Hong Kong’s legal market has been left reeling from the passing of a controversial national security law and the impact of the Covid-19 pandemic, creating a double whammy of uncertainty for companies doing business in the former British colony.

Local lawyers said they have been inundated with enquiries from businesses on how to comply with the recently enacted national security saw, though they said it was too early to conclude if there was likely to be an exodus of foreign investments out of Hong Kong.

Beijing imposed a national security law on Hong Kong back in June, giving it powers to punish acts of secession, subversion, terrorism and collusion with foreign forces. Breaking the new law could attract maximum life imprisonment for serious offences.

“We did notice there are more mainland Chinese companies returning to Hong Kong for business. As for foreign companies, we do not see them trying to leave Hong Kong unless the decision to leave comes from their headquarters,” said former Hong Kong Law Society president Thomas So, who is also a partner at Mayer Brown. 

More Chinese companies are now considering picking Hong Kong’s as a secondary destination instead of the US for corporate listings, following greater scrutiny from US regulators.

“Most of these [foreign] companies want to carry on with their operations in Hong Kong and are therefore looking for advice on how to comply with the national security law. Because of this we are getting a lot of enquiries from foreign firms seeking compliance advice,” said So.

Despite reports of major technology companies refusing to cooperate with Hong Kong’s police under the new law, Squire Patton Boggs partner Nick Chan said he did not envisage major technology companies or data centres moving away from Hong Kong, noting such businesses were more concerned on how to work under the law.

A resignation issue

Hong Kong’s Court of Final Appeal, meanwhile, faces uncertain times. One of the court’s non-permanent members, former New South Wales chief justice James Spigelman, quit the court in September, saying his resignation “related to the content of the national security legislation,” without offering further comment.

Spigelman’s departure follows concerns echoed by UK judges, who have also previously been appointed to sit on the court, including former UK Supreme Court presidents Lord Neuberger, Lady Hale, and current president Lord Reed.

Lord Reed issued a detailed statement in July, saying: “The new security law contains a number of provisions which give rise to concerns. Its effect will depend upon how it is applied in practice. That remains to be seen.”

Reed noted the independence of the judiciary was guaranteed under Hong Kong’s Basic Law, quoting outgoing chief justice Geoffrey Ma, who said such independence and the rule of law were ‘cornerstones of the Hong Kong community.’

Reed concluded: “Whether judges of the Supreme Court can continue to serve as judges in Hong Kong will depend on whether such service remains compatible with judicial independence and the rule of law.”

Those concerns follow an ongoing debate in Hong Kong about the separation of powers among the judiciary, executive and the legislature, with the government asserting no such separation exists, calling it instead “a division of labour” under what Lam called its “executive-led government”.

The Hong Kong Bar Association (HKBA), led by Philip Dykes SC, said the concept had been established by “the law of Hong Kong, as well as [being supported by] the considered public statements of two chief justices”.

The HKBA added that Lam’s statements were “unfounded and inconsistent” with the Basic Law being “unambiguous” on the point. Liberal solicitors, meanwhile, previously pledged to uphold the rule of law following professional elections.

Growth in dispute resolution

Such uncertainties matter, not least for the potential impact it has on businesses using Hong Kong as a disputes centre, with the South China Morning Post noting in a recent editorial that reassurance on the issue is required. 

The pandemic has also had an impact on disputes. So said the pandemic had had a more direct effect on businesses than the imposition of the new law, including in dispute resolution, estimating that about 30% of litigants had chosen to settle their cases instead of going to court.

So added: “There are fewer dispute cases this year. From the client’s perspective, they are not sure if business will return to normal. Because of the uncertain business outlook, some clients chose to settle half way through the dispute proceedings.”

Hong Kong, meanwhile, has heavily promoted international arbitration as a means of dispute resolution, with former justice secretary Rimsky Yuen and David W. Rivkin, the co-head of Debevoise & Plimpton’s global arbitration practice and a former International Bar Association president, now chairing its arbitral centre HKIAC.

How businesses react to the pandemic will be one of a number of themes discussed at HKIAC’s annual Arbitration Week, this year to be held virtually for international delegates in mid-October. Both Yuen and Rivkin will be scrutinised for the reassurance they can bring to this topic, as will Yuen’s successor as justice secretary, Teresa Cheng SC, also a former chair of HKIAC.

Alvin Lum is a reporter at Hong Kong newspaper Citizen News specialising in politics