9 Jan 2018
Legal Services Industry in Hong Kong
- Hong Kong's legal services sector plays a pivotal role in satisfying the professional services needs associated with mainland-related investment. Many top legal advisors in Asia's M&A deals have a significant presence in Hong Kong.
- The listing of mainland enterprises in Hong Kong, along with the simplified procedures for mainland enterprises to set up offices in Hong Kong, also helps boost the demand for a wide range of professional services provided by Hong Kong law firms.
- The liberalisation measures adopted under CEPA have also enhanced the access of Hong Kong’s legal sector to the mainland market.
- Hong Kong's exports of legal services amounted to US$297 million (HK$2.3 billion) in 2015, down 3.8% from the year-earlier period.
The Legal System in Hong Kong
Hong Kong has become a Special Administrative Region of the People's Republic of China (the PRC) since 1 July 1997. Under the principle of "One Country, Two Systems", Hong Kong's previous legal system has continued in place.
The Basic Law of the Hong Kong Special Administrative Region (the HKSAR) was enacted by the National People's Congress in accordance with the Constitution of the PRC. It is akin to a mini-constitution for the HKSAR, and took effect on the establishment of the HKSAR.
Under the Basic Law, all the laws previously in force in Hong Kong shall be maintained, except for any that contravenes the Basic Law and is subject to amendment by the HKSAR legislature. National laws of the PRC shall not be applied in the HKSAR except for laws relating to defence and foreign affairs as listed in the Annex III to the Basic Law.
The Legal Profession in Hong Kong
The legal profession in Hong Kong is divided into two distinct branches, namely solicitors and barristers. Solicitors have limited rights of audience before the courts, whereas barristers have unlimited rights of audience in all courts. Lawyers practising within one branch of the profession are not, at the same time, allowed to practise within the other. Organisations governing the professional standard of solicitors and barristers are, respectively, The Law Society of Hong Kong and Hong Kong Bar Association.
While the majority of members of the legal profession are engaged in private practice, a significant number work in one of the Hong Kong government’s legal department, or are employed as legal advisers to public or private companies, or engaged in teaching and research at one of Hong Kong's tertiary institutions.
Hong Kong is the international law capital of Asia, with over 10,000 practising solicitors and barristers. As of November 2017, 892 local solicitor firms and 85 foreign law firms had set up presence in Hong Kong, including more than half of the Global 100 law firms with a presence in Hong Kong. As Hong Kong is a leading international financial centre, the growing demand for services related to finance, such as IPO, will help stimulate continual demand for legal services.
Foreign law firms also play an important role in Hong Kong’s legal market. According to the latest available data, 39 foreign registered law firms (including Mainland law firms) had formed associations with local firms as of November 2017. Meanwhile, local firms employed more than half of the registered foreign lawyers.
Exports of Services
According to the latest available figures, Hong Kong's exports of legal services amounted to US$297 million (HK$2.3 billion) in 2015, down 3.8% from the year-earlier period.
Hong Kong's legal services sector plays a pivotal role in satisfying the professional services needs associated with mainland-related investment. As the Chinese mainland is one of the largest mergers and acquisitions (M&A) markets in Asia, many top legal advisors in the world have made a significant presence in Hong Kong to serve the region. Meanwhile, Hong Kong law firms have established a strong international-mainland business network and clientele.
The listing of mainland enterprises in Hong Kong, along with the simplified procedures for mainland enterprises to set up offices in Hong Kong, further boosts the demand for a wide range of professional services provided by Hong Kong law firms.
In recent years, arbitration and mediation have gained in popularity as alternative dispute resolution means to legal litigation, and Hong Kong is seen as a preferred venue for dispute resolution in the region. The Hong Kong Arbitration Ordinance is widely recognised as one of the most advanced arbitration statutes in the world. Arbitration awards made in Hong Kong are enforceable through the courts of most of the world's trading economies through its being a party to the New York Convention. These awards are also enforceable on the Chinese mainland since the establishment in 2000 of the arrangement on mutual recognition and enforcement of arbitral awards between Hong Kong and the mainland.
Under the Hong Kong Arbitration Bill came into effect in June 2011, both domestic and international arbitrations follow a single set of rules. This can reduce confusion and bring the laws of Hong Kong in line with international standard. The new ordinance also adopts the United Nations Commission on International Trade Law (UNCITRAL) standards.
Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)
As a member of the WTO, China has improved market access conditions for foreign firms to the mainland's legal sector. In addition, the liberalisation measures adopted under CEPA have also enhanced the access of Hong Kong’s legal sector to the mainland market.
Since the implementation of CEPA in 2004, the Chinese mainland has further opened up its market to Hong Kong’s legal service sector. Among the provisions, the residence requirement for representatives of representative offices of the Hong Kong law firm on the mainland has been relaxed; Hong Kong permanent residents are allowed to sit the National Judicial Examinations; Hong Kong lawyers are allowed to be employed as legal consultants by mainland law firms; and restrictions on association between Hong Kong and mainland law firms have been relaxed. Under Supplement IX to CEPA, Hong Kong law firms with representative offices on the mainland are allowed to operate in association with one to three mainland law firms.
As of end-November 2017, Hong Kong law firms (including many Hong Kong-based foreign law firms) had set up 72 representative offices on the mainland, of which 40 were set up after the implementation of CEPA in 2004. Beijing, Shanghai and Guangzhou are the most popular cities to establish mainland presence. Besides, 23 Hong Kong law firms have entered into association arrangements with their mainland counterparts under CEPA.
CEPA allows mainland law firms to employ Hong Kong legal practitioners, but those who are employed by mainland law firms are not allowed to handle matters of mainland law. Hong Kong lawyers providing professional assistance at the request of mainland law firms on the basis of individual cases are not required to apply for a Hong Kong legal consultant permit.
Yet, CEPA allows Hong Kong residents with Chinese citizenship to sit the mainland’s National Judicial Examinations. Hong Kong legal practitioners, who have passed the examinations and obtained the required internship, intensive training and assessment, are allowed to engage in non-litigation legal work in mainland law firms. In 2016, 139 Hong Kong residents had sat National Judicial Examinations in Hong Kong and 5 of them passed.
Under Supplement X to CEPA, which took effective from January 2014, mainland lawyers are allowed to be seconded as consultants to work in mainland representative offices of Hong Kong law firms set up in Guangdong Province, advising on mainland law. Currently, there are 13 Hong Kong law firms that have established representative offices in Guangdong, and they will be able to provide a more broad-based service as a result of the new Supplement X measure, thereby advising on both mainland and international law.
After ten annual Supplements to keep widening and broadening the liberalisation measures in favour of HKSS, Hong Kong and the mainland entered into a subsidiary agreement under CEPA in 2014 to achieve basic liberalisation of trade in service trade in Guangdong. This was then followed in November 2015 by the Agreement on Trade in Services (ATIS) to extend the coverage of the 2014 agreement from Guangdong to the rest of the mainland. Unlike the Supplements which adopted a positive-list approach to introducing liberalisation measures, the two latest CEPA agreements adopt a hybrid approach to granting preferential access to Hong Kong using both positive and negative lists. For example, Hong Kong residents who have acquired mainland lawyer qualifications or legal professional qualifications and hold a mainland lawyer’s practice certificate are allowed under ATIS to engage in activities as agents in civil litigation cases relating to Hong Kong in the capacity of mainland lawyers on the mainland from mid-2016. This measure was first suggested as a positive-list item under consideration when Supplement VIII was released, and was then implemented in Guangdong in 2015. Details of the preferential access concerning the legal services sector can be found at Trade and Industry Department (TID) website.
Hong Kong and the Chinese mainland inked two new agreements on 28 June 2017, namely the Investment Agreement and the Economic Technical Cooperation Agreement (Ecotech Agreement) to further facilitate trade and investment between the two. The Ecotech Agreement has three major highlights:
- Supports Hong Kong’s participation in the Belt and Road Initiative through building a communication platform.
- Promotes deepening economic cooperation within the Pan Pearl River Delta Region, in particular the Guangdong-Hong Kong-Macau Bay Area (Bay Area). It also supports further liberalisation for Hong Kong services industries, such as finance, transport and shipping, commerce and trade, professional services and technology in the Pilot Free Trade Zones, as well as in Qianhai, Nansha and Hengqin.
- Consolidates and enriches prior CEPA cooperation provisions to offer new opportunities for Hong Kong's professional services providers. In total, 12 areas of cooperation activities are listed under the Ecotech Agreement, including legal and dispute resolution services. For details, please refer to TID website.
On 14 December, 2017, the National Development and Reform Commission (NDRC) and the Government of Hong Kong Special Administrative Region (HKSAR) signed the arrangement for “Advancing Hong Kong’s Full Participation in and Contribution to the Belt and Road Initiative”. The Arrangement put forward specific measures focusing on six key areas, including provide international legal and dispute resolution services for the Belt and Road Initiative.