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The following is the opening address by the Secretary for Justice, Ms Elsie Leung at the "Conference on China's Accession to World Trade Organization: Implications for Legal Education and Training in Hong Kong" today (September 20):
Madam Cecilia Chen, Distinguished Guests, Ladies and Gentlemen,
Welcome to the "Conference on China's Accession to World Trade Organization: Implications for Legal Education and Training in Hong Kong" organized by The Legal Education Trust Fund and the Department of Justice. Several speakers came all the way from Beijing, Shanghai and Wuhan, and members of the Judiciary, Universities, business leaders and esteemed members of the legal profession have very kindly agreed to speak at the Conference which no doubt will contribute towards its success. Earlier this week, China has removed all the obstacles, completed the negotiations and agreed on the draft documents necessary for its accession to World Trade Organization. The Conference is therefore most timely.
Last week, the world was shocked by the frantic attacks on New York and Washington by terrorists. We express deep sympathy to the families who lost their loved ones in the disaster. At the same time, we admire the American people for the pragmatic attitude with which they carried out their remedial work, and their unity and patriotism in the way they reacted to the tragic event. Amongst the scenes appearing on the television, I was particularly impressed by the statement made by a Salvation Army Major who is a Hong Kong immigrant and has been participating in the rescue. He said that he deeply appreciated the fraternity of American people and that Hong Kong people should learn from them. He said that they were truly loyal to their country. Although the economy of Hong Kong was not good, if we worked with one mind, like the American people, he was sure that there could soon be a recovery.
China's Accession to the WTO
The forthcoming accession of China to the WTO is going to bring abundant business opportunities to the world. When investors all over the world flow into the China market, foreign-related economic activities will certainly increase tremendously. Businesses of foreign investors in China will create a strong demand for legal services, including litigation and arbitral services to resolve disputes. With more frequent activities in import-export trading and investment of transnational corporations, and further exchange of science and technology, there will be a huge rise in disputes relating to bilateral trade, investment abroad and protection of foreign-related intellectual property. This will bring new challenges to the Mainland's legal service sector and the judicial service of the Mainland courts.
The Economy of Hong Kong and Development of the Legal Sector
The economy of Hong Kong developed most rapidly between the 1950s and mid-1990s, during which the property market enjoyed the quickest and longest growth. Industry used to be a pillar of the Hong Kong economy but, when industrial undertakings began to move to the Mainland in the 1980s, it has been outperformed by the finance, securities and service sectors which began to boom in the 1970s. In 1969, the University of Hong Kong established the LLB course, so local students needed not go a far way to the UK to pursue legal studies. The number of lawyers increased tremendously every year since then. While the market indicated such a demand, a large number of lawyers relied much on conveyancing business, neglecting practice in civil and criminal litigation, and services relating to corporations, partnership, taxation, trusts, arbitration, mediation, financing, securities and intellectual property. With more international law firms entering into the local market and a severe downturn in the overblown property market after the Asian financial turmoil, the legal service sector has suffered a heavy blow. The 'good old days' of over-reliance on the property market have gone. In recent years, lawyers in Hong Kong have realized that, to survive, they have to add value to themselves and open up new areas of service. In view of this, the Hong Kong Law Society has strengthened the Continuing Professional Development Scheme, requiring their members to receive continuous training mandatorily. Lawyers are keen on learning to upgrade their professionalism, and to broaden their areas of service to meet the market demand. They also seek opportunities to have more interflow with their counterparts in the Mainland and study China law. At present, Hong Kong has sufficient legal practitioners to provide diversified services. However, the economic downturn has diminished business opportunities for them to apply their skills. Should Hong Kong lawyers not find their way out, the four to five thousand practitioners and their six hundred law firms will be confronted with a serious predicament.
Insufficient lawyers in Mainland to handle foreign-related businesses
According to the agreements with U.S.A. and the European Union, China will open up the services sector, including legal service, upon accession to the WTO. Although the Mainland's legal profession grew quickly in recent years, the initial growth was slow. Statistical findings of the Ministry of Justice last year showed that there are about 110 000 Mainland lawyers, of whom about 80 000 are in active practice but only about 5 000 to 6 000 Mainland lawyers are capable of handling international legal practice, most of them being located in large coastal cities of Beijing, Shanghai, etc. It is not easy to find lawyers in middle and small-sized cities who are able to provide legal services on foreign-related business. Development in opening up the Western Region will generate great demand for high quality legal services in the West. Foreign law firms will surely watch for opportunities to capture a large share of the foreign-related businesses.
Pressure on the People's Courts
Foreign-related cases will become a pressing issue to the adjudication work of the Mainland courts. China's accession to the WTO poses a stricter requirement on China's judicial adjudication. Despite remarkable achievements in our country's trial mode reforms, there is still much to be done to further establish a fairer, more open and procedurally enhanced adjudication system to meet the WTO's requirements. Furthermore, there is still difficulty in training up, within a short period of time, a team of judges with an international perspective, who are familiar with the WTO regulations and able to apply the "rules of the international business game" and international practices.
China law allowing parties to a foreign-related contract to choose applicable laws and the court to exercise jurisdiction
According to Article 145 of the General Principles of Civil Law and Article 126 of the Contract Law of China, the parties to a foreign-related contract may choose the applicable law for the settlement of contractual disputes, unless otherwise stipulated by law. According to the law of China, the parties to most foreign-related contracts, other than contracts to be fulfilled in the territory of the People's Republic of China on Chinese-foreign equity joint ventures, on Chinese-foreign contractual joint ventures and on Chinese-foreign cooperation in exploring and exploiting natural resources, may choose laws of other countries and regions (including Hong Kong law) as the applicable law to the settlement of contractual disputes. In addition, under Article 244 of the Civil Procedure Law, parties to a dispute over a contract concluded with a foreign element, or over property rights and interests involving a foreign element may, through written agreement, choose the court of the jurisdiction which has practical connections with the contract to settle their disputes. According to this stipulation, if any dispute has practical connections with Hong Kong, the parties involved may choose the exclusive jurisdiction of Hong Kong courts for the solution of disputes. The place where a contract is signed can be regarded as a signal of practical connection concerning the contract. Article 15 of the Law on Chinese-foreign Equity Joint Ventures and Article 26 of the Law on Chinese-foreign Contractual Joint Ventures both provide that disputes arising between the parties to an equity joint venture, which the board of directors has failed to settle through consultation, may, upon agreement of the parties, be settled through arbitration by an arbitration agency of China or through arbitration by another arbitral organ (including arbitral organs of Hong Kong).
Where parties to a foreign-related contract intend to choose foreign law as the applicable law, and where such parties or the relevant Sino-foreign equity/cooperative joint ventures intend to choose a foreign arbitral institution or a foreign court as the exclusive institution of competent jurisdiction for the resolution of contractual disputes, this would increase the foreign investors' confidence in investing in the Mainland, relieve some of the pressure that the Mainland courts might face at the early stage of China's accession to WTO and will provide opportunities for Hong Kong lawyers. The Central Government and the HKSAR Government should encourage such parties or such joint ventures to negotiate and execute their contracts in Hong Kong, choose the law of Hong Kong as the applicable law and the court or the arbitral institutions of Hong Kong as the forum for dispute solution.
The proposal will have appeal to foreign businessmen
We consider the proposal feasible. Firstly, foreign businessmen will find it appealing. It is internationally recognized that the legal system of Hong Kong is comparatively sound. It adopts the common law, to which foreign businessmen in general are familiar. The official languages of Hong Kong are Chinese and English. Hong Kong is a member of the New York Convention, meaning arbitral awards obtained in Hong Kong are enforceable in the Mainland and other member states. The transport system and the communications system of Hong Kong are well developed. The Hong Kong government is clean and there is judicial independence. It is believed that litigation arising from China's accession to the WTO will involve mainly civil or commercial matters. Our laws governing these matters, such as the law on financial affairs, trade law, intellectual property law and contract law, have long been in line with international practice and our courts are most experienced in dealing with such matters. These help to strengthen the confidence of foreign businessmen in investing in Mainland China by removing some of these businessmen's mistrust of the law of Mainland China and their worry about the serious protectionism of some local courts of Mainland China.
Advantages to the Mainland
Secondly, the proposal is beneficial to the Mainland. Should foreign businessmen insist on using foreign law as the applicable law and a foreign court as the venue for resolution of disputes, the Mainland parties may as well choose the courts and the laws of Hong Kong as the applicable law. Hong Kong and the Mainland are parts of the same country. The people of the two jurisdictions speak and write the same language and are of the same race. Mainland parties can communicate directly with lawyers in Hong Kong. We know the Mainland well and have a fair understanding of the operation of the Mainland market. We have very close historical and cultural connections. Hong Kong is close to the Mainland, so Mainland parties do not have to travel far to attend hearings. With their experience and international perspective, Hong Kong lawyers are in a position to provide high quality professional services. Hong Kong lawyers are more willing to transfer their expertise to their colleagues in the Mainland so as to enforce the development of the legal professions of both places.
Advantages to Hong Kong
The proposal is, of course, most beneficial to Hong Kong. Apart from bringing new opportunities to Hong Kong lawyers, the proposal will strengthen the status of Hong Kong as an international financial and service centre providing strong support to foreign businessmen investing in the China market. The proposal will motivate Hong Kong lawyers to commit themselves to better services and self-improvement and will encourage them to have a better understanding of the Mainland and to identify themselves as Chinese nationals. The proposal is beneficial to solicitors as well as barristers who, particularly the more junior ones, will have greater opportunities. The HKSAR Government has been urging various professionals to explore new service areas and enhance their competitiveness in the face of economic re-structuring so as to revive from the economic downturn. The proposal provides a good example as to what can be done to create a new service era. Therefore we shall seek the support of the Central Government for our proposal which will also show to the world that Hong Kong is able to thrive under the principle of "one country, two systems".
Establishment of a mechanism for reciprocal enforcement of court judgments
In order to encourage Mainland parties to foreign-related contracts to choose the court of Hong Kong as the court of designated jurisdiction, it is essential that judgments delivered by the court of Hong Kong can be recognized and enforced in the Mainland. For the sake of reciprocity and mutual benefits, judgments of the Mainland court should also be recognized and enforced on the same basis in the courts of Hong Kong. In June 1999, the agreement entered into between the relevant authorities of the HKSAR and the Mainland for the reciprocal enforcement of arbitral awards by the courts of the two jurisdictions came into force. If the Central Government supports the above proposal, it is suggested that experts of Hong Kong and the Mainland may use this agreement as a model to set up a mutually acceptable mechanism for reciprocal enforcement of court judgments, limited to judgments made by the institution which the parties agreed would have exclusive jurisdiction for dispute resolution. This will also serve as a pilot scheme for the reciprocal enforcement of other judgments.
Other measures
This proposal is only part of the scheme to revitalize the legal service sector. From the beginning of last year, the HKSAR Government has helped to arrange numerous visits to Beijing for the Hong Kong Bar Association and the Hong Kong Law Society. Liaison has been made with the relevant departments such as the Ministry of Justice, the Supreme People's Court and the Supreme People's Procuratorate and the Hong Kong and Macao Affairs Office to discuss the ways to expand the market for legal services, including permission for Hong Kong lawyers to take part in the national qualifying examination for lawyers, abolition of the 'one city, one firm' rule, permission to engage Chinese lawyers and "one firm, two laws" association, etc. The SAR Government is assisting the discussions between the Bar Association and the Law Society and the Ministry of Justice in order to enable them to expand their business into the Mainland.
Recently, the Steering Committee on Legal Education and Training has published a preliminary report entitled "Legal Education and Training in Hong Kong: Preliminary Review", where proposals are made to improve the standards of future solicitors and barristers. The University of Hong Kong has already agreed to revise the curriculum for the PCLL to bring it up-to-date with the professional demands, unify the admission of students and fees to elevate the standard of admission and allow representatives of the legal profession to participate in curriculum, admission and human resources policy. A working group led by the Judiciary has studied the methods to improve civil proceedings by minimizing the costs and speeding up the process, making litigation a less expensive and time-consuming way of dispute resolution. Hopefully, these measures will help Hong Kong to become a distinguished commercial disputes resolution centre in Asia. Apart from the efforts of the legal profession, the Government may consider taking certain measures to provide a favourable environment for the promotion of legal services in Hong Kong:
(1) Promoting Hong Kong incorporated companies as investment vehicles : in the 70s and 80s, foreign investors favoured Hong Kong incorporated companies as their investment vehicles because the incorporation procedure is simple, regulation minimal, operation transparent and because of low taxation. In the 90s, off-shore companies become fashionable. This was also because people had no confidence in Hong Kong after the hand-over. Now that, politically, Hong Kong is proved to be stable, many business people become sceptical about off-shore companies and it is time again to promote the advantages of Hong Kong incorporated companies.
(2) Promotion of Hong Kong's legal services, and of Hong Kong as a forum for dispute resolution including judicial process, arbitration, mediation and adjudication etc. may also be undertaken by the Government when promoting Hong Kong as a financial and business centre.
Forward Planning
There are many problems faced by lawyers, and I do not purport to find remedies for all of them. I only wish to emphasize that the revitalization of the legal profession depends entirely on our own efforts. We must elevate our own standards, explore new areas, improve our services, and all these initiatives must rely on our own strength. Insofar as the Government is concerned, we shall do all we can to create a good environment for investors, and to provide opportunities for practitioners. To quote from the interview of the Financial Secretary on the 29th August, when he said: "We must embrace the evolution, maximize our potentials, make use of the Mainland and target at the whole world". There must be a way for Hong Kong's economy to recover. The issues to be discussed in this Conference are very important to the legal profession. I fervently hope that the speakers will share with us their experience and wisdom. I wish the Conference every success. Thank you.
End/Thursday, September 20, 2001
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