30 Aug 2018
Legal Services Industry in Hong Kong
Under the “One Country, Two Systems” principle, Hong Kong is the only city within China where the common law legal system applies. Given the common culture and close geographical proximity with the Mainland, Hong Kong provides ideal international legal and arbitration services for the Mainland and foreign enterprises.
Hong Kong legal professionals and dispute resolution practitioners are rich in experience in international business law, who can provide professional legal services and dispute resolution (arbitration or mediation) services in various areas.
Under CEPA, Hong Kong and the Chinese mainland signed two new agreements on 28 June 2017, namely The Investment Agreement and the Economic and Technical Cooperation Agreement (Ecotech Agreement). The two new agreements support Hong Kong to provide professional services for the “Belt and Road” Initiative, including the provision of professional services such as legal, dispute resolution (arbitration or mediation) etc.
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 will put forward specific measures focusing on six key areas, including provide international legal and dispute resolution services for the Belt and Road Initiative.
In 2016, Hong Kong's exports of legal services amounted to US$321 million (HK$2.5 billion), up 8.6% from the year-earlier period.
The number of dispute resolution cases handled by the Hong Kong International Arbitration Centre (HKIAC), including both arbitration and mediation, reached 532 in 2017. The total disputed amount for the administered cases increased from HK$19.4 billion in 2016 to HK$39.3 billion in 2017.
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 the legal departments of some government bodies, 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 end-June 2018, 903 local solicitor firms and 83 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, 38 foreign registered law firms (including Mainland law firms) had formed associations with local firms as of June 2018. Meanwhile, local firms employed more than half of the registered foreign lawyers.
Exports of Legal Services
According to the latest available figures, Hong Kong's exports of legal services amounted to US$321 million (HK$2.5 billion) in 2016, up 8.6% 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.
Arbitration and Mediation in Hong Kong
Arbitration is a legal process through which awards are issued to the disputing parties by arbitrator(s) rather than the court. For an arbitration to take place, the concerned parties in dispute must both agree that the dispute will be handled by arbitration and not by court. This agreement is usually signed as a clause in the commercial agreement before the occurrence of any disputes.
Another option to resolve disputes is by mediation. It is a process of settling disputes through discussion sessions between involved parties under the presence of a neutral third party, i.e. a mediator. Unlike arbitrators, mediators are not given any power to impose a settlement for the disputes. Instead, they act as a shuttle diplomat by encouraging the disputing parties to discuss, and helping them filter out their emotional elements. In the event of the parties reaching an agreement, a legally binding contract consisting of all the agreed terms will be signed. If an agreement cannot be reached within a certain period, the mediator will suggest a temporary or permanent end to the mediation to save cost.
In 2017, 532 cases were carried out under the auspices of the Hong Kong International Arbitration Centre (HKIAC), including 297 arbitration cases, 220 domain name disputes and 15 mediation disputes. The total amount in dispute for the administered cases was approximately HK$39.3 billion. Top industry sectors of HKIAC administered arbitrations were international trade (31.9% of total), construction (19.2%), corporate (13.5%), maritime (8.8%) and professional services (8.1%).
Arbitrators and Mediators in Hong Kong
Arbitrators are generally recognised senior experts from professions capable of understanding the technical issues involved in an arbitration case. Therefore, they can be lawyers, accountants, engineers, architects or quantity surveyors, with arbitration services suppliers scattered throughout professional services firms. In this context, prime arbitration hubs are often major commercial centres in their own rights. As of June 2018, there were 446 persons on the Panel of Arbitrators and 194 persons on the List of Arbitrators.
Mediators are trained, neutral third parties with skills and knowledge to resolve disputes. They usually have expertise in such field as architecture, engineering, law, social work, teaching, etc. Their duties include organising and arranging a process to facilitate the parties in dispute to discuss their matters and try to end their arguments through mutual understanding. They should conduct the process in an impartial and confidential manner. The role of mediators is to assist both parties reaching a settlement, instead of adjudicating. As of June 2018, there were 829 mediators on the General Panel, 221 mediators on the Family Panel (including 52 family mediation supervisors).
The institutions related to arbitration and mediation services in Hong Kong include the following: HKIAC, the Hong Kong Institute of Arbitrators (HKIArb), the Chartered Institute of Arbitrators (CIArb), the International Chamber of Commerce (ICC), the Hong Kong Institute of Mediation (HKIMed), the Hong Kong Mediation Centre, the Hong Kong Mediation Council and the Conflicts Resolution Centre (CRC).
Exports of Arbitration Services
According to the latest arbitration statistics with geographical breakdown, of the 297 non domain name arbitration cases handled by HKIAC in 2017, there were 217 international cases and 80 domestic cases. Parties from Mainland China, Singapore, the British Virgin Islands, Cayman Islands, the US, South Korea, Thailand, Macau and the UK represented the most frequent users of HKIAC services.
With increasing opportunities on the mainland after China’s WTO accession and continued market opening, more foreign investors or companies have transacted with their mainland counterparts. Hong Kong is a suitable "third" place for settling disputes involving Sino-foreign projects, as many foreign companies prefer to settle disputes in a "third" place, while mainland enterprises are also increasingly using Hong Kong as an arbitration centre.
Development of Arbitration and Mediation in Hong Kong
The amendments relating to intellectual property arbitration come into operation on 1 January 2018. The amendments will help clarify the legal position under Hong Kong law, thereby attracting parties (including international parties) to resolve their IPR disputes by arbitration in Hong Kong and also facilitate the enforcement of related arbitral awards in Hong Kong.
In June 2017, Hong Kong amended the Arbitration Ordinance to legalise third party funding of arbitration and mediation, adopting the 2016 proposal by the Hong Kong Law Reform Commission. This will reinforce Hong Kong’s lead as a leading centre for international dispute resolution, and enable claimants to spread their risk by not bearing the whole cost of bringing or defending a claim, particularly those in the construction industry.
In November 2015, HKIAC reached an important milestone by being the first international arbitration institution to set up a representative office in the Chinese mainland, located within the China (Shanghai) Pilot Free Trade Zone.
During the Mediation Week 2018, the HKSAR’s Department of Justice (DoJ) outlined new trends in the development of cross-border commercial dispute resolution amid the growth of commercial activities among countries and the popularity of international and arbitration. Among the key trends highlighted were those relating to the mediation of investment disputes, online dispute resolution and the establishment of a dispute resolution centre specially designed for the Belt and Road Initiative. In light of these new developments, Hong Kong is setting up an online dispute resolution platform called “eBRAM.hk”.
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-June 2018, 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, 22 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 2017, 572 Hong Kong residents took the National Judicial Examinations and 58 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 14 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.