. The legal market, at some HK$24 billion in revenues, is equivalent to about 1 per cent of our gross domestic product (versus over 3 per cent in New York and 0.65 per cent in Singapore). International law firms account for about half this market in Hong Kong. Work for mainland corporate clients alone brings in revenues estimated at HK$1.5 billion to HK$3.3 billion a year. This sort of work (listings, regulatory compliance, mergers and acquisitions) is high-value and is a growth industry.

Some members of the legal profession fear that Hong Kong is losing transactions worth as much as HK$15 billion a year in mainland corporate work, arbitration cases and syndicated loans. Obviously, Hong Kong could never expect to get 100 per cent of the pie, but it should not be losing market share because overseas parties have the wrong idea about what we have to offer.

Hong Kong's future economic success depends on delivering the best quality services. We certainly don't have a competitive edge in terms of low wages or rents, so high value is the only way forward.

We already compete on quality. At times, the result may be inconvenient, such as when mainland shoppers come here in large numbers because they trust goods and services on this side of the border. But this is a sign we are doing things right.

In effect, they are expressing a high degree of trust in our institutions. They are acknowledging that our regulatory structures, our bureaucracy, our enforcement agencies and our laws and legal system are superior. Obviously, it is essential to keep our institutions that way.

We can all help. Everyone in Hong Kong takes it for granted that we have an independent judiciary - but do our business and social contacts overseas know? Making sure they understand this about Hong Kong could make a real difference to our future ability to compete on quality.

Bernard Chan is a member of the Executive Council


You may also like