Hong Kong Stumbles in Its Own Key Test as a Global Financial Hub

(Bloomberg) -- Four years after Hong Kong began a sweeping crackdown against political dissent, the city is struggling to meet one of its own benchmarks in reassuring foreign investors that it remains a predictable place to do business.

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Hong Kong’s top court, established in 1997 when the former British colony returned to Chinese rule, has seen about half of its 15 overseas judges step down from a 2019 peak. Eight of them either resigned or chose not to renew their three-year terms after Beijing imposed a national security law on the city in 2020, data compiled by Bloomberg News show. Prior to this, there had been no early resignations.

The unprecedented number of departures over such a short period of time — including three announced this month — adds to worries among foreign companies over the future of the rule of law in Hong Kong. With the court likely to decide on a number of key security law cases over the next year, scrutiny is set to increase on the seven remaining foreign judges — and Hong Kong’s status as a global financial hub that provides better protection for companies than across the border in the mainland.

For investors, the worry is that the government’s preoccupation with national security could increasingly spill over into commercial interests. Alphabet Inc.’s YouTube blocked videos of a Hong Kong protest song in the city last month after a local court approved an injunction order to ban the song, generating concerns that the city is creeping toward mainland-style censorship.

Members of the business community are increasingly cautious about speaking out on anything deemed political, even while privately expressing concerns about the departure of overseas judges and judicial independence. Although business disputes typically don't touch on national security, the fear is that it will become harder to separate money and politics.

One top representative of an international chamber of commerce, who asked not to be identified due to the sensitivity of the issue, said companies still mostly retain faith in Hong Kong’s courts when it comes to business matters — but anxiety is growing that the city’s focus on politics could further blur the distinctions between Hong Kong and the mainland.

“The decision by two non-permanent judges to resign, and by a third to not renew her post, is a major black eye for the legal system, and for the Hong Kong government,” said Thomas Kellogg, executive director of the Georgetown Center for Asian Law, who has lectured on Chinese law in China, Europe and the US.

“I worry that the national security legislation could be used in other areas as well,” he added. “Over time, I’m just not sure whether the Hong Kong government and Beijing will be willing to keep its hands off of other cases — including business and commercial cases — that affect Beijing’s interests.”

While Hong Kong’s ranking in the World Justice Project’s Rule of Law index has slipped for three consecutive years, it remains relatively high at 23 — three notches above the US. Mainland China, by comparison, comes in at 97.

A Hong Kong government spokesperson said the national security laws, including a local version passed in March, are in line with international practices and will help create a safe and stable environment for businesses that sustains the city’s role as a global financial center. The government noted that many of the overseas judges who stepped down expressed confidence in the court, adding that two foreign judges were appointed since last year and more “suitable candidates” will continue to be appointed.

“Hong Kong's ability to remain as an international financial center 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,” the spokesperson said in a statement. The government “strongly supports the Judiciary in exercising its judicial power independently in accordance with the law, and protect and support judges, prosecutors and legal practitioners in discharging their duties in accordance with the law.”

Hong Kong officials have long touted the presence of foreign judges as a selling point for foreign companies. In 2018, a year before the pro-democracy protests that led to Beijing’s crackdown, then justice minister Teresa Cheng told an audience in London that the city’s overseas judges were “like the canaries, which were brought into coal mines in the old days to detect poisonous gas.”

As recently as May, Hong Kong Justice Secretary Paul Lam praised the presence of ten overseas judges on the Court of Final Appeal as “a very special feature” of the city’s judicial system. Speaking to an audience of Saudi businesses in Riyadh, he called them “a vote of confidence” in Hong Kong’s legal system and “a symbol and the indication of the quality of justice.”

Weeks later, one of the departing judges, Jonathan Sumption, claimed that “rule of law is profoundly compromised in any area about which the government feels strongly.” In an opinion piece published in the Financial Times, the former UK Supreme Court justice declared Hong Kong “is slowly becoming a totalitarian state” and said that “many judges have lost sight of their traditional role as defenders of the liberty of the subject, even when the law allows it.”

Alongside Sumption, fellow UK judge Lawrence Collins also stepped down, citing the “political situation” in the once-freewheeling Chinese territory. Days later, Beverley McLachlin said she planned to retire from the court next month because — according to Hong Kong’s leader — of her age. But just five months earlier, McLachlin extended her three-year term as an international judge for Singapore, lending her expertise as Canada’s longest-serving chief justice to Hong Kong’s rival business hub.

“In terms of the foreign business community, it is of course something that’s going to make them sit up and take notice,” Richard Harris, chief executive officer of Port Shelter Investment Management, said about the exit of overseas judges. Even so, he said, it’s important to distinguish between commercial and criminal cases.

“If the international judges all left tomorrow, it wouldn’t actually change Hong Kong’s attractiveness as an international commercial center,” Harris said.

The dwindling number of foreign judges may lead to more cases being heard by only local judges, as opposed to a panel made up of four local judges and one overseas judge, according to a person familiar with the matter. The court would tap its four non-permanent local judges to be the fifth justice instead, the person said.

That would be a marked departure from the current practice. While not mandated, foreign judges have played a role in the overwhelming majority of final appeals in Hong Kong. Out of 76 appeal cases handled since 2020, only five were heard without an overseas justice, according to figures provided by the Judiciary.

A spokesperson for the Judiciary said the resignations won’t affect the operation of the Court of Final Appeal. The court “has all along been performing its constitutional role as the final appellate court,” the spokesperson said in response to questions from Bloomberg News.

Seven overseas judges are set to remain on the top court including David Neuberger, former President of the UK Supreme Court. On Monday, he joined four local judges to hear an appeal from former media mogul Jimmy Lai and six former lawmakers seeking to overturn their conviction for joining an unlawful protest in August 2019.

The Hong Kong government published a lengthy rebuttal to Lord Sumption’s criticism noting “there is absolutely no truth” that the city’s courts are under any political pressure from Beijing or local authorities. In a response to questions from Bloomberg News, Sumption said he had “no desire to engage in a slanging match” with the city’s leader and that his views came from his study of court judgments and his direct experience in the city.

Judges in Hong Kong are facing a new type of pressure, with several local justices facing calls for sanctions by US lawmakers over their alleged role in helping Beijing suppress freedoms. In Canada, the UK and Australia, activists have pressed overseas judges to withdraw from Hong Kong’s top court to avoid giving legitimacy to a system used to silence dissent.

The potential reputation damage may further deter prominent common law jurists from coming to Hong Kong to replace those who left or are expected to retire.

Three judges’ contracts are set to expire this or next year. One of them, 90-year-old Leonard Hoffmann, said he may retire because of old age, Hong Kong’s Mingpao newspaper reported. The two others, William Gummow from Australia and Nicholas Phillips from the UK, have made no public comments on the matter and didn’t respond to a request for comment.

Although foreign judges help anchor Hong Kong’s laws to global norms, they still aren’t “going to come in and with a hard-hitting human rights decision that that rattles everybody’s cage, to put it crudely,” said Mark Daly, a human rights lawyer who has practiced in Hong Kong for 30 years.

“There are still very good judges in Hong Kong,” he said. “The system is certainly not the worst in the world, but I think it is going in the wrong direction.”

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