Hong Kong commercial law hub allure damaged by foreign judges row, lawyers say

The resignations of two British judges from China-ruled Hong Kong's highest court not only raise concerns about the rule of law, some lawyers and experts say, but will further undermine confidence in the city's broader commercial legal sector.

Hong Kong's legal industry, which has long helped define the territory as an international financial hub, is already facing pressure from a downturn in capital markets, competition from other judicial centers and growing tensions between China and the U.S.

Fresh questions about the independence of the judiciary and the strength of the rule of law will add to concerns for foreign companies about the legal protections they can expect in Hong Kong, lawyers and experts say.

"Some people think that you can divide or separate commercial cases as a phenomenon from political or human rights cases, but I think that's kind of a perilous path, because what happens is the politics of repression creeps into the commercial area as well," Michael Davis, an international law professor and global fellow at the U.S.-backed Wilson Center think tank said.

The heightened concerns over Hong Kong as a legal centre were sparked by the resignations a month ago of two British judges, Jonathan Sumption and Lawrence Collins.

Both global authorities in commercial law, they quit Hong Kong's Court of Final Appeal (CFA) following the convictions of 14 democrats under a sweeping China-imposed national security law.

Collins cited the “political situation” but in harder-hitting comments, Sumption said in an FT column Hong Kong was "slowly becoming a totalitarian state" and that the rule of law was being profoundly compromised. He referred to an “oppressive atmosphere” and calls for judicial “patriotism” that are difficult for judges to oppose.

There are plenty of supporters who say the rule of law remains robust, including Hong Kong government adviser and barrister Ronny Tong, although he acknowledges the damage done by the resignations and the comments.

He said the remarks "don't help to improve our perception in the eyes of the world".

The Hong Kong government has long advocated the beneficial role of foreign jurists in improving local jurisprudence by sitting on cases alongside local judges.

"Hong Kong's ability to remain as an international financial centre is largely attributed to its stable environment with strong rule of law consisting of a robust legal system and a pool of diversified legal talents," a spokesman for Hong Kong's Department of Justice said in response to a Reuters request for comment.

'DEVASTATING' IMPACT

Six senior commercial lawyers with over a century's combined experience said the resignations exacerbated long-standing concerns about Hong Kong's future as a legal centre.

They noted firms drafting commercial contracts, joint ventures, or deciding where to arbitrate complex cases, are now increasingly opting the likes of Singapore, Dubai or Delaware in the U.S., rather than Hong Kong, in contractual jurisdiction clauses, because they are seen as more neutral.

"Sumption and Collins leaving is devastating for Hong Kong, in terms of the CFA's powers as a commercial appellate court," a commercial lawyer with three decades experience told Reuters, declining to be identified given the sensitivity of the matter.

Davis said any perceived diminution of legal protections affects the confidence of commercial entities over the enforcement of contracts.     While cases involving national security laws have dominated headlines, the vast majority of lawyers in Hong Kong are engaged in commercial and corporate work.

Hong Kong is ranked third in Asia for the rule of law by the World Bank Group, with 11,000 solicitors and 1,600 barristers. However, the number of foreign law firms registered in Hong Kong dropped to 74 in 2024 from 91 in 2019, according to the Hong Kong Law Society.

This consolidation has seen U.S. law firm Winston & Strawn close its Hong Kong office in February, while Dechert is considering closing its Hong Kong and Beijing offices.

Winston said in a press release it had made the move given "changing client needs and the legal market in Hong Kong", while Dechert did not respond to Reuters.

CUTTING TIES

At least one international law firm has reduced their presence in Hong Kong after involvement in politically sensitive cases.

In 2021, when U.S.-headquartered Mayer Brown decided to no longer represent the University of Hong Kong over its decision to remove a statue commemorating China's 1989 Tiananmen Square crackdown on pro-democracy demonstrators, it was criticised by former Hong Kong Chief Executive Leung Chun-ying.

According to six current and former partners at the firm, a number of Chinese state-owned companies including Chinese banks, cut business ties with Mayer Brown.

The sources with direct knowledge of the matter said some private Chinese corporate clients also dropped the firm, leading to some partners leaving because their practices relied heavily on Chinese business, as well as a downsizing of its offices late last year.

Mayer Brown, which in May announced plans to separate its Hong Kong operations, did not respond to requests for comment.

TALENT CRUNCH, LONG WAITS

The debate over the robustness of Hong Kong's rule of law could also exacerbate difficulties in recruiting new judges to Hong Kong courts, lawyers say.

Of the city's 211 designated judicial posts, only 163 are currently filled according to judiciary figures. Average wait times were 171 days for civil cases in the High Court and 111 days for the District Court in March 2024, both up from 2019.

The staffing crunch has been severe enough for the judiciary to now recruit private lawyers as deputy judges for short stints of up to several months, according to a government report, noting the number of such external deputy judges had almost doubled from 23 in 2018 to 45 in 2022.

"The recent criticism is likely to have a reputational impact and make it even more difficult to replenish judges from the private sector," said a fourth commercial lawyer with over 40 years' experience, referring to Sumption's remarks.

Seven foreign non-permanent judges will remain on Hong Kong's highest court, after Canadian judge Beverley McLachlin announced she would step down this month when her term expires, while expressing her confidence in the court and its independence.

Australia's James Allsop, a commercial expert who only joined the CFA in May and also serves on Singapore's International Commercial Court, declined to comment on the resignations but would "sit in Hong Kong when asked to do so."

Another leading British judge on the CFA, David Neuberger, told Reuters last month he would stay on to "support the rule of law in Hong Kong, as best I can."

"Hong Kong has an impressive and independent judiciary and a thriving and able legal profession, both of which benefit the people of Hong Kong and contribute to the rule of law," he said. "They deserve support, not undermining."

© Thomson Reuters 2024.