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Hong Kong as an International Legal Hub – Opportunities from the 'Belt and Road' Initiative

Hong Kong Policy Research Institute

The One Belt One Road Initiative (OBOR) stretches across around 65 countries in three continents, covering over 4 billion people. The Asian Development Bank estimated that the total investments in Asia between 2010 and 2020 would exceed 8 trillion US dollars. In light of the new opportunities brought about by the OBOR initiative, we should develop and strengthen our legal services, and turn Hong Kong into an international legal hub.

The Rule of Law is a core value of Hong Kong and the cornerstone of Hong Kong's success. The best way to preserve the Rule of Law is to further develop our legal infrastructures and to promote our legal services to the world.

Legal Risks of International Infrastructure Development Projects

1. Jurisdictional Risks

The countries joining the OBOR Initiative have different jurisdictions (Common Law, Continental Law, Islamic Law, Socialist Law, and Mixed Law). Cross-border investors must fully appreciate and control the risks associated with multi-jurisdictional transactions.

2. Substantive Law Risks

It goes without saying that the substantive law in another country may invariably differ from that in the home country of the investor. Multi-jurisdictional deals would normally involve Business Organization and Company Law, Investment Law, Contract Law, Competition Law, Employment Law, Intellectual Property Law, Tax Law, and currency regulations.

3. Choice of Governing Law and Submission to Jurisdiction

It is crucial to expressly spell out which set of laws should be used to interpret the parties' obligations and hence the phrase “Choice of Governing Law”. A jurisdiction clause is also important in the parties' agreement on using the court of a named country to take jurisdiction over any disputes that may arise.

Due Diligence

Legal due diligence is an essential part of a transaction that involves acquiring objective and reliable information prior to completion. China as the leader of the OBOR Initiative needs highquality due diligence services to assist it in identifying and reducing investment risks.

The Strengths of Hong Kong's Legal Sector

A Well-developed Legal System

Hong Kong is renowned for its well-developed legal system and its forward-looking arbitration industry. Our legal sector has close ties with both the Mainland legal authorities and the international legal community.

The Reputable Hong Kong International Arbitration Centre

Since 1985, the Hong Kong International Arbitration Centre has been offering world-class dispute resolution services including arbitration, mediation, adjudication and domain name disputes resolution. It was considered the third most preferred and used arbitral institution worldwide and the most favoured arbitral institution outside of Europe in Queen Mary University of London's 2015 International Arbitration Survey. Moreover, many international arbitration organizations have established branches and offices in Hong Kong, including the International Court of Arbitration of the International Chamber of Commerce, the China International Economic and Trade Arbitration Commission, the China Maritime Arbitration Commission, Hague Conference Permanent Bureau's Asia- Pacific Regional Office and the Permanent Court of Arbitration.

Hong Kong Legal Profession

Hong Kong has a large pool of experienced legal professionals. Apart from the existing 9,000 plus solicitors and around 1,300 barristers, there are currently over a thousand Registered Foreign Lawyers from over 30 different countries practicing in Hong Kong. Under certain circumstances, overseas barristers can be admitted to appear in Hong Kong Courts.

Common Law

Out of around 65 OBOR countries, 17 practise common law. It is well-known that cases from other common law jurisdictions, for instance, England, the United States, Australia, and Canada are persuasive in Hong Kong courts. In entering contracts with China, these countries are unlikely to accept Chinese Law as the governing law of the contracts. By the same token, China may not accept foreign law as the governing law. This conflict presents an inherent problem for the parties in OBOR projects. The choice of Hong Kong Law as governing law in OBOR contracts could be a solution for the parties concerned.

To Conduct Legal Due Diligence

Hong Kong legal profession is experienced in handling complicated cross-border transactions and the relevant legal due diligence. Hong Kong's competitive edge is to manage legal risks on China's behalf. This is how Hong Kong's legal sector can contribute to the OBOR initative.

Policy Recommendations

The legal system of Hong Kong is highly respected in the world. Hong Kong is well-positioned to develop and strengthen its legal services for the OBOR Initiative.

1. Strengthening Hong Kong's Alternative Dispute Resolution Services

(a) Attract overseas arbitration organisations to set up branches in Hong Kong

Apart from our own Hong Kong International Arbitration Centre, a number of reputable international arbitration institutions have already set up branches or regional offices in Hong Kong.

Hong Kong should continue its efforts to attract other reputable arbitration bodies and international organisations to set up offices in Hong Kong, for instance, the London Court of International Arbitration, the International Centre for Dispute Resolution and the World Intellectual Property Organization Arbitration and Mediation Centre.

(b) Set up Hong Kong International Dispute Resolution Complex

The Government has announced to allocate space in the former French Mission Building and the West Wing of the former Central Government Offices to house law-related institutions, including arbitration bodies. We recommend that the Government should establish an International Dispute Resolution Complex that houses all forms of Alternative Dispute Resolution services. The iconic former French Mission Building and the West Wing are ideal for such purpose. In terms of operations, the Complex could mirror those of the Peace Palace in The Hague, the Netherlands and Maxwell Chamber in Singapore. The Complex should also have a designated "OBOR Court" dealing with disputes arising out of or related to OBOR projects. In order to build a world-class Dispute Resolution Complex, we also recommend establishing a Hong Kong Academy of Alternative Dispute Resolution for training and research in dispute resolutions.

(c) Increase the number of dispute resolution practitioners

The number of quality dispute resolution practitioners in Hong Kong, including arbitrators, mediators and adjudicators should be increased. This can be achieved through training and expanding the panel list of arbitrators and mediators by inviting practitioners from overseas.

(d) Promote all forms of Dispute Resolution

The Department of Justice has made good efforts in promoting Mediation in recent years. To this end, the Government has set up working groups, accreditation groups and task forces for Mediation. We recommend that other forms of dispute resolutions (Negotiation, Conciliation, Expert Determination, Adjudication, Arbitration and also Litigation) should receive similar treatments with a view to promoting Hong Kong's capabilities in all types of Alternative Dispute Resolutions (ADR) as a whole.

2. Promoting Hong Kong Law, Hong Kong ADR Services and Hong Kong Legal Services

Hong Kong law closely resembles English law which is highly compatible with laws in other Common Law jurisdictions. We recommend strengthening the promotion of Hong Kong Law as the Governing Law in OBOR and Asian Infrastructure Investment Bank (AIIB) contracts. We should also encourage parties to OBOR projects to submit to the Hong Kong jurisdiction, and advance Hong Kong legal services in general.

3. Appointing a New OBOR Legal Officer

We suggest that the Department of Justice should appoint a new Legal Officer for all OBORrelated matters with the following duties:

(a) Local Level

To liaise with the Law Society of Hong Kong, the Hong Kong Bar Association, and other lawrelated organisations to consult their views on ways to improve the provision of legal and arbitration services related to the OBOR Initiative. The Legal Officer should also facilitate OBOR legal research in Hong Kong.

(b) Mainland Level

To contact Mainland entities with the focus to be placed on the Legal Department or General Counsel of:

  • State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”)
  • China Securities Finance Corporation
  • Wutongshu Investment Platform, a fund wholly owned by the State Administration of Foreign Exchange
  • Xinjiang Uyghur Autonomous Region (as the starting point of the “Silk Road”)
  • Fujian Province (as the starting point of the “21st Century Sea Belt”)
  • State-owned enterprises with projects in OBOR

(c) International Level

To promote Hong Kong's legal sector in the international communities, such as attending international conferences and roadshows, as well as organising conferences and roadshows in Hong Kong.

4. Enhancing Legal Standardisation of OBOR

(a) Set up OBOR Legal Database

We recommend the establishment of a database containing legal information of all OBOR countries. The legal database should be stored within the International Dispute Resolution Complex (see 1(b) above).

(b) Standardisation of OBOR Transnational Law

We believe Hong Kong is well-positioned to initiate the development of a set of transnational law applicable to OBOR projects and transactions. References could be made to The Hague Conference on Private International Law and Convention relating to a Uniform Law on the International Sale of Goods (The Hague, 1964). Moreover, Hong Kong should seek to join AIIB and the Association of Southeast Asian Nations (“ASEAN”) under the name 'Hong Kong, China'. This will enhance Hong Kong's role in the standardisation of OBOR Transnational Law.

5. Enhancing Arbitration Ordinance and Related Legislations

(a) Amend Arbitration Ordinance

The Arbitration Ordinance (Cap 609) was amended in 2011 and 2014 unifying our previous domestic and international arbitration regimes on the basis of the Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law.

We recommend a further review of the Arbitration Ordinance. We note that Singapore Arbitration Rules have recently departed from the Model Law with two new Procedures, namely Negative Judicial Ruling and Early Dismissal.

(b) Legalise “Third Party Funding for Arbitration” and Introduce Apology Legislation

The Hong Kong Law Reform Commission published a paper on legalising “third party funding for arbitration” in October 2015. The Department of Justice has also published a consultation paper on apology legislation. We fully support both proposals because we believe they will reinforce Hong Kong's dispute resolution services.

(c) Strengthen Arrangement of Reciprocal Recognit ion and Enforcement of Judgement between Mainland and Hong Kong in all respects

Since 1997, New York Convention on the Recognition and Enforcement of Foreign arbitral awards have been recognised in Hong Kong courts (and vice versa). Hong Kong has since entered into an “Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong Special Administrative Region” which is limited in scope. We note that the Department of Justice has recently started consultation regarding arrangement with the Mainland on reciprocal recognition and enforcement of judgments on matrimonial and related matters. We support the proposal and recommend entering into comprehensive arrangement with the Mainland on reciprocal recognition in all respects.

(d) Reciprocal Recognition of Arbitration Awards between Taiwan and Hong Kong

Hong Kong has in place with Macau an “Arrangement Concerning Reciprocal Recognition and Enforcement of Arbitral Awards Between the Hong Kong Administrative Region and the Macau Special Administrative Region”. We notice that Taiwan has recently amended its Arbitration Law, allowing Taiwan courts to recognise arbitral awards from foreign countries. We suggest the HKSAR Government should consider entering into similar reciprocal arrangements with Taiwan so that Hong Kong would become the arbitration centre covering the Mainland, Taiwan and Macau.

6. Develop Islamic Finance and Sharia-compliant Products

There are about 23 Islamic countries along OBOR. In this connection, we recommend further developing Islamic Law in Hong Kong.

(a) Promote Islamic Financial Products with Hong Kong Features

Hong Kong is the largest offshore RMB business centre and possesses the biggest offshore RMB funding pool in the world. Hong Kong twice issued U.S. Dollar-denominated Sukuk (Islamic Bond) in 2007 and 2015.

Going forward, we recommend the Government should focus on developing RMB denominated Islamic financial products.

(b) Establish Hong Kong Sharia-compliant System

In order to qualify as “Sharia-Compliant Products”, financial products must be certified by a Sharia Supervisory Council. Criteria vary tremendously amongst different Islamic countries. We suggest that the HKSAR Government should work with overseas Sharia compliance boards to develop a set of internationally-accepted Sharia standards in Hong Kong.

(c) Develop Islamic Legal Education

Out of the eight publicly funded universities in Hong Kong, five of them offer Islamic-related courses. Such courses are mostly theoretical on Islamic religion (history and culture). We welcome the universities to offer more practical courses like Islamic financial law. We also encourage closer cooperation with foreign Islamic legal and financial experts.

Outcome

Costs and Benefits

We are convinced that the recommendations above are pragmatic and feasible. The benefits to Hong Kong would far outweigh the costs of implementation.

Upholding the Rule of Law

A strong and independent legal sector is a pre-requisite to safeguarding the Rule of Law in Hong Kong. We believe that the OBOR Initiative would provide a unique opportunity for Hong Kong's legal sector to strengthen itself, and ultimately to enhance judicial independence in Hong Kong.

Safeguarding One Country Two Systems

Hong Kong must continue to develop its own strengths and contribute to assisting China's further development and integration with the world. The legal sector, along with other professional sectors, is in a unique position to provide services for the OBOR Initiative.

Please click to read the full report.

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