SNAPSHOT: Erosion of Hong Kong's judiciary independence likely to increase business risks

SNAPSHOT: Erosion of Hong Kong's judiciary independence likely to increase business risks

OVERVIEW

  • Paul Harris, the new head of Hong Kong’s Bar Association (HKBA), has warned that calls by pro-Beijing figures in the territory to reform the judiciary could mean ‘the end of the present legal system’, according to a Financial Times (FT) report on Sunday (21 February).
  • Harris said the proposed measures, which force judges to consult a new council comprised of community members prior to handing down sentences, could erode judicial independence in Hong Kong.
  • Concerns around judicial independence have already forced multinational firms doing business in Asia to weigh the possibility of excluding Hong Kong from legal contracts, including governing law and arbitration clauses.
  • In a further escalation of Beijing’s control over Hong Kong, Hong Kong and Macau Affairs Office (HKMAO) head Xia Baolong, Beijing’s most senior official in Hong Kong, on Monday (22 February) reportedly said that those who 'oppose China and disrupt Hong Kong’ could not occupy positions of authority. He further noted that ‘there should be effective methods to ensure that members of the administrative, legislative, and judicial bodies, as well as the heads of important statutory bodies are all held by true patriots.’
  • In another development, the HKBA on Friday (12 February) submitted a paper to the Legislative Council expressing deep concern over a January legal amendment that could confer on the immigration director the power to ban any individual from leaving Hong Kong. The director would be able to do so without first going through a court.

  • The HKBA also questioned the necessity of the amendment given existing provisions under the national security law (NSL) that can require the handover of travel documents from anyone suspected of endangering national security. A number of activists were forced to surrender their travel documents after they were arrested in January. The proposed law notably comes amid a growing exodus of Hong Kongers, including pro-democracy activists seeking asylum, to Canada, Taiwan, the US and the UK.

ANALYSIS

  • Harris’ warning illustrates increasing concerns around moves by pro-Beijing elements in Hong Kong to override aspects of the Common Law-based legal system. The recent denial of bail to Apple Daily-owner and prominent pro-democracy activist Jimmy Lai heightened such concerns.
  • Presumption of bail for non-violent offences was a key feature of the Common Law system, though the ruling confirms that the NSL has removed this feature. The ruling is also likely to factor into foreign governments’ Hong Kong and China policy, particularly those with Common Law legal systems such as Australia and the UK. UK Foreign Secretary Dominic Raab in December 2020 called on Hong Kong authorities to desist from targeting Lai and other pro-democracy activists after Lai was charged under the NSL.
  • HKMAO head Xia’s remarks reinforce earlier demands from both the Chinese government and Hong Kong’s pro-Beijing political and business leaders for more visible demonstrations of ‘patriotism’ within all institutions and among the territory’s residents. For foreign companies and individuals operating and working in Hong Kong the term ‘true patriots’ is set to raise legal as well as ethical issues.
  • The legal profession, still rooted in English Common Law, has many non-Chinese practitioners including those employed by the government and working as senior members of the judiciary. These individuals are unlikely to plausibly identify as ‘patriots’ in terms the Chinese Communist Party, or indeed their own national governments, would accept. Greater demands of patriotism and potential implementation of policies geared towards ensuring loyalty to Beijing portend to increasing politicisation of Hong Kong’s legal system. Greater politicisation will likely increase business risks, with court rulings potentially politically motivated.
  • Xia’s remarks should also be viewed by foreign companies as a direct threat to their present status in Hong Kong, not least because of the response they are likely to generate within many Western governments and allies such as Japan already concerned over China’s assertive policies and growing domestic antipathy towards Beijing.
  • Expanded powers to ban individuals from exiting Hong Kong are likely aimed at discouraging Hong Kongers from leaving the territory. Authorities are seeking to reduce the exodus, which is likely eroding the local talent pool of highly-skilled workers. The amendment may also be a response to increasing provisions easing immigration for Hong Kongers by Canada, the US and UK. The proposed measure mirrors exit bans that have in recent years been used against Chinese citizens and foreigners attempting to leave mainland China. Exit bans have attracted widespread criticism from the international community and calls for sanctions against officials deemed responsible.

FORECAST & ADVICE

  • The developments have intensified concerns around the independence of Hong Kong’s judiciary. They will likely accelerate the already growing number of businesses considering the movement of operations to other regional locations offering a more certain legal and political environment, such as Singapore. Numerous businesses, particularly financial firms, have already left Hong Kong due to the US-China trade war and the NSL.
  • Businesses should monitor the passage of the legal amendment that would allow the arbitrary banning of Hongkongers and foreign passport-holders from exiting Hong Kong. Assess the vulnerability of staff members towards such ‘exit bans’ and ensure contingency plans account for this risk. Dual nationals, who as of recently have been denied consular services in line with Beijing’s non-recognition of dual nationality, are likely to be at increased risk of being targeted by such measures. The proposed amendment will likely be closely followed by many that are already considering leaving Hong Kong, potentially accelerating their emigration.
  • Anticipate rising diplomatic tensions between China and Hong Kong on one side and foreign governments, particularly those with the common law system such as Australia, and the UK, on the other, to increase in tandem with further hybridisation of Hong Kong’s legal system with the NSL. Diplomatic disputes are likely to further dent local and foreign business sentiments and may subject firms to unwanted scrutiny or retaliation by local authorities.