'International firms are comfortable with the common-law environment here, while the Chinese and Taiwanese say Hong Kong is still, after all, Chinese. As a result, Hong Kong is chosen.'

The rule of law - described by one senior government official as Hong Kong's strongest ideology - is often cited by bureaucrats as the jewel in the crown of the city's success as a world-class financial centre and attractive base to live and do business.

Solicitor-General Robert Allcock said the rule of law, or lack thereof, had very real implications for businesses.

'If you look at it from the point of view of the international businessman or investor, any place in which he puts his money or business, he's got to see what risks he's facing. If a business wants to do something, the procedure and regulations are set out in law so he knows exactly where he stands. When you come to Hong Kong, you know what the rules are,' Mr Allcock said.

'In some places, decisions can be made by the government in an arbitrary manner, such as withholding licences to do business or confiscating licences. Things can happen which would be devastating for business. But it is impossible for government to act in a high-handed manner when you've got remedies ... an independent and impartial judiciary that determines disputes, and laws that are published and acceptable.

'In essence, no one is above the law. You do hear in some jurisdictions that the judiciary leans a certain way. Nobody would say that about our judiciary. Businesses have confidence that justice will be done.'

Foreign law firms sit here cosily in familiar common law surroundings at the doorstep of huge opportunity across the border.

It is no surprise then that Hong Kong's International Arbitration Centre receives up to three times as many cases as its London counterpart. HKIAC last year received almost five times as many cases as the Singapore International Arbitration Centre.

Hong Kong has been called a regional centre for arbitration services, legal services, legal education - even a regional human rights hub. These are not only welcome titles for law firms that set up shop here but also seep into the fine details of living and doing business here, international lawyers say,

Allen and Overy partner Michael Liu, who spends a third of his time on the mainland, said he was in Beijing for a month when Sars hit and the information gap left him and his colleagues very much in the dark about the spread of the disease. In contrast, the Hong Kong government had daily briefings and newspapers documented every Sars case.

'It was certainly not as good as being in Hong Kong,' he said.

Robert Pe, head of Hong Kong litigation at Paul, Hastings, Janofsky & Walker, said he simply loved living here. 'I got fed up with my wife complaining about the UK, about having our car stolen at knifepoint, having not much child care ... I really do love living here,' he said.

Mr Seow said while there was a 'huge rush to go to China' around 2000, 'after Sars, there was a return to Hong Kong'.

Still, estimates vary. But according to a State Council paper last November, there were 148 foreign law firms on the mainland, 98 in Shanghai. Is the increasing trend for foreign law firms to set up offices on the mainland slowly making Hong Kong irrelevant in the field of legal services?

Mr Pe laughed at the suggestion. 'It is such nonsense - Hong Kong is highly relevant,' he said. 'We have a common-law system, tremendous infrastructure built over many decades, a judiciary that is genuinely independent and can be trusted. People don't have any concerns about resolving their disputes here.'

Mr Liu, who has been heavily involved in China strategy at his law firm, said Hong Kong would still have a role to play 'in 50 years' time, in 100 years' time'. While the firm has about 30 lawyers in Shanghai and 15 in Beijing, it has 130 lawyers in Hong Kong and plans to keep the lion's share in the city for 'at least the next 10 years'.

'I think they are complementary,' he said. 'The stock exchange here is very important to the mainland market and I think it will continue to be. So long as Hong Kong remains a key financial centre, it will continue to complement the growth in China.'

Mr Liu said the 'system of law in [mainland] China' was adopting good principles from around the world, but remained relatively young. He said Hong Kong played a big role in 'helping change things for the better'.

While Hong Kong remains one of the most liberal places in the world in terms of foreign lawyers getting admission, in Shanghai there has been a backlash against foreign lawyers taking work away from their mainland counterparts.

Mr Seow added that Hong Kong would remain the 'only common-law jurisdiction in China'.

'If you come from a common-law jurisdiction, you would want to have disputes resolved in manner you are comfortable with,' he said.

'In Hong Kong, the arbitration process follows the court process. It's slightly different in CIETAC [the China International Economic and Trade Arbitration Commission], where the emphasis is to get a quick resolution and, for example, you do not usually cross-examine witnesses. People not used to the process may say, 'Hang on, I'm used to putting the case to the other side and calling him a liar'.'

There has been increasing interaction between the two jurisdictions - both positive, through pacts such as the Closer Economic Partnership Arrangement, and controversial, through interpretations of the Basic Law by the National People's Congress Standing Committee.

Common-law lawyers are uncomfortable with mainland interpretation styles, such as the interpretation of the Basic Law provision on the new chief executive's term of office last year.

Prominent constitutional law expert Yash Ghai lamented that such interpretations had dire effects on Hong Kong's rule of law owing to the 'poor skills of legislative interpretation' of the Standing Committee, governed by 'few rules and no, or little reason' and resulting in politically convenient 'diktats'.

However, Mr Allcock said there was no basis for alarmist perceptions of 'encroachment' of the mainland legal system upon Hong Kong.

He added that none of the three interpretations so far had had 'any real impact upon business, finance and investment'.

The secretary for justice is finalising Hong Kong's first agreement with the mainland on the reciprocal enforcement of judgments in civil matters involving monetary compensation, but remains a long way from finalising agreements on rendition and transfer of prisoners. Experts agree that Hong Kong should not only look northwards.

Mr Pe said arbitration business emanated from other parts of East and Southeast Asia. Paul Hastings' Hong Kong office has been working on transactions from India, Korea, Singapore and Indonesia, among others.

'It is just much more convenient to have Hong Kong as the venue if you are dealing with Beijing and Shanghai,' Mr Pe said. 'Singapore is six hours away and the legal community is bigger here as well.'

Mr Allcock said all the government could do was ensure the local legal infrastructure could facilitate expansion of legal services and make Hong Kong more attractive generally.

'We tend to target not only the mainland but Europe, America, Asia - all places we do business with,' he said.

Mr Seow said that as long as Hong Kong could offer the international community 'a high quality of life, a good city to live in, safety, rule of law, efficiency, transparency, amahs and a low tax base' it would be 'a good place to live, not just to do business but raise a family'.

LAW AND SOCIETY

International arbitration cases received in 2005:

Hong Kong International Arbitration Centre: 281

Singapore International Arbitration Centre: 58

Japan Commercial Arbitration Association: 11

Korean Commercial Arbitration Board: 53

Kuala Lumpur Regional Centre for Arbitration: 6

Pending legal initiatives or reforms in HK

Department of Justice proposing amendments to make the Arbitration Ordinance more user-friendly

Law Reform Commission finalising report on allowing lawyer-client 'no win, no fee' contracts

Judiciary implementing Civil Justice Reform report to lower the cost of litigation and raise efficiency

Judiciary has issued paper on granting solicitors higher rights of audience this month

Chinese University of Hong Kong opening city's third law school in September

University of Hong Kong considering a legal clinic to let students be active in filling gaps in legal aid and community advice